Teledyne Technologies Inc (TDY) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Teledyne second quarter earnings conference call. (Operator instructions.) As a reminder, today's conference call is being recorded.

And, with that, I'd now like to introduce your opening speaker for today, Jason VanWees. Please go ahead.

Good morning, everyone. This is Jason VanWees, Vice President, Corporate Development and Investor Relations at Teledyne Technologies. And I'd like to welcome everyone to Teledyne Technologies' second quarter 2011 earnings release conference call. We released our earnings earlier this morning before the market opened.

Joining us 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.

In order to avoid potential selective disclosures this call is simultaneously being webcast and the replay both via webcast and dial-in will be available for approximately one month.

Here's Robert.

Thank you, Jason. And good morning, everyone. Before discussing our individual business segments I have some general comments.

In the second quarter we reported revenue, gross margin, GAAP operating margin, and earnings per share that were each all-time records. Quarterly sales are $503 million, increased 23%, and earnings per share from continuing operations of $1.04, increased 37%.

The second quarter marked our first full period including Teledyne DALSA and without our piston engine business, which was divested in April and is treated as a discontinued operation in these earnings.

Teledyne is a different Company today. We are now primarily a producer of highly engineered commercial products which are enabling technologies for attractive industrial growth markets. In the second quarter our domestic commercial and international sales contributed approximately two-thirds of our revenue and an even greater percentage of profits. Furthermore, even in our government businesses we're focusing on the [trans-electronics] for C4ISR, underwater vehicles, and new manufacturing contracts as opposed to Defense services.

I will now comment on our business segments, after which Dale Schnittjer will review some of the financials in more detail and provide the outlook for the remainder of the year.

Second quarter sales in our Instrumentation segment increased 3% organically to $152.7 million. Sales of environmental instruments grew 13%, while we experienced a moderate decline in sales of marine instrumentation. Segment operating margin remained strong at 20%.

The decline in marine instrumentation primarily resulted from timing of shipments of geophysical sensors used for oil exploration. On the other hand, sales from marine interconnect systems grew nicely, both due to growth in deepwater oil production, as well as our ability to gain market share.

In addition to new contracts for manned and unmanned underwater vehicles we are working to develop with both internal and customer funded R&D new products in our marine businesses, including high power interconnects, the next generation of hydrographic survey systems, and sensors for oil reservoir monitoring.

Turning to the Digital Imaging segment, second quarter sales increased to 225% compared to second quarter of last year. While the bulk of the revenue was due to acquisition of DALSA in February 2011, underlying organic growth was almost 10%. Segment operating margin improved to 7.9%, which includes the negative impact of approximately 275 basis points from the DALSA acquisition related intangible asset amortization.

During the quarter DALSA performed extremely well with strong sales of commercial machineries and cameras. We also gained momentum in a number of other areas. As an example, we're in the process of finalizing a research and development agreement for our new low dosage digital X-ray image sensors with a large medical OEM. We also undertook steps to enter the large micro barometer or the uncooled infrared camera market. We licensed the requisite intellectual property and began work with partners on defining the manufacturing process at our [managed] foundry in [Beaumont], Canada. Finally, in our California based imaging business we delivered our first prototypes of infrared cameras to be used on UAVs.

In the Aerospace and Defense Electronics segment second quarter sales increased 12.8% compared to second quarter of 2010 due to higher sales of microwave devices, interconnect aircraft information management systems, and electronic relays. This was partially offset by reduced sales of electronic manufacturing services. Organic sales growth was about 6%, and both segments' operating profit and margin more than doubled compared to last year.

As I mentioned previously, we expect stability in our Defense Electronics. As we have continued to migrate towards proprietary C4ISR products, such as UAV data links, radar devices, and communications subsystems. In addition, we recently began shipping our first full counter IED system for the UK Ministry of Defense.

In our Commercial Aircraft Information Management business, 60% of the sales were to international customers, and this has continued to see healthy orders as a result of new products, market share gain, and strong growth by international airlines.

Turning to our Engineered Systems segment, in the second quarter of 2011 revenue increased following eight quarters of year-over-year decline, and margins increased 117 basis points. After absorbing major reductions to certain missile defense engineering programs and the cancellation of NASA's Constellation Program we believe revenue in this segment has largely stabilized and comparisons will now become easier. Furthermore, with the recent contract win for unmanned underwater gliding vehicles and new [sealed] delivery vehicles we see potential long-term growth in this segment despite a market outlook for overall Government spending.

In conclusion, we are a more focused, integrated Company with a strong research and development capability and new product in the pipeline. Our businesses are working well together, as evidenced by the recent contract wins for manned and unmanned underwater vehicles, and we have a foundation for continued profitable growth.

This year internal R&D spending will reach $100 million and produce a number of new technologies for future growth. Finally, we have a hands-on Management Team with a consistent track record.

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 increased 2011 outlook.

On cash flow, in the second quarter cash provided from operating activities from continuing operations was very strong at $80.2 million compared with $44.9 million for the same period of 2010. Free cash flow was $68.8 million in the second quarter of 2011.

As part of the sale of our piston engine businesses we made a voluntary pretax pension contribution of $32 million during the quarter to fully fund this now closed portion of our legacy pension plan. Adjusting for the pension contribution net of taxes free cash flow would have been $88.8 million in the second quarter of 2011, a significant increase compared to the same period of last year.

Capital expenditures were $11.4 million in the second quarter compared to $4.6 million for the same period of 2010.

Depreciation and amortization expense was $16.8 million in the quarter compared with $10.8 million last year.

We expect to invest approximately $58 million to $55 million in capital expenditures in 2011, 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 $68 million to $65 million. Of the $60 million to $65 million approximately $24 million will be intangible asset amortization expense. To put that in perspective, that's approximately $0.41 per share in amortization expense for 2011.

We ended the quarter with $293.3 million of net debt.

As a reminder, in February we replaced our prior credit facility with a new five-year unsecured $550 million credit facility. The marginal borrowing cost on the new facility is LIBOR plus 125 to 250 basis points depending upon our leverage ratio. Given our $250 million of fixed rate senior notes, our credit facility is modestly drawn, and we have approximately $475 million of immediate liquidity.

While cash flow is expected to remain strong, we do expect to pay $51.3 million of income taxes in the second half of 2011 due to the gain on the sale of the discontinued piston engine businesses.

Next on pensions, net pension income after recovery of allowable cost pursuant to government cost accounting standards was $2.1 million in the second quarter of 2011 compared with $1.2 million of net pension income in the second quarter of 2010.

On stock options, stock option compensation expense was $1.4 million in the second quarter of 2011 compared with $1.1 million in the second quarter of 2010.

Moving to our 2011 outlook, Management currently believes that GAAP earnings per share from continuing operations in the third quarter of 2011 will be in a range of $0.83 to $0.87. We expect full year 2011 earnings per share from continuing operations of approximately $3.57 to $3.63, an increase of approximately 10% from our prior full year earnings outlook. As a reminder, full year 2010 earnings per share of $3.27 included $12.5 million or $0.34 per share of U.S. tax credits, mostly related to nonrecurring prior period research and development.

As I mentioned previously, intangible asset amortization will increase to $0.41 per share in 2011, an increase of $0.17 per share relative to 2010, primarily as a result of the DALSA acquisition.

Also, as a result of the DALSA acquisition and higher interest related to the new credit facility and our private placement notes, interest expense is expected to be $10 million greater in 2011 versus 2010.

Finally, given the uncertainty in Washington, D.C., European credit markets, and austerity programs, as well as questions about sustained growth in the Asia-Pacific region, we think it's appropriate to be cautious with our current outlook.

I will now pass the call back to Robert.

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

Certainly. (Operator instructions.)

Our first question then is from the line of Mark Jordan with Noble Financial. Please go ahead.

Good morning, Robert.

Good morning, Mark.

One of my philosophical questions, you know, ever since Teledyne was spun-out you've been very active reshaping your portfolio of companies and making a large, large number of focused acquisitions. Now that [Coten Manifo] is gone, you've made -- consummated the DALSA acquisition, what role will portfolio shaping take moving forward given the fact that you clearly have a reasonable level of debt on your books currently and you've seemingly have a much more focused portfolio than you had eight years ago?

Thank you, Mark. Two directions I'll just emphasize. First is that what we have acquired we are now into the truly intensive consolidation stage, that is combining businesses, reducing G&A, trying to make our operations a lot more effective than we have been in the recent past.

Now going through the portfolio rearrangement, we always want to add new technologies and be more competitive. That's why I mentioned DALSA, for example, we're going to move into two new markets. One of them is that low dose X-ray imaging, using CMOS sensors. And the second one is in the uncooled infrared market.

Having said that, I think if there were opportunities, Mark, to add to those portfolios, whether it was in the digital imaging or our instruments, those would be the two areas that we would focus on.

And, as you know, we do have plenty of liquidity. We have about $475 million of available line of credit with LIBOR plus 125 to LIBOR plus 150 basis points. And our net debt to EBITDA is about 1.1 now. So we can do things, but it would be more focused now in the two areas I mentioned.

And given those resources do you have a thought process as a Corporation, what level of deployment you might be trying to achieve over the next 24 to 36 months? And, again, that would be both obviously your banks and incremental free cash flow generated by the Corporation?

Yes, if you add our free cash flow to our line we probably would have another $200 million or so available, so I'd say $750 million or so, $700 million. But, you know, as you noticed, we're relatively cautious about the way we spend our money. I would not want to see Teledyne to get above a multiple of debt to EBITDA of over 2.5, 2.75. So with that said, I'm done. We do have enough liquidity.

Thank you very much.

Thank you, Mark.

Our next question from Rob Hickock with Suntrust. Please go ahead.

Good morning, Robert and Dale. Great quarter.

Thank you.

I wanted to ask you what were by segment some of the principal drivers in your margin performance in the second quarter? And how do you see the full year shaping up from a profitability perspective by segments?

Well, I think the Instrument segment, which comprises both environmental and marine, we expect that to continue with the margins that they've been enjoying, which are close to 20%.

We expect that Digital Imaging, we had fairly high margins for this quarter. As you may, Rob, remember our Digital Imaging segment is not just DALSA but it also includes our Teledyne Scientific arm, which is our Defense and our Imaging at Teledyne, Scientific associated to Imaging business.

In the Scientific area we, frankly, don't make money. We reinvest all the R&D funds back into our own developments. And DALSA has enjoyed a very strong second quarter, especially in the Asia-Pacific in flat panel display, camera systems. And there seems to be some softening of that market. It was noted by some of the other companies yesterday and today. So we expect some declines in our digital imaging business because of the softness. So I think their margins would probably go down to what they were in the first quarter, which are closer to 6% than the current 8%.

And then moving on Aerospace and Defense Electronics, we believe those margins would probably hold to where they are today. And our last area, which is our Engineered Systems area, the margin sustainment there is going to very much depend on whether our customer, USIC, gets their loan guarantee in the nuclear domain. And that's right now sitting at the OMB for a decision. So if that happens our margins should hold-up, maybe not at 10% but maybe at 8%, 9%, but if that doesn't come true we'll see some margin declines there.

Okay, and then kind of switching gears on you, could you talk about the shallow water combat submersible contract that you were just awarded? And how that program will progress over the next several years, and what are the opportunities that could come out of that particular program?

Yes, that for us is a very exciting program. That is, as you know, it's for the special operation forces. We have -- it's an IDIQ contract. The total value is about $383 million. We're now in the development phase, and the development phase goes from this year to the end of 2013, and that will be maybe $6 million this year, $10 million next year, and about $20 million in '13. Then we go into production, which would expand another six years. So I would expect that after the third year, you can do the math as well as I can, if they do procure all the vehicles it'll be about $20 million to $30 million or a little more per year.

But the important thing about that program to us is that we've had the unmanned underwater vehicle which use our sensors. With this new vehicle and then with our Gavia acquisition in Europe, in Iceland, we're using our own sensors on the vehicles, and that's very exciting for us to start putting some of -- a suite of our sensors on our own vehicles.

Thank you.

Thank you.

Our next question from Michael Ciarmoli with Keybanc Capital Markets.

Hey, good morning, guys. Thanks for taking my question. A real nice quarter.

Thank you.

Maybe, Robert, just to follow-up, you know, looking at the earnings guidance you provided would imply that the second half is going to be down year-over-year. I understand you obviously had the tax benefit last year, but looking at the numbers and then maybe even just doing some quick back-of-the-envelope math on the segment margins you provided it seems like either there's a good level of conservatism built in there or, in fact, maybe margins will be down a little bit. Is there anything -- should I -- should we read into that or anything kind of in the outlook that would imply any pressure in certain areas or some margin pressures?

Mike, short of the fact that I'm scared of what's happening across the world, I mean this country, especially with the spending levels that we've been having, the potential for downgrades. We last year, as you said, we enjoyed about $0.32 of tax benefit in the second half which we won't have, right now we don't see it.

Second, we do see some deceleration of economics in the Asia-Pacific. It was noted by a number of firms in their earnings over the last few days, they see the same thing. Then we do -- we have to -- even now we have about 35% of our revenue from the U.S. Government and, frankly, you have to be a little cautious with what's going on, even though we don't think we have much exposures in the -- in our electronics businesses, you never know. So I guess there's a combination of some conservatism, as Dale pointed out, and also the fact that there are signs out there, clearly visible signs that are showing slowdown across the world.

Okay, that's fair. How should we think about the shallow water combat submersible contract? Is there going to be, given the development phase, I mean are those margins going to come in a little bit lower and then does that act as a little bit of a headwind maybe in profitability on Engineered in the near term here?

I would say maybe this year a little more, but I think on the average we expect margins for that kind of a program to be about 8% to 9% in the development stage. When you go into production it probably is going to double digits.

And then just one more maybe on the uncooled infrared, you know, it seems to be a pretty I don't want to say a crowded market out there, but certainly there's a lot of players, especially on the Defense technology side which is probably one of the main markets out there. What's sort of the strategy for developing those products? And what markets are you going to try to attack out of the gate? Is it going to be more of military applications, more commercial applications? And how are you going to try and differentiate those products?

First, if you believe the current data that's published on the prediction for the IR detector, the uncooled IR detector market, it's currently projected in 2011 to be close to $600 million. And it's going to increase, by 2015 it's projected to go over a billion dollars. So let's put that, it's a variable projection for the market.

Second, when you enter a field like this you have to think about what do you bring to the table that's unique versus me, too. In the camera market that we have in our historical imaging business, Teledyne Scientific and Imaging, we have the Mercury Telluride technology, which kind of sets us apart. There's only one other entity that does that with our [MBE] techniques.

Going back to DALSA, the uncooled, that market that we've entered in, is based on [mens] fabrication. And it's an area that we are very strong in. It also is the largest independent supplier of mens product worldwide. And we already have a very good, strong wafer level packaging capability. So, as you know, the more profound progress that's being done there is to be able to do mens for uncooled on a wafer level, then be able to cut it up into its smaller pieces.

And then, finally, because this is being done in our facilities in Canada we will not be -- we will not have the kinds of ITAR issues that current U.S. producers have. So, and we have strong support from the Canadian Government, including the Canadian Defense. So it would be both military to a certain extent, but also we would be focusing mostly on the world market and in a commercial market, and not just the U.S. market. I hope that answers the question.

Yes, that's perfect. Thanks a lot. I'll jump back into queue. Thanks, guys.

Thank you.

Our next question is from Jeremy Devaney with BB&T.

Good afternoon, guys. Great quarter.

Thank you, Jeremy.

I've wanted to touch real briefly back on the margin in these segments as we move ahead, Robert. You had mentioned in Engineered Systems that margins remaining constant there, are pretty well dependent on this USIC decision. I know in the past, though, you've said, you've scored it with a pretty low P value, and it's nice to have, I don't know if it's really fully baked into your forward projections, but I was wondering if you just could comment on how you see that developing? What kind of P score you're putting on it now? And give us a brief update?

Yes, Jeremy, let me first look at the whole business that we have in the Engineered Systems that align with the nuclear domain. Besides USIC and GCSM, we have other nuclear programs. We have other customers, and we expect this year to have total revenues in that area, in the nuclear area approaching between $40 million to $50 million depending on USIC.

If USIC gets their loan guarantee we think our revenue from that one program would be maybe $20 million, $25 million, so it is significant. But, more importantly, next year it'd be almost twice that. If the loan guarantee doesn't happen then we have to obviously look to see where we can make that up.

The advantage of these programs is that they have healthy margins. We enjoy margins of double-digit margins, which helps our base in the Engineered Systems, our base, margin base to move-up. So that's where the -- our kind of cautiousness comes in.

Right now I don't know what's going to happen. It's sitting at the OMB. It's gone through the [OE]. It's been sitting there for over two months maybe. So we're expecting to get a decision on that sometime soon.

I appreciate the color on the nuclear market. I guess to be more direct about my question is if you USIC doesn't come through before the end of the year is EPS guidance at risk?

I hope not because we have a range, but I hope not. I can just say we might go to the lower end of the range maybe, but that's why we give a range. And there are a lot worse things that can happen between now and the end of the year, looking at the landscape, than just that one thing.

Well, you turned the page for me. That brings me to sort of my next question -- 35% of the bus now is U.S. Government business. If you could give us some color on what you're seeing in the procurement environment? We've heard a couple of different stories about slowdown from the procurement offices, not really end customer demand, but we're looking at an overall declining DoD budget as we move ahead, especially on the O&M side moving into '13. What are you guys seeing? What are you hearing out of program offices? How are award flows coming out of the program offices? Are you expecting a Q3 bump? Just a little bit more there would be very helpful.

Yes, I think the large platforms are always at risk because if you want to find money you always go after where the big programs are. Fortunately for us, what we're trying to do is focus on two things. First, we're trying to reduce our dependence on Defense, period. Second, we're trying to stay in areas that regardless of what platform continues they will have need for our products, especially communication products, [trade or jamming] products, UAV communication products, et cetera.

We're seeing some programs being delayed, so are others. But I think we've kind of stabilized right now. Where we've gotten really hurt is in the ground based missile Defense program. As you know, that program has been kind of chopped up, and we have gotten out of the GMV side of the business so that we're going to have conflict in our services side. And even the services side our work is decreasing.

And you asked a question about what we see in procurement? Frankly, what you see in procurement there is it's kind of being directed towards small businesses, minority businesses, and other folks. So socioeconomic factors are playing more important roles in awards. So there's pressure in that for us. And, of course, beyond Defense, if you go to NASA, what's happened to NASA is just -- has hit us pretty hard.

Yes, I'm sure. Then last question and I'll get out of the way here. I just wanted to touch back on DALSA and what you're seeing in the infrared market. Some competitors have certainly seen some weakness pulling through from the Government side of the business. Are you seeing any particular area of the commercial business that gives you optimistic or are you seeing anything that's particularly weak that you'd like to call out?

Well, on the DALSA side right now almost all of the work, all of our revenue comes from the visible domain. These are cameras for flat panel display. There are cameras, smart cameras for factory floor. And then we have cameras that are next generation gigabit, internet, Ethernet cameras.

So in the visible area the only thing that is of concern to us is the slowdown in Asia as far as flat panel displays for television. On the other hand, there is some pick-up in the displays for tablet computers. And we practically enjoy a very strong position in those markets. And the slowdown there in Q3 and Q4 will probably hurt us.

Other than that, I think in general we will probably spend more money in R&D at DALSA because we have these new programs that we want to go into. And our X-ray business, which is the most promising future program that we have, is just now getting off the ground. We have maybe $10 million, $15 million of projected revenue for this year, but we see a really bright future going forward in the next two to three years. So overall I think DALSA is very healthy, with some cautiousness because of the decline in the flat panel display market.

Thanks a lot. Thanks for all that detail. Good quarter, again.

Thank you.

Our next question is from Robert Kirkpatrick with Cardinal Capital. Please go ahead.

Good morning, and thank you for your continued efforts in managing the business.

Thanks, Rob.

How are you preparing the Company for a poor outcome out of Washington, D.C. with respect to the debt limit and spending?

Liquidity first. We've got to have money in the bank if things just don't work out the way they should. So we have taken some steps to have some -- obviously, we have a line of credit, but we also want to make sure we have some cash on hand in case things get out of hand.

Second, if things get really bad we will clamp down on our expenditures, just like we did in 2008 and 2009. We took off over $100 million then. And we'll do it again. We've gone to four-day workweeks before. We've gone to -- we've shut-down places for weeks at a time. So we've done it before. I don't expect that's going to happen but you've got to be prepared for it.

I think the long-term issue is not the debt ceiling. The problem is the downgrade in the rating, which is going to cause us to pay for more for our interest rates, is the expenditures. So until that comes under control we're just going to have to be very cautious in what we do.

Thank you. And then with respect to your pension expense, which I think was about $900,000 during the quarter, is it now the expectation that pension expense will be fairly flat on a year-on-year basis for the entire year?

I'm going to -- yes -- I'm going to let Dale answer that, Rob, if it's all right?

Absolutely.

We expect the second half to be about the same level as the first half in pension expense.

Great. Thank you so much, and congratulations, again.

Thanks, Rob.

(Operator instructions.)

Your next question from Steve Levenson with Stifel Nicolaus. Please go ahead.

Thanks. Good morning, everybody.

Good morning, Steve.

With all the interest in directional drilling and hydraulic fracturing there are also concerns about safety and contamination. Are there any applications for Teledyne instruments in the future of gas drilling onshore?

I've got to think about that one. The only thing I can say we make a lot of environmental instruments, and some routed cables and our storm products and interconnects, we have detectors for gas leak detection, we have IR detectors that we're developing. So we have a whole bunch of instruments. There's not much happening there. We have already water detectors, but for the -- specifically for what you're asking I'm not that familiar with what kind of systems we have, that could be deployed there.

Okay, so an opportunity that may be realized and, if not, oh, well. On the uncooled IR sensors that you were talking about developing are they -- any of them third generation or shortwave infrared sensors?

The answer to that is yes and yes.

And do you see the market for shortwave particularly -- I guess right now it's sort of limited to special operations but do you see that as a commercial opportunity, too?

I think we believe so, especially in gas the future is in things like inspectional solar panels, as an example, would be a good one.

Sounds good. And in the commercial opportunities is automotive one of the markets you're pursuing?

It's always there. It's not one of my favorite markets.

Me, neither.

I let other people play in that market if I can afford to.

Well, that sounds good because that's probably the lowest margin one out there.

It always starts good.

Okay, and, last, the sensors that you could put on the sealed delivery vehicle, is that included or are those potentially included in the big contract, or is that something extra?

Some of it is included but then there's some that may be extra. We started -- it's a little similar to our [drivers], you know? We have an order from the Navy for over 100 drivers now, and we started by putting minimal sensors, now we're trying to add more sensors. As an example of something in the field delivery vehicle that we'll be using our sensors for the periscope. These are sensors that are developing in our Scientific and Imaging business here. So we expect -- but right now the program has just modest amount of sensors on it. We expect that as we go down the road we'd be able to add things to it.

Okay. Thanks. And very last one, your rocket engine arrangement with Aerojet is that something that's really a very long-term outlook or do you see potential for real revenues closer in?

I would say long term.

Okay, got it. Thank you very much.

Thank you.

And next is a follow-up question from Michael Ciarmoli with Keybanc Capital Markets.

Hey, guys. Thanks, again. One quick cleanup question. For the pension, what are the -- it looks like I guess you guys had a $0.04 tailwind this quarter -- what's the expected kind of pension tailwind from EPS this year, kind of the [FAS cash] difference?

The total for the year is of the order of $0.08 per share, maybe $0.09 in tailwind. And, you know, Mike, we have -- it's kind of a stable situation. We've worked very, very hard to get our pension to where it is, and kind of I don't -- if we made no money there I wouldn't be worried about it. If we made a little money it's okay. Maybe we can have a couple of cents difference between this year and last year in the tailwind, but that's it.

We've just kind of put a lot of money in and we've made a strategic decision a couple of years ago, in addition to putting extra money to stabilize the pension and it have 100% funded, we are putting in every year we put in as much as we pay-out. So this year we'll pay-out $37 million, we're going to put in $37 million. And I think that that's why our pension is kind of stabilized for us.

Okay, fair enough. And then I may have missed it, any update on the objective simulation framework contract and how that might impact your guidance if a win happens in the short term or if it doesn't happen?

Yes, that's a very important contract for us. And, as you know, that's a sizable contract, and it picks up a lot of the softness that we have in our missile Defense programs right now. As you know, that's as much as $595 million contract.

We expect that there will be some decision on that in August, maybe late August. If we were fortunate enough to be successful, and we think we have a reasonable chance at that, that could be worth maybe $40 million or so a year starting in 2012, much lower than that this year because you just kind of get started. But it would pick-up a lot of the revenue loss that we expect to have in our GMB Program.

All right. Great. Thanks, again, guys.

Thank you.

And, speakers, at this time we have no additional questions in our queue.

Thank you, Operator. I'd like to ask Jason now to conclude the conference call.

Thanks, Robert. And, again, thank you, everyone, for joining us today. And if you do, of course, have follow-up questions please feel free to call me at the number listed on the earnings release. And, again, all the news releases are available on our website, teledyne.com.

Operator, if you could conclude today's call and give the replay information to the dial-in guests I'd appreciate it. Thank you.

Certainly. And, ladies and gentlemen, today's conference call is being made available for replay starting today at 10 a.m. in the Pacific Time Zone. It'll run for one month until Sunday, August 28th, 2011. You can access our service by dialing 1-800-475-6701 within the U.S. or outside the U.S. at 320-365-3844, and in either case enter the access code of 203438. And that does then conclude our conference for today. Thank you for participating. You may now disconnect.