Greetings, and welcome to Astronics Corporation fourth quarter and full year 2018 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Deborah Pawlowski, investor relations for Astronics Corporation.
Thanks, Dana, and good morning, everyone. We certainly appreciate you joining us here today. I've got Pete Gundermann, our president and CEO, and Dave Burney, our Chief Financial Officer, on the call. You should have the news release that crossed the wires earlier this morning, and if not, it is available on our website at astronics.com. As you are aware, we may make some forward-looking statements during this teleconference, including during the Q&A portions. These statements apply to future events that are subject to a certain uncertainty, as well as other factors that could cause 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 Securities and Exchange Commission. You can find these documents both at our website and at sec.gov.
With that, let me turn it over to the call to Pete to begin. Peter?
Thanks, Debbie, and good morning, everybody. Before we get going, I should assure you that I am in fact Pete, and my voice doesn't sound normal. I've been assured that whatever I have, you can't catch over the phone, so I apologize in advance. I may get hit with a cough attack here sometime over the course of the call, and I've got a mute button ready to go. I'm not afraid to use it. If I go silent for a minute, that's what that's all about. But everything being equal on that, we'll talk about our fourth quarter results, which we feel pretty good about, and do a postmortem on 2018, which we feel was a pretty strong year for the company. Then we'll turn our attention to 2019.
As usual, there are some issues to talk about there, primarily relating to the sale of the SemiTest business that we announced on the 13th of this month, or didn't announce, but closed on the 13th of this month. Also some of the issues that are likely to affect our 2019, including primarily the three businesses that we've dedicated some space to over the last couple of calls. We'll continue to do that today. With that as a backdrop, our fourth quarter ended up pretty strong. Revenue of $203 million consolidated was our third highest ever after only the previous two quarters, the second and third quarter of 2018. Our fourth quarter results were up 18% over the comparator period of a year ago. That's about $32 million of growth.
Acquisitions contributed 12 of the $32 million of growth, organic was the rest, $20 million, or about 12% organic growth year-over-year. Our aerospace segment had a particularly strong quarter. We set another revenue record of $175 million in the fourth quarter. That's our fourth record quarter in a row and up 25% over the comparator period at the end of 2017. Our test business was relatively light, revenue of $27.7 million. That was pretty much what we expected and predicted at the end of our last press release or last quarterly conference call. That result of 27.7 was below both the comparator period of a year ago and well below the second and third periods of last year. The second and third quarters of 2018 were relatively strong for our test business. Net income in the quarter was strong at $12.5 million or 6.2% of sales.
That's up dramatically from the comparator period when we had a large impairment charge at our Armstrong business at the end of 2017 of $16.2 million. Doing the year-over-year comparisons, that colors the comparisons substantially. Got to keep that in mind as you look at the older numbers. Aerospace, again, was a solid contributor with operating margins of 12.7%. That's not where we want it to be, but it's the highest we've had in quite a while, and it shows signs of improvement. Our three struggling businesses that we've talked about, CCC, AeroSat, Armstrong, we've talked about them collectively as a group now for about nine months, they turned in a combined operating loss in the fourth quarter of $6.4 million. We're not particularly happy with that. That's below where we thought we would be.
It's down substantially from the third quarter when the three turned in an operating loss of $11.2 million. 11.2 to 6.4 we think is pretty good improvement. We expect continued improvement from here. We'll talk about that more specifically at the end of the call. Diluted earnings per share in the fourth quarter were $0.37 versus a loss of $0.18 in the comparative period a year ago, again, because of that impairment charge at Armstrong. Not only good shipments and margins, but bookings were pretty strong. We ended up with bookings in the fourth quarter of $220 million consolidated. That's a book-to-bill of 1.09. Aerospace bookings were right there with shipments, even on an all-time record shipping quarter, book-to-bill of 1. Test had a pretty strong booking quarter of $45 million, a book-to-bill of 1.62.
The star in that arsenal has to do with a number of things, but some progress we made with the New York City program for $30 million is a chief part of that. Backlog at the end of the year was $415 million, a record high. Included in that total is $12 million of backlog that was essentially sold with the semi test business in February to our friends at Advantest. Year-to-date, or year to conclude, I guess, at the end of 2018, we ended up with revenues of $803 million. That's up pretty substantially, 28%, from $624 million in 2017. That's total growth of $179 million, roughly split equally between acquisitions and organic growth. Acquisitions contributed $85 million of the $179 million of growth. Organically, we generated $94 million of growth.
Net income for the year ended up at $46.9 million, or 5.8% of sales, up 138% from $19.7 million in 2017, or $1.41 per diluted share versus $0.58 per diluted share in 2017. Net income for the year was positively impacted by the lower federal tax rate and a change in our state tax position that we talked about on the last call, negatively affected again by the combined operating losses of $34.7 million of the struggling three businesses. Again, we're not happy with $34.7 million. It compares about the same as 2017 when those three businesses combined for $47.1 million, inclusive of the impairment charge at Armstrong. $47.1 million in 2017, $34.7 million in 2018. We're looking for substantial improvement in 2019, we'll get to that in a minute. Total bookings for 2018 came in at $837 million. That's besting shipments by about 4%.
Aerospace bookings were up about 5%. Test bookings were down about 2%. Looking more specifically at our segments, our aerospace quarter, as I said, was a really strong quarter. Record revenues of $175.2 million, up 25%-26%, compared to $140 million in the comparator period. That's our fourth new record in a row for our aerospace segment. Operating profit came in at $22.2 million, or 12.7% of sales. Not exactly where we are striving to be, but it is the highest we've achieved in three years. If one were inclined to run the exercise and back out the losses from the three stragglers of $6.4 million, or assume that we could get those businesses to break even, operating profit in the quarter would have been 16.4%.
We continue to believe that our best margin improvement opportunity is to continue to focus on reducing the operating losses of those three businesses, we think we're making progress. Bookings, as I mentioned moments ago, for the aerospace segment in the fourth quarter were $175.5 million, slightly ahead of shipments, book-to-bill of 1. Our aerospace ending backlog of $326 million is our highest ever and sets us up well for entry into 2019. Looking back at the whole year for our aerospace segment, revenues of $676 million were up 26% from 2017. They made up 84% of our consolidated total. With the sale of our semi test business, that 84% in the future will increase. It'll increase over 90% of our total.
Operating profit for the year was $70 million or 10.3% of sales, compared with $39 million in 2017. For the year, the three troubled businesses that we're working with had an operating loss of $34.7 million. If you were to do the exercise to assume they were at breakeven, our aerospace segment operating profit would have come in at about 16.4%. Bookings year-to-date were $712 million. Even with the record shipments, bookings exceeded shipments by 5% over the course of the year. Looking at some of the tables that we put in our press release, and specifically at the sales by product line table on the bottom of page 10 of our press release. Our aerospace business these days continues to be well-balanced, in my opinion. Our Electrical Power & Motion product line makes up about 38% of our consolidated sales.
Our lighting and safety product line makes up about 22%, and avionics adds in about 16%. They're all doing pretty well. Electrical Power & Motion was up almost 15% for the year, and 29% for the quarter. That's a combination of a couple of things. Primarily in that grouping is our in-seat power product, which continues to do very well. The other big contributor there increasingly is a seat motion capability that we have, where we have picked up quite a bit of market share over the last year and a half, and it's becoming a pretty good contributor to our overall consolidated results, certainly helping to explain that growth. Our avionics product line chart shows up 144% for the year.
That is largely because that's where the revenues that come from our Telefonix acquisition of December of 2017 ends up being categorized, mostly in our avionics product line. Lighting and safety is up 10% year-over-year. Obviously, a good indicator when your three biggest product groupings are up strongly. It's nice to be able to report that at the end of the year. Switching over to our Test business. In the quarter, revenues, as I mentioned, were light as expected. Came in at $27.7 million. That's down about 13% from last year and well off the pace from the second quarter and the third quarter. The volume was pretty much dictated by schedules, which are dictated by customers. We knew it was coming. We were not surprised. Our operating profit for the segment in the fourth quarter on that lower volume was pretty meager, $600,000, 2% of sales.
Test had a pretty strong 2018. Revenue for the year was $127.7 million. That's up 42% from $90 million in 2017. Operating profit on that volume was $10.7 million, 8.4% of sales. If you look at the charts again on page 10 of our press release, you can see pretty easily that the year was driven by relatively strong Semiconductor demand. Semiconductor demand more than doubled, going from $32 million in revenues in 2017 up to $84 million in 2018. We'll come back to Semiconductor in just a minute. Bookings for the quarter were $45 million. That's a book-to-bill of 1.62. Very strong. Year-to-date bookings were $125 million versus shipments at $127 million. That's a book-to-bill of 0.98. It ends our quarter with a Test backlog of $90 million. A few words on the sale of the Semiconductor Test product line.
No doubt people remember that in December, we announced a planned transaction to sell the business, the product line, to a company called Advantest for $185 million cash at closing, an earn-out opportunity of $30 million, and a contract manufacturing arrangement, which was to last for approximately four years. Last week, on February 14th, I guess, we issued a press release saying we had closed, but under substantially different terms. It was $100 million cash at closing with an earn-out opportunity of $35 million and no contract manufacturing arrangement. The simple explanation for what happened there is we, at the end of the year, were badly surprised by some changes in expectations on the part of some programs that we had been working towards. That had a material change on the value of the business. Excuse me.
I'm happy to get this far through the script, actually. The change in forecast was substantial enough to cause a change in the valuation of the business. If I bring you back to page 10 again, those product line charts or tables that we put in the press release, you again can see in 2017, we had Semiconductor Test revenue of about $32 million. In 2018, it was $84 million. We had been expecting a 2019 that was roughly at that same elevated level, and we expected, based on visibility, that 2020 would be a step change above that. Instead learned in late December that for us, if the business stayed in our hands, 2019 was likely to revert back to 2017 more than anything else. That was disappointing for us.
It was a surprise to us also, but it was also, when you look at it in context of what's going on in the world with trade tensions and semiconductor industry trends in general, and consumer electronics trends in general, in retrospect, maybe not such a surprise. We weren't happy going down from $185 million cash at closing to $100 million, but at the end of the day, we decided that was a better thing to do. First of all, the business, we think, is frankly better off with Advantest than us. They have a global reach. They're not a U.S. company, which has some benefit in today's world, and they have a much more comprehensive product line and presence in a wider array of customers around the world. What it allows for us to do is to focus more specifically on our primary aerospace business.
That's focusing both in our internal operations and also in our external communications and dealing with the investor community in general. The contract manufacturing thing means that we will have a little bit more of an abrupt change, but we believe that we're ready for that, and we think we can make it work. We think that when we get to the forecast section, you look at the backlog that we have in place for our aerospace and defense test business, that we're in pretty good shape to have this event happen today. I think I'm going to go on mute for a second, Dave, and let you talk about balance sheet, since we've generated some cash, not only with the sale, but with our results in the fourth quarter.
Okay, thanks. Yes, Pete just finished talking about the sale of the semi business. That was certainly a big event for us in February. Going back to the fourth quarter, we had very strong cash flow, generating about $40 million of cash flow from operations in the quarter. That brought our year-to-date cash flow from operations up to about $55 million, which is a very strong year for us, and one that we've been waiting a while for, to get back on track to where we think we should be, in terms of cash flow generation. Outstanding debt at the end of the year was about $234 million, down from $272 million at the end of last year. Our current borrowing rate on our senior credit facility is at LIBOR plus 125 basis points.
I expect that could go down somewhat when we conclude the first quarter, as I expect our debt load to be a little bit lower, again, by the end of the first quarter, as we use the proceeds from the sale of the semiconductor business sale, which were about $100 million pre-tax, to further reduce our revolver down to about $134 million right now. We do have a $500 million senior credit facility, and we have about $250 million available on that based on our trailing four-quarter adjusted EBITDA. We expect to have another strong year of cash flow from operations. There's plenty of flexibility in our capital structure to fund continued growth. Our capital deployment will continue to be, as it has been over the last several years, to be focused on growth and acquisitions.
We do have an authorization to buy back shares that if they present the right opportunity, and when measured against other opportunities, we could exercise on. Our focus continues to be based on growing the business. Getting off the balance sheet a little bit, because I know somebody will ask the question. We had two 10% customers for the year, one in the aerospace segment that was about 14% of our full year sales, and the other one also in the aerospace segment, which was about another 14% of our year-to-date sales. That was all I had, Pete, if you're ready to speak again.
I'm done talking. Thank you. Switching to look at 2019, in December, we issued initial aerospace guidance of $710 million-$745 million for 2019. That at the midpoint would represent 8% growth. We are sticking with that forecast for today. We are initiating test guidance now that the shoes have lined themselves up, $50 million-$60 million in 2019. If you were to back out semiconductor proceeds that we sold from the 2018 base, that guidance would represent, at the midpoint, about 14% growth for 2019. Consolidated, we're looking at revenue guidance for 2019 of a range of $760 million-$805 million. Again, consolidated at the midpoint of that range, we'd be seeing about 8% growth. We don't issue bottom-line guidance. I do want to talk about a couple of things that you might be curious about and be thinking about as we move into 2019.
The first is the potential for increased tariff costs. We talk about these from time to time, recently in our company, and I learned a new technical term from my CFO on this subject. It's a wild-ass guess, but he's talking about incremental tariff expense for us in 2019 based on a whole set of possible assumptions of about $10 million, compared to $2.6 million in 2018. That's our best guess at this point. A lot of things could happen. The tariffs could go away. Suppliers could resource production. There could be other hidden tariffs that we're not aware of. $10 million is kind of the number we're looking at. To spend a few more words talking about our three troubled businesses, AeroSat, CCC, Armstrong. We're not happy with the progress to date, but there is progress to date.
In the third quarter of last year, we had combined operating losses of about $11.2 million and $28.3 million through three quarters. Through three quarters, we've been averaging a little more than $9 million operating loss per quarter. The fourth quarter was $6.4 million. We're starting to see some predictability as to where we think things should settle out. $6.4 million, obviously, annualized would be $24 million-$25 million, which would be down from our 2018 total of $35 million. We think we're going to do quite a bit better than that. In fact, we think the first quarter will be about $6.4 million, similar to the fourth quarter. We expect it to drop from there as a few things happen to a rough range of about $2.5 million in the fourth quarter. We originally talked about being breakeven in the fourth quarter.
We think that's less likely now for a number of reasons. We think we're going to go from $6.4 million in the first quarter. We're going to end up about $2.5 million in the fourth quarter. That would be a pretty dramatic improvement over the $35 million year-to-date losses we saw in 2018. How's that going to happen? One thing that's going to happen by our plan is that revenues for those three companies will substantially uptick in 2019. They collectively ended up in 2018 at about $45 million in revenue. We believe they're going to be somewhere in the neighborhood of $80 million. There's substantial upside potential in the future on that. Obviously, when you're dealing with a year, you're dealing with a firm cut-off.
We think second half of this year, we're going to be seeing some ramps that are going to get us into that range. That's critical for a bunch of things. It's critical for seeing that operating loss start to be manageable by the end of the year. Why are we sticking with it? That's part of the reason we're sticking with it. We see that there are substantial opportunities in the market. We think we have some competitive offerings that we think are advantageous and desired by customers. There's some inherent demand. Our goal is not to operate these businesses at losses indefinitely. Our goal is to make them profitable, contributing members of the company, just like most other businesses. We got to get them to break even before we can do that.
That continues to be our goal, and we think we will continue to make progress and obviously draw attention to it as needed on calls like this going forward. We're pretty excited. We think the Semi Test move was a good move. We think it's good for us. We think it's good for our employees that went with the business, and a fair number of them did. Pretty much all the engineers and program managers and professional people that drove that business are now employees of Advantest. We think that it's a good time for our A&D business to stand on its own, and we think our aerospace business, which is 90% of our total, or 90+, has never been better situated than it is right now. We're looking forward to another strong year in 2019.
With that, Dana, I think we'll open it up for questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of George Godfrey with C.L. King & Associates. Please proceed with your question.
Thank you. Good morning, Dave and Pete.
Good morning.
Pete, on the three businesses, can you talk about what is holding up the ramp on each one? What I mean by that is, do you have to have product ready? Do you have to sell the customer on buying the product, or do you need partners to fulfill their obligations in order for you to then be able to sell your product? If you could just shed light on what holds or how that revenue ramp goes up on each of the three businesses. Thanks.
Sure. That's a good question. There are different answers for each of the three. Maybe I'll move from west to east. CCC, the big issue with CCC that they've been struggling with, really since we bought the company, is a development program for a pretty high-profile customer that they've struggled with mightily. We've had to incur substantially greater investment to make the program work than we thought we would. A smaller company or a less involved company might walk away from it. We did not feel like that was even the slightest option, given that this is our industry, and it's a pretty core customer and pretty core market, so we want to make it work. The key there is to get that technology proven out and get it functional, and then get it delivered.
A major milestone for them over the course of this year is to get that done. From a revenue expectation standpoint, we're looking at well more than doubling revenues at CCC based in part on the successful execution of this program. Armstrong, it's a little bit of a different deal. Armstrong is a certification company, engineering company, first and foremost. We merged it into Telefonix. I think, George, you were at our investor day in December. You'd have met a guy named Mike Kuhn, who's running both those businesses. They've done a really good job of integrating the skills back and forth that they need to be more successful in their business. It's been kind of a one-two punch of building up competency and strengthening weaknesses and going out to the market to find new opportunities to apply those capabilities. They're well underway.
I'd say of the three, Armstrong's actually in the best shape right now in terms of low risk and a bigger opportunity. If we were to start this discussion today, instead of talking about three troubled businesses, we might talk about two, and they would not be on the list. That leaves us with AeroSat on the East Coast. AeroSat's an antenna company, we have been stuck at the starting line, it seems, for about a year and a half now on a few programs, most prominently a tail-mount program that we call tail-mount. It's basically a smaller antenna that sits up in the tail of bigger business jets for transoceanic, primarily transoceanic type of services for Wi-Fi access.
We've been partnered with different companies, or came up with a partnership group to bring that program to life a year and a half ago or so. I think it was one of those things everybody thought it'd be about a six-month development effort, and six months turned into nine months, turned into 12 months, turned into 15 months. Eventually the teaming structure kind of fell apart, a new teaming structure came together. That new teaming structure is, by our account, way above where the old one was, we've got a handful of airplanes flying, and they're doing quite well from our perspective. The plan is that that program's going to get kicked off from a sales perspective in earnest early in the second quarter.
We think we're wrapping up kind of the test sequence of it and with our partners, we're ready to go. We think that as the year ramps, that will become more and more of a significant program. That was part of my comment earlier that, whether we're going to get to double sales or 90% of sales or 110% of sales is a little bit arbitrary based on some of these things getting kicked off in time. That gives you, hopefully, a little bit of a flavor of the three companies. We think we've got a good plan in place for the three. We think that that plan, if we come close to the revenue expectations, should bring those operating losses down to a much more manageable level in short order.
Got it. Thank you, Pete, for that. Dave, just one question for you is, what does the margin look like in the aerospace and defense test portion of the business if we take out semiconductor, just to get an idea for 2019, what that business is going to look like? Thank you for taking my questions.
Yeah. Our expectation, I think Pete mentioned, for 2019, is to be in the ballpark of breakeven on the test business, absent any structural changes in it that we'll be looking at throughout the year. That's our forecast right now is to be within spitting distance of breakeven, a little above or a little below. That's where we think it'll be.
That includes the New York City deal, correct?
Yes. Yeah.
Great. Thank you very much.
Our next question comes from the line of Ken Herbert with Canaccord. Please proceed with your question.
Hi, good morning.
Good morning.
Pete, just to maybe take it one step further, it sounds like then the loss you expect this year from the three businesses, CCC, Armstrong, and AeroSat, sort of maybe half of what it was in 2018, give or take, $17 million, $18 million. As I think about a cadence from the first and the fourth quarter numbers you provided, is that a realistic assumption?
I would hope that's conservative.
Okay. It sounds like you see a bit of a, maybe a step improvement from sort of the first to the second or second to the third quarter as you get into the back half of the year.
Correct.
Okay. As I look at those businesses, specifically on AeroSat, I know you've always or historically talked about this as a retrofit opportunity, but is there a forward fit opportunity for this antenna and is that a part of the mix or is that meaningful in sort of the 2019 opportunity, or is that really something that could kick in at a later date?
Well, it's a very good question. There certainly are forward fit opportunities. Connectivity is a hot topic, as you might imagine, for anybody buying an airplane, new or used. We think our best, quickest bang for the buck, so to speak, is the retrofit opportunity because there's this installed base of airplanes that needs to do something. That's the biggest initial target for us to go after. As you might expect also, the OEMs in that space are very observant and very interested in what's going on in the aftermarket. If they find an aftermarket trend or product that they really like, there certainly is a pull to the line fit side of the house. We're pursuing both with our partners and doing what we can to be ready and attentive. We think to begin with, it's primarily an aftermarket opportunity.
Okay. All right. That's helpful. Just a couple of points of clarification. You highlighted the tariff impact, and I think you said an incremental $10 million, versus sort of a $2.6 million incremental in 2018. Is the headwind $8 million or sort of $7.5 million this year, or is the headwind really sort of $10 million versus the $2.6 million last year?
Yeah. What I meant to say was there'd be incremental $7.4 million versus the $2.6 million last year. $10 million in tariff expense total.
Okay, great. That's helpful. Then you haven't talked about sort of the R&D spend for the year. I'm just wondering maybe with sort of where that ended in 2018 and any commentary or how we should think about that here in 2019, either on an absolute level or % of sales or however you'd like to talk about it.
Yeah, I can do that one. We ended up at about $114 million for the year. We began talking about R&D spend about 10 or more years ago when it was an important driver in understanding the fluctuations, period over period or year-over-year. The last couple of years, it's kind of leveled out, absent acquired R&D costs when we buy businesses. The plan going forward is we'll talk about it when there's some significant change to the run rate for the spend. We're at about $114 million in 2018. I would expect going forward, we would see some inflationary type of change to it, maybe a couple percentage points. A lot of it is dependent on salaries. Looking out in 2019, it looks like kind of the run rate we expect in 2019 will be similar to what we saw in 2018.
Okay. Very helpful. Just finally, I know we don't really get to talk about in-seat power segment much with everything else going on in the other businesses, but really nice growth there. Sounds like you're taking share. Sounds like, Pete, with a seat motion product. Can you just high-level maybe talk about some of what you're seeing in your airline customers around discretionary spend, in terms of interiors and sort of modification efforts and maybe how that's growing as part of the backlog growth in aerospace?
Sure. We, in general, see continued strong demand for in-seat power. It's been obviously a very strong platform for us for a long time, and it continues to be so. I would say that the trend towards standalone power systems, in other words, power systems without seat back IFE, in-flight entertainment, continues to gain in prominence in narrow body airplanes around the world. Our general approach is that in wide bodies, most wide bodies do get and will continue to get seat back IFE. Our approach to getting on those airplanes continues to be through the IFE providers who are very large customers of ours. The narrow body airplanes increasingly are more of a streaming content type of application in terms of IFE, so no seat back displays. Our approach to them is to go directly to the airlines.
We work with some 220, 250 airlines around the world. In general, people maybe aren't buying as many cell phones as they used to, but they all have them, and same with iPads and same with computers. The increasing prominence of connectivity on airplanes in the narrow body world in particular, means that demand for our product continues to grow, and we're doing really well with it.
Great. Thank you very much.
Sure.
Our next question comes from the line of Michael Ciarmoli with SunTrust. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the questions here.
Sure.
Pete, can we just go back, if you're assuming that those three businesses go from $45 million-$80 million, is that growth embedded in the guidance? If I assume $80 million for those three companies at the midpoint, it sort of implies that the rest of your aerospace business only grows at something like 3%. Can you give us sort of what you're thinking, or is that type of growth baked into the guidance?
It is baked into the guidance, not exactly the way you're doing the math. We put that guidance in there at the higher end of the range, and we discounted it for risk as we moved to the lower end of the range.
Okay. Fair enough. If you're going to get that kind of growth, 77% growth, but being less confident or less likely to see breakeven, what are some of those puts and takes? Are we going to see antenna sales in 2019? I think when you last gave us the update, we were waiting maybe to see how the antenna performed on the network. Is there any broad update you can give about the antenna? Is it in the marketplace yet, or what's the status there?
It's in the marketplace in the sense that it's flying around on a bunch of airplanes. You might remember we had a handful of airplanes flying under the old network, and those systems have, I believe, all been swapped out at this point. Those airplanes are essentially acting as test nodes for the new network, and we believe that that's all going very well. As for expectations, we would prefer not to get too granular in terms of what company's doing what, but I can tell you we're not going to come anywhere near to that $80 million, $85 million level without substantial antenna sales.
Okay. Do you anticipate what the timing would be for the first sales? Is there significant testing left that has to be accomplished?
No, I think it's more getting the sales cycle warmed up, getting the contract structure established, kind of things that are actually kind of beyond our scope. We've kind of done what we need to do, we think. There might be incremental things here and there, but we think we're kind of ready to go.
If you could just educate me on this. If I'm a business jet owner, if I'm a corporation and I'm already flying transoceanic in my business jet, I probably already have connectivity. There's a lot of players out there, whether it's Viasat, Honeywell, Collins. What's going to create the retrofit? Why am I going to say we need to go out and retrofit our existing solution? Obviously, bandwidth, but I'm just trying to figure out what drives this sales cycle against all those other established players.
Well, they would be competitors to some extent. There's a whole debate. Most of the competitors you listed there are Ka versus Ku.
Right.
There's a whole lengthy debate as to pros and cons there. Our belief frankly, is that Ku offers better global coverage, and with high throughput satellites coming online, the competitive differentiators between Ka and Ku tend to disappear. We think that there's not an overly intimidating field of competitors out there at this point. The other thing is the starting assumption there that most airplanes flying over the ocean are already connected. That is kind of true, but a lot of it is much older technology, not Ka, not Ku, even lower levels. We think that there's pent-up demand, basically, for these older airplanes to be brought up to modern standards, and that's where we're kind of targeting. It could be that Ka right now is line-offerable. I think, getting back to Ken's questions earlier, or maybe George's, but at the OEMs, there's a Ka presence there.
Part of the reason we want to go aftermarket to begin with is we think that's where the bigger volume is. That's where we think we can make more of a splash. We believe that as Ku proves itself with HTS satellites, and the price point becomes apparent, and the user community starts talking, we think we've got a good opportunity to move upward and displace Ka with Ku.
Got it. Okay. No, that's helpful. Just one more on an operating income bridge here, if I can. You talked about the three businesses. Maybe those losses get cut in half. I think you also had, earlier this year, a range of legal and some other one-time items, maybe in the nine-ish, $10 million. Is that the right way to think about bridging operating income growth from 2018 into 2019, adding back not only, or cutting those losses in half, adding back some of those legal and other one-timers? Can you just give us what the amortization might be in 2019?
Yeah. This is Dave. The amortization rate that we saw in the fourth quarter is going to run through most of 2019. I can get that for you in a second here, Mike. As far as the one-time cost that you're thinking of, I know in the first quarter, we talked about a million-dollar accrual for a legal issue. Important when you're looking at one quarter, kind of rounding when you look at a full year worth of expenses. Other than that, I'm not sure. We had, throughout the first three quarters, some increased loss accruals each quarter relating to that one long-term program at CCC. We did not have that in the fourth quarter.
Okay.
We don't expect that to continue into next year.
Okay.
Those were the big things. I don't have it at my fingertips right now for the amortization expense, but I'll get back to you before we're done with the call.
Got it. All right, I'll jump back in the queue, guys. Thank you.
I got it. It's about $16.5 million for 2019.
Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.
Good morning. Nice quarter. Do you expect, Pete, that 16.5%, roughly, core aerospace margin, ex the problem businesses, is likely to hold up through 2019, and if not, or if it'll be better, what are the puts and takes for that as you go through the quarters?
I'm not sure I understand. Can you say that again, Jon?
Yeah. You had 16.4% operating margins, ex the problem businesses in Q4.
Right.
Do you expect that to hold up through the next year?
Yeah. I think we're pretty comfortable with our margin profile in general. If I back up the clock, the whole reason we started talking about these three businesses is that there was some concern and pressure, basically, in the investor community about what was happening to our business in general. Our perspective was, most of it's doing great. We have these two or three things that are dragging us down that we need to fix. We still feel that way, and I don't think we expect anything else to bottom out on us here. I think we're pretty comfortable with kind of where we are. It's a competitive world, and we got some difficult customers and all that. In general, our hope is not only to get the three struggling ones to break even, but to have them become part of the contributing crowd.
If we do that, and the contributing crowd continues to maintain itself, 16.4% or whatever it was is low. It should be higher.
Okay, great. Thank you. Just going back to another question, and what you disclosed in the press release about the TES business being flatter or modestly profitable this year. Was that on an EBIT basis that you were describing that? Secondly, what do you want those target margins to be and what revenue or cost-cutting efforts do you have to make to get there?
Yeah. It's a very good question. We're hedging a little bit. We think we can get to a break-even EBIT basis over the course of the year. I should maybe mention this for clarity. In our first quarter press release, you're going to see some semiconductor revenue. Well, I guess in part because we didn't close till February 13th, but also we've got some service obligations that we're going to continue to have really over the next couple of years. There will be some residual semiconductor involvement and revenue there. Nothing that's market related. It's more contractual service based on past sales. You will see that. It's definitely a turning point for our business. Semiconductor has been lumpy, and it's been stressful at times. When it's good, it's really good. When it's bad, we've had to adjust.
One of the things that we've learned to appreciate, I've learned to appreciate, is that the crew that we have in our test business is pretty resourceful, and they tend to do pretty well at responding to a challenge. This is a challenge. This is a changing of the structure of the business. On the one hand, a lot of the overhead structure that was dedicated to semiconductor has gone with the sale. Our headcount's way down in our Irvine, California, operation related to that. There's a lot of the structure that was shared that did not go. We've got that still. We have to do an analysis of kind of where this transaction leaves us and what our prospects are going forward in other businesses and other things that we might do to diversify ourselves and bring in more volume.
We're pretty pleased with the plan we have in place. Again, we didn't go out trying to instigate this sale. It kind of came to us. Given that it did, and we felt we should pursue it, our remainder business, looking at 14% organic growth in a year like this, it's a good time to have it. We're pretty pleased with that. Obviously, we'll be updating on the test business as the year goes on. We don't pretend to have all the answers at this point, but we certainly don't think it's a crisis. We're not going to be talking about our test business like we've been talking about our three struggling business on the aerospace side.
Okay, great. From a margin perspective, is it going to start off pretty rough and then it progressively improves, or how do you see that going through the year?
It's going to show a pretty substantial gain in the first quarter, I can tell you that. It's probably going to start off weaker, and when you back out the proceeds of the revenue of the sale, and then it'll stabilize and normalize towards the end of the year.
Okay, great. Thank you.
Yeah, we expect the revenue relating to that rail program to pick up as the year goes on.
Our next question comes from the line of Richard Ryan with Dougherty & Company. Please proceed with your question.
Thank you. Pete, maybe to follow up on some of your latest commentary there. On the A&D test, you got two facilities supporting the $50 million, $60 million in revenue. Obviously, maybe some rationalization going on there. A broader question, how does the pipeline of opportunity look there? I know when you're striving to get kind of into a prime position versus a supplier position. Can you just kind of talk about the pipeline of opportunity for that business?
Yeah, we think it's as strong or stronger than it's been in quite a while. We have been waiting for more of a robust market, maybe, in response to a regime change in Washington than has happened over the last couple of years. It appears to us that there are certainly more opportunities happening, and our bookings have been reasonably strong. Our quoting activities have been reasonably strong. I'd say we're more and more comfortable. It's going to be a lumpy business, so it's got to be a business where when the times are good, they have to be good. There are going to be times when the volume's lower and the margins are worse. We have to kind of keep that in mind as we restructure the business. It's not 50% of our overall business.
It's going to be about 7% or 8%, at least this year. Barring substantial growth or acquisition or something like that, I expect it'll kind of stay in that range. We do have the two facilities that you talked about. We're going in with eyes wide open as to how we navigate this. The two facilities are not plug replaceable. We do different things in different places, so it's really not a kind of a slam dunk kind of go forward option. We've got some people right now trying to figure that out. Decide kind of where we go from here. As you can imagine, where we thought we were going to be with the semiconductor sale up until late December, was very different than where we ended up. That was not a trivial exercise in and of itself.
Our primary focus has been to bring that sale to a successful conclusion. We think we've done that, actually. Now the exercise is to figure out what we have left and where we go from here. More on that as it comes. I expect we'll certainly know more by the end of the first quarter when we release first quarter results.
Okay, great. Any updates on EPDS opportunities, the current contracts you have, and any potential wins down the road?
EPDS, electronic power distribution. I don't have anything specific for you, Dick, but maybe one of these days we should start to do kind of an overview because it is certainly an active part of the business, and we have established ourselves, in my humble opinion, as the go-to people for that kind of flight critical power in smaller aircraft. There was a time when we had to look long and hard to find people willing to even consider us. I think we've established ourselves as the people such that now, I would dare say that in the industry around the world, an airplane doesn't get developed without us being invited to at least consider participation. We don't jump at everything. We don't do everything. We do pretty much we have a very high hit rate when we decide to pursue something.
It's because, we've got the scars to prove it. We've got the capabilities and the maturity of the architecture to do it well, and the industry knows that. We're about at the point, now that you bring it up, in 2019, maybe a little bit more in 2020, 2021, where this is going to be more and more of a meaningful part of our financial results. Why don't you let me have the homework of maybe doing a little side expose of that on one of these calls over the next coming quarters and we'll revisit the topic.
Sounds good. Thanks, Pete.
Thank you.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is a follow-up question from Ken Herbert with Canaccord. Please proceed with your question.
Thanks. Hi, Pete. Just one quick follow-up. You've got, in the aerospace business, another one to two quarters here, the first half of 2019 with much easier comparisons than in the second half. As we think about the organic growth, is there anything from a cadence standpoint across 2019 we should be aware of, just considering the comps and how 2018 progressed?
It's a good question. We expect the first half of the year to be stronger than the second half. There's a bunch of moving parts in there, and part of it is just by the time you get to the second half of the year, there are a lot of orders that could pop up between now and then that aren't in the books yet. We were a little bit, I was intentionally vague there because I don't think we really know. At this point, it looks like the first half is going to be a little bit stronger.
Okay, great. Thank you.
Sure.
Our next question comes from the line of Michael Ciarmoli with SunTrust. Please proceed with your question.
Hey, thanks for taking the follow-up, guys. Pete, just on the test business, on the subway program, how are you thinking about that program? Are there going to be any startup costs or learning curves associated with that? Just trying to think about how that program ramps up.
Another good question. It's a substantial award, we feel, in part because it's a little bit of a outside the bounds of what we've done in the past. At least it would look that way to the outside observer. On the other hand, it's kind of right up our alley in that the philosophy of test that the customer, in this case, wants to drive towards is remarkably similar to what we've done in certain other arenas, including defense arenas, like with the Marines or the Navy or whatever. We're bringing a skill set to a new customer, and I'm sure there will be learning curves, and we think we've got it pretty well circled in terms of what the risks are. Definitely it's a little bit different anytime you do something different.
I don't care what it is or who you are, there's some risk of things, risk of learning opportunities. How's that? At the same time, let me just say that our sense is that there's really a substantial body of demand in this arena, I'm talking about rail and subways specifically, around the world, and there are lots of cities that use rail and subways. Our feeling is that the way things have been done prior to this award and prior to our involvement, are a little bit different than the way they're going to be done in the future. If the world kind of shifts towards the New York City model, we could have a pretty good opportunity here. We are involved in various other discussions and conversations that could lead to bidding activity, that could lead to other awards.
This is going to be an interesting thing. Obviously, as developments go over the course of the year, we'll know how our engineering efforts, which are already well underway, are proceeding, and we'll know how the market is responding. You might imagine that if you were responsible for the subway system, and I'm just going to pick a city, D.C. maybe. I'm just guessing. I'm just picking them at random. Pretty much every city, in the U.S. anyway, that has a rail system will pay attention to what New York City is doing. New York City made a big statement going in our direction on this program. We think that if we do it right and we do it well, we can solve some of the problems New York City's historically had.
If we do that right, it could lead to other opportunities in other cities. Who knows? We're pretty excited about it, though.
Perfect. Thanks a lot, guys.
Sure.
Our next question comes from the line of Michael Wallace with White Pine Capital. Please proceed with your question.
Good morning, Peter, and Dave.
Good morning.
How are you?
Good. How are you?
Good. A couple questions. Nice job on generating some good cash flow from the business this year.
Thank you.
Paying down some of the debt, and that's despite the receivable balance at $47 million at the end of the year. We're going to get $100 million from the test business in cash. Can you talk a little bit about what you plan to do with that? Looks like we reduced some debt over the year. Just give us some thoughts on that. Thank you.
When those kinds of checks show up, Dave doesn't let me have them. Dave, do you want to answer this question?
I mentioned earlier that we took the $100 million and paid down debt initially. There will be a tax bill due on it probably later this quarter or beginning of the second quarter that'll be about $25 million, I think our estimate is on the cash taxes on that. The short-term plan is, as we did, we paid down $100 million on our revolver.
Okay. Good. There wasn't really any share repurchase activity for the last year. What's your thoughts on that?
Again, the focus is on growing the business and reinvesting and continuing to look at acquisitions as the priority.
Okay. Operating margins in the aerospace business saw some nice improvement year-over-year as the three troubled companies started to show a little bit of improvement in some other volumes. How should we think about operating margins as we look out into 2019 for the aerospace business?
Yeah, I think the fourth quarter was a good example of some nice improvement in the aerospace operating margins. If we operate at that level of revenue, I expect that's a continued achievable number there. As Pete mentioned earlier, we're facing a $10 million headwind, mainly in our aerospace segment relating to increased costs for the tariffs. I should say incremental $7.5 million there. That presents a little bit of a challenge to us as we continue to explore alternatives to buying some of those electronics from China. My comment is the fourth quarter was a good solid aerospace quarter with no real strange muddiness to it.
Would that be a good base to think about as we build off of for 2019?
Yeah. For aerospace, certainly. Again, unfortunately for the last year or two, we've continued to have a lot of muddiness in one-off things that have happened. We didn't have any of that in the fourth quarter. It is a good representative quarter for us.
Yeah, it's probably one of the cleaner quarters we've seen in the last several of them. Could we see a lift of 100 to 200 points over the next 12 months in that as you look through your backlog and think about converting it to revenues and running it through the business? How should we think about improvements from the 12.7%?
Yeah, a lot of it'll depend on sales mix. We intentionally stay away from providing specific guidance on operating margins. I would say that there is opportunity to expand margins. As Pete said, when you carve out the three problem businesses. The remaining operating margins for the rest of the aerospace segment is really strong. The challenge, and the big opportunity for us to increase our margins, is to improve those three or probably more appropriately, those two real problem areas that are dropping our aerospace margins down. That's what we expect to happen. We mentioned earlier that with regard to CCC and AeroSat, it's a top-line thing there. We need to get top-line growth there to see the margin improvement. CCC we had a really strong booking quarter.
We don't generally call out specific bookings for our different business units, but the bookings were good. Best bookings we had at CCC since we bought the business were in the fourth quarter.
Our last question comes from the line of George Godfrey with C.L. King & Associates. Please proceed with your question.
Thank you. Just a quick one. Dave, what is the remaining share authorization? Then, I heard you say you're focused on M&A activity with the proceeds, is it safe to assume we get those three businesses fully fixed and functioning where you want them before we see any more M&A activity? Thanks.
Yeah. There's a $50 million share repurchase authorization. I wouldn't say that the fixing of the two problem businesses that remain is mutually exclusive from continuing to look at acquisition opportunities. We have a solid team behind us with the people that are running those businesses now that are the primary focus and the people with the broad shoulders doing most of the work at those two businesses. We have others that continue to look at acquisition opportunities. I don't view fixing those two businesses as diluting our ability to continue to look at acquisitions.
I would add that, if you could script the world perfectly, that might be the way to do it, but you can't script the world perfectly. If and when you find things that are good acquisition candidates, whether you're ideally ready for them with other things going on in your business or not, you got to take them. The best case in point is our last acquisition, which was the Telefonix acquisition of a year and two months ago, which just has worked out to be super. That was in the face of all these other three things working their way out. Most people who are involved in the acquisition game will tell you that you need to have the big hits every once in a while to compensate for the ones that are more of a struggle. Telefonix is one of those big hits.
We've had a few of them, we're really pleased with that acquisition. That's one of the better ones in recent history.
Understood. Thank you very much.
Sure.
Ladies and gentlemen, we have reached the end of the question and answer session, I would like to turn the call back to Peter for closing remarks.
Okay. Well, thanks for your attention today. We're pretty pleased with how 2018 worked out. There were struggles. There are always struggles. Overall, we felt it was a really good year. We think we're really well positioned going into 2019. Thanks for your attention. We look forward to talking to you again at the end of the first quarter. Have a good day.