01—Abstract
Summary
Summary of the 10-K filed March 2, 2017. Cited figures are marked; the original filing is the authoritative source.
Teledyne Technologies Incorporated (TDY) reported 2016 sales of $2,149.9 milliona, down from $2,298.1 million in 2015 and $2,394.0 million in 2014.
Net income attributable to Teledyne was $190.9 millionb ($5.37 per diluted share) in 2016, compared with $195.8 million ($5.44 per diluted share) in 2015. Operating income fell to $253.8 million from $281.7 million, reflecting lower Instrumentation sales tied to weak energy markets, partially offset by growth in Aerospace and Defense Electronics and Digital Imaging. Cash provided by operating activities rose to $317.0 million, and free cash flow was $229.4 million.
The most significant pending event is the acquisition of e2v technologies plc for approximately £619.6 million on a fully diluted basis, with an aggregate enterprise value of about $788.9 millionc. The company expects to complete the deal in the first half of 2017. Total indebtedness at January 1, 2017 was $611.7 million, and the company expects total indebtedness to initially increase by approximately $700.0 million upon closing.
Shareholder approval has been obtained, and some regulatory clearances, including German and French approvals, remained outstanding at the filing date. For 2016, the company made five acquisitions totaling $93.4 milliond, including Hanson Research, CARIS, Quantum Data, Frontline and IN USA.
Backlog of confirmed orders was $916.4 million at January 1, 2017, versus $802.8 million a year earlier. The company did not repurchase shares in 2016 and does not anticipate paying cash dividends.
02—Key points
Key Highlights
- Sales declined 6.4% to $2,149.9 million in 2016, with Instrumentation sales down 16.6% to $876.7 million on weak energy markets, while Aerospace and Defense Electronics rose 3.8% to $615.9 million.
- Operating income decreased 9.9% to $253.8 million, and net income attributable to Teledyne fell 2.5% to $190.9 million, or $5.37 per diluted share.
- Pending acquisition of e2v technologies plc at 275 pence per share in cash, valued at approximately £619.6 million on a fully diluted basis, expected to close in the first half of 2017.
- Total indebtedness was $611.7 million at January 1, 2017, and is expected to rise by approximately $700.0 million upon completion of the e2v acquisition.
- Cash provided by operating activities was $317.0 million in 2016 versus $210.2 million in 2015, and free cash flow was $229.4 million versus $163.2 million.
- Backlog of confirmed orders rose to $916.4 million at January 1, 2017, from $802.8 million at January 3, 2016, with 91% expected to be fulfilled in 2017.
- U.S. Government sales were approximately 27% of 2016 total sales, and approximately 54% of U.S. Government prime and subcontracts were fixed-price type contracts.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Teledyne Technologies kept $0.09.
- Revenue$2.60B100.0%
- Cost of revenue−$1.62B62.4%
- Gross profit$979.8M37.6%
- Operating costs−$658.1M25.3%
- Operating income$321.7M12.4%
- Interest, other & tax−$94.5M3.6%
- Net income$227.2M8.7%
Where FY2017 revenue went
$2.60B- Cost of revenue: $1.62B, 62% of revenue
- SG&A: $658.1M, 25% of revenue
- Net income: $227.2M, 8.7% of revenue
- Interest, other & tax: $94.5M, 3.6% of revenue
Kept 8.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 2, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $2.60B$2.30B | +13.3% |
| Cost of Revenue | $1.62B$1.43B | +13.7% |
| Gross Profit | $979.80M$870.30M | +12.6% |
| SG&A Expenses | $658.10M$588.60M | +11.8% |
| Operating Expenses | $2.28B$2.02B | +13.2% |
| Operating Income | $321.70M$281.70M | +14.2% |
| Interest Expense | $25.50M$17.20M | +48.3% |
| Net Income | $227.20M$195.80M | +16.0% |
| EPS (Basic) | $6.45$5.55 | +16.2% |
| EPS (Diluted) | $6.26$5.44 | +15.1% |
| Shares Outstanding (Basic) | 35.20M35.30M | −0.3% |
| Shares Outstanding (Diluted) | 36.30M36.00M | +0.8% |
05—Questions
Frequently Asked Questions
Why did Teledyne's sales and operating income decline in 2016?
The filing states that the sales decrease reflected lower sales in the Instrumentation and Engineered Systems segments. Instrumentation marine instrumentation sales decreased $195.3 million, primarily from lower sales of interconnect systems and marine sensors for energy exploration and production, as a result of weak energy markets. Operating income decreased mainly because of lower sales, partially offset by lower costs, and included $17.3 million in severance and facility consolidation costs.
What is the e2v acquisition and how will it be financed?
Teledyne agreed on December 12, 2016 to acquire e2v technologies plc through a Scheme of Arrangement for 275 pence in cash per share, valuing e2v at approximately £619.6 million on a fully diluted basis, or an aggregate enterprise value of about £627.1 million ($788.9 million). Teledyne expects to fund it from cash on hand, its credit facility, and the anticipated proceeds from senior unsecured notes and term loans. A £625.0 million bridge credit facility was entered into in December 2016, and the company amended its revolving credit agreement in January 2017 to use that facility for part of the consideration.
What are the main risks associated with the pending e2v acquisition?
The filing identifies several risks: closing conditions not within Teledyne's control, including outstanding German merger control clearance and French Ministry approvals; the possibility of failing to realize expected benefits or integrating the businesses successfully; a significant increase in debt, with indebtedness expected to rise by approximately $700.0 million; greater exposure to currency fluctuations, particularly the British pound, Canadian dollar and euro; and the expansion of the Digital Imaging segment, which may be more capital intensive.
How strong is Teledyne's balance sheet and liquidity position?
At January 1, 2017, the company had $98.6 million in cash, total assets of $2,774.4 million and total stockholders' equity of $1,554.4 million. It had $735.5 million of available borrowing capacity under its $750.0 million credit facility, though it has committed up to $410.0 million of that facility to the e2v acquisition. The company stated it was in compliance with all financial covenants, with a Consolidated Leverage Ratio of 1.7 to 1 against a requirement of no more than 3.25 to 1.
Does Teledyne pay dividends or repurchase shares?
Teledyne does not anticipate paying cash dividends in the foreseeable future and intends to use future earnings to fund growth, including acquisitions. The company may also deploy cash to fund share repurchases. No repurchases were made in 2016, although the board authorized a program in January 2016 to repurchase up to 3,000,000 shares.
06—Continue