Teledyne Technologies Incorporated — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023 (52 weeks), compared with fiscal 2022 ended January 1, 2023 (52 weeks). This is an annual filing; the supplied text does not provide a standalone fourth-quarter income statement.
Business context
Teledyne supplies advanced, high-reliability technologies across four segments: Digital Imaging, Instrumentation, Aerospace and Defense Electronics, and Engineered Systems. Its end markets include aerospace and defense, environmental and marine monitoring, industrial automation, electronics testing, medical imaging, and energy. Digital Imaging contributed 56% of 2023 sales; Instrumentation 23%; Aerospace and Defense Electronics 13%; and Engineered Systems 8%.
Financial performance
| Metric (USD millions, except per-share data) | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $5,635.5 | $5,458.6 | +3.2% |
| Operating income | $1,034.4 | $972.0 | +6.4% |
| Net income attributable to Teledyne | $885.7 | $788.6 | +12.3% |
| Diluted EPS | $18.49 | $16.53 | +11.9% |
| Cash from operating activities | $836.1 | $486.8 | +$349.3 |
| Capital expenditures | $114.9 | $92.6 | +$22.3 |
| Free cash flow | $721.2 | $394.2 | +$327.0 |
- Gross margin was approximately 43.3%, versus 42.7%; operating margin was approximately 18.4%, versus 17.8%.
- Operating cash flow rose largely because FY2022 included a $296.4 million payment related to a disputed Swedish pre-acquisition tax reassessment; lower inventory purchases and stronger receivable collections also helped in 2023. Adjusted free cash flow, which adds back that 2022 tax payment, was $721.2 million in 2023 versus $690.6 million in 2022.
- The reported effective tax rate was 7.5%, compared with 13.1%. The filing reports net discrete tax benefits of $137.5 million in 2023 and $86.7 million in 2022; excluding discrete items, the rates were 21.9% and 22.7%, respectively. The lower reported rate materially supported earnings growth.
- Cash and cash equivalents were $648.3 million at year-end, including $369.1 million held by foreign subsidiaries. Long-term debt, including debt issuance costs, was $3,244.9 million; no borrowings were outstanding on the $1.15 billion credit facility, with $1,129.1 million of available capacity after specified letters of credit. Current debt maturities were $600.1 million, including $450 million of notes due April 2024 and a $150 million term loan due October 2024.
- Net sales increased in all segments. Instrumentation sales rose 5.8% and operating income 14.6%; Aerospace and Defense Electronics sales rose 6.5% and operating income 8.4%; Engineered Systems sales rose 6.7% and operating income 14.0%. Digital Imaging sales rose 1.1%, while operating income declined 0.4%.
Material changes and notable items
- Instrumentation growth was led by marine instrumentation, with sales up $69.0 million; test and measurement sales rose $10.1 million. Improved product margins and mix contributed to higher segment operating income.
- Digital Imaging included $97.3 million of incremental sales from current- and prior-year acquisitions, but operating income was pressured by higher compensation and severance/facility consolidation costs. The segment recorded $9.4 million of such expense in 2023, compared with $1.9 million of income in 2022.
- Teledyne completed two acquisitions in 2023 for $77.7 million net of cash acquired: ChartWorld in Digital Imaging and Xena Networks in Instrumentation. A separate agreement to acquire Adimec was announced in February 2024; closing was anticipated in the first half of 2024, subject to customary conditions and approvals.
- Debt declined from $3,920.6 million to $3,244.9 million. During 2023, the company repaid $300 million of notes due April 2023, $245 million on a term loan, and $125 million drawn on its credit facility, among other debt actions.
Outlook, risks, contingencies and unusual items
- Management expects supply constraints and cost inflation, including labor and materials, to continue into 2024, though perhaps less severely than in recent years. Contract delays and slower conversion of backlog to revenue were also identified; government procurement and award delays were continuing into 2024.
- Planned 2024 capital expenditures are approximately $105 million. Remaining performance obligations were $3,141.7 million at year-end; about 77% was expected to be recognized as revenue within 12 months. This amount excludes unexercised options and potential orders under ordering-type contracts.
- Key risks include economic and semiconductor-market cyclicality; supply-chain and single-source supplier constraints; inflation and pricing pressure; international trade restrictions, sanctions and currency movements; reliance on government funding and contract timing; competition and product-development execution; cybersecurity; and natural or geopolitical disruptions. U.S. Government sales were 24.5% of total sales in 2023. The MOSSI II NASA contract represented approximately 17% of Engineered Systems sales, and future option years and some contract funding are not assured.
- Export-control matters include voluntary disclosures concerning certain Teledyne FLIR shipments and potentially incorrect export-control de minimis calculations. The company said it could not reasonably estimate the resolution timing or potential loss; an unfavorable outcome could involve substantial fines or restrictions on export privileges.
- Goodwill was $8,002.8 million and acquired intangible assets were $2,278.1 million. No impairment was recorded, but the FLIR reporting unit’s estimated fair value exceeded carrying value by only about $460 million, or 6%; the FLIR indefinite-lived trademark’s fair value exceeded carrying value by $9.6 million. These valuations depend on forecasts and discount-rate assumptions.
- Environmental remediation reserves were $5.4 million. Management did not expect additional environmental costs beyond accrued amounts to materially affect financial condition or liquidity. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
- The company does not anticipate cash dividends in the foreseeable future and reported no share repurchases since 2015.
Important facts for investors to verify
- How much of FY2023 earnings growth reflects recurring operating performance versus the $137.5 million of discrete tax benefits, and whether the tax rate normalizes as management expects.
- Whether the FLIR goodwill and trademark valuation cushions remain adequate if revenue forecasts weaken, margins decline, or discount rates rise.
- Progress on reducing debt and meeting the $600.1 million of 2024 current maturities, alongside cash generation and planned capital spending.
- Whether supply constraints, cost inflation, and government contract delays improve, and how they affect margins, backlog conversion, and the $3.14 billion of remaining performance obligations.
- Potential outcomes and financial exposure from the export-control disclosures, and the funding and option-year outlook for MOSSI II and other significant government programs.