Teledyne Technologies Incorporated (TDY) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, good morning. Thank you for standing by, and welcome to the Teledyne Technologies Fourth Quarter Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Jason VanWees. Please go ahead.

Thank you, and good morning, everyone. This is Jason VanWees, Vice President, Strategy and M&A at Teledyne Technologies, and I'd like to welcome everyone to Teledyne's fourth quarter and full year 2012 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Chairman, President and CEO, Robert Mehrabian; Senior Vice President and Chief Financial Officer, Sue Main; and Senior Vice President, General Counsel and Secretary, Melanie Cibik. After remarks by Robert and Sue, we will ask for your questions. However, before we get started, our attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks and caveats as noted in the earnings release and our periodic SEC filings, and of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay via webcast and dial-in will be available for approximately 1 month. Here is Robert.

Thank you, Jason, and good morning, everyone. We ended 2012 with a very strong quarter. Quarterly and full year sales and earnings per share were each at all-time records. Fourth quarter sales of $567.4 million increased 19.6% compared to last year, and GAAP earnings per share from continuing operations of $1.17 increased 18.2%. Full year GAAP earnings per share from continuing operations were $4.33 and increased for the 11th consecutive year. For the fourth quarter, organic revenue growth was 5.1%, driven by 21.9% increase on organic sales in our Instrumentation segment. Fourth quarter free cash flow of nearly $100 million was also an all-time record. For the full year 2012, free cash flow, excluding voluntary pension contributions, was $184.5 million and exceeded net income for the sixth consecutive year. Throughout 2012, we accelerated our ongoing transformation into higher-technology and higher-margin businesses, serving industrial growth markets, including offshore energy, high-end digital imaging and analytical and electronic test and measurement instrumentation. The shift in our portfolio during 2012 was accelerated by 4 strategic acquisitions as well as a majority controlling investment in Optech, a leading 3D laser imaging company. As we seek to drive growth of new proprietary products and gain market share, R&D expense increased approximately 100 basis points compared to last year in both the fourth quarter and full year 2012. Given our strong fourth quarter sales and the strength of our commercial businesses, we were able to achieve net organic growth for the full year 2012 despite declines in our lower-margin government businesses. Turning to our business portfolio, we continue to experience weakness in certain markets and geographies and tepid growth in others. Nonetheless, the overall balanced mix of our businesses and growth in those end markets in which we made significant investments helped us overcome such challenges. For example, even excluding contribution from acquisitions, overall sales in Europe increased given strong sales growth of our marine instrumentation in the region. We also continued to experience growth in Asia, largely driven by increased sales of marine instrumentation and avionic systems. Finally, I'd like to discuss our operating discipline. Due to challenges in select markets and under ongoing reductions in government spending, we've responded with facility consolidation and a variety of Lean initiatives that accounted for a total workforce reduction in 2012 of approximately 4.3%. I will now comment on our business segment, after which, Sue Main will review some of our financials in more detail and provide an earnings outlook for the first quarter and full year 2013. Turning to our Instrumentation segment, this segment, which is our largest and also most profitable, serves the offshore energy, including deepwater exploration and production, and global infrastructure market, as well as provides a range of both analytic and electronic test and measurement instrumentation. International sales represented over 50% of the segment sales in the fourth quarter. Fourth quarter sales increased 56.2% to $232.6 million with organic growth of 21.9% mentioned previously. Sales of marine instrumentation increased 40% driven by strong organic sales growth of 34.8%. Revenue from virtually all product categories increased compared to last year's, but sales of geophysical sensors and interconnect systems for subsea oil exploration and production was truly outstanding. In addition, revenue from acoustic marine survey systems increased substantially, and sales of complete autonomous marine vehicles nearly doubled. Marine instrumentation continues to be a key strategic market for Teledyne. In addition to a strong share in subsea oil exploration and production market, Teledyne continues to grow in hydrographic survey, that is, ocean mapping market. Sales of environmental instrumentation grew 3.1%, driven largely by increased overseas sales of ambient air monitoring equipment. Teledyne LeCroy, a leading manufacturer of high-end oscilloscopes and other electronic test and measurement systems, contributed $46.5 million of sales. In the fourth quarter, Teledyne LeCroy launched the industry's first line of High Definition Oscilloscopes. The new products are based on the market's only true 12-bit signal acquisition technology, which provides 16x the measurement resolution of the 8-bit technology used by virtually all competitors. This increased resolution is important for an increasing number of customer applications ranging from automotive electronics, components development to mobile devices. The increase in segment operating part -- profit and margin largely reflected strong operating leverage given by the higher sales of marine instrumentation as well as strong margin performance in environmental instrumentation. Turning to the Digital Imaging segment. This segment provides a broad portfolio of visible, including 3D, laser imaging or LIDAR, infrared, x-ray, ultraviolet sensors, cameras and software. Fourth quarter sales in Digital Imaging increased 11% compared to last year, with the revenue growth due to consolidated results of Optech. Sales of x-ray sensors for medical applications largely offset decreased sales of certain sensors for scientific applications. Sales of industrial machine vision systems increased slightly compared to last year's, and also sales of infrared sensors, cameras, optics, also increased collectively but were offset by reduced sales from lower-margin government funded research programs. Segment operating profit and margin improved but continued to reflect over 300 basis points of intangible asset amortization, reinvestment of all our profit from our scientific R&D centers and the declassification of Canadian R&D tax credits from above-the-line segment income to below-the-line provision for taxes. Turning to our Aerospace and Defense Electronics segment. Fourth quarter sales decreased marginally compared to fourth quarter of 2011. Sales of higher-margin avionics and other commercial electronics increased while sales of microwave devices and interconnects also increased slightly due to acquisition of VariSystems. The overall decline in total segment sales primarily resulted from decreased sales of lower-margin government electronic manufacturing services. Segment operating margin declined, due in part to charges for severance and relocation, as we are consolidating operations in our government businesses to drive down our cost structure in this segment. Turning to the Engineered Systems segment. Fourth quarter revenue decreased 1%, but operating margin improved 24 basis points. We expect the performance of this segment, which is largely government-focused will remain challenging in 2013. However, we continue to reposition this business with a greater proportion of manufacturing and commercial sales and greater ability to pull through systems and services sales from our other segment. For example, this segment is leading the delivery of our marine instrumentation autonomous underwater vehicles for the U.S. Navy. In addition, in November 2012, we announced that this segment, in conjunction with our environmental instrumentation business, will lead an on-site and off-site management and support of research services for a number of sites for Dow Chemical. In conclusion, despite continued economic and government funding uncertainty, we ended 2013 with the strength of our balanced business portfolio, and now, we have the greatest proportion of commercial and international sales in our history. Finally, before I turn the call to Sue, I want to make a few general comments regarding our 2013 outlook. First, our full year 2012 earnings per share included net tax benefits of $5.4 million or approximately $0.14 per share. Second, because of the record low discount rate, we expect to have approximately $0.15 per share in additional pension expense in 2013 compared to 2012. In other words, we began 2013 with nearly $0.30 per share in EPS headwind. I will now turn the call over to our new CFO, Sue Main. Sue?

Thank you, Robert and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our first quarter and full year 2013 outlooks. Regarding earnings per share, the fourth quarter of 2012 included $1.1 million of net tax benefits. However, it should be noted that operating profit was impacted by $1.7 million of pretax severance and relocation costs associated with certain electronic manufacturing services businesses. Turning to cash flow. In the fourth quarter, cash provided from operating activities from continuing operations was $121.9 million compared with $79.8 million for the same period of 2011. The higher cash provided by operating activities in the fourth quarter of 2012 primarily reflected the impact of higher net income and lower income tax payments. Free cash flow, that is cash from operating activities less capital expenditures, was $99.6 million in the fourth quarter of 2012 compared to $65.7 million last year. For the full year 2012, free cash flow was $124.2 million. Adjusting for the pension contribution net of taxes, free cash flow was $184.5 million or 114% of net income. Capital expenditures were $22.3 million in the fourth quarter compared to $14.1 million for the same period of 2011. Depreciation and amortization expense was $21.9 million in the quarter compared with $16.8 million last year. For the full year 2012, capital expenditures were $65.3 million, and depreciation and amortization expense was $78.3 million, with the amortization expense portion at $29.3 million or almost $0.55 per share. We ended the quarter with $512.4 million of net debt; that is, $558.2 million of debt and capital leases less cash of $45.8 million for a net debt-to-capital ratio of 29.8%. Turning to pension and stock compensation expense. In the fourth quarter of 2012, gross pension expense was $1.6 million compared with gross pension expense of $1.5 million in the same period of 2011. Stock compensation expense was $2.1 million in the fourth quarter of 2012 compared with $1.5 million in the fourth quarter of 2011. Finally, turning to our outlook. Management currently believes that GAAP earnings per share from continuing operations in the first quarter of 2013 will be in the range of $0.97 to $1 per share. We expect full year 2013 earnings per share of approximately $4.42 to $4.46. As noted in the earnings release, the discount rate for our domestic pension plan will decrease to 4.4% in 2013 from 5.5%. Finally, the 2013 full year effective tax rate is expected to be 31%, the same as in 2012, excluding nonrecurring tax benefits or adjustments in both years. As we experienced in the fourth quarter of 2012, we expect additional severance and relocation costs associated with operations in the first half of 2013. I will now pass the call back to Robert.

Thank you, Sue. We would now like to take your questions. Tom, if you're ready to proceed with the questions and answers, please go ahead.

[Operator Instructions] Our first question today comes from the line of Tyler Hojo representing Sidoti & Co. Tyler Hojo - Sidoti & Company, LLC: Just firstly, I was hoping that you could maybe just give us an update of what the end-market mix is today. And then just to follow up on that, I'm just wondering, if we look at your 2012 guidance, what's your kind of sales growth or sales decline expectation in those individual end markets?

In Q4, our end markets were as follows. We had about 32% the U.S. government in sales, about 28% in U.S. commercial sales, and the remainder, or 40,% in international sales. We think probably next year, we would have an organic growth of low single digits, maybe 2% to 3%, maybe a little bit more. We expect that U.S. sales will -- in the government businesses will decline as we consolidate more of our businesses there, especially in electronic manufacturing services. Tyler Hojo - Sidoti & Company, LLC: Okay. Great. And I believe in Sue's comments, you made reference to some additional severance and relocation expense that's kind of baked into that guidance range. Could you perhaps quantify what the expectation is there?

I think in the first half, we probably will have something similar to what we had in the last quarter, probably. If not we have 2 quarters, so it would be about $4 million in that range. What we're doing there, Tyler, is we've already begun relocating our major electronic manufacturing services from Los Angeles area partially to another facility in California in where we make relays, solid state and mechanical relays. And the remainder of it, the majority of it is going to our main Lewisburg, Tennessee facilities. And that will happen probably by summertime, we should complete that transition. Tyler Hojo - Sidoti & Company, LLC: And just lastly for me, I think in the last conference call, we were talking a little bit about a new reservoir monitoring system. I think it was already developed at that point, and you had installed it with a customer in Brazil. Any update on that?

Well, like I said, we don't have -- that system went live around Christmas time. It's an optical system that's sitting at the bottom of the ocean at about 1300 meters depth or about 4,000 feet. The system seems to be operating all right. We -- 99-plus percent of our sensors are working properly, but it's probably going to take another month, 1.5 months before our customer is able to analyze all the data and be able to give some report on it. But so far it seems to be doing okay. Tyler Hojo - Sidoti & Company, LLC: Okay. And based on that comment, would you expect to see some follow-on order some time in the first half, or is that being a little bit too optimistic?

First half may be a little too early, but I can tell you that if that system is operational, over the long term, it should provide a really good complement to our other products that we make for oil production and oil exploration. This is a very small area that's covered and we -- if the tests work out, that should be pretty good. We also have another customer, other customers I should say, that we're making systems for reservoir monitoring, different types of systems, but they're also in tests right now.

Our next question comes from the line of Jim Ricchiuti with Needham & Co. James Ricchiuti - Needham & Company, LLC, Research Division: The question I had is regarding Teledyne LeCroy. It looks like the revenues on a year-over-year basis were down about 8%. Do you get a sense as you look out in the March quarter that the market is beginning to stabilize, or would you anticipate another modest decline in the March quarter on a year-over-year basis?

We -- I think every thing is stabilizing there. We might have a slight decline in the March quarter, but it's not -- we don't view that as a serious -- as I mentioned, Jim, the High Definition Oscilloscopes that were introduced by LeCroy are really gaining market share and doing very well, so any fallout in some of the other businesses that they have or other products that they have should be partially offset with those new products, which are selling very well. James Ricchiuti - Needham & Company, LLC, Research Division: Got it. And then just turning to the Digital Imaging segment, it looks like, excluding Optech, that the business was down about 3% or so. I wanted to just follow up on some of the comments you made. I think I heard that you said the industrial machine vision was actually up slightly. So the decline was primarily in the scientific area?

Yes. We have a major customer overseas that -- in the vision system area that we had a delivery in 2011 in the fourth quarter, a significant delivery, which didn't occur in the fourth quarter of 2012. Overall, the machine vision system is relatively flat, maybe up a little bit. Where we had the decline was in the government R&D segment, which as you know, we don't take any profit in that segment. Overall, the segment did very well. More importantly to us, in the area of very high-end space-based sensors and systems, we are gaining traction with proprietary customers where we have now increased our revenues to about $20 million a year, and we have significant orders going forward. James Ricchiuti - Needham & Company, LLC, Research Division: On the machine vision side, on the commercial side of that business, again, does it look -- does the outlook for the March quarter appear stable? Are you starting to see some signs of improvement in the market?

I think it depends on which area of the world you're looking at. I think in the Americas, things are relatively weak, not really improving that much. We're more confident in what is happening in Europe, maybe a little more recovery also in Asia, even though Asia is relatively volatile. The one area that I didn't mention earlier where we are seeing some significant improvement is in our CMOS x-ray sensors for dental and surgical imaging applications, real-time surgical imaging applications. There, we're seeing significant improvement in revenues.

Our next question comes from the line of Jeremy Devaney of BB&T Capital Markets. Jeremy W. Devaney - BB&T Capital Markets, Research Division: I wanted to circle back on some data points quickly first. Q3 international sales and U.S. government sales were what?

Q4, I said they were 40% above. I can't dig out Q3. International sales were about 40%. Government sales were about 32%. Jeremy W. Devaney - BB&T Capital Markets, Research Division: And then funded backlog for both Q3 and Q4?

I would say our funded backlog right now is about a little over $860 million. Jeremy W. Devaney - BB&T Capital Markets, Research Division: All right. I wanted to follow down the same vein as Tyler, looking at some of these end-market growth rates. About midyear last year, you gave -- or midyear 2012, you gave us a pretty nice breakout on growth rates during the call, where you said government sales were down about 7% and commercial sales were up 7%. How have you seen that change through the back half of 2012, and can you give us a little bit more color along those lines looking forward?

Jeremy, government sales for year-over-year, or just the total year, were down about 4% to 5%. International sales were up about 7%, and these are organic. And U.S. commercial went down about 2%. All organic numbers that I'm quoting. Jeremy W. Devaney - BB&T Capital Markets, Research Division: Okay. And when we look at your 2013 guidance, can you help us understand the underlying assumptions? It looks like it's a little bit more optimistic a starting point than the prior 2 years. And I wouldn't call it overly growthy, but it's a little bit -- it shows a little bit more growth in than the prior 2 years. And I was wondering what kind of assumptions are underlying that, both on the government side, with whether you're anticipating a full year CR or any impact from sequestration, and then sort of what your global perspective is for global GDP?

Yes, I think partially, we're a little more bullish than previously for a good reason. And that's because our portfolio is different as we go from year-to-year. We have a much better-balanced mix of businesses as I indicated before and -- kind of better balanced both in terms of technology as well as end customers. So it's unlikely that all of our customers, internationally, domestically and government, all of them would go down all at the same time. So having said that, we are not bullish about the U.S. government revenues going forward. We have been posturing our company with the last 6 years for just such eventuality that we're facing today. Our government sales have gone down significantly. They're just north of 30%. I expect -- to answer your question directly, I expect them to go down again next year. We -- about 10 years ago, we had 16% of our business was in electronic manufacturing. Next year, I expect after the consolidation, that will drop down to about 5%. So the government businesses are going to be under pressure, especially the defense businesses. Now I don't know what sequestration would do if it were to happen. It'll affect us somewhat, but remember, we only get about 22% of our profit from U.S. government businesses, and some of those are, of course, NASA businesses. In terms of International businesses, we expect to see some growth there, maybe 1% or 2% above where we are, which is 40% now, and U.S. commercial businesses, probably low-single digits. I don't know whether that helps you, Jeremy. Jeremy W. Devaney - BB&T Capital Markets, Research Division: It definitely does, Robert. Last question before I hop back in queue. Looking across the portfolio, there's been a lot of movement in the back half of last year. And I was wondering, on the M&A front in terms of the portfolio, where are you looking to grow the portfolio? Where are you seeing the most opportunity or the most risk within the portfolio? And lastly, how are you thinking about pricing?

Let me start at the very end, which is the risk in the portfolio. The risk in the portfolio, as I indicated and as you, more than anybody else, is cognizant of, is in the government, especially in defense, government defense businesses, and we're taking care of that by just consolidating facilities both in Los Angeles and in Northern California. We've already consolidated one facility, and we're in the process of doing 2 more. Going to the acquisition front, we're going to be consistent on that. Our investments are going to be in instruments. In the instruments domain, obviously, where we are very excited about is our Marine businesses, Underwater Imaging businesses and now of course, our test and measurement platform around LeCroy. In the Digital Imaging businesses, we intend to expand that business with opportunistic acquisitions. We have probably collectively spent somewhere around $600 million to $650 million in that domain, and we'll make more investments there. In terms of multiples, our average multiple that we paid for businesses heretofore has been 8.7x EBITDA. Sometimes we've gone up, sometimes below, but generally, that's where we are. We're fortunate that after 2 or 3 years, when those businesses are on your portfolio, what we've end up looking at what we paid for it's closer than 6 to 7 rather than 8.7. And that's how we prove our margin.

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

A question in your guidance for 2013. You said it was exclusive of any specific tax benefits, but with the passage of recent tax laws, you will be able to recapture investment tax credits for 2012. Could you say what difference that should have in terms of the expected tax rate form in the first quarter from your statutory 31% that you're expecting?

It could be, Mark, it could be as much as $0.05, maybe $0.05, $0.06 in earnings, but maybe $1.5 million -- but that's less than $0.05, $1.6 million. That's offset, of course, Mark, with our relocation and consolidation. We still have severance costs that we have to address as well as relocation cost of a major facility.

Okay. Relative to that relocation, I have seen that -- articles in Lewisburg that they're expecting a significant increase in employment there. Is that all business that is transferred or is there any sort of new business that's been awarded to the company that's causing that usage of square footage and headcount to go up in Lewisburg?

I think most of it is transferred. We expect some uptick also in terms of new business as we consolidate those facilities. But most of it is transferring work from California to Lewisburg.

Okay. It was noted that you made an $83 million pension contribution. That's up -- 2 years ago it was $44 million, last year it was $60.3 million. Is that $83 million reflective of what the outflow on the fund was that year? Or is the declining discount rate that you're assuming also increasing your contributions?

That's a good question, Mark. We have a policy in the company replenishing the pension with equal to the outflow in terms of payments made to retirees. Last year -- and that is about $41 million to $42 million a year. What we did last year in the $62 million plus is $42 million of that was going to replenish what we paid out. The rest of it, the $20 million, we made an offer to people who are vested in our pension but have left the company but are not yet retired. So they're not receiving pension. We made an offer to them, if they wanted to, we would use government rate calculations as appropriate and pay them their pension in one lump sum. And a number of people selected to do that. That, of course, decreases our long-term liability when we can do that. So that was about $20 million, $22 million. This year's $83 million, Mark, really is based on the following: we're replenishing the 41542 that we will be paying out this year, but we also put the money forward for next year, 2014, which is the same amount. Partially, we did that because with the decline in the discount rate and the liability going up, we wanted to get our pension funding up in the 90-plus percentile to ensure that we didn't have too much of a headwind from pension in our earnings per share. As it is, we have about $0.15 of earnings per share headwind.

Last question. You have a very impressive improvement in the op margin in the instrumentation group sequentially from 15.4% to 20.1%. Could you talk a little bit about why you -- what caused that very strong improvement sequentially? And secondly, what is a more normalized margin for the Instrumentation group that we should assume or look for in 2013?

I think 2 things. First, because we had such a strong growth in our marine instrumentation for oil and gas especially, we had going forward from -- where in Q3 our margins there -- in Q3 our bookings there were 1.3 to a little more. So we had a great quarter because we have really good bookings in quarter 3. In quarter 4, our bookings have gone down to more of a historical normal, which is about 1, maybe a little bit below 1 right now as we're looking at it. So what I expect would happen next year, if you look at the whole year in the margins for the instrumentation segment, it's about 18%. We expect that to go down a little bit in the first quarter because LeCroy, as you know, as an acquisition, we have a lot of intangible amortization there. And so our margins will go down the first quarter, closer to 15%, 16%, but then it will pick up the rest of the year and probably end up the year around 17.5-or-so percent.

Our next question comes from the line of Michael Ciarmoli with KeyBanc Capital.

Robert, just to stay on that, I want to make sure I heard that correctly. Instrumentation margins end the year, was that full year 17.5%, which would imply, I guess, some contraction on a year-over-year basis?

Yes, this year, we ended up full year at about 18%, 18.2%. We expect that next year, we'll end up -- to say what the margins are a year in advance, I'm kind of have a lot of assumptions in there. But right now, we're looking at 17.5% for the full year, but increasing sequentially every quarter. The problem there, as I indicated, is it reflects full year of LeCroy in our instrumentation portfolio. While LeCroy's EBITDA is pretty good and is kind of consistent with the rest of our instrumentation businesses, we do have a significant amount of amortization and also depreciation there. So that we will be experiencing full year of LeCroy, whereas this year we only had 5 months of LeCroy. So actually, if you look at our amortization across all of our businesses, we don't do adjusted earnings, but if we were to do adjusted earnings, we'd have another $0.53, $0.52 of earnings from just amortization. So I think that's what you're seeing.

Yes, and you kind of jumped to my next question. So if I were going to try and get some adjustments to earnings, $0.52 in amortization, you've got roughly $0.07 or so in the severance, and you've got $0.15 of headwind in pension. So kind of the reported GAAP clearly a bit depressed from those adjusted cash earnings, I guess.

Yes, you're correct. Our -- if you looked at our 2012 EBITDA, it's about $320 million. So -- and about 15.2%. So that's another way of looking at it. But we don't, as I said, we don't do adjusted earnings at Teledyne.

Got you. Okay. And then can you maybe give us an update? It seems like there've been some decent wins in some of those Engineered Systems businesses, certainly over the last year. I mean, are there any other programs that are out there that you see on the horizon? Obviously, the defense markets are challenged, but are there any opportunities that you guys are tracking right now?

Yes. In the Engineered business -- Systems business, there are 2 or 3 big programs. The first one is the one that we're not really recognizing revenue or profit from, and that is the high-resolution Earth imaging system that we have an agreement with NASA to put on the International Space Station. That's a multiuser system for looking at the Earth, and we -- that will come to fruition probably 1.5 years out, and we're building the instruments for that. We're building both from using our own stuff here at Scientific & Imaging but also other people's instruments. And we are -- so that's one. The other one is, of course, the shallow water vehicle which we're in development program now, and the engineering development will last until the middle of 2014. And that's about $42 million, but after that, we'll go into production on that system, and that's going well. The last one is we are the prime on Objective Simulation program for missile defense that essentially permits us to develop for the government missile scenarios and be able to do modeling of all aspects of missile defense. And that program is an over-$500-million program. It's a multiyear program. And our expectations are that, that will keep us stable. The only thing that we are obviously cognizant of is any effect of sequestration on our business. And a part of the 4.3% that I mentioned in reduction in our workforce is actually in our Systems Engineering business. We've had to take some serious cuts there in order to lower our rates to remain competitive.

[Operator Instructions] And we'll go to the line of Chris Quilty with Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: Robert, a follow-up on the missile defense. I think they're testing the ground-based missile defense system, first time in a couple of years, if I remember correctly. You often picked up some favorable award fees if -- on successes. Is there a possibility of that this year?

Marginally, very little. What's happened to us -- we're talking about $500,000 which doesn't move our needle much. But I'll take all I can get there, because that's been a tough road for us. And if that goes the way we think it might, our only hope is to just kind of keep on with the Objective Simulation Framework because a lot of our Systems Engineering, their technical assistance programs have essentially disappeared. We used to get tens of millions of dollars in that, but I think going forward, we'll be estimating $6 million to $7 million a year. So I'm not very gung ho on missile defense, especially when you heard the discussion with Vladimir about our accommodations. Chris Quilty - Raymond James & Associates, Inc., Research Division: How about the East Coast battery, would that represent some upside to the business?

No. I think that's fairly -- hopefully that will remain stable I guess. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. Just a clarification, the $0.07 of severance cost, was for first quarter or for full year?

That would be the first half of the year, Chris. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And can you remind us what the total severance cost, consolidation costs were for 2012?

I have the fourth quarter numbers in front of me. It's about $1.8 million. The first-- I don't know how much we had in the beginning of the year, but I do know in the next 2 quarters, we'll have -- each quarter, we'll have an equivalent amount, maybe a little more. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And back to the segments. I know you gave sort of guidance of where you think your business will go by government, International and U.S. commercial. But can you give us a sense of where you think the 3 -- or, sorry, the 4 operating segments will fall out in terms of growth rates for the full year?

All right. The Instrumentation businesses should go up a reasonable amount, partially because LeCroy acquisition would be annualized. So I would say year-over-year, they'll be probably up about 15%. Now, in terms of organic, my guess is probably in the lower-single digits. In the Imaging businesses, I'm going to say we expect about 5% growth at this time. And in the Aerospace and Defense businesses, probably expect 5% to 6%. And in the Engineered System businesses, we expect some decline. Chris Quilty - Raymond James & Associates, Inc., Research Division: So the Aerospace Defense is 5% to 6% growth?

Growth. It's partly because if we can get this consolidation behind us, it's the second half of the year. The first half, we're going to have some decline, because I think there's going easier comps, too, going forward. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And I know at Teledyne the margins only get better as you go forward has been the trend. But as you look across the 4 segments, is there a particular area where you think there's the most upside in terms of margin improvement?

Initially, our margins are going to go down to -- in the first quarter because of -- we allocate both pension to the segments and also because of the restructuring that we're doing. But throughout the year, I expect that our margins will increase. I'm hopeful that we'll end the year with maybe a little better margins than we had this year. We're going to work very hard to do that, of course. And that's how we kind of keep that momentum in our earnings. If we hit the $4.42 to $4.46 that we're guiding, that will be our 12th consecutive year of earnings growth. So that would be really good if we can do that.

Gentlemen, there are no more further questions at this time.

Thank you, Tom. I will now ask Jason to conclude our conference call.

Thanks, Robert. And again, thanks, everyone, for joining us this morning. And if you have any follow-up questions, please call me at the number listed on the earnings release. And again all the news releases are on our website, teledyne.com. Goodbye.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation in using the AT&T Executive Teleconference. You may now disconnect.