Teledyne Technologies Inc (TDY) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the Teledyne Technologies Second Quarter Earnings Teleconference Call. (Operator Instructions). As a reminder, today's call will be recorded. I would now like to turn the conference over to your facilitator, Mr. Jason VanWees. Please go ahead, sir.

Good morning, everyone. This is Jason VanWees, Vice President Corporate Development and Investor Relations at Teledyne Technologies. I'd like to welcome you to Teledyne Technologies Second Quarter 2010 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 fillings. And, of course, actual results may differ materially.

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

Thank you, Jason, and good morning, everyone. Before commenting on the specific results of our individual businesses, I have some general observations about our markets and performance during the second quarter.

First, our commercial businesses continued to recover nicely in the quarter. As a result of strong sales growth and margin improvement in our Environment and Monitoring and Marine Instrumentation businesses increased operating profit more than offset various charges in our Electronics and Communication segment.

Our commercial aerospace businesses also performed well with increased sales and significantly improved margins, especially within our avionics business, Teledyne Controls.

Second, with regard to our government businesses, sales of defense electronics increased in the quarter, and we expect continued growth, especially due to our recent acquisitions of Optimum Optical and Intelek, which will expand our product portfolio and capabilities in the military imaging and microwave communication market.

As we have discussed in the past, the declines in our Engineered Systems segment were fully expected primarily due to lower sales of Missile Defense Engineering Services as a result of budget cuts, and a lack of a loan guarantee for one of our customers in the nuclear domain. Negative comparisons in this business will persist through the end of 2010. However, as we mentioned in our last earnings call, we are optimistic about (inaudible) recovery in 2011 due to our belief of greater financing possibility for the American Centrifuge Nuclear Enrichment Project.

Finally, with growth of our high-margin commercial businesses, more than offsetting declines in our government business, year-over-year GAAP earnings per share increased 13%.

Now I will turn to our business segment and the Q2 performance.

Second quarter sales in our Electronics and Communications segment increased 6.1% compared to last year, and segment operating profit increased 4.3%. On a GAAP basis, segment operating margin decreased 25 basis points, however, this quarter's margin was negatively impacted by over 250 basis points due to charges and acquisition-related fees. Excluding these items, segment operating margin would have been at record levels.

Sales of Defense Electronics, which comprise about 45% of this segment, increased slightly compared to the second quarter of 2009. Growth in this business area was primarily driven by increased sales of microwave devices. And the outlook for these products remains steady with continued to new business opportunities in Defense Communication as well as Counter IED applications.

Earlier this week, we completed the acquisition of Intelek plc, a public company in the UK whose satellite and microwave communication businesses are highly complementary with Teledyne. In particular, Paradise Datacom, and Intelek company headquartered in State College, Pennsylvania, provides high-power, solid state amplifiers and modems for commercial customers, which complement Teledyne's strong position in broadband high-powered traveling wave tubes and lower-power solid state subsystems primarily for military customers.

By combining our capabilities, we believe that Teledyne will be able to offer an enhanced range of high-power traveling wave tubes as well as gallium arsenide and gallim nitride based solid state amplifier systems for communication, radar, and electronic warfare applications.

In our infrared and digital imaging businesses, we've been steadily involving from historically a producer of space-based focal plane arrays into a provider of subsystem instrument and full camera products. As part of this strategy, in March of this year we acquired a minority stake in Optical Alchemy and also received an option to acquire the company in the future. Because of Optical Alchemy's inertially stabilized gimbal systems are very light, they are especially well-suited for UAV applications.

In June we acquired Optimum Optical, a manufacturer of custom lenses and optomechanical assemblies for infrared, visible, and ultraviolet spectrums. Their products are primarily used in tactical military imaging systems found in a variety of defense platforms including a number of small UAV systems.

These capabilities in lens and optomechanical systems are strategically positioned between our new products and the complete gimbal systems designed and manufactured by Optical Alchemy.

Turning to our electronic instrumentations business, which also comprised our big 45% of the revenue in this segment, second quarter sales increased 13.7% from $135.3 million to $165 million mainly due to a 17% increase in sales of marine instrumentation resulting from particularly strong sales of geophysical sensors for oil exploration.

In addition, sales of environmental monitoring instruments and industrial instruments increased 11% and 5%, respectively.

Following the oil spill in the Gulf of Mexico, some projects for offshore production systems were delayed, and sales in this area declined slightly. However, global (inaudible) production remains stable particularly due to ongoing demand in West Africa, South America, and Asia.

While the oil spill impacted our marine production business, we believe that we may benefit in the long term due to demand for more sophisticated monitoring systems, including pressure and corrosion sensors, additional electrical and optical interconnects, and new sensors for blowout preventers, or BOPs.

We also believe that there may be opportunities to increase sales of ocean current monitoring systems and autonomous gliders and flows.

As it relates to Gulf spill, a number of our products have been involved in the repair and cleanup efforts. For example, the remotely operated vehicles, or ROVs, used for work at the wellhead, typically employ our Doppler velocity logs in their dynamic positioning system for stability in the presence of ocean currents. Several Teledyne autonomous robotic gliders have been deployed in the Gulf of Mexico to monitor the oil spill using optical sensors.

Finally, we were recently notified that the capping stack used to restrain the well in the Gulf uses Teledyne oil and gas pressure sensors to measure the pressure in the wellhead cap. In addition, connections to these sensors are made via our wet mateable connectors.

In the subsea defense sector, the business also remains strong. The US Navy continues to purchase new Virginia class submarines to retire the aging Los Angeles class subs.

Finally, the remaining 10% of the revenue in this segment comes from our avionics and our other commercial electronics businesses. Sales for these businesses collectively decreased about 3% compared to last year. As growth in our relays in avionic businesses, nearly offset the decline in sales of telecommunications subsystems and electronic manufacturing services where we have stopped taking orders because these businesses are becoming commoditized.

Due to healthy performance of our avionics and electronic relay businesses, we expect to have positive comps in this business by the end of the year.

Turning to our engineer system segment, revenue decreased 25% compared to last year. The decreasing sales primarily reflected lower sales of nuclear manufacturing and missile defense engineering programs. Operating profit increased for 15.9% with operating margin increasing 130 basis points.

As I've stated previously, we expect reduced sales in this segment in 2010 given the lack of a loan guarantee for our ultimate customer of nuclear gas centrifuge service margins as well as reduced government funding for some of our missile defense engineering services as well as changes in the government's policy regarding organizational conflict of interest.

As it relates to the American Centrifuge Project, we are increasingly confident of a possible restart of some of our work late in this year.

In Atrium, the OE announced that he was doubling loan guarantees for nuclear (inaudible) and processing. Furthermore, USEC, our ultimate customer, announced in May that Toshiba and Babcock & Wilcox had agreed to make a $200 million investment in the company, strengthening its financial position.

We continue to look for other opportunities to leverage our nuclear manufacturing capabilities, which include our nuclear quality system and ASME nuclear stamps. Earlier this year, we received our first contract to manufacture hardware for commercial nuclear power generation and, to date, we have received orders exceeding $5 million.

Finally, as part of the acquisition of Intelek plc mentioned earlier, Teledyne acquired the business now named Teledyne CML, located in the UK. This business manufactures precision machine and composite aero structures primarily for military and commercial aircraft. Teledyne CML, which will become part of our engineered systems segment expands our manufacturing and precision machining businesses and also adds new capabilities in composite manufacturing in this area.

In our aerospace engines and components segment, sales increased 16.2% compared to last year and sales of OEM engines increased 33% while sales of after-market engines and spare parts and services increased 12.5%.

During the quarter, we reported an operating income of $2 million versus operating income of $700,000 last year, although this quarter's income was aided by reversal of $1.2 million of product recall and replacement reserves that were no longer needed.

This was the first time since 2008 that we've seen meaningful positive comparison in engine sales for new OEM aircraft. As for the after-market, we believe the second quarter's strong gain in sales was likely aided by some restocking at distributors, and we remain a bit cautious on the outlook for the balance of the year.

Finally, we continue investing in new product development such as our turbo visual engine in order to increase sales overseas, particularly in Asia.

Finally, in our energy and power system segment, sales increased 1.8% as a result of higher sales of commercial hydrogen generated and power systems for government applications, as well as higher battery product sales, partially offset by reduced revenues from the Jasmine Turbine Engine Program. As I mentioned previously, the Jasmine engine sales are expected to decline in 2010 due to a lag in production but are expected to resume late this year and continue throughout 2011. Segment operating profits increased $1.1 million during the quarter.

In conclusion, our businesses in each of our major commercial markets have begun recovering nicely in 2010. In the second quarter, sales related to energy exploration, power generation, air and water quality monitoring, and in commercial aviation all increased substantially compared to last year. We are, however, withholding new term enthusiasm given uncertainty about energy exploration regulations and the defense and NASA budgets and the sustainability of its local economic recovery.

That said, while total sales are still below pre-recession levels due to, in part, some expected declines in our government businesses, GAAP, gross, and operating margins are approaching peak levels.

Finally, our cash flow was very (inaudible) in the quarter, and we expect to continue making strategic acquisitions.

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, and then I will discuss our 2010 outlook.

On cash flow, in the second quarter cash provided from operating activities was $46.9 million compared with $35.8 million for the same period of 2009. The higher operating cash flow was primarily due to higher net income and improved working capital partially offset by higher income tax payments.

Free cash flow for the second quarter of 2010 was $41.7 million compared to $31.4 million for 2009.

Capital expenditures were $5.2 million in the second quarter compared with $4.4 million for the same period of 2009 and depreciation and amortization expense was $11.2 million in the quarter compared with $11.3 million last year.

We ended the quarter with $200.6 million of net debt. Our balance sheet remains strong with a net debt to capital ratio of 21.8%.

Our credit facility has $590 million of bank commitments and expires in July of 2011. We are planning to renew our credit facility prior to its scheduled maturity. In addition, during May of 2010, we entered into a note purchase agreement providing for a private placement of $250 million of unsecured debt. The notes have a weighted average interest rate of 4.8% and consist of $75 million for the five-year maturity, $75 million for the seven-year maturity, and $100 million for the 10-year maturity. The proceeds will be used to pay down the existing revolver credit facility and for general corporate purposes including acquisitions.

On pension, in the second quarter of 2010, gross pension expense was $1.3 million compared with gross pension expense of $5.6 million in the same period of 2009. Net pension income after recovery of allowable costs pursuant to government cost accounting standards, or [CAD], was $1.1 million in the second quarter of 2010 compared with $2.5 million of net pension expense in the second quarter of 2009.

Next on stock options -- stock option compensation expense was $1.2 million in the second quarter of 2010 as well as the second quarter of 2009.

Now let me turn to the 2010 outlook. Management currently believes that GAAP earnings per share in the third quarter of 2010 will be in the range of $0.74 to $0.76. We expect full-year 2010 earnings per share of approximately $2.95 to $3.00, an increase from our previous outlook of $2.89 to $2.96. Regarding our pension for the full year of 2010, we currently anticipate approximately $5.2 million of gross pension expense under FAS 87 and FAS 158.

However, given our recovery of allowable pension costs from our CAS-covered government contracts, we expect net pension income of $4.4 million, or $0.07 per share in 2010 compared to a $0.17 per share of net pension expense in 2009.

The decrease in full-year 2010 expense reflects higher investment returns and the impact of pension contributions made in 2009 and 2008.

As a reminder, full-year 2009 earnings per share included $0.39 per share of prior period research and development tax credits that will not recur in 2010.

For the full year of 2010, we expect capital expenditures of approximately $35 million and depreciation and amortization expense of approximately $46 million.

I will now pass the call back to Robert.

Thank you, Dale. We would now like to take your questions. Operator, if you are ready to proceed with the questions-and-answers, please go ahead.

Ladies and gentlemen, we will now begin the question-and-answer session of our conference. (Operator Instructions) Mark Jordan, Noble Financial.

A question relative to margin at the systems engineer sector at 11% for the quarter -- was there some extraordinary fees earned during the period, or is that a normal rate for the business that remains?

Good morning, Mark. I think it's a reflection of -- partial reflection that we had pension income in that segment, and it wasn't effect of any special piece.

But we should expect the double-digit type of operating margin potential here on that reduce revenue rate through the balance of the year?

Yes, I would say, probably, Mark, it would be in the mid-10s. There is a little product mix difference -- 11, maybe, at the high end. But the mid 10.50, double-digit, yes.

On the electronic communications margins, you reported 12.8, but that's after that 260 basis-point hit for the acquisition-related adjustments. Adding that back, it's a margin of 15.4. Is that -- I would imagine that you would view that as an unsustainable level?

As much as I'd love it to be sustained at that level, I think it will come down somewhat -- closer to 14% perhaps, Mark. But that's still pretty good.

Okay. And you would look at that as at the 14% norm as a very good normalized run rate with something that probably would be difficult to improve upon?

Oh, no, I wouldn't say it would be difficult to improve upon. I just think that would be the rate this year. As you well know, we are continuously changing the business mix there to improve our margin. So I think in the out years, we have to strive for higher margin.

Okay. A final question, if I may, relative to the -- as you go and renegotiate your underlying bank lines here in the coming months, do you have an idea as to what would be the rates that you would (inaudible) the next extension?

The revolver, which is I think what you're asking about -- right now, the revolver is LIBOR plus about 50 basis points. What we see in the market now and we just recently met with some of our bankers, for investment grade loans like ours, revolvers like ours, it will increase from 50 basis points over LIBOR to between 175 to 200 basis points. We waited a little longer, Mark, because we've been told by various bankers that as the year progresses, there might be -- rates might be a little more favorable -- maybe closer to the 175 than the 200.

Michael Lewis, BB&T Capital Markets.

Thank you so much, Robert. So the profitability across the segments has really stabilized here. And so that's good news. But I did want to talk about the $8.2 million inventory reversal charge that you took in E&C. Can we get some more information about that? It was somewhat significant, obviously, to the margin, and so what's going on there?

Mike, in the second quarter, we recorded a noncash, pretax charge of $8.2 million. It was really to correct cost of sales that had been recorded incorrectly by the Company over a number of years between 2003 and 2010. Primarily, it was a result of incorrect inventory valuation at one of our business units.

And that has been remedied, going forward?

Yes.

Okay. A second question for you with regard to the data links for communications with the UAVs. Did you see any lift in order flow there in the second quarter? I think you talked about last quarter that you were expecting some activity there?

Yes. Actually, Michael, that's a good observation. We received initial production orders for amplifiers used on the common data link upgrade for the Shadow UAV. We also received our first production order for car amplifiers based on gallium nitride technology for the IED market. We expect follow-on production orders in 2011.

That's great news. And then just a follow-up with regard to some financial metrics here. What is the expectation for free cash flow for fiscal year '10, and do you have any initial thoughts on how free cash flow should play out, moving into '11?

Yes, we look at free cash flow -- we normally think that cash provided from operations is in the -- a little over $100 million, and our capital is in the $35 million, $40 million area. So we would be in the $100 million area, maybe a little north.

Okay. And is that kind of stable moving into fiscal year '11? In other words, I guess where I'm going with this is that you don't see any big changes in the way that you're seeing the working capital moving throughout the firm?

No, we see no big changes.

Steve Levenson, Stifel.

In relation to the subsea instrumentation and the gliders, do you think the disaster in the Gulf is going to result in any regulation that requires more monitoring equipment? And I'm curious to know if you're lobbying for something like that?

(laughing) There is, as you know, those regulations are coming. And there has been the House Energy and Commerce Committee has reported out a Blowout Prevention Act earlier in July. It's not been enacted yet, but it's been reported by a 48 to zero vote. There are many provisions in that, but it also includes various asset monitoring systems for real-time increase of things like erosion and corrosion monitoring sensors.

I think, in the short term, the regulation -- if it's enacted in the form that it's come out today, it may have, in the short term, may have a little negative effect. But I think in the longer term, it will be very beneficial to us because, basically, it will call for more sophisticated monitoring systems, including the pressure and corrosion, provisional electrical and optical interconnects, and new sensors for blowout prevention.

On July 14th, the House Committee, I think, on Science and Technology also reported two bills to enhance US preparedness for oil spills. And we are carefully following, obviously, all this legislation, and overall that our gliders, our ADCPs for current monitoring, all of that is going to be positive for us.

Great, thanks. So not a lot of lobbying necessary with a vote like that, I guess.

No, I don't think so. Thanks, Steve.

Then in relation to thermal, you've now got, really, with Optical Alchemy a full range of products. Do you see the UAV market growing that you can increase sales and earnings there? Or is that something where you think you can take share now that you've got all the different components?

I think where we are focusing there, Steve, is more of the smaller UAVs. As you know, that market is moving faster and growing more in the smaller UAVs. So our focus has been on the Raven, Shadow, [Scan Ego], others, which would require smaller gimbals and lighter cameras. And we also think there is going to be C4ISR upgrades to our existing platform. So all of those, I think, favor our small gimbal and camera and instrument capabilities. And, as you know, we also have in our Teledyne Scientific and Imaging information analysis capability for image analysis, which is very unique. Once you get the image that's all right, but you've got to analyze those. And we have some strong capabilities there that we think would help us in that growth.

Okay, the last item is -- are these pretty much restricted for sale in the US, or do you have international opportunities as well?

I think most of the UAV applications are US, though I must add that we probably will have opportunities with NATO and some other countries.

Chris Quilty, Raymond James & Associates.

A first question for you, Robert, in the past you've kind of given us a breakdown of acquisition contribution by segment. And I was hoping you might be able to walk through that. And, I guess, this is a secondary question, which is with the recent acquisitions, can you give us an idea of where they will fall by segment? It sounds like the Intelek business is going to get split up in terms of where it's assigned?

Yes. Thanks, Chris, and good morning. There was very little revenue from acquisitions in Q2 versus last year. There was about $400,000, and that was primarily from the acquisition of Optical Optimum in the Q1. But that's it. Q2, I should say.

On the Intelek, it will get split up. The majority of this, I would say, out of about $40 million, about $50 million -- I'm sorry -- about $40 million or so, maybe a little less, would go to the electronics and communications segment, and about $15 million will go the engineered systems segment in the precision manufacturing and composites capabilities in the UK. Which, by the way, we find that attractive not just because we don't currently have composite capability, but also it establishes a presence for us in Europe, which we don't currently enjoy in the manufacturing domain.

And is that military or commercial composites?

Both.

Okay. And can you just -- I mean, you've gotten a little bit more active on the M&A front. Can you give us a sense of what you're seeing out there in terms of opportunities and also acquisition multiples. And when you look across, you've got a relatively broad spectrum of end markets that you can opportunistically choose from. Are there certain areas where valuations have become more attractive than others?

That's a good question, Chris. Without making the answer very long, there is nothing out there that's cheap, unfortunately.

(inaudible) cheap enough for you, Robert.

(laughing) Yes. Some of it may be. But, you know, we've never overpaid for things. But having said that, I think, in general, there are a large number of small opportunities that we can participate in. There is a scarcity of things that are around the larger side. And the stuff that's out there usually has got a lot of hair on it. You've got to buy something. Let's say you buy something that has $100 million to $150 million in revenue, but you've got to get rid of half of it. And that's just not very attractive.

But, having said that, we are continuously looking in three areas. First, marine; second, the whole area of optics and imaging. And I think with the acquisition of Intelek -- and there are two things that are opening up for us. One of them is, of course, this whole area of satellite communication and communication, in general. And the other one that we would like to move into more aggressively is the nuclear manufacturing domain. Because we think that's a good area for Teledyne because of our quality systems and the nuclear stamps that we have, which are kind of a good asset for us.

Okay. And switching gears, the electronic instruments business -- for several quarters now, we've seen the exit of the telecom and the EMS business as something that's been a drag. Are we many quarters removed from the point where that will cease to be a noticeable item?

That's a good question. What we -- in Q2, if you look at where we are from last year, we had maybe over $8 million in revenue in that area. We're down to $2.5 million now. And I think that will probably go down a little more, but it's not going to be much more of a drag because we basically aren't taking any orders there. And we think the rest of the year, the relays and avionics will give us positive comps in that area.

Teledyne Imaging, I mean, that was one of your bigger acquisitions, or it was your biggest in the last five years. And you did get -- subsequent to that, you had the nice contract for the eye protection -- laser eye protection. But on the more historic side of that, some of the space imaging and whatnot. I know, difficult competition ongoing. Can you give us an update on where that acquisition sits a couple of years out in terms of its performance and also what you see in terms of the opportunities on a go-forward basis?

There are two parts to it. First, there is one part of it that has to do with Teledyne Scientific, which is our research arm fundamentally. That has been very effective for us from a multiple domain. First, there are a number of products that have been developed in Scientific that have found a way into our businesses. For example, they have a very strong materials program, and a lot of our oil and gas customers are looking for long-term projections of performance -- underwater performance of materials. And they are lending a tremendous amount of help to our oil and gas businesses.

But also both in the communication area, they have a lot of DARFA contracts, very successful. As well as in various new programs like our atomic clock -- or very small atomic clock, in the guided bullet program that you may have heard about and others. So that Scientific has become a very important part of Teledyne in developing new products for our businesses.

Moving to the imaging side -- on the space programs, as you may recall, we were very successful in prior large-scale programs in the space program. But we also have now, while that's overall program in terms of its size, has gone down somewhat because some of the large space programs have stopped. We have some very good programs now in space astronomy, ground-based astronomy, and while the James Webb program money went down, the subsequent increases in astronomy have really helped us a lot.

We have, for example, in JMAPS, which is a Joint Multiarcsecond Pathfinder Survey -- it's a complicated name -- we have a $7.5 million contract from the US Navy that we're just working on -- and other things. So that part is doing really well. But the part that we are really thinking about developing a platform for growth like we did in our general instruments businesses is the whole area of imaging. As you recall, we bought a commercial imaging company in the East Coast a couple of years ago -- Judson. Now we picked up a minority share in a gimbal company, which we will end up owning. We've bought some things in optical domain, and we're moving to camera products. So I think that's going to be -- overall, I think this acquisition has been kind of at the core of our technology as we go through -- as we move out to higher value-added products.

Okay. And two final, two-part question here. You cited both NASA and missile defense as areas that are going to be challenged this year. Can you, on missile defense, just remind us of where you sit at in terms of revenue level on the current GMD program relative to where you were a couple of years ago? And thoughts on what the major milestones or new programs that may get that back on a positive trajectory.

And with regard to NASA, kind of a discussion -- I mean, obviously, you're hooked in with Johnson and running ops on the International Space Station, and that's great steady business, but the whole debate going on in Congress between new space versus traditional NASA Constellation program. Depending upon how that breaks in the future here, your relative benefits or losses from either path?

Yes. Let me give you the broader answers that you asked for first. If you look at our total missile defense revenues in last year, in 2009, it was over $130 million. This year we expect it to be closer to $90 million. So there is a significant decline. And that is -- some of it has to do with the missile defense programs, which are development programs, but a big chunk of it has to do with our engineering services program, which is going down.

Also, as you know, the missile defense, the GMB budget part of the missile defense budget, from last to this year went down 50%, from $1.5 billion to $1 billion.

So I think what we're trying to do is maintain our presence. But we also have some new things that are getting a good traction in there. Especially in integrated testing, we have some really good software capabilities and hardware in the loop, things like that. And we expect those to grow some but not enough to make up the difference.

Let me move to NASA, if I may. Overall, I think our NASA programs have been about $100 million, give or take a little. We expect it to go down this year ago, and, frankly, the turmoil you refer to between the administration and Congress and NASA on the space flight program is not helpful. It is not helpful to us, it is not helpful to anybody else.

There is, however, legislation both in the Senate and the House that is trying to restore the Constellation program, or the manned space program. That might be a compromise that will evolve between the Orion spacecraft as well as some of the lift vehicles. We think that from our perspective, in the short term, which is this year, we'll probably take some haircut on our NASA programs. But we think, in the long term, though, we are pretty well positioned to capitalize on the changes I think better than a lot of our competitors. Because we have a lot of flexible task order contracts with broad scope, and we don't really hold any prime -- large prime contracts for hardware development.

So, all in all, I think, for example, even in the Orion spacecraft, we just recently got an order for $5 million to produce some gauges for the power system there. So I think I the long term, regardless of which direction this goes, we're going to be okay.

Michael Lewis, BB&T Capital Markets.

Robert, I was wondering on Intelek -- if you look at the price paid, have you guys conducted a purchase price allocation? I spoke with you guys when you first picked up the company, and I think Intelek had about $28 million in equity. So are we looking at $24 million, $25 million in goodwill and intangibles? And, if you have it, can you break that out for us?

The book value for it is close to $20 million, and we -- I'm sorry -- GBP20 million, which is more like $35 million. So there would be some intangible amortization. In the short term, Michael, as you well know, we have to write down the expenses, the acquisition expenses, which would be the fees that we paid the investment bankers as well as legal fees.

So in the short term, we already -- we think that's going to be a couple of million dollars based on -- not all our bills have arrived yet, but they will. So in the short term I think we're going to get hit with some expenses there. In the long term, I don't think the intangible amortization is going to be very large.

Okay, and the growth expectation for this property in your fiscal year '11 -- is a few percent mid-single maybe?

Yes, I would say that's a good number.

And ladies and gentlemen of the panel, there are no further questions in queue at this time. Please continue.

Thank you very much, Operator. I'll ask Jason to conclude the conference call.

Thanks, Robert, and, again, thanks, everyone for joining us today. If you have follow-up questions, please do feel free to call me at the number listed on the earnings release and, again, all our releases are available on our website, teledyne.com. Operator, if you could conclude the call and give the replay information, we would appreciate it. Bye-bye.

Ladies and gentlemen, that does conclude our conference call for today, which will be available for replay from today at 10 a.m. Eastern time until August 29th, midnight of that day. You may access that conference by dialing 1-800-475-6701 and entering the access code 156581. If you happen to be dialing from an international location, please dial 1-320-365-3844, and the same access code of 156581. Those dial-in numbers once again, domestic 800-475-6701, international 320-365-3844, and the access code for both dial-in numbers is 156581. Once again, that does conclude our conference call. On behalf of today's panel, I'd like to thank you for your participation and thank you for using AT&T. Have a wonderful day. You may now disconnect.