Teledyne Technologies Inc (TDY) 2003 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the Teledyne Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at time. If you should require assistance during the call, please press star then zero.

As a reminder this conference is being recorded. I’d now like to turn the conference over to our host, Jason VanWees, please go ahead.

Good morning everyone, this is Jason VanWees, Director of Corporate Development and IR at Teledyne. I would like to welcome everyone to Teledyne Technologies Fourth Quarter Earnings Conference Call. We released our earnings earlier this morning before the market opened. Joining me today are Chairman, President and CEO, Robert Mehrabian, Vice President and CFO, Dale Schnittjer and Senior Vice President, General Counsel and Secretary, John Kuelbs.

After remarks by Robert and Dale, we will ask for your questions. However, once again before we get started the attorneys have reminded me to tell everyone that forward-looking statements made this morning are subject to various risks and assumptions as noted in our periodical SEC filings and of course actual results will differ materially. Also in order to avoid potential selected disclosures, this call is simultaneously being web cast and a replay both via web cast and e-mail dial in will be available for one month. Here’s Robert.

Thank you Jason. Good morning everyone. Before I elaborate on the details of the quarter, I’d like to make a few introductory comments. Overall, I’m pleased with Teledyne’s performance, not only in the fourth quarter but the continuous year-over-year improvement demonstrated in the last eight quarters. Persistent and precision operational excellence in every aspects of our business from finance to manufacturing help drive our improved performance. For example, we were able to reduce factory work and warranty costs by $4m during 2003 in the electronics and communications segment factory by improving our lean manufacturing processes.

Most operating and senior manager incentive compensation awards are affected by our operation excellence programs. In addition to aggressively managing cost, we continued to grow through focused acquisitions and integration. We made five both on acquisitions in the past 2 1/2 years and we administrated our ability to efficiently integrate our acquired manufacturing operations into our existing facilities.

Given our strong balance sheet and financial flexibility, we intend to accelerate our acquisition program in 2004. Returning to the fourth quarter and full year 2003, Teledyne made significant progress both in revenues and earnings. Overall revenues for the fourth quarter grew by 6.1% and GAAP earnings per share were $0.24 cents compared to $0.22 cents in the fourth quarter of 2002.

Earnings per share excluding non-cash pension income and expense increased 28.6% compared to last year. For the full year 2003, revenue growth was 8.8% compared to 2002. In addition, full year 2003 GAAP earnings per share increased 18.2% compared to 2002. Excluding the one time tax benefits in the first quarter of 2003 and non cash pension income and expense, full year 2003 earnings were $0.97 cents per share a 32.9% increase over 2002.

We also generated free cash flow, cash from operations, less capital expenditure of about $10.7m during the quarter and $36.5m for the full year and ended the year with $37.8m of cash on hand. Excluding the book tax benefit in the third quarter, full year cash flow was 133% of net income.

In the remainder of my comments, I will elaborate on the operating performance of our business segment. Dale Schnittjer will then discuss more details about our financial performance and comment and our outlook for 2004.

Turning to our business segment, fourth quarter sales in our electronics and communication segment increased 6.5% compared to last year and full year 2003 sales were 15.2% greater than 2002. Reported operating profit was down for the quarter, however, if you exclude the changes in pension, the write downs in each period and the LICO (ph) income, operating profit increased about 4% from last year.

As I further discuss, our electronic and communication businesses which have total revenues of approximately $450m, I’ll break my comment into three separate market categories. Defense electronics, which currently represent approximately 35%, electronic instruments, which currently represent approximately 25% and avionics and other commercial electronics, which currently contribute approximately 40% of the segment sales.

First as a reminder, our defense electronics products include traveling wave tubes and electronic warfare and satellite communication and radar applications. We also have micro-electronic modules. We make micro-electronic modules for a variety of applications, including secure communication and we also make ejections sequencers and do contact manufacturing for military electronic suppliers.

After four quarters of very strong year-over-year growth in our defense electronic businesses, comparison have become a bit more difficult, nevertheless, in the fourth quarter of 2003 sales up of defense electronics increased approximately 5% compared to fourth quarter of 2002. Full year sales increased by over 20% compared to 2002.

Sales of micro-electronic modules that are deployed in military aviation and secure communication applications continue to increase. For example, we estimate that each F22 contains about $500,000 of Teledyne content comprised of fiber optic micro-electronic modules, ejection sequencers, solid state relays and rigid select circuit board.

Since we have already won some development contracts for F35 joint strike fighters we hope to also enjoy a significant amount of content on this platform. In addition, during the quarter, we announced the acquisition of certain defense electronic assets of plutonic solid state in Santa Clara, California from Plutronics CLC for $12m. The transaction closed in the first week of fiscal 2004. Solid state designs and manufacturers customized microwave sub assemblies for electronic warfare, radar and other military applications. This acquisition is highly complimentary with our existing defense microwave business. Both the product needs and the sales channels are also synergistic with our traveling wave tube business. We are currently consolidating the operations of the solid state with existing military microwave sub assembly operations ion our Mountain View, California facility.

Turning to electronic instrumentation, we manufacture a range of instruments using industrial process control that’s our chemical manufacturing, semi conductor manufacturing, energy exploration and production and environmental analysis and emission monitoring.

In the fourth quarter of 2003 year-over-year sales of electronic instruments were flat however, full year sales increased 38% compared to last year as a result of acquisitions of monitor labs that occurred at the end of the third quarter of 2002 and (inaudible) that occurred in May of 2003.

Organic sales were lower by approximately 20% in the fourth quarter as a result of lower sales of highly cyclical geophysical transfers for the petroleum exploration market. While total sales were flat during the quarter, we continue to expect future growth in our regulatory German market such as health quality monitoring. As we mentioned in the past, over half of our instrumentation revenue is now derived from environmental instrumentation market.

In addition to environmental monitoring, we are also targeting other higher growth markets such as food and beverage quality control. Finally, I’ll discuss our Ebyonics (ph) and other commercial electronics businesses. In the Ebyonics market we develop and manufactured data acquisition and communications products for domestic and international airlines as well as for business aircrafts. We also manufactured electronic components including relays and connectors for commercial aviation and telecommunication, data storage and semi conductor test markets and we provide manufacturing services for Sub MV’s (ph) used in medical instruments and in implantable medical devices.

In the fourth quarter of 2003, sales from these other electronics markets collectively increased approximately 10% from the fourth quarter of 2002. But remained flat for the full year 2003. Organic sales excluding the acquisition of Aviation Information Solution Businesses, known as AIS, at the end of the second quarter were flat in the fourth quarter and down approximately 5% for the full year. While both the air transport and business (inaudible) remained quite weak our Avionic sales increased by approximately 30%, driven by the acquisition of AIS. Avionic sales on our organic (inaudible) basis, relatively flat compared to fourth quarter of 2002. This is an improvement over the significant declines of the last seven quarters.

As we mentioned previously, our strategy is to keep our business healthy during the current commercial aerospace down cycle and our strategy is threefold. First, to gain market share, second, to introduce new products and third to enter new markets. In our traditional business for example, we continue to increase our share of radar position systems on new airbus (inaudible) and long range aircraft. Furthermore, the acquisition of AIS at the end of the second quarter as with a number of new products and markets through our traditional business. For example, AIS’s new electronic flight badge for white pilots with immediate access to mitigation charge and other information. During the third quarter we completed the consolidation of AIS’s manufacturing operations from Wichita, Kansas into our West Los Angeles control facility. In other commercial electronics market, sales of broadband wireless assemblies for cellular back-call applications continue to grow as a result of increase demand from our large international customers.

After three years of market weakness, sales of relays using wireless infrastructure, networking equipment and semi conductor test equipment increased during the quarter. While volumes are still significantly below year 2000 levels, we are pleased to see some customers such as Cisco begin placing orders again.

Turning to our government engineering segment, in the fourth quarter, revenues in this segment decreased slightly compared to last year. The fourth quarter year-over-year reduction in operating profit resulted in part from a $1m charge for loss on a long-term lease agreement. However, full year sales and operating profits increased substantially compared to last year.

Finally, orders in our systems engineering segment compared to last year increased 42% in the fourth quarter and 9.5% in the full year.

During the last several quarters, we’ve seen a recovery in our environmental solutions business in this segment. As a reminder, in addition to our core aerospace and defense programs segment contains a small environmental business, which include several contracts primarily related with the destruction of hazardous chemical materials. Over the last year, sales in this business unit have increased over 30% and given the increase in orders such as the one we announced a couple of days ago, we expect that this business will continue to grow in 2004.

During the fourth quarter, Teledyne run Engineering Technologies Group achieved the Software Engineering Institute’s Capability Maturity Model or CMM level 4 grading. According to the Software Engineering Institute’s September report, only 110 of the 1300 organizations reported that they have achieved CMM level 4 rating. The CMM model that establishes the key elements of an effective software process for planning and engineering to managing software development and maintenance is used to measure the quality of software processes across industries. We believe our level 4 rating would be a key differentiator for Teledyne Brown in continuing to pursue complex projects for customers with stringent software requirements.

While the performance of our systems engineering segment has been outstanding over the last two years, we do not anticipate to maintain in 2004 the level of profitability we achieved in the years 2002 and 2003. In previous quarters, award fees for work performed on certain contracts, which have boosted sales and profitability will likely decline since actual fee negotiations have not been completed. For example during 2004 we expect profitability in this segment to be at normalized levels of approximately 8-9% of sales.

Turning to our aerospace engine and component segment, sales during the fourth quarter of 2003 for our aircraft system engine business increased approximately 10% relative to the fourth quarter of last year. Although after-market sales decreased in the quarter sales of new engines for new OEM piston engine aircraft increased up almost 35%. Due to a strong demand for new composite OEM piston aircraft for which we are the sole source engine supplier, we continue to increase OEM market share. Sales of engines for the OEM aircraft have increased approximately 20% on average over the last seven years. In addition to gaining share at a higher power end of the certified piston engine market, we continue to work with Honda Motor Company in evaluating a new engine primarily targeted at segment of the market not strongly served by our base business.

In the turbine engine business, sales increased 26% in the fourth quarter primarily due to increased shipment of improved tactical air launch decoys or (inaudible). While certain sales for jazz and fuse missile engines were down year-over-year, we’re pleased to see that jazz and fuse missiles have recently been certified and now is ready for operational use.

Finally, in our energy system segment, revenues in the fourth quarter of 2003 increased by 27% compared to fourth quarter of last year. Orders related to fully funded backlog in this segment, more than doubled in the quarter and increased 60% for the full year. In 2003 we received over $70m of new long term government contracts, which significantly enhanced the long term outlook of this segment. We expect this segment to achieve approximately 50% growth in revenues in 2004.

In the energy technologies marketplace, we continue to believe that we possess a unique business, one which encompasses both a growing base of long term government contracts as well as a portfolio of tangible commercial energy technology products such as fuel sale pet stations and hydrogen re-fuelling systems.

In summary, I’d like to emphasize that we remain committed to our focus on operational excellence as we continue to seek acquisitions in our core electronics instruments and systems engineering businesses.

I will now turn the call over to Dale Schnittjer.

Thank you Robert and good morning. I will first discuss some additional financials for the quarter not covered by Robert, plus add some full year highlights when warranted. Then I will give an update on pension and discuss our 2004 outlook.

During the quarter, there were a number of small earnings adjustments and I would like to mention these. As noted in the press release, we had LICO income of $3.5m in our electronics and communications and aerospace engines and components segments. This income was almost entirely offset by losses on facility and office sub-leased agreements in our systems engineering and energy system segments, and inventory write-down on certain slow moving products and contract settlements in our electronics and communication segments.

In the fourth quarter, cash provided from operating activities totaled $18.2m compared with $14.4m for the same period of 2002. The primary difference year-over-year was lower inventory levels and lower payments for aircraft products liability settlements firstly offset by higher receivables for the fourth quarter of 2003 resulting from higher sales in the quarter.

We continue to see operating performance improvements in our manufacturing operations. In addition to this craft warranty and rework improvements that Robert mentioned, inventory levels also will reduce by $10.9m in the fourth quarter.

After paying approximately $20m for the two acquisitions in 2003 we continue to be debt free with $37.8m of cash in the bank. As Robert mentioned we closed our fifth small acquisition in the first week of fiscal 2004, plus the 2003 balance sheet does not reflect the assets of filtronic (ph) solid state and the 2003 cash flow data excludes the $12m purchase price.

Capital expenditures for the fourth quarter of 2003 were $7.5m compared to $5.4m for the same period of 2002. For the full year of 2003 we had total capital expenditures of $20.2m slightly below depreciation and amortization of $23.1m. As we have previously stated, the 2003 capital includes approximately $6.5m for the expansion of our defense oriented traveling wave tube facility near Sacramento California.

For 2004 we continue to see depreciation and amortization expense slightly above capital expenditures of approximately $20m. As we have said before, declines in the capital markets in prior years and adjustments in pension assumptions that resulted in an increase in pension expense and a requirement to make pension contributions in future years.

In 2003, pension expense was $6.9m or a negative EPS impact of $0.13 cents compared to pension income of $2.3m or positive EPS impact of $0.04 cents in 2002. Looking forward to 2004, pension expense is expected to be approximately $8.5m or a negative EPS impact of approximately $0.16 cents per share.

As mentioned in the press release anticipated pension expense in 2004 reflects a 50 basis point reduction in discount rate from 7% to 6.5% and a change in the company’s retirement benefits for new hires. As of January 1st 2004, new hires are being added to an enhanced defined contribution plan as a first to the company’s defined benefit plan. Additionally, we currently anticipate making a pension cash contribution in 2004. The after tax cash impact is currently anticipated to be approximately $4m.

Subsequent to November 29, 2004 the company will be able to begin recovering certain pension costs from US government under various government contracts. Based upon our current pension assumptions, we expect pension expense net of recoverability to begin moderating after 2004.

Now let me turn to our 2004 outlook. Although the 2004 outlook is somewhat uncertain management believes that the 2004 GAAP earnings per share will be in the range of $0.80 to $0.86 cents. We expect that earnings per share in 2004 excluding pension expense of approximately 16 cents will be in the range of 96 cents to $1.2 per share as shown in the press release. I will now pass the call back over to Robert.

Thank you Dale. Our operator Marla we’d like to take the questions now.

Thank you. Ladies and gentlemen if you wish to ask a question please to press star then one on your touch tone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you are using a speaker phone please pick up the handset before pressing the numbers. Once again, if you have a question, please to press star one at this time. One moment please, for the first question. And we have a question from the line of Mark Jordon. Please go ahead.

Good morning everyone. A couple of questions, first of all relative to jazz I notice in Lockheed Martin’s fourth quarter release they’d stated that they’d received order from the air force for 240 missiles. Could you tell us over what the time frame you will expect those engines deliveries and is it correct to assume that that’s about 50 to $60,000 average selling price to you which would imply somewhere between $13 and $15m worth of revenue on that release.

Thank you Mark. The orders for the engines from the air force overall we expect to have about 2400 engines. For this year we think it’d be somewhere between 100 and 200, in the price per engine, while we don’t disclose it, you’re in the ballpark.

Okay and that’s good. If you look at your overall government turbine pipe business how much would you expect that’s if obviously jazz is up you have you know, harpoon trainings, spears and other decoy types of revenues. In aggregate how much do you see that package of business growing in 04’?

A very moderate growth, keeping in mind maybe 10, 15% but the issue is that as a top segment the size of this operation is relatively small Mark. It’s below $30m, so large increases there would not affect our top line significantly.

Okay. You made a comment that the systems engineering group had a charge for a termination of a lease or a sub lease fee was that did you say that that was a $1m charge so that if you added that back the normalize operating margin of that group would have been about 8.4% for the fourth quarter.

That’s correct, precisely. That charge is a - we have a sublease in our Washington Offices where we’ve been trying to reduce the amount of space that we occupy and we took a charge in the fourth quarter because of the sub lease that occurred in the fourth quarter for the remainder of the time.

So if you would add that back then the fourth quarter would be fairly representative of a typical quarter next year in that business.

Correct Mark.

The fuel sell areas have you also had a sublease charge I mean obviously the revenues have started to rise there so what was the size of that charge and if you would add that back would that be somewhat normal for margins for that group in 04.

Yes Mark that charge was about $500000 and so if we add that back they would have enjoyed a profit of about $500000 in the fourth quarter.

Ok . And last question relative to pension you know in November of 04 you’re going to be able to start charging or passing off some of the pension expense to the government, if you had been able to do that for all of 04 how would that have impacted your projected $0.16 charge that you have in your earnings guidance?

Let me pass this question to Dale who will be able to answer it more accurately please.

Well the government portion of the business is about 45% of the business and the amount that could have been charged to the government might have been in the vicinity of half of that.

Half of the $0.16 in other words.

Ok. So that would accrue then for all of 2005 so when you’re calling a decline it could be somewhat meaningful assuming a constructive stock market in terms of a pension drag in 05.

That’s correct

Ok. Let’s see. I think that’s it for right now. Thank You

Thank you Mark.

Thank you Mark

We have a question from the line of Seth Tellis. Please go ahead.

Good morning. You talked about the inventory write downs in the electronics segment can you kind of just go into a little bit more detail, what some of these slow moving products and contracts settlements are about and whether or not you foresee any of these you know moving into 2004?

I’ll let -- again Dale Schnittjer take this please.

Yes the slow moving inventory write down was related to a business that has very slow moving – some product where the sales are down substantially year over year. And it’s in the circuit broad area in capital acquisitions. We do not anticipate that that will repeat itself in 2004. And the contract settlements that were mentioned in the press release were in the vicinity of $800,000. We don’t expect those to repeat themselves either.

Okay thank you, is that what contributed to kind of maybe a sub-par operating margin in the segment during the quarter?

Yes. If you do the adjustments that we just mentioned and we had of course that delightful pick up when you do all of that it took the margins down about 20 basis points.

So the margin looks like it was about 7.1% so you think the margin was about 7.3% for the quarter.

Yeah if you exclude pension from that margin’s more closely to 8.7, 8.8% compared to last year which was closer to 9%. We expect margins in this business to be closer to the 8-9%.

Ok great. Ok thank you

Thank you

We have a question from the line of Chris Clovey please go ahead.

Morning gentlemen nice results. I wanted to get a little more detail if I could on your growth expectations in segments outside systems engineering where I think you said you expect a slight decline this year based on contractual timing. In the electronic and communications business should we be looking for growth in that business?

Yes. I think organically we expect growth to be in the mid to single high digit in the defense electronics, in instruments to be approximately where GDP of growth is going to be.

Well that’s 5% right in the next quarter.

That’s alright. The other electronics; you know what we seek some improvements in some of our short cycle electronics that we haven’t seen for along time. Its economically sensitive so it’s a little difficult Chris to predict. If there is a real good pick up in the capital equipment market for the telecommunications and some of the test equipment we could enjoy substantial increases in that area. We also think that there may be a little pick up in avionics closer to the end of next year especially since we’re offering new product s through that market through our acquisition of AIS. So overall we expect some modest in the mid single digits increases in electronics and communications assuming things remain where they are. That of course excludes anything we do in the acquisition arena.

And how about the medical area Robert was down in the most recent quarter and that had been an area of strength for you.

Yeah we think we are not seeing a lot of pick up in that area. We seeing some improvement Chris but our orders in that area, we have some new orders for boards, for positron emissions, tomography systems and overall that’s a healthy business but were not seeing tremendous pick up at this time.

Ok and is that related to the platforms you’re involved with seeing declining revenues or loss of market share or just the absence of a general trend in the overall market.

I think it’s more related to the overall market. We’re not loosing any contracts. We have, as you know we mix two distinct types of products there. We make MRI systems, CT scanners, position emission tomography system products especially in our Mexico facility. Those have been pretty strong. On the flip side we also make products for the defibrillators and pacemaker’s microelectronic modules those have been relatively flat.

Okay and moving on to the Aerospace engines business, surprisingly strong quarter there is that something that’s sustainable out into ’04?

We hope so our orders are picked up in the quarter partially because we announce the price increase and every time Chris we announce a price increase lets say a month in the future we get increased orders for the existing products in the existing price range so we got a little pick up there. The other thing was of course we had a nice pick up in our turbine business, we also have the LIFO (ph) pick up because we significantly reduced our inventory in that business because we plan to full through a manufacturing system where we really order inventory only when we have orders in the factory and we do it on line. There’s a combination of those facts, the fact remains that the OEM engine business there is stronger than we’ve seen in a long time for us because the primary OEM aircraft supplier that has our engine in it which is Sierras (ph) has been gaining market share and there’s your market share last year part of the overall OEM market was above 35% and it comes from nothing a couple of years ago to that so overall we’re cautiously optimistic there.

So again maybe more of a mid to high single digit growth in that business?

But you got to combine that with we also make some battery products, we also have (inaudible) market sales we think it’d be about the same not a whole lot of growth there it depends on the orders of course.

Okay and then what way---in what direction would you expect the liability cost when that re-ups because you only did that for a year (inaudible) contract?

Yes the insurance premiums and the (inaudible) we take. Those are renewable every year it’s up for renewal in May again we think the insurance market was very hard last year, at best we think that will remain flat for next year. On the other hand what we’re doing is we’re looking at potential alternatives to that market---to that business for its insurance product and one of them maybe that we will hold a larger first dollar coverage and then get the excess coverage because the premiums there, the increasing premiums, do not seems to be commensurate with the history of payment that we’re having to make so we have to find a way to moderate that.

Okay and for the profitability of the business you had again a really nice surprise in the fourth quarter in terms of profitability, what sort of targets are you shooting for in ’04?

Well we think overall year over year profitability with at this time we’re projecting profitability to develop in mid flat to do that we have reduce cost again and we’re assuming that our insurance will not go up. As you know part of the insurance is in premiums and part of it is that we have to take $15m reserve every year on our books for potential future liabilities because that’s our dollar coverage. And how much we have to take in future years especially beyond 2004 is going to depend on our experience in last year and this year so what happened to us this year was that we had a substantial increase in insurance in the middle of last year in May, we’re our insurance premiums and reserves increased by a million dollars so we have seven months of that.

This year we’re still going have five months of increase in insurance over last year so if you compare 2004 to 2003 we’re going to have $5m of extra insurance cost for the first five months, then if our insurance does not go up it’ll be flat vise-a-vie be 2003 so we have to make that amount up by---through cost reduction.

Okay fun-fun stuff.

Yes.

More normalized profits free throughout the year rather than everything happening in the fourth quarter?

I hope so the only difference here is that because of our contracts with our military customers what we do get is we get orders for both our jobs decoy engines and for (inaudible) engines and sometime of course for our spares for the air force that our job lumpy. So you get contracts require you to ship a significant quantity at once and what we try and do is we try to schedule that across our factory so that we have level loading across our factories. So what you do you may spend a couple of quarters making engines but sales occur closest to the last quarter, as a consequence while you have expenses in those two or three quarters when you’re making the engine, your sales really occur in the quarter that the customer wants the engines from you so we do get a little lumpiness in our earnings there because of that. And that’s primarily our choice because we want a flat habit level loading of our factories.

Okay and does it take this to the final extreme here on the energy systems business again well in the $3m range per quarter might top in the fourth. Should we be modeling closer to that $5m level on a go forward basis?

Yes may be even a little better than that we think Chris next year we should enjoy increases in that business. What is this year is about a total of close to $16m we expect next year to be 50% above that.

Okay.

That’s a nice increase for us and it should be the profitability should improve since you know commensurate with what we enjoyed in the fourth quarter. As I mentioned if we exclude the (indiscernible) discharge that we put in there.

Okay and I’m taking a lot of time here so I’m just going to ask one more question on the acquisition front you’ve seem to recently been focusing most of your energy, I’m sorry your acquisition into the instrument business. Do you see any change from the primary focus into other areas? And what are you seeing out there in terms of the attractiveness of acquisitions?

I think we – if you look at the acquisitions in the past 2 ½ years you’re correct. We made 6 small acquisitions in the instrument area one in avionics and one in defense-electronics. What we anticipate -- and these were really our key largest businesses in electronics and communication. What we anticipate doing is that we would look harder at the trans-electronic area keeping in mind that you know these are – all 3 of these areas especially the defense-electronics and instrument are priority. And part of what you acquired it’s not totally in our control it depends on what’s out there and what’s available. We’re anxious to make acquisitions in both of those areas. So if things are available we will buy them in defense electronics as well.

Okay well great thank you for the input and best luck in the New Year.

Thank you Chris.

We have a question from the line of Carl Oslager (ph), please go ahead.

Hi guys and just some follow up question I guess on the aerospace and engine component segment. You talked about and there’s a couple of puts and takes there but the business generally looks like it’s improving. What – how much was the life over – that benefit you for the quarter? I’m just trying to get an idea of what your normalized margin for the fourth quarter came in at.

I’ll let Mr. Schnittjer answer that call.

That was $2.3m.

Okay and you know you’ve talked in the past a little bit about strategic alternatives for some of your businesses with in aerospace engines and components and I was wondering if you’d just kind of give us an update on that and if that’s still some thing that you think about. And you’ve also mentioned I think recently that maybe something similar with energy systems and not necessarily strategic alternative but maybe a way to get value there.

Right let’s start with the engines. At this time because we’re at the bottom of the market cycle in the air craft business, we’re not pursuing a sale of that business. We certainly don’t want to sell a business that is profitable at the bottom of the cycle. On the other hand we are pursuing some alternative as we’ve mentioned before we are developing a new engine, a new engine that’s been developed by Honda. We’re working with them to certify that engine. And that would open up a new market for our engines because that engine is a 4 cylinder engine that would go at a lower power engine market where we at present have no position.

So what we’re trying to do is we’re trying to keep that business healthy and move forward and see what happens. It’s possible that if --- that we’ll keep that business and that in some way maybe have a partner in that business.

On coming back to the energy programs we’d really like that business – we think in the long term Carl that business is going to be really good asset for our share holders perhaps as a stand alone and an IPO or some other joint venture. As you know the IPO market for alternative energy products right now is very soft.

On the other hand if you just look across the businesses in that domain and the revenues they have and the losses they incur and the market caps they enjoy, when we look at our business as a stand alone business it looks very attractive to us. So right now we’re focused on getting more government contract, ensuring that the work that we do in fuel cell test stations for example and hydrogen generators our commercial work are healthy. And that the business actually makes money and generates cash.

So for the time being we’ll just keep that business healthy and try and increase the top line and hopefully have a profitable business and at the right time when markets are properly aligned we will do some thing with that.

Okay that’s it for me, thank Robert.

Thank you Carl.

If there are any additional questions please press star one at this time. And there are no --.

Thank you operator. I presume there are no more questions.

No there aren’t.

Thank you operator. I’ll now ask Jason (indiscernible) to conclude our conference call.

Thanks Robert, again everyone thank you for joining us this morning. And if you have any follow up questions please give me a call, the number is at the bottom of the release and as always our release is available on our web site Teledyne.com. Operator if you’d just end the call and provide the replay information thank you.

Thank you ladies and gentlemen this conference will be available for replay after 11:30 a.m. today through Saturday February 28th 2004 at mid night. You may access the ATT teleconference replay system at anytime by dialing 1-800-475-6701 and entering the access code 717-817. International participants please dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844 with access code 717-817. That does conclude our conference for today. Thank you for your participation and for using ATT Executive Teleconference you may now disconnect.