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| TDY > SEC Filings for TDY > Form 10-Q on 7-Aug-2012 | All Recent SEC Filings |
7-Aug-2012
Quarterly Report
Strategy/Overview
Our strategy continues to emphasize growth in our core markets of instrumentation, digital imaging, aerospace and defense electronics and engineered systems. Our core markets are characterized by high barriers to entry and include specialized products and services not likely to be commoditized. We intend to strengthen and expand our core businesses with targeted acquisitions. We aggressively pursue operational excellence to continually improve our margins and earnings. At Teledyne, operational excellence includes the rapid integration of the businesses we acquire. Using complementary technology across our businesses and internal research and development, we seek to create new products to grow our company and expand our addressable markets.
Consistent with this strategy, we made five acquisitions in 2012. We acquired VariSystems Inc. ("VariSystems") in the first quarter, a majority interest in the parent company of Optech Incorporated ("Optech") in the second quarter, and LeCroy Corporation ("LeCroy"), the parent company of PDM Neptec Limited ("PDM Neptec") and BlueView Technologies, Inc. ("BlueView") in the third quarter. In the first six months of 2011, we acquired DALSA Corporation ("DALSA") and a majority interest in Nova Sensors, Inc. and acquired a minority interest investment in Optech. We also continue to evaluate our businesses to ensure that they are aligned with our strategy. On April 19, 2011, we completed the sale of our general aviation piston engine businesses, which comprised the former Aerospace Engines and Components segment. Accordingly, our consolidated financial statements classify the Aerospace Engines and Components segment as a discontinued operation.
Our Recent Acquisitions
On February 25, 2012, Teledyne acquired VariSystems for $34.9 million, net of $2.1 million in cash acquired. Teledyne paid a $1.4 million purchase price adjustment in the second quarter of 2012. VariSystems, headquartered in Calgary, Alberta, Canada, is a leading supplier of custom harsh environment interconnects used in energy exploration and production. VariSystems had sales of CAD $27.5 million for its fiscal year ended May 31, 2011. VariSystems, Inc. now operates under the name Teledyne VariSystems and is part of the Aerospace and Defense Electronics segment.
On April 2, 2012, Teledyne acquired a majority interest in the parent company of Optech for $27.9 million, net of $4.8 million in cash acquired. The purchase increased Teledyne's ownership percentage to 51 percent from the original 19 percent interest purchased in the first quarter of 2011. With the April 2012 purchase, we now consolidate Optech's financial results into Teledyne's results with an appropriate adjustment for the minority ownership. Optech is reported as part of the Digital Imaging segment.
On February 12, 2011, the Company acquired the stock of DALSA for an aggregate purchase price of $339.5 million in cash. DALSA operates within the Digital Imaging segment.
For a further description of the Company's acquisition and divestiture activity for the year ended January 1, 2012, please refer to Notes 3 and 16 of our 2011 Form 10-K ("2011 Form 10-K").
On August 3, 2012 Teledyne acquired LeCroy. Teledyne acquired all of the outstanding common shares of LeCroy for $14.30 per share payable in cash. The aggregate value for the transaction is approximately $301 million, taking into account LeCroy's stock options, stock appreciation rights and net debt as of the acquisition date. Teledyne funded the purchase primarily from borrowings under its credit facility. LeCroy is part of the Instrumentation segment and operates as Teledyne LeCroy Inc.
On August 3, 2012, a subsidiary of Teledyne acquired the parent company of PDM Neptec Limited for GBP 3.7 million in cash, net of cash acquired. Teledyne funded the purchase from cash on hand. PDM Neptec, located in Hampshire, United Kingdom, is part of the Instrumentation segment and operates as Teledyne Impulse-PDM Ltd. PDM Neptec had sales of GBP 5.5 million for its fiscal year ended March 31, 2012.
In the third quarter of 2012, on July 2, 2012, a subsidiary of Teledyne acquired BlueView for $16.4 million in cash. BlueView, located in Seattle, Washington, is part of the Instrumentation segment and operates as Teledyne Blue View, Inc.
Results of Operations
(in millions)
Second Quarter Six Months
2012 2011 2012 2011
Net Sales $ 518.5 $ 502.9 $ 1,012.5 $ 971.0
Costs and expenses
Cost of sales 343.0 330.6 671.1 643.7
Selling, general and administrative expenses 115.8 110.4 226.2 210.7
Total costs and expenses 458.8 441.0 897.3 854.4
Income before other income and expense and income
taxes 59.7 61.9 115.2 116.6
Other income/(expense), net 1.4 1.6 1.0 1.3
Interest and debt expense, net (4.1 ) (4.3 ) (8.1 ) (8.7 )
Income from continuing operations before income
taxes 57.0 59.2 108.1 109.2
Provision for income taxes 17.4 20.4 32.9 37.9
Net income from continuing operations including
noncontrolling interest 39.6 38.8 75.2 71.3
Loss from discontinued operations, net of income
taxes - (0.2 ) - (0.7 )
Gain on sale of discontinued operations, net of
income taxes - 113.8 - 113.8
Net income 39.6 152.4 75.2 184.4
Less: Net income attributable to noncontrolling
interest (0.1 ) (0.1 ) - (0.1 )
Net income attributable to Teledyne $ 39.5 $ 152.3 $ 75.2 $ 184.3
Net income from continuing operations including
noncontrolling interest $ 39.6 $ 38.8 $ 75.2 $ 71.3
Less: Net income attributable to noncontrolling
interest (0.1 ) (0.1 ) - (0.1 )
Net income from continuing operations 39.5 38.7 75.2 71.2
Loss from discontinued operations, net of income
taxes - (0.2 ) - (0.7 )
Gain on sale of discontinued operations, net of
income taxes - 113.8 - 113.8
Net income attributable to Teledyne $ 39.5 $ 152.3 $ 75.2 $ 184.3
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Second quarter of 2012 compared with the second quarter of 2011
Our second quarter 2012 sales were $518.5 million, compared with sales of $502.9 million for the same period of 2011, an increase of 3.1%. Net income from continuing operations was $39.5 million ($1.06 per diluted share) for the second quarter of 2012, compared with $38.7 million ($1.04 per diluted share) for the second quarter of 2011, an increase of 2.1%. Net income including discontinued operations was $39.5 million ($1.06 per diluted share) for the second quarter of 2012, compared with $152.3 million ($4.08 per diluted share) for the second quarter of 2011. The second quarter of 2011 includes income from discontinued operations of $113.6 million.
The second quarter of 2012, compared with the same period in 2011, reflected higher sales in the Instrumentation and Digital Imaging segments, partially offset by lower sales in the Aerospace and Defense Electronics and the Engineered Systems segments. Incremental revenue in the second quarter of 2012 from recent acquisitions was $23.8 million.
Segment earnings decreased to $67.4 million for the second quarter of 2012, from $71.0 million for the same period of 2011, and reflected lower results in each business segment except the Aerospace and Defense Electronics segment. Segment earnings reflected expenses related to new product development and acquisition related expenses. The incremental operating profit included in the results for the second quarter of 2012 from recent acquisitions was $0.9 million and included $1.3 million in acquisition related transaction costs.
The second quarter of 2012 included pension expense of $1.6 million, compared with pension expense of $0.9 million in the second quarter of 2011. The increase in 2012 pension expense is primarily due to a change in the discount rate used to measure the benefit obligation. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards ("CAS") was $2.7 million in the second quarter of 2012, compared with $3.0 million in the second quarter of 2011.
In the second quarter of 2012 and 2011, we recorded a total of $2.0 million and $1.4 million, respectively, in stock option compensation expense. Employee stock option grants are expensed evenly over the three year vesting period.
The table below presents sales and cost of sales by segment and total company:
Second Second
Quarter Quarter
(Dollars in millions) 2012 2011
Instrumentation
Sales $ 162.4 $ 152.7
Cost of sales $ 97.6 $ 86.9
Cost of sales % of sales 60.1 % 56.9 %
Digital Imaging
Sales $ 110.9 $ 96.2
Cost of sales $ 71.6 $ 60.8
Cost of sales % of sales 64.6 % 63.2 %
Aerospace and Defense Electronics
Sales $ 168.8 $ 169.6
Cost of Sales $ 111.7 $ 114.7
Cost of sales % of sales 66.2 % 67.6 %
Engineered Systems
Sales $ 76.4 $ 84.4
Costs of sales $ 62.1 $ 68.2
Cost of sales % of sales 81.3 % 80.8 %
Total Company
Sales $ 518.5 $ 502.9
Costs of sales $ 343.0 $ 330.6
Cost of sales % of sales 66.2 % 65.7 %
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Cost of sales increased by $12.4 million in the second quarter of 2012, compared with the second quarter of 2011, which primarily reflected the impact of higher sales and higher pension expense. Cost of sales as a percentage of sales for the second quarter of 2012 increased slightly to 66.2% from 65.7% in the second quarter of 2011 and reflected higher pension expense, product mix differences and lower margins for environmental instruments as well as expenses related to new product development in marine instrumentation.
Certain contracts are accounted for under the percentage of completion ("POC") method and related contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly. The aggregate effects of these changes in estimates on contracts accounted for under the POC accounting method, in the second quarters of 2012 and 2011 were $5.9 million and $1.4 million of favorable operating income and $6.8 million and $1.6 million of unfavorable operating income, respectively.
Selling, general and administrative expenses, including research and development and bid and proposal expense, increased by $5.4 million in the second quarter of 2012, compared with the second quarter of 2011, and primarily reflected the impact of higher sales, $1.3 million in acquisition related expenses and $0.6 million in higher stock option compensation expense. Selling, general and administrative expenses for the second quarter of 2012, as a percentage of sales, increased to 22.3%, compared with 22.0% in the second quarter of 2011 and reflected the impact of acquisition related expenses and higher stock option compensation expense. Corporate expense was $7.7 million for the second quarter of 2012, compared with $9.1 million for the second quarter of 2011, and reflected lower professional fees and compensation expense.
Interest expense, net of interest income, was $4.1 million in the second quarter of 2012, compared with $4.3 million for the second quarter of 2011. The decrease in interest expense primarily reflected the impact of lower outstanding debt levels. Other income and expense in the second quarter of 2012 included foreign currency translation gains of $0.1 million compared with $1.1 million for the second quarter of 2011. Other income and expense in the second quarter of 2012 also included a $0.6 million gain on the purchase of the majority interest in Optech.
The Company's effective income tax rate for the second quarter of 2012 was 30.5% compared with 34.5% for the second quarter of 2011. The decrease primarily reflected a change in the proportion of domestic and international income, as well as a refinement of uncertain tax positions within the quarter. Excluding any tax credits and other adjustments, the tax rate was 30.7% for the second quarter of 2012.
First six months of 2012 compared with the first six months of 2011
Teledyne's first six months 2012 sales were $1,012.5 million, compared with sales of $971.0 million for the same period of 2011, an increase of 4.3%. Net income from continuing operations was $75.2 million ($2.02 per diluted share) for the first six months of 2012, compared with $71.2 million ($1.91 per diluted share) for the first six months of 2011, an increase of 5.6%. Net income including discontinued operations, was $75.2 million ($2.02 per diluted share) for the first six months of 2012, compared with $184.3 million ($4.94 per diluted share) for the first six months of 2011. The first six months of 2011 includes income from discontinued operations of $113.1 million, which includes a gain on the sale of discontinued operations of $113.8 million.
The first six months of 2012, compared with the same period in 2011, reflected higher sales in the Instrumentation and Digital Imaging segments and lower sales in the Aerospace and Defense Electronics and Engineered Systems segments. Incremental revenue in the first six months of 2012 from recent acquisitions was $56.7 million.
Segment earnings decreased to $132.4 million for the first six months of 2012, from $135.1 million for the same period of 2011, and reflected lower results in the Instrumentation and Engineered Systems segments, partially offset by higher earnings in the Digital Imaging and Aerospace and Defense Electronics segments. Segment earnings reflected expenses related to new product development and acquisition related expenses. The incremental operating profit included in the results for the first six months of 2012 from recent acquisitions was $3.4 million and included $1.5 million in acquisition related transaction costs.
The first six months of 2012 included pension expense of $3.3 million, compared with $3.7 million in the first six months of 2011. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards ("CAS") was $5.9 million in the first six months of 2012, compared with $6.0 million in the first six months of 2011. The decrease in 2012 pension expense was primarily due to the impact of voluntary cash contributions to the domestic pension plan and prior year earnings on plan assets.
In the first six months of 2012 and 2011, we recorded a total of $3.6 million and $2.8 million, respectively, in stock option compensation expense.
The table below presents sales and cost of sales by segment and total company:
Six Six
Months Months
(Dollars in millions) 2012 2011
Instrumentation
Sales $ 323.0 $ 310.6
Cost of sales $ 192.2 $ 177.9
Cost of sales % of sales 59.5 % 57.3 %
Digital Imaging
Sales $ 205.1 $ 162.4
Cost of sales $ 134.2 $ 104.4
Cost of sales % of sales 65.4 % 64.3 %
Aerospace and Defense Electronics
Sales $ 333.6 $ 336.5
Cost of Sales $ 221.5 $ 230.5
Cost of sales % of sales 66.4 % 68.5 %
Engineered Systems
Sales $ 150.8 $ 161.5
Costs of sales $ 123.2 $ 130.9
Cost of sales % of sales 81.7 % 81.1 %
Total Company
Sales $ 1,012.5 $ 971.0
Costs of sales $ 671.1 $ 643.7
Cost of sales % of sales 66.3 % 66.3 %
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Cost of sales increased by $27.4 million in the first six months of 2012, compared with the first six months of 2011, which primarily reflected the impact of higher sales. Cost of sales as a percentage of sales for the first six months of 2012, remained at 66.3%, compared with the first six months of 2011 and reflected lower pension expense offset by product mix differences.
Certain contracts are accounted for under the POC method and related contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly. The aggregate effects of changes in estimates on contracts accounted for under the percentage-of-completion accounting method, in the first six months of 2012 and 2011 were $6.6 million and $2.2 million of favorable operating income and $8.1 million and $1.9 million of unfavorable operating income, respectively.
Selling, general and administrative expenses, including research and development and bid and proposal expense, in total dollars were higher by $15.5 million in the first six months of 2012, compared with the first six months of 2011, and reflected the impact of higher sales, higher acquired intangible asset amortization and acquisition related expenses. Selling, general and administrative expenses for the first six months of 2012, as a percentage of sales, increased to 22.3%, compared with 21.7% in the first six months of 2011 and reflected higher acquired intangible asset amortization and $1.5 million in acquisition related expenses. Corporate expense was $17.2 million for the first six months of 2012, compared with $18.5 million for the first six months of 2011, and reflected lower professional fees and compensation expense.
Interest expense, net of interest income, was $8.1 million in the first six months of 2012, compared with $8.7 million for the first six months of 2011. The decrease in interest expense primarily reflected the impact of lower outstanding debt levels. Other income and expense in the first six months of 2012 included foreign currency translation gains of $0.1 million, compared with $1.1 million for the first six months of 2011. Other income and expense in the first six months of 2012 also included a $0.6 million gain on the purchase of the majority interest in Optech.
The Company's effective income tax rate for the first six months of 2012 was 30.4% compared with 34.7% for the first six months of 2011 The decrease primarily reflected a change in the proportion of domestic and international income, as well as a refinement of uncertain tax positions within the first six months. Excluding any tax credits and other adjustments, the tax rate was 31.6% for the first six months of 2012.
Segment Results:
The following table sets forth the sales and operating profit for each segment
(amounts in millions):
Second Second Six Six
Quarter Quarter % Months Months %
2012 2011 Change 2012 2011 Change
Net sales:
Instrumentation $ 162.4 $ 152.7 6.4 % $ 323.0 $ 310.6 4.0 %
Digital Imaging 110.9 96.2 15.3 % 205.1 162.4 26.3 %
Aerospace and Defense Electronics 168.8 169.6 (0.5 )% 333.6 336.5 (0.9 )%
Engineered Systems 76.4 84.4 (9.5 )% 150.8 161.5 (6.6 )%
Total net sales $ 518.5 $ 502.9 3.1 % $ 1,012.5 $ 971.0 4.3 %
Segment operating profit:
Instrumentation $ 28.0 $ 30.4 (7.9 )% $ 59.6 $ 62.4 (4.5 )%
Digital Imaging 7.5 7.6 (1.3 )% 11.8 11.5 2.6 %
Aerospace and Defense Electronics 24.5 24.4 0.4 % 47.4 46.0 3.0 %
Engineered Systems 7.4 8.6 (14.0 )% 13.6 15.2 (10.5 )%
Total segment operating profit 67.4 71.0 (5.1 )% 132.4 135.1 (2.0 )%
Corporate expense (7.7 ) (9.1 ) (15.4 )% (17.2 ) (18.5 ) (7.0 )%
Other income, net 1.4 1.6 (12.5 )% 1.0 1.3 (23.1 )%
Interest expense, net (4.1 ) (4.3 ) (4.7 )% (8.1 ) (8.7 ) (6.9 )%
Income from continuing operations
before income taxes 57.0 59.2 (3.7 )% 108.1 109.2 (1.0 )%
Provision for income taxes 17.4 20.4 (14.7 )% 32.9 37.9 (13.2 )%
Net income from continuing operations
including noncontrolling interest 39.6 38.8 2.1 % 75.2 71.3 5.5 %
Loss from discontinued operations - (0.2 ) * - (0.7 ) *
Gain on sale of discontinued
operations - 113.8 * - 113.8 *
Net income 39.6 152.4 (74.0 )% 75.2 184.4 (59.2 )%
Less: Net income attributable to
noncontrolling interest (0.1 ) (0.1 ) * - (0.1 ) *
Net income attributable to Teledyne $ 39.5 $ 152.3 (74.1 )% $ 75.2 $ 184.3 (59.2 )%
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* percentage change not meaningful
Instrumentation
Second Second Six Six
Quarter Quarter Months Months
(Dollars in millions) 2012 2011 2012 2011
Sales $ 162.4 $ 152.7 $ 323.0 $ 310.6
Cost of sales $ 97.6 $ 86.9 $ 192.2 $ 177.9
Selling, general and administrative expenses $ 36.8 $ 35.4 $ 71.2 $ 70.3
Operating profit $ 28.0 $ 30.4 $ 59.6 $ 62.4
Cost of sales % of sales 60.1 % 56.9 % 59.5 % 57.3 %
Selling, general and administrative expenses
% of sales 22.7 % 23.2 % 22.0 % 22.6 %
Operating profit % of sales 17.2 % 19.9 % 18.5 % 20.1 %
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Second quarter of 2012 compared with the second quarter of 2011
The Instrumentation segment's second quarter 2012 sales were $162.4 million, compared with $152.7 million in the second quarter of 2011, an increase of 6.4%. Second quarter 2012 operating profit was $28.0 million, compared with operating profit of $30.4 million in the second quarter of 2011, a decrease of 7.9%.
The second quarter 2012 sales increased $9.7 million, which resulted from higher sales of both marine and environmental instrumentation products. The higher sales of $6.6 million for marine instrumentation products primarily reflected improved sales of marine acoustic survey systems. The higher sales of $3.1 million for environmental instrumentation products primarily reflected improved sales for gas analyzers. The decrease in operating profit reflected the expenses related to new product development, lower margins for environmental instrumentation and $0.8 million in acquisition expenses related to the LeCroy and BlueView transactions, partially offset by the impact of higher sales. Second quarter cost of sales in total dollars increased by $10.7 million, compared with the second quarter of 2011, and reflected the impact of higher sales, product mix differences and expenses related to new product development. The increase in the cost of sales percentage reflected the impact of expenses related to new product development, lower margins in environmental instrumentation and product mix differences.
First six months of 2012 compared with the first six months of 2011
The Instrumentation segment's first six months 2012 sales were $323.0 million, compared with $310.6 million, an increase of 4.0%. First six months 2012 operating profit was $59.6 million, compared with operating profit of $62.4 million for the first six months of 2011, a decrease of 4.5%.
The first six months 2012 sales increased $12.4 million, which resulted from $9.0 million in higher sales of environmental instrumentation products and $3.4 million of marine instrumentation products. The higher sales for environmental instrumentation primarily reflected improved sales for gas analyzers. The higher sales for marine instrumentation primarily reflected improved sales of marine acoustic survey systems. The decrease in operating profit reflected the expenses related to new product development, lower margins for environmental . . .
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