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Esterline Technologies Corporation (NYSE:ESL)

F4Q09 Earnings Call

December 10, 2009 5:00 pm ET

Executives

Brian Keogh – Investor Relations

Richard Bradley Lawrence – President and Chief Executive Officer

Robert George – Vice President and Chief Financial Officer

Analysts

Tyler Hojo - Sidoti & Co.

[Unidentified Analyst] for Robert Spingarn - Credit Suisse

Eric Hugel - Stephens Inc.

J. B. Groh - D. A. Davidson & Co.

Matt Vittorioso for [Young Quan] – Barclays Capital

Operator

Good afternoon and welcome, ladies and gentlemen, to the Esterline Technologies fourth quarter 2009 financial results conference call. (Operator Instructions)

I will now turn the conference over to Mr. Brian Keogh. Please go ahead sir.

Brian Keogh

Thanks, Michael, and welcome everybody and thanks for joining us today. Brad Lawrence, Esterline’s President and CEO, and Bob George, Vice President and CFO are with me today to discuss Esterline’s fiscal 2009 fourth quarter and full year performance.

A replay of the call will be available by calling this toll free number, 1-888-286-8010, and you’ll need this access code, 51717255 or you can visit Esterline.com. In the Investor Relations section you’ll find a replay permission there. You’ll also find a copy of today’s earnings release. In the release there’s a paragraph regarding forward-looking statements. This paragraph covers this call as well.

Essentially it says that forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 are based on management’s current expectations and are not guarantees of future performance. Forward-looking statements always involve risks and uncertainties and we detail those risks in our public filings with the SEC.

We have some prepared remarks, then we’ll get into the Q&A. As is our practice we’ll put a two question limit on the first round, then we’ll circle back for any follow up as time allows.

Now I’ll turn the call over to Brad. Brad?

Richard Bradley Lawrence

Thanks Brian, and welcome everyone to our year end conference call.

To begin with, I’m pleased to report that we had a strong first quarter that exceeded our expectations. There were several key factors that led to that performance. First and foremost was the outstanding performance of our Avionics Control segment, specifically continued strength from our Control Systems group; a strong finish by our latest acquisition, Racal Acoustics; and an excellent performance at CMC, where R&D investments are paying off, especially on the Hawker Beechcraft T-6B trainer and the C-130 cockpit retrofit programs.

The success in our Avionics and Control segment was able to overcome the weakness we saw in the quarter from the Sensors and Systems and Advance Material segments. As usual, I’ll ask Bob to get into the numbers, but first let me give you my take on the year. All in all, I feel Esterline performed solidly in our fiscal 2009. We are all aware of the hardships in the general economy that impacted demand for our industrial and commercial businesses. The Boeing strike hit us pretty hard early in the year, then business jet demand disappeared followed by the after market destocking. And we were particularly disappointed in the delay of the 787 and A400M programs as well as the delay in the Department of Defense multi-year contract award for flares which, by the way, is now in hand.

But enough of the bad news. I’m proud of the way Esterline responded to these adverse headwinds. Our guys know the drill in our cyclical environment. They took tough actions to tighten down expenses and reduce costs. You know, lowering costs to respond to reduced market demand is never easy, certainly not pleasant. But our team faced the issue head on as fairly and humanely as possible. They used every tool at their disposal to shed excess hours, shut downs, extended holidays, work share, shorter work weeks and where absolutely required layoffs for both direct and indirect personnel.

All the while we capitalize on the lean efficiency improvements that we work on continuously. We also made great progress this year in implementing synergies that we are gaining by combining our business capabilities. Some of the benefits from these actions came in fiscal 2009, but perhaps more importantly we expect many of these improvements to stick and provide a lower cost base for our businesses going forward.

These are not just empty words. With the reduction in revenues we’ve seen credible performance and sustaining record level gross margins achieved in 2008. These improvements are also demonstrated by our ability to hold SG&A expenses level for the year, despite adding two additional businesses through acquisition.

To make this list complete, I need to mention the significant impact of R&D reductions, as several major development projects moved into the production phase during the year. As I hope you know by now, financial results are not the only thing we focus on at Esterline. Operational excellence and resulting customer satisfaction are an obsession at our company. In a year of weakening demand, workplace disruptions caused by shutdowns, layoffs and reduced work hours, union negotiations, factory expansions and even a relocation of one of our larger businesses, on time delivery actually improved and quality performance continues to strengthen.

I can’t think of a better way for us to increase our value to customers and prepare for the return of the market demand. During this period of reduced activity, we’ve continued to make progress in major facility improvements in all of our segments. We have maintained our critical research and development programs, we continue to focus on employee development and stay true to our strategy of making good fit acquisitions, having acquired two companies in fiscal 2009.

So, what do we see looking forward? To paraphrase Brian’s opening statement, “looking into the future involves uncertainty,” and there’s plenty of that going around this year. If you want to go out and look for advice from prognosticators, they’re not hard to find. Unfortunately what is hard to find is any kind of consensus. As we look into 2010, the global economy is receiving mixed reviews. Specific to the air transport industry, many attending a conference of industry leaders held this November predicted further decline in commercial aviation this coming year. Some of those same folks believe Boeing and Airbus will need to cut their narrow body production rates, though both aviation industry giants have continued to prove this wrong so far. Other industry pundits point to improving trends in certain industry dynamics such as global airline capacity and air freight traffic. Passenger demand is halfway back from its low point, but the volume is still off 15% from 2008, and the near term business jet market looks downright gloomy.

On the defense side, spending is expected to continue, especially for Esterline components that support our ground soldiers such as our combustible propellant casings and [ruggedized] communications gear. The Quadrennial Defense Review, scheduled to be held in February of 2010, will be the key to determining which programs will be funded in the future.

One key to Esterline’s performance is our balance. We cover a lot of bets with the breadth of our market coverage, our range of components, systems and spare parts, and the sheer number of programs we’re involved with. We’ve run the trap line on business scenarios for 2010 and I believe the guidance we gave in today’s news release best frames our expectations.

Our normal seasonality in the first quarter will be exacerbated by extended plant shutdowns, lower margin mix and a higher tax rate. So we’re looking at a very similar start to 2010 as we had in 2009. Following that though, we expect performance to accelerate as it did last year.

Bob, let’s get to the numbers.

Robert George

Thanks Brad. Good afternoon everyone.

Brad has just provided a nice summary of a pretty successful year, and as he indicated and as we reported in today’s earnings release, Esterline wrapped up fiscal 2009 on a strong note. With all things considered from the liquidity crisis to the turmoil in the capital markets and the macroeconomic conditions in general, it has been a solid year for Esterline.

If we review some high level statistics, it becomes apparent how well the organization performed in this downturn. We started out slowly, but gained momentum with each successive quarter stronger than the prior quarter. We began with $0.38 per share in Q1 and ended at $1.26 in Q4. Full year sales were $1.4 billion compared to last year’s $1.5 billion. On a consolidated basis, off about 4% and organically off about 9%.

Gross margins remained strong at 32.4% compared to the 33.1% achieved in fiscal year ’08. Segment profits were 13.1% of sales in fiscal ’09 compared to 13.5% in ’08. And income from continuing operations was $107.2 million this year, $113.5 million in 2008, and the 2009 number includes an $8 million expense on a pretax basis for foreign exchange losses from funding the purchase of Racal Acoustics.

Now let’s go a little deeper behind the consolidated results and add some color to the statistics. Beginning at the top line, as I mentioned Esterline’s $1.43 billion in sales were 4% off of last year’s record sales of $1.48 billion. Fourth quarter sales were strong, finishing the year with $395 million, right in the same ballpark as last year’s $404 million. The acquisitions of NMC and Racal Acoustics added $76 million to the annual total and $27 million in the fourth quarter.

Our Canada based Avionics Systems business had a particularly strong quarter. Avionics and Controls was the clear leading segment this year with sales of $673 million, up 10% from last year’s $611 million. The acquisition of Racal Acoustics early in the year was a big part of this growth. But the other businesses in this segment also finished with very solid numbers.

The company’s other two segments were down on a year-over-year basis, Sensors and Systems down 11.6% to $340 million and Advance Materials off 15.3% to $413 million. Sensors and Systems sales were affected by a weak euro relative to the dollar, as well as significant weakness in the business jet market. The Advance Materials segment struggled with soft conditions in industrial and commercial markets, and difficulties in our countermeasure flare operations in the U.S. and the UK.

Gross margin performance held firm in 2009. Aggregate gross margin for the year was 32.4% compared to 33.1% in 2008. We finished the year with gross margin of 32.9% in the fourth quarter.

Brad did a nice job of highlighting the approaches that all of our businesses used to match cost and revenues throughout the year. These cost containment actions coupled with a good focus on our pricing discipline helped support the gross margin rate.

Selling, general and administrative expenses remained flat year-over-year, $239.6 million in 2009, $239.3 million in 2008. As we did at the gross margin level, tight focus on cost control helped us to offset incremental costs from adding two businesses this year, as well as a significant increase in pension costs in 2009. As a percentage of sales, SG&A in ’09 was 16.8% and 16.1% in ’08.

We continued to see research, development and engineering spending come down in 2009, both in dollars and percent to sales. R&D expense was $66.3 million in 2009, 4.6% of sales, compared to $86.8 million in 2008, or 5.9% of sales. This movement is consistent with our expectation that the long term spending rate will settle in the range of 4.5% to 5% of sales.

Segment earnings remained healthy in 2009, assisted by this focus on cost control. Segment earnings were $187 million in 2009 compared to $200 million in 2008, 13.1% of sales in ’09, 13.5% of sales in ’08. For the quarter, segment earnings were $56 million this year compared to $69 million last year, 14.3% in ’09, 17.1% of sales in ’08.

Avionics and Controls led the way with a strong increase in earnings from $77.9 million to $99.3 million. This was a result of continued improvement at our Avionics Systems operation, as well as the addition of Racal and solid ongoing performance at other businesses in the segment. Excluding corporate expenses, fiscal 2009 segment earnings were the following, Avionics and Controls, $99.3 million this year, $77.9 million last year; Sensors and Systems, $34.3 million and $43.4 million last year; Advance Materials, $53.6 million this year, $78.6 million last year. For the fourth quarter, segment earnings were the following, Avionics and Controls, $36.1 million this year, $35.5 million last year; Sensors and Systems, $7.2 million this year, $8.6 million last year; and Advance Materials, $13.2 million this year, $25.1 last year.

In the Sensors and System segment we continue to invest in our Mexico operations. Further drags on results in 2009 were an inventory write down for certain light jet related inventories, as well as writing off a $3 million trade name. We are also investing in R&D as the Tier 1 sensor provider on the engines for the Airbus A350.

As mentioned above, Advance Materials struggled with weakness in commercial and industrial markets as well as experiencing difficulties in counter measure flare operations. Additionally, there was a delay in the award of the current multi-year flare contract from the U.S. Department of Defense that contributed to an increase in inventories and a reduction in sales. This was particularly evident in the segment’s fourth quarter results.

Moving to the tax line, the effective tax rate was 11.2% compared with 18.9% in fiscal 2008. As is always the case, there are a number of components to consider in thinking through taxes. The rate for the fourth quarter, 9.6%, appears somewhat lower than our guidance for the quarter, but the reason for this is the reclassification of $2.4 million of net tax benefits from discontinued operations into continuing operations. This is the equivalent of [inaudible] cents per share. Net of the $2.4 million, the effective rate for the quarter was 15.3%, right in line with our guidance, and somewhat higher than the full year rate.

Regarding taxes for 2010, we are not expecting a repeat of the discrete and acquisition related benefits we enjoyed in 2009, and are therefore projecting an effective tax rate in the low to mid 20% range.

Bottom line for 2009, income from continuing operations was $107.2 million, compared to $113.5 million in 2008; fully diluted earnings per share were $3.58 and $3.80 respectively. If we include the results from discontinued operations, the net income numbers year-over-year are remarkably similar, $119.8 million in 2009 versus $120.5 million in 2008. Fully diluted EPS were $4 a share and $4.03 per share respectively.

Looking to next year, as we identified in our earnings release and summarized by Brad in his opening remarks, our earnings per share guidance is in the range of $3.20 to $3.45. From a high level perspective, the story is quite simple. Sales growth in the 3% to 5% range, operating ratios relatively stable and a tax rate 11 to 12 percentage point higher than 2009. This latter point has a significant effect, about $0.50 a share.

As we have analyzed 2010, we see a remarkably strong parallel to 2009 from an earnings progression standpoint. We expect the first quarter to be the weakest of the year, with increasing momentum throughout the year. In the first quarter, almost all of our operating units have scheduled extended holiday shutdown periods, thereby taking even more days out of our shortest production quarter. Combine this with the higher tax rate and the result will be a slow start, similar to last year. However, with our $1 billion plus backlog, signs of life and pockets, we have confidence in accelerating profit through the subsequent quarters. From a segment perspective, we see the Avionics and Control segment continuing its lead, Sensors and Systems will most likely remain soft, and a nice rebound in Advance Materials is in the cards.

Brad, back to you.

Richard Bradley Lawrence

Thanks, Bob. Summing it up, with our strong balance sheet, cash flow, liquidity and backlog, we are in a good position to turn in another solid year in 2010.

Specifically, a number of pieces are already set in place. For example, T6B production is ramping very nicely. The VIS-X contract extension has been released, which bodes well for Racal Acoustics. Multi-year flares order from the U.S. Department of Defense has been released and the issues that confounded us in countermeasure flares are moving to the rearview mirror.

As I said, I attribute much of the success to our continuing focus on operational excellence. No matter what the external market conditions are, we continue to focus on satisfying our customers by delivering the absolute best quality products when they require them. Add this to our continued investment in the development of proprietary technologies and strategic acquisitions, and I’m confident we will outpace our competition.

Operator, how about we take some questions now?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tyler Hojo - Sidoti & Co.

Tyler Hojo - Sidoti & Co.

I wanted to ask you first about, you just mentioned the VIS-X program and commented on how it had been released, I was just wondering if Northrop was accepting shipments from you prior to the release of that program?

Richard Bradley Lawrence

You know we were on the VIS program, the predecessor to the VIS-X, so we were receiving regular releases although in small quantities since they wanted to move to the VIS-X program as soon as possible and minimize their inventory from the VIS program. So we’ve been receiving orders from them right along.

Tyler Hojo - Sidoti & Co.

I guess one could surmise that your anticipation is that you see a big ramp in that next year as that program kind of moves along according to plan. Is that pretty much what you’re expecting? Or given that you were maybe shipping a little bit in advance, has that maybe taken some of the bang out of next year?

Richard Bradley Lawrence

No, we think we’re right on pace. The program is moving along.

Tyler Hojo - Sidoti & Co.

Again you mentioned, you know, kind of varying expectations on the production rate side of things in commercial aero, and I guess, how does one contemplate the guidance range that you’ve provided? Are you basically assuming that there is not going to be a narrow body production rate cut from Boeing? Or how does one think about that?

Richard Bradley Lawrence

Well, you know, we had to pick a scenario for our base line plan, and we think with our fiscal year, as you know, ends in the end of October. And we think that any announcement that they’re going to make in reducing production rates will occur very late in our year. And as we see spares ramping toward the end of the year, we think they’ll be pretty much a canceling effect on us.

Tyler Hojo - Sidoti & Co.

But don’t you have at least a three month lead time to when Boeing is actually delivering an aircraft?

Richard Bradley Lawrence

Sure. Our baseline scenario does anticipate a small reduction in build rate, both at Airbus and Boeing.

Operator

Your next question comes from [Unidentified Analyst] for Robert Spingarn - Credit Suisse.

[Unidentified Analyst] for Robert Spingarn - Credit Suisse

Can you walk through your assumptions on after market and when we might see a recovery for next year?

Robert George

Yes, Julie. As we said maybe generically in our comments, we’re anticipating maintaining our current spares rate as we’ve said a couple of times during the year, bumping along the bottom with a gradual increase as we get near the end of the year. We haven’t seen a significant uptick at this point in time as we come through the fourth quarter. We’re still moving along with the rates that we’ve really seen in Q2, 3 and 4.

[Unidentified Analyst] for Robert Spingarn - Credit Suisse

So you haven’t seen much abatement of the destocking?

Robert George

Well, I don’t know if I would call it destocking anymore. I think that that fundamentally occurred early in ’09 as we saw a dramatic reduction. And then we’re now basically moving along with spares activity necessary to maintain the fleet. We have seen some interesting statistics recently that we’re trying to get a little bit further behind, that indicate that the maintenance operations may be falling behind in their spares as we’re seeing some delays in planes and airlines on the ground. We don’t have enough information to comment on that to a further degree. We’re trying to figure it out. But right now we’re seeing activity that’s about the same as it’s been in Q3 and Q4.

Operator

Your next question comes from Eric Hugel - Stephens Inc.

Eric Hugel - Stephens Inc.

Can you talk about, you know, as we go forward I guess two things? One, what’s the status of the Wallop operation? Are you still in the process of rebuilding? Where do we stand there?

Richard Bradley Lawrence

The construction project is still underway, and we expect that in the spring that we will be commissioning that new facility. It’ll come on line early next summer.

Eric Hugel - Stephens Inc.

And do you have business there already? Because I remember you were going to build the multi-central flare there. As soon as that facility is up and running and I guess certified, you know, I guess first of all, I mean, how long would it take to get certified? Is that what you include in sort of up and running? And when would you start production?

Robert George

We’ve actually had a change in our approach with respect to that facility as we’ve been building it from the information that you just provided. What our intent is, because that facility has been designed for high automation and safety, is that we’re going to be moving our high capacity and high productive capacity flares into that facility when it’s commissioned. As Brad indicated, I’ll just reiterate, we plan on being in production in that facility sometime in the second calendar quarter of next year.

The other flares, the spectral flares that you referred to, we will produce them, since they’re in lower quantity, we’ll be producing them in our existing operation, which is in production on the north side. And with reference to your question, do we have backlog and do we have production to put in there, the answer to that is absolutely yes, we do.

Eric Hugel - Stephens Inc.

Could you talk about pension headwinds for next year? Sort of what order of magnitude are we looking at?

Robert George

Our current planning is that we dealt with the biggest part of the pension headwinds this year in 2009. Our increase in pension costs this year were on the order of $11 to $13 million. Next year we anticipate our pension expense to be roughly the same as it was in 2009. However, we do see an additional contribution of cash to our pension plans in the range of $10 million.

Operator

Your next question comes from J. B. Groh - D. A. Davidson & Co.

J. B. Groh - D. A. Davidson & Co.

I guess I’m just a little confused on the potential production cut by the OEMs. Typically, I mean I think of you guys as being closer to the dog end of the tail than way out at the end. I mean, your shipping straight to Boeing and that kind of thing, so I would guess that you would have a little bit shorter lead time than someone that was say supplying just to an engine manufacturer. Is that a correct way to think of it?

Richard Bradley Lawrence

Sure.

J. B. Groh - D. A. Davidson & Co.

So wouldn’t you, I mean if they made a decision today, that would really only impact, would it impact the second half of 2010? Or would it only be in Q4? How should we think about that?

Richard Bradley Lawrence

If they made a decision today, it would be in the second half.

J. B. Groh - D. A. Davidson & Co.

So the odds are, if this decision gets pushed out six months, there’s no impact on 2010 and it would be a 2011 impact from the fiscal standpoint.

Richard Bradley Lawrence

Exactly.

J. B. Groh - D. A. Davidson & Co.

And then just a housekeeping one, I didn’t see the depreciation and amortization number. Could you give that?

Robert George

Cash flow from operations for the year, $156.7 million; depreciation and amortization, $71.4; CapEx spending, $59.2.

Operator

Your next question comes from Matt Vittorioso for [Young Quan] – Barclays Capital.

Matt Vittorioso for [Young Quan] – Barclays Capital

Just wondering if you could talk about your free cash flow expectations over the next year. It looks like you’ve been generating pretty strong free cash flow over this past fiscal year. Do you expect that to continue in the coming year?

Robert George

Yes, Matt, we do. As we looked at the fiscal year 2009 as well as in 2008, you’re correct, we had strong cash flow generation in both years. 2008 of course was an increasing year, a growth year at the top line. 2009 was a bit more stable and we generated additional cash in 2009. We still see some improvement potential there, particularly with our working capital measures. Our accounts receivable activity is solid. We’re not seeing any payment difficulties. We have seen some customers try to stretch out payments, but we are not having any major collection problems.

Our capital expenditures projection for next year is somewhere in the $45 to $50 million range. So our expectation for free cash flow is again quite strong in 2010.

Matt Vittorioso for [Young Quan] - Barclays Capital

And just a small housekeeping thing, and it looks like you generated pretty good cash in Q4, I guess, but your debt went up. Did you borrow on your revolver in the quarter?

Robert George

No sir. The only real change that we had in our debt profile was related earlier in the year to the acquisition of Racal Acoustics when there was a lot of concern on liquidity in the market. We approached our bank group and put a $125 million term loan on the books, but that was early in the year. We really haven’t done anything since then.

Operator

Your next question comes from Eric Hugel - Stephens Inc.

Eric Hugel - Stephens Inc.

Is there any non-organic growth embedded in your guidance for next year in sales guidance?

Robert George

Let me just make sure I understand you, Eric. We gave sales guidance 3% to 5%.

Eric Hugel - Stephens Inc.

Is that organic?

Robert George

A small portion of it would be acquisitive. We did make the acquisition of Racal. It was late in the first quarter.

Eric Hugel - Stephens Inc.

But you’re still looking for positive organic growth for the year?

Robert George

Yes we are.

Eric Hugel - Stephens Inc.

Can you sort of give us an update on sort of what you’re seeing in terms of the acquisition environment?

Richard Bradley Lawrence

Sure. Right now we’re not seeing much activity in the commercial aerospace sector. That’s all pretty quiet now. We think folks are hunkered down. They’re waiting for the earnings to return as the market moves up. We are seeing, however, some activity in the defense sector and expect that to accelerate here after January in the New Year.

Eric Hugel - Stephens Inc.

You guys are pretty heavy into helicopters and things like that that we’re using a lot of over in Afghanistan and sort of with the surge, you know, potentially coming down the road, can you sort of, you know, just as you guys sit back can you sort of talk to us about sort of where your exposures are, where you might benefit from sort of increased sort of levels of activity over in Afghanistan?

Robert George

Eric, I think you got a pretty good feel for [inaudible] craft. In fact as we came through 2009, we saw a marked shift in our activity from fixed wing to rotary craft. We also think we’ve got an opportunity in combustibles and flares. The flares activity also particularly related to the helicopter activity as we look at that surge in Afghanistan.

Richard Bradley Lawrence

I might add to that, Bob, that CMC received a very nice retrofit order for Blackhawk helicopters. We think the value of that is somewhere around $70 million.

Eric Hugel - Stephens Inc.

Just one housekeeping, in terms of your EPS guidance for next year there aren’t any sort of contemplated sort of one time benefits or charges that we should be thinking about in there?

Robert George

No sir, there are not.

Operator

Your next question comes from J. B. Groh - D. A. Davidson & Co.

J. B. Groh - D. A. Davidson & Co.

I just had a follow up on terms of the business mix, your traditional 40/40/20. I’m guessing that Avionics and Controls and Sensors and Systems are going to be a lot more sensitive to the commercial market than Advance Materials. Is that correct? Or how should we think about the mix of those three segments?

Robert George

As I mentioned just now in response to Eric, we did see a shift during the year from commercial to military, particularly in Avionics Controls. We haven’t yet completed our analysis for 10-K purposes in terms of what our final mix is going to be for 2009, so this is purely an estimate on my part, but we’re going to move away in 2009 from, you know, from 40/40/20 and I think that the defense side will show an increase and the commercial side will show a decrease.

J. B. Groh - D. A. Davidson & Co.

But there’s virtually no commercial in Advance Materials. That’s all industrial and military. Correct?

Robert George

There is some commercial, but you’re correct. The preponderance is on the defense side.

Operator

Your next question comes from Matt Vittorioso for [Young Quan] - Barclays Capital.

Matt Vittorioso for [Young Quan] - Barclays Capital

Could you remind me how much of your business is after market or spares and maybe talk quickly about the margin difference between after market and the rest of your business?

Richard Bradley Lawrence

We get asked this question a lot and the answer we usually give is about 30% of our business is in after market business. It gets a little difficult to track some of that business since some of it goes through distribution and we don’t know where the parts end up necessarily. We also have the consumable business and combustibles, and retrofit business in our CMC unit. The margins from our after market spares business tend to be about 50% higher than the margins we get in our OEM businesses.

Operator

There are no further questions at this time. I would now like to turn the call over to Mr. Brad Lawrence for closing remarks.

Richard Bradley Lawrence

Thank you. Summing it up, with our strong balance sheet, cash flow, liquidity and backlog, we’re in a good position to turn in another solid year in 2010. Specifically a number of pieces are already set in place. For example, T6B production is ramping very nicely; the VIS-X contract extension has been released, which bodes well for Racal; our multi-year flares order for the U.S. DOD has been released; and the issues that confounded us in counter-measure flares are moving in the rearview mirror.

So we see next year to be solid and we’re looking forward to challenges. We feel we’re well prepared and we really do appreciate your interest in Esterline. Feel free to contact us if you have any additional questions. We’re looking forward to speaking with you again.

Operator

Thank you for your participation in today’s conference. That concludes the presentation. You may now disconnect. Have a good day.

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