HEICO Corp (HEI) 2004 Q4 法說會逐字稿

Good morning and welcome to the HEICO Corporation fiscal 2004 fourth-quarter and full-year results conference call. I will now turn the call over to Lawrence Mendelson, CEO of HEICO Corporation.

Thank you and good morning to everyone on this call and we welcome you to the HEICO fourth-quarter fiscal 2004 earnings announcement teleconference. I'm Larry Mendelson, CEO of HEICO Corporation, and I am joined here this morning by Eric Mendelson, who is President of HEICO's Flight Support Group, Victor Mendelson, President of HEICO's Electronic Technologies group as well as HEICO's General Counsel, and Tom Irwin, HEICO's Executive Vice President and CFO.

Before we begin, Victor Mendelson would like to make a statement.

Thank you. Certain statements which will be made in today's conference call will constitute forward-looking statements, which are subject to risks and uncertainties and assumptions. HEICO's actual results could differ materially from those expressed in or implied by those forward-looking statements as a result of factors, including but not limited to lower demand for commercial air travel or airline fleet changes, which could cause lower demand for our goods and services, product specification costs and requirements, which could cause an increase to our costs to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense or space spending by U.S. and/or foreign customers, or competition from existing and new competitors, which could reduce our sales, HEICO's ability to introduce new products and product pricing levels, which could reduce our sales or sales growth, and HEICO's ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest rates and economic conditions within an outside of the aviation defense and space electronics industries, which could negatively impact our costs and revenues.

Those listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10-K, 10-Q, 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Thank you.

Thank you, Victor. Before reviewing our fourth-quarter and full-year operating results in detail, I would like to take a few moments to summarize the fiscal '04 highlights. Both our Flight Support Group and Electronic Technologies Group reported higher earnings in the fourth quarter of '04 compared to the same period of '03, based on increased sales. Consolidated operating income increased by 51 percent from the fourth quarter of '03 on a sales growth of 28 percent.

Now, this reflects both organics sales growth, which accounted for about 22 percent in the fourth quarter of '04, versus the fourth quarter of '03, as well as through a strategic acquisition which was made in December of '03.

The next comment is what I think very important. It also reflects an all-time quarterly as well as yearly high in our PMA aftermarket sales.

Now, the higher sales and operating income contributed to a 46 percent quarter-to-quarter increase in net income for the fourth quarter of '04, compared to the fourth quarter of '03.

Net income for the fiscal year October 31 '04 includes $4 million in proceeds, which is net of the minority interest share of that income from a key person life insurance policy maintained by a subsidiary at the Company's Flight Support Group. This item was received and reported in the third quarter and is equivalent to 16 cents per diluted share.

Operating income for fiscal year ending October 31 '04 includes $850,000 of pre-tax restructuring expenses within certain subsidiaries of the Flight Support Group that provide repair and overhaul services. The restructuring efforts are now substantially complete. Most of this was reported in the third quarter.

Operating income for fiscal year October 31 '04 also includes about $410,000 of pre-tax litigation-related expenses within the Electronic Technologies Group. The life insurance proceeds, which I mentioned before, net of restructuring and litigation related expenses, increased net income by 3.3 million, or 13 cents per diluted share, in fiscal '04.

Cash flow generated by operating activities continues to be very strong, allowing us to pay down our revolving credit facility by $18 million in the fourth quarter alone.

During fiscal '04, we paid our 51st and 52nd consecutive cash dividend since 1979. Earlier this week, we declared our 53rd consecutive cash dividend. By virtue of our 10 percent stock dividend paid in January '04, we effectively increased our cash dividend by 10 percent in '04.

We believe the results of the fourth quarter and full year further indicate that HEICO has established a strong foundation for its return to long-term, sustainable growth in sales and earnings. In addition, earlier this month, we completed the acquisition of Connectronics Corporation, which we believe to be a growing and leading producer of specialty, high-voltage interconnection devices and wire, primarily for defense applications and aftermarket. We expect the acquisition to be accretive to our earnings per share within the first 12 months.

Moving onto the specific items in the financial statement press release, in terms of revenue, our consolidated sales in the fourth quarter of '04 increased by $13.3 million, and that is up 28 percent from the fourth quarter of '03, reflecting substantial increases both within the Flight Support Group and Electronic Technologies. Consolidated sales for the full fiscal year '04 were up 22 percent over '03, reflecting sales growth of 19 percent within the Flight Support Group and 29 percent within Electronic Technologies.

Revenues of Flight Support increased 24 percent to 41.2 million in the fourth-quarter of fiscal '04. That's up from 33.3 million in the fourth quarter of '03, an increase -- and also, they increased 19 percent to 153.2 million for the full fiscal year '04, up from 128.3 million for the full fiscal '03.

The increase in Flight Support's revenue resulted from improved demand for the Company's aftermarket replacement parts and repair and overhaul services, reflecting continuing recovery within the commercial airline industry as well as increased sales of new products and services. Sales of our non-JGAD (ph) PMA parts showed a 30 percent-plus improvement in fiscal '04 versus fiscal '03, and it reflects the record quarterly sales, which I mentioned earlier. Substantially all of the Flight Support Group's year-over-year growth is attributable to organics growth.

Revenues of Electronic Technologies increased 37 percent to 19.8 million in the fourth quarter of '04, up from 14.5 in the fourth quarter of '03, and increased 29 percent to 62.6 million for the full fiscal year '04, up from 48.6 million for the full fiscal year '03. The increase in the sales for fiscal year and fourth quarter ended October 31 '04 is primarily due to the acquisition of Sierra Microwave Technology in December '03, as well as full-year organics sales growth of approximately 6 percent.

Our revenues for fiscal '04, by market, were comprised approximately 63 percent from commercial aviation, 24 percent from defense and space, and 13 percent from other industrial markets, including medical, electronics and telecommunications. In '03, the market consisted of about 68 percent from commercial aviation, 22 from defense and space, and 11 from other markets.

Going on to operating income, consolidated operating income in the fourth quarter of '04 increased by a staggering 51 percent to 10 million from 6.6 million in the fourth quarter of '03, and for the full fiscal '04, operating income, consolidated, is up 41 percent to 32.6 million, up from 23.2 in fiscal '03. The increase in operating income in the fourth quarter of '04 and the full year reflects strong earnings in both Flight Support Electronic Technologies.

Operating income of Flight Support in the fourth quarter '04 increased 42 percent to 6.9 million, up from 4.9 million in the fourth quarter of '03, and increased 26 percent to 24.3 million for the full fiscal '04, up from 19.2 in '03. This reflected higher sales as well as improved margins.

Operating income of Electronic Technologies increased 81 percent to 5.6 million in the fourth quarter of '04, up from 3.1 in the fourth quarter of '03, and increased 80 percent to 15.3 million for the full fiscal '04, up from 8.5 million for '03. That was due to the before-mentioned acquisition, as well as increased sales volumes.

Operating margins, consolidated, totaled 16 percent in the fourth quarter of '04 and improved by 2 percent from 14 percent in the fourth quarter of '03. Consolidated operating margins for the full fiscal '04 were 15 percent, up very nicely from 13 percent for the full fiscal '03.

Operating margins of Flight Support were 17 percent in the fourth quarter of '04, again up from 2 percent from 15 percent in the fourth quarter '03, due principally to higher sales volumes and improved margins. The operating margins of Electronic Technologies continued at what I think is a very staggering 29 percent in the fourth quarter of '04, up from 22 percent in the fourth quarter of '03 and equaled 24 percent for the full fiscal '04. This resulted from the addition of the microwave components products, as well as improved margins and higher sales volumes.

Our diluted earnings per share increased 6 cents to 20 cents in the fourth quarter of '04, up 14 cents -- up from 14 cents in the fourth quarter of '03. This reflects a 46 percent increase in net income on higher sales and improved margins. Diluted earnings per share increased 30 cents to 80 cents per share in fiscal '04, up from 50 cents per share in fiscal '03. The fiscal '04 80 cents includes the net impact of the life insurance proceeds, reduced by the restructuring and litigation-related expenses, which accounted for 13 cents of the diluted earnings per share increase, with the balance sheet reflecting -- the balance, I'm sorry, reflecting the increase in operating income.

Depreciation and amortization were about 1.7 million in the fourth quarter of '03 and '04, and for the fiscal year, expenses were 6.8 million in '04, up slightly from 6.7 in fiscal '03.

Totaled Research and Development expense increased to 3.7 million in the fourth quarter of '04 from 2.7 in the fourth quarter of '03 and to 10.4 million for the full '04, up from 9.2 million for the full '03. The increase is due to new product development efforts in both Flight Support and Electronic Technologies. The addition of new FAA PMA approvals, particularly for non JTAD (ph) aircraft continues to be critical to our mid and long-term growth, in light of the retirements of the JTAD (ph) standard fleet in the aftermath of 9/11. We currently have about 400 parts in our development pipeline, substantially all of which are for non-JTAD (ph) engines, and we now have over 2,600 parts approved by the FAA that are actively being sold. Over 75 percent of these are non-JTAD. New parts released by our R&D groups in the fourth quarter of '04 continued at a very strong level, allowing us to add approximately 300 new PMAs in fiscal '04. This is equivalent to the new PMA certification levels each in fiscal '02 and '03. We also have a new number of new products under development in our Electronic Technologies group.

SG&A expenses as a percentage of sales increased to 20 percent in the fourth quarter of '04, up from 18 percent in the fourth quarter '03, principally as a result of higher performance awards, and remained at 20 percent in both fiscal '04 and fiscal '03. SG&A dollar spending increased to 11.9 million for the fourth quarter of '04, up from 8.6 million in the fourth quarter of '03, and increased to 43.2 million for full year '04, up from 34.9 in '03. That was principally due, one, to higher sales within the Flight Support Group; two, an increase in corporate expenses reflecting and the performance awards; three, microwave components products acquisition in December '03 and lastly, the restructuring expenses.

Interest expense in the fourth quarter '04 decreased slightly by $44,000 compared to the fourth quarter of '03. That was due principally to a lower weighted average balance outstanding under the Company's revolving credit facility in the fourth quarter of '04.

During fiscal '04, borrowings under our revolving credit facility will reduce by 14 million, reflecting 27 million borrowed to fund the acquisition in the first quarter of fiscal '04, net of repayments of 41 million, including 18 million repaid in the fourth quarter of '04.

Interest and Other Income amounts in the fourth quarter of '04 and '03 were not significant, except for the $5 million in life insurance proceeds which I discussed earlier.

Our effective tax rate was 36 percent in the fourth quarter '04, up slightly from 35.5 in the fourth quarter of '03, and decreased to 29.9 percent for the full fiscal year '04 from 35.6 in '03. This was because the $5 million in life insurance proceeds and a portion of the minority interest share of our income are excluded from consolidated income subject to income tax.

The minority interest share of income in our consolidated subsidiaries was 1.1 million in the fourth quarter '04, compared to 600,000 in the fourth quarter of '03. This is principally representing the minority interest held by Lufthansa and American Airlines and our Flight Support Group, as well as the 20 percent minority interest held in our microwave product subsidiary. The increase over the prior year is due to the higher earnings of flight support and income from the microwave component products acquisition.

Moving onto the balance sheet and cash flow, I'd like to point out that our financial position remains extremely strong. Cash flow from operating activities remains strong and totaled 44.1 million in full fiscal '04, including the $5 million from the life insurance proceeds. This compared favorably to the 27.9 million for the full fiscal year '03.

Cash flow from operating activities was 11.4 million in the fourth quarter of '04, compared to 9.8 million in the fourth quarter of '03. Cash flow from operating activities exceeded 200 percent of net income in the fourth quarter of '04. It was actually 222 percent. In the full fiscal '04, it was about 214 percent of net income. We believe that this type of cash flow truly reflects the extremely high quality of HEICO's earnings.

Our working capital ratio decreased from 4.2 as of October 31, '03 down to 2.9 at October 31, '04, principally reflecting the use of 4.1 million in available cash to pay down debt, as well as an increase in accrued expenses.

DSOs of Accounts Receivable was 56 days as of October 31, '04, the same as October 31, '03, and we continued to closely manage receivable collection efforts and to maximize cash flow from operations in the current business environment. We continue to work very diligently to manage our credit exposure, in light of the continued financial challenges facing some of our customers in the airline industry. Fortunately, no customer represents more than 10 percent of consolidated sales in fiscal '04. The top five customers represent approximately 27 percent.

Inventories are down over 6 percent since October 31, '03, and the inventory turnover rate has improved to 113 days as of October 31, '04, versus 146 days October 31, '03. Again, we continue to review inventory levels to ensure our capital allocation to inventories is adequate, both to meet our customer needs, which we must always do, but not to be excessive.

Our long-term debt-to-capitalization ratio is 7 percent -- extremely low -- as of October 31, '04, compared to 13 percent at October 31, '03. Those of you who know us know that we're not highly leveraged company, and we certainly have a lot of firepower behind the line if we see an acquisition that appears very inviting.

Capital Expenditures in '04 were 4.8 million or slightly lower than our annual budget of between 5 and 6 million, and that principally reflected the expansion of existing production facilities and capability.

Looking to the future, we are pleased to report continued improvements in year-to-year -- over-year results for our Flight Support Group and Electronic Technologies, which reflects our ongoing new product development efforts. We are further encouraged by predictions by various independent sources, unrelated to HEICO, of a continuing strengthening in the commercial aviation industry in '05 and beyond.

We are extremely proud of the HEICO team effort. We call all of our employees team members, not employees, so our team effort since the events of 9/11. Three years ago, we saw a fall-off of as much as 65 percent in our core PMA products (inaudible) JTAD (ph) fleet. We could have cut our R&D and shown higher profits in '02 and '03, but we were committed to our shareholders, employees and customers to recover. As evidenced by our record PMA sales, which I mentioned earlier, we believe we have arrived and we have surpassed our -- we know we have surpassed our sales volume of pre-9/11.

We've replaced our dependence on JTAD (ph) products with a broad and ever-increasing product line serving a substantial majority of our customers' fleets. We've established strategic relationships with six of the world's largest airlines. In addition -- and let me add we are working on others. In addition, we've created a core electro-optical product family servicing a variety of defense, space and electronic industry customers, and based upon current market conditions, we believe that Flight Support's operating margins can continue to show year-over-year improvement while at the same time we can maintain strong operating margins in Electronic Technologies.

Including the results of our recent acquisition of Connectronics, we are targeting fiscal '05 net sales growth in the range of 10 to 13 percent over fiscal '04 and fiscal '05 diluted earnings per share in the range of 83 to 85 cents. This earnings target compares, we think, very favorably -- extremely favorably -- with the 80 cent per-share diluted net income reported in fiscal '04, because the fiscal '04 results include the 13 cents per diluted share net income impact of life insurance proceeds, reduced by restructuring and litigation-related expenses. Please note that HEICO does not give guidance on quarterly sales or earnings.

Fiscal '05 cash flow from operating activities should continue above -- at or above $40 million, and our CapEx budget for fiscal '05 approximates 11 million.

In closing prepared comments, we do remain committed to our very well-known strategy for focusing on medium to long-term growth opportunities. We believe this approach best positions us for long-term, sustainable growth as well as creating substantial shareholder value. As we look forward to fiscal '05 and beyond, we will continue to focus on new products, further penetration of our existing markets, additional acquisitions, as well as maintaining our financial strength. We believe that this approach best positions HEICO for long-term, sustainable growth and enables us to create substantial shareholder value.

I thank you for listing patiently to those remarks. Now, I would like to open the floor for any questions which you may have.

The lines are now open for questions. (OPERATOR INSTRUCTIONS).

This is Chris Quilty from Raymond James. Normally I'm introduced instead of introducing myself, but I can handle that. Congratulations on a good quarter here. Some specific questions for you on the Flight Support Group and whether you can give us a general sense of where you finished out the year in terms of PMA parts versus overhaul services, on just a general percentage basis, and if there's a similar growth outlook for those two businesses. Part three is whether any acquisition-related activity would continue in either of those areas.

Chris, I'm going to turn that over -- the detail -- to Tom, but thank you for your kind comments and I think his comments will show we feel pretty positive about the outlook. But I will give it over to Tom Irwin.

Yes, Chris. This is Tom Irwin. Relative to the mix between parts and overhaul, it remained approximately two-thirds of part sales within the Flight Support Group, roughly two-thirds part sales and roughly one-third repair and overhaul revenue. The growth was consistent within both those businesses product lines. (indiscernible) acquisitions, I will let Eric comments on that.

Chris, it's Eric Mendelson on right now. We always continue to look at acquisitions for all parts of the business, and that's true today. You asked about growth, going forward, and we are anticipating consistent growth in both businesses for 2005, both parts and overhaul and repair service.

Okay. Shifting gears a little bit, it looks like you got a very substantial uptick in capital spending plan for the next fiscal year. Are there any specific programs involved?

Chris, the uptick is more illusory than real. Last year, a couple of programs that we thought we would do last year, we held back. In addition, one piece of real estate which we presently hold -- we are considering selling that and I don't know if we definitely will. That would kind of -- and net CapEx would be brought down by about 3 to $4 million if we sell that -- effectively selling one plant and buying another plant facility. So the outside, which we would consider at this point kind of worst-case, would be the 11 million. It's all for additional plant, equipment and facilities that we think we might need this year, so we're put the money aside in the budget.

(technical difficulty) -- concentrated more heavily in the Flight Support than the ETG group, or normal spending patterns?

Chris, this is Tom Irwin. Relative to the plant costs, which is roughly 3 of the 11 million, that would be in Flight Support Group. The remaining 8 million, which I would classify as capabilities expansion, is pretty much split relative to the revenue sources, roughly two-thirds/one-third, approximately.

Okay. Also on the Flight Support Group, you've had relatively steady output of new PMA parts, about 300 in the last several years here. Can you give us an indication or sense of whether the value of those PMAs has also remained steady, or are you continuing to move up the food chain for more valuable parts?

Chris, this is Eric. We watch of the value of annual output and it's remaining consistent in each of the last three years -- fiscal '02, '03, and '04 -- generated about 300 PMAs. Then in fiscal '01, we generated about 200, so that's about 1100 PMAs. The total value of those PMAs from year-to-year is consistent with our plan, and the numbers -- (technical difficulty) -- going forward -- (technical difficulty) -- done in the past.

Okay, Have you experienced, again, a historically consistent penetration rate for new parts or are there other certain parts where you're experiencing a slower adoption cycle? I guess aligned with that, you still have a handful, primarily, of the newer, low-cost carriers where you don't have a presence. Do you see any gains or potential gains in that area?

With regard to the parts, penetration is all over the map, depending on the particular part -- (technical difficulty) -- obviously -- (technical difficulty) -- demand goes down or there's fluctuations, the numbers change -- (technical difficulty) -- inventory. But in general, it's consistent with what we've always done in the past. As you can see from the tremendous internal growth that we had this year, virtually all of the Flight Support growth was internal or organic; it did not come from acquisitions. You can see we are very successful in penetrating markets and getting -- (technical difficulty).

With regards to low-cost carriers, we mentioned in the past that we remain very optimistic about that Lufthansa technique (ph) our partner of course services many low-cost carriers. Most recently they announced a total component-support program for Spirit Airlines under A320 (ph) aircraft, where Spirit is going to get some -- I don't know -- (indiscernible) 78 320 (ph) aircraft and Lufthansa will be doing all of the component support for that. Of course, Lufthansa buys all of our parts. So I think we are clearly penetrating low-cost carriers, albeit through a different route than we have in the past. But we are clearly coming onboard and there is a tremendous amount of (indiscernible) on the side of the low-cost carriers(indiscernible).

(indiscernible) know that in order to keep their low prices, they've got to have low costs, and the only way to do that is by working with companies like HEICO, like Lufthansa, that help them.

I will ask one final question just so I can get Victor to chime in. It looks like, on the ETG side of the business, the military or defense business grew at a slower rate than the commercial aviation and the other aspects of the business. Is that specifically program-related in your involvement, or what's the outlook for the growth in defense, which has been pretty strong for most companies?

Well, our defense growth is stronger I mean at HEICO generally than -- excuse me, the defense growth is less than the growth characteristics of our commercial aviation businesses. I don't expect that will change on an internal -- on an organic growth basis. I think we will continue to see the growth levels that we've had organically on the defense side of our business, augmented by acquisitions which we make. I think we have a pretty strong base on the defense and space side, though.

Chris, I want to point out one thing which you probably see. I'm not sure everyone sees it at the moment -- about HEICO. Even though Electronic Technologies' revenue did not grow as much as Flight Support, on the operating margins side, it's sort (ph) and when we're talking about cash flow contribution to the bottom line, it was very significant. So their electronic technologies had an enormous growth, not in revenue but in bottom line net operating income.

Okay, very good. Thank you, gentlemen. I will pass the floor.

Tom Lewis here, Rockhouse Research.

Good morning, Tom.

Great work, guys! First question -- with respect to the margin trend at Electronic Technologies, would we be correct if we were to attempt to rank what's driving that -- that having Sierra Microwave on -- no longer a recently acquired entity would be pretty close to the top of that list? Was there anything else, other than just better volumes driving more efficiencies, that made what you termed a staggeringly high operating margin in the fourth term? I'm trying to get a sense of how close to normal that might be, going forward.

We think, Tom, we think that probably both of the things that you just mentioned are -- I think Sierra was part of it; I think that we had higher operating margins in other businesses. I think it was all added to the mix. There was not one single thing. We believe that those margins -- you know, we shoot for high margins, as you know, and we are achieving that. We think that there were a number of things -- all the things that you mentioned kind of were additive to create that situation. (multiple speakers).

For the full year, as you point out, the ETG Group margins were around 24 percent. As we've referenced in the conference call and in the press release, we're comfortable going forward with those margins of that business.

This is Victor. I would feel much more comfortable with those margins levels than the higher -- (multiple speakers).

But there's still very a big increase -- last year, the margins in ETG were 17.5; this year, they are 24.4, so it's up 7 points. It's quite an accomplishment. Those are high margins for any company.

Okay. With respect to what's driving the margins in your other business -- I mean, obviously we can all read about the demand drivers out there and understand what that's doing with respect to your ability to cover your fixed costs. What I'm wondering about, though, is, in your repair and overhaul facilities, I have to think that the capacity -- the utilization there improved steadily over the course of the year. I'm wondering if it's improved to the point that we might be looking at capacity constraint.

I think the answer is, in a sense, we are and we're not. The reason I say we are and we're not is the one facility that I mentioned to you, selling one and buying the other, that has to do with capacity needs. However, we were leasing a facility and we're probably going to buy that leased facility, so that will kind of solve the facility, if that will not create a significant problem.

In addition, a few years ago, we purchased a facility in Fort Myers, which was considerably larger than we needed, and we did it because we assumed -- and we were correct -- that we would have additional need for space, and so we're just of building that one out, too. So we don't see any capacity constraints coming on this year.

Okay, the last question -- I was hoping you could tell us a little bit more about your latest acquisition, specifically the extent to which we could understand this as strategic and improving, enhancing the capabilities of what you are already offering your customers, and in there maybe some light on how much of -- or whether or how much of a customer HEICO was to them.

Tom, I'm going to turn that over to Victor, because that's in the Electronic Technologies Group.

This is Victor. The answer is it was not a customer or a supplier, really, to the Electronic Technologies Group, although we are now exploring various ways that that could actually and I believe eventually would happen. But that's not the main driver for the acquisition.

In terms of product-line expansion, that was the driver for the acquisition. As we mentioned in the press release, some of the applications that will find their products on, on the defense side, is (indiscernible) displays for fighter aircraft, anti-missile devices for a variety of military aircraft, as well as Avionics and other equipment. In addition, their products are found in other high-voltage settings, which match-up with some of our laser products, power supply businesses. So that was -- those are the strategic reasons behind -- just on a product basis.

In addition to that, it's important to note that this is fairly typical of the acquisitions which we've made, which is more kind of medium-sized businesses that are very well-run, tend to have healthy -- very, very strong customer loyalty, very strong product-development ethic and history, which can allow them healthier margins than standard industrial companies. Of course, once these -- offer growth characteristics and have experienced pretty strong growth. So that has been the consistent plan and this falls within that.

Okay, great. Let's let somebody else jump in with a question.

(OPERATOR INSTRUCTIONS).

J.B. Groh from D&A Davidson.

Good morning.

Good job, you guys! I'm just wondering, on your guidance, is it safe to seem that assumes plus or minus 300 additional PMAs for fiscal '05?

That's built into the guidance.

Is the constraint there more of an FAA thing or is it more an engineering department thing?

I'm going to turn that over to Eric. He can tell you.

We feel that, based on what the customers can approve and what their interest is in, 300 at this point is an optimal number. We've run, at this point now for -- this will be our fourth year at that rate, which is quite a jump from our prior rate. Six or seven years ago, we were doing 50 parts per year. We think 300 is just a very good number. It balances our design manufacturing, along with our customers' ability to approve and use the parts. We certainly have the ability to design more if the market so requests it.

I think, in the presentation there, you said roughly 2600 active parts?

That's correct.

The total is more like 3500, correct?

That is correct. There are 2600 which are actively being sold and then there are around 1000 others which are not actively sold as those part numbers, so for the purpose of this, we (indiscernible) it out.

Maybe a question for Tom -- can you or do you quantify the amount of the inventory that's JTAD (ph) parts?

Well, the answer is yes, on a location-by-location basis, through our inventory analysis numbers. I don't have that number in the aggregate, but certainly, any standard fleet has probably been fully reserved off -- (multiple speakers) -- and the Dash (ph) 200 series that we're still selling, but I don't have an aggregate number. But it is not a concern in terms of an overall evaluation.

Bottom line, it's a pretty small number?

Yes.

We could tell you that less than 5 percent of our PMA parts sales are applicable only to the JTAD (ph) standard engine and probably our inventory would be in similar areas.

Okay. The new parts focus there is probably CSM 56 and V-2500 (ph) -- (Multiple Speakers)?

It would be all of the newer engines. It would be basically everything other than JT- 8D (ph) and JT-9D (ph), including our -- (technical difficulty) -- and accessories business, which is becoming very important to HEICO .

At what point do you get to a critical mass where developing stuff for like a GE 90 (ph) becomes logical?

There needs to be a decent number of engines out there, and we run a rigorous financial analysis on each part before we induct it into development. It's really on a case-by-case basis.

Okay, thanks a lot.

I have no further questions at this time.

Okay, well in that case, I want to thank you all for tuning in and in the meantime, if you have any questions or thoughts, give us a call. Anyone of the four of us is available to try to respond to your question, and we wish you a very happy holiday season and good new year, and we will be speaking to you on the first quarter of '05. Thank you all.