Teledyne Technologies Inc (TDY) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne fourth quarter earnings call.

(Operator Instructions)

As a reminder, this conference is been recorded. I'd like to turn the conference over to our host, Mr. Jason VanWees. Please go ahead.

Good morning everyone, and thanks for joining us. This is Jason VanWees, Senior Vice President, Strategy and M&A at Teledyne. I'd like to welcome everyone to Teledyne's fourth quarter and full year 2013 earnings release conference call. We released our earnings this morning before the market opened.

Joining us today are Teledyne's Chairman, President, and CEO, Robert Mehrabian; Senior Vice President and CFO, Sue Main; and Senior Vice President, General Counsel, and Secretary, Melanie Cibik. After remarks by Robert and Sue, we will ask for your questions.

Of course before we get started, attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks, and caveats as noted in the earnings release and our periodic SEC filings, and of course actual results may differ materially. In order to avoid potential selective disclosure, this call is simultaneously being webcast and a replay, both via webcast and dial-in, will be available for approximately one month. Here is Robert.

Thank you Jason, and good morning everyone. Fourth quarter sales of $596.6 million increased 5.1% compared to last year. GAAP earnings per share from continuing operations of $1.44 increased 23.1%, and was an all-time record for any quarter.

On a full-year basis, we achieved our 12th consecutive year of GAAP earnings growth. The strength of our high technology industrial businesses continues to propel our growth. In the fourth quarter, our Instrumentation segment had record quarterly sales, with organic growth in each of our product categories, and for the full year Instrumentation sales exceeded $1 billion for the first time.

In marine instrumentation we acquired CBL that provided our small form factor subsea inertia navigation system and motion sensor systems, especially well-suited for remotely operated underwater vehicles, further enhancing our product portfolio in the offshore oil and gas market.

Our commercial aerospace business also performed extremely well all year, developing new products and gaining share in this growing market. For example, during the quarter we announced a landmark single-source contract under which we will supply unique aircraft information management solutions for the majority of future Boeing aircraft. Throughout 2013, we also undertook aggressive actions to consolidate our businesses and lower our cost structure, reducing our exposure to weak end markets and high-cost locations.

In the fourth quarter specifically, we had further pretax charges of $5.3 million related to severance and facility consolidations. These were offset by a legal settlement gain of $3.6 million and a net discrete tax benefit of $6.1 million.

For the full year, we had total pretax severance and facility consolidation-related charges of $24 million, offset by net discrete tax benefits of $21.3 million. Full year in 2013, we announced headcount reductions equalling 4.8% of our total workforce. This is in addition to a reduction of over 4% in 2012, or an overall reduction of 860 associates.

Furthermore, within the next few months we expect to complete facility consolidations initiated in 2013 encompassing 15 sites with a total reduction of over 375,000 square feet, or approximately 7% of our total footprint. Our reductions in force and facility consolidation efforts have largely focused on defense-related businesses and our operations in higher cost locations in the US, such as California, and in Canada and Europe.

In the fourth quarter, sales to international and domestic commercial customers comprised approximately 75% of our total revenue. Furthermore, given their greater profitability, these businesses contributed over 80% of our profit.

I will now comment on our business segments, after which Sue Main will review some of the financials in more detail and provide an earning outlook for the first quarter and full year 2014. Turning to our Instrumentation segment, in this segment, which is our largest and most profitable, we provide our customers with one of the most comprehensive portfolios of marine technology products ranging from connectors and communication devices to sensors, energy systems and complete underwater vehicles. We also manufactured a broad range of environmental and electronic test and measurement instruments.

International sales represent over 55% of the segment sales, and fourth quarter sales increased 13.2% to $275.8 million, and full year 2013 Instrumentation revenue was $1.02 billion. Despite a difficult comparison with a very strong last year fourth quarter, sales of marine instrumentation increased 16%, with organic growth of 2.6% due to increased sales of marine sensors and autonomous underwater vehicles, and continued growth of sales of interconnect systems used in offshore energy production.

In 2013, we made two acquisitions for our marine portfolio. First, in March 2013 we acquired RESON, the world leading supplier of commercial shallow water multi-beam sonars. And the second, we acquired CDL, as previously mentioned, in the fourth quarter.

In the environmental domain, sales of process and air monitoring equipment increased over 10% year over year, driven by growth in both domestic and international markets. Laboratory and field Instrumentation sales increased due to the acquisition of CETAC, the provider of -- automated sampling systems in the third quarter.

Electronic test and measurement systems comprised of Teledyne LeCroy, which we acquired last year, continued to have sales of $48.7 million. This was the highest level of quarterly sales since the acquisition, and represented organic growth of 4.7%. We continue to be very pleased with the progress at LeCroy, and in the next few months we expect to launch our first product developed by LeCroy which will use proprietary indium phosphide technology developed at our laboratories, Teledyne Scientific.

GAAP segment operating profit declined primarily as result of $1.2 million of severance and relocation charges and greater intangible assets amortization expense, as well as impact of acquisitions.

Turning to Digital Imaging, this segment provides a broad portfolio of visible light, laser-based, infrared, x-ray and Ultraviolet sensors, cameras, and software. Fourth quarter sales in Digital Imaging increased slightly compared to last year's. Sales of sensors and cameras for commercial machine vision and life science application, applications increased very nicely. However, these were largely offset by lower sales of infrared imaging and LIDAR systems, primarily for government applications.

Segment operating profit was impacted by $1.6 million in severance-related expenses and a $1.1 million asset impairment charge (sic -- see press release "$1.2 million asset impairment charge") and the ongoing burden of approximately 280 basis points of intangible asset amortization.

Turning to the Aerospace and Defense Electronic segment, fourth quarter sales decreased slightly to $149.4 million. Growth in sales of higher margin commercial avionics and electronic relays were offset by reduced sales of microwave devices, interconnect, and manufacturing services due primarily to lower sales to the US government. Segment operating profit and margin declined due to a $3.5 million of charges for severance and facility consolidation. Excluding these charges however, margins increased compared to last year, primarily due to continued strength of our commercial avionics business, and also some stabilization in sales and margins of our defense microwave products.

Turning to the Engineered System segment, fourth quarter revenue was relatively stable, declining just 1.2% as a result of lower [turbine] sales. Segment operating profit increased and margins grew 99 basis points, due in part to a higher margin sales mix comprised of increased manufacturing program.

In conclusion, I am very pleased with our performance in 2013. While the global economy remains relatively slow, we delivered growth in our commercial businesses, and at the same time took the necessary actions to control cost and reduced our exposure to less attractive government markets.

We entered 2014 with a demonstrated record of performance and much more efficient and more attractive business portfolio and a strong balance sheet. I will now turn the call over to Sue Main.

Thank you Robert, and good morning. I will first discuss some additional financials for the quarter that were not covered by Robert, and then I will discuss our first quarter and full year 2014 outlook. Regarding fourth quarter earnings per share, I wanted to note that earnings included $5.3 million of pretax severance and facility consolidation expenses, offset by $6.1 million of discrete tax benefits.

Turning to cash flow, in the fourth quarter cash flow from operating activities was $98.5 million compared with $121.9 million for the same period of 2012. The lower cash from operating activities primarily reflected severance and legal settlement payments in the fourth quarter of 2013.

Free cash flow, that is cash from operating activities less capital expenditures, was $79.9 million in the fourth quarter of 2013 compared to $99.6 million last year. For the full year 2013, free cash flow was $131.5 million. Adjusting for pension contribution net of taxes, free cash flow was $182.9 million, approximately equal to net income. Given our strong cash flow, fully-funded pension plan, and our stock repurchase program with approximately 1.8 million shares available, it is our current intention to deploy some cash flow on stock repurchases in 2014.

Capital expenditures were $18.6 million in the fourth quarter compared to $22.3 million for the same period of 2012. Depreciation and amortization expense was $24 million in the quarter compared with $21.9 million last year. For the full year 2013, capital expenditures was $72.6 million and depreciation and amortization expense was $91.1 million, with the amortization expense portion at $31.5 million, or approximately $0.60 per share. We ended the quarter with $486.5 million of net debt, that is $552.5 million of debt in capitol leases less cash of $66 million for a net debt-to-capital ratio of 24.3%.

Turning to pension and stock compensation expense, in the fourth quarter of 2013 gross pension expense was $4.5 million compared with gross pension expense of $1.6 million in the same period of 2012. Stock competition expense was $3.1 million in the fourth quarter of 2013 compared with $2.1 million in the fourth quarter of 2012.

Finally turning to our outlook, management currently believes that GAAP earnings per share from continuing operations in the first quarter of 2014 will be in the range of $1.08 to $1.14 per share. We expect full year 2014 earnings per share of approximately $5.06 to $5.12. The 2014 full year effective tax rate is expected to be 30%, excluding discrete items such as nonrecurring tax benefits or adjustments.

I will now pass the call back to Robert.

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

Absolutely.

(Operator Instructions)

Our first question comes from the line of Jim Ricchiuti from Needham and Company. Please go ahead.

Thank you. Good morning. First question I have is just with respect to the Instrumentation business. Robert, I wonder if you can give us some sense as to how you see that business unfolding in 2014? It sounds like the LeCroy business is picking up.

Sounds like you're still seeing good growth in the offshore energy market. How do you see the business over the course of the year?

Thanks Jim, and good morning to you also. I believe that we will have some nice organic growth in our marine sensors and oil and gas businesses in the mid-single digits. I think in our environmental businesses, we should see almost double digit growth. This would primarily be because we're selling a lot of products, including air quality monitoring products, to countries like China.

And in the test and measurement, which is the LeCroy, I feel we pretty much stabilized. The market's actually down a little bit there. We are holding our own. I think next year should be about the same as this year, maybe just a little gain. So overall, in the Instrumentation market, Jim, I think we should have single digit growth, somewhere between 5% and 8% next year. We also should see some improvement in our margins because of some of the actions that we've taken.

Got it. In the business, and I will jump back in the queue, but I have a similar question with respect to Digital Imaging where the performance has been a little bit more uneven. I wonder if you talk a little bit about how you see the outlook for that business this year?

Yes. In Digital Imaging we have really three pieces that we look at. First, there is DALSA. Actually this quarter DALSA's revenue was up $10 million over last year fourth quarter, both in our machine vision and our life sciences x-ray products that we sell. The negative that we had there which offset this positive, where we had reduced sales of camera, especially in our imaging [set] business here in California to the government and we had reduced sales of LIDAR products, primarily again to government agencies.

Going forward for next year, we believe that generally the DALSA business should see single digit growth overall. We think the growth of this whole segment should be 3% to 4% organically, but we also believe that we should have some really good gains in our margin, primarily because collectively out of the 860 or so folks that have left the Company, about 180 of them have been in Digital Imaging. About 60 here in California, about 15 are semi-conductor operations, about 50 at Optech, and about 30 in our eastern Canadian headquarters. With that cost structure, I think we are better poised to improve our margins in this segment.

Got it. Thank you, Robert. That's helpful. I will turn it over to someone else. Thank you.

Thanks, Jim.

Next we go to the line of Mark Jordan with Noble Fin. Please go ahead.

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

No, our aim, Mark, is to improve our margins going forward. What has happened is that some of the cost we took out were really related to, as I mentioned, to reduce our exposure to government programs and high cost regions like California. For example, Mark, you may recall in California at one time we had 350 people in our microelectronic facilities in Los Angeles. That operation has been closed down.

A small fraction of those people have moved to Tennessee where we have another facility, and the combined operation then not only is more profitable with improved margins, but can offer our customers a broader range of products. The answer to the question is we've reduced our exposure to government businesses that we really are worried about, like electronic manufacturing, and then we expect because of that and because we've also reduced our cost in some of our commercial businesses, we expect our margins to improve as we go forward.

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

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

All right. Last question from me, if I may. The Instrument segment margin was, for the year of 2013, was 59%. The prior two years it was 18.2% and 19.9%. The decline that you experienced in 2013, can you parse that, those pressures between pricing mix and restructuring cost?

We had -- I'm trying to get the numbers. On the charges in the Instrument segment, I'm going to say total charges were about $2.5 million. Some of the decline in margin was due to the acquisition of RESON. RESON had lower margin and more intangibles, and then we also acquired CDL.

The combination of those two, some of the expense in the acquisition process, as well as the fact that, especially RESON at the beginning Teledyne Company had lower margins. It pulled down some of our margins. But I think going forward next year, we expect the margins to again improve over 2013, Mark.

Thank you very much.

You bet.

Your next question comes from the line of Tyler Hojo with Sidoti. Please go ahead.

Yes, hi. Good morning, everyone. Firstly I was hoping that maybe we could just continue the segment discussion in regards to 2014 guidance. You addressed Instrumentation and Digital Imaging. Maybe you can discuss A&D Electronics and Engineered Systems?

Sure, Tyler. I think in terms of revenues in A&D Electronic, I think revenues are going to be pretty flat. We will have some revenue improvements in aerospace products. The one that we mentioned about making products information systems in commercial aircraft, we will have some improvements there in the single digit.

We expect our interconnect products to have high single digits pick-ups, but we expect some decrease in our microwave solutions business, primarily because we had a very large program, counter-IED program in the UK this year, about $40 million, which won't repeat itself next year. So we expect almost double digit decline in the microwave solutions.

But I have to say that the rest of our microwave businesses, especially with the government, have not only stabilized now, but we've gotten some new programs. So overall from a revenue perspective, I expect that segment to remain flat year over year. On the other hand, because of the significant cost reductions that we've undertaken, especially in our contract manufacturing which was unprofitable because of the losses we took for restructuring and because of the improvements in cost structure, we expect to see double digit improvement in our earnings in that segment.

According to the Engineered System segment, the situation there is a little more complex than the one I just mentioned. I think again we should have lower single digit revenue increase there, primarily some improvement in our Engineered System business, especially in manufacturing.

Our turbine engines seem to be doing stabilized and doing okay because of, both a [jack] in production as well as some FMS sales that are coming. I think again we should see a little margin improvement there, relatively flat sales, maybe in -- maybe a little organic growth in the lower single digits.

Overall if you want to put things in perspective, in 2013 overall, our US government sales went down about 7.5%. Broadly speaking overall, on average our commercial sales went up about 7% organically. And we think organically as a result of those two we had sales gains of, I'm going to say, about 2% for the year. We expect that to be about the same for 2014 across our segments.

We can [see] puts and takes. Our government businesses are going to be a little lower, our commercial businesses are going to be a little higher. But as I mentioned to Mark's question earlier, I expect that our margins next year will improve, and that's why Sue put the guidance out that is the $5.06 to $5.12 at a 30% tax rate earlier.

Okay, great. Thanks for all the color, and maybe just one clarification. In regards to your revenue outlook, maybe two clarifications. What percent of overall sales is defense today? And what are you anticipating that the CDL acquisition adds to 2014?

I would say our government sales, because we do have sales to NASA as well as Defense Department. If you lump those together, that's a little over 25%, maybe 26%, 27%. CDL, if you went to a full year for CDL, I think that's about, annualized it is about $15 million, Tyler.

Five zero, you said?

No, fifteen, one five.

Fifteen, (multiple speakers) All right, got it. Then maybe just lastly from me, if you could just perhaps comment on free cash flow in 2014 that would be great?

Right now we expect it to be about the same level as this year. I think net income, maybe about what we expect net income to be between $180 million to $200 million.

And that's why we, and by the way, we made a pension contribution, Tyler, this year for two years, for 2013 and 2014, so we don't have to make a pension contribution in 2014. That's why Sue mentioned that we believe we will have a little extra cash to start buying some of our stock back to offset the dilution we're getting from our stock option.

Okay, thanks so much. I really appreciate it.

You bet.

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

Thanks. Good morning, Robert.

Good morning, Kevin.

I think you mentioned some further consolidation in Q1 here. Just wondering if you could maybe quantify your expectations for additional consolidation and severance-related charges in 2014?

I think it is going to be minimal, Kevin. Maybe $1 million, $1.5 million that I see, and that's primarily because of the remaining four sites that we are pulling back together.

We didn't completely get all 15 sites done in 2013. We still have to move some manufacturing from San Diego up to our microwave facility and a couple other things. But by and large, Kevin, I think, except if something happens to our markets, I think we are done with that for now.

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

No, I think we should be finished with it in Q1.

Okay. Then looking at the machine vision in the quarter, I'm just wondering if there's any specific pockets or end markets industries, if you will, that drove the growth there in the current quarter at DALSA?

I think primarily we are seeing some improvement in the general industry and some in semi. The interesting thing for us there are two new things. One of them is our x-ray products. We have this CMOS x-ray detector that are much more sensitive than the amorphous silicon detectors, and we are gaining market share there. That improved in the year this year.

And the other one is that we have better machine vision products. Again, we came out recently with some CMOS products, introduced new CMOS products there. And that's been helpful to us. So we are fairly positive about that part of our imaging business.

Okay, thanks. And then just one last one from me. Just wondering, as you kind of formulated your 2014 outlook here over the last few weeks, did the recent government budget deal change how you were looking at defense for 2014, or did it not have much of an impact?

I think right now we think some of our programs have stabilized. We were really worried for a while because we are not getting some of the orders that we normally get from the depots, for example our various connectors and other things like traveling wave tubes, but we've seen some stabilization of that.

We did get some nice orders in from the Navy for 1600 traveling wave tubes for the weapon system in the AEGIS. I think US maybe a little better going forward. On the other hand, in UK because of that big program that we enjoyed in 2013, that counter-IED program which we delivered everything, $40 million worth, there the comps are going to be negative because we won't have that program in 2014.

It is a mixed story. With the US, a little improved, and then the comps in the UK being a little more difficult for us.

Okay, thanks. Good color. That's all I have.

Thanks, Kevin.

Next we go to line of Chris Quilty with Raymond James. Please go ahead.

Good morning, everyone.

Good morning, Chris.

Robert, I just want to clarify something I think you said earlier in the text, that the overall US government was down 7% and you are expecting it to be down a little more in this year, is that correct?

Yes, Overall government for 2013 was down about 7.5%, the US government. We had a couple of percent improvement in Q1, and then it went south from there on. So we have double digit decreases in our government programs in the last three quarters.

But we think going forward, that's going to not be as bad. I think it stabilized, except for the weakness that I said in the UK.

Right. So would the decline, you're expecting a further decline in 2014 in the defense business, or flat?

I think it is going to be flat. I think the only area that we think there might be some decline is in the -- only the comps in the UK where we had that big program. Otherwise I think we're going to be flat, maybe even a little up.

Okay. Obviously your forecast takes into consideration the improbable likelihood that we are actually going to have a budget for FY14, and it looks like the impacts of sequestration are going to be less than originally thought, all of that included in your forecast?

I wish I could say what you just did. I'm not that brilliant, but that's good. I will go along with that.

Okay. Shifting, quick question on the pension. I think it was less than six months ago that you took down your discount rate. Can you give us your thought process behind taking it back up? And I haven't worked my pencil yet, but what specifically was the EPS impact of that change?

We took it up now to 5.4% for next year. If you look at where we were and where we took it, the net change of that is about $0.14. $0.14, $0.15, I'd say $0.14.

Okay.

Improvement.

Right.

Yes.

And the reason for taking it up is the taper and your portfolio return?

No, the reason we took it up was very simple. It is the bond yields have gone up, and the discount rate that we used for the calculating pension obligations are based on yields of bonds.

Right now we select our portfolio based on AA bond rates, and those have gone up so the discount rate goes up because of that. We don't do that ad hoc; we do that in collaboration with our people that do cover our pension actuaries.

Got you. Separate question. The buyback, I think you mentioned that the primary motivation was just to offset dilution.

Are there other motivations, either lack of acquisition targets, or do you think the stock's just too darn cheap? What was the Board's thinking behind that?

Let me answer the last question first, which is I don't know of a CEO that doesn't think their stock is cheap, right? But that's not why. As I mentioned, we have a fully-funded pension now. We don't have to make a contribution to pension this year.

We like our own portfolio, but we are looking for acquisitions, and we will make acquisitions going forward. Chris, if you look at the amount of cash that we will generate next year, let's just say somewhere around our net income, and even take it lower than that. Let's say [between $160 million and $180 million].

Sue mentioned that our net debt right now is about $450 million to $480. So if you take, let's say $150 million in cash and put it back, we're going to have net debt of around $300 million, and we do have -- if we don't do anything.

We do have -- then we will have ample liquidity if we wanted to borrow up to 2.5 times our EBITDA, we would have probably liquidity between $800 million and $900 million to buy things. We think at this point it might be prudent to just pick up some stock that goes with the dilution from our stock option.

If you looked at what happened, we haven't bought much stock in the last 9 to 10 years. If you look at the dilution that we have experienced because of our stock issuance, you add it all up, it is over $1 a share in earnings.

It is a little bit like hedging to just kind of buy a little of our stock just so that that dilution doesn't keep going up significantly. But if there's a big acquisition that we find that's attractive, we will stop that in its tracks and spend the money there.

Got you. And on the acquisition front, any changes worth noting, either in valuations or attractiveness of certain verticals? You seem to be doing well in avionics, but haven't bought anything there in quite a while. Anything of note?

No. I don't think the valuations have changed all that much. The -- specifically on avionics front, Chris, we are in a niche market there. It is a fairly narrow market that we play in. The aircraft information systems, it is a consolidated market. There is really not much available. We bought a couple of very small companies there over the last few years. There's nothing really available, because the best of it is consolidated, our competitors.

Where there are opportunities for us, and we are very keen on pursuing them, it would be probably in the marine, as always, and perhaps if we can find something in the electronic test and measurement that would be attractive. We surely would like to do more in imaging and x-ray if we can find appropriate acquisition.

Got you. Very good, keep up the good work.

Thanks, Chris.

Our next question comes from the line of Steve Levenson with Stifel. Please go ahead.

Thank you. Good morning.

Good morning, Steve.

Just staying on the acquisitions, are you looking? You mentioned big acquisitions, are you looking more for things in the sort of DALSA, LeCroy sized category, or are you still being opportunistic if something comes around that's smaller?

We are always -- we always like the string-of-pearls approach. Anything small that fits that we can tuck it in, we will take if it complements what we have, especially, as we mentioned, we did CDL and we did CETAC in the environmental, and CDL in the marine. We did a slightly larger acquisition in RESON. We paid something north of $60 million for it. So we will keep doing that.

But having said that, there's always a possibility that something bigger will come along, and we are looking for it. But those are kind of not as frequent, and we were looking at DALSA I think for five, six years before things worked out so we were able to acquire it. Those things also take a little longer time.

Okay. Thanks. Then just a question back to the defense budget and the government spending generally. Particularly on the glider program and some of the other subsea things that -- I guess could you give us some idea how large they could grow? And if the funding is there, or if that's sort of a back burner thing for the government, if they're unfunded contracts?

Actually in the glider program, it's about -- we got about a $52 million contract for the first 150 gliders from the Navy. We've just been notified that we are a sole source selection, been selected as the sole source contractor for the next 150 gliders.

We're pretty positive about that area, especially now that we are also seeing some interest from other countries. We think that glider program, which we will say between $7 million and $8 million a year is going to remain stable.

The other one that we talked about earlier, which is the shallow underwater vehicle, which our Engineered Systems group also manages. We expect that when it goes into production in a couple of years, that will add about $30 million, $40 million on an ongoing basis, and that is not a program that is going to go away, primarily because our special op forces need those vehicles. The ones that they have right now are long in the tooth, and they need new vehicles for their special op program.

Okay, thanks. And lastly, just when you mentioned the interest from other countries, are those things you can do on a direct sales basis, or of those potentially foreign military sale items?

Some of them are non-government and some of them are FMS. When you do FMS, as you well know, you have to have foreign military sales, but these would be to friendly nations.

Okay, thank you very much.

Thank you.

(Operator Instructions)

Next we go to the line of Jim Ricchiuti with Needham and Company. Please go ahead.

Yes, just a final question from me, just with respect to acquisitions. Robert, I was just wondering if you can maybe outline the philosophy regarding a larger acquisition, if one were to come along. Is it aimed at opening up potentially a new vertical, the way you did with the LeCroy and perhaps with DALSA, or would these tend -- if in the event one did come up, would we think about the markets you are in currently?

Jim, I think it is much more likely, now that we have DALSA, a nice digital imaging business and we have LeCroy, and then of course we have our marine businesses. I think it is more likely that we will stay within the areas that we are.

It may be something we buy that won't all go into one of those segments. It may have to go into multiple segments, but it is less likely that we will start a whole new vertical. I think I'm pretty comfortable with our portfolio as we have it. We don't want to wander too far from what we know, because that makes it much more difficult for us to manage.

Got it. That's helpful. Thanks a lot.

Thank you.

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

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

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

And now, Moses, if you would end today's call and provide the replay details to the group, we'd appreciate it. Thank you.

Ladies and gentlemen, this conference will be available for replay after 10:00 AM today through February 23, 2014, 11:59 PM. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 306912. International participants dial 320-365-3844. These numbers again are 1-800-475-6701 and 320-365-3844, access code 306912.

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