BE Aerospace CEO Discusses Q3 2010 - Earnings Call Transcript

Executives

Amin Khoury – Chairman and Chief Executive Officer

Mike Baughan – President and Chief Operations Officer

Tom McCaffrey – SVP and Chief Financial Officer

Greg Powell – Vice President, Investor Relations

Analysts

Gautam Khanna – Cowen and Company

David Strauss – UBS

Eric Hugel – Stephens

J.B. Groh – D.A. Davidson

Troy Lahr – Stifel Nicolaus

Carter Leake – Davenport & Company

Howard Rubel – Jefferies

BE Aerospace Inc. (BEAV) Q3 2010 Earnings Call October 25, 2010 4:30 PM ET

Operator

Good afternoon. My name is Jessica Morgan, and I’ll be your conference facilitator today. At this time, I'd like to welcome everyone to the BE Aerospace third quarter 2010 earnings conference call. (Operator Instructions)

As a reminder, ladies and gentlemen this conference is being recorded this day, October 25, 2010. Thank you. I'd now like to introduce BE Aerospace’s Vice President of Investor Relations, Greg Powell. Mr. Powell, you may begin your conference.

Greg Powell

Thank you Jessica. Good afternoon and thank you for joining us this afternoon. Today, we are here to discuss our financial results for the third quarter ended September 30, 2010. By now you should have received a copy of the news release that we issued earlier today. If you haven't received it, you will find a copy on our website. We will begin this morning with remarks from Amin Khoury Founder, Chairman and Chief Executive Officer of BE Aerospace, and then we will take your questions.

For today’s call we have prepared a few slides to help you follow on our discussion. You can find our presentation on the Investor Relations page of the BE Aerospace website, at BEAerospace.com. In addition, copies of the slides will be posted on our website for you to refer to after the call. Joining us for the call this afternoon are Mike Baughan, President and Chief Operating Officer and Tom McCaffrey, Senior Vice President and Chief Financial Officer. As always, in our prepared remarks and our responses to your questions we will rely on the Safe Harbor exemptions under the various Securities Acts and our Safe Harbor statements in the company's filing with the SEC. After our presentation, we will address questions. At that time, the operator, Jessica, will provide instructions. Please limit your questions to no more than two at a time so that we can get to all of you. And now, I will turn the call over to Amin.

Amin Khoury

Thank you, Greg, and good afternoon everyone. I’d like to briefly highlight a few of our recent activities. First, I’m pleased to report that our Q3 results were above our earlier guidance. Q3 consolidated earnings growth was just shy of 20%, and was driven by solid revenue growth and substantial margin expansion at both our consumables management segment and our commercial aircraft segment. Consumable management segment revenues and operating earnings increased almost 7% and 21% respectively, while commercial aircraft segment revenues and operating earnings increased approximately 12% and 30% respectively.

Q3 pretax earnings increased 32% year over year, Q3 free cash flow conversion ratio was 153%, and our backlog grew for the fourth consecutive quarter. Second, as you know, during the quarter, we were also intensively engaged in M&A and financing activities. On September 16^th, we issued $650 million of 6 and 7/8% senior notes due 2020. In addition, we completed due diligence on two acquisition opportunities, one in our manufacturing business, and one in our distribution business. Specifically, we signed definitive agreements to acquire the TSI Group on October 4^th, and Satair’s Aerospace Fastener distribution business on October 25^th, for a total of approximately $475 million in cash, excluding costs and expenses.

Both acquisitions are expected to be neutral to earnings per share in 2011, and to be significantly accretive thereafter. Third, based on our record backlog, and our expectation of continued growth in passenger travel, we expect strong full year 2011 EPS growth of about 25% to approximately $1.90 to $1.95 per diluted share. Looking further ahead, and considering our record backlog, the expected robust wide-body delivery cycle beginning in 2011 and continuing but moderating demand for passenger travel, we expect continued strong EPS growth for the next few years.

Now, I will briefly discuss the current market environment, then I’ll discuss, in greater detail, our two acquisitions. Thereafter, we’ll review our Q3 financial and operating results, and finally we’ll discuss our updated guidance for the remainder of 2010 and our outlook for 2011. Let’s first briefly discuss the current market environment. The important global airline metrics which we follow are almost all positive. As a result, airline load factors, yields, and profitability are at near record levels. During Q2 alone, the global airline industry earned $4.4 billion. And IATA now forecasts airlines to post aggregate global profits of about $9 billion in 2010.

This would make 2010 one of the most profitable years in the past two decades. Now let’s discuss our recently announced acquisitions. We signed definitive agreements to acquire TSI on October 4^th, and Satair’s Aerospace fastener distribution business today, October 25^th, for an aggregate of approximately $475 million, excluding costs and expenses. Both acquisitions are expected to close during Q4, 2010, to be neutral to earnings per share in 2011, and to be significantly accretive thereafter. TSI is the market leader, with more than 50% market share in the engineering and manufacture of customized, wholly integrated thermal management and interconnect solutions for a broad range of aerospace industry customers.

By leveraging TSI’s unique combination of deep, experienced engineering staff and extensive, high-quality production capabilities, TSI creates differentiated solutions for a rapidly growing set of power management applications that demand advanced thermal management requirements. TSI provides an opportunity for BE Aerospace to develop a new complimentary platform for growth, while at the same time substantially strengthening our strategic position in the aircraft cabin interior product industry. BE Aerospace’s strong proactive relationships with essentially all commercial airliner and business jet OEMs and similarly strong relationships with most of the global airlines should enable ready access for the new BE/TSI power management group, to address the evolving power management needs of commercial aerospace customers.

As I mentioned earlier, TSI is the market leader, with approximately 50% share in a growing niche market, and generates an EBITDA margin of about 20%. TSI has been growing at about an 8% compound annual growth rate for the last several years. Their program wins on the Boeing 787 and the Joint Strike Fighter should improve that growth rate over the next several years. TSI’s growth should further accelerate as BE Aerospace provided access to its commercial aerospace OEM and global airline customer base. Finally, TSIs technology should help facilitate important strategic differentiation for BE Aerospace in the passenger cabin.

This morning, we announced the acquisition of Satair’s Aerospace fastener distribution business. Satair’s Aerospace fastener distribution business has a strong market presence in the distribution of consumables to European and Asian/Pacific aerospace manufacturers and their suppliers. The Satair’s Aerospace Fastener distribution acquisition substantially expands the BE Aerospace customer base in the European and Asian/Pacific regions, and also expands the company’s product offerings to include metric fasteners, adhesive fasteners, latches, cables, struts, tooling and lighting products. The Satair business has an excellent customer base, and the business is highly complementary to our consumables management segment.

While the Satair distribution business currently generates about a 14% operating margin, through expected efficiency improvement initiatives, we expect to be able to deliver margins in the Satair business approximately equal to the margins which we currently generate in our consumables management segment, much as we have done subsequent to both the New York fasteners and Honeywell ATS acquisitions. As I mentioned earlier, both acquisitions are expected to close during Q4 2010, to be neutral to EPS in 2011, and to be significantly accreted thereafter.

Now, let’s turn to slide two and discuss our Q3 financial results. The bar chart on slide two reflects our Q3 2010 financial performance versus Q3 of 2009. Revenues of $495 million increased 8%. Operating earnings of $83 million increased 20%, and operating margin of 16.8% expanded by 170 basis points. Earnings before taxes, of $62 million increased by 32%, on the 20% on operating earnings, and lowered interest expense as a result of $175 million of debt pre-payments subsequent to the end of Q3 last year. Net earnings were $41 million, or $0.41 per diluted share, increases of 13.6% and 13.9% respectively, reflecting a 33.8% tax rate in 2010, as compared with a 23% tax rate in the prior year period.

Free cash flow was $63 million, and represents a free cash flow conversion ratio of 153%. Slide three summarizes our current bookings and back log status. Bookings during Q3 of 2010 further improved, reaching about $545 million. The booked to build ratio was 1:1 for the quarter, and for the fourth consecutive quarter represented a booked to build ratio in excess of one. Backlog at the end of the quarter was about $2.85 billion, an increase of about 7%, as compared with the company’s September 30, 2009 backlog. In addition, backlog related to supplier furnished equipment programs awarded but not yet recorded in booked backlog expanded to about $2.65 billion. As a result, total backlog booked, plus awarded but unbooked, expanded to a record $5.5 billion, also an increase of about 7% as compared with September 30, 2009.

Now I will briefly review the operating performance for each of our business segments. The consumables management segment management team did an excellent job during Q3, and turned in a strong overall performance. Let’s turn to slide four, and review the Q3 results for our consumables management segment. Revenues of $193 million increased 6.7%, and that was the first year over year up quarter in more than a year, which is reflective of the solidly up bookings in Q2 of this year. Operating earnings of $40.5 million increased about 21%. Operating margin of 21% expanded 250 basis points year over year, primarily due to a new revenue mix, a higher revenue level, and ongoing operational efficiency initiatives.

The commercial aircraft segment management team also turned in outstanding results for the quarter. Let’s turn to slide five, and review the Q3 results for our commercial aircraft segment. Revenues of $250 million increased over 12%, operating earnings of $38.7 million increased about 30%. Operating margin of 15.5% expanded 210 basis points, as compared with the prior year period, primarily due to an improved revenue mix, including a substantially higher level of stair sales and ongoing operational efficiency initiatives.

The business jet segment continued to show poor performance in the quarter, but is now poised for an excellent turnaround in 2011. Let’s turn to slide six, and review the Q3 results for our business jet segment. Revenues of $51.7 million decreased 8.2%, operating earnings of $4.2 million decreased $2.1 million, or 33% as compared with the prior year period, primarily as a result of an unfavorable revenue mix in the current year period.

Let’s review our strong financial position on slide seven. Q3 free cash flow of $63 million represents a free cash flow conversion ratio of 153%. Nine months year to date, the company has generated free cash flow of $142 million, representing a free cash flow conversion ratio of 127% for the nine month period. During the quarter, we successfully issued $650 million of 6 and 7/8% senior unsecured notes due 2020. As September 30, 2010, cash stood at $834 million, net debt was $755 million, and the company’s net debt to net capital ratio was 32.3%. The company has no borrowings outstanding on its $350 million revolving credit facility, and no debt maturities until 2014. As shown on slide seven, as of September 30^th, we have a solid capital position and our liquidity is strong.

Let’s spend a few minutes discussing our 2010 and 2011 guidance, as well as our longer term outlook. Today we raised our full year 2010 adjusted operational earnings per share guidance to approximately $1.56 per share. The $1.56 is exclusive of interest on borrowings and excess of funds deployed for acquisitions, which is estimated to be about $0.05 per share. This is due to the fact that the senior notes were issued on September 16^th , but the acquisitions are not being completed until the middle of Q4. Also excluded are onetime costs associated with financing and acquisition activities.

Now, let’s go to slide eight and review our 2011 guidance. Importantly, we begin 2011 with a record backlog, and we expect orders and backlog to continue to grow in 2011, due to expected increasing demands for consumables in commercial aircraft segment spares, driven by the continuing growth in passenger traffic and attended required increases in capacity. An expected increase in orders for cabin interior products arising from the expected 15 to 18% compound annual growth rate, and deliveries of new wide bodied aircraft over the 2010 to 2014 period.

2011 revenues are expected to be approximately $2.4 billion, or approximately 20% higher than 2010 revenues, reflecting increased demand for our consumables management and commercial aircraft segment products, and reflecting the inclusion of the Q4 2010 acquisitions for the full year of 2011. We expect strong full year 2011 net earnings per diluted share growth of about 25%, to approximately $1.90 to $1.95 per share. Looking further ahead and taking into consideration our record backlog, we expected strong wide body delivery cycle beginning in 2011 and continued demand growth for passenger travel, we expect continued strong earnings growth per share for the next two years. I will now turn the call back over to Greg.

Greg Powell

This concluded our prepared remarks, and now we will be glad to take your questions. As usual, please limit your questions to no more than two at a time, so that we can get to as many of you as possible. Jessica will now provide you with instructions on how to submit your questions. Jessica?

Question-and-Answer Session

Operator

Thank you, Mr. Powell. (Operator Instructions.) And our first question today comes from Gautam Khanna with Cowen and Company.

Gautam Khanna – Cowen and Company

Yes, great results. I wanted to just ask a couple of questions on the guidance and the acquisition pipelines, specifically in the guidance for ’11, how much do the two acquisitions add to the revenue number, and secondly I wonder if you can split them up for us, what you’re expecting? And then secondly, the $175 million or so of capital that is yet to be deployed, are you close to deploying that, are we going to see another acquisition in the near term, and if so, in which areas do you anticipate? Which segment would be added to? Thank you.

Amin Khoury

Well, the two acquisitions generate approximately $250 million in revenues, and we don’t have any more acquisitions which are lined up or close to closing, but our expectation is that we will either deploy the $175 million which has not yet been deployed, that is the proceeds from the $650 financing less the $475 million which we put to work, that we will either deploy those proceeds to reduce indebtedness, or to do additional acquisitions, but in either event we expect to deliver $1.90 to $1.95 per share.

Greg Powell

Does that answer your question, Gautam?

Gautam Khanna – Cowen and Company

Oh sorry, yes. Okay. Could you give us the split between the two segments? Is it –

Amin Khoury

About 150 and about 100.

Gautam Khanna – Cowen and Company

Okay, and one other one, with respect to the quarter, were there any lingering AIT charges with the HCS in the quarter, and if you could just talk kind of at a high level, when you anticipate restocking for the fastener inventory and I know you can manage the inventory levels a lot lower since Q1 of ’09. When do you think we might actually start to see that account build? Thank you.

Amin Khoury

Well, you know, I think that the airline’s ability to continue to defer maintenance is about done. You know, we’ve had roughly 7% of year to date passenger travel growth, and only about a 3% increase in capacity. And the resulting load factor is like 83.5%, so the result of that, as you know, is that we’ve got high yields, very high profitability, and the airlines are likely to earn something like $9 or $10 billion this year. They are bringing capacity back on stream, I think that they are out of deferral options with respect to maintenance, so our expectation is that passenger travel, while the growth has slowed down a little bit, it’s still very strong, and our expectation is that the additional capacity which is coming on, will drive more maintenance activity, or is driving more maintenance activity, and I don’t think there’s any room for destocking. So we expect an uplift. Now, I mentioned earlier that the commercial aircraft segment had a big increase in earnings, about a 30% increase in earnings on the 12% increase in revenues, and that was in no small part due to the fact that commercial small aircraft spares revenues were so strong in the quarter. That’s reflective of the strong bookings in the past two quarters for the commercial aircraft spares business, while the same is true of the consumables management business, so we’ve now had the first up quarter in four or five quarters on a year over year basis, and that is reflective of the nice bookings quarter which we had in the immediately preceding quarter. So, I wouldn’t call it restocking, but I would call it a steady, healthy increase in orders, arising as a result of the increases in capacity.

Gautam Khanna – Cowen and Company

Fair enough. It just struck me on the AIP charges that (inaudible) the quarter.

Amin Khoury

You know what? I don’t think there’s anything to talk about here with respect to AIP charges. There aren’t any – we don’t break them out. The integration will never be 100% complete, because that’s the way we run the company. It’s all about continuous improvement initiatives. And in any event, I think the segment turned in a very strong performance for the quarter. I mean, we had – we delivered a 21% operating margin, which was a 250 basis point expansion year over year. Now, the Satair business, which currently has an EBITDA margin of approximately 14% will be a drag on the CMS margins initially, but through expected efficiency improvement initiatives, we expect it to deliver margins in this business approximately equal to the margins which we currently generate in our consumables management segment, much as we have done with the New York fasteners and Honeywell ACS acquisitions. So while you didn’t ask the question specifically, you know, our view is what we’ve done here is acquired a business at about a 6 to 7 times synergized EBITDA level, at the trough of the cycle. I think we’ve done a good job for shareholders here.

Operator

And we’ll move next to David Strauss with UBS.

David Strauss – UBS

Hello, could you, you talked about free cash flow, 100% of net income for 2011, can you give us an idea then, maybe Tom, what you would assume there on the inventory side for next year?

Tom McCaffrey

You know, we don’t have specific guidance with respect to inventories here on any of the balance sheet items, but what we’ve talked about in the past, David, is that you should expect working capital to grow consistent with the revenue growth rate, and so we’ll see some growth in inventories in the businesses, and you should expect to see the receivables grow consistent with the revenue growth rate. CAPEX next year will be, it will be up a bit from what we had this year, we’re looking for CAPEX to be in the neighborhood of $80 to $90 million, and that will reflect the investments that we have ongoing in the Philippines to build out the facility for the A350. We’ve got that record backlog and in the neighborhood of $2.7 billion of unbooked asset peak programs, which will begin being delivered at the end of 2011, so the facility that we’re building in the Philippines for the A350 galley systems and certain other products should be completed in 2011, and that’s what the expenditures will be for.

David Strauss – UBS

Okay, and Amin, you talk about 25% growth next year, and you talked about revenues going to $2.4 billion. Can you kind of segment that out by the individual segment in rough terms, what you’re expecting for revenue growth for each of the segment?

Amin Khoury

Well, we haven’t done that, David, and we’re not going to do it now, but we expect all three segments to grow.

David Strauss – UBS

Okay, and last one from me. You talked a little about spares. Could you give a little bit of color on what you’re seen on the retro-fit side?

Amin Khoury

Yeah, both orders associated with new aircraft deliveries and retro-fits are up. Mike Baughan is on the call. Mike, would you like to comment?

Mike Baughan

Yeah, I’ll comment for both, end items and retro-fit. Both segments in Q2, as mentioned, was strong. End items, in addition to spares and consumables and that pretty much was broad based in all regions of the world. In that quarter, it was particularly focused in support of new aircraft deliveries. We had quite a number of narrow body awards in Q2, we did have some retro-fit awards, but primarily the bookings in Q2 were in support of new aircraft builds. Looking ahead, our order book is as strong as it’s ever been. We have a very encouraging RFP book, driven primarily by, as you would expect, by new aircraft deliveries, particularly wide body, a lot of 787 and A350 activity that we’re working hard, and as we mentioned before, with those new aircraft opportunities, are many retro-fit opportunities as airlines try to harmonize their fleets to dovetail with the technology that they’re putting on those new aircraft. So we see a strengthening in the retro-fit in the years ahead, starting with bookings in 2011.

Operator

And we’ll move now to Stephens, Inc. and Eric Hugel.

Eric Hugel – Stephens

Hey, good afternoon guys. Good quarter. Can you – the guidance that you gave, I guess you still have $175 or so million, does that include – I guess if you look at roughly about $0.07 of dilution, does that include that, or are you assuming that that money is used to pay down debt?

Amin Khoury

No, the $1.90 to $1.95 for 2011 assumes that we will either use the proceeds to do acquisitions, in which operating revenues will be higher and interest will be higher, or if we don’t do any acquisitions, we’ll use the money to pay down debt and interest will be lower, but in either event, we expect to deliver $1.90 to $1.95 per share.

Eric Hugel – Stephens

Okay, understood. Can you give us maybe a little visibility into the consumable segment? I guess the Satair acquisition is mainly sort of OEM kind of equipment. I guess there’s some aftermarket distribution on the fastener side, but can you maybe give us some visibility in terms of maybe a breakout in rough orders of magnitude, sort of how much of that business is OEM oriented, aftermarket oriented, and sort of defense oriented so we sort of maybe do our own growth calculations there?

Amin Khoury

Our own business is a little more than – call it 55% transaction oriented, and maybe 45% OE, supply chain oriented that is just in time type agreements. The Satair business is mostly just in time, a vast majority of the business is just in time. It is primarily in the UK and France, but also has a significant position in Germany and in Asia. When we say it’s mostly OE, even though a lot of the business is aftermarket and non bin oriented, it’s from the same customers with whom they have long term agreements and their sub contract manufacturers. So it’s primarily an OE business, it will increase the OE portion of our consumables business, it will give us a really strong share in the UK and France and Germany, and give us some critical mass in Asia, when added to the business that we already have, and you – in the release, we talk about the additional product categories, which it will add for us, which we will now make available to our entire customer base.

Eric Hugel – Stephens

Great, thanks a lot guys, sounds good.

Amin Khoury

Okay.

Operator

We have a question now from J.B. Groh with D.A. Davidson.

J.B. Groh – D.A. Davidson

Good afternoon, guys. Just wanted to get a little deeper in the Satair acquisition. Is there any inventory build requirement there, kind of similar to what happened with Honeywell? Are you pretty content with the levels there currently?

Amin Khoury

The levels are okay. Hopefully, inventory build will come with growth, and I think we bought it at just the right time. They’re at the trough, we are all at the trough of the cycle, we are giving them, or have been giving them a pretty tough time in the marketplace, and I think that they came to the conclusion that they are better off not competing with us, or some of the other folks in the business, so I think we bought it at the right price at the right time, and given their EBIT margin, we see a lot of upside for us.

J.B. Groh – D.A. Davidson

But to get from that 14% up to where you guys are doesn’t require some big incremental inventory build?

Amin Khoury

No.

J.B. Groh – D.A. Davidson

Okay, and then the reason that it’s neutral is maybe that you’re spending money on systems and that sort of thing to get it up to your company –

Amin Khoury

That’s correct.

J.B. Groh – D.A. Davidson

Okay. And then on tier five, have you guys decided which segment that’s going to report in?

Amin Khoury

You know, I think for the coming year, what we’ll probably do is just combine it with the bizjet segment. Neither of the two of them are large enough, really, to be material. A material segment – but just so we can follow it all, I think what we’ll do is not combine it with either of the two large segments, but rather combine it with bizjet. Obviously, the Satair acquisition will go in with the consumables business, but TSI I think we’ll combine with the bizjet segment, and just call it bizjet and other.

J.B. Groh – D.A. Davidson

And then lastly, on bizjet, maybe you could comment on sort of the segmentation within that market. It seems like there are parts of that market that have been hit a lot harder than others, and if you could address how that’s impacted you guys.

Amin Khoury

Well, you know, cycles were up during this last month, but they’re still like 24, 25% below bizjet cycles at the peak. While used jet inventories, as a percentage of the fleet have declined to just above 15%, you know, until they get down to around 12,13% we’re not likely to have a turnaround on orders. That’s basically what’s happened, historically. So bizjet deliveries during 2010 are down about 50%, from the peak. And they’re down a little bit from 2009. I think the good news is, it’s the trough. I mean, 2011 will show a little bit of improvement. 2011, for us, will show dramatic improvement, dramatic turnaround, but that has to do with the quality of our backlog and superfirst class programs included in the bizjet segment backlog. So we will have a very good year next year, on a comparative basis, but the bizjet industry will not be turning around any time soon.

J.B. Groh – D.A. Davidson

Okay, thanks a lot for your comments and congratulations on the quarter.

Amin Khoury

Thanks.

Operator

We’ll take a question now from Stifel Nicolaus, and Troy Lahr.

Troy Lahr – Stifel Nicolaus

Thanks, yeah. With your guidance for 2011, I’m wondering if you guys can talk about your expectations for global traffic, and maybe transient discretionary spending compared with 2010. Maybe what type of growth rates you’re expecting, for discretionary spending?

Amin Khoury

We haven’t thought about a growth rate in discretionary spending, but I think we can talk about travel. Our expectation for travel is that it will continue to grow, but that that growth will moderate. We can’t continue to grow at the same rate that we have been growing, and in fact, the September growth rate was less than the Q3 growth rate. I think we’ll continue to see that, but year over year, in any quarter, I think we’ll see healthy growth. Not like this year’s growth, but growth. The industry is operating at such high load factors, that there isn’t any way to handle even moderate improvements in growth without bringing additional capacity on. That’s what’s happening now, and I think we can talk about discretionary spending, but I think the first thing to talk about is non-discretionary spending, because I think the potential for airlines to continue to defer maintenance is about over. I think that’s being reflected in our order rates, for the last couple of quarters, in both the commercial aircraft segment spares business, and also the consumables business. With respect to discretionary spending, you asked that question specifically, I think the most important consideration there is the profitability and liquidity of the airlines. Now, they’re having a record year. They earned about $4.5 billion during Q2 alone, it looks like they will earn well in excess of $9 billion. They’ve raised $38 billion two years ago, so they are flush with cash, they’re earning a lot of money, their yields are very high, their load factors are very high. I think all of the variables surrounding the airlines would suggest that they ought to be spending money on a discretionary basis, and that basically seems to be happening. They’re taking delivery, they expect to take delivery of , what, 1300 wide body aircraft over the next three or four years, you know, 15 to 18% cagger of new wide body deliveries, and doing major retro-fit programs. So I think discretionary spending is under way. The order associated with that spending are occurring as we speak.

Troy Lahr – Stifel Nicolaus

Okay, do you have got kind of a percentage on what you’re looking for, for global traffic. Kind of 4 to 6, I think is what Goodrich talked about, maybe. Is that kind of the range you are thinking about for – just so we know, kind of, if traffic goes in this range, then that’s kind of in line with your expectations? Any way to frame that, from a percentage standpoint?

Amin Khoury

We don’t have a specific number. Maybe Goodrich’s number is a good number.

Troy Lahr – Stifel Nicolaus

Oh, okay. And then how long before Satair’s margins get up to your level? Is that more of a 2012 story, or back half of 2011?

Amin Khoury

It’ll take a couple of years.

Troy Lahr – Stifel Nicolaus

Okay, so not even – maybe 2012, but could be beyond that.

Amin Khoury

I think 2011, we’ll have significant investments, associated with the operational efficiency initiatives, which we bring to bear on the business, and just as we have done with New York Fasteners and the Honeywell HCS acquisition, it takes at least a couple of years before you see the improvements. During this quarter, we delivered 21% operating margins, and that’s up 400 basis points, as compared to July of ’08, but it has taken, what is that, nine quarters to get the 400 basis points of improvement, which of course, we’re pretty happy about. 400 basis points and $800 million is $32 million of operating earnings from synergys.

Troy Lahr – Stifel Nicolaus

Okay, thanks.

Operator

We’ll move now to Carter Leake and Davenport & Company.