Teledyne Technologies Inc (TDY) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Teledyne third quarter earnings conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jason VanWees. Please go ahead.

Good morning, everyone. This is Jason VanWees, Vice President, Corporate Development and Investor Relations at Teledyne Technologies. I'd like to welcome everyone to Teledyne's third quarter 2007 earnings release conference call. We released our earnings earlier this morning before the market opened.

Joining me today are Teledyne Technologies' Chairman, President, and CEO, Robert Mehrabian; Senior Vice President and CFO, Dale Schnittjer; and Executive Vice President, General Counsel and Secretary, John Kuelbs. After remarks by Robert and Dale, 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.

Also, in order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay, both via webcast and dial-in, will be available for about one month.

Here is Robert.

Thank you, Jason. And good morning, everyone. I'll start with some introductory comments about the overall performance of the Company. I'll then follow up with more detailed observations about each of our business segments and markets.

Overall, I'm very pleased with both the operating performance and the strategic progress of our company. From an operational performance perspective, in the third quarter, Teledyne achieved record sales of approximately $409 million, record earnings of $0.75 per share, an increase of 19% from last year, and record free cash flow of over $46 million.

This was the 23rd consecutive quarter of year-over-year earnings growth per share and the 14th consecutive quarter of double digit growth in earnings per share. During the quarter, overall GAAP operating margin increased 95 basis points to 9.8% largely as a result of our electronics and communications segment in which the operating margin of 13.5% increased 123 basis points compared to last year.

Our operational excellence initiatives have continued to improve the quality and financial performance of our businesses. Strategically, through targeted acquisitions, we've been able to increase our technical capabilities, our scale within our major business areas, and the size of our addressable markets.

Due to our acquisitions and greater relative organic growth, our defense electronics and electronic instrumentation businesses now represent approximately 54% of our total revenue. In the world of rising energy prices, heightened pollution concerns, and robust aerospace spending, I believe Teledyne remains well-positioned despite some turbulence in the financial market as well as concerns about the domestic and global economies.

I will now elaborate on the operating performance of our business segments followed by Dale Schnittjer, who will discuss in more detail our financial performance and comment on our outlook for the fourth quarter and the full year.

Turning to our business segments, third quarter sales in our electronics and communications segment increased over 20% compared to last year from $228 million to $273.8 million. Segment operating profit increased 32.1% from $28 million to $37 million. And segment operating margin, as I indicated earlier, increased 123 basis points.

As I further discuss our electronics and communications businesses, I'll break up my comments into three separate categories. First, defense electronics, which represent approximately 40% of the segment; second, electronic instrumentation, which also represent approximately 40% of the segment; and third, avionics and other commercial electronics, which represent the remaining 20% of the segment.

In the third quarter of 2007, sales of defense electronics increased approximately 34% compared to third quarter of 2006. Excluding the acquisition of Teledyne Scientific and Imaging, organic sales growth of defense electronics was about 4% primarily as a result of increased sales of military microwave components and subsystems.

Turning to our instrumentation businesses. In the third quarter of 2007, year-over-year sales of electronic instruments increased approximately 28% compared to last year from $86.5 million to $110.3 million. This was due primarily to acquisitions of D.G. O'Brien assets in March of 2007 and a majority stake in Ocean Design Incorporated in August of 2006, both of which are part of our marine instrumentation growth strategy.

On the other hand, overall organic sales of electronic instrumentation also increased by approximately 9.2%. This was comprised of organic growth of over 9% in our environmental monitoring and industrial instrument as well as 9.2% of organic growth in our marine businesses owned for more than one year.

Finally, I'll discuss our avionics and other commercial electronics businesses, which in the third quarter, sales from these businesses decreased 10% compared to last year. On the other hand, sales from high margin avionics increased 20%. But it was more than offset by sales of lower margin electronic manufacturing services for medical applications and commercial microwave assemblies used in cellular infrastructure applications.

Turning to our government systems engineering segment, in the third quarter of 2007, revenues in this segment increased 4.8% compared to last year. Organic growth was just shy of 3% as growth in our aerospace programs was partially offset by a year-over-year decline in some of our environmental programs including chemical weapons demilitarization.

Segment operating profit increased 3.3% from $6 million to $6.2 million. And segment operating margin decreased slightly from 8.3% to 8.2%.

Turning to our aerospace engine and components business. Sales in our aerospace engine segment decreased 3.6% primarily due to decreased sales of aftermarket aircraft piston engine overhaul services as well as decreased revenues from our turbine engine business.

However, profit in this segment increased over 38% despite a $1.7 million customer bankruptcy-related write-down of accounts receivable. The segment operating profit improved due to better operating performance as well as favorable mix of higher margin piston engine sales.

I must note that during the third quarter, our piston engine business, which is called Teledyne Continental Motors, was selected to provide the aircraft engine for Cessna's new SkyCatcher light-sport aircraft. This represents our first OEM installation in a Cessna aircraft in many years. Earlier this month, Cessna announced that they had received orders for more than 850 such light-sport aircraft already.

Finally, in our energy systems segment, which is our smallest segment, revenue in the third quarter decreased by 27% compared to last year. This was primarily due to timing, which is related to the sales of our commercial hydrogen generators and some reduced sales in certain government programs.

On the other hand, orders benefited in part from disfavorable timing. And the book-to-bill ratio in this segment was 2.4 times, which is the same as the pervious quarter. As a consequence, we expect improved sales and profitability in this segment in the fourth quarter of 2007 primarily due to the increased sales of commercial hydrogen generators.

In conclusion, Teledyne achieved another record quarter in revenues and earnings surpassing the pervious records set for each during the second quarter. Moving forward, we will continue to first emphasize improved profitability through operational excellence and improved margins.

And second, we will invest in our existing businesses and make acquisitions of businesses that are related to Teledyne's core competencies, businesses that preferably operate in regulated markets, businesses that are not likely to be commoditized, and finally, businesses that have favorable market strength.

I will now turn the call over to Dale Schnittjer.

Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert. Then I will give an update on pension costs and discuss our 2007 outlook.

In the third quarter, cash provided from operating activities was $54.5 million compared with cash provided from operating activities of $21.4 million over the same period of 2006. The higher operating cash flow was primarily due to higher net income, incremental cash flow from acquisitions, lower pension payments, higher customer advance payments and deposits, and improved accounts receivable collections due to timing.

Free cash flow for the third quarter was $46.2 million bringing free cash flow for the nine months to $92.7 million. Capital expenditures were $8.3 million in the third quarter compared to $7.1 million for the same period of 2006. We ended the quarter with $165.1 million of net debt.

Our balance sheet remained strong with a net-debt-to-cap ratio of 24.2%. As noted in our press release, depreciation and amortization expense for the third quarter of 2007 was $9 million compared with depreciation and amortization expense of $7.8 million in the third quarter of 2006.

In the third quarter of 2007, FAS 87 and 158 pension expense was $3 million or a negative earnings per share impact of $0.05. This compares to FAS 87 and 158 pension expense of $4 million or a negative earnings per share impact of $0.07 in the same period of 2006.

Pension expense allocated to contracts pursuant to cost accounting standards or CAS was $2.5 million or a positive earnings per share impact of $0.04 in the third quarter of 2007 compared with $3 million or a positive earnings per share impact of $0.05 in the third quarter of 2006.

As we have mentioned before, starting January 1, 2004, new hires have been added to the enhanced defined contribution plan as opposed to the Company's existing defined benefit plan.

Now moving to stock option compensation expense. In the third quarter of 2007, per the requirements of SFAS #123R, stock option compensation expense was $1.8 million or a negative earnings per share impact of $0.03 compared with $1.5 million or a negative earnings per share impact of $0.03 in the third quarter of 2006.

Now, turning to our 2007 outlook, management currently believes that GAAP earnings per share in the fourth quarter of 2007 will be in the range of $0.65 to $0.68. The full year of 2007 earnings per share are expected to be in the range of approximately $2.64 to $2.67, compared with our previous outlook of $2.56 to $2.62.

Our full-year 2007 earnings per share outlook reflects anticipated sales growth in our defense electronics and electronic instrumentation businesses, due primarily to contributions from our acquisitions that were made in 2006 and 2007.

Our fourth-quarter earnings outlook also reflects some additional expenses, including interest expense as a result of the acquisitions completed in 2006 and 2007. Furthermore, while sales of geophysical centers are currently expected to increase sequentially in the fourth quarter, we continue to expect year-over-year declines in 2007 due to lower first-half sales.

Additionally, the Company's current outlook reflects continued declines in sales of medical electronic manufacturing services in the remainder of 2007 when compared to 2006.

For the full year of 2007, we currently anticipate $11.9 million, or $0.21 per share, in pension expense under FAS 87 and 158, or $1.7 million, which is $0.03 per share, in net pension expense after recovery of allowable pension costs from our CAS-covered government contracts.

Full year 2006 earnings included $15.4 million or $0.27 per share, in pension expense under FAS 87 and 158, or $4.9 million, which is $0.09 per share in net pension expense after recovery of allowable pension costs from our CAS-covered government contracts.

The decrease in full-year 2007 net pension expense reflects pension contributions made in 2006, the impact of favorable market returns on pension assets, and changes to the Company's pension assets and liabilities resulting from the merger of the Rockwell Scientific Company LLC pension plan with the Teledyne Technologies pension plan following the acquisition of Rockwell Scientific Company.

The Company's 2007 earnings outlook also reflects $6.8 million in stock option compensation expense, based on assumptions regarding stock option issuances during the year and estimated fair value of stock option grants.

The Company continues to estimate capital expenditures of approximately $40 million in 2007 and our anticipated tax rate for 2007 excluding tax benefits is 39.1%.

I will now pass the call back to Robert.

Thank you, Dale. Greg, we would like to take some questions now, if you would go ahead please.

(OPERATOR INSTRUCTIONS) Your first question comes from Michael Lewis from BB&T Capital Markets. Please go ahead.

Good morning, Robert, how are you?

I'm fine, Michael.

Okay, just a quick question. Within E&C, how sustainable do you think the mid-13% margin will be going forward?

It might come down a little bit, Michael, closer to 13%, maybe a little bit lower, but we think it's going to hold somewhere between 12.5% and 13%.

Okay. And I know that you went through some detail. I didn't quite get it all with regard to what drove the margin benefit. Was it mostly in the defense electronic segment?

I think if you look at the segment, the most profitable businesses there are in the following order. It would be certain parts of our instrumentation businesses, especially our marine instrumentation, followed by certain connectors, businesses in our connector electronics, and then down to -- back to some other instrumentation businesses like Isco, and then followed by some of our high-end defense electronics businesses such as traveling wave tubes.

In general, some of the businesses in instrumentation, Michael, that are related to oil and gas exploration, like our ODI business force, which makes wet-mateable connectors, the margins there are also excellent.

Okay. And then just one follow-up with regard to the M&A market. As a result of the credit markets, how has that impacted pricing on the private company side? Are you seeing more rational pricing across the group?

Well, I think that's a fair statement, Michael. I think for a while there every time you bid on anything, there was some financial guy that would just bid, regardless of the valuation, that real valuation of the property. I think things have become a little saner.

And that's across both commercial and the government side?

Yes, I would say so.

Okay, thank you very much.

Thanks, Michael.

Your next question comes from the line of Mark Jordan from A.G. Edwards. Please go ahead.

Good morning everyone. What is the ASP and the Continental 200D, which I believe is the engine that's going in the SkyCatcher?

We're right in the middle of negotiations on that, but ballpark I'd say it'd be about 25,000.

Okay. They had talked about an initial goal of getting to 700 units a year as an annualized production rate. It seems like they got to that 850 book of business pretty quickly. Do you think there's an opportunity that they could either speed up their roll out of production or potentially go higher than the 700-units-a-year rate?

I don't really know, but as far as we know, the 700 that you have is fairly accurate. But they won't begin ramping up until late next year and early 2009. And so it depends on the market. I can't speak for them. But we -- obviously, we're very excited about this opportunity since we haven't had an OEM engine in a Cessna aircraft for a long time.

Right. Back to the sort of the M&A market a little bit. What debt capacity do you have now, and where do you think the greatest opportunity for acquisitions would be? Is it in the defense electronics, environmental instruments or offshore?

First, I think our debt capacity -- we have a line of credit that goes to $400 million. It's a favorable line. It's basically a line that you would have if you were a highly rated company. So we have significant capacity there, and we can even go above that, maybe another 100 or so million dollars. So we have capacity to do things.

Now, in terms of M&A, we are obviously looking at the areas that we have been aggressively involved in, which is defense electronics and instrumentation, but we're also beginning to look at some other areas that relate to some of our engineered systems, which is our Systems Engineering group, especially if we can find things that fit between that and some of our other segments.

And then finally, because of the acquisition of our Scientific and Imaging, we find the whole imaging and some of the thin film multi -- optics area that we have very exciting. So we'll be looking some in that domain.

In terms of whether it's in this continent or overseas, we would look favorably to opportunities in Europe, if those opportunities come -- occur.

Final question, wrapped around kind of '08, obviously, you don't have any guidance out there, but do you have any comments relative to sort of generalized goals that you may have for the business groups with regards to growth in revenue, organic growth in revenue and margin trends?

And finally, Rockwell Scientific, what will be the impact of that acquisition? Will it be meaningfully accretive in '08?

Yes, let me start with the last parts of the question. The answer to that is, yes, it will be accretive. It's already accretive. Going back, we're right in the middle of our '08 plan and we think that we will be somewhere, in terms of organic growth, as we've always said, we'd be somewhere in mid-single digits, maybe a little higher if we can achieve it. It depends on what happens to the economy.

We think our businesses in the oil and gas industry are going to hold. We've intentionally taken down our medical EMS, Electronic Manufacturing Services. The comps might improve a little bit in '08, but we have taken it down because it's a low margin business.

In the defense sectors, if you look at some of the numbers that are coming out of DoD, both the House and the Senate side the procurements seem to have gone up to about 10%, but that's mostly in support of today's war fighters. There's some studies that say real electronics and information defense spending would go down. And we think it will probably remain flat.

So revenue-wise, let's say somewhere in the mid-single digits. Earnings, we're still working on it, but we have some tax credit this year, and we have tax credits last year, and we don't expect any next year. So we'd probably have to take that into consideration of our earnings. It's a little early right now for me to say much more than that.

Okay, thank you very much.

Thank you.

Your next question comes from the line of John Harmon from Needham & Company. Please go ahead.

Hi. Good morning.

Good morning, John.

I've a couple of questions please. Referring back to a previous question, I was wondering if you could elaborate a little bit on your M&A pipeline, whether private equity firms outbidding you materially harmed or narrowed the pipeline and whether you've seen a return to normal levels and then just talk about the general health of it.

We're filling our pipeline. As you well know, we're always working on that one. We got outbid -- we get outbid in some things now and again. We used to get outbid by financial sponsors because of the, what I'd call, the irrational bidding patterns. But I think that's tempered.

We are a little disappointed that we haven't made as many acquisitions this year. On the other hand, you know we're fairly disciplined in that domain. I expect that we will -- you will see us make some acquisitions, in the near future announce some, but it'd be again fairly disciplined.

It's very difficult to predict who is going to bid against us and whether they have better synergies than we do, but I think that -- I think the whole situation has become more rational.

Okay, thank you. And I apologize if I missed it, but in prior quarters you've given your corporate book-to-bill ratio. I don't recall hearing it today.

It's about 1.

1.9?

Maybe a little high.

Okay, thank you. And just finally, systems engineering margins seemed to have bottomed out or plateaued at about 9%. Is that still a good figure from here for next year or is there still some long-term pressure kicking it down to about 8%?

I think right now they are about -- as I mentioned earlier, I'm sorry, you may not have heard it, they are about 8.2 right now. They were in this quarter. We think 8.5, maybe a little higher, is the rational domain for that business. We think somewhere between 8.5 and 9 would be in the long-term. And we think to improve profitability in that part of our business we just have to increase revenue.

I stand corrected. Thank you.

Thank you.

Your next question comes from the line of Howard Rubel from Jefferies. Please go ahead.

Thank you very much, Robert. Just to go to engines and components for a moment, the $1.7 million Columbia bankruptcy, can you recover any of that or what are you going to do about that?

Interestingly enough, we've been appointed by the judge as chair of the creditor's committee, so we are a little hamstrung in what we can do. Hopefully, Howard, we can recover just a bit, but we don't think so at this time. The problem we -- it's a little early to tell because they -- just the process is just beginning.

As you know, the business will probably be sold, and if it's sold, then we might be able to recover some of that in future pricing. It's just too early to tell. We do expect -- on the other hand, we do expect some negative comps going forward. Since we were selling about that dollar volume every month to that organization, we think maybe about we'll have a comp of down maybe $3 million or $4 million in the fourth quarter.

On the other hand if we exclude that, then the results were really very, very strong in engines and components all in all.

Yes, they are. Thank you, yes.

Just one other item, and then I'm done. It is, as you -- you also look at the engines and components business, you have a number of opportunities to sort of expand the jet -- the small engine business, what do you see happening and are you close to any new awards?

In the piston engine or in the turbines?

No, the turbine. I'm sorry not to be more specific.

In the turbine, I don't see any short-term thing happening. We do have a whole bunch of programs, Howard, in vertical takeoff and landing, small turbines R&D programs that we're actively pursuing at this time. But I think going into early production for those programs is probably going to be late '08 and early '09. But we're encouraged with the fact that we're working on three or four exciting development programs there.

Right, thank you very much.

Thank you, Howard.

Your next question comes from the line of Karl Oehlschlaeger from Banc of America. Please go ahead.

Hi good morning guys.

Hi.

Just to clarify on the second to last question there on the Columbia. You said there was a down comp of $3 to $4 million in the fourth quarter?

Yes, it depends on how fast they get out. We're not going to be able to ship an engine until we get paid for it. And right now they're in Chapter 11 [are called]. So it's a lost revenue until they stabilize. And I don't think they're going to ship as many aircraft, and we're going to have to be very careful to get paid before we ship an engine. So I expect perhaps a $3 million comp down until they stabilize or somebody picks them up.

Right. Okay, and then just sort of big picture. You had a couple of businesses that had some declines in revenues, and now, as you look across your portfolio, can you talk about those areas that are -- that you think are kind of growing slower than you'd like them to or declining, and how do you see these -- those ones that you've not identified performing going forward, and do you feel these are strategic as you move ahead or is that something that you might want to get out of? Like you mentioned, I think it was in the EMS you're looking to decrease some of your exposure there -- for whatever reason, but can you kind of talk about, kind of, big picture, those areas that may be red flagged?

Yes, Karl, I think in the electronic manufacturing services in general, we don't want to play in the domain that's got low margins. And we had almost $30 million in revenue in electronic manufacturing services related to medical products. And we really are reducing our exposure that we shut down one of our plants in Mexico. And we think that that was a wise move, because the margins there are just not attractive to us.

On the other hand, if you just look at the EMS, as a business, we are experiencing some strong growth in our defense EMS businesses, and that's primarily because our customers are first outsourcing more of their products.

Second, they're reducing the number of suppliers and we've been fortunate in a couple of cases to be one of the very few suppliers remaining there, and we -- our book-to-bill in that domain has gone up to about 1.4; book-to-bill ratio.

Now -- so that's the EMS -- the commercial side, which we intentionally reducing. There's another part of our EMS that we do backhaul work for transceivers for large companies that do wireless communication. There we're maintaining our share, but frankly the margins are down, and I'm not sure in the long-term whether that's an attractive business for us to be in. We like to -- if we give up revenue, Karl, intentionally in businesses that don't make a lot of money or make almost no money and focus our attention on businesses that have better margins like EMS in the defense market, I think in the long-term we'll be better off.

Is the -- and the EMS kind of area there is just that there is less competition on the defense side that it attacks the margins that way?

Well, there's both. First, there is a Tier 1 defense contractor. While some of them still maintain some -- their ability to develop and manufacture components, most of them are willing to purchase components and subsystems from what I would call competent suppliers.

We're also able to add some capabilities there, because of our acquisitions to move to higher end subsystems. And then finally, what's happening is that a lot of the folks are reducing the number of suppliers, because they want to have -- some of them have classified programs, some of them have to have unique requirements, traceability of technology, and they want to have long-term suppliers, and there's -- they're a little more comfortable with a company our size than a very small company that perhaps they may worry about the longevity.

So when you put all of those things together, we've been fortunate in that area in that we've been -- in one case, I happen to know a supplier to -- a customer decreased the number of suppliers from 70 to less than seven and we were one of the six or seven that they selected to keep. So it's a number of things combined and we think we're well-positioned there.

Okay. And then just one more question. Maybe it's in the -- deals with the same EMS area, but there's this MRAP program, obviously, that's got a lot of attention and there's going to be some -- a fair amount of electronic content that's going to be put on these things.

Where -- do you guys have some opportunity there, and can you kind of frame it if you do in terms of the size of that -- sort of like per vehicle if there's any way to -- is it a $1,000 a vehicle or $10,000 or somewhere in between?

Yes. It's a little too early for us to tell. We do have some satellite uplink equipment, and then just as -- in those vehicles, we also have about, say, $5,000 or so of -- per ship set of filters, microwave filters that are for the crew to program.

Right now I think -- and I'm just kind of -- I don't have the latest numbers, but I think we have orders of about 1,400 for those systems out of I think 4,100 or over 4,000 and we think we might get a release of another 2,000 or so units.

So we're playing in that area, but primarily from -- filters for anti-IED -- counter IED devices as well as some satellite uplink.

Okay. Thanks a lot.

Thank you, Karl.

Your next question comes from the line of Chris Quilty from Raymond James. Please go ahead.

Morning gentlemen.

Morning, Chris.

Since I got cleanup I'm going to throw a whole bunch of random questions at you. First of all, the split up of Tyco and Maycom, a traditional competitor, have you seen any change in dynamics there?

Not really, they've always been fierce competitors, so we have appropriate respect for them.

Okay. You had mentioned in your script about a 20% increase in the high margin avionics, can you get more specific, is that the GroundLink products or can you remind us where you're getting content on the -- not the flight data recorders, but the data capture devices? I'm blanking.

No, it's okay. There's two -- first of all, the whole commercial aerospace market is growing at close to double digits as you well know. Boeing's going to -- Boeing has 443 aircraft, Airbus, about 460 this year and those are going to go up 10% each next year.

On those, we expect at least to maintain our share in the data acquisition system. The one -- two areas that we are enjoying some success is -- first is the wireless GroundLink, we already have 36 commercial airline customers in that area, and we think the sales on that would go up year-over-year again. They're already up over 100% this year over last year.

The other area that I'd say is a real potential for us is you may recall that we were selected as sole source for the Electronic Flight Bags. These are computerized flight information systems that the pilots carry for the Airbus and while revenues from that are not going to be significant in the short-term, we're very positive for that in the future; late '08, '09, '10, because we have a good position there and we've already announced that we've been selected by a number of airlines to supply all of their flight bag requirements.

And can you remind us what aircraft -- which Airbus aircraft that was for?

Well, right now, 750 -- 757 that are used by FedEx, 319, 320, 340, those are the ones that come to mind. 337, probably; we're in trials on that.

Okay. And backing up one step, the GroundLink -- I think when you originally introduced that years ago, you were using like a CDPD type of wireless link. What are -- what's the primary technology there now?

The primary technology is -- again, it's a -- it's -- as you land the aircraft, you are using a cellular network, multiple cellular network, GSM.

Okay.

And it's 82 -- 802.11 technology that we can offer also. And FedEx is using it now also, the -- the 82 -- 802.11 technology.

Okay, switching gears, you mentioned in the script that you're looking once again at some of the government services companies, and I -- a thought there, following SAIC going public, I think you had indicated back a while ago that you expected to see multiples for those types of businesses grow, is that not still a concern?

Yes, it is a concern, Chris, what I said is we're looking there, but what I'd like to find is something between that segment and some of our other segments. For example, if we could find something between that segment and some of the work that we do in imaging or that segment and some of our defense electronics.

Some combination, so we could cut across -- especially with new leadership with Rex Geveden in our systems engineering businesses, we think that would be attractive. In terms of price, yes, the price is still high, but every time we come to buy anything, we think the price is high.

Well, that's good. And the growth rate in that business, excluding any acquisition opportunities -- it's been sort of a mid-single digit growth, do you see any change in the outlook for '08?

Yes, it has been mid-single digit, but we -- we're fortunate we -- we're going to emphasize interestingly enough, we're going to emphasize some of our manufacturing capabilities in -- that we have in that business. Especially -- you may or may not recall, we do have an ASME -- American Society of Mechanical Engineering -- nuclear stamp to make nuclear products. Right now, we make canisters for nuclear waste and we think there's an opportunity to grow that part of our business significantly.

So we're kind of going to invest a little bit more in equipment and our manufacturing capabilities there, which have heretofore been more directed to aerospace and making components for the Space Shuttle, etcetera. So we think right now, it's going to be mid-single digits, but with some of the programs that Rex is undertaking, we think that might be -- grow further.

Okay. Switching gears again. The geophysical sensors, you indicated should be up sequentially in the fourth quarter, did you give a book-to-bill for the current quarter, and given the strong book-to-bill you've seen in the prior two quarters, should we suspect that the growth rate there for that product line in '08 is going to be back to sort of the teens growth we had seen the year before?

As Dale mentioned, let's start with year-over-year. We think because of the softness we experienced in the first half, that year-over-year first '06 to '07, that's going to be remaining -- remain a little below six. Going forward, we think the forecast may be a little down from this year for next year, but flat. I don't think we're going to see a double-digit growth there, but some of our other oil and gas production markets that we're in -- which are more to the production rather than discovery, we think '08, '09, '10 right now look pretty good.

Okay. And a final question and this is a general one. Can you give us an update on the Rockwell Scientific acquisition, how that's progressed and maybe some specific detail on where you are in the bidding contract award process for third generation imaging?

Yes. First, I think that that has been probably by any measure the most significant acquisition that we've done, because it's underpinned the technological viability of our enterprise. In terms of -- their performance has been above -- way above anything that we've expected. They -- in the imaging business first, and then I'll come back to specifically about third gen.

In the imaging business, they've had some significant successes. For example, we announced they -- they were awarded part of the High Stare contract by the Air Force Research Lab, which basically is a $15 million contract to develop advanced infrared sensors for future missile warnings and space systems.

They're -- that's doing really well. In the third gen where we are, is that that program has been pushed -- development and -- system development and demonstration program, it's been pushed to next year's first or second quarter for the bid process.

Right now, we have -- a lot of our effort's been on improving the performance of our dual band focal plane array. We have good core technology and we are -- we're doing reasonably well there, and we've made significant progress, and expect to be very competitive in that program when it's announced.

On -- the last two things I want to mention on TS&I is we do have a very unique position in that business with laser eye protection for air crews and we are in -- at the present time making reasonable quantities, like about 6200 of those a month. And hopefully, we can extend that to other war fighters; that's a very exciting program for us.

And finally, the overlap between TS&I and some of our Teledyne businesses in terms of cooperation is significantly increasing. For example, we have this one program that I'll just mention -- has to do with the chip-scale atomic clock, atomic clocks that are very, very small that fit -- the size of a dime or a quarter. And we have just been awarded a fourth phase, unusual fourth phase from DARPA to develop that between TS&I and microelectronics.

Great, thank you very much.

Thanks Chris.

(OPERATOR INSTRUCTIONS). Next we'll go to the line of Michael Lewis from BB&T Capital Markets, please go ahead.

Hey, Robert, I just wanted to follow up on one of Chris' specific questions, and it's more of a hypothetical, but I'll try it anyways. In an attempt to further diversify the defense revenue, would Teledyne entertain purchasing intelligence-focused products, [procfirm] -- focused on additional space systems or sensors with agencies like the NRO or something like that?

Yes.

Is the rationale there that since some of the smaller companies out there may not have significant manufacturing capability, that that's one of the things that Teledyne could immediately leverage?

Well, they -- really -- what we would really leverage is what we have, our core competencies. We've always had a core competency in microwave. And as you know, we added six businesses to that basket.

And so we feel very comfortable in our capabilities in microwave domain. With Scientific and Imaging now, we have infrared and space-based infrared products that are unique. If you look at (inaudible), half the stuff that's flying in space, both civil and military, is made by Teledyne Imaging.

So between those two, our capability to go to higher subsystem level and having both microwave and infrared capabilities, that's what would be attractive for us, because we have some core competencies.

Okay, yes, that's where -- that's exactly what I was thinking with regard to the scientific and imaging business, that you could further build out the presence there.

Yes, I agree with you Michael.

Okay, thank you, sir.

Thank you.

(OPERATOR INSTRUCTIONS). And at this time there are no further questions.

Thank you very much, operator. I'll now turn to Jason -- the call to Jason to conclude the conference call.

Thanks Robert and thanks again everyone for joining us today. If you have any follow-up questions please feel free to call me at the number listed on the earnings release. As always, all of the news releases are available at our website, Teledyne.com.

Operator, please conclude today's conference call and give the replay information if you would.

Thank you. Ladies and gentlemen, this conference will be available for replay after 11:30 Pacific Time today through November 25th. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 882215, international participants dial 320-365-38-44.

Those numbers once again are 1-800-475-6701 or 320-365-3844 with the access code 882215. That does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.