HEICO Corp (HEI) 2005 Q3 法說會逐字稿

Good day and welcome to the HEICO Corporation third-quarter fiscal 2005 earnings conference call. At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during our question-and-answer session. Your host today is Mr. Laurans Mendelson, the Chairman, President and CEO of HEICO Corporation. Mr. Mendelson.

Thank you and good morning to everyone on this call. We welcome you to the HEICO third-quarter fiscal 2005 earnings announcement teleconference. I am Larry Mendelson, CEO of HEICO Corporation, and I'm joined here this morning by Eric Mendelson, President of HEICO's Flight Support Group; Victor Mendelson, President of HEICO's Electronic Technologies Group, as well as general counsel; and Tom Irwin, HEICO's Executive Vice President and CFO. Before we begin this morning, Victor Mendelson will read a statement.

Thank you. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks and uncertainties and contingencies. HEICO's actual results may differ materially from those expressed during 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 cost from 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; HEICO's ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk, interest rates and economic conditions within and outside of the aviation defense space and electronics industries which could negatively impact our costs and revenues; and HEICO's ability to maintain effective internal controls which could adversely affect our business and the market price of our common stock.

Parties 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 Forms 10-K, 10-Q and 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 third-quarter operating results in detail, I would like to take a few minutes to summarize the highlights of what we consider another very strong quarter. Third-quarter sales and operating income represent record quarterly results for HEICO for the second consecutive quarter. Both Flight Support and Electronic Technologies reported higher sales and earnings in the third quarter of '05 combining for an overall 24% improvement in consolidated sales and a 49% increase in operating income over the third quarter of last year.

Consolidated operating margins increased by almost 3% in the third quarter of '05 over the third quarter of '04. The higher sales and operating margins contributed to a 5% increase in consolidated net income over the prior year. As a reminder, the prior year third-quarter net income included onetime income of $4 million or $0.16 per diluted share from proceeds from a key person life insurance policy.

Our acquisition of Connectronics in the first quarter of '05 and Lumina in the second quarter of '05 both contributed nicely to our third-quarter financial results. We do believe these results are a further indication of the progress that we have made towards long-term sustainable growth at HEICO. As we have said many times before, we consider HEICO a growth company and we believe that this year's performance is clearly proving that point.

In August '05, HEICO increased amounts available under its revolving credit facility and further extended the term when we entered into a five-year $130 million amended and restated revolving credit agreement.

Now I will get into the specific items which we reported yesterday evening. Our consolidated sales in the third quarter of '05 increased by 13.3 million, up 24% from the third quarter of '04, reflecting revenue growth of 25% within Flight Support and 21% within Electronic Technologies. Net sales of Flight Support increased 25% to 50.1 million in the third quarter of '05, up from 40.1 million in the third quarter of '04. The increase in Flight Support's revenue represents all organic growth reflecting the continued recovery in aftermarket demand within the commercial airline industry as well as our continued success in developing and bringing to market new products and services.

Net sales of Electronic Technologies increased 21% to 19 million in the third quarter of '05, up from 15.7 in the third quarter of '04. The increase in Electronic Technologies revenue primarily reflects strong results from two strategic acquisitions made earlier in '05. The first nine months of '05 consolidated sales increased 25% to 193.1 million, up from 154.8 in the prior year. Our net sales for the first nine months of '05 by market were comprised of approximately 68% from commercial aviation, 20% from defense and space, and 12% from other markets including industrial, medical, electronics and telecommunications.

Moving onto operating income. Consolidated operating income in the third quarter of '05 increased 49% to 11.7 million, up from 7.9 million in the third quarter of '04. Consolidated operating income in the first nine months of '05 increased 41% to 31.8 million, up from 22.6 in the first nine months of '04. Operating income of Flight Support in the third quarter of '05 increased a gigantic 74% to 10.5 million, up from 6 million in the third quarter of '04. This reflects higher net sales from organic growth as well as higher operating margins from improved operating efficiencies.

Operating income of Electronic Technologies in the third quarter of '05 increased 11% to 3.8 million, up from 3.4 in the third quarter of '04 and this reflects principally the strong results from the previously mentioned acquisitions. Flight Support and Electronic Technologies increases in operating income were partially offset by an increase in corporate expense due to increased cost to comply with Sarbanes-Oxley and higher accrued performance awards.

Operating margins increased consolidated 17% in the third quarter and 17% in the first nine -- increased to 17%, I'm sorry, in the third quarter and 17% in the first nine months of '05, up from approximately 14% in the third quarter and 15% in the first nine months in '04. These increases are in line with the margin improvements that we have targeted for fiscal '05. Operating margins of Flight Support were 21% in the third quarter of '05, up from 15% in the third quarter of '04 and this is primarily due to the operating efficiencies realized on higher sales volumes.

Operating margins of Electronic Technologies were 20% in the third quarter of '05, down slightly from 22% in the year-ago quarter due primarily to a less favorable product sales mix. Based on the current backlog within Electronic Technologies, we do expect operating margins for the full year '05 to approximate 20%.

Revenue and operating margins of Electronic Technologies have been less than our targets principally as a result of technical delays impacting shipments of some higher margin products as well as softness in the commercial space satellite market. Earnings per share diluted was $0.23 in the third quarter of '05 versus $0.32 in the third quarter of '04 and previously mentioned, fiscal third quarter '04 net income included a onetime income item of $4 million, or $0.16 per diluted share, in proceeds from a key person life insurance policy. Of course if you take that $0.16 out, you would be left with $0.16 in what I consider operating earnings per share versus the $0.23 that we reported this year. I see a very significant management -- management sees a very significant increase.

Our net income increase is in line with our 49% growth in operating income.

Depreciation and amortization expense increased slightly to 1.8 million in the third quarter of '05, up from 1.7 in the previous year. Research and development was 2.9 million in the third quarter versus 2.3 in the third quarter of '04. We continue to have great success in the addition of new FAA/PMA approvals. We currently have about 400 parts in our development pipeline substantially all of which are for new generation engines. We now have approximately 2700 parts approved by the FAA that are actively being marketed and we have cumulative FAA approvals for over 3600 parts. Over 70% of these parts are non JT8D.

New parts released by our R&D groups in the third quarter of '05 continued at a very strong level and we are budgeting new PMA certification levels consistent with levels achieved in each of the last three years. We also have a number of new products under development in Electronic Technologies.

SG&A expenses represented 21% of net sales in both the third quarter of '05 and '04 and this reflects the Company's efforts to control costs while at the same time increasing revenue. The dollar increase in SG&A from 11.7 in the third quarter of '04 to 14.3 in the third quarter of '05 is primarily due to higher sales, increased cost to comply with Sarbanes-Oxley and higher accrued performance awards. Interest expense of 252,000 in the third quarter was minor and essentially the same as the third quarter of '04 reflecting lower weighted average balance outstanding under the revolving credit facility. This is partially offset by higher interest rates. During the first nine months of '05, we borrowed 22 million under our revolving credit facility principally to fund the aforementioned acquisitions and we made repayments of 18 million, including repayments of 5 million in the third quarter of '05.

Interest and other income increased to 341,000 in the third quarter of '05, up from 93,000 in the third quarter '04 and this was primarily due to the gain on the sale of a small 50% owned joint venture in the third quarter of fiscal '05. Incidentally, that was not an airline joint venture.

Income taxes, our effective tax rate for the first nine months of '05, which reflects our latest full-year estimate, was 36.3% as compared to 27.8 for the first nine months of '04 and the increase is principally due to the previously mentioned $5 million life insurance proceeds received in fiscal '04 third quarter that was excluded from the Company's income that was subject to federal income taxes as well as higher state taxes principally related to recent acquisitions and a lower amount of minority interest share of income excluded from our fiscal '05 consolidated income subject to federal income taxes. Excluding the impact of life insurance proceeds in '04, our nine-month effective rate was 34.3%.

Minority interest of 1.5 million in the third quarter '05 and 2 million in the third quarter of '04 principally represent the minority interest held in HEICO Aerospace and the 20% minority interest held in an Electronic Technologies Group subsidiary. The decrease from the third quarter of '04 to the third quarter of '05 was primarily attributable to the lower minority interest share in the income of Flight Support, which included a $1 million share of the previously mentioned life insurance proceeds in the third quarter of fiscal '04.

Moving on to our balance sheet and cash flow, we are happy to report that our financial position remains extremely strong with cash flow from operating activities at 21 million for the first nine months of '05 versus 32.6 in the first nine months of '04. This is primarily due to a higher investment in inventory required to meet increased sales demand as well as longer leadtimes for certain raw materials plus an increase in accounts receivable due to higher sales levels. In light of these investments and working capital required to meet sales demand, we are revising our '05 targeted cash flow from operating activities to a range of 30 to 35 million. DSOs of accounts receivable as of July 31, '05 with 55 days and it is consistent with the same measurement of 56 days as of October 31, '04. We continue to closely monitor receivable collection efforts and to manage our credit exposure.

The inventory rate turnover as of July 31, '05 increased to 125 days versus 113 days as of October 31, '04 and 116 days as of April 30, '05. This reflects the previously mentioned higher investment in inventory required to meet sales demand and some leadtimes.

Our working capital ratio remained very strong and increased slightly to 3.2 as of July 31 versus 2.9 as of October 31, '04. Long-term debt to capitalization increased slightly to 8%, which is extremely low as you all know, as of July 31 versus 7% October 31, '04 reflecting net increase in borrowings of 4 million, which I mentioned before. Our leverage of course remains extremely low. No one customer accounted for more than 10% of net sales and our CapEx in the first nine months of '05 were 6.8 million. Our net capital expenditure budget for the full year remains at six to eight million and that is net of a 3.5 million proceeds that we received on the sale of an excess facility.

Looking forward, we are pleased to report strong year-over-year sales increases in our two business segments reflecting both organic growth and growth through acquiring profitable well-managed businesses at fair and reasonable prices. Both of these are fundamental to our long-term growth strategies. Flight Support continued to show a strong increase in sales and earnings during the third quarter of '05 as compared to the same period in '04 as we continue to add new products and further penetrate our markets. Demand from commercial airline customers continues to increase and we expect Flight Support operating margins to continue to show year-over-year improvement during the balance of fiscal '05.

Electronic Technologies also showed sales and earnings growth in the third quarter of '05 versus the prior year from the same period and as I mentioned before, we do expect Electronic Technologies' margins, operating margins for the full fiscal year to approximate 20% based on our current backlog. Based upon our strong operating results and current market conditions, we continue to target fiscal '05 consolidated sales in the range of 255 to 260 million and diluted net income per share in the range of $0.84 to $0.86 a share. The net sales and net earnings targets exclude the impact of additional acquisitions if any. As previously mentioned, our '05 targeted cash flow from operating activities ranges from 30 to 35 million and our net capital expenditure budget remains in the range of six to eight million.

In closing, we continue to adhere to our long-term strategy of developing and marketing new products and services and this provides our existing customers with improved technology and substantial cost savings as well as allowing us to expand our markets. We believe this strategy has resulted in our strong financial position and it also positions us with the opportunity for substantial forward growth.

That is the extent of my prepared comments and I would like to open the floor for any questions which you all may have. Thank you so much.

(OPERATOR INSTRUCTIONS). Arnie Ursaner, CJS Securities.

First question I have I would like to focus a little bit on the Electronic Technologies Group. I'm kind of reviewing what you said in your June conference call. At the time, you were pretty confident, kind of reading Tom Irwin's word, "We're confident we can reach these operating margins in the second half." To get to the full year you would have about 24% operating margin in the second half of the year. In reading Victor's comments regarding ETF (ph) at the same time, you talked then about technical issues and the space programs but were also confident looking at your business and the progress you had made that you could return margins in the second half of the year. What changed in the last two months?

This is Tom Irwin. You are right. In our third quarter, we commented that we expected full-year operating margins a little bit higher than as we commented earlier. I'm sorry, second-quarter conference call. Now our expectations are in the area of 20% operating margins for the full year, although we still feel very strongly about the overall strength of our Electronic Technologies Group. We have continued to experience some technical delays in those shipments. If you look at our second-quarter shipments versus third quarter, we are actually down just a little bit in sales at AGPC (ph. That was not anticipated at the time of our second quarter but we obviously experienced it. Fortunately again, those products are in backlog. We continue to tackle the technical delays. We are confident that we will resolve them and ship those products. But whether they occur over the next -- what is now our fourth quarter or perhaps may not get shipped until next year, may have that impact.

Fortunately, our Flight Support Group did really better in the third quarter than we had anticipated at the time of our second quarter in terms of sales and margins. So overall, as Larry mentioned, hit our targeted margins and expectations.

Could you be a little more specific what the term technical problems means since it's lingering a lot longer than you had thought originally and specifically is it on an acquired product or one of the companies you bought?

Arnie, this is Victor Mendelson. I will answer that question for you. Specifically, I think the delays are associated not with recently acquired companies, number one. Number two, technical issues would be really product design glitches. Things that when they are designed don't operate initially as we expect them to before the product ships of course and it just takes longer to get the engineering done. That's principally the reason.

Arnie, this is Larry. Just to add a little more color to what Victor told you. When we were visiting the facility that has this particular glitch -- so you understand. Shipments of their product are generally a large dollar amount. If they get held back, a lot of margin and a lot of revenue is held up. In this particular case, they had a design problem. They tried to solve it and I believe now they tell me that they have resolved it and it's a highly, highly sophisticated, highly engineered black box kind of product that we are talking about and it is very, very complex to do it. We think that -- they tell us they have now solved it and it is moving through. As Tom said, we don't want to come out and tell everybody we're going to ship it in the fourth quarter because it might flop to the first quarter of next year. So we would rather err on the conservative side and say that it may not ship. Although we're optimistic that it will. At this point we just don't know. But the problem has been solved, the glitch, and it is very complex engineering.

Final question from me at this point. In looking at your guidance for revenue for the balance of the year, it implies a pretty substantial drop in my opinion. You could comment in Flight Support Group, Q4 over Q3 would be down quite sharply, which is completely inconsistent with the pattern we have seen historically for the company. If it is not that factor, you either have borrowed some sales from Q4 in Q3 or you're implying a pretty sharp decline in Electronic Technologies Group. It is the only way mathematically you're going to get to your revenue guidance. Can you comment on it?

I think we are a little perplexed. I see a lot of puzzled looking faces around the table.

I'd be happy to give you the actual numbers. You've had 50 million in Flight Support Group revenue. You have not had a down fourth quarter in looking back historically in Flight Support Group revenue.

I think probably in terms of our overall revenue guidance of 255 to 260, we do try to be conservative. If you do the math correctly, you are correct. That is 255 minus year-to-date sales is a slightly lower revenue quarter than we experienced in the third quarter at 260 million. It amounts to about 67 million, which would be just a little bit under. So I think probably with conservatism and the potential -- as I mentioned earlier, the Flight Support Group was very, very strong in the third quarter and certainly we are going to do what ever we can in terms of shipments but to predict that that strong a quarter in the fourth quarter given the fact that some airlines have all their planes flying in the summer etc., etc. Sometimes there is some delays ingesting engines and Eric can comment on that later. But partly conservatism and partly the fact that we are not 100% confident in our fourth-quarter revenue sustainability in the Flight Support Group. Then if some of these technical delays that we've been referring to in the Electronic Technologies Group slip into the first quarter of next year then it might be off a little bit. But again, we are confident overall in the earnings estimates as well.

Arnie, this is Larry again. I think key to it is we have given guidance of $0.84 to $0.86 in the revenue guidance and we feel comfortable with that. Does that mean to say that something could come up, can't come up in the last two months or the rest of our fiscal -- it's two months left in the fiscal year that could change it slightly? Possible. But we think our guidance is good to the best of our knowledge and we think the company is doing pretty much exactly what we said it would be doing and it is doing very well.

Well, as I say mathematically, Larry, you're implying a number dramatically lower than either Q2 or Q3 in the segment. We can follow up offline but that's just what your math is implying.

I guess when I was referring to the revenue targets, those are on a consolidated basis. We did not break out our guidance by business segment.

I understand but again you only have two segments and you are implying a sharply lower number between the two.

I can go over the numbers with you offline and Tom can do it to the extent that we disclose that information and make those predictions. But to my knowledge, that is not -- I am looking at the numbers right now and that is not accurate. We can go over the details. I don't see a significant drop in either segment. But we can go over the numbers. That's not what we are projecting.

I understand. Thank you.

JB Groh, DA Davidson.

A couple of questions. On your corporate expense, you mentioned there was some Sarbanes-Oxley related stuff there and sequentially you are up about 900,000. Can you quantify how much of that is onetime Sarbanes-Oxley stuff and maybe what is recurring and how we should think of that going forward?

This is Tom Irwin. That is correct. In the corporate expense area, the incremental costs that we have identified are around 900,000, which we attribute to the Sarbanes-Oxley costs as well as some crude performance awards that if we continue at the current track would be due at the end of the year. They are of course not paid until the end of year. We haven't specifically quantified the actual hard dollars, but again those are the two biggest items representing principally the 900,000.

In terms of incremental costs, this is our first year under Sarbanes-Oxley and we are working hard to resolve -- to comply with all the requirements with our auditors etc. It's a little too early to tell in terms of for HEICO what the ongoing costs will be in fiscal '06. What we have read from other companies who incurred startup costs of Sarbanes-Oxley in their December 31 fiscal year, the startup costs typically are maybe 20 to 30 to 40% but we are still not ready to look at next year at this point.

When you say 20 to 40% of what, your standard audit costs or --?

No. I'm sorry 20 to 30% of the first-year 404 costs away. I can tell you there were a couple of studies done by FEI and some other industry studies that have assessed the incremental costs of 404. They do it is a percentage of sales, the one that I recall and that would equate to somewhere like 0.68% of sales to (indiscernible) 1% of sales, which equates for us to between $1 million and $2 million of incremental cost consolidated.

But in terms of the onetime costs, are those -- there would still probably be some of those in the fourth quarter or not?

Yes. We are in the fourth quarter of our compliance. The auditors will begin their year-end work etc., etc. and so there will be, in our forecast for our full-year estimates, there are additional Sarbanes-Oxley costs forecasted in the fourth quarter.

Moving onto Electronic Technologies, I think in the past you've broken out the organic and the acquisition growth. Was everything this quarter from the two acquisitions?

Yes.

Can you update us on your receivables exposure to the troubled carriers out there, troubled majors let's call them?

It all depends on which ones you define as troubled and we define --.

All of them.

But the ones that -- We do have some exposure. I don't think that it is significant. I think one part of our exposure conceivably has been reduced with ASA being sold out of Delta. So if you are concerned about Delta, which I guess we all are, we would probably take some hit on Delta's receivables. We wouldn't be hurt with Northwest if they have a problem. I don't know which other ones -- we're really not too concerned with any of the others in the industry. We watch it very carefully. The hit that we might take if Delta were to file could be mitigated by us getting special preference in the Bankruptcy Court, although you never know if you do. We might or might not. And normally when an airline goes into bankruptcy, if we work with them closely and help them before, they have memory and they try to increase the volume that they do with us after they are in Chapter 11. So the initial hit I think would be small. Then going forward, we would hope that we would certainly make that up. That has been the pattern in prior Chapter 11 situations where we have taken small hits. We have continued to ship these airlines. We want to be there when they need us and we are not going to pull the rug from them. We control the receivable but we might take some small hit.

Certainly a balancing act. And then lastly, could you give us sort of what R&D spending levels were as a percentage of sales for the quarter? I mean is that sort of in line with what it has been in the past?

Yes. Let me just --. Tom, do you --?

Yes, it has been running about 4% of sales and that has been in line, yes. It has been in line in terms of absolute dollars with the sales increases as a percent of sales, it has dropped probably in the last 24 months from 5% to 4%, but it is about 4%.

Lastly on this Electronic Technologies deal, you mentioned that these are large dollar volume projects and so presumably there could be some upside to the margin there once these things squeeze through, correct?

Victor, why don't you respond to that?

JB, this is Victor. The answer is it is possible. I wouldn't count on it, but it certainly is possible.

Chris Quilty, Raymond James & Associates.

I don't know if you have covered this and maybe I missed it but those ETG products that you're talking about, are those military programs or commercial?

Military.

Also I know Katrina came through your neighborhood. Fair to assume you escaped unscathed?

Fortunately, lost a little power but yes, we are up and running and reasonably without problem.

Looking at the other side of the large airline conundrum, anything prospective on some of the low-cost airlines and possibilities of bringing those onboard and is there anything with the fuel environment or cost of fuel that might encourage some airlines that haven't participated as fully to look at that more carefully as a cost reduction measure?

I'm going to ask Eric to respond to that. He's closer to the ground.

We do participate with the -- in terms of low-cost carriers through our support of firms like Lufthansa or even Delta who pick up third party work from these low-cost carriers. Also we do sell the LCC some parts and services directly as well. But I would say that yes, whenever the airlines are in need of cost reductions, we are typically right up there on the top of their screen. So it helps our business.

With regard perhaps the biggest missing fish at this point, Southwest, any movement in that direction?

We don't for competitive reasons disclose which customers we are working with but we have good participation with the number of the LCCs.

I guess this is a question for Tom. Have you made -- I can't remember in past calls a discussion about stock option expensing and requirements and estimates of when we may see that?

The answer is we are still studying the impact on HEICO relative to the adoption. We will adopt by beginning to expense in our first quarter of next year but I can refer to you in the interim to the pro forma earnings per share impact which we have given in our 10-Q and of course we will update on an ongoing basis. But if you look at the pro forma impact, which is very similar to what Black-Scholes will be going forward, the net income impact in '05 is decreasing from the prior year and is down to about on an annual basis roughly $1 million, which is pretty insignificant to HEICO.

I think this was also covered but I just wanted to check on a specific number. Acquisition revenues in the quarter from the two acquisitions were approximately 3.1-3.2 million, in that ballpark?

Approximately, yes. Overall, the revenue of that segment was up a little over 3 million and as we commented earlier, potentially all of that increase was attributable to those acquisitions and of course, there were no acquisitions on the Flight Support Group. That was all organic growth.

Final question on the corporate expenses. Obviously you have commented on that with regard to fourth quarter. I know you don't like to go too far out in the future but with the addition of Connectronics and the other acquisition, can you give us a ballpark of where you think next fiscal year corporate expense might fall?

We are still of course reviewing and implementing our budgeting process for next year. We are not yet ready to indicate our earnings targets for fiscal '06 but as we have said, we target corporate expenses to range somewhere and not exceed approximately 3% of sales. So I think that is our goal at this point and we have to deal with Sarbanes-Oxley ongoing costs. Hopefully there will be some rationalization of that process by the SEC etc., etc. but somewhere in that 3% range is what we have been incurring historically and hope to keep that reigned in.

Chris, a comment, a gratuitous comment from me. This is Larry. The Sarbanes-Oxley costs are truthfully totally out of control in industry. I've spoken to lots of CEOs and they all have essentially the same comment that for what we all perceive as a relatively worthless operating value, we are paying a tremendous cost. And this is the first time through for the auditing firm so they are a little bit in the dark. Their exposure is uncertain. They don't know what they have to do so they use belt and suspenders and they send you the bill for it. And there is really nothing else you can do. You can't fire them; you can't cut their scope and they just do more and more work. Quite frankly that is the situation that we are in along with a lot of other people and I think it is totally out of hand. I wish Congress would do something or the SEC would put a little sense to this but that is the big question mark in the SG&A and we have mentioned it. I'm sure you have seen this with many other companies that you cover.

And unfortunately having Congress do something is never the solution as evidenced by the legislation itself. But best of luck with that experience and congrats on another good quarter.

Thank you very much, Chris.

Jim Foung, Gabelli and Co.

Just picking up on that last comment, Larry, I was just wondering does it make sense to remain public for the cost you have to face.

I think it does. I think it does make sense to remain public. It's one of the costs of doing business and as Tom indicated, we hope that next year the first time through portion of this will drop down so it will be somewhat less. I think HEICO is a very strong cash earner. We have high margins. We have access to capital. Our shares trade at a reasonably good multiple. So for all of the above reasons, I think remaining public is the right strategy. We have an acquisition program, which we grow and of course, the top line and bottom line is growing both internally and through acquisitions. So for all those reasons, yes and --.

It's just for the same reasons. I mean a lot of smaller companies are rethinking about whether they need to remain public because they do have a good business model, they do have good growth prospects and they have strong balance sheets. I guess at some point you say we don't need to spend this kind of money for public auditing. So why don't we just go private.

Well you know, at this point, we have no intention of doing that but things could change. Maybe some big company will come along and give us $40 a share.

And help you out, right? Just a couple of quick questions. Getting back to Electronic Technologies, what kind of revenues are we looking at in terms of these delayed shipments. You said you have kind of gotten it under control in this quarter and so we should start seeing shipments perhaps of this products in the fourth quarter into '06. What kind of revenues are we talking about?

Jim, this is Victor Mendelson. We don't break it out for competitive reasons. It would be too easy for people to know about them to start to figure out our pricing and things like that and it is military stuff, defense stuff as well. But it is generally product that is really cutting edge and is development oriented that no one else has been able to do. So we are seeing it fall late. I can comment that it is not unusual for us to see vacillation in this part of the business. Things actually come in late, sometimes early because again, it's just very difficult to do. I would expect to see it in the fourth and maybe the first quarter pick up there.

Maybe another way I can look at this is in the third quarter there was no organic growth in the segment. So had you shipped these products on schedule, would we have seen your normal organic growth rate in the quarter?

This is Tom Irwin. Yes, we probably would've been close to our organic growth rate. I think, as we have commented previously, within the Electronic Technologies Group, the organic growth is in the single digits, 5 to 6 to 8% type organic growth. So we probably would have been in that. The first half of the year, we did have organic growth in our first six months or in that range. So something would have been close to organic growth without the delays, yes.

And just a second question that's kind of a little different from the other questions. Are you doing anything with land-based turbines? I mean a lot of your FAA parts are going to jet engines for military and commercial aircraft. What about land-based turbines? There was a whole surge of land-based turbines that were sold back in the mid '90s and now they're coming up for replacement parts. And I was just wondering if you're benefiting from that.

Jim, the answer is no. We have studied that market and for a whole bunch of reasons we elected not to get involved and it was kind of, as you know, it was a blip and some companies got hurt doing that. We stayed out of the market and we believe we did the right thing. And at this point, we really have no intentions of going into that. We were approached by a number of people to do things and we rejected it. So no, land-based turbines is not our thing.

So because what is in demand now is just the replacement parts for those turbines, which I presume is the same thing as for jet engines, right? It is not something you want to transition into?

Our focus is really on aviation parts. It's really a whole different -- it's the land-based turbine. In theory, what you say is a good idea but when we got into it, and we thought the same as you, but when we started to dig into it, we found that it really, it really was a different industry and so we elected not to do it. It's again -- land-based turbines and aircraft turbines are similar in theory but in reality, the replacement is different and so forth. So we focus on aviation, which has -- it's a higher barrier to entry. There is a lot of major differences between the two industries, land-based turbines and aircraft engines.

And just one more question. When I look at the commercial aircraft deliveries from Boeing and Airbus, going back to 1997 to 2002, during that five, six-year period, there is a huge surge in OE deliveries. So I presume those aircraft that really picked up in 1997 or sold in 1997 and can move them forward are moving into the aftermarket demand. Are you seeing any kind of pick up from that group of aircraft that were sold in 1997 to --?

The answer to your question as a general yes because generically we figure that when an aircraft is out five years it becomes a potential buyer of parts. As it moves out from five, six, seven years, it begins to use parts in the market and of course they would be our parts. So we would expect exactly what you have said.

So your business model the next five years should be terrific as we see this growth in this install base just from the previous five years of deliveries?

We have an optimistic outlook for our industry. We think that for all the reasons that you just said we agree with that. We see more people flying. So demand for -- as you know, more airplanes are flying and if they fly, they use parts and if they use parts, our business should be very good. And that is what we are experiencing now and as long as we don't go into a recession or a strong recession or have a God forbid another 9/11 type of event, an aircraft, we think our industry is very, very strong. So we do like the outlook.

Terrific. Great. I look forward to seeing you next week then.

Yes, we are looking forward to it.

Chris Donaghey, SunTrust.

Great quarter. A question for you and I apologize if I missed this. But you talked earlier about selling a minority joint venture. I'm assuming that was in the Electronic Technologies Group.

No, it actually was not. It was a joint venture that we had with another manufacturer and for a product and we liquidated that joint venture and made a couple dollars.

It was in the Flight Support Group.

It was in the Flight Support Group; it was not Electronic Technology.

So is that the other income item?

Yes.

There are no further questions at this time.

In that case, I want to thank you all for tuning in. If you do have questions, give us a call. You know where to reach us and Tom or Eric, Victor and I are available to chat with you if you do have questions that we can answer. Of course you are aware with fair disclosure we may not be able to answer all your questions but we will try to help you out. Thank you very much. We look forward to speaking to you in the fourth quarter conference call.

This concludes our conference call for today. You may now all disconnect your lines and everyone have a great day.