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Sigma-Aldrich (NASDAQ:SIAL)

Q4 2013 Earnings Call

February 06, 2014 11:00 am ET

Executives

Quintin J. Lai - Vice President of Investor Relations

Rakesh Sachdev - Chief Executive Officer, President and Director

Jan A. Bertsch - Chief Financial Officer and Executive Vice President

Analysts

Jonathan P. Groberg - Macquarie Research

Summit Roshan - KeyBanc Capital Markets Inc., Research Division

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Bryan Kipp - Janney Montgomery Scott LLC, Research Division

Steve Willoughby - Cleveland Research Company

Daniel Brennan - Morgan Stanley, Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Daniel Arias - UBS Investment Bank, Research Division

Eugene Fedotoff - Longbow Research LLC

Isaac Ro - Goldman Sachs Group Inc., Research Division

Rafael Tejada - BofA Merrill Lynch, Research Division

S. Brandon Couillard - Jefferies LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Sigma-Aldrich Corporation Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Quintin Lai. Mr. Lai, you may proceed.

Quintin J. Lai

Thank you, Charlotte. Good morning. Thank you to everyone participating on this call on the webcast. Presenting for the company, we have Rakesh Sachdev, President and Chief Executive Officer; and Jan Bertsch, Executive Vice President and Chief Financial Officer.

Rakesh will start with a review of the fourth quarter and full year 2013 performance and highlights. Jan will then provide a review of our financial performance and introduce our outlook for the full year 2014. Then we'll open up the call for your questions and comments.

We will be using a slide presentation as part of today's call. That presentation can be viewed on our Investor Relations website at www.sigmaaldrich.com.

Before beginning the review, I want to remind you that today's comments include forward-looking statements about future activities and our expectations for sales, earnings, cash flow and other possible future events. While we believe these expectations are based on reasonable assumptions, actual results may differ materially due to any number of factors, including the risk factors listed in our latest annual report on Form 10-K and in the cautionary statement included in today's earnings release and slide presentation. We have no plans to update these forward-looking statements after this call.

Also, in today's conference call, we are providing information on non-GAAP financial measures. Management uses these measures and its internal analysis of results and believes this information may be informative to investors as well. For a reconciliation of non-GAAP measures, please see today's earnings release and the Appendix of the slide presentation.

With that, I turn the call over to Rakesh.

Rakesh Sachdev

Thanks, Quintin, and good morning. As you know, at the start of the year, we implemented a major realignment of our company into 3 customer-facing business units, Research, Applied and SAFC Commercial, to better focus on solving the unique challenges of our customers in each of these markets.

Our teams had a successful 2013 and finished the year with 6% organic sales growth in Q4, the highest level we have seen in over 2 years. This culminated in a record year of sales, earnings and free cash flow for Sigma-Aldrich, and we delivered solid EPS growth for our 39th consecutive year.

In addition to outstanding financial performance, we have continued to elevate our role as a corporate citizen. And 2 weeks ago, we were honored to be named at the World Economic Forum in Davos as amongst the Global 100 Most Sustainable Corporations in the World.

Over the next few minutes, I will cover each of our business segments and geographies, and while we are well positioned for another good year in 2014.

In 2013, our Research business unit generated $1.4 billion of sales. We continue to grow our unparalleled product portfolio with about 230,000 biological and chemical reagents and consumables. We have a tremendous sales and distribution channel, with 33 worldwide distribution centers and we have the leading e-commerce platform in the industry today.

In 2013, Research sales grew organically by 2%. Academic and government sales were flat for the year and were negatively impacted by funding constraints caused by U.S. sequestration. We saw another good year in Research pharma sales, which represents the sixth consecutive quarter of sales growth improvement. Our dealers had a solid year as we had growth contribution from our geographies.

In 2013, we elevated our customer-focused sales and marketing efforts. For our large customers, we have announced our account management activities. And for our smaller customers, which represent the majority of our more than 100,000 accounts, we continue to build value through our industry-leading e-commerce platform and our field and inside sales force.

In 2013, we increased the pace of collaborations with world-class research institutions like Scripps to develop and bring to market new innovative research tools. This has already resulted in several dozen new and exciting product offerings. We have several new agreements in the works with other leading institutions, and we expect to launch hundreds of new products in 2014 from these agreements alone.

We are expanding our offerings across new scientific workflows in the areas of drug discovery, translational medicine research, clinical diagnostics R&D and nutrition and food safety. We are also working closer with strategic pharma accounts to provide service solutions that range from innovative R&D workflows to operational efficiency programs to enhance product selection strategies. We saw good growth in Europe for these services where we believe we grew faster than the market in 2013.

We have successfully rolled out our Dealers As Partners programs across all of our geographies, and we saw strong growth from emerging markets such as Russia, the Middle East and Africa.

In 2013, our Applied business unit had a successful year as we enhanced our focus on testing laboratories and industrial customers. The business generated $629 million in sales with about a 50-50 split between its 2 business segments of Diagnostics & Testing and Industrial. For the full year, Applied grew 5%, led by high single-digit organic sales growth in Diagnostics & Testing and low single-digit organic sales growth in Industrial.

During the year, we elevated our strategic account management approach. We saw continued growth in our Diagnostic & Testing segment, where we provide critical components and customized solutions to diagnostic manufacturers and testing labs. And we have been working closely with both existing and new customers to expand our presence with them. For example, our Seppro Columns are being used by a cutting-edge diagnostic company to remove high-abundance proteins from blood to enable trace biomarker detection by mass spec.

And we continue to work with companies to help them develop next-generation diagnostics. We are growing our sales of stable isotopes into established and developmental diagnostic applications, ranging from a breath test for stomach ulcers to novel detection of prostate cancer. And we are developing and launching a new line of products such as enzymes that are specifically designed for diagnostic kits. And finally, we are expanding our ISO-certified manufacturing capacity to satisfy the growing demand for components in the highly regulated diagnostic markets.

Our certified reference materials and standards had another strong year of sales growth, led by our Cerilliant business. A key 2013 initiative for the Applied business unit was to roll out Cerilliant to European and Asia Pacific regions, and I'm happy to report that our teams did an excellent job.

In our Industrial segment, we are bringing focus to an extremely diverse and fragmented group of customers and are making strides in building relationships with key accounts. For example, we had identified several new opportunities in chemical manufacturing. We have received positive reception from customers and are moving forward with new initiatives in 2014.

We are developing a differentiated position in the Flavors & Fragrances business, where our products have a reputation for quality and safety. This is critically important in highly regulated markets such as the EU. And our R&D teams are working with agbio customers to develop new products and workflow solutions.

On March 12, at our Analyst Day in St. Louis, we will go into more detail on our applied markets, as well as other business units and operational initiatives, and I hope many of you will be able to attend.

Our SAFC Commercial business unit generated $673 million in sales in 2013. For the full year, this business grew 6%, led by double-digit growth in Life Science products and high single-digit growth in Life Science services. These results more than offset double-digit declines in Hitech, caused by price declines in metal organic precursors for the LED market. SAFC continued its focus on providing products and services that are difficult to replicate or substitute and critical to their performance, and these products typically make up a small portion of the customers' overall product costs.

In 2013, we had a strong growth in Life Science products, led by our industrial cell culture media, biological buffers from our SAFC Cleveland location, which was formerly known as Research Organics, and contract manufacturing such as high potent APIs and antibody drug conjugates. We were pleased to see sequential growth in our Life Science services business.

2013 was the first full year of an integrated BioReliance and we are now beginning to see revenue synergies, such as with our viral particle testing and manufacturing businesses. And within Hitech, we had strong growth of chemical precursors for advanced chips in the semiconductor business that partially offset the decline of LED precursors.

We are in the process of expanding capacity in a number of areas such as dry powder media, high-potent APIs and antibody drug conjugates. In 2013, we expanded capacity in service areas such as viral clearance and high-complexity protein characterization services. And we remain positive on the long-term growth potential for our SAFC Commercial business unit.

In 2013, we had balanced growth across all of our major geographies. In the Americas, we were negatively impacted by U.S. sequestration in our academic and government segment, which was more than offset by strong growth in SAFC Commercial, Life Science products and services and the Applied markets.

In Europe, Middle East and Africa, we saw stable academic environment and growth in research pharma, especially with our new service offerings. Through our dealer partners, we saw encouraging growth in the emerging countries. And in the Asia Pacific region, Japan and South Korea showed signs of improvement in the fourth quarter. China had strong growth in 2013 and helped offset softer markets in India and the Pacific Rim.

In 2014, we expect the second half to be better than the first half as U.S. academic spending picks up and as the political uncertainty in Asia lessens. As a result, we expect low single-digit organic sales growth in the first half, increasing to mid single-digit growth in the second half.

Our customer base is global. It is highly fragmented and consists of individuals and entities large and small. For example, in our Research business, less than 10% of our Research sales come from large global pharma customers.

Success in our space requires multiple channels and touch points. We have the leading e-commerce platform in the sciences and we continue to add content to provide information selection and access to tools and products to enable our customers' work. We are focusing our account management teams on our large customers to better tailor our product and service offerings to help solve their challenges.

Importantly, our world-class technical service teams clearly differentiates us. Feedback from our customers confirms that our technical service is a primary source of research information and support.

While academic funding has been tough over the past couple of years, we continue to find opportunities through innovative collaborations with institutions to develop new tools for research. And as we begin 2014, we are encouraged to see potential for a better U.S. funding environment. As a consumables company, we expect this will translate to a stronger business gradually as the year progresses.

Large pharma consolidation has been a headwind for the past few years, and we continue to see some companies announce planned layoffs in 2014. However, we are not seeing the frequency and size of layoffs similar to what we saw in 2011 and 2012.

Large molecule R&D and manufacturing remained robust and should continue to be so for the foreseeable future. We have a strong position in both research and commercial products and services to serve this market. Our Applied business unit will benefit from growth trends in clinical diagnostics and environmental testing.

Finally, our industry continues to consolidate, and this trend is likely to continue for the foreseeable future. Strong companies in our space will benefit from this changing landscape and we are well positioned.

We have great channels, we have great products, we have the best technical service in the consumables space, we have strong relationships with our customers and we have a strong balance sheet to invest in both organic and inorganic growth.

Now Jan will take you through the fourth quarter and full year 2013 financials and our 2014 outlook. Jan?

Jan A. Bertsch

Thank you, Rakesh. First, we would like to look at organic sales growth by business unit and by their segments.

Research organic sales growth was 3% in Q4, which was in line with the past couple of quarters. Looking at segment performance, academic and government sales were flat in the quarter. We saw solid growth in the EMEA and the APAC regions, which was offset by a decline in the U.S. due to sequestration and the October government shutdown. Pharma continued to improve sequentially, with high single-digit growth in Q4. This represents the sixth consecutive quarter of improvement for the pharma segment. We saw large strategic accounts grow in the mid single digits, and biotech spending continued to be robust.

Our dealers had another good quarter with mid single-digit growth. Our Dealers As Partners program was successfully expanded from APAC to the U.S. and EMEA regions in 2013.

Applied organic sales growth was 6% in the fourth quarter. Diagnostics & Testing growth rebounded from Q3 and returned to high single-digit growth. European demand improved from the summer months. During the quarter, we signed a major supply agreement with a North American testing company, expanded our ISO 13485 certified manufacturing capabilities, introduced our Elite enzymes portfolio for diagnostic manufacturers and expanded our product portfolio of air monitoring devices.

Industrial growth continued to be in the low to mid single-digit level. During the quarter, we saw a greater traction from focused marketing efforts with chemical manufacturing customers and expanded our Flavors & Fragrances product portfolio, with hundreds of our products upgraded to comply with European regulations in 2013.

SAFC Commercial organic sales growth was 10% in Q4. Both Life Science products and services saw double-digit organic sales growth for a second consecutive quarter. In our Life Science products segment, we saw double-digit growth in biopharma materials, including cell culture media and contract manufacturing.

We are very pleased with the initial reception to our recent announcement of the expansion of our high-potency antibody drug conjugate production capacity. We continue to believe that we are in the early innings of a high-potential growth trend.

Our Life Science services segment grew sequentially through 2013. We have expanded our analytical labs to include high-complexity analytical service offerings, and we continue to see increased demand for our viral clearance services.

Hitech declined mid single digits, which was an improvement from all 3 prior quarters last year. While we continue to see price declines in our metal organic precursor business for LEDs, this is being somewhat offset by stronger sales of chemical precursors to the semiconductor market.

For the quarter, we generated $684 million of sales. GAAP and adjusted operating income was $171 million. GAAP net income was $131 million and adjusted net income was $123 million. In Q4, we had about $8 million of tax benefits that were related to adjustments from finalizing prior tax filings for various jurisdictions, which were not anticipated in our prior guidance.

For the full year 2013, we generated $2.7 billion of sales. Our GAAP operating income was $661 million and our adjusted operating income was $683 million, which excludes one-time charges. On an adjusted basis, net income for the year was $499 million, an increase of 6%. Adjusted diluted EPS was $4.12, an increase of 7% from last year. We generated $541 million of free cash flow, an increase of 19% and well in excess of our guidance of more than $450 million.

Our teams had a very successful year in managing working capital, especially inventory spending, which helped drive the outperformance in free cash flow relative to our guidance. We also had some favorable timing of payments due to the holiday season calendarization and a lower-than-expected capital expenditure for the year.

Looking at adjusted growth and operating margin trend. We see that the last 5 quarters have been relatively flat. Headwinds in FX in the fourth quarter compared to a year ago resulted in our gross and operating margins to be reduced by 50 basis points. Higher sales of SAFC Commercial products also impacted our margins in the quarter by about 20 basis points.

Excluding these 2 impacts, our adjusted operating margin would have been about 25.7% or 50 basis points higher than in the fourth quarter a year ago. For the full year 2013, adjusted operating margin was 25.3% compared to 25.7% in 2012. Much of the year-over-year difference in margins came from our sales mix in 2013. Because SAFC Commercial grew faster than the other 2 units, we estimate that mix impacted gross and operating margins by about 0.5 percentage point for the full year 2013.

2013 was the year of transition for the company as we went through a major realignment. While we made and continue to make tremendous strides with connecting with our customers, we see 2014 as the year where we will start seeing the benefit from our recently announced global supply chain organization.

In 2014, we expect overall organic sales growth to be in the low to mid single-digit range. We expect Research to grow in the low-to-mid single digits, Applied is expected to grow in the mid-single digits and SAFC Commercial is expected to grow in the mid-to-high single digits.

For pacing, we expect the second half of 2014 to be stronger than the first half. While academic funding looks to be better, we think it will take time for researchers to receive the funding and for us to see increased spending on consumable.

In SAFC, our business tends to be lumpy. Given the strong fourth quarter finish, we feel it's prudent to moderate expectation for Life Science products growth in the first quarter. Growth should return to a more normalized level in Q2.

In 2014, we expect to see 50 basis points of operating income expansion. We expect to see this improvement primarily from continued process improvements in plant efficiency, freight and distribution efficiencies and inventory management. These efforts are being led by our global supply chain crew.

Our effective tax rate in 2014 is expected to be approximately 27%. We expect full year adjusted EPS to be in the range of $4.30 to $4.40. And for the full year, we expect operating cash flow to be in excess of $600 million and free cash flow in excess of $475 million.

This concludes our prepared remarks. And operator, we're ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of Jon Groberg from Macquarie.

Jonathan P. Groberg - Macquarie Research

So if we think about 2014 a little bit more and just trying to expand a little bit more on how we can get back up to double-digit EPS growth here, I guess, what are the -- as you look at the year, are you thinking slightly better than 2013? It looks like some of the end markets, at least today, it's a good leading indicator, should improve, although we keep seeing mixed messages in some of the emerging markets. But I guess as you sit here today, what do you think will be kind of the -- potentially the upside or downside surprise to the outlook you left on revenues? And what kind of revenue growth do you think we need to see in order to get back to double-digit EPS growth for Sigma?

Rakesh Sachdev

Thanks. These are all good questions. So let me just -- as we look at 2014, obviously, we are cautiously optimistic that the end markets will be better in several of our markets. So we are looking to getting -- and it's slightly improved growth scenario or top line. And I'll also talk about some of the things that we are going to also improve the bottom line with some of the initiatives now with the new global supply chain organization. As you know, we spent a lot of time in 2013 in making the changes in our customer-facing organization, and I think we have done a great job at keeping the company focused on our customer. And later in the year, last year, we globalized our supply chain organization that's focused on 5 or 6 very key things that is going to give us some additional benefits on the earnings side, which is why we think we will elevate our EPS growth over time. Let me just talk first about the top line growth. I think our Research business -- at least in the early part of the year, the academic funding situation isn't going to improve immediately. I think we all know that. We expect, in the second half of the year, we will see hopefully some strength in the -- in our academic business, which is a key part of our Research business, which is why we have tampered our outlook for growth into Research in the first half of the year to be sort of similar to what you have seen in the low single digits and then moving up. I think in the SAFC business, that business, as you saw, had tremendous strength in the fourth quarter of last year. We are probably going to -- because as Jan said, it is a little lumpy, we'll probably see a little impact of that in Q1 where perhaps some of that growth will be muted. But I feel pretty confident, Q2 and Q3, again, we'll see strong growth in our SAFC business. Q4, as you know, will have a tougher comp for SAFC because Q4 was just a record quarter in 2013. But our Applied business should show good strength throughout the year. I mean, there isn't anything that's happening in the Applied business, where it says that we are going to see any hockey stick. I think we will see some improvement in the industrial market. We are making some strides with our customers there, but our Diagnostic & Testing business, we expect, will continue to do well. So overall, I would say that from a growth standpoint, we are cautious. We think -- we like some things that are happening in the end markets. As you pointed out, Asia is still a little bit of a mixed bag, especially when it comes to India with the elections coming up. But we think we've got some initiatives in Asia that will continue to give us some growth. So coming back to our global supply chain, we have some aggressive goals in what we are trying to achieve in our operations. The first thing I would say is that we have been announcing some consolidations. We shut down a couple of facilities last year. We have started seeing some benefits because we have taken some fixed costs out. So we are going to see some benefit in 2014 that will give us that opportunity. I think there is a lot of work that's being done on the freight and duty optimization. Just to give you an idea, we -- our freight and duty costs in this -- in our company is more than half of our total labor costs in all our operations. It's a very significant number. And we recognize we have a lot of carriers around the world today. We have a lot of milk runs and we have taken this now to the next level where I think we will have -- we will see some good opportunities in taking that down. We are already using -- planning on some free trade zones to reduce [indiscernible]. We will keep you updated on that. But again, that's an area where we will see some benefits. Our whole planning function now is globalized. We have moved away from a regional planning function to a global planning function. When you're planning for 600,000 SKUs, there's a lot of complexity. And I think we'll have an opportunity to take -- manage the inventory and take some costs out. So when you're here at the Analyst Day in March, we will give you a lot more color on what we are doing. But I feel very confident with what we are, I think, able to achieve on the top line growth and some of the initiatives that we are now kicking in on the supply chain side that we will be on a journey here to getting our earnings growth back to where historically they have been.

Jonathan P. Groberg - Macquarie Research

Okay. Can I just quickly follow-up? Would you -- I mean, I'm just looking at your free cash flow this year and your free cash flow guidance for next year. You haven't really been very active on the acquisition front. I mean, is there any reason you don't want to be more aggressive on the buyback to maybe help out there?

Rakesh Sachdev

I said I think we have been fairly consistent in the use of cash. We still want to use cash primarily first to fuel growth, both organic and inorganic. It's not that we are not looking at acquisition opportunities. We are obviously always evaluating opportunities. I think we have -- I think there's still a pretty good pipeline of what you would refer to as bolt-on acquisitions, and you will see us probably announce over the course of the year. Now as far as share buybacks, we always look at the right opportunities to do more share buybacks. We've got an authorization from the board to buy up to another $10 million shares. But I think that has to be put in light against some of the other uses that we think we can use the cash for and then move forward.

Operator

Our next question comes from the line of Summit Roshan from KeyBanc.

Summit Roshan - KeyBanc Capital Markets Inc., Research Division

Looking at the operating margin guidance that you gave, looking for a 50-basis-point improvement in '14, could you maybe help us parse out what's built into that in terms of your outlook for pricing in the year? Obviously, you went through your good amount of these supply chain initiatives, but also maybe what you're looking for in terms of FX and how that ramps into the year? Maybe -- is it a little bit back end weighted?

Jan A. Bertsch

As far as the pricing goes, I think we're looking at something consistent with prior years, about 1% positive pricing in the year. Of course, that's mostly on our Research and Applied products versus our commercial SAFC products. And that gets feathered in throughout the year. We do that at multiple times. It depends on which location and products that we're talking about. But we'll take various pricing actions throughout the year. As far as FX goes, the guidance that we're providing at $4.30 to $4.40 per share contemplates the FX environment that we see today. So we'll continue to provide updates on our FX at every call. But based on where we are today, our -- the FX environment is baked into that rate.

Summit Roshan - KeyBanc Capital Markets Inc., Research Division

Great. And then if I look at CapEx, it looks like it's going to be up about $30 million in 2014. Is that primarily just a new capacity that you mentioned that's coming on in the SAFC side of Business? If you can give a little bit more color on where that's being allocated, kind of split between growth and maintenance CapEx, if you would.

Jan A. Bertsch

Sure, sure. Our capital spending is targeted to be $130 million in 2014. And you're exactly right, there is some carryover impact into 2014 for the new expansion plans that we have in place. We spend money every year on CapEx for safety and compliance and for normal wear and tear in the business, capacity and process improvements, as well as new business. And the growth side of that story usually, typically, is about 2/3 or 3/4 of that spend.

Operator

Our next question comes from the line of Tim Evans from Wells Fargo Securities.

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Rakesh, I just wanted to get your thoughts on strategy and emerging markets. While your Emerging Asia, as you're calling on the slides -- I mean, while your growth here is better than your other geographies, there are competitors out there that are growing more than that. Do you feel there's opportunity to improve that emerging market's growth rate beyond 10% level?

Rakesh Sachdev

So I think when we look at the emerging markets within Asia, which is basically China, India and Southeast Asia, I think we have been -- as a consumables company, I think we have been growing quite well. China continues to grow in double digits. And India -- while India had been slow for most of 2013, I think we did see some pickup in the fourth quarter in India. And -- but I think India, for the next few months, are going to continue to be plagued because of all of the elections that are coming up. We've got a good position in the emerging markets of Asia. We have been there. I think we have had the first-mover advantage in many of those countries. We are -- we have a go-direct model in most of these countries where we are dealing directly with customers. And I would say that now, we remain quite optimistic about what we can do in these countries. Obviously, Japan makes up a good piece of our Asia business, which is why we have been focused over the last year or so on Japan. There, we go to -- largely through dealers and this is where we kicked in our Dealers As Partners program, where we reduced the number of dealers, we have more strategic dealers now in Japan that's beginning to help us. So our plan is to start fueling some growth in Japan, because if you can get some growth in Japan, we feel pretty good about the growth in the emerging markets of Asia, and that should help us overall in that region.

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Okay, great. And then one real quick for Jan. Jan, your leverage ratio now is down to like 10-year lows. And I'm just wondering, whether it be M&A or share repurchases, as Jon mentioned, is there -- what are your thoughts about -- where are you comfortable going on that leverage ratio? And how you think about maybe taking advantage of these historically low rates while they last?

Jan A. Bertsch

We don't typically target a specific leverage ratio here. We obviously look very closely all the time at where our credit rating is. This is -- it's a good question, and it's one that I always like to think of in conjunction with many other things, like the need to borrow -- either to support a share repurchase or to support an M&A action versus just borrowing because the rates are low. And we talk about this all the time internally. It's a very strategic dialogue that we have on a regular basis. And it's all basically lumped together with our strategy on where the company is moving, and we continue to obviously look at the rates. They continue to be very favorable. And should we do an M&A transaction or a larger share repurchase? We would certainly be accessing the markets at that time.

Operator

Our next question comes from the line of Paul Knight from Janney Capital Markets.

Bryan Kipp - Janney Montgomery Scott LLC, Research Division

This is actually Bryan Kipp on behalf of Paul. Can you guys dive into the academic market in the 4Q? Just kind of want to see how it tracked with sequestration and how it kind of ended the year and maybe the start of this year, if there's any color.

Rakesh Sachdev

Yes. So when I look at 2013, the academic market, as I said, was fairly flat, overall, worldwide. But it did decline in the low single digits in the U.S. And it was probably less than what a number of other companies saw. And that was partially because we have been driving more partnerships, as I said, with a number of institutions. I expect that in the -- as we begin the year in 2014, we are continuing -- we are going to continue to see headwinds in academia in the U.S. and the early part of this year. And hopefully -- we are hoping that, that will change in the back half of the year. January, it also, even when -- and this is -- a lot of our business is a run rate business with universities here. And this year, as the 1st of January fell in the middle of -- the first week of the year, and so I'm certain that most consumable companies would have seen a slow first week in January. But again, that was more because that's sort of where the holiday fell. I would say we are in our dialogues with our customers in -- with universities. I think they are all beginning to feel like this -- the environment is going to change for them. And so we are -- we are going to watch this carefully and see how this changes for us it. But as I said, I certainly expect that the second half of this year, we will see some trend in the U.S. academia.

Bryan Kipp - Janney Montgomery Scott LLC, Research Division

Appreciate it. And just one follow-up, on the Life Science products side of your SAFC Commercial business, just want to kind of understand a little bit more what's going on there. Were these -- was this uptick the 10% organic that we saw primarily from demand due to approvals of drugs, which will have a long-term life cycle for you guys? And more on acceleration of pipeline developments, what was going on in that market?

Rakesh Sachdev

It's actually both. So clearly -- and the drugs that we already spec-ed in, those drugs have been growing nicely. And so we have been carrying our media business, as well as the active -- sorry, the high API business with those drugs. And we are certainly now in several trials at different phases of these drug approvals on new drugs, so which is -- also gives us some confidence and hope that for the foreseeable future, for some time, we will continue to see some very strong growth.

Operator

Our next question will come from the line of Steve Willoughby from Cleveland Research.

Steve Willoughby - Cleveland Research Company

It revolves around your comments as it relates to the first half of the year versus the second half of the year. I was a little surprised on some of the comments just regarding -- how, on the first half, you expect to be a little bit softer. In the first quarter of last year, there were some shipping day issues. And obviously, you're going to be going against some pretty easy comps here in the first quarter. So I just wonder if you could maybe talk about -- are there any shipping day changes in this year in the first quarter and maybe any other color you have regarding kind of the seasonality through the year that you're expecting?

Rakesh Sachdev

No. Steve, the shipping days this year relative to 2013 are about the same. So there are no shipping day differences between the first quarter of this year and last year. I mean, the only reason I think we are talking about the first quarter being softer than the other is because again, last year, the academic business in Q1 wasn't as weak. So we will see -- we're still going to see some headwinds in the academic business. And I think SAFC is going to be a little softer than Q1 than what we have seen in the last couple of quarters because of the strength that they had in Q4 and some of the lumpiness. But I think some of this are just timing issues, nothing to do with days, if that's the question you're asking.

Steve Willoughby - Cleveland Research Company

And then just one other follow-up. As it relates to the FX, I think in your 2013 guidance, you guys were talking about a $0.10 headwind was baked in. I was just wondering what ended up actually happening in terms of the headwind from FX in 2013? And then I saw your guidance for 2014 with no expected impacts from FX. It seems like that's on the top line. I just wanted to see if that was also on the bottom line as well.

Rakesh Sachdev

Yes. So I think I'll let Jan say -- but I think we had said about $0.10, and I think we have certainly about $0.08 to $0.10. We ended up at about $0.05 or $0.06 of that, but we also took in about a couple of cents in Q4 on truing up some compensation accruals because of the strength we saw in SAFC. So between what we topped up on compensation and the FX, I think it was pretty much in line with what we had said for the year. As far as for 2014, I think we have said, based on current FX rates, we don't see any material impact on the bottom line. I think there is going to still be some impact on the top line, where we will see some additional sales, which puts a little bit of pressure on the margin, I think about 15 or 20 basis points, but that's in our guidance we already covered. So we are expecting that we will cover that and provide the expansion.

Jan A. Bertsch

And because of the hedges that we have on the book, too, we will come back and provide further guidance as the year goes on because sometimes, our FX position will move differently because of some of these hedges we have on the book.

Operator

Our next question will come from the line of Daniel Brennan from Morgan Stanley.

Daniel Brennan - Morgan Stanley, Research Division

I wanted to start with the operating margin guidance, Jan. Could you just talk about -- within the 50, certainly, it sounds like you have some headwinds likely from mix. So can you just maybe give us a bit of a bridge maybe from some of the supply chain initiatives? Are those expected to get you better than 50, but those are offsetting maybe kind of a mix shift as you -- kind of walk through the positives and the negatives for that 50 basis points?

Jan A. Bertsch

Okay. So for 2014, yes, we're talking about our net 50 basis point improvement for the year. We'll see that improvement feather in throughout the year. And those improvements will come largely from the heavy offsets, as Rakesh mentioned, on improvement in our operational excellence, including our freight and distribution channels and improving our labor productivity, inventory management, et cetera. As SAFC continues to grow at a faster pace than Research, there will be a little pressure there on the margins, too, because SAFC typically holds a lower margin, a bit of a lower margin than our Research products do, which are more mature in nature, and not quite as -- not quite as capital-intensive. So we'll have to probably do a little bit better than the 50 basis points on the global supply chain management side to offset some of that pressure on SAFC mix side. In addition, though -- and Rakesh also mentioned that we took some actions last year that will have an impact in 2014, the closure of one of our plants in Europe, where we expect some favorability on the bottom line. So we're going to roll all that in and you'll see a net 50 basis point improvement throughout the year.

Daniel Brennan - Morgan Stanley, Research Division

Great. And then related to the questions on kind of Q1, maybe the lumpiness and the success you've seen with the SAFC. So in the quarter itself, was there like a certain contract that maybe came in this quarter that you weren't expecting that drove the growth here, and that's why maybe you're kind of tampering the first quarter start? Or was it just -- it was so strong, you just figured that it's probably not going to sustain itself in the first quarter?

Jan A. Bertsch

Yes. I mean, this happens frequently. Rarely do our shipments go out exactly as planned, either they pull them ahead or they push them a few days. We try to work with our customers and when they need the product. And I think what we saw in the fourth quarter was such a tremendously strong quarter that we anticipate a little bit of sluggishness in the first quarter because of that. It's something that we're used to that it happens all the time here and I just think we saw yet another time that occurred at near the end of the year.

Daniel Brennan - Morgan Stanley, Research Division

And maybe one more quick one. Just in terms of the Life Science products market, like any sense of what the market's growing at? And can you just update us again on like what your penetration is? Is that market at a certainly -- the growth you're getting is significant, just trying to determine like how much you'll outgrow in the market.

Rakesh Sachdev

Yes. So I think when we look at the whole biologic segment, right, I mean, I think the whole biologic segment is really going in the mid to high single digits. And I think a lot of our products and services are tied to that trend. And I think we are growing -- I would like to think we are growing slightly in excess of market because of the success we've been having and getting spec-ed in a lot of the new molecules and the new drugs. But yes, so the overall market, I would say, is going in the mid-to-high single digits.

Operator

Our next question will be coming from the line of Tycho Peterson from JPMorgan.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

A couple others on guidance for the applied markets. You're kind of talking about mid single-digit growth. As you've called out, these are -- a lot of these are high single-digit growth markets, Diagnostics, forensics. So can you just talk about why you could grow a little bit faster there, and then also the degree to which you're having to kind of reinvest in building out channels and areas like ag, bio, food, et cetera?

Rakesh Sachdev

Yes. So again, as you know, the -- our Applied business is half Diagnostics, which is growing in the high single digits. And then the other half is our business that we do with investment companies, which grows at a lower rate. That's -- so when we say mid single digit, it's really a blend. It's -- implied in that is a mid-to-high single-digit growth for our Diagnostics business, but a less than mid single-digit growth in Industrial. We'd like to all see that Industrial growth rate change, and I think it will change as we get more focused and that's been what we've been working on. And so I think going into the next year, I'd like to see us be able to comment earlier about some of the things that we have done on the industrial side that lifts that growth, and that's what's going to happen. So yes, so I'd say mid single digits for applied. Just remember that it's made up of our Industrial business as well. Your second part of the question, which is the channels for some of these other markets, agbio. Really, we have been working -- we have formed more focus groups within the company that are working with a lot of these ag companies that earlier, we didn't have that kind of account management. And we're really working with them on a scientific level of trying to solve a number of problems. There are some very large ag companies who, obviously, I won't name here, that we are working in very close partnership in terms of developing a strategic relationship and helping them really solve some problems to our applied businesses. And I think we are -- we're feeling pretty good that over time that this is going to open up markets for us that, so far, we have been pretty small in.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Okay. And then for SAFC, you're guiding for an acceleration in the back half of the year. There, you've got more difficult comps. Can you maybe talk about the drivers? Is that more on the Hitech electronics side, given some of the semi trends or Life Sciences or Life Science services?

Rakesh Sachdev

Yes. Just on the SAFC, as I said, Q1 might be a little soft because of what we saw in Q4. But I think Q2 and Q3 should be quite strong. And Q4 might also feel a little bit of the pressure on the comp standpoint because Q4 2012 -- 2013 was very strong. So I'm not saying that the SAFC business has the same phenomena as I talked about in the Research business. I think you're going to see strength fairly quickly in the year within SAFC. I don't know -- what is your second part of the question?

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Is that skewed towards Hitech electronics or the Life Science services or Life Sciences business?

Rakesh Sachdev

This Hitech electronics, just so -- we've mentioned this, 4% of our total sales is in Hitech. 40% of our Hitech business is our LED precursors, and that's where we have had the pressure. The other 60% is really made up of our sales of chemicals for the semiconductor industry, our energy display and some other things. And this other 60%, which I would say, about half of this other 60% is with the semiconductor, that is growing somewhere in the 15% to 20% range. And I think once this pricing stabilizes on this other 40%, which is the LED piece, we're going to start seeing overall growth in Hitech. What we are planning for this year, I think we're planning for the overall Hitech sales to be fairly flat year-over-year. At least, we are not planning for a decline.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

All right. Last one. Can you just talk on sell-in, sell-out trends in the dealer network? You said they were up mid single digits this quarter, but as you expand, can you just maybe talk to the degree to which you're comfortable with inventory in the channel?

Rakesh Sachdev

Yes. So I think if you look at our dealer growth -- our dealers take a lot of our products to small customers. And it cuts across many different markets, and I think that's where they have been quite strong. As far as inventory and the dealer channel, I don't know if that was your question, I mean, I don't think that has changed. I think we typically have enough inventory within our networks to be able to fuel and satisfy the growth that's happening through the dealer networks, as well as the growth that's happening directly. So I don't think there's any significant change there.

Operator

Our next question comes from the line of Dan Leonard from Leerink.

Daniel L. Leonard - Leerink Swann LLC, Research Division

Rakesh, I was hoping you could comment on the backlog number in SAFC. I assume the capacity expansion you have planned for '14 speaks for itself, but I was just wondering if there was a specific book-to-bill or backlog number you can speak to.

Rakesh Sachdev

Yes. I mean, as we look at the backlog in SAFC, it's up -- I don't have the exact numbers, but it's up at least mid single digits, maybe a little more. So yes, so we continue to see the backlog grow.

Daniel L. Leonard - Leerink Swann LLC, Research Division

Okay. And then for my follow-up question, again, on SAFC, I know in the past, you've strategically steered clear of a large volume, what you've considered bulk API business. But given the improved pharmaceutical pipelines, is that something you would reconsider? Or is your strategy still to play around the edges on that sort of thing?

Rakesh Sachdev

Yes. No, our strategy is still to be fairly select and focused on the API business. As you know, most of our API is related to high-potent compounds. And we don't -- we're not looking to becoming a generic API player.

Operator

Our next question comes from the line of Peter Lawson from Mizuho Securities.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Rakesh, just going back to the double-digit EPS growth question, can you get to there, on single-digit organic top line growth? Does it really predicate stronger top line growth to get you there?

Rakesh Sachdev

Yes, absolutely. I mean, if you look at -- historically, I look at the last maybe 12, 14 years in this company, and I would say that I think at least 9 of the last 12 years, we have drawn our earnings per share at double digit. And it's come all during years where we have grown 6%, 5%. So clearly, we have done that. We can -- and I think with what I talked about in terms of getting back to this mode of operational excellence and doing some of the things that brought me [ph] and tackling [ph] on the operations side, I have no doubts in my mind that we will be able to, even at mid single-digit growth, get high single-digit or low double-digit growth on EPS.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And what are the biggest levers, you think, to get you there? Is it beyond the top line? Is it the gross margin story or the planned consolidations and divestitures, and what's going to get you there?

Rakesh Sachdev

I think it's all, right? So as I said, I mean, it's -- obviously, it's optimizing our footprint, that has a longer-term impact, and some of the things that are guys have been doing in consolidating operations. Those are going to start paying back in terms of lower fixed overhead structure and the company. There's -- we haven't even talked about some of the things we have been doing on procurement, on the materials side. There's been a lot of work going on there. But it's more than just taking costs out, right? I mean, that's one piece of the equation. I mean, the other is making sure that we are able to get strategic pricing, which we continue to do, that we are able to sell a mix of products that carry higher margins. We all understand the difference between Research and SAFC. But even within Research, when you're carrying over 200,000 products, there are differences in margins and we're all becoming a lot smarter about -- how do you optimize, even within Research, the portfolio of products that we sell and how do you create a bundle for our customers. So I think it's a lot of things. There's not just one silver bullet that does it. But as I said, we -- as a company, we have done that. It's not that we are trying to return [ph] a new account here. We have done that for many years.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And then just changing tracks slightly. On the antibody conjugate business, is that research or for clinical use? And do you think you'll be -- you can potentially get written into any FDA master files?

Rakesh Sachdev

No. So first of all, that is part of our SAFC Commercial business. And so we are providing antibody conjugates for -- we don't do the fill and finish of the product. So we are always one step removed away from the patient. And again, the most -- again, most of our products are in clinical trials, so these are -- so just so you know where we are in the feds.

Operator

Our next question comes from the line of Jeff Elliott from Robert W. Baird.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

My question is for Jan. It's on the free cash flow guidance. I guess can you walk me through the bridge from -- between '13 number, which is really good, to what you're guiding to '14? I'm looking at it down year-over-year, but just in light of the global supply chain initiative, I'm just -- I'm wondering why it would be down so much.

Jan A. Bertsch

Okay, Jeff. Yes, we did have an absolutely terrific year this year. That was partly predicated, but certainly not entirely on the fact that we underspent a little bit in the -- in our CapEx. So we'll be spending $30 million more projected year-over-year in CapEx. Another thing -- and of course, we also have higher -- we'll have higher net income in 2014. But the real wildcard on this all the time is our year end payables and receivables. And when we go back and look at the end of this year and I think, really, the holiday season played a role in this, we ended up with probably a little bit more cash than I would have said in 2013 and probably, therefore, less than 2014 just based on our payables' timing. So there will be a carryover impact or a timing impact of that next year. That's why I'm saying that it'll exceed $475 million. But you know Rakesh, we're always going to chart it ahead and try to do something better than that. But the year-end phenomena this year really played a role in increasing that free cash flow last year.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Okay, makes sense. And just a follow-up on the operating margin, can you breakout what you're expecting for gross margin and OpEx, how much of the 50 bps is from each?

Jan A. Bertsch

On the 50 basis points? I'd say most -- we're going to try mostly on the gross margin side and that will fall through to the operating margin side.

Operator

Our next question comes from the line of Dan Arias from UBS.

Daniel Arias - UBS Investment Bank, Research Division

Just hoping you can give a sense of how you see growth in APAC pacing through the quarter, just giving the way that the emerging markets are trending right now.

Rakesh Sachdev

Yes. I think if I look at APAC in 2014, as I said, I think Q1 is probably going to be -- probably the softest quarter because of -- again, really, the drag from India and a little bit over the Pacific Rim. I would say that -- and typically, Q1 is always the quarter in Asia Pacific that is weak because of the Chinese New Year and everything else that plays out. But yes, but going into Q2 and Q3, I think we will see the strength come back into that region. A little bit of the wildcard, of course, as I said, is what happens in India because I think a lot of people are waiting for the funding mechanisms to be unclogged in that country after the elections are over. And right now, there has been a little bit of freeze there. But other than India, I think we feel pretty good. I think Korea might see some strength over the course of the year. Korea was somewhat tempered in 2013. I think there are signs that Korea might be stronger in 2014. China, I would say, will be fairly even keel, although there's so much discussion about China. But I think in our space, in the Life Science space, I think it should be fairly even keeled with 2013. And then I think Southeast Asia, places like Malaysia, we continue to do extremely well. And I have -- but again, those are smaller pieces of the business. Japan, as I said, is the big one and that's where we are trying to drive growth in because if you drive growth in Japan, we feel still pretty good that we're going to drive growth elsewhere in that -- in the region.

Daniel Arias - UBS Investment Bank, Research Division

Okay. And then maybe just touch again on the applied markets. If I go back to your Analyst Day and how you guys were thinking about those opportunities, you talked about moving down the workflow continuum, so to speak, so you can do more on the analytical end of things. Is that's something that's a priority for you this year? And if so, would you say that, that's the type of thing we should look for that's coming more from M&A than from your own organic efforts?

Rakesh Sachdev

Yes, so it's clearly a priority. I think what we are doing is -- we are transforming our Applied business from a business that has been supplying some very critical components and products to diagnostic companies to one where we are sitting down with these diagnostic companies to actually develop solutions. And we are becoming a solutions provider. Now that calls for things beyond just selling a bunch of very good products. And you're right. So as we look at that, as we look at becoming a more complete solutions provider, I think there will be opportunities for us to look at some acquisitions, to look at some ways of bringing some of those capabilities that I think would still continue to help us over the course of the coming few years. But it's clearly -- it's a very exciting area for us. We think we have some great products, but I -- we also recognize that we have some gaps that we can fill organically but also, definitely inorganically.

Daniel Arias - UBS Investment Bank, Research Division

Okay. Are -- is it fair to say that things that are more capital equipment focused, are open for discussion there?

Rakesh Sachdev

Well, I think it all depends on what the solution entails. And if the solution entails looking at consumables and some types of nifty instruments, I mean, absolutely, we will look at what -- it all depends on the solutions that we are looking at with some of these customers in helping solve, in some cases, very big problems, and that we will lead us down a path of thinking about what we acquired.

Operator

Our next question comes from the line of Eugene Fedotoff from Long Beach (sic) [Long Bow] Research.

Eugene Fedotoff - Longbow Research LLC

Just, I guess, to follow-up on SAFC, a couple of things. Rakesh, you mentioned BioReliance was doing better this quarter. Can you talk a little bit more about that, provide some color on what's going on there, what are you doing to improve that business?

Rakesh Sachdev

Yes, so I think we've been encouraged. If I look at the second half -- I think since the middle of last year, we have seen consecutive growth pretty much every month in our BioReliance business. And I think our BioReliance business grew in the high single digits in the fourth quarter. I think it did the same thing in the third quarter. Our -- both our tox and biological testing business seems to be growing nicely. I talked about some of the synergies that we have with our Carlsbad facility, where we do -- where we manufacture viral particles for gene therapy and our ability to using BioReliance to provide a validation for some of these wave of products around gene therapy. All of that is creating more business for us. So we are cautiously optimistic that the business case that we had when we bought BioReliance is beginning to play out. Again, we've seen that trend now for a couple of quarters. And we're hoping that this year will be just as good as what we saw in the back half of 2013.

Eugene Fedotoff - Longbow Research LLC

And just a follow-up on your comments on the LED market. I understand this is a small portion of your business and [indiscernible]. Are you expecting LED prices to continue to decline in 2014?

Rakesh Sachdev

I think that's probably right. At least from a planning standpoint, we have made the provision that we will continue to see some price decline. It may not be -- it's not likely to be as intense as 2013, but we have planned for a price decline in 2014. Yes, that's correct.

Operator

And our next question comes from the line of Isaac Ro from Goldman Sachs.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Wanted to just spend a minute on the biopharma end markets you serve this quarter. You guys did talk a little bit about some of the strength there. And I was hoping you could maybe parse out the dynamic between the bio production side versus the R&D labs in those markets. Just trying to get your sense of relative strength there and put that in context with your expectations for this year.

Rakesh Sachdev

Yes. So Isaac, as you know, I mean, if I look at the Life Science products, it's made up of Industrial media business, it's made up of our contract manufacturing business, which is our -- and our API business. But the media grew double digits in Q4. It was clearly the piece of business that provided most of the strength. But even our contract manufacturing business grew also in double digits. So both those businesses went terribly strong in Q4.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Got it, okay. And then just -- if we look at the longer-term picture, on the academic side, you guys have talked about hopefully having a better funding environment to work with this year. But that being said, one thing that I think is an interesting issue is the grant approval rates in the U.S. have been lower, so you have fewer scientists getting funding. And theoretically, that has sort of a longer-term implications for the number of scientists that will be requiring products from you guys and others in the industry. So just if you look at your long-term assumptions for that end market, how do you think that, that grant proposal dynamic might impact the growth rate you're seeing in those markets? Is it really just a function of finding more business outside the U.S. or can you maybe try and take more share of wallet, so to speak, in the U.S.?

Rakesh Sachdev

So yes, that's a very good observation, Isaac. If you'd look at -- prior to last year, on average, one out of every 3 grants that were written got funded. But last year, the statistic, I don't know if you know this, but one out of every 5 grants were getting funded, which means the scientist was spending a lot more time writing grants. And that took away a lot of valuable time away from the scientists to actually do the work. I'm involved on the boards of several universities and I got a chance to see that. And that was one of the things that scientists grumbled the most about, is how much time they were spending in writing grants. I think that environment should change. And I think in addition to the grant monies being higher, I think the other thing you're going to see is people spending less time and having more success. So I -- that's why I'm a little optimistic that in the second half of the year, we'll start seeing some more work being done in labs, and that's going to lead to more consumable sales and just a better environment. But again, as you know, this happens slowly, it doesn't change overnight.

Operator

Our next question comes from the line of Derik De Bruin from Bank of America.

Rafael Tejada - BofA Merrill Lynch, Research Division

It's Rafael in for Derek. Just a couple of quick ones. First, we've seen some changes in the cell culture landscape. And Rakesh, I just wanted to get your take on what opportunities or any changes that might bring to the business as 2014 unfolds?

Rakesh Sachdev

Listen, there have been -- prior to the announcement of the sale of the cell culture business from -- on pharma [ph], I mean, there were 3 players, there's still 3 players. So -- and this is a growing business. I think there's going to be good opportunities for all the players to do a good job. And so I think that landscape doesn't really change that much. I think -- at least as we look at our business, I think we have a terrific business. We have a great offering and then, we're going to continue to stay the course.

Rafael Tejada - BofA Merrill Lynch, Research Division

Okay. And for Jan, on R&D -- excuse me, on the tax rate that you provided for 2014, does that assume an R&D tax credit? And also wondering if you could comment on the -- how we should think about the tax rates across the quarters.

Jan A. Bertsch

Right. First of all, it does not assume an R&D tax credit. So if the tax credit is announced for 2014, that would impact us by about 0.5 point. And I think from a calendarization standpoint, I mean, typically, our third quarter can be a little bit lower than the rest of the quarters. But right now, for purposes -- I would say the first quarter is probably somewhere around 27%, similar to the full year.

Operator

And our final question comes from the line of Brandon Couillard from Jefferies.

S. Brandon Couillard - Jefferies LLC, Research Division

Just one for Rakesh here. Conceptually, are you and the board happy with the rate of return you're realizing on cash balances? And how would you characterize this sense of urgency to do something, not M&A specifically or buybacks, but just something to deploy the capital?

Rakesh Sachdev

Yes. Well, listen. Clearly, we have a lot of cash, we're generating a lot of cash. It's something that, as Jan said, we internally talk a lot about, and I obviously talk to the -- with the board a lot. And we are going to find, and that is our plan, is to find a use for the cash that gives us the highest returns for our shareholders. None of us just want cash sitting in the banks. I mean, we all know that, that doesn't generate much. And so the goal of the management team here and the board is clearly just to find ways to using that cash that we have and that we are generating to get us to high returns. And I think we have to be a little patient at times because the last thing you want to do is to use the cash -- and because there's a great expectation -- just let's move and use the cash and do it in a manner that isn't the most efficient for us or for the shareholders. But clearly, that is high on our agenda and we are going to continue to see how we can use that cash.

Quintin J. Lai

Well, thank you for everyone on -- who participated on today's call and webcast. As a reminder, we will host our annual business review in St. Louis on the morning of Wednesday, March 12, and that also will be webcast. You can find a link on our IR website. We expect to release results for the first quarter of 2014 before the market opens on Thursday, April 24. And we'll follow that with a conference call that same day at 10:00 a.m. Central Time. That concludes today's call. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

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