Ducommun Incorporated (DCO) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2013 Ducommun Earnings Conference Call. My name is Sheila, I'm your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Chris Witty. Please proceed, sir.

Thank you, and welcome to Ducommun's 2013 Fourth Quarter Conference Call. With me today is Tony Reardon, Chairman and CEO; and Joe Bellino, Vice President, Treasurer and CFO. I would now like to provide a brief Safe Harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements, other than statements of historical facts included in this conference call, are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call and in the company's Annual Report and Form 10-K for the fiscal year ended December 31, 2013. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call. I'd like to turn it over now to Tony Reardon for a review of the operating results. Tony?

Thank you, Chris, and thank you, everyone, for joining us today. I'll begin by providing an overview of our performance, after which I'll turn the call over to Joe Bellino to review our financial results. In the fourth quarter, Ducommun reported revenue of $188 million down slightly versus 2012, primarily due to our lower shipments of both military and commercial helicopter products and weaker sales within our avionics and electronic control systems markets. The year-over-year decline also reflects a 4.9% decrease in our non-A&D revenue. These sales declines were partially offset by strength across our fixed wing commercial aircraft and missile defense-related electronics markets. We recorded a net loss of $4.5 million or $0.42 per share -- per diluted share, primarily driven by the previously announced program charges at Ducommun AeroStructures, lower revenue and unfavorable product mix in our Ducommun LaBarge technology operations. Joe will discuss the quarter in more detail in a moment. For 2013 as a whole, while the revenue fell slightly to $737 million, Ducommun reported a number of noteworthy operating achievements that bode well for our business over the long term. We generated nearly $46 million of cash from operations during the year, enabling the company to reduce its debt by $33 million. The debt reduction and the repricing of our bank term debt earlier last year was -- has lowered our interest expense by approximately $3 million year-over-year as we continue to focus on deleveraging the balance sheet going forward. In addition, in 2013, our commercial aerospace revenue rose to a record of $213 million and our backlog here remains very strong. We expect further expansion across this portion of our business, where the only meaningful decline last year was within the helicopter sector, which came off a stellar 2012 year. I will get into more detail about our commercial business in a moment, but suffice to say that Ducommun is very well positioned across most of the major growth platforms serving the global aviation industry today. During the latter part of 2013, we also reorganized our non-A&D operations into strategic business units to better leverage our strong technical capabilities and ultimately win new contracts and expand our customer base. While we did see double-digit declines in both sales and backlog versus 2012 in this segment, I believe the worst is behind us. We had a strong year across many parts of our defense operations this year, particularly within our Ducommun LaBarge Technologies business where we saw a nice uptick in radar rack shipments for military aircraft and higher electronic revenues from our missile defense systems, more than offsetting the decline in the avionics and electronic controls product lines. Now let me give you some color on our end markets and products and platforms. Starting with the military and space market, we posted record revenue of just over $400 million in 2013, even with numerous budget and complications in the onset of sequestration. With the federal budget now in place, our visibility should be stronger and better in terms of both programs and platforms as soon as the Defense Department and Congress settle on the spending allocations. There were areas last year where we had some challenges and we had some strengths, so let me start with the challenges. Our listeners are already keenly aware of the fact that the C-17 program will be coming to an end in early 2015. Our final shipments are likely to be in the third quarter and possibly the fourth quarter of next year. And in 2013, Ducommun posted revenue of $29 million of revenue on the C-17, roughly flat with 2012. We do expect the sales to be lower this year. We have a concentrated effort on expanding our presence on commercial platforms as well as within the engine markets, which are designated to replace this business. In addition, our Black Hawk program, still one of the largest -- our largest defense programs, saw a revenue fall in 2013 from its peak in 2012. We expect revenue to be flat to down slightly this year based on our current backlog and scheduled deliveries. Our Apache backlog is strong, but we anticipate those sales also to fall somewhat reflecting the war effort winding down and slower orders for spares. Some of you may have read about the recent discussions within the various defense department agencies regarding how to modernize their helicopter fleets most effectively in this era of shrinking budgets. And we expect to see some give-and-take on these platforms for the foreseeable future. With regard to our radar rack deliveries for the military fighter aircraft, Ducommun's backlog has declined somewhat from its earlier highs, reflecting lower build rates and longer decision cycles on the foreign military sales. Given the ongoing budget pressures in modernizing the fleet is more cost-effective than investing in an entirely new aircraft. So we expect these programs will continue to be strong in the foreign military sales market going forward. Ducommun is actively seeking out new opportunities for growth in the defense area, both here and internationally. Our platforms remain strong and are the most important in the world and they will be utilized even in times of peace and reduced spending. Moving to our non-A&D market. Sales were $126 million -- of $126 million were off 22% in 2013 from 2012 levels. And in the fourth quarter, sales were down about 5% versus the prior period. However, the revenue was up sequentially in Q4 from Q3 and it's actually the segment's best performance in 2013. Our backlog here also remains stable and we're encouraged by the pickup in orders in our energy markets. That said, we need to see additional evidence of traction before becoming more certain about the timing for stronger growth. We anticipate slow but steady improvement moving forward, and we're focused on winning new business and attracting new customers to our value-added technology solutions. With the repositioning of our products and our sales approach, we believe that there are many growth opportunities here that we can -- that will also help our margin pull forward over time. As I said previously, our commercial aerospace business, particularly the large fixed wing program, continue to be the highlight for Ducommun. Our business with Boeing on the 737, the 777 and the 787 platforms rose to record levels last year, and we expanded our Airbus business as well to include the A320 series aircraft, A350, A380 and the A330 and A340 platforms. In addition, our regional and business jet sales rose slightly in 2013. The only significant area of decline within the commercial aerospace business was the helicopter market, where we saw shipments fall last year as certain modification programs wound down. We expect the commercial helicopter market to be flat to down in 2014. Going forward, we remain optimistic about the commercial aerospace market and industry experts have forecasted sustained growth of 4.5% to 5% over the next 10 years. Given that Boeing continues to increase its build rates, we expect our sales with this key OEM to again increase this year and we believe that the regional jet and the business jet market should remain flat to slightly up. We are currently working very hard to expand our presence across the commercial aerospace market, particularly with Airbus, where we see many opportunities for growth on the A320 series, the A350 and the A330 and A340 aircraft. We are also working across a number of Boeing platforms, on new applications, as well as on business opportunities with several engine manufacturers. Our pipeline is robust and our quoting activity is high as we look to sell the full suite of Ducommun products on more complex value-added assemblies and modules. We believe this should position us well for the years to come. Overall, we continue to actively bid on the large array of programs across the diverse markets we serve where we see many areas to grow Ducommun over the long term. We're investing in new business initiatives and have scores of programs under development, which ensure that our customers continue to understand and appreciate the degree of unique applications we have going forward. With that, I'll now turn the call over to Joe to review our financial results. Joe?

Thanks, Tony, and good day, everyone. Earlier today, we reported the results for the fourth quarter of 2013 as well as the full year results. Net sales for the fourth quarter were $188 million, a 3.1% decline compared to the $194 million in our fourth quarter of 2012. The revenue decline year-over-year was primarily due to lower shipments of military and commercial helicopter products, as well as a 4.9% decrease in non-A&D revenues. These sales declines were partially offset though, by strength across our fixed wing commercial aircraft business, as well as our missile defense-related electronics platforms. Ducommun reported a net loss for the fourth quarter of 2013 of $4.5 million or a net loss of $0.42 per fully diluted share. This compares to a net income of $3.4 million last year or $0.32 per diluted share in the fourth quarter of 2012. As previously reported during the fourth quarter, we reported a pretax program-related charges net amount of $8.8 million or $0.51 per share after tax, which is comprised of 2 program-related charges of $14.1 million in the Ducommun AeroStructures segment, partially offset by reduced accrued compensation and benefit expenses of $5.3 million. Of the $14.1 million in pretax charges, $7 million was recorded as a noncash asset impairment charge and $7.1 million was a combination of recording a $5.2 million charge for forward loss contracts and $1.9 million in inventory reserves. Adjusted EBITDA, which adds back only the noncash $7 million asset impairment charge for the fourth quarter, was $16.8 million or nearly 9% of revenues and this compares to an adjusted EBITDA in last year's fourth quarter of $22.7 million or 11.7% of revenue. Looking at results by business segments. Ducommun AeroStructures, which we referred to as DAS. In reviewing the results by the business segment, DAS generated net results for the quarter of nearly $81 million, which was down slightly from the $82.2 million in last year's fourth quarter. The revenue decreases were primarily due to lower sales of military fixed wing products and both military and commercial helicopter products, and these were partially offset though by higher sales of fixed wing commercial aircraft products. The DAS operating segment loss was $5.6 million and this compares to operating income of $7.2 million or 8.8% of revenues in the fourth quarter of 2012. The 2013 loss reflects the $14.1 million in pretax program-related charges that we spoke about earlier. In addition, there were higher production costs for the 2 programs that adversely impacted the fourth quarter's operating income results. Adjusted income, which again, adds back the $7 million of noncash asset impairment charges, was $6.4 million or nearly 8% of revenue compared to $10.3 million or 12.6% of revenue for the fourth quarter of 2012. Turning to Ducommun LaBarge Technologies business segment, DLT. In reviewing the DLT segment, net sales for the fourth quarter were a little over $107 million compares to nearly $112 million for the fourth quarter of 2012. The year-over-year decline reflects 2 things: one, is a 3.7% decrease in military and space revenues, reflecting softer sales of avionics and electronic control products, partially offset by solid demand for missile-defense products. In addition, our non-A&D sales sector increased by nearly 5%. DLT's operating income for the fourth quarter of 2013 was $9.4 million or 8.8% of revenue and this compares to $11.4 million or 10.2% of revenue in the 2012 fourth quarter. EBITDA was nearly $14 million in the quarter or 13% of revenue and this compares a little over $16 million or 14.5% of revenue in the comparable quarter of the prior year. The lower margin of the DLT segment were impacted by lower revenues and a less favorable product mix. Corporate, general and administrative expenses, which we refer to as CG&A, the expenses for the fourth quarter were $3.4 million, it was about $0.5 million less than the comparable amount last year. And in this year's percentage of revenue, it was 1.8% compares to 2% from the previous year. Most of the declines were related to lower accrued compensation and benefit costs. Our overall backlog remains solid at $620 million, which despite a year-over-year decline, increased sequentially from the end of the third quarter. We did see year-over-year declines in backlogs for our defense technologies products. However, we do expect to finalize significant orders on the C-17 platform and various other defense technologies programs in the next month or so, where we have seen and we continue to see several opportunities exist. Our non-A&D markets have stabilized, as well as our backlogs, and recent activity suggests an uptick in some of these end use markets may now begin. In terms of a very important measure and metric that we look at, the sustainability of the cash flows and liquidity and capital resources, as Tony mentioned, during the quarter, we continued to delever our balance sheet. We prepaid another $7.5 million of our term debt during the quarter, along with the retiring a $3 million acquisition note. And this reduced our debt to $333 million at year end and our net debt to $284 million. With the 2013 adjusted EBITDA of $75.5 million, this equates to 3.6x net funded debt-to-EBITDA. Looking ahead in 2014, we expect to continue to voluntary prepay another $25 million to $30 million. We remain committed to achieving our goal of deleveraging to the 2.75x to 3x range by the end of 2015. In 2013, we generated nearly $46 million in cash flow from operations and spent $12 million in capital expenditures, resulting in the company generating approximately $34 million in free cash flow, which equates to about $3.10 of free cash flow per fully diluted share. We remained diligent and effective working capital management. Our teams have been successful in achieving improved inventory returns and improving on receivables days collections outstanding. We expect capital expenditures for fiscal '24[sic] (2014) to be approximately $16 million with the CapEx use to support expansion of our manufacturing capabilities and to support new contract awards. In closing, we continue to focus on achieving sustainable operating and EBITDA margins, which, along with diligent expense management and continued focus on working capital efficiencies, should permit the company to generate significant free cash flows going forward. With that, I'll turn the program back over to Tony. Tony?

Thank you, Joe. Before opening the call to questions, I'd like to wrap up with a few comments about our areas of focus for 2014 and beyond. We're proud of the diverse array of products and technologies we now offer our customers, and we know where we need to concentrate our efforts going forward to improve the company's outlook and increase shareholder value. First, we're focused on further expansion within the commercial airplane market with its numerous opportunities going forward. There's also plenty of room to grow in the engine market, as well as in the commercial and military electronics markets. Second, we're dedicated to growing our non-A&D business as quickly as possible. This area has been a laggard for the past year and we believe that there are many opportunities to expand our position and penetrate new customers. This is clearly a priority. And third, we will take all necessary steps to improve margins and drive cash flow generations with the goal of deleveraging the company, and thus, further strengthening our balance sheet. I can assure you that we are constantly looking at all facets of our business to find new sources of growth, greater operating efficiencies and ways to improve Ducommun's competitiveness and increase our value to our customers. Last year was successful in some ways and disappointing in others, but the company is stronger, leaner and ready to excel in today's challenging environment. With that, Sheila, I'll now open up the call for questions.

[Operator Instructions] And the first question comes from the line of Edward Marshall of Sidoti & Company. Edward Marshall - Sidoti & Company, LLC: So if I look at the particular quarter and I start to think about the margins in the structures business and some of the charges that you've taken, I assume by taking these charges, you're reducing your fixed cost associated with these programs, is that the right way to look at it? And therefore, maybe margins should slightly improve in 2014 for this business.

Yes. That's right, Ed. I mean, basically, it should take these -- the 2 programs to a 0 cost base on the forward reserves and we would have the effect hopefully of improving the margins in that business, yes. Edward Marshall - Sidoti & Company, LLC: Okay. Do you care to take a stab for the 2 businesses as far as what you think those -- the normalized margins in that business should be overall, for both DAS and DLT? I mean, if I back out the charges, for instance, the $14.1 million out of DAS, and that's the right way to do it, right, Joe? And that gets me to about 10.5% operating margin which is, I guess, almost technically one of your highest margins of the year, second best, I guess. Would you care to take a stab kind of for...

Well, we've spent a lot of time looking and in calculating the forward cost reserves and the cost curves available to produce that is -- we believe is going to -- we're going to incur in 2014 to complete the contracts. And in looking at that, Ed, we have seen nice improvements sequentially and we're getting some momentum here in this quarter in terms of getting down the cost curve. So we believe that'll translate to sequentially, improvement in margins. Edward Marshall - Sidoti & Company, LLC: Year-over-year '14 versus '13, I'm assuming.

Both sequentially. Yes, exactly.

One of my other comments, Ed, was that, in addition to the operating income in the fourth quarter at the DAS segment was impacted by some -- these programs represented a somewhat of a drag on our operating income in completing those projects during the fourth quarter. So we believe we've gotten this behind us and we're moving in the right direction. Edward Marshall - Sidoti & Company, LLC: Okay. If I look at -- and by the way, on these charges, did you actually receive a benefit of $5.3 million? Did you reverse those accruals? Because I assume the full $14.1 million, and I looked in the K as well, it looks like it ran through cost of goods, so where did that $5.3 million get -- where did you reverse the accrual in the P&L?

The $5.3 million came in a blended part. Part of our cost of goods sold and part of it was in SG&A. Edward Marshall - Sidoti & Company, LLC: Okay. Do you have the split?

No. Edward Marshall - Sidoti & Company, LLC: Okay. When I look at the segment, you had 3 -- you had the end markets by segment, it's good to see growth in both noncore -- in each of the noncore businesses sequentially. And you mentioned that you had -- it felt like you've hit bottom there. What are you measuring that by? Is it backlog? I guess orders, book-to-bill? What are you looking at that could ultimately...

Well, ultimately, the way we're going to determine the non-A&D business uptick will be on increased backlog, which is driven by the bookings. So what we're -- what we saw in the fourth quarter was, it was down again year-over-year, but up against third quarter. So we did see some increased bookings going into the third quarter and into the fourth. The energy market seems to have picked up force towards the last -- part of last year. So we're not ready to cry victory yet, Ed. We still have a long way to go with those markets. But we're seeing some stabilization, if you will, across-the-board. But the way we measure growth in that market is by increased bookings. And that will forecast revenue base for, at least, 1 quarter and it's usually 90- to 180-day lead time in that market. Edward Marshall - Sidoti & Company, LLC: Going back to that, the $5.3 million, is that -- does that also show up in the AeroStructures segment operating profit, the reversal?

No, that's across the company.

Some of it is -- some of it is in the DAS segment, some in the DLT segment, some in corporate SG&A. Edward Marshall - Sidoti & Company, LLC: Okay. And so, how do I work these charges back out of the model? I mean, if I look at this $14.1 million, it looks like it's an $0.84 impact on a -- and then the $5.3 million comes through various lines.

Well, we had -- your question was, how do we assess the impact? I would say, the easiest way to do that is to look at the corporation in total. And the talking points I made in helping you assess it is $14.1 million less $5.3 million is the $8.8 million pretax charges which is about $5.5 million aftertax using a 37.3% tax rate. And on 10.9 million shares, it's the $0.51. That's the math of it. It's -- I think, from the outside, since we don't break that all down into those 3 sectors that I talked about, how the accrued compensation is impacted, it's probably better to look at it total corporate and then make your own estimates of those based on your experience. Edward Marshall - Sidoti & Company, LLC: Right. But looking at the margins of the individual segments to get a good read on the operating structure and kind of to extrapolate that forward, it would be best to kind of look at the numbers with that backed out, wouldn't that be the right way to...? So having that number accordingly to segment would be helpful; I think. Anyway, we could follow back up with that at a later date.

And the next question comes from the line of Patrick McCarthy of FBR. Patrick J. McCarthy - FBR Capital Markets & Co., Research Division: I was wondering if -- you had talked about some of the new business initiatives that are on the table. And I was wondering if maybe you could talk a little bit about the cadence and the timing, and whether you would anticipate any of that to be impactful for 2014, either from a bookings perspective or from a revenues perspective.

Patrick, I think that from a bookings perspective, we definitely expect to see some of that business in '14. And if it's booked early enough, we have a number of open RFQs right now. So if it's booked early enough within this quarter or the early part of the second quarter, it's possible that we could see some revenue on it. Patrick J. McCarthy - FBR Capital Markets & Co., Research Division: And you -- in the past, you don't obviously mention the Airbus opportunities. Are there other ones that you can mention as well?

Well, we're working on programs in the 3 sectors I mentioned. So we have open RFQs in the engine section and with engine manufacturers, we have open RFQs, there's also in the electronics, military and commercial arena. So and then as well as with Boeing. So we've got quite a bit of open RFQs out there that we're working on to close down. Patrick J. McCarthy - FBR Capital Markets & Co., Research Division: Okay. And then of the international side, you've mentioned that there are international opportunities. Is that through an OEM, or do you have direct relationships there that you're leveraging?

No. It's primarily through the OEMs. Patrick J. McCarthy - FBR Capital Markets & Co., Research Division: Okay. And then, just quickly, do you have anything on the F-16 program, particularly on the international side?

We do, on the F-16 program. We have a radar system on that.

And the next question comes the line of Mark Jordan of Noble Financial.

A question relative to the business activities that generated the charges. Out of DAS, of the $315 million in revenue last year, what percent or what was the level of revenues related to the Embraer and the 777 wing tip programs that now going forward will be breakeven?

The Embraer program, Mark, you asked about what the revenue were related to it, it was still in the development stage. And on our call, we talked about the development efforts that have been going through about from '09 through the end of '13. And in the call, Tony commented, we'll start actually delivering production parts in the second half of 2014. So that was negligible. I commented on -- in our last call that the wing tip 777 programs were rather modest compared to a sizable amount of business that we have on the 777.

Okay. Going back to leveraging off some previous questions, if you were to look at the charges generated on an after-tax basis, the $0.51 loss. The company reported an overall loss of $0.42, which would imply that the base company was profitable to the tune of approximately $0.09 a share. Obviously, below where people would have been looking prior to the announcement. Is this a case where the company was faced with a major -- a couple of major contract issues that had to be addressed, and sort of the decks were washed clean and that's lowered the rest of the profitability of the company in the quarter?

I think, Mark, that there were a couple of things. So Joe did commented -- in his comments about the impact in the fourth quarter for these programs on the DAS earnings. So there was something -- write down, some lack of profitability on those programs which did impact the total AeroStructures earnings. The other impact was in the Ducommun LaBarge Technologies sector where, there was a combination of lower revenue than expected in terms of the non-A&D sales which impacted profitability, as well as an unfavorable profit -- or product mix that we had going through on the electronic side of the business. So those were the combinations of the shortfall in the profitability.

Mark, and then to help quantify this that we put in our disclosures, of the $14.1 million that we took, $7 million was the asset impairment, I'm giving to you, $1.9 million was in inventory reserve write-offs. But there was $5.2 million on the forward loss reserves. So that was the projected amount for us to meet the fulfillments of the contracts what we expect in the future of cash -- of cash requirements given where our -- where we are in our cost curve and the relationship of our selling price to our costs in these contracts. So proper accounting requires that we acknowledge those at some point in time when we determine that those contracts are unprofitable. And by us acknowledging that after doing a body of work, it related to the $7 million asset impairment that we couldn't get profitable on the tooling part of that business.

Okay. And then just to clarify another point, looking at the profitability potential of DAS on an operating basis, over the last 7 quarters, that business has averaged about 9.5%, 9.7% operating profit. With these moves, then you would say that the forward-looking profit opportunity -- margin opportunity in DAS should be at least in the same ballpark if it cannot be improved over time?

Yes, we'd probably look at about -- Mark, as far as the -- and your question was around the profitability of the DAS with regards to impact of these reserves, I would say about 50 basis points would be reasonable over the period of the year.

[Operator Instructions] And your next question comes from the line of Mike Crawford of B. Riley and Company.

Can you talk about what, if any revenue, synergies you might be seeing, like with Raytheon, your other customers as a result of the LaBarge acquisition?

Okay, Mike. You're talking about just what kind of synergies we're getting out of the customers from the acquisition. I think that there's a number of them. Raytheon is clearly one of them, where we have an opportunity to look at multiple applications across the board. We're still, if you look at our order base from the existing Ducommun LaBarge Technologies, there were some existing business units which we're selling to Raytheon prior to the acquisition. And then, of course, we picked up content with the existing acquisition. But I think we've done a pretty good job of working with Raytheon and expanding the base across the board on that, have not really penetrated on the AeroStructures side of the business. However, if you go across the board and look at customers like AgustaWestland, where we had very strong presence with regards to the structures business, we have penetrated that pretty deeply and look to improve our base with them, on their helicopter programs with the DLT side of the business. So as you look across, we have customers that we have introduced across-the-board on both sides of the business. I can tell you that some of the engine manufacturers were able to penetrate -- the engine manufacturer with both segments of the business, and I think that's, as we had previously only worked with them on the structure side of the business. So we're utilizing the existing contact base to further penetrate the company. And we're really selling One Ducommun, I think that's really the most important thing. We've really taken that company and focused on the branding of Ducommun itself, and we're -- we don't go to the market as DLT or DAS. We go to the market as Ducommun. So as we walk in, we're looking for the cross section of applications, whether it's on an industrial application or if it's on a commercial and military application.

And specifically related to your question on the Raytheon revenue synergies, we have increased our sales to Raytheon because of the dynamics that One Ducommun and other factors that Tony talked about from 7% in 2012 to 10% here in 2013. So it's working.

Okay. And then relative to your various programs, can you talk about the level of operational maturity where when you are building tools and ramping up on programs, there's going to be a lower margin and a steeper learning curve, but then margin should be improving as you go forward. And so I know you have a number of different programs at different stages, but if you could characterize where you stand today and where you expect to be in 2014, in terms of that dynamic being more of a headwind or more of a tailwind for your margins in 2014?

I think, Mike, in terms of the product mix in 2014 with regards to new business versus existing base, I would say that we have -- we do have a number of programs in development that are going through, like right now. But a large portion of our programs are in existing production that will impact the revenue base this year. However, we will be in the investment side in terms of tooling and prototype development for a number of platforms. So I would expect that from a margin standpoint, we should be in a position to be able to put ourselves in a position to go forward and improve margins year-over-year.

Okay. And then, last question. What is it in the non-A&D space that is leading towards the uptick in bookings and what looks like could be a recovery of that business for you?

The primary driver has been the oil and gas market, Mike. We saw an uptick, as I talked about earlier, in the third quarter in terms of bookings in that market. So that's kind of kicked in and that's been driven primarily by this reorganization, we believe, in our strategy from the strategic business units. However, some of the other markets are still soft. And so we're not, as I said before, not declaring victory in that marketplace yet.

The next question comes from the line of J.B. Groh of D.A. Davidson. Alex Heinen - D.A. Davidson & Co., Research Division: It's Alex in for J.B. today. So first of all, the C-17 wind down, are you guys expecting that to be pretty linear throughout 2014? Or is that going to be a little bit more lumpy towards the end of the year?

They will probably be lumpy, Alex, towards the end of the year. So we've manufactured the C-17 in a number of business units. So some units will have earlier sales falloff than others. Alex Heinen - D.A. Davidson & Co., Research Division: Okay. And then overall, that program is -- pretty good margin on that program, yes?

Yes. Alex Heinen - D.A. Davidson & Co., Research Division: And then, second one, what are you expecting tax rate for 2014 to be?

31%.

And the next question comes from the line of Mark Jordan of Noble Financial.

Just a quick follow-up. Any guidance that you might have in terms of seasonality in the business in 2014? For example, this past year, the first quarter was by far the weakest from a revenue standpoint. Any comments you could have on what we might -- we should be thinking about?

We've looked at patterns over the last 3 years including the pro forma '11. And the typical scenario is, if we look at the full year by quarter in 2012 -- 2013, Mark, it will be very similar. The strongest quarter is usually the second or third quarter and then the other 2 quarters fall into line, the first quarter and the fourth quarter. We expect -- as we looked at 3 years’ worth of data, they seem to have a repeating pattern.

I would now like to turn the call over to Tony Reardon for closing remarks.

Thank you, Sheila, and thank you, everyone, for joining us today. And we certainly look forward to talking to you in the next quarter. Thank you.