Teledyne Technologies Inc (TDY) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first 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. And I'd like to welcome everyone to Teledyne Technologies' first 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. Of course, however, before we get started, our attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks, and caveats as noted in the earnings release and our periodic SEC filings. And, of course, actual results may differ materially.

In order to avoid 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 within our segments, I have some general comments about, first, the evolution of Teledyne, second, our new segment reporting structure for continuing operations, and, third, the overall performance of Teledyne in the first quarter of 2011.

Regarding the evolution of Teledyne, over the last decade we have progressively repositioned the company by, one, investing our cash in businesses with proprietary, highly engineered products that are difficult to manufacture, two, exiting those businesses that become subject to commoditization, and, three, becoming a more focused company with a strong research and development capability that will help us chart a course for innovation and continued profitable growth.

The acquisition of DALSA Corporation on February 12th, 2011, and the completed sale of our piston engine business on April 19th, 2011, further emphasized this strategy.

Today, Teledyne is a more focused electronics instrumentation and engineering company.

As for the new segment reporting structure, in the fourth quarter of 2010, we had realigned and changed our financial reporting structure to better describe the new Teledyne to the investment community and our shareholders.

In summary, our former electronics and communication segment is now reported as three new separate segments - instrumentation, digital imaging, and aerospace and defense electronics. Furthermore, most of the revenue from formerly within the small energy and power system segment is reported as part of the engineered systems segment.

Our previous segment data has been restated to reflect this new reporting structure and the piston engine business, our former aerospace engines and component segments, as being classified as a discontinued operation.

Lastly, the first quarter performance reflects both the evolution of Teledyne into a more focused high-rate technology company and our [unrelenting] emphasis on improving operations in every business.

Revenue, EPS, and GAAP operating margin for continuing operations were each at all time high records for the first quarter. This quarterly performance was driven by, one, (inaudible) instrumentation and aerospace and defense electronic segment, and operating margin improvement in three of our four segments.

I will now turn to -- our focus to business segments and their performance, after which Dale Schnittjer will review some of the financials in more detail and provide the outlook for the remainder of the year.

In the new instrumentation segment, first quarter sales increased 17.5% organically, to about $157.9 million. Sales growth resulted from higher sales of both marine and environmental instrumentation products, with particularly strong sales of geophysical sensors, [for the energy] exploration market, as well as increased sales of marine interconnect systems.

Segment operating profits increased 41%, and segment operating margin increased almost 340 basis points.

In the digital imaging segment, first quarter sales increased 122%, compared to the first quarter of 2010, due to the acquisition of DALSA in February, as well as underlying organic growth of 8.2% in Teledyne Scientific and Imaging.

Segment operating profit increased 77%, while segment operating margin decreased about 150 basis points, primarily due to acquisition-related cost of about $2 million and $1.6 million of incremental intangible asset amortization expense from the DALSA acquisition.

It should be noted that this segment includes Teledyne Scientific, our corporate R&D center, which continues the development of new technologies for all of our businesses, as well as our government sponsors.

As for DALSA, this acquisition brought to Teledyne several commercial product lines almost entirely complementary to our existing infrared image businesses.

Teledyne DALSA provides high-performance, visible light imaging sensors, digital cameras, and image processing software primarily used in industrial process control and machine vision application. Also, DALSA produces specialty sensors and subsystems for x-ray imaging and very high pixel count sensors used in high resolution aerial and satellite imagery, for example, Google Earth.

DALSA is also the largest independent manufacturer of custom micro-electromechanical systems, or MEM devices worldwide. These MEM manufacturing capabilities will provide an outlet for Teledyne's extensive MEM research activity.

Also, in the longer term, the mutual capabilities of DALSA in commercial cameras, as well as MEM's manufacturing, and Teledyne in infrared technologies, may allow Teledyne to enter the large and profitable microbarometer or [include] infrared camera market. Said cameras were both on Teledyne and DALSA's long-term product pipeline.

Finally, during the first quarter, we made two investments, investments in other imaging companies. First, we made a majority investment with a full purchase option in Nova Sensors, a small infrared company that is very complementary to our existing products.

The second was a minority investment also with a full purchase option in Optech, Incorporated. Optech is the world's leader in commercial light detection and ranging, often referred to as LIDAR systems, used in airborne terrestrial mapping, laser bisymmetry, mobile mapping, and other laser imaging. Optech will complement Teledyne's x-ray, UV, visible, and infrared sensors, cameras, and software.

In addition, we were attracted to Optech's complimentary presence in the environmental energy, and marine domain where Optech's LIDAR systems are used for flood plains and coastal zone mapping, servicing power and gas lines, and land and harbor infrastructure planning.

Turning to our new aerospace and defense electronic segment, in the first quarter of 2011, sales increased 11.3%, compared to the first quarter of 2010, mainly due to higher sales of microwave devices and interconnect, as well as increased sales of avionic products and electronic relays. These were partially upset by the used electronic manufacturing services.

Increased sales resulted from the acquisition of Paradise Datacom and Labtech divisions of Intelek in July of 2010, as well as organic growth of about 5%.

Segment operating profits increased 38.5%, and segment operating margin increased over 250 basis points.

Turning to our engineered system segment, in the first quarter of 2011, the expected revenue decrease of about 15% reflected lower sales and generic products and services, and lower sales of energy systems, partially offset by sales contributed from the acquisition of CML Division of Intelek and high -- higher sales of turbine engines for the joint air-to-surface standoff JASSM program.

While operating profits decreased about 4%, operating margin increased almost 100 basis points.

Finally, in our discontinued operation, on April 19th, we completed a stock sale of our piston engine business, the former aerospace engines and component segment, to a subsidiary of AVIC International of Beijing, China, for $186 million in cash, prior to customary working capital adjustments.

In conclusion, I believe the evolution of Teledyne and our new end market have positioned the company for sustainable profitable growth. The proportion of earnings generated from commercial markets including international customers, continues to grow. Our instrumentation, imaging, and commercial aerospace businesses provide proprietary products for global energy, water quality, transportation, and industrial manufacturing application.

In addition, given our exposure to (inaudible) the oil exploration and production, Teledyne is positively leveraged to commodity -- increasing commodity costs.

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 2011 outlook.

Under cash flow, in the first quarter, cash provided from operating activities from continuing operations was $6.6 million, compared with $4.5 million for the same period of 2010. Free cash flow was the $100,000 in the first quarter of 2011. However, the free cash flow reflected a voluntary pre-tax pension contribution of $37 million. Adjusting for the pension contribution, net of taxes, free cash flow would have been $24.1 million, a significant increase compared to last year.

Capital expenditures were $6.5 million in the first quarter compared with $4.9 million for the same period of 2010. Depreciation and amortization expense was $13.9 million, compared with $10.6 million last year.

We expect to invest approximately $50 to $55 million in capital expenditures in 2011, compared with $31 million in 2010, and this increase is primarily due to the acquisition of DALSA and the increased scale of our business.

Also, for the full year of 2011, we expect depreciation and amortization expense to be approximately $60 to $65 million, compared with $45.2 million in 2010. Of the $65 -- $60 to $65 million, approximately $25 million will be amortization expense. To put this in perspective, that's approximately $0.40 per share in amortization expense for 2011.

We ended the quarter with $550.2 million of net debt, although subsequent to quarter end, the after-tax proceeds from the sale of piston engine business would have lowered total debt by approximately $132 million.

In February, we replaced our prior credit facility with a new five-year, unsecured $550 million credit facility. The margin of borrowing costs on a new facility is LIBOR plus 125 to 250 basis points depending upon our leverage ratio.

In summary, given the recent sale of the piston engine business, our new five-year credit facility and our fixed rate senior notes issued in September of 2010, our balance sheet remains strong and we have substantial financial flexibility.

Next, on pension, in the first quarter of 2011, gross pension expense was $2.8 million, compared with gross pension expense of $1.2 million in the same period of 2010. Net pension income after recovery of allowable costs pursuant Government Cost Accounting Standards, was $200,000 in the first quarter of 2011, compared with $1.2 million of net pension income in the first quarter of 2010.

On stock options, stock option compensation expense was $1.4 million in the first quarter of 2011, compared with $1.3 million in the first quarter of 2010.

Moving to our 2011 outlook, management currently believes that GAAP earnings per share from continuing operations in the second quarter of 2011, will be in the range of $0.76 to $0.80. We expect full-year 2011 earnings per share from continuing operations of approximately $3.25 to $3.32. As a reminder, full-year 2010 earnings per share of $3.27, included $12.5, or $0.34 per share, of US tax credits mostly related to nonrecurring prior period research and development.

As I mentioned previously, intangible asset amortization will increase to $0.40 per share in 2011, an increase of $0.24 per share from 2010, primarily resulting from the DALSA acquisition. Also, as a result of the DALSA acquisition, our fixed rate senior notes and our new credit facility interest rates are expected to be $10 million greater in 2011, compared to 2010.

I will now pass the call back to Robert.

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

Thank you. (Operator Instructions) One moment, please, for the first question. Your first question comes from the line of Mark Jordan from Noble Fin. Please go ahead.

Good morning, gentleman. A question relative to the piston engine sale. I understand that was $186 million gross. Net proceeds after tax would be about 135. And you are planning on making a $32 million incremental pension prepayment in the second quarter, which would mean that you -- you are looking at the quarter end balance sheet and adjust it for those transactions, you would be lowering debt by approximately $100 million. Is that correct?

Yes, that is correct.

Okay.

Maybe a little more, Mark. Maybe --

Well, I know you generate -- you'll generate some cash during the period too, but. Second question relative to pension prepayments. You stated that you prepaid $37 million in Q1, are making an additional $32 million payment here in the second quarter. Can you talk about your current unfunded status as a -- after you've made that $32 million payment, number one. Number two, what is your strategy relative to funding that pension program? And finally, do these 60 -- $69 million worth of payments here in the first half change your reported gross liability that we'll see in successive quarters?

Let me answer part of it and then maybe Dale can enhance that. First, the $37 million that we put in, that is matches. It's part of our policy to match withdraws during the year, payments, benefit payments, with input to the pension so that we don't fall behind as time goes on.

The $32 million contribution to -- from the proceeds from the sale of piston engine business was primarily to make that part of the pension, which is the piston engine segments part of the pension, whole. In terms of the percentage of funded percentage of pension assets versus liabilities, right now we're close to 99% of funding. So we're very close to 100% funding.

If our assumption for revenue -- for income into our pension or keep at what we have so far, by the end of the year, we should be at 100% or slightly better. So I think our pension is in relatively good shape.

Final pension question. Obviously with all the acquisitions you've made, you've not put the acquired operations into a defined benefit plan, but [funding] contribution. What percentage of your population is now covered by your legacy-defined benefit plan?

In -- we have -- you have to look at two sets of that. First, I would say about 33%, 35% of our active employees are in the defined pension plan. If you recall, in 2004, we stopped new employees entering that plan.

Of the about 9,000 total pensioners or potential pensioners, about 3,000 are active, 3,000 about are vested that have left the company, and 3,000 are retired. So the active population is about 3,000 out of 9,000 totally employees that we have today.

Okay. A final question if I may. Second quarter you show a decline sequentially in expected profitability versus Q1. You won't have the DALSA acquisition expenses and the piston is discontinued, so it wouldn't be reflected. What's the major change that calls for lower sequential profitability?

I think the primary one, Mark, is that in our highest margin business, as you'll note from the segment operating profits that were shown is our instrumentation business, and that was driven by our geo -- or our oil exploration. At this time we think the revenue in that specific product line would decrease somewhat in the second quarter, and we think that would affect some of the profitability.

On the other hand, having said that, we think that the outlook for oil exploration going forward after that and in future years is very positive, especially now that we have gravitated towards not only using [streamers] to look for oil and gas, but also using them on the ocean floor to monitor reservoirs.

So I think this a short-term decline in revenue in the second quarter.

Okay. Thank you very much. s

Thank you, Mark.

Your next question comes from the line of Steve Levenson from Stifel Nicolaus. Please go ahead.

Thanks. Good morning, everybody.

Good morning, Steve.

Just staying on the oil exploration question here. We used to ask you a question about what price did oil have to get up to to be high enough to generate demand. So I guess it's there. I guess now the question is, is there a price you view as too high that it might reduce demand?

Ha. That's a good one. I hadn't thought about it that way, but that's a -- that's actually a very good. I think our perspective is if oil stays between, let's say $80 and $110 per barrel, I think that falls within the overall attractive domain for our company. On the other hand, a lot of the old production is geared at even lower than $80.

The high -- the -- if oil goes very high, it would have two effects on us. One would be, actually it's in the past, and that was in our piston engine business which was for aircraft that we use for business and leisure, and that's now behind us. The other one is the airline traffic decline, then it will affect our avionics businesses.

On the other hand, it's our view that the growing demand in China and India will keep the pressure on oil exploration and oil production. And our view in -- as we look at the capital expenditures by our customers, those are substantially increased in the recent past in West Africa, Southeast Asia, Brazil, and other places.

Great. Thanks. Now a question on UAVs. There's I guess some new sensors are being deployed or being thought -- being considered for deployment that'll use wide-angle focal plane arrays, but smaller gimbals. Where does Teledyne fit? How might the acquisitions help? And do you see any downward fluctuations in spending for thermal and EO, IR imaging going forward?

First, Steve, on the small gimbals, last year we acquired the minority interest in a company, a gimbal company, a small gimbal company. And that -- we have a program in matching some of our high temperature focal plane array cameras into that small gimbal. We've already identified some customers for that program.

The name of the company that we made the minority interest investment in is Optical Alchemy.

Right.

And the -- we have some cameras, miniature cameras that are, as I said, specifically being designed for that. These have persistent surveillance, video frames that are high and large megapixel capability. We're fairly positive about that.

Also, as I indicated before, we made a majority investment in a small company called Nova Sensors. They produce [instant] cameras and as well as indium gallium arsenide cameras. And those are being slated for use in a small UAV called [Scan] Eagle.

Thank you. Last one. Any update, anything with ballistic missile defense and the outlook there?

Well, in terms of the missile defense, there are -- we play on two sides of that. First, we have a small amount of program, a small program in the [ground base], with, of course, the defense. It's just a couple of $3 million now.

Our bigger program is our systems engineering and technical assistance. That's about $20 million, or was about $20 million in Q1.

Right now, that whole area is a difficult area until some of the issues are resolved. First, there's an increasing emphasis on organizational conflict of interest, even though we had put in place everything that was acceptable in prior years.

The second, this, again, is increasing restricted emphasis on awarding contracts to small businesses. So these are socioeconomic issues that are being addressed. And so we're cautious about that domain. We think we can maintain perhaps what we have. Some decisions will be made very soon on [Midas], which is the new contracts for the [SETA] work. We'll see how that plays out for us.

But we don't view that area as an expanding area for us at all.

Got it. Thank you very much. Talk to you soon.

Thank you, Steve.

Your next question comes from the line of Jeremy Devaney from BB&T Capital. Please go ahead.

Good morning, gentlemen. Good quarter. Glad to see the new shapeup is working out for you.

Wanted to talk to you a little bit about with realignment of the segments in this division of continental. What's the commercial versus US Government versus DOD breakdown look like now in the business?

Right now, I would say our government business is about 38%. I would -- I don't have the numbers in front of me right now. But I would suspect our DOD is 32% or so, 32%, 33%. And that is going to decrease as a function of time. Primarily because in tier one, we have only month and a half of DALSA. And the other part that I think, Jeremy, might be worth mentioning, not only is the proportion of the government and DOD continuously decreasing, but as you'll note from the segment operating profit, the profitability or the margins there are also lower. Having said that, in our systems, engineered systems segment, we do have some healthy programs that are non-government and non-defense, and those are improving with time.

Great. Thanks for that detail. And then also a cleanup question for you. What was the funded backlog in the quarter?

About $1 billion. And we're very cautious on what we say our funded backlog is. But those are backlog contacts that are on hand. We don't take into consideration contracts, long-term contracts that are not actually funded at the time.

Right. Was there any de-booking related to continental, the continental sale on that in the quarter? I guess what would be the comparable period year-over-year?

I got to think about that. I'm having somebody help me here. I think last year Q1, from continuing the operation backlog was about 826, 825 versus the billion that I just mentioned, so about 170 or 180 million less last year versus this year.

We got 80 -- half of that we got from the DALSA acquisition, about $80 million of backlog.

All right. That's very helpful detail, Robert. And then lastly, I know in the release you gave some detail about what you're anticipating for growth in the new segments. But considering that we've kind of reshuffled everything here, could you help us out with the modeling, looking out for the rest of the fiscal year, what kind of targets are you throwing out on this, growth targets are you throwing out on the segments and in the margin, kind of going deeper down the road Mark was exploring a little bit.

Yes, I'll try. The -- I think digital imaging, to start there, obviously that's going to keep increasing because in the Q1 we only had half a quarter of DALSA in there. So I think by year end, we think that increase should be around 175% or so.

In instrumentation, we had a very strong growth in the first quarter. But as we go down the second and third quarter, the comparables are more difficult because the second and third quarter of 2010, coming out of the recession, we had reasonably good growth and instrumentation of 13% and 16%.

So we think we're going to moderate our second and third, four -- and fourth quarter. We probably will end up somewhere around 7%, 8%, 9% total growth.

In the electronics, we think we'll end up with somewhere about 8%.

And finally, I think engineered systems will pick up a little bit in the forward-going quarters, so year-over-year, we should be about flat with last year.

Great. That's very helpful detail. In that answer -- my last question and I'll get out of the way here. In that answer you mentioned the Q2 and Q3 comps of the instrumentation segment.

Yes.

At any point are you going to go back in -- I know in the K you provided the breakout for the Qs on a consolidated basis. But at any point are you guys going to make available to us the O -- or the '09, '010 breakouts for the segments?

Yes. We have the '10 done in the release. If you look at the way we have it in instrumentation, digital imaging, et cetera, we have the '10 broken out in its various quarters in the earnings release. I think we probably have more information in the Q that comes out later. At least -- at least we will repeat what we have in the earnings release with maybe some more verbiage about that.

Excellent. Thanks again. Again, great quarter, guys.

Thank you very much.

Your next question comes from the line of Rob Takacs from Suntrust Robinson. Please go ahead.

Good morning, gentlemen. I was just wondering if you could provide -- as we're looking at the first quarter segment-wise on the operating margin side, if you could provide a little bit of guidance as to how you see the -- all four segments sort of progressing throughout the year, are they -- I know you mentioned, you gave a little color for one of the segments. But as you see all four of them, do you see them, you know, maintaining that -- the first quarter margin rate, but -- to some degree? Or what are your thoughts on that?

Hi, Rob.

Hi.

Let me see if I can answer that as accurately as I can. As I mentioned before, segment operating margin and instrumentation was the highest at about 20%. We expect that to decline somewhat over the year and end up closer to 19%.

In digital imaging, I think we're, as I said, we have our R&D centers within that segment, and that's about $50 million of revenue there. And as you can imagine, we don't expect to make a lot of money on that, but rather just contribute to the development of the rest of the company. I think that segment will, with the intangibles, et cetera, will end up at about 5%.

Electronics, that [depends]. And aerospace electronics, I think we'll hold the margins that we had this first quarter, and I would say the same with engineered systems going forward, maybe increase a little bit. Overall I think margins for the segments overall would moderate down a little bit, but would be about last year.

Okay. Thank you. And looking a little further out, in more of a general sense, do you see that if you're looking sort of at a three to five year time frame, do you have like a thought for where you're seeing -- where you see consolidated sales going? And where do you see consolidated margin sort of peaking over the next three to five years? Or do you have an idea about that?

Well, let me just say, in terms of the revenue, if the recovery continues, we think organically we will be in the mid-single digits, maybe a little more. Depending on the segment, we think we'll have better growth perhaps in our digital imaging segment than that.

In terms of the margin, Q1 GAAP operating margin for the whole company was about 11.7%. We think there's room there, especially in our non-government businesses. At one point our GAAP operating margins were close to 7%. So at that point we were saying there's room to improve it two or three, four hundred basis points.

My view is that there'll be some variance because then the government businesses, there's always going to be pressure on margin. But I think over time we ought to be able to put a couple of hundred basis points on our margins in the next few years.

Okay. Thank you very much.

Thank you.

(Operator Instructions) Next we'll go to the line of Michael Ciarmoli from KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. I guess, Robert, just to stay on sort of the margin topic, you mentioned that the recovery continues. Obviously there's been some cost cutting. Are there going to be any pressures on margins to maybe add resources that might act as a bit of a headwind towards that margin expansion plan going forward? Or do you guys think there's enough sort of leverage here to kind of, like you just said, add a couple hundred basis points over the next couple years?

Mike, I -- there's always obviously pressure on cost because as you grow, you kind of -- your expenses, especially on the corporate side begin creeping up. On the other hand, having said that, our operating executives are very cognizant of the fact that we'd reduce cost substantially in 2009. We reduced the number of employees by 14% and we took over $100 million in cost out. And everybody's very dedicated to keeping that lost cost structure as the business grows.

Now, we will do some hiring, obviously, as we go -- as the revenue grows. But we have to really keep our low cost structure because on the one hand we're getting pressure from commodity prices and materials prices at the lower end and on the other hand our price increases that we pass along to our customers are not sufficient to make up for inflation as with materials and wages, et cetera. So we have to keep our efficiencies if we are going to increase our future margin substantially.

Okay. That's helpful. And then just if we look at the earnings, the guidance you gave this year, maybe even looking out to 2012, what's sort of the all-in one-time costs that are hitting the bottom line this year? I guess you said the amortization is going to be $0.40 this year, up from $0.26 last year. How should we be thinking about what might roll off in the next fiscal year relating to the divestiture of the acquisition?

I think, Mike, well, two things. First, the intangible amortization, as you mentioned, it's about increasing from $0.24 to $0.40 this year. That's not going to go away because that's got a long life. It might actually go up a little bit next year because the intangible amortization for adults is only for 10.5 months in 2011, and it'll be for a full year next year. So you can take the $0.14 or so and work out 1.5 over 12 of that, maybe a little more than that, going forward. And those things have a long tail on them. So I don't expect that to fall [out].

Okay.

The one thing that would change is we did have some one-time costs with the closing, and that will diminish. Those were acquisition costs. And there were some inventory write-ups that we also had to take some charges to. Those would go away. On the other hand, having said all of that, Mike, we're not exactly going to stand still and not do any more acquisitions. So I guess the answer is I don't know. Depends on what we buy.

Okay. That's fair. And then just shifting gears maybe. The defense environment, how are you -- now that we actually have a budget in place, the continuing resolutions kind of come to an end, are you expecting any positive momentum over the next couple quarters, as maybe the DOD start some of the contracting process and awards that were kind of sitting in wait, start to maybe flow again?

Yes, we have -- we have a number of contracts that have been in hiatus, primarily in defense electronics. We have had some delays in some of our traveling wave two contracts. We're waiting for about $7 million in our electronics manufacturing. We had orders of about $9 million that were delayed.

If these things get -- these things have to kind of work their way through the government system. If they don't come to fruition, the orders very soon, some of this we may lose to next year. On the other hand, in our scientific group, scientific and imaging group, we have some very nice awards that we got last year, especially in IR sensors technology acceleration, which is called [DTSA] by the Army Night Vision Lab. That's a significant contract for us that we expect not to be awarded now that we have the budget done.

I think overall the budget's a positive for us.

Okay. And then last one, and I'll get out of the way here. I know you've had exposure to the [USEC] program. Any change there? I know you thought maybe potential ramp at some point in that program would offset some other declines in engineering. Given what's happened in Japan, any kind of update or your thoughts on USEC?

Yes. Yes, we -- as of yesterday, there was a news release that -- by USEC that the due diligence that they were going through with the Department of Energy had concluded, and that they are now working on a term sheet, which they hope would be finalized by July 1st.

If they don't get that, there's a risk to some of the investments that they have, second-phase investments that they have from their partners. So if they do get that by July, what will happen then is -- we're right now in a kind of a maintenance mode in our USEC manufacturing. If they do get that, I anticipate that we might have an additional revenue [in our] nuclear program of somewhere about $25, possibly even $30 million in the second half of the year. If that gets delayed, of course, it'd be less than that. With that fact, our nuclear program within the engineered systems is about $30 million. So it would almost double the revenue within that product line in our engineered systems.

Okay. Great. Thanks a lot.

Thank you.

And at this time, there are no further questions. Please continue.

Thank you, Operator. And I'll ask Jason to conclude our conference call.

Thanks, Robert. And again, thank you, everyone, for joining me this morning. If you have any follow-up questions, do feel free to call me. My number's on the earnings release and, of course, our earnings are on teledyne.com. Operator, if you could give the replay information and conclude the call, that'd be fantastic. Thanks, everyone.

Thank you. Ladies and gentlemen, this conference will be available for replay after 10 a.m. Pacific Time today, through May 27th. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 190944. International participants dial 320-365-3844. Those numbers once again are 1-800-475-6701 or 320-365-3844, with the access code 190944.

That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.