Deborah Pawlowski - IR, Kei Advisors LLC Peter Gundermann - President & Chief Executive Officer Dave Burney – Chief Financial Officer.

George Godfrey – C.L. King & Associates Jon Morales – Canaccord Genuity JB Groh – DA Davidson Richard Ryan – Dougherty & Company Kevin Ciabattoni – KeyBanc.

Greetings, and welcome to the Astronics Corporation Third Quarter 2015 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Deborah Pawlowski, Investor Relations. You may begin..

Thank you, Bob, and good morning, everyone. We appreciate your joining us here today and your interest in Astronics. I have with me on this call today, Pete Gundermann, our President and CEO; and Dave Burney, our Chief Financial Officer. Pete has to keep go through his final remarks and then we’ll open up the call for questions and answers.

You should have the news release that we’ve issued this morning and is available on our website at www.astronics.com. As you are aware, we may make some forward-looking statements during the formal presentation as well as during the Q&A portion of this teleconference.

These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today.

These factors are outlined in the earnings release as well as in documents filed by the company with the Securities and Exchange Commission, and these documents can be found both at our website and at sec.gov. So with that, let me turn the call over to Pete.

Pete?.

Thanks, Debbie, and good morning, everybody. Our agenda this morning as usual is to review the past quarter, our third quarter of 2015, review our year end expectations for 2015 we’ve timed [indiscernible] slightly, and importantly to talk through our initial revenue forecast for 2016.

And then finally, as usual open the lines for question and answers. Headlines for the quarter, we felt it was a really good quarter. We set new records for both the top-line and the bottom-line.

Both of our segments had very strong quarters, Aerospace had its second best quarter ever in terms of revenue after only the first quarter of this year, and our Test segment had its best sales quarter ever. Our 2015 revenue forecast we’ll talk through in a bit, tightened to $690 million to $705 million.

It was most recently $680 million to $715 million. And as I am sure you’ve seen we are establishing initial 2016 revenue forecast at $690 million to $750 million. We’ll talk through that towards the end of my prepared remarks, sure that’s a wide range, but it’s early in the year and there are some unknown things.

so, that’s the range we are going out with. So, reviewing our third quarter was a very solid quarter, revenue set a new record at $200.1 million, just first time we’ve ever been above $200 million. That’s an increase of 11.5% over the comparative period the third quarter of 2014 which by the way was our previous consolidated sales record.

So we beat our previous record by over 11%. And as usual when the top-line is strong, the bottom-line turns out to be very strong also. We reported consolidated net income of $24.7 million, that’s 12.3% of sales and that’s an increase of over 44% from the third quarter last year when we reported net income of $17.1 million.

Diluted earnings per share in the third quarter was $0.94, up from $0.65 a year ago, but if those numbers are adjusted for our recent B share distribution of October 2015. If there is a chink in the armor it has to do with our bookings during the quarter.

We recorded consolidated bookings of $145.2 million, giving us an ending backlog of the quarter of $297 million.

That booking pace is somewhat less than what we’ve been experiencing in recent quarters, but we do not feel it’s a result of anything kind of systematic working in the market just kind of a normal ebb and flow or things and we think it leaves us with a backlog to support our business plan with that issue.

Looking at our numbers year-to-date through three quarters, we recorded total consolidated revenue of $535 million, that’s up slightly over 8% over last year through three quarters when we reported $495 million. Our bottom-line this year through three quarters, net income was $53.1 million, up 40% over $37.7 million last year.

This year 9.9% of sales versus last year’s 7.6% of sales and $2.02 per diluted share versus $1.45 last year. Our bookings for this year through three quarters were $449.8 million, that’s slightly below sales but given the seasonal nature of some of our largest customers, that’s not a surprise to us – it’s not particularly concerning.

Backlog again at the end of the third quarter was $297 million. Going through our segments, our Aerospace segment again had a really good quarter in Q3, drove 69%, 70% of our consolidated shipments, revenue of $138.7 million, that’s up $16.5 million or 13.5% from the third quarter last year.

Again, second highest in our history after only the first quarter of 2015. During the quarter, $6.5 million of revenue came from our Armstrong acquisition in January, so if you subtract that out people want to know what our organic growth rate is for the - calculated at 8.2%. There are some moving parts in there.

Our Electrical Power & Motion product line, our biggest product line, literally half of our Aerospace sales, was $71.2 million, up 15% over last year.

Our Electrical Power & Motion product lines includes three rough kind of sub-product lines, I guess I’d call them the largest of which is our in-seat power product line and that product area had a fantastic quarter with sales up over 20% over where there were a year ago in the third quarter.

Lighting & Safety product line and product area generated $40 million in revenue, that’s about 29% of our Aerospace sales and that grouping was up 7.7%, and Systems Certification which was a new product group for us, came with our Armstrong acquisition, was $6.1 million in the quarter. Avionics sales were $12.6 million, down $2.8 million.

We continue to struggle with some supply problems and some production problems in that particular area. We have three or four different product groupings in our Avionics line and had a few issues we are dealing with.

So strong performance in Electrical Power & Motion, reasonable in Lighting & Safety and Systems Certification, compensating for some weakness in our Avionics' area. Operating profit for the third quarter in our Aerospace segment was $23.1 million or 16.6%.

Looking at our segment, our Aerospace segment year-to-date sales are $413 million, up 13% over the last year. Again, Armstrong, our only acquisition this year, contributed $20.3 million so far, so organic growth over the last year is 7.3%.

Electrical Power & Motion sales are $209 million, half of our total Aerospace sales and up 10.7%, and again in-seat power our biggest Electrical Power & Motion kind of sub-product is up 18% year-to-date through the first nine months.

Lighting & Safety sales $120 million, up $8.2 million or 7.4% and Avionics $41.6 million or up 2.5% year-to-date, and System Certification the newest product area from the Armstrong acquisition had year-to-date sales through three quarters of $16.5 million.

Our margins continue to be solid in the Aerospace segment year-to-date operating profit of $66.7 million or 16.1% of sales. The total is up from last year when we had operating margin of $60.3 million was down a little bit in terms of ratio of 16.5% last year, 16.1% this year. We have two major customers.

During the quarter, one is 19% of sales and the other at 12% of sales, that’s pretty standard for us these days. As our new practices that we identified those customers in our K at the end of the year. Switching over to our Test Systems segment, excellent quarter generating 31% of our consolidated revenues.

Our Test Systems segment had total revenues of $61.4 million, that’s a new record, up 7.4% from $57 million in the third quarter last year. Operating profit on that revenue this year was $17 million, 27% of sales, up from $5.7 million in the third quarter last year.

Revenues year-to-date for our Test Systems segment are $121.7 million, that’s actually down 5.5% from the first three quarters of last year when we had consolidated revenues in our Test segment of $129 million.

Operating profit through three quarters was $24.6 million, up more than three times from where it was last year when we had $8 million GAAP operating profit through the first three quarters. Bookings in the third quarter were $12.2 million.

We had one significant customer 25% of consolidated sales in an ending backlog of $115.8 million which we feel adequate again for what we have plan for the rest of this year and going into next year.

Our balance sheet not much changed, cash at the end of Q3 was $22.4 million, a total outstanding debt of $208 million giving us a net debt of $186 million. We feel our capitalization is adequate for what we have in front of us and what we plan to do.

Getting through our forecast for the end of the year, as mentioned earlier we are tightening revenue guidance to $690 million to $705 million that would imply at the midpoint of Q4 shipment level consolidated of around $162 million that’s well off where we were in Q3, pretty much as planned.

For the year we expect Aerospace to be somewhere in the range of $553 million to $564 million and Test to be somewhere in the range of $137 million to $141 million. If you take the midpoints of those ranges, you would expect year-over-year growth consolidated to be about 5.6%.

Our Test Systems segment revenue wise should be down about 16% over last year, but our Aerospace business should be up about 13%. Our initial plans for 2016 call for revenue to be somewhere in the neighborhood of $690 million to $750 million.

Our Aerospace range we expect to be $572 million to $617 million, and our Test ranged to be $118 million to $134 million. That implies another year of growth for Aerospace, our initial plan is somewhere in the 6% to 10% range, and it implies another year of reduction for our Test business about 10%.

But one story short, we think 2016 is going to be a pretty good year for the company, and in many respect it’s going to look a lot like this year with growing Aerospace and somewhat reduce Test, but on a consolidated basis a pretty good year. That ends my prepared remarks. So, Rob, I guess we’d like to open it up for questions at this point..

Our first question is from George Godfrey with C.L. King & Associates. Please proceed with your question..

Thank you for taking the question and good morning. Can you elaborate on the Test business, I understand the forecast in 2016 down 10% and you write in the press release the third quarter – excuse me – the fourth quarter is dictated by customer delivery requirements.

Can you shed some more light on exactly what you're seeing in that part of the business as you look forward to '16?.

Sure. That business has been in recent years dominated by a one particular large customer and our shipments are obviously dependent on the schedule that that customer wants.

So, in understanding our fourth quarter, I guess what’s important to understand is that customer is in the habit of making large orders kind of towards the end of one year for delivery in the middle of the next year. So, we received a large order in December of last year. We shipped that largely in Q2 and Q3 this year that makes Q1 and Q4 lighter.

We expect pretty much the same cycle going forward next year. We expect a larger order somewhere in the Q4, possibly beginning in Q1 timeframe for delivery largely in the middle of the year next year Q2 and Q3. We obviously don’t have that order yet.

If we did we would have announced it, but we work closely with this customer like we do all of our large customers and we have a general sense of what their expectations are and what their needs are. And based on that understanding of the situation, we’ve come out with the guidance that we have.

We obviously don't have all the orders for all the customers for next year.

So, we work with some judgment in kind of what we expect to happen in our major accounts and our major customers, and that’s part of the routines arrangement here, but we felt that was important to come out with our expectations at this point for next year and that’s kind of a quick summary of what’s driving them..

Great, thank you. If I can just follow-on the profitability in that segment is outstanding 27% this quarter and 24% last quarter.

Do you think you can hold a 20-ish plus operating margin in this division understanding that the revenue might fluctuate?.

No, I don't expect that. I think it’s going to – you look back at the first quarter, it wasn't at that level and I don’t – wouldn’t expect it to be at the fourth quarter this year. I mean that business is like any business. Margins are heavily dependent on volume typically, everything else being held the same. So, it’s a little bit of a lumpy business.

It’s lumpy in terms of getting a few big orders every year instead of a lot of smaller ones and having delivery schedules that can toss us around a little bit. So, I wouldn’t expect with in the fourth quarter for sure to see that kind of volume again, and next year it’s a little early to say, but I wouldn’t expect into the fourth quarter..

No, I meant on an annual basis. You think the margin in '16 is comparable to the operating margin in '15 on an – not a quarterly basis, on an annual basis..

I would expect it to be a little bit lighter, but as a rule we generally don’t get into bottom-line guidance as a company. I think consolidated will be in pretty good shape, but I think the mix will change a little bit between Aerospace and Test next year..

Great. Thank you very much..

Our next question comes from Jon Morales with Canaccord Genuity. Please proceed with your question..

Morning guys.

How much of the growth would you say this quarter in Aerospace’s segment was from the slip from last quarter?.

Not much.

Are you talking about the supply issues that we talked about last quarter?.

Yes..

We didn’t recover from those like we thought we would. So we are continuing to slide a little bit there, those are in a couple of our Avionics product line. So, we are hoping that we will get caught up more here in the fourth quarter, but no, it was just a strong demand quarter, especially for Electrical Power & Motion product, it was good to see..

Okay.

So on that topic, so with Avionics you mentioned sales were weaker this quarter, but you don’t see that being a longer term trend, right, you see that coming back in the next quarter?.

We would expect to get caught up with these specific problems, there’s probably a delta there of – I don’t know, $5 million or so. If you’re asking if we see anticipated continued weakness in those product lines, no, we don’t. .

Okay, great.

And then, just a question on retrofit trends and pricing as it relates to competition in Aerospace, any comments on that?.

Well, as we get bigger and as we demonstrate success in certain areas, we continue to see some pressure, so that is an issue. The strengthening U.S. dollar is to some extent an issue.

We have some foreign competitors who may be able to offer some lower prices, but the programs that those are – that’s affecting are largely things that we are bidding at this point, not shipping at this point.

So if there is going to be an effect, we would not expect it to be too substantial across our business and we wouldn’t expect it to show up for a while, and we give you as much warning as we could if and when that’s going to happen, but we don’t view that as a strong dynamic in our business right now..

Got it. Okay, great. Thanks a lot for answering my question..

Our next question is from JB Groh with D.A. Davidson. Please proceed with your question..

Thank you guys.

Just kind of following on that slippage question, can you kind of quantify that in terms of revenue number?.

Yeah, we’re thinking it’s about a $5 million gap. If we hadn’t had the problems, we probably would be at this point $5 million higher than we are, so that’s what we are talking about, order of magnitude..

And then I noticed in military Test that had pretty nice year-over-year increase, can you sort of give us thoughts on what’s going on there? I think at the Analyst Day you mentioned that seems to be getting a little bit better, but maybe if you could give us your outlook on that?.

I think the percentage is big, because the base is pretty small. Just our perspective is that there are some signs of life there.

We’ve had a couple of awards, but it continues to be a pretty tough slog, it’s not a healthy market at this point, and I think we are fortunate in our test business to have the strength going on the other side at this point in semiconductor and certainly the strength in our Aerospace business.

As we get bigger and as we have the diversification that we have, you know we are almost always going to have some part of our business that struggles a little bit more than the rest and it’s been that kind of traditional Aerospace and defense related Test part of our business.

But we’re hoping that it will continue to strengthen and we are hoping that the numbers you are seeing can continue and we are somewhat building that into our model of next year, but we need to continue to get the orders to make that a reality for sure..

So embedded in that guidance number you have for Test, it’s safe to say that we’re kind of on a run rate that’s roughly $40 million to $45 million for military Test this year?.

Yeah, I think that’s safe to say, somewhere in that range..

And then can you just give us your quick thoughts on for in-seat power, obviously the penetration go up, can you just give us a little color on what your hearing from customers and penetration – thanks for update on penetration rate?.

Well, we only have – there are a lot of other points out there, so we don’t see much change one quarter to the next, but it continues to obviously be a great part of our situation.

It continues to enjoy lot of attention into the flying community, both on the part of carriers and in the part of travelers, and we continue to get pretty one we received by customers around the world. So, it’s in general a pretty positive picture.

We continue to see narrow body operators and showing more interest and making more orders and everybody wants to know about kind of a competitive dynamics. No doubt that our success here has been noticed by a range of potential competitors. We at this point don’t really feel like – we are losing any business there.

I mean maybe someday we will at some point, but we think we continue to have pretty high market share. Our common frame is we're in excess to 90%, I think we are still there for sure. So, seeing the growth that we saw both in the third quarter and so far this year is very encouraging to me.

I think we are doing some really good things and also just for what’s it worth tell you that we are not sitting back and noting this business by any mean.

We are viewing it is an investment area and we are staying on top of the trends that we can identify that are coming out of the industry, the Aerospace industry for sure, but also out of the consumer electronics industry.

Device has continue to evolve pretty quickly and we are doing our best to stay on front of those trend so that when those devices are available for passengers to carry on the plans, we can offer our power system that is fully featured enough to drive those devices. So, I think we are doing a good job and I think we are enjoying a lot of success.

We don’t see any reasons why that shouldn’t continue..

Yeah.

So I guess you’re talking publically wireless there [indiscernible]?.

That’s one of them..

Yeah. There is a dynamic change in terms of pricing and margin, I mean shipment is doing the high penetration obviously as wide-body and from growing area is narrow-body.

Is that pricing in margins impacted by that shift fundamental different?.

Yeah. Our feeling is that the unit price per seat to say on the narrow-body airplane is going to be somewhat smaller – somewhat lower than the precede price on the wide-body airplane. We feel like there should be equally as profitably, that’s not really the issue.

Again, just speaking in terms of rough numbers, our feeling is that there is – maybe 15% penetrated on narrow-bodies moving the 20%, we think the wide-bodies are 50% moving the 60%. That means that even after doing this for 15 years or 20 years, we think that there is a lot of wide-body seats to go and certainly a lot of narrow-body seats to go.

And the other, I guess the interesting thing to keep in mind is that in two years of aircraft due tend to get retrofitted every, people typically say five to seven years.

We think that the technical evolution of consumer electronics are such that systems that we put out today, in some respect they are going to be technically obsolete in five years and we think will need to be upgraded.

We think they usually are anyway because that’s easier, the easier way the engineer and execute that kind of cabin upgrade, but we think that there are real technical reasons why older systems will be replaced with newer systems in the future anyway. So, we think it’s a good situation for us to be in..

One last quick one. Just to clarify your penetration numbers that’s on lead now on production..

That’s in the installed base, right, that production. Just to clarify, on production, you’re pretty hard impress to find a speech on a wide-body airplane being build today that doesn’t have our product or our formal product on it, narrow-body is still much smaller..

So, it’s like 90% of production on wide-body, it maybe….

I’d say wide-body is approaching 100% and in narrow-body you’re probably down – probably in that 10% range, somewhere around there..

Okay, great. Thanks Pete..

Yeah, sure..

Our next question comes from Dick Ryan with Dougherty & Company. Please proceed with your question..

Thank you. Pete just to so go back in a couple of issues you already talked about. On cash, the one customer looks to be either the bulk of the semiconductor business and you mentioned previously trying to get into other customers.

Can you provide a little color as to kind of success on that front if you started those or never yet?.

Sure. We have our permanence in the industry has our profile, I guess, I should say the industry has risen quite a bit. So, we do have more and more discussion. We’re not planning anything meaningful realistically in the coming 12 months, but we are encouraged by the discussions that we've had and the context we have.

We are also, I should say, very encouraged by how we feel our products are performing for our existing customer base. We think that we are doing a pretty good job, and we think that they’re pretty impressed.

And we think that the most important thing we can do in our current situation is to take care of our existing customer base as well as we possibly can, because we feel like there is lots of room to run even within that customer base. So that’s the first thing. It’s always easier to keep the customer you having to sense to gain a new one.

But, I guess I’d tell you that I think we've got some pretty good technology and I think we've got some increasingly, I mean a better and better track record to run on and we think the industry is taking notice of that. So we’re pretty pleased with that situation too.

Even though sales this year are down compared to last year and sales next year we expect to be down a little bit. From this year, looking at the long-term and looking at the fields we have the hunting, we are pretty excited..

Obviously, you are talking with them on to follow-on orders for '16, have you gotten any sort of visibility? What you just mentioned longer-term could potentially look like?.

Not anything we can quantify, but what I have said is our best opportunities are to find new – obviously volume, if our customers do well, we will continue to do well.

There is a direct relationship there pretty obvious, but there also are opportunities for our customers to kind of use our machines, our capabilities in different ways, related way which would – could double or triple or do great things to demand. So, both of those avenues remain open to us.

There is nothing that we feel has been shut-off that we’re aware of and so we’re going to continue to push both of those avenues, new customers and more business within existing customers..

Okay. Moving to E&D, it looks like a little step-up for next year. Can you talk a little bit on where the spending is going either Aerospace or on the Test side? And maybe just kind of recap some of the experiences over the last few years? I mean the spending is been pretty healthy in this regard.

We’ve started seeing that on the program side and can you talk about what kind of ROI you’re seeing on that investment?.

It’s a hard question. I mean, obviously we think there is strong return and I think our performance over the years has proven that. We position ourselves to the industry and to our customers as an innovative supplier that our customers can count on to bring out new product and we don’t see any reason to change our strategy there.

We’re continuously thinking about what it is that we can do either that our customers or asking for or things that they haven’t even really thought about, we work in both direction.

In some cases, our development spends on filling our product lines and executing new programs that our customers are very specifically asking for and in some areas it's more kind of ground up research, and kind of an idea that we want to develop and bring the market all on our own without any customer involvement whatsoever.

In that mix, I think, varies depending on the work load, but it’s probably safe to say that it’s a 60-40 type of split between customer demanded and market demanded type of efforts and what our own internal innovation is and we see that continuing, I can do a tree design as I suppose, but it happens all over our business.

We’re in a range of demanding areas and in a range of competitive environments where we can come out with new products to continue to prosper, and we’re going to continue to do it. At the same time, you’ve been watching us longer enough, you remember when we were up closer to 20% of revenue in this investment dust area, that’s been dropping.

We see it continuing to drop as our volume grows, so we’re kind of in that 12% nominal, 13%, 14% and that’s where we’re expecting to be in the coming year, even the P&L will change there..

No.

I just want to – can you talk about the end markets sort of breakdown, I mean is there more business jet side or how are you splitting those costs?.

It’s probably – it’s more business jet. How do I answer that? It’s probably a little more business jet on the Aerospace side, it’s a little more business jet then it is Commercial Transport in part because business jets are relatively small part of our business, and it’s an area that we think we have some very relevant technology for it.

But I don’t want that to be construed that we feel we’re under investing in the Commercial Transport side or that we’re viewing if this is a big change in strategic direction. We just think that there are opportunities for us in the business jet – that we’ll payoff over time. So, those investments probably look a little bit disproportional.

But I don’t expect the mix to be largely the way it’s been, I am kind of thinking allowed here, but we’re probably somewhere in the neighborhood of 60%, 70% at Commercial Transport, we’re probably 10%, 20% on business jet or military general aviation, and we’re probably 10%, 20% on Test, and I am hoping that adds up somewhere near a 100%..

Sure, okay. Maybe switching gears, you announced the new random at your Investor Day and brought that I think APEX.

What sort of response you’re getting in that and can you kind of talk about the competitive dynamics, your random maybe providing from a weight standpoint or more efficient standpoint?.

We think the response that APEX is pretty positive to that, it was not only the random, but it was the carbon fiber mounting plate. The mounting plate by which incentive typically get mounted on the top of aircraft tend to be very heavy and very expensive pieces of metal.

And we are developing a composite version which is substantially lighter and weight translates directly in the fuel savings for airlines. That product is not certified yet.

It not officially available yet, but we thought it was a pretty well received product in APEX, and in the way it is typically worked is we’ll come out with an idea and we’ll advertise it, communicate it, either out of trade show or in direct contacts with customers or both.

And then there is this, you know, measuring what we have and going forward with the testing in the certification, and that’s kind of why we are here. We think we’ve got a good idea.

We think that customers like it, even if they don’t use our – it’s kind of a catalog of capabilities, there are maybe situations where customers want our mounting plate, but they don’t want to use our internal or random, or sometimes they want to intend, but they already have an approved mounting plate for they engineered, installation and so on and so forth.

So, what we’re doing is really looking at where we think the opportunities are for the various pieces of that whole system, and we’re going to make him available to the industry and see where it goes..

Great. And just one last one.

Armstrong, how seasonal is their business when you look at it I mean with rev been retrofitted in Q2, Q3 or kind of seasonally slower, but is that what you see out there?.

It’s probably little slower on some of the front end of the business, but the orders in the production are pretty much stand across. I wouldn’t call it a cynical business from the results standpoint.

If you look in sales there, it might be a little lighter because customers are -- airlines are obviously pretty busy in the summary typically, but it’s nothing like what we’re seeing on the tough side of our business or anything like that..

Sure. Okay. Thanks Pete..

Sure..

Our next question is from Kevin Ciabattoni with KeyBanc. Please proceed with your question..

Hi, good morning guys. Thanks for taking my question. Pete, you talked a little bit about announcing narrow-body market.

I mean can you maybe talk a little bit deeper in the kind of what you’re seeing in terms of coding activity on the narrow-body side, I guess primarily for rest of it, and kind of what you’re seeing I guess geographically? What you’re seeing in terms of our customer as you’re taking to warning to do the whole narrow-body flee as it typically what an aircraft out of their fleet -- you know what you guys seeing there?.

Well, there are as many different avenues here as our customers I suppose, everyone got their own perspective, but I think it’s safe to say that increasingly without sale, operators around the world realize that this is an amount of fee that their customers want.

So, the question is, are they going to step up to deliver that amount of fee, and if they do, are they going to go nose to tail or they just going to do certain section of the airplane or not, and everybody has a different answer to that, sometimes it’s obviously based on their financial situation can be afforded because it’s not super expensive, but it’s not cheap.

And also what are their competitors doing there, some parts of world that this is becoming much more of a critical competitive dynamic than in other parts of the world.

Our read is that in most of the world, North America, Europe, Asia is becoming pretty much of base line expectation on the part of flyer, and there are lot of airplane that are flown in those three regions and are going to be flowing in those three regions. So, it’s becoming a pretty hard topic.

You probably remember Kevin there was times – there was a time in our path when we had some – we’d to make quite an effort in some cases, even to get in front of certain airlines.

And we were occasionally or regularly met especially in the part of narrow-body operators with the perspective that, yeah, it’s kind of a new product, but nobody is asking for it, they don’t think they really need it and their flights aren’t that long and it’s kind of expensive and it’s kind of heavy and thanks, but no thanks, and now that’s not the attitude at all anymore.

The attitude now is, yes, we know it’s a great product. Yes, we know our customers want it. Yes, we know it works well. We got to decide, if we can afford it, and if so, when we can – when we want to do it. But some airlines think, let's do a third of the aircraft and the system is modular enough so they can upgrade it and change it and extend it later.

And some people, some airlines, decide if we're going to do this, we're going to do it full speed. We’re going to nose to tail. We’re going to advertise it in the press and we’re going to make this part of our value proposition for the flying public.

And so, beyond that, it’s hard to be specific, but there is strong demand and we think that even those airlines that start with a sub-system, so to speak, a partial system, we think if those guys, it's a matter of time, before they go nose to tail and we want to win those airplanes just as badly as we want to win.

The current news to sale installation, because it's kind of a money in the bank in the sense that if they put us on half their airplane or half their fleet, we’ve got a real leg up when they go complete the job in two years or whatever..

Right. Okay, thanks. On the Avionics supplies do you mentioned that $5 million number.

I mean should we expect you to kind of book a catch up there or is it more this returning to normal level? Again if you want strong quarter as you guys get caught up there is just kind of normalizing?.

It's too early to tell. It’s could be a little bit this quarter, a little bit next quarter, but it's going to be over the next two quarters, I would expect if I gets caught up and correct it..

Okay. And then just kind of turning to the model a little bigger, you mentioned I think Test margin is going to come in a little bit next year.

What are you seeing on the Aerospace side, I mean you mentioned some kind of increased competition, especially with the strengthening dollar? I mean if the expectation that Aerospace margin probably come in a little bit next year as well on that?.

It's hard to say, I guess, if you look at our segment data this year, operating margins was $16.1 million last year, $16.5 million, we would call that normal fluctuations, I guess. And I guess we don’t feel like there is a real compelling reason why margin should go down noticeably in that segment.

We’ve got some – we obviously have – we have new products coming out all the time. New products tend to be a little more expensive to begin with, but then they tend to generate pretty good margins, until they get towards the more mature end of their lifecycle and we’ve got a lot of moving parts.

So, depending on where you are looking in our business, I guess we could expect somewhat tighter margins, but in other areas I expect we will be more profitable. So, I think taking all that into account, my comment would be that, you know what you see is what you get kind of the past continuing into the future.

If we get to the point where we think that there is a systematic bias going on in terms of the market dynamics, we’ll talk about that, but we don’t see it today, we’re not talking about it today..

Okay. And then, I guess also just on the model, the tax rate was down a bit in 3Q.

Any thoughts on kind of what would you expect in fourth quarter and I guess even looking into 2016?.

I’m going to bring [indiscernible], it’s battling a call, but it really is David..

Fourth quarter, we expect the tax rate to look back to that 32% to 34% range, having some passage of the R&D tax credit for this year. If we see the R&D tax credit get passed before the end of the year, I expect we will have a big adjustment in the fourth quarter to catch up for the year.

The tax rate for the year that we’ve been looking at, and I think if the R&D tax credit is passed, so rates for the year should be down around 31% or so.

With a lot of that catch up, all of the catch up happening in the fourth quarter which we’ll drive that fourth quarter rate, probably down to something like 20%, but that’s all dependent on our government taking an action before year-end..

Okay. For 2016 any major cost item? What should we think….

No. I think the run rate will be in – again I can do with and without an R&D tax credit, with in R&D tax credit I would expect somewhere around 31%, 32%, without R&D probably 32% to 34%..

Okay. Sounds good.

And then last one from me, any update Pete on the legal actions that are kind of ongoing with [indiscernible]?.

It’s just growing with the system, nothing exciting to report..

Okay.

So no kind of New York spent changes that we should be thinking about for next year at all at this point?.

Probably more of the same..

Okay, great, thanks. That’s all I’ve got..

Sure..

Our next question is from Jon Morales with Canaccord Genuity. Please proceed with your question..

Hi, Pete, just one last question.

So, there was a question obviously on E&D spend, and going forward as you see some of your pans expire, should we – and this is of course looking at a few years, should we expect a change there and how should we look at the markets here evolve, obviously as those pens come to you?.

Reasonable, people can differ, I guess my perspective is that those pens are not particularly critical in the way that we compete, for the way that we go to market. I think there are different ways to do what we do and people can get around those patterns with minor different architectures.

I think the most important thing we are going forward – going for us going forward is not necessarily some kind of barrier driven by pattern, but rather a barrier driven by market share, frankly.

I mean, we have a very strong market share and I think we do a pretty good job, and I don’t think that what any of our customers would call abusive in terms of managing that market share, managing those relationships, I think they actually think we know we are doing and they like working with us.

And I think that’s the bases upon which we have been competing for a while, I think that’s the bases upon which we are going to compete in the future. So, we do have a pretty broad system of patterns across a big part of our business and we’ll continue to do that, I don’t mean to downplay it.

But I think the most important thing we can do with our products in our market is performed that’s what we try to do..

Okay. Thanks Peter. That really helps..

Sure..

There are no further questions. At this time, I’d like to turn the call back over to management for any closing remarks..

Okay, very good. Thanks. There are no closing remarks. We look forward to talking to you at the end of the year. Have a good day..

This concludes today’s teleconference. Thank you for your participation. You may disconnect your line at this time..