Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne Fourth Quarter Earnings Call. [Operator Instructions] 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.

Good morning, everyone, and thanks for joining us. This is Jason VanWees, Senior Vice President, Strategy and M&A at Teledyne, and I'd like to welcome everyone to Teledyne's fourth quarter and full year 2013 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining us today are Teledyne's Chairman, President and CEO, Robert Mehrabian; Senior Vice President and CFO, Sue Main; and Senior Vice President, General Counsel and Secretary, Melanie Cibik. After remarks by Robert and Sue, we will answer your questions. Of course, before we get started, 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 disclosure, this call is simultaneously being webcast, and a replay, both via webcast and dial-in, will be available for approximately 1 month. Here is Robert.

Thank you, Jason, and good morning, everyone. Our fourth quarter sales of $596.6 million increased 5.1% compared to last year. GAAP earnings per share from continuing operations of $1.44 increased 22.1% and was an all-time record for any quarter. On a full year basis, we achieved our 12th consecutive year of GAAP earnings growth. The strength of our high-technology industrial businesses continues to propel our growth. In the fourth quarter, our instrumentation segment had record quarterly sales with organic growth in each of our product categories. And for the full year, instrumentation sales exceeded $1 billion for the first time. In marine instrumentation, we acquired CDL, a provider of small form factor subsea inertia navigation system and motion sensor system, especially well-suited for remotely operated underwater vehicles, further enhancing our product portfolio in the offshore oil and gas market. Our commercial aerospace business also performed extremely well all year, developing new products and gaining share in this growing market. For example, during the quarter, we announced a landmark single-source contract under which we will supply unique aircraft information management solutions for the majority of future Boeing aircraft. Throughout 2013, we also undertook aggressive actions to consolidate our businesses and lower our cost structure, reducing our exposure to weak end markets and high-cost location. In the fourth quarter specifically, we have further pretax charges of $5.3 million related to severance and facility consolidations. These were offset by a legal settlement gain of $3.6 million and a net discrete tax benefit of $6.1 million. For the full year, we had total pretax severance and facility consolidation-related charges of $24 million, offset by net discrete tax benefits of $21.3 million. Through year end 2013, we announced headcount reductions equaling 4.8% of our total workforce. This is in addition to a reduction of over…

Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter that were not covered by Robert, and then I will discuss our first quarter and full year 2014 outlook. Regarding fourth quarter earnings per share, I wanted to note that earnings included $5.3 million of pretax severance and facility consolidation expenses, offset by $6.1 million of discrete tax benefit. Turning to cash flow. In the fourth quarter, cash flow from operating activities was $98.5 million, compared with $121.9 million for the same period of 2012. The lower cash from operating activities primarily reflected severance and legal settlement payments in the fourth quarter of 2013. Free cash flow, that is cash from operating activities less capital expenditures, was $79.9 million in the fourth quarter of 2013, compared to $99.6 million last year. For the full year 2013, free cash flow was $131.5 million. Adjusting for pension contributions net of taxes, free cash flow was $182.9 million, approximately equal to net income. Given our strong cash flow, fully-funded pension plan and our stock repurchase program was approximately 1.8 million shares available, it is our current intention to deploy some cash flow on stock repurchases in 2014. Capital expenditures were $18.6 million in the fourth quarter, compared to $22.3 million for the same period of 2012. Depreciation and amortization expense was $24 million in the quarter, compared with $21.9 million last year. For the full year 2013, capital expenditures were $72.6 million and depreciation and amortization expense was $91.1 million, with the amortization expense portion at $31.5 million or approximately $0.60 per share. We ended the quarter with $486.5 million of net debt, that is $552.5 million of debt and capital leases less cash of $66 million for a net debt-to-capital ratio of 24.3%. Turning to pension and stock compensation expense. In the fourth quarter of 2013, gross pension expense was $4.5 million, compared with gross pension expense of $1.6 million in the same period of 2012. Stock compensation expense was $3.1 million in the fourth quarter of 2013, compared with $2.1 million in the fourth quarter of 2012. Finally, turning to our outlook. Management currently believes that GAAP earnings per share from continuing operations in the fourth -- first quarter of 2014 will be in the range of $1.08 to $1.14 per share. We expect full year 2014 earnings per share of approximately $5.06 to $5.12. The 2014 full year effective tax rate is expected to be 30%, excluding discrete items such as nonrecurring tax benefits or adjustments. I will now pass the call back to Robert.

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

[Operator Instructions] Our first question comes from the line of Jim Ricchiuti from Needham & Company. James Ricchiuti - Needham & Company, LLC, Research Division: First question I have is just with respect to the instrumentation business. Robert, I wonder if you can give us some sense as to how you see that business unfolding in 2014. It sounds like the LeCroy business is picking up. It sounds like you're still seeing good growth in the offshore energy market. How do you see the business over the course of the year?

I believe that we will have some nice organic growth in our marine sensors and oil and gas businesses in the mid-single digits. I think in our environmental businesses, we should see almost double-digit growth. This would primarily be because we're selling a lot of products, including air quality monitoring products, to countries like China. And in the test and measurement, which is the LeCroy, I feel we're pretty much stabilized. The market's actually down a little bit there. We're holding our own. I think next year should be about the same as this year, maybe just a little gain. So overall in the instrumentation market, Jim, I think we should have single-digit growth somewhere between 5% and 8% next year. And we also should see some improvement in our margins because of some of the actions that we've taken. James Ricchiuti - Needham & Company, LLC, Research Division: Got it. In the business, and I'll jump back in the queue, but I have a similar question with respect to Digital Imaging, where the performance has been a little bit more uneven, and I wondered if you could talk a little bit about how you see the outlook for that business this year?

Yes. In Digital Imaging, we have really 3 pieces that we look at. First is DALSA. Actually, this quarter DALSA's revenue was up $10 million over last year fourth quarter, both in our machine vision and our life sciences x-ray products that we sell. The negative that we have there, which offset this positive, while we have reduced sales of cameras, especially in our imaging business here in California to the government, and we had reduced sales of LIDAR products primarily, again, to government agencies. Going forward, for next year, we believe that the -- generally, the DALSA business should see single-digit growth. Overall, we think the growth of this whole segment should be in 3% to 4% organically. But we also believe that we should have some really good gains in our margin, primarily because collectively out of the 860 or so folks that have left the company, about 180 of them have been in Digital Imaging, about 50 here in California, about 15 are semiconductor operations, about 50 at Optech and about 30 in our Eastern Canadian headquarters. So with that cost structure, I think we're better poised to improve our margins in this segment.

Next we go to the line of Mark Jordan with Noble Fin (sic) (Financial).

First question, relative to the overall cost savings that you -- the $24 million that you've spent. As you view this, is this a function of an opportunity to improve margins or is this maintaining this cost structure appropriately sort of to maintain the historical profit margins you've had in those businesses?

No. Our aim, Mark, is to improve our margins going forward. What has happened is that some of the costs we took out were really related to, as I mentioned, to reduce our exposure to government programs and high-cost regions like California. For example, Mark, you made a call in California at one time, we have 350 people in our microelectronic facilities in Los Angeles. That operation has been closed down. A small fraction of those people have moved to Tennessee, where we have another facility, and the combined operations then, not only is more profitable with improved margins, but can offer our customers a broader range of products. So the answer to the question is we've reduced our exposure to government businesses that we really are worried about, like electronic manufacturing. And then, we expect -- because of that and because we've also reduced our costs in some of our commercial businesses, we expect our margins to improve as we go forward.

Good. A year or so ago, you won a development contract for, I think, the special forces, submersible delivery vehicle. How is that program going with regards to development? And when might it enter into a production phase and what might be the impact of that production phase?

Yes. That's shallow water underwater vehicles. It's -- right now, it's in preproduction. We're going into making some preproduction units. I think that will go into production in 2015. We should be in full production. And when we get there, that should benefit us about $35 million to $40 million a year in revenue.

All right. Last question for me, if I may. The instrument segment margin was -- for the year of 2013, it was 15.9% [ph]. The prior 2 years, it was 18% to 19.9%. The decline that you experienced in 2013, can you sort of parse that, those pressures between pricing mix and restructuring costs?

We had -- I'm trying to get the numbers. On the charges in instrument segment, I'm going to say total charges were about $2.5 million. The decline -- some of the decline in margins was due to the acquisition of RESON. RESON had lower margin and more intangibles. And then we also acquired CDL. The combination of those 2, some of the expense in the acquisition process, as well as the fact that, especially RESON, as a beginning Teledyne company, had lower margins. It pulled down some of our margins. But I think, going forward next year, we expect the margins to again improve over 2013, Mark.

Your next question comes from the line of Tyler Hojo with Sidoti. Tyler Hojo - Sidoti & Company, LLC: Firstly, I was hoping that maybe we could just continue the segment discussion in regards to 2014 guidance. You addressed instrumentation and Digital Imaging, maybe you could discuss A&D Electronics and Engineered Systems?

Sure, Tyler. I think, in terms of revenues in the electronics, I think revenues are going to be pretty flat. We can -- we will have some revenue improvements in aerospace products, the one that we mentioned about making product information systems in commercial aircraft. We'll have some improvements there in the single digit. We expect our interconnect products to have high-single digit pickups, but we expect some decrease in our microwave solutions business, primarily because we had a very large program, counter-IED program in the U.K. this year, about $40 million, which won't repeat itself next year. So we expect almost double-digit decline in the microwave solutions. But I have to say that the rest of our microwave businesses, especially with the government, have not only stabilized now, but we've gotten some new programs. So overall from a revenue perspective, I expect that segment to remain flat year-over-year. On the other hand, because of the significant cost reductions that we've undertaken, especially in our contract manufacturing, which was unprofitable because of the losses we took for restructuring. And because of the improvements in cost structure, we expect to see a double-digit improvement in our earnings in that segment. Going to the Engineered System segment, the situation there is really more complex than the one I just mentioned. I think, again, we should have lower single-digit revenue increase there, primarily some improvement in our Engineered System business, especially in manufacturing. Our turbine engines seem to be doing stabilized and doing okay because of both JASSM production, as well as some F&S sales that are coming. I think, again, we should see a little margin improvement there, relatively flat sales maybe in the -- maybe a little organic growth in the lower-single digits. Overall, if you want to put things in perspective, in 2013, overall, our U.S. government sales went down about 7.5%. Broadly speaking, overall, on average our commercial sales went up about 7% organically. And we think, organically, as a result of those 2, we have sales gains of -- I'm going to say about 2% for the year. We expect that to be about the same for 2014 across our segment with some deep puts and takes. Our government businesses are going to be a little lower, our commercial businesses are going to be a little higher. But as I mentioned to Mark's question earlier, I expect that our margins next year will improve, and that's why Sue put the guidance out, that it's at the $5.06 to $5.12 at a 30% tax rate earlier. Tyler Hojo - Sidoti & Company, LLC: Okay. Great. And maybe just one clarification in regards to your revenue outlook, maybe 2 clarifications. What percent of overall sales is defense today? And what are you anticipating that the CDL acquisition adds to 2014?

I would say our government sales, because I kind of -- we do have sales to NASA as well as defense department. So if you'd log those together, that's a little over 25%, maybe 26%, 27%. CDL, if you went to a full year for CDL, I think that's about, annualized, it's about $15 million. Tyler Hojo - Sidoti & Company, LLC: 5 0, you said?

No. 15, 1, 5. Tyler Hojo - Sidoti & Company, LLC: Okay. All right. Got it. And then maybe just lastly for me. If you could just perhaps comment on free cash flow in 2014, that would be great.

Right now, we expect it to be about the same level as this year. I think net income should be about what we expect net income to be, between $180 million and $200 million. And that's why we -- and by the way, we made a pension contribution, Tyler, this year for 2 years, for 2013 and 2014. So we don't have to make a pension contribution in 2014. That's why Sue mentioned that we believe we'll have a little extra cash to kind of start buying some of our stock back to kind of offset the dilution we're getting from our stock option.

Our next question comes from the line of Kevin Ciabattoni from KeyBanc Capital.

I know you mentioned some further consolidation in Q1 here. Just wondering if you could maybe quantify your expectations for kind of additional consolidation and severance-related charges in '14?

I think it's going to be minimal, Kevin, maybe $1 million, $1.5 million that I see. And that's primarily because of the remaining 4 sites that we're pulling back together. We didn't completely get all 15 sites done in 2013. We still have to move some manufacturing from San Diego up to our microwave facility and a couple other things. But by in large, Kevin, I think -- except if something happens to our markets, I think we're done with that for now.

And that $1 million to $1.5 million, that will all be in Q1 or is there going to be some spillover into later in the year?

No. I think it'll be -- I think we should be finished with it in Q1.

Okay. And then looking at the machine vision in the quarter, just wondering if there's any specific pockets or end market industry, if you will, that drove the growth there in the current quarter at DALSA?

I think primarily we're seeing some improvement in the general industry and in some in semi. The interesting thing for us there are 2 new things. One of them is our x-ray products. We have this CMOS x-ray detector that are much more sensitive than the amorphous silicon detectors, and we're gaining market share there. And that improved in the year this year. And the other one is that we have better machine vision products. Again, we came out recently with some CMOS products, introduce new CMOS products there. And that's been helpful to us. So we're fairly positive about our -- that part of our imaging business.

Okay. And then just one last one for me. Just wondering, as you kind of formulated your '14 outlook here over the last few weeks. Has that -- did the recent government budget deal kind of change how you were looking at defense for '14? Or does it not have much of an impact?

What -- I think right now we think some of our programs have stabilized. We were really worried for a while because we were not getting some of the orders that we normally get from the depots, for our -- for example, our various connectors and other things like traveling wave tubes. But we've seen some stabilization of that. We did get some nice orders in -- from the Navy, for 1,600 traveling wave tubes for the weapon system in the Aegis. I think U.S. may be a little better going forward. On the other hand, in U.K., because of that big program that we enjoyed in 2013, that's counter-IED program, which we delivered everything, $40 million worth. There the comps are going to be negative because we won't have that program in '14. So it's a mixed story, with the U.S. a little improved and then the comps in the U.K. being a little more difficult for us.

Next we go to the line of Chris Quilty with Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: Robert, I just want to clarify something. I think you said earlier in the text that the overall U.S. government was down 7% and you're expecting it to be down a little more in this year, is that correct?

Yes. Overall government for 2013 was down about 7.5%, the U.S. government, where a couple of percent improvement in Q1 and then it went soft from there on. So we have double-digit decreases in our government programs in the last 3 quarters. But we think, going forward, that's going to not be as bad. I think it stabilized, except for the weakness that I said in the U.K. Chris Quilty - Raymond James & Associates, Inc., Research Division: Right. So would the decline -- you're expecting a further decline in 2014 in the defense business or flat?

I think it's going to be flat. I think the only area that we think there might be some decline is in the -- only the comps in the U.K. where we have that big program. Otherwise I think we're going to be flat, maybe even a little up. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And, obviously, your forecast takes into consideration the improbable likelihood that we're actually we're going to have a budget for fiscal '14, and it looks like the impacts of sequestration are going to be less than originally thought, all of that included in your forecast?

Gee, I wish I could say what you just did. I just don't have -- I'm not that brilliant. But that's good, I'll go along with that. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. Shifting to -- a quick question on the pension. I think it was less than 6 months ago that you took down your discount rate. Can you give us your thought process behind taking it back up and I haven't worked my pencil yet, but what specifically was the EPS impact of that change?

The -- we took it down -- we took it up now to 5.4 for next year. And if you look at where we were and where we took it, the net change of that is about $0.14 -- $0.14, $0.15, I'd say $0.14, improvement. Chris Quilty - Raymond James & Associates, Inc., Research Division: Right. And the reason for taking it up is the taper on your portfolio return?

No, no. The reason you say we took it up was very simple. It's the bond yields have gone up and the discount rates that we use for the calculating pension obligations are based on yields of bonds. And right now we've select our portfolio based on AA bond rates. And those have gone up, so this contract goes up because of that. We don't do that ad hoc. We do that in collaboration with our people that look over our pension actuaries. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. Separate question. The buyback, I think you mentioned that the primary motivation was just to offset dilution. Are there other motivations either lack of acquisition, targets or do you think the stocks are too darn cheap? What was the board's thinking behind that?

Well, let me answer the last question first, which is I don't know of a CEO that doesn't think their stock is cheap, right. But that's not why. We have -- as I mentioned, we have a fully-funded pension now. We don't have to make a contribution to pension this year. We like our own portfolio, but we're looking for acquisitions, and we will make acquisitions going forward. But, Chris, if you look at the amount of cash that we will generate next year, let's just say somewhere around our net income and even take it lower than that. But let's say between $150 million to $180 million. Sue mentioned that our net debt right now is about $450 million to $480 million. So if you take, let's say, $150 million in cash, or put it back, we're going to have net debt of around $300 million and we do have -- if we don't do anything. We do have -- then we will have ample liquidity if we wanted to borrow up to 2.5x our EBITDA, we would have probably liquidity between $800 million and $900 million to buy things. We think at this point it might be prudent to just pick up some stock that goes with the dilution from our stock option. If you looked at what's happened, we haven't bought much stock in the last 9 to 10 years. If you look at the dilution that we have experienced because of our stock issuance, you add it all up, it's over $1 a share in earnings. So it's a little bit like hedging to just kind of by a little of our stock, just so that dilution doesn't keep going up significantly. But if there's a big acquisition that we find that's attractive, we'll stop that in its tracks and spend the money there. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. And on the acquisition front, any changes worth noting either in valuations or attractiveness of certain verticals. You seem to be doing well in avionics but haven't bought anything there in quite awhile, anything of note?

No. I don't think valuations have changed all that much. But specifically, on avionics front, Chris, we're in a niche market there. It's a fairly narrow market that we play in, the aircraft information system. It's a consolidated market. It's really not much available. We bought a couple of very small companies there over the last few years. There's nothing really available because the rest of it is consolidated, our competitors. Where there are opportunities for us and we're very keen on pursuing them, it would be probably in the marine as always. And perhaps if we can find something in the electronic test and measurement, that would be attractive. We surely would like to do more in imaging and x-ray if we can't find the appropriate acquisitions.

Our next question comes from the line of Steve Levenson with Stifel. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: I'm just staying on the acquisitions, are you looking -- you mentioned big acquisitions, are you looking more for things in the sort of DALSA, LeCroy-size category? Or are you still being opportunistic if something comes around that's smaller?

We always like the single-process [ph] approach. Anything small that fits that we can tuck it in, we'll take. If it complements what we have, specially, as we mentioned, we did CDL, we did CETAC, CETAC in the environmental and CDL in the marine. We did a slightly larger acquisition in RESON. We paid something north of $60 million for it. So we'll keep doing that. But having said that, there's always a possibility that something bigger will come along and we're looking for it. But there's -- those are kind of not as frequent and we were looking at DALSA, I think, for 5, 6 years before things worked out so we were able to acquire it. Those things also take a little longer time. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Then just a question back to the defense budget, government spending generally. Particularly on the glider program in some of the other subsea things that -- I guess, could you give us some idea how large they could grow? And if the funding is there or if that's sort of a back-burner thing for the government if they're unfunded contracts.

Actually, in the glider program, it's about -- we got -- it's about a $52 million contract for the first 150 gliders from the Navy. We've just been notified that we're a sole-source selection, been selected as a sole-source contractor for the next 150 gliders. We're pretty positive about that area, especially now that we're also seeing some interest from other countries. We think that glider program, which I'd say between $7 million and $8 million a year, is going to remain stable. The other one that we talked about earlier, which is the shallow underwater vehicle, which our Engineered Systems group also manages, we expect that when it goes into production in a couple of years, that will add about $30 million to $40 million on an ongoing basis. And that is not a program that is going to go away primarily because our special ops forces need those vehicles. The ones that they have right now are long in the tooth, and they need new vehicles for their special op program. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And lastly, just when you mentioned the interest from other countries, are those things you can do on a direct sales basis or are those potentially foreign military sale items?

Some of them are nongovernment, and some of them are SMS. When you do SMS, as you well know, we have to have foreign military sales, but this would be to friendly nations.

[Operator Instructions] Next we go to the line of James Ricchiuti with Needham & Company. James Ricchiuti - Needham & Company, LLC, Research Division: Just a final question for me just with respect to acquisitions. Robert, I was just wondering if you could maybe outline the philosophy regarding a larger acquisition, if one were to come along. Is it aimed at opening up potentially a new vertical, the way you did with LeCroy and perhaps with DALSA? Or would these tend -- if in the event one did come up, would you think about the market that you're in currently?

I think it's much more likely now that we have DALSA, a nice digital imaging business, and we have LeCroy. And then, of course, we have our marine businesses. I think it's more likely that we will stay within the areas that we are. It may be something that we buy that won't all go into any one of those segments. It may have to go into multiple segments. But it's less likely that we'll start a whole new vertical. I think I'm pretty comfortable with our portfolio as we have it. We don't want to wander too far from what we know because that makes it much more difficult for us to manage.

And at this time, we have no further questions in queue. Please continue.

Thank you, operator. I would now like to ask Jason to conclude our conference call, please.

Thanks, Robert. And again, thanks, everyone, for joining us today. And if you have any follow-up questions please do feel free to call me at the number on the earnings release. Our news releases are available on our website. And now, Moses, if you would end today's call and provide the replay details to the group, we'd appreciate it. Thank you.