Astronics Corp (ATRO) 2011 Q4 法說會逐字稿

Greetings and welcome to the Astronics Corporation fourth-quarter 2011 quarterly results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Debbie Pawlowski, Investor Relations for Astronics Corporation.

Thank you, Kevin, and good morning, everyone. We appreciate your time and interest in Astronics even on this morning after the Super Bowl game.

On the call today is Peter Gundermann, Astronics President and CEO, and Dave Burney, Chief Financial Officer. They will be discussing the results of the fourth quarter and full year of 2011 as well as the outlook for 2012. This call will conclude with a question-and-answer session. If you don't have the release from this morning, it is available on the Company website, Astronics.com.

As you are aware, we may make some forward-looking statements during the formal presentation and the question-and-answer portion of this teleconference. These statements apply to future events which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in documents filed by the Company with the Securities and Exchange Commission, which can be found at our website for at SEC.gov.

So with that, let me turn the call over to Peter.

Thank you, Debbie, and good morning, everybody. Thanks for tuning in. Our agenda is to talk through the fourth quarter, do a brief wrap-up of 2011, and turn our attention to our expectations for 2012.

In summary, the fourth quarter was a very strong quarter for the Company. We ended 2011 on a strong note and we are enthusiastic about our prospects going forward.

For the fourth quarter, revenue was $61.1 million, which is another new quarterly record. I think that was our third quarterly record in 2011. $61.1 million is up 18% over the fourth quarter of 2010 and up 8.5% consecutively over the third quarter of 2011. In the fourth quarter, our revenue was 95% Aerospace and 5% Test Systems.

The bottom line benefited from that volume. We reported net profit of $5.2 million, which is equal to 8.5% of sales and $0.40 per diluted share, up from $0.35 per diluted share in the fourth quarter of 2010.

If you read the press release, you know that buried in those numbers is an intangible asset write-down of $2.5 million related to our Test Systems business. I will talk about that write down a little bit more later on but for now, know that $2.5 million pretax write down had the effect of reducing our earnings per share of $0.12 on an after-tax basis.

Profits were also negatively affected during the quarter by a (technical difficulty) reserve for the bankruptcy of American Airlines that had the effect of reducing our earnings per share by approximately $0.04.

During the quarter, our engineering and development expenses were $9.5 million, which is equivalent or roughly on pace for where we were all year and roughly consistent with where we expect to continue to be as a sneak peek preview going into 2012.

Bookings for the quarter were $56.6 million. In the scheme of things, that's a pretty strong pace for our Company, though we did trail shipments by 7.5% because shipments were so strong.

So the fourth quarter puts the wrap on a pretty strong year. We are pretty proud of all that we accomplished in 2011. We ended up with revenue of $228 million. That was growth of 16.6% over what we achieved in 2010, which was $195 million, $196 million. The bottom line is though where we showed real strength. We had reported net income for the year of $21.6 million. That's a net income level equivalent of 9.5% of sales or $1.67 per diluted share and it's up 44% from where we were in 2010 when we reported net income of $14.9 million or $1.20 per diluted share.

We did that while maintaining a pretty aggressive engineering and development investment. Those of you who follow our Company know that we are in the habit of expensing our engineering and development costs as we incur them. They are not capitalized at all.

I said we did $9.5 million in development expense in the fourth quarter. We were at $36.1 million for all of 2011. That's about 15.8% of sales. It's a little bit higher than we have been recently and it's up pretty substantially from where we were in 2010, which was $28.3 million.

We benefited during the year from an R&D tax credit from previous years to the tune of $1.3 million. We had somewhat higher legal expenses, which offsetted that R&D tax credit to some extent of about $1.1 million involving a couple of real estate transactions. We were involved in some bankruptcy litigation, some patent suits that we're also litigating. We expect those legal expenses to come down to more normal levels going forward.

At the end of the year, we feel our balance sheet was in pretty good shape. Cash was down somewhat at $10.9 million. When looking at our cash number again you have to remember that we bought two facilities for $10.2 million and in the fourth quarter, we made an acquisition of a Company called Ballard Technology, which I'll talk about a little bit more in a few minutes which took $24 million in cash.

In summary, we feel that our existing structure including the facilities we have in place leave us adequately financed for the things that we have on our horizon for the foreseeable future.

Again in 2011, bookings year-to-date were $234 million. We watch the booking level pretty carefully because we think it's a pretty good indicator of where we are going especially when you look at it on a rolling 12 month basis, so bookings of $234 million compares favorably to shipments over 12 months of $228 million, up marginally by 2.5% or $5.8 million.

Looking at our segments again, we are 95%, 96% Aerospace. It looks like we are going to be staying that way for awhile and our Aerospace business is performing very well. Revenues for the year $213.9 million, up 19%. Aerospace contributed all the profit and our feeling is that our outlook in our various markets and product lines continues to be positive.

Transport sales, commercial transport sales were 63% of our total and up 30% over 2010. Clearly we have benefited from product innovation, customer relationships, and general strength among airlines and healthy build rates at OEMs. We see all those things continuing going into 2012.

Our business jet sales were 11% of total and up 15% for the year. That increase is due less to increases in production volume and more to some reimbursement for nonrecurring expenses that we have incurred in some development programs.

Military sales are relatively flat, 16% of total. Aerospace bookings were $220 million, again exceeding shipments by a healthy margin and giving us confidence going forward.

At the end of the year, we announced the acquisition of a company called Ballard Technology. Ballard makes -- is an avionics databus specialist providing network equipment and also test equipment for avionics databus applications.

Think of this company being involved when somebody has an older airplane and they are putting on a new piece of equipment that could range from anything that's a weather-related or measurement-related or communication-related and this new equipment needs to interact with other systems on the airplane, but the new equipment being of a newer generation might be built around a different communication protocol than what's on the rest of the airplane. Integrators would need to find a way to translate the new communication protocol with the older communication protocol, and that's where Ballard Technology comes in. They make components and devices that do that kind of translation work and that translation work is something that is obviously required with new equipment on older airplanes.

The company has been growing pretty well, 20% compound annual growth rate over the last three years and it's fairly profitable. It's been achieving EBITDA margins at 30% or better and we think the company culturally fits in with our Company very well. We've been very pleased with the people that are involved in that operation. We think they are going to fit in real well with our various initiatives as we go forward.

We are expecting 2012 sales of roughly $13 million and those sales historically have been weighted towards the end of the year for whatever reason, so you can monitor their revenue level if you look at our revised -- the revised structure for our sales by product chart. There's a new entry on there called avionics databus. That's essentially Ballard Technologies and you can monitor that going forward.

Our Test Systems segment had a tough quarter and year. Year -- revenue for the year was $14.3 million, 6% in total, down 12% from 2010. It is not and has not been profitable at that level. Bookings year-to-date were $14.5 million, roughly equal to sales, suggesting that we should stay in that range going forward.

The bad news in the fourth quarter was that the US Air Force after eight or nine months of protests finally canceled the VDATS program, which we were looking forward to. As a qualitative comment, I can tell you that it's just really frustrating at our level to see what the US government has done to its procurement agencies. It's really hard for these guys who are pretty well intended to get programs executed the way they want to, when they want to, and eventually the Air Force decided that it was easier for them to build these testers themselves than to farm that out to outside suppliers like they initially intended.

The cancellation of that program led us to revise downward our forecast for our Test Systems segment, which had a contributing role to making us fail our intangible asset valuation test which we're required to do on an annual basis, which led to the non-cash write-down of $2.5 million. There is a marginal amount left on the books in that business. I don't actually have that number in front of me but I think it's like $1.2 million or $1.3 million.

Dave is nodding in agreement, so that has got to be the right number.

Our strategy going forward, I know that people are going to ask this question, we continue to have a number of targets on the horizon. We believe they are quality targets. So we continue to believe that we have some good capability and that the customer wants our product. The budget cycles we believe eventually have to turn more in our favor and so our strategy is to lie low and to continue to target big programs.

In the meantime, we have undertaken an effort to absorb some of the technical competencies that we have in that operation in our other businesses. We are in a situation where we are hiring and expanding and increasing our development expense elsewhere in the Company and we are finding -- we're trying to find a way to take the considerable talents we have in our test systems business and apply them at least temporarily to our Aerospace side.

So to the extent that that is successful, we will minimize and hopefully eliminate losses from that business going forward until some of these other big hitter programs come more clearly into focus.

That being said, looking forward, we think 2012 will be another solid year for Astronics. I mentioned earlier bookings in 2011 exceeded shipments. They were $234 million and left us at year-end with a backlog of $106 million, which compares pretty favorably to where we have been historically.

We issued topline guidance and we are coming out with an initial revenue level of $235 million to $250 million. I will tell you that there are a number of us in our Company and I am one of them who thinks there's some upside potential to that range and we will update obviously as the year progresses. But we are pretty conservative and we don't put things into our forecast until they are pretty clearly in focus in terms of bookings and orders.

We do not issue bottom-line guidance but I know that there are going to be a range of questions pertaining to the trends that are obvious in our business and how the fourth quarter was when one backs out the intangible asset write-down, it was a very profitable quarter.

The question is going to be -- so is that something we can continue to count on going forward? I think there were pros and cons to our current profitability level. I think generally we are benefiting because when you have an existing cost structure obviously and you stretch it in terms of pushing more revenue through the pipe, it falls disproportionately to the bottom line and we are seeing a little bit of that in the second half of 2011.

Going forward in 2012, we would expect not to incur similar write-downs. That will help and we would expect to see a drop in legal expenses. That should help but there are some things that are going to be working against us. One of them is a higher tax rate. We benefited in 2011 from an R&D tax credit, which drove our effective tax rate down to 27%. We expect to be in a more normal 31% to 34% range going forward here in 2012. A big variable as always will be our engineering and development expense. We have said in our press release that we are forecasting that to be $36 million to $40 million.

There is room for that to go up based on programs we are pursuing and awards that we very well may win. If we win them early in the year, they could have a -- boost that number up a little bit. If those wins happen towards the middle or towards the end of the third quarter or so, it will have a lesser effect on that number, but given the information that we have right now, we are forecasting E&D expense to be at $36 million to $40 million.

Finally we are -- we have some significant customers. We tend to work with those customers on a long-term agreement kind of basis. Usually when we enter into long-term agreement discussions with our customers, they want lower prices. That may come as a surprise, but it's something that we face every day. And in return, we want long-term agreements and we want some safety and security in terms of ordering volumes. We may have some trade off in terms of margin for visibility or long-term confidence and it's too early to talk about that any more definitively than that, but those are things that are obviously always happening in the background.

So I think that's it for my prepared comments. Kevin, why do we open it up for questions at this point?

(Operator Instructions). Michael Callahan, Auriga Securities.

Thanks, guys, and great quarter. I guess I'll just start off. It looked like Cabin Electronics really carried results again in the fourth quarter, as all year. There's a mix on kind of retrofits versus new aircraft. Can you give us any insight as to what you are seeing for 2012 I guess specifically on a retrofit part, is that going to slow down little bit, an OEM is going to take over or just what are your thoughts around that topic?

Well, our first thought is that we don't differentiate a whole lot as you probably know between retrofit and new OEM else. Obviously they're different growth drivers but they often tend to move together. When the airlines have money, they buy airline airplanes and they retrofit their fleets and when they don't, they don't.

We don't necessarily price them any differently or pursue them any differently but our -- and it's a little hard to tell for us because more and more of our sales are going through the big IFE in-flight entertainment providers. But our best guess is that you can think of it as a 50-50 split roughly. We continue to see good opportunities directly to the airlines and we continue to pursue them and I don't think we see a noticeable drop-off in that business going forward.

Okay, I guess what I was driving at though is just as we -- I guess we know the build rates for the OEM guys and we know the programs you are on and that one was probably reflected in the growth rate for the quarter. But previous to that, most of the growth was likely not from line rate increases because they didn't happen yet.

So I guess would we be expecting to see the retrofits then to the airlines kind of leveling off with most of the growth coming from the increased line rates?

That's a good question. We wonder that a little but ourselves and that's part of the reason why we have a range in our revenue projection going forward.

We do -- we are continuing to get solid interest. There's no reason to think that there's a major change coming from the field, so to speak, so I don't know how to answer your question more definitively than that, but you're right. The OEM rates don't fluctuate drastically quarter-to-quarter. They are going up. If we -- they do vary somewhat.

I can use the A380 as an example. An A380 fully equipped with our equipment is going to contribute to the tune of $300,000 to $450,000 of product. And if there are five of those in a quarter, that definitely helps us whereas if those five airplanes aren't equipped with our product or are equipped less with our product, that can swing it. But we clearly are experiencing solid demand both directly to the airlines and through the ISE OEMs directly to airlines. We're not aware of anything that would substantially change the current picture.

Fair enough, thank you. The other thing on business jet sales, can you give us an update a little bit on the electronic color distribution systems? I guess both on the Lear 85 and then you have some undisclosed programs, are those trending to your expectations and are they still on track?

Overall, yes. We -- just for a little bit of background for others listening on the call, we have a technology that we have applied to business jet electrical systems that we think is very favorable, offers some significant weight and technical advantages to our customers. And the big program we keep talking about is the Lear 85. We have indicated I think in the last call that we have won another one that we have not disclosed yet and then we think there are a couple of others that are really close to that level.

And so we continue to be optimistic about the home for our technology in that segment and most projections for business jet volumes call for volumes to be pretty flat at current depressed levels over the next couple of years and then accelerating pretty briskly. We tend to be focused on the future and not the immediate 24 months. There's not a whole lot we can do about that.

Our task is to get our hardware on new airplanes as they are being developed and we think that picture is pretty optimistic. We think that when the boom happens three, four, five years out, there are going to be more and more airplanes carrying Astronics electrical distribution equipment and we think that's going to be a real nice market position for us.

As far as how those programs are progressing through development, I don't think I can comfortably talk about those programs or those customers. They do that themselves, but I can tell you that from our perspective our equipment and our firm is performing pretty well. As you might imagine or I'm sure you know, the aerospace world is a pretty small world. You don't win new programs if you significantly underperform on existing or past programs and we think we're doing a pretty good job for the customers we have signed up and we think that makes our task easier selling our capabilities and systems to new airplanes as they are announced.

So I would tell you that that's a long way of saying that we think things are progressing pretty well in that market even though current production volumes are low.

Okay, thanks. Just one last quick thing. On the Ballard Technology acquisition, seems that the run rate should be about just shy of $1 million a quarter -- or I'm sorry -- $1 million a month, just by dividing out the revenue you gave divided by 12. But in December, which was the only month you had it, came in at about half of that. Is that just because of the holidays and shutdowns and things like that or is there more seasonality there?

There is seasonality there. To the extent that they sell product -- this is kind of theory and conjecture at this point. But to the extent that they sell products to government agencies and to defense integrators, I will call them, they tend to get orders that are seasonal and kind of bump up against the end of the fiscal year and they tend to deliver out of inventory. So their backlog tends to be pretty low and they turn their orders around typically in 90 days at most.

So if they receive an order today, they ship it next month. December was low but you look back historically over what they have done and it seems like there's 70%, 75% in the second half of the year. So we would obviously hope for more than $400,000 a month but that's probably going to happen every once in a while especially in the front half of the year. When we get into the second half, we would expect that average volume to be up substantially.

Fair enough. Thank you, guys.

(Operator Instructions). Tyler Hojo, Sidoti & Company.

Good morning, everyone. First question just what did Panasonic-related revenues contribute in the quarter?

It was about 36% of our consolidated revenue.

Okay, great. Then just moving over to test systems, I'm just kind of curious. It looks like you have about $8 million in backlog there. But I'm just trying to gauge the potential risk that perhaps you see another program canceled or how do you look at basically the quality of that backlog as we sit here today?

I think the backlog is okay. Of all the things we worry about, it's not necessarily the backlog. The VDATS program was never one that we actually counted as an order, so it didn't show as a backlog reduction. I think once you get an order, you are okay. I think our bigger concern is just budget constraints and the difficulty of getting major awards awarded by the government in this environment. Again, it's not just our Company that seems to be suffering through this little period in time. It seems like most companies that we are aware of in terms of competitors are dealing with many of the same stresses and it's more a function of winning orders rather than worrying about the backlog that you have in place.

Okay, obviously if you are guiding at 10 to 12 in revenue for Test Systems, which I think is the number, you are anticipating on winning some new business through 2012. Just wondering is that still kind of international opportunities or what are you looking at there?

We are pursuing international opportunities. I talked about that quite a bit a year ago, a year and a half ago. A fair number of those opportunities were in the Middle East. You can imagine what has happened to any kind of predictability in that part of the world over that timeframe. And so you haven't heard me talking about those opportunities quite as much.

But again, we think that there is demand and we think the customers want our capability and want our products. It's a matter of surviving the procurement process and our customers getting funding. That's just purely and simply what it boils down to for the foreseeable future. So again our strategy is to identify and pursue the bigger opportunities and we think there are some.

In the meantime, we want to preserve the competency of our organization while minimizing our expense and we think there's an opportunity to apply the talents we have elsewhere and thereby transfer costs.

So we think we can make kind of a win-win out of that and also we are down to the point where Test Systems is 5% or 6% of our business. We have other product lines that are 5% to 6% of our business. We think that the opportunities justify the continued involvement.

Okay and based on kind of applying some of the talents within Test into other aspects of the business, did I hear you correctly in saying you expected to -- that business segment to basically transition to profitability in 2012? Is that right?

I don't think I said that. I'd like that. If we can make it break even, we will be happy.

Great, just lastly for me, you did this to some extent with the business jet end market and commercial transport, but I was hoping that you could maybe just walk through what your guidance anticipates in terms of kind of end market growth. I don't believe you commented on military or the FAA business.

Well, again, we would view the FAA business as relatively small. It's 5% or 6% of our total. I think the thing that we try to focus on is the major trends going on and Michael asked about it earlier. A big element of that is retrofit, non-OEM sales for commercial transports and it's a little hard to get a handle around that in terms of timing and specifics. But the interest we see from customers, the health we see from customers leads us to believe that the current scenario and current trends in the market can reasonably be expected to continue going forward on the commercial transport side.

On the business jet side, there's a real diversity going on out there in terms of OEM success these days. Those who build airplanes at the high end of the spectrum are experiencing reasonably strong sales in terms of unit volumes and the guys who build the smaller, cheaper airplanes are generally finding the going more difficult.

In terms of installed base or current programs, we are unfortunately more weighted towards the smaller end of that market and we are not expecting necessarily significant increases in OEM unit volume going forward. We are going to benefit to some extent by having increased shipset content on those airplanes being built. That's a trend that has been going on for years. We would expect that to kind of marginally continue in the current year.

The big activity for us is building and doing engineering work for new airplanes, which aren't even announced yet in some cases and won't be flying realistically for two years, maybe three. And in those areas, we have pretty significant restrictions in terms of what we can and cannot say, but we are pretty pleased with the reception that we are getting in the market and the kind of share of market that we are capturing for our products.

Now, generally when we sign up for a new program, there might be some portion of the costs covered by the supplier or the customer, but we tend to bear a significant portion of that and then a specification gets developed, an agreement exists. What often happens as you go down the line is that there need to be significant changes to that specification and changes to the work share agreement and oftentimes our content goes up, sometimes it goes down. And the cost for doing that kind of -- those changes needs to be negotiated. In some cases, the contract calls out that the customer reimburses us for that effort. Part of what you saw for 2011 business jet volume, dollar volume was that. Some fairly significant dollars came our way due to changes in programs that we are involved in.

So the increase is not unit-driven more than nonrecurring engineering-driven. As we look ahead into 2012, we are not expecting units to change very much. We're expecting a little bit of an increase in shipset content and if I -- we're expecting that we are going to continue to invest pretty heavily in new programs. I'm not sure the new programs that we are taking on are going to be anywhere near mature enough to even possibly have an impact in terms of nonrecurring reimbursement to customers. It's going to be that kind of year.

So we are expecting continued strengthening hopefully but in the business jet market, we tend to have our eyes set on what's going to happen two, three years out and pretty much any market projection you look at has a pretty -- paints a pretty optimistic scenario for that segment going forward.

Right, okay. Thanks for that. Just lastly, how about military sales within the aerospace segment? Kind of wide range of product mix. What are your expectations there?

We think it's going to be stable. I think that's the safe assumption. A lot of talk is out there these days about Joint Strike Fighter, Joint Strike Fighter is a big program for us. We certainly don't want to see it cut drastically but there may be some reductions in volume in the out years.

In the meantime again, our equipment seems to be performing pretty well and we are pretty pleased with it, so we've got to get through this low rate production and they're going to be ramping that up.

We are on V22. That's a healthy program for us. We are going to have to go through a little bit of a lull in terms of our tactical Tomahawk program, where our shipments get ahead of final shipments to the customer or to the US military. But that's a long-term program that we expect to be reengaged with kind of towards the end of 2012.

I look across the business jet world and I look across the military world in particular. I like the positions that we are on. I like the platforms that we are on and I like the positions that we have. We don't expect anything in terms of downside risk. We just don't think there's a whole lot of downside risk out there.

The business jet world has responded and is continuing to respond to the financial crisis of a couple years ago and it's got a draw down. The inventory of used airplanes that it competes with out there on the market, we think that the new products as they get developed and put into the show room, so to speak, will do that pretty successfully.

We think that in the military world while military budgets are shrinking, we like the aircraft that we are on and the positions that we have, so we feel reasonably solid in all those areas.

Okay, great. Thanks for all that color, Pete.

(Operator Instructions). Dick Ryan, Dougherty.

Thank you. Dave, two things on the financial side. Will the depreciation level change much from what we are seeing with the addition of the new facilities in Ballard?

The depreciation level relating to the new facilities won't change a whole lot reason being that the biggest piece of that is going to be the facility that we are going to be completing -- that AES will move into at the end of this year. So we won't start depreciating that until they move into it.

But what will have an impact on our depreciation and amortization is the amortization that will be related to the Ballard acquisition for the intangible assets. So our estimate for that will be that that will have about a $750,000 increase in amortization for the next -- foreseeable future until those long-term intangible assets are amortized.

That's kind of a long-winded way to say I think we will see depreciation and amortization go up by maybe $1 million this year versus 2011.

Great, how should we look at -- any additional CapEx needed in 2012?

In addition to the buildout of the AES building?

Yes.

I think it will be a little bit higher than what we have seen in the past mainly related to some tooling on some programs that we think will be acquiring the tooling for as we go into production.

Okay, and on the OpEx side, if we back out the bad debt reserve for Q4, is that an OpEx number that we should think could be a base as we get through 2012?

Yes, I think it is a reasonable estimate. Pete touched on some of the headwinds that we see potentially as well as some of the tailwinds that we see.

Okay, one last thing. Pete, anything in the order side? Do you see any pricing changes for things kind of coming into the pipeline either positive or negative impacts?

Nothing significant, Dick. I think other than the intangible asset write-down in the -- to the lesser extent the legal expenses that we are incurring, which may be a function of being a slightly bigger business than we have been before. Q4 was kind of a steady state running quarter for us. It wasn't driven by anything drastically happening underneath the covers that we have to disclose. So no, I wouldn't say that we see anything substantially changing.

Okay, good. Thanks, guys.

Scott Lewis, Lewis Capital Management.

Thanks. Good morning, Pete and David. Great quarter. Just a couple questions. On cabin power, we've seen a lot of particularly domestic airlines go to this kind of WiFi-only strategy. And I know, Pete, you said for a while now you like WiFi. You think it can only help you guys. I'm wondering though if enough time has passed, have you seen any airlines coming to you saying our customers like the WiFi but they're kind of demanding power now and we'd like new bids for our fleet?

Our story hasn't changed a whole lot. We obviously haven't announced any big narrowbody sales in particular which might indicate or confirm that a desire, but it's just kind of from our perspective, it's a commonsense linkage even though it's possible to put WiFi on an airplane without putting in seat power.

I mean, to a certain extent WiFi isn't all that useful especially on flights more than a couple hours without having some kind of capability for power in the seat. So I think our customers recognize that and we are continuing to get interest and I would expect that as time goes on here that that linkage between WiFi and in seat power will strengthen, even though I don't think it's ever going to be a deal where we are going to go out jointly with a WiFi provider per se.

But we know who they are and they know who we are and to the extent that we see opportunities for each other, there might be some collaboration that way.

But we continue to take the position that personal electronics are becoming more and more common. People are -- I am a case in point. I once traveled just with a computer or just with a phone. Now I've got a computer, a phone, an iPod, and an iPad, and I don't think I'm that far out of the ordinary.

So as those kinds of electronic gadgets proliferate, and as the capability of those gadgets improves and as electronic services like WiFi continue to make inroads like they have in every other part of our lives, we think that the need for power in the seat increases and we think it's a product that has room to run from a market perspective for our Company.

Okay, thanks. And then second question is on the business jet side. Something caught my eye with your release about Honda jet where you were doing windshield heat controllers and I think that's kind of a new category for you that goes beyond lighting and lighting controllers.

Are there other things like that you're working on for business jets that can expand you beyond the power distribution and lighting?

Well, actually it's not a -- we wouldn't call it a very new development. That's a new box with some new specifics and new technology directly for the Honda jet airplane, but it is not -- we have done windshield temperature controllers before. We have done things like fire suppression controllers. We have even done power supplies for electric razors in the back of commercial airplanes in the bathroom.

So PA amplifiers, we have quite a range of capabilities. I wouldn't read too much into that one other than I will tell you that we think the Honda jet is an interesting airplane and we think that Honda is a company that if they put their mind to it obviously they can accomplish a lot in whatever they want to do.

This particular airplane has taken awhile for development, like you might expect of any company that's developing an airplane for the first time, and we have stayed in pretty close touch with them. We think that under certain circumstances our capabilities could be a good match for the kind of airplanes that they want to develop and it just so happened that our interests aligned in the area of this wind chill temperature controller, but I wouldn't read that it's a brand-new product launch for us or anything like that into it. It's more a first step with Honda and Astronics.

Okay, super. Thanks a lot, Pete.

Dave Coe, Minerva Advisors.

One sort of footnote type question, historical footnote question, in terms of Eclipse, is that -- would you turn that a dead issue at this point or do you see some opportunity there?

Well, I would like to think there's some opportunity. Again, a little bit of background for others who may not be as up to speed on this. We were fairly involved with the Eclipse program when that first launched, whenever that was. Boy, time flies. I'm just guessing here, but that's probably eight years ago and we did the entire electrical distribution system from the generators forward. We did a lot of cockpit lighting and pilot interface lighting. We did the exterior lighting on that airplane.

And the new owners of Eclipse have gone out and we have negotiated a supply agreement whereby we will continue to provide those systems. I think it's limited to 100 shipsets or something, but when they build 100 shipsets, we would be thrilled.

They -- a minority owner is United Technologies and we think that obviously they are a company that has the capability to do what they want to do with that airplane and they are saying they want to put it back into production when the market conditions are right.

So we are on board to help out. We are not in a situation where we have to do a whole lot of reengineering or redevelopment or recertification or anything like that. That's not really our interest. It's more of providing the old systems to new build airplanes if they are fortunate enough to get orders. So we encourage everyone on the call to go buy an Eclipse if you want. It would help us out.

Just refresh my memory. We have sitting in inventory probably more than 100 shipsets, right? And they are now carried at zero. Is that correct?

I don't know if I would say more than a 100. It's probably safe to assume -- we have been building spares and doing some retrofits and things like that, so if some portions, some components are less inventory than others. But yes, you're right, it's probably safe to say we have 70, 75 complete shipsets, in some cases more depending on the system, in some cases less, and they are generally not on the books at anywhere near full value.

So to the extent that Eclipse is successful and starts building hardware at least while we are chewing down that inventory, it would be a nice contributor for us.

Great, thanks.

(Operator Instructions). It appears there are no further questions. I would like to turn the floor back over to management for any further or closing comments.

Very good, thanks for tuning in. Almost an hour on the call today, that's maybe a new record for us. We appreciate your interest and we look forward to talking to you at the end of the first quarter. Have a good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.