Teledyne Technologies Reports First Quarter Results

  Teledyne Technologies Reports First Quarter Results

Business Wire

THOUSAND OAKS, Calif. -- April 23, 2014

Teledyne Technologies Incorporated (NYSE:TDY):

  *Record first quarter sales of $573.5 million
  *Record first quarter earnings per share of $1.20, an increase of 12.1%
    over 2013
  *Raising full year 2014 GAAP earnings outlook to $5.10 to $5.14, an
    increase from the prior outlook of $5.06 to $5.12

Teledyne today reported first quarter 2014 sales of $573.5 million, compared
with sales of $569.4 million for the first quarter of 2013, an increase of
0.7%. Net income attributable to Teledyne was $45.8 million ($1.20 per diluted
share) for the first quarter of 2014, compared with $40.4 million ($1.07 per
diluted share) for the first quarter of 2013, an increase of 13.4%.

“Teledyne started 2014 with record first quarter sales and earnings per share.
With the significant cost reduction actions taken in 2013, a higher margin
commercial sales mix and a well-funded pension, we were also able to generate
meaningful margin improvement,” said Robert Mehrabian, chairman, president and
chief executive officer. “Operating margin increased 116 basis points and
earnings per share increased 12.1% compared to last year. Furthermore, orders
exceeded sales by approximately 7% in the quarter, largely due to robust
orders across our marine oil and gas instrumentation businesses. Despite the
anticipated year-over-year reduction in sales within our aerospace and defense
electronics segment, greater sales of commercial avionics and communication
equipment improved margins and helped offset the decline in sales. Finally,
cash flow was strong, especially for a first quarter, providing continued
flexibility for acquisitions.”

Review of Operations (Comparisons are with the first quarter of 2013, unless
noted otherwise. Our previously reported 2013 first quarter segment data has
been restated to reflect a revised segment reporting structure adopted in the
second quarter of 2013).

Instrumentation

The Instrumentation segment’s first quarter 2014 sales were $258.9 million,
compared with $232.7 million, an increase of 11.3%. First quarter 2014
operating profit was $37.5 million, compared with $36.6 million, an increase
of 2.5%.

The first quarter 2014 sales increase resulted from higher sales in all three
product lines. The higher sales of $23.5 million for marine instrumentation
reflected increased sales of interconnect systems used in offshore energy
production, and also included a total of $13.8 million in incremental revenue
from recent acquisitions including the March 2013 acquisition of RESON A/S and
the October 2013 acquisition of C.D. Limited. Sales for environmental
instrumentation increased $1.2 million and included $6.5 million in sales from
the August 2013 acquisition of assets of CETAC Technologies, primarily offset
by reduced sales of laboratory and field instrumentation. Sales of electronic
test and measurement instrumentation increased $1.5 million. The increase in
operating profit reflected the impact of higher sales, partially offset by
higher intangible asset amortization of $0.4 million and an increase of $0.9
million in the allowance for doubtful accounts.

Digital Imaging

The Digital Imaging segment’s first quarter 2014 sales were $101.9 million,
compared with $102.4 million, a decrease of 0.5%. Operating profit was $9.7
million for the first quarter of 2014, compared with $5.2 million, an increase
of 86.5%.

First quarter 2014 sales primarily reflected increased sales of sensors and
cameras for commercial machine vision applications, offset by lower sales of
infrared imaging sensors for government applications. Operating profit in 2014
reflected improved margins across most product lines, a greater mix of higher
margin commercial sales, and lower costs as a result of cost reduction actions
taken in 2013, as well as lower research and development and bid and proposal
expense.

Aerospace and Defense Electronics

The Aerospace and Defense Electronics segment’s first quarter 2014 sales were
$153.3 million, compared with $163.1 million, a decrease of 6.0%. Operating
profit was $23.8 million for the first quarter of 2014, compared with $20.2
million, an increase of 17.8%.

The first quarter 2014 sales decrease reflected lower sales of $14.0 million
from microwave and interconnect systems due to the completion of a program
with a foreign government, which impacted the first and second quarters of
2013. The first quarter of 2014 sales also reflected increased sales of $6.1
million from avionics products and electronic relays and lower sales of $1.9
million from electronic manufacturing services products. Increased operating
profit in the first quarter of 2014 primarily reflected lower operating
expenses given cost reduction actions in 2013, partially offset by lower
sales. Operating profit in the first quarter of 2014 also reflected gross
pension income of $0.4 million compared with $2.0 million of gross pension
expense, and 2013 included $2.0 million in severance and facility
consolidation costs.

Engineered Systems

The Engineered Systems segment’s first quarter 2014 sales were $59.4 million,
compared with $71.2 million, a decrease of 16.6%. Operating profit was $6.1
million for the first quarter of 2014, compared with $6.4 million, a decrease
of 4.7%.

The first quarter 2014 sales decrease primarily reflected lower sales of
engineered products and services of $11.0 million, which reflected lower sales
of missile defense systems. Energy systems sales decreased $0.9 million while
sales of turbine engines increased slightly. Operating profit in the first
quarter of 2014 primarily reflected the impact of lower sales, partially
offset by gross pension income of $0.4 million compared with $1.7 million of
gross pension expense.

Additional Financial Information

Cash Flow

Cash provided by operating activities was $26.4 million for the first quarter
of 2014, compared with cash used of $56.7 million. The higher cash provided by
operating activities in the first quarter of 2014 reflected the absence of
pension contributions in the first quarter of 2014 compared with a voluntary
pretax $83.0 million cash contribution in the first quarter of 2013, partially
offset by higher income tax payments. Free cash flow (cash provided by
operating activities less capital expenditures) was $14.7 million for the
first quarter of 2014, compared with a use of $73.0 million, and reflected
higher cash provided by operating activities. At March30, 2014, total debt
was $559.9 million, which included $81.1 million drawn on the $750.0 million
credit facility. Cash and cash equivalents were $73.7 million at March30,
2014. The company received $6.7 million from the exercise of stock options in
the first quarter of 2014, compared with $4.8 million. Capital expenditures
for the first quarter of 2014 were $11.7 million, compared with $16.3 million.
Depreciation and amortization expense for the first quarter of 2014 was $23.2
million, compared with $21.9 million. In the first quarter of 2014, the
company used $23.6 million to repurchase 243,492 shares of its common stock
under its stock repurchase program authorized in October 2011.

In the second quarter of 2014, a subsidiary of Teledyne acquired Photon
Machines, Inc., a supplier of laser-based sample introduction equipment, for
an initial payment of $3.3 million.

                       
Free Cash Flow(a)             First Quarter
(in millions, brackets        2014                          2013
indicate use of funds)
Cash provided
(used) by operating           $   26.4                           $   (56.7  )
activities
Capital
expenditures for              (11.7      )                       (16.3      )
property, plant and
equipment
Free cash flow (net           14.7                               (73.0      )
cash used)
Pension
contributions, net            —                                 51.4       
of tax(b)
Adjusted free cash
flow (net cash                $   14.7                          $   (21.6  )
used)
                                                                            
(a) The company defines free cash flow as cash provided by operating
activities (a measure prescribed by generally accepted accounting principles)
less capital expenditures for property, plant and equipment. Adjusted free
cash flow eliminates the impact of pension contributions on a net of tax
basis. The company believes that this supplemental non-GAAP information is
useful to assist management and the investment community in analyzing the
company’s ability to generate cash flow, including the impact of voluntary and
required pension contributions.

(b) The domestic pension cash contributions were voluntary.


Pension

Pension income was $0.3 million for the first quarter of 2014 compared with
pension expense of $4.3 million. The change to pension income in the first
quarter of 2014 from pension expense in 2013 primarily reflected the impact of
using a 5.4% discount rate to determine the benefit obligation for the
domestic plan in 2014 compared with a 4.4% discount rate used in 2013. Pension
expense allocated to contracts pursuant to U.S. Government Cost Accounting
Standards (“CAS”) was $3.5 million for the first quarter of 2014 and $3.6
million for 2013. Pension expense determined allowable under CAS can generally
be recovered through the pricing of products and services sold to the U.S.
Government.

Income Taxes

The effective tax rate for the first quarter of 2014 was 25.8% compared with
24.9%. The increase primarily reflected lower net tax benefits for discrete
items in the first quarter of 2014. The first quarter of 2014 reflected $2.3
million in net tax benefits for discrete items compared with $2.7 million.
Excluding the net tax benefits for discrete items in both periods, the
effective tax rates would have been 29.5% for the first quarter of 2014 and
30.0% for the first quarter of 2013.

Stock Option Compensation Expense

For the first quarter of 2014, the company recorded a total of $2.7 million in
stock option expense, of which $1.7 million was recorded in the operating
segment results and $1.0 million was recorded as corporate expense. For the
first quarter of 2013, the company recorded a total of $1.8 million in stock
option expense, of which $1.3 million was recorded in the operating segment
results and $0.5 million was recorded as corporate expense.

Other

Interest expense, net of interest income, was $4.7 million for the first
quarter of 2014, compared with $5.4 million, and reflected lower average debt
levels. Corporate expense was $11.1 million for the first quarter of 2014,
compared with $9.5 million and primarily reflected higher compensation
expense. Other income and expense was income of $0.6 million for the first
quarter of 2014, compared with expense of $0.5 million.

Outlook

Based on its current outlook, the company’s management believes that second
quarter 2014 earnings per diluted share will be in the range of approximately
$1.24 to $1.28 and the full year 2014 earnings per diluted share outlook is
expected to be in the range of approximately $5.10 to $5.14, an increase from
the prior outlook of $5.06 to $5.12. The company’s effective tax rate for 2014
is expected to be 29.5%, before discrete items.

Forward-Looking Statements Cautionary Notice

This press release contains forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, relating to earnings, growth
opportunities, product sales, capital expenditures, pension matters, stock
option compensation expense, stock repurchases, interest expense, severance,
facility consolidation and environmental remediation costs, taxes, and
strategic plans. Forward-looking statements are generally accompanied by words
such as “estimate”, “project”, “predict”, “believes” or “expect” that convey
the uncertainty of future events or outcomes. All statements made in this
press release that are not historical in nature should be considered forward
looking.

Actual results could differ materially from these forward-looking statements.
Many factors could change the anticipated results, including: disruptions in
the global economy; changes in demand for products sold to the defense
electronics, instrumentation, digital imaging, energy exploration and
production, commercial aviation, semiconductor and communications markets;
funding, continuation and award of government programs; and cuts to defense
spending resulting from future deficit reduction measures, including potential
automatic cuts to defense spending that have been triggered by the Budget
Control Act of 2011 as amended by the Bipartisan Budget Act of 2013.
Increasing fuel costs could negatively affect the markets of our commercial
aviation businesses. Lower oil and natural gas prices, as well as instability
in the Middle East or other oil producing regions, and new regulations or
restrictions relating to energy production, including with respect to
hydraulic fracturing could negatively affect the company’s businesses that
supply the oil and gas industry. In addition, financial market fluctuations
affect the value of the company’s pension assets.

Changes in the policies of U.S.and foreign governments, including economic
sanctions, could result, over time, in reductions and realignment in defense
or other government spending and further changes in programs in which the
company participates.

While the company’s growth strategy includes possible acquisitions, we cannot
provide any assurance as to when, if or on what terms any acquisitions will be
made. Acquisitions involve various inherent risks, such as, among others, our
ability to integrate acquired businesses, retain customers and achieve
identified financial and operating synergies. There are additional risks
associated with acquiring, owning and operating businesses internationally,
including those arising from U.S.and foreign policy changes and exchange rate
fluctuations.

While the company believes its internal and disclosure control systems are
effective, there are inherent limitations in all control systems, and
misstatements due to error or fraud may occur and may not be detected.

Readers are urged to read the company’s periodic reports filed with the
Securities and Exchange Commission (“SEC”) for a more complete description of
the company, its businesses, its strategies and the various risks that the
company faces. Various risks are identified in Teledyne’s 2013 Annual Report
on Form 10-K. The company assumes no duty to publicly update or revise any
forward-looking statements, whether as a result of new information or
otherwise.

A live webcast of Teledyne’s first quarter earnings conference call will be
held at 11:00 a.m. (Eastern) on Wednesday, April23, 2014. To access the call,
go to www.teledyne.com approximately ten minutes before the scheduled start
time. A replay will also be available for one month starting at 12:00 p.m.
(Eastern) on Wednesday, April23, 2014.

                                                         
TELEDYNE TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED

MARCH 30, 2014 AND MARCH 31, 2013

(Unaudited - in millions, except per share amounts)
                                                                     
                                           First                     First

                                           Quarter                   Quarter
                                           2014                      2013
Net sales                                  $ 573.5                   $ 569.4
Costs and expenses:
Costs of sales                             351.7                     365.4
Selling, general and administrative        155.8                    145.1   
expenses
Total costs and expenses                   507.5                    510.5   
Income before other income and             66.0                      58.9
income taxes
Other income/(expense), net                0.6                       (0.5    )
Interest and debt expense, net             (4.7    )                 (5.4    )
Income before income taxes                 61.9                      53.0
Provision for income taxes                 15.9                     13.2    
Net income                                 46.0                      39.8
Noncontrolling interest                    (0.2    )                 0.6     
Net income attributable to Teledyne        $ 45.8                   $ 40.4  
Diluted earnings per common share          $ 1.20                   $ 1.07  
Weighted average diluted common            38.3                     37.8    
shares outstanding
                                                                             
                                                                             

                                                       
TELEDYNE TECHNOLOGIES INCORPORATED

SUMMARY OF SEGMENT NET SALES AND OPERATING PROFIT

FOR THE THREE MONTHS ENDED

MARCH 30, 2014 AND MARCH 31, 2013

(Unaudited - in millions)
                                                                     
                             First               First
                                                                     % Change
                             Quarter             Quarter
                             2014                2013
Net sales:
Instrumentation (a)          $ 258.9             $ 232.7             11.3    %
Digital Imaging              101.9               102.4               (0.5  ) %
Aerospace and Defense        153.3               163.1               (6.0  ) %
Electronics (a)
Engineered Systems           59.4               71.2               (16.6 ) %
Total net sales              $ 573.5            $ 569.4            0.7     %
Operating profit and
other segment income:
Instrumentation (a)          $ 37.5              $ 36.6              2.5     %
Digital Imaging              9.7                 5.2                 86.5    %
Aerospace and Defense        23.8                20.2                17.8    %
Electronics (a)
Engineered Systems           6.1                6.4                (4.7  ) %
Segment operating
profit and other             77.1                68.4                12.7    %
segment income
Corporate expense            (11.1   )           (9.5    )           16.8    %
Other                        0.6                 (0.5    )           *
income/(expense), net
Interest and debt            (4.7    )           (5.4    )           (13.0 ) %
expense, net
Income before income         61.9                53.0                16.8    %
taxes
Provision for income         15.9               13.2               20.5    %
taxes
Net income                   46.0                39.8                15.6    %
Noncontrolling               (0.2    )           0.6                *
interest
Net income
attributable to              $ 45.8             $ 40.4             13.4    %
Teledyne
                                                                             

*     not meaningful
        Our previously reported 2013 segment data has been restated to reflect
(a)     a revised segment reporting structure adopted in the second quarter of
        2013. The change only impacted the Instrumentation and Aerospace and
        Defense Electronics segments.
        
        

                                                    
TELEDYNE TECHNOLOGIES INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(Current period unaudited – in millions)
                                                             
                                    March 30, 2014           December 29, 2013
ASSETS
Cash and cash equivalents           $  73.7                  $     66.0
Accounts receivable, net            376.9                    378.0
Inventories, net                    307.6                    294.3
Prepaid expenses and other          63.0                    60.8
current assets
Total current assets                821.2                    799.1
Property, plant and                 351.1                    357.7
equipment, net
Goodwill and acquired               1,293.9                  1,308.7
intangible assets, net
Prepaid pension asset               228.5                    222.0
Other assets, net                   65.5                    63.6
Total assets                        $  2,760.2              $     2,751.1
LIABILITIES AND STOCKHOLDERS’
EQUITY
Accounts payable                    $  152.3                 $     147.5
Accrued liabilities                 239.3                    267.1
Current portion of long-term        4.8                     3.5
debt and capital leases
Total current liabilities           396.4                    418.1
Long-term debt and capital          555.1                    549.0
lease obligations
Other long-term liabilities         261.8                   265.3
Total liabilities                   1,213.3                  1,232.4
Total stockholders’ equity          1,546.9                 1,518.7
Total liabilities and               $  2,760.2              $     2,751.1
stockholders’ equity
                                                                   

Contact:

Teledyne Technologies Incorporated
Investor Contact:
Jason VanWees, (805) 373-4542
or
Media Contact:
Robyn McGowan, (805) 373-4540
 
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