Digital Imaging
The Digital Imaging segment’s fourth quarter 2016 sales were $110.9 million, compared with $102.1 million, an increase of 8.6%. Operating income was $15.3 million for the fourth quarter of 2016, compared with $11.5 million, an increase of 33.0%.
The fourth quarter 2016 sales primarily reflected higher sales of machine vision cameras for industrial and semiconductor applications, X-ray detectors for life sciences, micro electro-mechanical systems (“MEMS”) and geospatial software. The fourth quarter 2016 sales included $3.0 million in incremental sales from a recent acquisition. The increase in operating income in the fourth quarter of 2016 primarily reflected the impact of higher sales, favorable product mix and $1.2 million in lower severance and facility consolidation costs, compared with the fourth quarter of 2015.
Aerospace and Defense Electronics
The Aerospace and Defense Electronics segment’s fourth quarter 2016 sales were $151.8 million, compared with $148.6 million, an increase of 2.2%. Operating income was $29.1 million for the fourth quarter of 2016, compared with $22.4 million, an increase of 29.9%.
The fourth quarter 2016 sales reflected $4.9 million of higher sales of avionics products and electronic relays and $3.9 million of higher sales of electronic manufacturing services products, partially offset by $5.6 million of lower sales of microwave and interconnect systems. Operating income in the fourth quarter of 2016 reflected the impact of higher sales, as well as overall improved margins, favorable product mix and higher pension income of $0.8 million.
Engineered Systems
The Engineered Systems segment’s fourth quarter 2016 sales were $65.6 million compared with $77.7 million, a decrease of 15.6%. Operating income was $9.9 million for the fourth quarter of 2016, compared with $8.7 million, an increase of 13.8%.
The fourth quarter 2016 sales reflected $10.6 million of lower sales of engineered products and services and $4.0 million of lower sales of energy systems products, partially offset by $2.5 million of higher sales of turbine engines. The lower sales of engineered products and services primarily resulted from decreased sales of space and marine manufacturing programs. The lower energy systems sales reflected lower sales of commercial hydrogen generators, as well as government energy systems. Operating income in the fourth quarter of 2016 reflected improved sales and margins for turbine engines and higher pension income of $0.6 million, partially offset by the impact of lower sales.
Additional Financial Information
Cash Flow
Cash provided by operating activities from continuing operations was $63.9 million for the fourth quarter of 2016, compared with $61.1 million. The higher cash provided by operating activities in the fourth quarter of 2016 reflected lower income tax payments, partially offset by higher working capital. At January 1, 2017, cash totaled $98.6 million and total debt, including capital lease obligations, was $617.8 million. At January 1, 2017, no amounts were outstanding under the $750.0 million credit facility. In December 2016, the Company entered into an amendment relating to term loans of $182.5 million in aggregate principal amount (the “Term Loans”) to extend the maturity date of the Term Loans from March 2019 to January 2022 and extending the date on which amortization of principal begins; and generally lowering the applicable rate for base rate and Eurocurrency loans. The other material terms of the Term Loans, including covenants, remain unchanged. The company received $9.4 million from the exercise of stock options in the fourth quarter of 2016, compared with $5.5 million. Capital expenditures for the fourth quarter of 2016 were $42.7 million, compared with $15.4 million. The 2016 amount includes $26.0 million for a facility purchase pursuant to a 1031 like-kind exchange. Depreciation and amortization expense for the fourth quarter of 2016 was $22.1 million, compared with $22.2 million. In the fourth quarter of 2016, Teledyne completed the acquisitions of two instrumentation businesses for initial aggregate cash consideration of approximately $35.2 million, net of cash acquired. In December 2016, Teledyne and e2v technologies plc jointly announced that they reached agreement on the terms of a recommended cash acquisition to be made by Teledyne for the ordinary share capital of e2v by means of a Scheme of Arrangement (the “Offer”). Under the terms of the Offer, e2v’s ordinary shareholders will receive 275 pence in cash for each e2v share valuing the entire issued and to be issued ordinary share capital of e2v at approximately £620 million on a fully diluted basis. In connection with the offer, Teledyne, together with certain of its subsidiaries as guarantors, has entered into a Credit Agreement (the “Bridge Facility”) dated December 11, 2016. The lenders under the Bridge Facility are committed to lend up to £345 million to fund the acquisition, and Teledyne has committed to have remain available for borrowing up to $410 million under its $750 million credit facility to fund the acquisition. No amounts have been drawn against the Bridge Facility to date. It is expected that, subject to the satisfaction or waiver of all relevant conditions, the acquisition will be completed in the first half of 2017.
| Free Cash Flow (a) | Fourth Quarter | Total Year | ||||||||||||||||||
| (in millions, brackets indicate use of funds) | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||
| Cash provided by operating activities from continuing operations | $ | 63.9 | $ | 61.1 | $ | 316.2 | $ | 207.5 | ||||||||||||
| Capital expenditures for property, plant and equipment, excluding facility purchase | (16.7 | ) | (15.4 | ) | (61.6 | ) | (46.7 | ) | ||||||||||||
| Facility purchase pursuant to 1031 like-kind exchange | (26.0 | ) | — | (26.0 | ) | — | ||||||||||||||
| Total capital expenditures | (42.7 | ) | (15.4 | ) | (87.6 | ) | (46.7 | ) | ||||||||||||
| Free cash flow | 21.2 | 45.7 | 228.6 | 160.8 | ||||||||||||||||
| Restricted cash utilized for 1031 like-kind exchange facility purchase | 19.5 | — | 19.5 | — | ||||||||||||||||
| Adjusted free cash flow | $ | 40.7 | $ | 45.7 | $ | 248.1 | $ | 160.8 | ||||||||||||
| (a) | The company defines free cash flow as cash provided by operating activities from continuing operations (a measure prescribed by generally accepted accounting principles) less capital expenditures for property, plant and equipment. Adjusted free cash flow reflects utilization of restricted cash from the sale of a former operating facility which funded, in part, the facility purchase pursuant to a 1031 like-kind exchange. 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. | |
