Teledyne Technologies Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended April 3, 2022; comparative quarter ended April 4, 2021. Amounts are in millions except per-share data. The quarter includes FLIR, acquired May 14, 2021, so reported year-over-year comparisons are not fully like-for-like.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $1,321.0 | $805.7 |
| Operating income | $223.5 | $135.2 |
| Net income | $212.6 | $84.7 |
| Diluted EPS | $4.46 | $2.23 |
| Operating cash flow | $(216.7) | $124.9 |
| Capital expenditures | $21.0 | $17.6 |
Sales rose 64.0% and operating income rose 65.3%. Cost of sales was 57.0% of sales versus 61.1%; SG&A was 22.1% versus 20.9%. Operating margin was approximately 16.9% versus 16.8%. Net income included a $56.5 tax benefit from discrete items, including a $50.0 million non-cash benefit primarily related to resolution of FLIR tax reserves. Excluding discrete tax items, the effective tax rate was 23.1% versus 22.6%; reported rates were negative 4.7% and 16.4%, respectively.
Cash and cash equivalents were $284.3 at April 3, 2022, down from $474.7 at January 2, 2022. Operating cash use included a $296.4 payment to the Swedish Tax Authority, as well as working-capital and other payments. Total debt was $4,131.8, compared with $4,099.4 at year-end; $300.0 was classified as current. The company had $969.9 available under its $1.15 billion credit facility and reported compliance with debt covenants.
Segments and material changes
- Digital Imaging: Sales $750.5, up 185.0%; operating income $115.7, up 122.5%. Q1 2022 included $452.6 of incremental FLIR sales and $44.1 of FLIR acquired-intangible amortization.
- Instrumentation: Sales $308.9, up 7.8%; operating income $71.6, up 20.5%.
- Aerospace and Defense Electronics: Sales $166.2, up 9.9%; operating income $42.9, up 51.6%.
- Engineered Systems: Sales $95.4, down 8.9%; operating income $9.4, down 36.9%, reflecting lower sales and no turbine-engine sales after exiting that business.
FLIR-related amortization was $44.1; total acquired-intangible amortization was $53.6, versus $9.8 a year earlier. The prior-year quarter included $30.6 of interest and debt expense and $5.9 of corporate acquisition costs related to the pending FLIR transaction. Favorable contract estimate revisions contributed $7.6 to operating income in Q1 2022, similar to $7.7 in Q1 2021.
Outlook, risks and contingencies
Management expects a 23.1% annual effective tax rate for 2022 before discrete items and approximately $100.0 of 2022 capital expenditures. It expects cash on hand, operating cash flow and available credit to meet cash and capital requirements. Management cited continued supply-chain constraints, cost inflation and labor availability pressures; it expected these trends to continue in 2022. COVID-related disruption was limited in Q1, but impacts remain uncertain. The Russia-Ukraine conflict could affect markets, supply chains, partners or customers, although the company reported no material direct impact to date.
FLIR’s Swedish tax reassessment was paid in February 2022; Teledyne requested permission to appeal, with no response reported. FLIR-related acquisition accounting remains preliminary, including certain tax positions. The company also disclosed open export-compliance matters and said potential loss, penalties or government actions could not be reasonably estimated; an unfavorable outcome could include fines or suspension of export privileges. Environmental remediation reserves were $6.3, with remediation expected to extend over many years. Management reported no material changes to previously disclosed risk factors.
Investor verification points
- Separate underlying organic growth from FLIR’s $452.6 contribution to Digital Imaging sales and assess acquisition-related costs and integration progress.
- Evaluate earnings quality and tax comparability, including the $56.5 discrete tax benefit and the expected 23.1% tax rate before discrete items.
- Track operating cash flow and working capital after the Swedish tax payment, and monitor cash, debt maturities and credit-facility availability.
- Follow the Swedish tax appeal, final FLIR purchase-price allocation and any changes to acquired tax reserves.
- Monitor export-compliance proceedings, potential penalties or licensing restrictions, and continuing supply-chain, inflation and labor risks.