Teledyne Technologies Incorporated — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 29, 2019 (52 weeks). The filing also reports fourth-quarter results; fiscal Q4 2019 comprised 13 weeks.
Business context
Teledyne supplies advanced, high-reliability technologies across four segments: Instrumentation, Digital Imaging, Aerospace and Defense Electronics, and Engineered Systems. Its end markets include industrial and environmental monitoring, imaging, aerospace and defense, ocean science, energy, and medical research. The company’s strategy emphasizes product development, operational improvement, and targeted acquisitions.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Net sales | $3,163.6 million | $2,901.8 million | +9.0% |
| Operating income | $491.7 million | $416.6 million | +18.0% |
| Net income | $402.3 million | $333.8 million | +20.5% |
| Diluted EPS | $10.73 | $9.01 | +19.1% |
| Operating margin | 15.5% | 14.4% | +1.1 percentage points |
| Net margin | 12.7% | 11.5% | +1.2 percentage points |
FY 2019 sales growth included $128.7 million of growth apart from acquisitions and $133.1 million of incremental sales from recent acquisitions. All segments reported higher sales; Instrumentation operating income rose 36.0%, Digital Imaging 13.5%, and Aerospace and Defense Electronics 8.8%. Engineered Systems operating income declined 3.7% to $36.5 million, mainly due to product mix.
Fourth-quarter net sales were $834.2 million, operating income $133.8 million, net income $115.7 million, and diluted EPS $3.06. Comparable Q4 2018 results were $748.4 million, $111.2 million, $91.1 million, and $2.45, respectively.
Cash flow, balance sheet, and liquidity
- Operating cash flow was $482.1 million, versus $446.9 million in 2018. Capital expenditures were $88.4 million; company-defined free cash flow was $393.7 million, versus $360.1 million.
- Cash was $199.5 million at year-end, including $139.7 million held by foreign subsidiaries. Current assets were $1,313.7 million and current liabilities $763.2 million.
- Total debt principal was $851.8 million (balance-sheet debt, net of issuance costs, was $850.6 million); long-term debt net of current maturities was $750.0 million. Cash less total debt principal implies net debt of approximately $652.3 million.
- Available capacity under the $750 million credit facility was $598.3 million after borrowings and letters of credit. The company reported covenant compliance, with a 1.4x net-debt-to-EBITDA ratio against a maximum of 3.25x.
- Total assets were $4,579.8 million and stockholders’ equity was $2,714.7 million. Goodwill was $2,050.5 million.
Material changes and unusual items
- Teledyne spent $484.0 million, net of cash acquired, on three 2019 acquisitions: scientific imaging businesses from Roper Technologies ($224.8 million), 3M gas and flame detection businesses ($233.5 million), and Micralyne ($25.7 million). Acquisitions contributed $133.1 million of incremental FY 2019 sales.
- Effective in Q3, the company realigned certain business units between segments; prior segment figures were recast, with no impact on consolidated financial statements.
- The reported 2019 effective tax rate was 15.1%, including $26.1 million of net discrete tax benefits. Excluding those benefits, management reported an effective rate of 20.6%; the comparable adjusted 2018 rate was 21.3%.
- Severance and facility-consolidation charges were $3.2 million in 2019, compared with $7.8 million in 2018. No goodwill impairment was recorded.
- U.S. Government sales were approximately 24% of revenue. Funded order backlog was $1,699.3 million at year-end, compared with $1,568.8 million a year earlier.
Outlook, risks, and contingencies
Management expected operating cash flow and available credit to meet cash needs and stated that most funded backlog was expected to be fulfilled during 2020. Planned 2020 capital expenditures were approximately $100 million. The filing provides no quantified revenue or earnings guidance and states that future acquisitions are uncertain. The company did not anticipate cash dividends in the foreseeable future.
Key risks include government funding and contract timing, fixed-price contract cost overruns, oil-and-gas cyclicality, trade restrictions and export controls, economic and currency volatility, acquisition integration, single-source suppliers, cybersecurity, product liability, and pension assumptions. The filing specifically discussed the emerging Coronavirus outbreak as a possible source of operational, travel, demand, and supply-chain disruption; these comments reflect the filing date and are not an updated assessment. Environmental remediation reserves were $6.0 million; management did not expect excess costs to materially affect financial condition or liquidity, though the possible range of additional loss was not reasonably estimable. Management and the auditor reported effective internal controls; the 2019 acquisitions, representing approximately 12% of assets, 4% of revenue, and 3% of net income, were excluded from the internal-control assessment and audit.
Important facts for investors to verify
- How much of sales and profit growth was organic versus acquisition-related, and whether acquired businesses meet expected performance and integration targets.
- Whether the $1.699 billion funded backlog converts to revenue and cash as expected, given government award, funding, and contract-performance risks.
- The durability of margin gains, particularly the improvement in Instrumentation and the weaker Engineered Systems margin profile.
- Debt maturity, variable-rate exposure, and liquidity needs alongside planned capital spending and any further acquisition activity.
- The sustainability of the low reported tax rate: FY 2019 included $26.1 million of discrete tax benefits.