On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was enacted. The Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering corporate income tax rates, implementing the territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. As a result of the Tax Act, Teledyne incurred provisional charges of $4.7 million in the fourth quarter of 2017 primarily due to the repatriation tax and the remeasurement of U.S. deferred tax assets and liabilities. The impacts of the Tax Act may differ from this estimate, possibly materially (and the amount of the provisional charge may accordingly be adjusted over the course of 2018), due to changes in interpretations and assumptions Teledyne has made, guidance that may be issued, and actions Teledyne may take as a result of the Tax Act. In the first quarter of 2018, the provisional charge was adjusted by an additional $0.6 million.
Income Taxes
The effective tax rate for the first quarter of 2018 was 19.1% compared with 24.9%. The first quarter of 2018 reflected net discrete income tax benefits of $2.1 million. This amount includes a $3.0 million income tax benefit related to share-based accounting, and the increase in the provisional charge. The first quarter of 2017 includes net discrete tax benefits of $1.4 million. Excluding the net discrete income tax benefits in both periods and the impact of the Tax Act, the effective tax rates would have been 21.7% for the first quarter of 2018 and 28.3% for the first quarter of 2017.
Other
Stock option expense was $4.9 million for the first quarter of 2018, compared with $4.1 million. Non-service retirement benefit income was $3.4 million for the first quarter of 2018, compared with $3.3 million. Interest expense, net of interest income, was $7.1 million for the first quarter of 2018 compared with $8.2 million. Interest expense in the first quarter of 2017 included $2.3 million related to the e2v acquisition. Corporate expense decreased to $12.9 million for the first quarter of 2018, compared with $22.7 million. Corporate expense in the first quarter of 2017 included pretax charges of $10.4 million related to the e2v acquisition. Other income and expense was expense of $2.5 million for the first quarter of 2018 compared with expense of $9.3 million. Other income and expense in the first quarter of 2017 included pretax charges of $6.0 million related to the e2v acquisition.
Outlook
Based on its current outlook, the company’s management believes that second quarter 2018 GAAP earnings per diluted share will be in the range of $1.85 to $1.90 and full year 2018 GAAP earnings per diluted share will be in the range of $7.67 to $7.77, an increase from the prior outlook of $7.51 to $7.61. The company’s estimated tax rate for 2018 is 21.4%, before discrete items which are currently expected to be lower in 2018 than in prior periods.
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 sales, earnings, operating margin, growth opportunities, acquisitions and divestitures, product sales, capital expenditures, pension matters, stock option compensation expense, interest expense, taxes, exchange rate fluctuations, cost reductions, facility consolidation costs, severance expenses 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; changes in the estimated impact of the Tax Act; cuts to defense spending resulting from existing and future deficit reduction measures; impacts from the United Kingdom’s planned exit from the European Union; uncertainties related to the policies of the U.S. Presidential Administration; and threats to the security of our confidential and proprietary information, including cyber security threats. Lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and regulations or restrictions relating to energy production, including with respect to hydraulic fracturing, could further negatively affect the company’s businesses that supply the oil and gas industry. Increasing fuel costs could negatively affect the markets of our commercial aviation businesses. In addition, financial market fluctuations affect the value of the company’s pension assets.
Information regarding the impact of the Tax Act consists of preliminary estimates which are forward-looking statements and are subject to change, possibly materially, over the course of 2018. Information regarding the impact of the Tax Act is based on our current calculations, as well as our current interpretations, assumptions and expectations relating to the Tax Act, which are subject to change.
Changes in the policies of U.S. and foreign governments, including
economic sanctions, could result, over time, in reductions or
realignment in defense or other government spending and further changes
in programs in which the company participates.
