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CompanyName:TextronIncCompanyTicker:TXTSector:Indust rialGoods

Industry:Aerospace/DefenseEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 34

Textron(TXT)EarningsReport:Q32014ConferenceCallTranscriptThefollowingTextronconferencecalltookplaceonOctober17,2014,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DougWilburne;Textron;VP,IRScottDonnelly;Textron;Chairman,CEOFrankConnor;Textron;CFO

OtherPart icipants

JoeNadol;JPMorgan;AnalystCarterCopeland;Barclays;AnalystNoahPoponak;GoldmanSachs;AnalystRobertStallard;RoyalBankofCanada;AnalystJohnGodyn;MorganStanley;AnalystJonathanWright;Nomura;AnalystPeteSkibitski;DrexelHamilton;AnalystCaivonRumohr;Cowen&Company;AnalystMylesWalton;DeutscheBank;AnalystJulianMitchell;CreditSuisse;AnalystJasonGreer;Citi;AnalystGeorgeShapiro;Shapiroresearch;AnalystSheilaKahyaoglu;Jeffries;AnalystRonEpstein;MerrillLynch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

Ladiesandgentlemen,thankyouforstandingbyandwelcometotheTextronthirdquarterearningscall.

Atthistime,allparticipantsareinalisten-onlymode.

Later,wewillconductaquestion-and-answersession.

(OperatorInstructions).

Asareminder,thiscallisbeingrecorded.

I'dnowliketoturntheconferenceovertoourhost,VicePresidentofInvestorRelations,Mr.DougWilburne.

Pleasegoahead,sir.

DougWilburne (VP,IR):

Thanks,Bradandgoodmorningeveryone.

Beforewebegin,I'dliketomentionwewillbediscussingfutureestimatesandexpectationsduringourcall




today.

Theseforward-lookingstatementsaresubjecttovariousriskfactorswhicharedetailedinourSECfilingsandalsointoday'spressrelease.

OnthecalltodaywehaveScottDonnelly,Textron'sChairmanandCEO,andFrankConnor,ourChiefFinancialOfficer.

OurearningscallpresentationcanbefoundintheInvestorRelationssectionofourWebsite.

Textron'srevenuesinthequarterwere$3.4billion,up$526millionfromlastyear'sthirdquarter.

TheBeechcraftacquisitioncompletedattheendofthefirstquartercontributed$398milliontotheincrease.

Incomefromcontinuingoperationswas$0.57pershare,comparedto$0.35inthethirdquarterof2013.Textronaviationoperatingresultsincludeda$10millionreductiontosegmentprofitfromfairvaluestep-upadjustmentstoacquiredBeechcraftinventoriessoldduringthequarter,plustherewasanadditional$3millionchargerelatedtoBeechcraftrestructuringcostswhichwererecordedonaseparatelineforacquisitionandrestructuringcosts.

Together,theseitemsreducedEPSby$0.03pershare.

Manufacturingcashflowbeforepensioncontributionswas$144million,comparedto$269millioninlastyear'sthirdquarter,bringingyear-to-datecashin-flowto$304millionlcomparedtoauseofcashof$518millionatthispointlastyear.

Thirdquarterpensionpcontributionswere$17million,andwiththatI' llturnthecallovertoScott.

Scot t Donnelly(Chairman,CEO):

Thanks,Dougandgoodmorningeverybody.

Revenueswereup18%inthequarterreflectingsuccessofnewproductinvestmentsandouracquisitionstrategies.

ForexampleatindustrialwesawgrowthacrossallourbusinessesreflectingtheimpactofnewproductintroductionsandrecentacquisitionsinthesegmentsuchasTUGTechnologies,DixiechopperandHDelectric.

Onthenewproductfront,TextronspecializedvehiclesweintroducedthenewrecoilIS.Withacargobedandtwoforwardfacingbenchseats.

Completelyrefreshedfrontrotarymotorfeaturingandallhydraulicdeck.

AndTextrontoolsandtestinAugustwemadeasmalltechnologyacquisitionthatresultedinthelaunchofanewproduct,thedatascout10GwhichfurtheraddstoourcurrentfamilyofEthernettransportnetworkanalyzers.

RevenuegrowthreflectedautomotivestrengthintheNorthAmericanmarket,whichdidovercomesomesoftnessinEurope.

Movingtosystems,revenuesweredowninpartduetodelayinthetapvehicleprogramforwhichwehadexpectedtobegindeliveriesinthequarter.

LreliabilitytestinginAugustweidentifiedtheneedforanumberofdurabilityimprovements.




Incooperationwiththecustomerwedecidedthebestapproachwastosuspendthetestingtosupportanoptimalredesignandretestprocess.

Webeabletomeetthevehicledurabilityrequirementswithrelativelyminormodificationstooursteeringsystem.

Weexpecttheredesign.

Initialdeliveriesbyaboutoneyear.

Elsewhereatsystemswe'remakingprogressonanumberoffronts.

OurTCDLprogramthecustomersagreetobeginacceptingunits.

Ourunmannedsystemsbusinesswasrecentlyawardedacontracttoprovideanunmannednavalminedetectionsystemforuseinconjunctionwiththenavy's.

Thisworkvalidatestheinvestmentwe'vebeenmakingtoleverageourunmannedtechnologiesintoMarinebasedapplications.

Simulationandtrainingbusinesswe.WhichwillcomplementourWestCoastfacilityinCarlsbad,California,providingmoreconvenientaccessforourcustomers.

Earlierthisweekweannouncedwe'llbeopeningatrainingbcenterinSpainin2016withafullflightsimulatorasourinitialoffering.

WedeliveredaBoeing737NGsimulatorthatwillbeusedatBoeing'strainingcenterinSingapore.

ChinaexpressairlineswithaBombardierfullpointsimulatorforpilottraining.

ContracttoprovideAirbusfullflightsimulator.

Oneofthelargesttrainingoperators.

Wedelivered.

ComparedtoV-22sandsevenH-1.Downfrom54ayearago.

Wecontinuetoseesloworderflowacrossthecommercialhelicoptermarketcomparedtolastyearandatthispointwithonlyaquartertodidweexpect2014commercialdeliverieswillbedownfromlastyear's213units.

DespitethisenvironmentBell'swinrateremainsfavorableespeciallywithourmodel429wheredeliveriesareupyear-to-dateoverlastyear.

InChinawereceivedregulatoryapprovaltoconducthelicopterpilotandmaintenancetrainingtosupportourgrowingbusinessinthequarter.

Lduringthequarterwewerealsonamedthenumberoneproductsupportorganizationbyaviationinternationalnewsfortheninthconsecutiveyear.

Wecontinuetomakegreatprogressondevelopmentofourrelentlessprogram.

Ourfirsttwotestvehiclesareinfinalassemblyandthemanufacturingprocessisgoingsmoothlythanksinlargeparttotheuseof.We'vealsobegunsafetyflighttestingformostofthemajorcomponentsofthesystems.Inordertoaccumulatethehoursnecessaryto.Wenowanticipatefirstflightwilloccurduringthefirstquarteroftheyear.




Developmentofour505JetRangerXprogramisalsoproceedingwellwithfirstflightstillexpectedbytheendofthisyear.

Wealsobrokegroundforournew505assemblyfacilityinLafayette,Louisiana.

Wecontinuetosignnewcustomerpurchaseagreementsreflectingsoliddemandfortheaircraftinthemarketplace.

MovingtoTextronaviationinthequarterwedelivered33jetsand30KingAirturboprops.

Lastyear'sthirdquarterwedelivered25jetsandBeechcraftdelivered26KingAirswe'reseeinganumberofencouragingtrendsatTextronaviation.

IntegrationofBeechcraftisgoingextremelywellwhichisevidentinourcostproductivitywithasignificant.

Anotherexampleofintegrationbenefitistherolloutofanewproductsupportprogramforourkingpropcustomers,basedonCessna'spro.

Onthemarketfrontwecontinuetoseetheavailabilityofusedaircraftcomedownandourownedusedtrade.

WehaveseenapickupinorderactivitysinceSeptember.

Withimprovingmarketdynamicswe'reencouragedaswepreparetoexhibitourfulllineofproductsatnextweek'sannualNBAAshowincludingthedebutofthefirstfullyconfigured.

Hadtheopportunitytoseethelatitudefirsthand.

It'sagreatlookingairplaneanditmakesanimpressivestatementaboutvalue,comfort,styleandperformance.

Infact,withover600accumulatedflighthoursanddevelopmentprogramwerecentlyannouncedtheaircraft'srangehasbeenincreasedto2,700nauticalmiles.

Towrapup,webelievewehadasolidthirdquarterwithoverallrevenuegrowth,improvedmanufacturingmarginsandsolidcashflowperformance.

Furthermore,ourstrategyofinvestinginnewproductsispayingoffandwe'reseeingsignificantcontributionsfromourM&Ainvestments.

Withthat,I' llturnthecallovertoFrank.

FrankConnor(CFO):

Thankyou,Scott.

Goodmorningeveryone.

Segmentprofitinthequarterwas$293million,up$85millionfromthethirdquarterof2013ona$526millionincreaseinrevenues.

Let'slookatyouhoweachofthesegmentscontinuedstartingwithTextronaviation.

AtpTextronaviationrevenueswereup$487millionfromthisperiodlastyearreflecting$398millionofacquiredBeechcraftrevenueandhighernewjetvolumes.

Thesegmenthadaprofitof$62millioncomparedtoalossof$23millionattheCessnasegmentayearago.




ThisreflectedtheimpactoftheBeechcraftacquisition,highernewjetvolumeandfavorablepricingandinflation.

Backloginthesegmentendedthequarterat$1.4billion,approximatelyflatwiththeendofthesecondquarter.

MovingtoBell.

Revenueswereup$20million,reflectinghigherV-22programvolume,partiallyoffsetbylowerH-1andcommercialdeliveries.

Segmentprofitincreased$15millionfromthethirdquarterin2013,primarilyreflectingfavorableperformance.

AtTextronSystems,revenuesweredown$47millionreflectinglowerMarineandlandsystemsvolume,partiallyoffsetbytheimpactofacquisitions.

Segmentprofitwasdown$8millionreflectingthelowervolumes.

Industrialrevenuesincreased$74million,duetotheimpactofacquisitionsandhigheroverallvolumes.

Segmentprofitincreased$1million,reflectingtheimpactofhighervolumes,offsetbyanunfavorablemixofrevenuesinthequarter.

Financesegmentrevenuesdecreased$8million,primarilyduetogainsonfinancereceivabledispositionsduringthethirdquarterof2013.Segmentprofitdecreased$8million,primarilyduetoprioryearimpactsofloanlossreversalsandgainsassociatedwiththedispositions,partiallyoffsetbyloweradministrativeexpenses.

Non-accrualaccountsendedthequarterat$101million,up$13millionfromtheendofthesecondquarter,while60daydelinquencieswere$70million,down$26millioninthequarter.

Movingbelowthesegmentprofitline,corporateexpenseswere$22million,andourtaxratewas30.7%.

Interestexpensewas$37million,upfrom$29millionayearago,reflectingdebtcostrelatedtotheBeechcraftacquisitionfinancing.

Werecorded$3millionofrestructuringcostsinthequarter,ontheacquisitionandrestructuringline,andwestillexpectfullyearcostofabout$45million.

Duringthequarterwerepurchasedabout4.1millionsharesatanoverallcostofabout$152million.

Wealsorepaid$200millionofour$500millionfiveyearbankloanfromtheBeechcraftacquisition.

Finally,weareincreasingourfullyearearningspersharefromcontinuingoperationsguidancetoarangeof$2.05to$2.15ashare,andincreasingourestimatedmanufacturingcashflowfromcontinuingoperationsbeforepensioncontributionsto$700millionto$800million.

Thatconcludesourpreparedremarks.

Brad,wecanopenthelineforquestions.

QUESTIONS&ANSWERS

Operator:

Thankyou.




OurfirstquestionwillcomefromJoeNadolwithJPMorgan.

JoeNadol(Analyst-JPMorgan):

Thanks.

Goodmorning.


Goodmorning.


Scott,justfirstofallonthesystemssideofthings,giventhatthere'ssomelargelumpyprogramshere,ifyoucouldjustmaybegiveusanupdateonwhatyouexpectrevenuetobefortheyearrelativetoyourearlierexpectations.

AndthenIknowyou'renotgoingtogive2015guidanceyetbutaswethinkabouttheyeardelayonthevehicleprogram,what'stheprofilesortofthequarterlyrunrateweshouldbethinkingaboutuntilyoustartthosedeliveries?


Firstofall,Joe,therevenueatsystemsisprobablygoingtobedownabout300fromwhatwewereoriginallyforecasting.

Andthat'sprincipallydrivenbyvehicleprograms.


Okay.

Andthenintonextyear?


Youknow,we'reprobablynotgoingtogointo2015guidanceyet,Joe.

Wehavealotofworktodohereatthebalanceoftheyear,makesurethatweknowwhereweareonthetapVprograminparticular.

We'rewellintotheanalysisphase.

Wefeelprettygoodwithoutwhereitis.We'rejustbasedonthatstartingtolayoutwhatthatrecoveryplanlookslike.

IthinkweprobablywouldprefertowaitandgiveyoutheguidanceonthatwhenwegetintotheJanuarycallfor2015.


Okay.

Overataviation,goodmarginthere.

WhenwethinkabouttheBeechcostsavesthatyoulaidoutatthetimeoftheacquisition,isthereawayof




thinkingabouthowmuchofthatisnowembeddedin--onarunratebasisintheQ3number?


SoJoe,absolutely.

Imean,clearlywhat'shappeninghereisthatthenumberthatweguidedyouguys,we'regettingtherequickerisbasicallywhat'shappening.

Ithinkthespeedoftheintegration,ofthecosttake-out,theintegrationoftheorganizationsandwhatnothashappenedquickletterthanwelaidout.

Westillfeelprettygoodabouttheabsolutenumbersthatwegaveyoubutwe'regoingtogettheresooner.

Soobviouslythat'sgoingoftodrivesomemarginexpansionintheyear.

That'spartofwhat--thelargestpart,franklyofwhat'sdrivingourincreasetoourguidance.

Wehadsaidoriginallythattohelpyouguysthinkabout2015tothinkaboutacouplehundredbasispointimprovementoverwherewewouldbethisyear.

Obviously,that'snotgoingtobeasbiganumberbecausewe'regoingtoachievemoreofthatthisyear.

Sowhenyouthinkaboutgoingforward,it'snotgoingtobea200basispointbecausewe'resortofraisingthebarthisyear,onlybecausewe'regettingtherequicker.


Okay.

Andthenjustfinally,stickingwithaviationhere,youmentioned--IthinkyoumentionedthatordershavepickedupsinceSeptember.

Iwasn'tsureifyouweretalkingaboutcertainmodelsormaybeifcouldyoujustgivesomecontextthereandtalkaboutthemarketenvironment,demandenvironmentforCessnajetsinparticular.


Ithinkwehaveseenanoverallbetterdemandenvironment.

JulyandAugustarealwaystough.

Peopleareoutonholiday.

Butthere'snodoubtthataswetgotintosortoftheSeptemberandbeginningofOctobertimeframe,we'veseenaprettysignificantuptickintermsofthedemand,thelevelofactivityoutthereandit'sprettymuchacrosstheboard.

We'restilldoingverywellintheM-2thisyearasit'sanewproductandacrosstheCJlinewe'realittlebitlightonCJ-3isthisquarterbutthat'sdrivenbythefactitwasreallyatransitionfromtheoldCJ-3totheCJ-3pluswhichisnowcertified.

Wefeelgoodaboutdemandforthat.

Sovereignsaredoingverywell.

XL'saredoingwell.



©2014TheStreet,Inc.AllRightsReserved Page8 of 34

ProbablyhaveseenoneofthestrongestSeptember,Octoberlevelsofactivitythatwe'veseeninquitesometime.


Okay.

I' llturnitovertosomeoneelse.

Thanks.

Operator:

AndournextquestioncomesfromCarterCopelandwithBarclays.

CarterCopeland(Analyst-Barclays):

Goodmorning.

Thanks.

Iwonderedifyouguyswouldexpandalittleonthemiximpactthatyoucalledoutinindustrialasunfavorable,andthenperhapsjusttellusiftherewasanythingintheBellmarginthatwasone-timeyinnature,perhapsrelatedtothe--gettingtotheendoftheV-22multiyearcontractaheadofthetransitiontothenextone.

Thanks.


Sure,Carter.

SoontheBellfront,firstofall,therewasnothingunusualinthere.

IthinkifyoulookatthetotalCompanyintermsofcumulativecatchadjustmentsitwasonly$10millionacrossallofTextron.

TherecertainlywassomepositivecontributionthereinBellbutnothingthat'sunusualforusinatypicalquarter.

Itwasreallydrivenbystrongperformanceinthebusiness.

Asyouknow,we'restillfightingourwaythroughalittlebitoftrappedinventorycostsfromlastyears'issuesandinefficienciesaroundsomeofthelaboractivities.

Westillfaceheadwind.

Ithinktheguysdidanicejobofperforminganddeliveringaprettygoodmarginrate.

Justcontinuetotrytodrivethecostbasedowninthebusiness.

Withrespecttotheindustrialsegment,themargin--thisisthefirsttimeinawhilewe'venothadamarginexpansiononaquarterbyquarterbasisinthatbusiness.

It'salittledisappointingbutIthinkwe'llcallthatbackhereaswegetintothefourthquarterandstillturnayearthathasmarginimprovementinthebusiness.




Intermsofthemix,largelydrivenwithinourautomotivebusiness,we'reseeingsomesignificantgrowthinourSERbusiness.

Aswetalkedbefore,theSERsdocomewithalowerreturnonsalesbecausethere'slargecomponentofcostthat'slargelyapasscar-throughonthatsothatdoesprovidesomedilutionintermsofouroverallROSnumber.

Thatwasprobablythebiggestmovingpartinthere.

It'sbeenatoughyear,frankly,intheGulf,intheturfbusiness.

IthinkyouprobablyhearthatfromeverybodyintheturfsidesoJakeishavingalittletougheryearthanusual.

ButtheCaltechpiece.

Lowmoldingtanksideistheprimarydriver.


Great.

JustperhapsaoneortwoforFrank,justclarification.

OntheBeechinventorystep-upimpact,Ithinkyousaidlastquarteryou'dbeenthrough45of65youcalledout.

Yousaidanother10thisquarter.

Arewestillexpectingakindof$10millioninthefourthquarter?

Andthenwithrespecttothecorporateexpense,itlookslikegiventhepatternofthefirstthreequartersyoumightbeunder-runningthatfullyearexpectationslightly.

Isthatthecase?

Anddidthatcontributeatalltotheincreaseintheguidanceaswell?

Thanks.

FrankConnor(CFO):

Onthestep-up,yes,we'reat55nowasyoupointoutandweexpectabout10forthefourthquarterandthenwe'llcarryoverprobablyabout15intonextyearaswellintermsofadditionalstep-up.

Sothere'snochangethere.

Oncorporateexpense,no.Wealwayshavequarterlyvolatility.

Itrevolvesaroundkindofsharepriceactivityandjustlevelsofspend.

Sowe'restilllookingatabout$150millionfortheyear.


Okay.

Great.




Thanks,gentlemen.

Operator:

AndournextquestionwillcomefromNoahPoponakwithGoldmanSachs.

NoahPoponak(Analyst-GoldmanSachs):

Hi.Goodmorningeveryone.


Goodmorning.


Scott,IwantedtoaskaboutBellcommercialandIguesswhatI'mwonderingisyouhadthisbigstep-upthepasttwoyearsinaprettystrongmarkettothiskindof180to215aircraft,callit,peryear.

Eachofthenexttwoyearsasyouseeitnow,doesthisbusinessstayupinthatkindofannualdeliveryrange?

Orwastheresomuchdemandfromaparticularendmarketoraparticularproductcyclerecentlythatthisbusinessneedstorevertbacktothe150to170kindofrangethatithadinalotofgoodyears,butnotquiteasgoodas2012and2013wereinthepast?


Ithinkwe'llstayintherangethatyoutalkedaboutatthebeginninghere.

Predictingtheendmarketobviouslyisabitofawildcardandweareseeingsomeslownessrightnow.

ButIthinkwhat'simportantisthatoursharehasincreasedoverthelastcoupleyearsasaresultofalotofwhatwedon't.

Eveninamarketthatwouldbelikethemarkethadbeenbackwhenwewereinthosecallit115to150days,Ithinkoursharehasimprovedandwouldkeepusinthatkindof180plusrange.

Lastyearwas213.Idothinkwe'llbedownsomewhatfromthataswelookatthebalanceofthisyear,justbecauseofwhat'shappeninghereinsoftness.

Idon'tseeusgoingbacktotheolddays,primariliesbecauseourshare'sinaupmuchbetterposition.

Aswegetinto2016andbeyondasyouaddinthe505andthe525.Wherewe'llbefromatotalnumberofdeliveriesofhelicopters.

I'mtryingtoisolatealittlebitfromthemarketpauseIcan'treallypredictthatbutIcertainlyhaveseenaaswetalkedaboutbeforeourshareincreaseandIthinktheproductinvestmentsarecertainlypayingoffand505,25willonlyhelpthatgoingforward.


Onthemarket,canyouelaborateonwhereyou'veseensomeincrementalsoftness?

Isthatinoilandgasbecauseofoilpricesorelsewhere?

Anycoloryoucangiveusthere?





Ithinksomeoftheoilandgashaswithinbeensofter.

We'reseeingslowdownsinEMS.Certainlythingsaroundtourism.

It'sreallykindofacrosstheboard.

AndIthinkit'sjustalotofpeopleconcernedaboutwhat'sgoingonaroundtheworldeconomically.

SoIdon'tknowthatwe'veseen--it'sprobablytoosoontoseewhatthereactionoftheoilandgasmarketistothedropsinthepriceofoil.

Butthat'savariableIthinkstillneedstoplayout.

Mostofwhatwe'veseenthisyearversuswhereweexpectedwasaroundthingslikeEMSandcertainlysomeoilandgashasbeenalittlesofterevenbeforewe'veseenthesechangesinoilprice.


Okay.

Andyoucalledoutfavorablepricinginaviation.

Anyadditionaldetailyoucanprovidethereonwhereandtowhatdegreeyousawthat?


Intermsoftheaviationbusiness?


Yeah,yeah.


Youknow,it'smoreorlessfirmedupacrosstheboardonourproducts.

Ithinkpartofthatagainisdrivenbynewproducts,havingtheM-2outthere,havingthesovereignoutthere,theCJ-3plusupgradeIthinkcertainlyhelpsus.Importantly,ontheusedside,we'veseenpricesarenotgoingupbutthey'refirmingandnotcontinuingtodropandthatresidualimpactcertainlyhasaknock-oneffectintonewaircraftpricingaswell.


Andtheinflationcommentthat'sseparatefrompricing,canyoujustexplainwhatthatisandwhyit'sdifferent?

Youcalledoutpricingandinflationseparatelyinthepressrelease,Ithink.

FrankConnor(CFO):

We'veseendeflationataviation,justkindofdueto--inparttoourscaleandkindofpurchasingactivityandthings.

Sowe'vekindofbenefitedfromsomegoodcostproductivityonthesupplysideataviation.





Ithinkthat'sjustinthegeneralcategoryofproductivity.

We'reseeingsomegoodproductivityintermsoflaborintheplants.

We'reseeinggoodproductivityintermsofsupplierpurchasing.

It'sreallyacrosstheboard.


Okay.

Allright.

Thanksalot.

Operator:

AndournextquestionwillcomefromRobertStallardwithRoyalBankofCanada.

Robert Stallard(Analyst-RoyalBankofCanada):

Goodmorning.

IthoughtI'dactuallystartontheindustrialdivisionandwhetheryou'veseenanysignsofweakeninginsomeoftheseEuropeanmarketsoverthelastquarterandwhatyourexpectationsmightbeforthefinalquarterhere,includingforeignexchange.


Soforeignexchangehasn'tbeenabigissueforus.It'skindofanimmaterialnumberfortheCompanyandevenforwithintheautomotivebusiness.

ButIwouldsay,Robert,thatthere'snodoubtthatwehaveseenweaknessintheEuropeanautomarketandsoourEuropeansaleshavebeendownandthat'slargelybeenoffsetbythefactthatNorthAmericanmarketcontinuestobeupandtheAsianmarket'sbeenupslightly.

Sothecombinationofthoseothermarkets,andagain,alotofexpansioninnewproducts,particularlydrivenbySCRisoffsettingjustvolumedemandoftheEuropeanmodelsofcars.


AndthenmaybeswitchingovertoBell.

YoutalkedinthepastaboutsomeofthepropectsforV-22exports.

Waswonderingifanything'sprogressedoverthelastquarter,whetherwe'vefirmedupsomeofthesepropects.


Iwouldsayno.


Okay.





Look,Robert,there'sagreatdealoffrustrationonourpart.

ThedealwithIsraelwhichhasbeentalkedaboutalotisstillmovingforwardbutit'smovingforwardataslowpace.

Therehasbeenprogress.

TheFMScasesareworkingtheirwaythroughthisprocess.

SoIthinkJapanhasbebeentalkedaboutalot.

Itcontinuestoprogress.

Itjustprogressesveryslowly.

IwishIcouldtellyouthatinonequarter'stimeIseealothappened,butittakestime.


AndthenmaybejustafinaloneforFrank.

Anycommentonpensionandwhatthechangeinthediscountratecouldmeanfornextyear?

FrankConnor(CFO):

Obviouslythere'stremendousvolatilityinratesandreturnsandeverythingelserightnow.

I'dsaykindofoverallwedon'tbelieveitwillbeaheadwind.

Wethoughtitwouldbeatailwind.

Itwilldependalotobviouslyonwhathappensbetweennowandyear-end.

Butkindofasofaswelookatthesensitivityarounditrightnow,wethinkthatkindofitwillbenoworsethanflattishtypearea.


Anddoesthemap21legislationhaveanychangeonyourcontribution?

FrankConnor(CFO):

Itpushesoutsome2016,2017requiredcontributions.

Itdoesn'thaveanyimpacton2015.


Thankyouverymuch.

FrankConnor(CFO):

You'rewelcome.

Operator:

Andournextcall,questionwillcomefromJohnGodynwithMorganStanley.

JohnGodyn(Analyst-MorganStanley):




Thanksfortakingmyquestion.

Scott,Iwasjusthopingtogopacktoyourcommentsonbisjetdemand.

Ithinkonthelastcalltheviewwaslegacyproductcontinuestobeunexcitingandnewproductissortofdrivingalltheorderactivity.

Nowyoubroadenedupthatcommentarywhichsoundsexciting.

Itsoundslikethelegacyproductisdoingbetter.

I'mjustcurioussortoftakingastepback,we'veseenalotofheadfakesinbisjetupticks.

AndyouguyshavedoneagoodjobkindofmoderatingexpectationsbutIcan'thelpbutinterpretyourcommentaryasverypositive.

What'sdifferentthistime?

Isthisnotjustseasonality?

Whyisthis--whyarethesedatapointsthatyou'reseeingnowmaybestrongerandmaybehavemoresignalvaluethanwhatwe'veseeninthepast?


Weprobablyfeelbetteraboutwherewearerightnow.

Again,partlyduetonewproduct.

We'vegottheM-2whichhasbeenverywellreceived.

We'vegotthesovereignthat'sdoingwell.

The10'sdoingfine.

It'sjustnota.Onemorenewproductoffering,sortofthemiddleoftheproductrange.

Butaswe'vesaidallyear,Ithinkthatthedemandhasbeen--weexpectittobefairlyconstantandinthetotalmarketplace,butmostdemandcreationwouldbeassociatedwithnewproductsandthat'swhatwe'vebeenseeinghappenthroughtheyearandthegoodnewswiththatobviouslyiswe'vehadafullyearofsomeofthosenewproductsliketheM-2sandsovereignand10iswe'vebeenabitmorelevelloaded.

Wedon'thavethishugefourthquarterrun-uptogettowhereweweretargetingintermsofthetotalyear.

Andthedemandisthereandsowefeelprettygoodaboutourabilityaswelookoutoverthequarterorsotofeelgoodaboutwhatthedemandlookslikeandwhatourproductionratelookslikeandwhatouravailableforsalelookslike.

Sothetoneofthemarketiscertainlyimproved.

ThebetterLinearityofbeingabletorun.

HelpingtodrivesomeofourcostandperformanceandsoIthinkthat'swhywefeelprettygoodaboutwhereweare.

Obviouslyaswelookinto2015onthebasictheorythatthenewproductsarewhathelpsdriveyourgrowthwiththelatitudeperformingaswellasit'sperforming,thewaytheaircraftlooks,thewayitflies,we'refeeling




prettygoodaboutthedemandforthataircraft.

Wehavethefirstoneouttherenow.

It'salreadydoingabunchofdemoflights.

It'sgoingtobeoutthereat.It'sabeautifulaircraftanditwillhelpusinthe2015asthatthingcomesintorevenuegeneration.


That'shelpful.

Andwhenwethinkaboutaviationmargins,youhadsomecommentaryaboutsynergiesandpricing.

ButifIjustsortofputI' llalltogether,asasimplepointcanweusethisquarter'smarginasabaseforforecastinggoingforward?

It'sverystrong.

Oraretherethingsinthenumberthatyouwouldhighlightassortofbeingirregularforwhateverreasonforthepurposeofforecastinggoingforward?


Idon'tthinkthere'sanythingirregularinthere.

It'sjuststraightperformance.

Andsothatkindofmarginratewiththatkindofvolumeiscertainlyexpected.


Great.

Andthenjustlastoneoncapitalallocation.

AboutayearagowhentheBeechsituationIthinkwasabithotter,weweretalkingaboutbuybacks.

ButobviouslytheBeechdealIthinktookthatoffthetableforabit.

You'vebeenverysuccessfulandinfactacceleratingsomeofthesynergiesonBeech.

Atwhatpointandisittimenowtohavetheconversationaboutbuybacksagain?

Thanks.


Sowe've--ourpositionofficiallyonbuybacksasyouknowisthatwe'lldoenoughtooffsetdilutionofemployeeprogramsandthatwewouldlookatsortofadditionalbuybacksonanopportunisticbasisandsowediddointhequarterabout$4million--I'msorry,4MiltI4millionsharesofbuybackinQ3.


IguessImeanmoreofalargerscalebuybackwithcashflow.





Well,Ithinkatthispointwe'realsostilldoingthingslikepayingdownourbanklinesassociatedwiththeacquisitionofBeechcraft.

Sowehavetosortofhaveabalancehereintermsofwhatwe'reallocatingintopayingdownthedebtassociatedwithBeechaswellastryingtocontinueabuyback.

SoIwouldn'texpectustocomeoutandannouncesomecommittednumber.

Ithinkwe'llstayonthecommitmentofavoidingdilutionandopportunisticallyexecutingbuybackprogramsasweseefit.

Andthegoodnewsis,ourcashflowgenerationandstrengthofthebalancesheetallowsustobeabletodoboththosethings,aswe'vebeendoing.


Thanksalot.

Operator:

AndournextquestioncomesfromJonathanWrightwithNomura.

JonathanWright (Analyst-Nomura):

Acouplequestionsfromme.Firstly,probablyforFrank,backingintoyourrevisedcashflowguidanceIthinkyou'relookingforsomethinglike$650millioninoperatingcashflowin4Qonnetincomeofaround$200million.

Soyougetsay$100millionofthatfromdepreciationbutthere'sstill$350milliongap.

Canyoujustmaybetalkthroughthat.

Isthatabigworkingcapitalswingoristhereanythingelseunusualinthat4Qcashflow.

FrankConnor(CFO):

There'snothingunusual.

Ifyoulookatkindofourseasonalityandquarterlyprogression,Q4isalwaysaverystrongquarter,bothfromaprofitabilitystandpointbutalsofromaworkingcapitalperformancejustgiventheseasonalityofthebusiness.

Sothere'snothingunusualinthere.


Forthefullyearyouexpecttohaveapositiveworkingcapitalmovement,somethinglike$100millionto$200million,isthatfair?

FrankConnor(CFO):

Ihaven'tworkedthroughwhatthatmeansintermsoftheoverallworkingcapital.

Butifyoulookatthefourthquarterthisyear,thisyear'sfourthquarterprogression,basedonthatguidance,isactuallydownsignificantlyfromlastyear.

Soagain,there'snothingunusualintheworkingcapitalside.





Okay.

Great.

AndthenyoutalkedaboutChinaandhelicoptermarketinyourpreparedremarks,bothofthosehadagoodorderthisquarterfromChina.

Obviouslyalotofpotentialthere.

Isthereanythingchanginginthatmarket?

DoyouseeanypropectsforactuallysomedemandfromChinacomingthrough?


We'vehadgooddemandfromChinaoverthelastcoupleyears.

Ithinkpartofthatisjusttheeconomyisgenerallydoingwell.

There'sbeenalotofliberalizationofairspaceintheloweraltitudeswhichiswherehelicoptersfly.

SoeverythingfromcorporatetoEMStoparapublic,inspection,utility,infrastructure,surveillance,thingslikethat,whichdrivesalotofthehelicoptermarketaroundtheworld,we'rejustcontinuingtoseethatmarketgrowinChinaandwe'vebeendoingverywelloverthere,actually.

We'repleasedwithourpositioninChinaandbeingableto--it'sgettingtobeabigenoughmarketandabigenoughdemandwhichiswhat'sdrivingustostarttodomoretraining,maintenancetrainingaswellasairtrainingovertheretohelpsupportthedeploymentofouraircraft.


Okay.

Great.

Andthenjustonefinaloneonlatitude.

Youtalkedaboutincreasingtherangeofthataircraft.

Isthereanypotentialtogettheexistinglatitudemodeltoa3000nauticalmilerangeorwouldthatneedabiggerredesignoranewaircraft?


Thatwouldbeabiggeraircraft,forsure.


Okay.

AndIguessprobablytooearlytotalkaboutthisbutanyplanstocompeteinthatsortofcoasttocoastmarketwithaflatbodyjet?


Probablynotgoingtomakeanynewproductannouncements.





Thanks,guys.


Ifwedid,couldIsignyouuptheywouldthatbeacommitmentofanykind?


Sure.

Operator:

AndournextquestioncomesfromPeteSkibitskiwithDrexelHamilton.

PeteSkibitski(Analyst-DrexelHamilton):

Goodmorning,guys.


Hey,Pete.


Imighthavemisseditguys.

Areyoustillexpecting$4.8billionataviationsthisyearincluding1.5atBeech?

FrankConnor(CFO):

It'sclosetothat,Peter.

Mightbejustabitlower,notonjetdeliveriesbutlittlebitlessonusedandaupcouplefewerCaravansbutinthatrange.


AndIguessScott,obviouslyjusttryingtofigureoutthecyclehereonbisjetstosomedegree.

HowdoyouthinkaboutBeechbeing--revenuebeingdownsequentiallyandthenIthoughtSovereignPluses,youmadesomepositivecommentsbutIthinkunitdeliveriesweredownsequentiallyalso.

I'mjustwonderinghowyouthinkaboutthatandmaybeyoucangiveusalsokindofwhatbook-to-billwasinthequarterforCitations.


Let'ssee,Pete.

Wedon'treallykeepveryclosetrackofyear-over-yearcompsontherevenuenumberwithBeechjustbecauseBeechwasn'tpartofusandwe'regenerallyreluctanttotrytolooktoomuchatthefinancials.

Butsequentially,it'saquestionofsequential,I'msorry.

We'redownbutPresidentbutit'sonlyacoupleofaircraft.




We'vebeenprettylinearabouttheKingAirproductline.

Ithinkwecontinuetofeelgoodaboutwhereweareandthedemand'saboutwhatweexpected,plusorminusacoupleofaircraft,it'saboutwhereweexpectedandfairlylinearfromquartertoquarter,whichisgood.

OntheSovereignPlusside,again,anaircraftortwo,demandisstillverygood.

Ithinkwe'regoingtobewhereweexpectedtobeonthetotalyear.

Sothebook-to-billintheseareasisprettyclosetoonetoone.

We'renotreallyseeingawholelotofchangefromwhatweexpected.

Again,onasequentialbasis,wemightbeplusorminusacoupleaircraftbutit'saboutwherewewouldhaveexpectedtobe.


Kindofstillsortofaspottishmarketbutyoujustintuitivelyfeelalittlebitbetterthanyoudidthelastquarter,isthatafairstatement.


Yeah,wedo,Pete.

Look,theQ3isusuallyprettysoft.

YoulookattheamountoforderactivityintermsofwhatflowsinJulyandAugustisgenerallyprettylightandasyouknow,Q4usuallytendsbealittlestronger.

Peoplearebackonholiday.

They'relookingatstuff.

Ofcoursethere'salwaysfolksthathavecapitalattheendoftheyearandfromataxstandpointwouldjustassoontakedeliveryinQ4.Partofthis,again,they'resmallnumberssequentiallyfromQ2toQ3,butIthinkeasilywithinthenormalcycleofhowweseethatmarketworking.


Okay.

Andthenjustlastquestiononlatitude.

Canyoureminduswhatquarternextyearyou'reexpectingthefirstlatitudedeliveryandhaveyoubuiltanybacklogyetandhowshouldwethinkabouttheslopeoftheproductionramponthatprogram?


Sowehavebuiltsomebacklog.

We'restillexpectingtohavecertificationinQ2.Asyouknow,wedon'tfullycontrolsthatprocess.

Soifit'searlyinQ2,we'llgetsomesalesinQ2.ButcertainlythevastmajorityofthelatitudesalesIwouldexpecttoseeinQ3andQ4.





Andisthatgoingtobeafastrampor--


Yes.


Okay.


It'salreadybeingramped.

Thebeautifulthingaboutthisaircraftisalotoftheaircraftintermsofthewings,allthecockpitsystemsarecommontowhatwejustdidontheSovereignPlus.

Soobviouslyit'saverynewfuselage,muchlargercrosssectioncabin,butanawfullotofthekeycomponentsandtechnologywedevelopedaspartoftheSovereignPlusprogram.

Soweactuallyrunthesethingsassortofamixedmodelline,ifyouwill.

Ifyougointothefactory,wecanrunthingsdownthelineandwhetherit'salatitudeorasovereignitflowstogetherquitenicely.

Fromaproductionrampperspective,it'sonethatdropsintoourlineverynicely.


Thankyou.

Operator:

AndournextquestioncomesfromCaivonRumohrwithCowen&Company.

CaivonRumohr(Analyst-Cowen&Company):

Yes,thankssomuch.

SoyourguidancefortheyearasIrecallyouwereat$2billiononsystems.Soifyou'redown300,it's$1.7billion,andsoyou'rebasicallysayingvolumewilldoubleinthefourthquarterfromthethird.

Howcome?

Andthatseemslikeahugejump.


Well,Cai,it'sdrivenbytheTCDLprogram.

We'vebeenworkingonthisprogramforwhatseemslikeaverylongtime,goingthroughallthedevelopmentwork.

AsIdsaidinthepreparedremarks,wenowhavereceivedapprovalfromthecustomertoaccepttheunitsinthefourthquarter.

Thoseunitshavetogoyouthroughtheirfinalacceptancetest.




There'saflighttestinvolvedwiththeairvehiclesandsuch.

Thatwillhappenhereoverthecourseofthefourthquarter.

Butwedonowhavetheirapprovaltogoyouaheadandcommencetheproductionshipmentsandsothat'swhythefourthquarterwillbedisproportionatelyhigherinrevenuethanwhatwe'veseen.

Becausewebuilttheseunits,Cai.

They'vebeenmanufacturedandthey'rereadytogo.Nowthatwehaveapprovalwecangoaheadandgoyouthroughtheformalitiesofthefinalproductiontest,flighttestandacceptanceandweexpectthattobehappeninghereinthefourthquarter.


Istheresortofadisproportionatedeliveryinthefourthquarter.

Ifweannualizethatrate.

Evendon'thaveanyvehiclesinthefourthquarter.


Right,correct.

We'vehadnosalesassociatedwiththatprograminanyoftheprecedingquarters.

Soit'sgoingtobeabigspikeindeliverieshereinQ4andagain,theonlyreasonthat'spossibleisthesethingshavebeenbuilt.

We'vebeenbuildingthemforthebetterpartofthelastyearorsoandit'sjustamatternowofhavingtodidthroughtheproductiontestandacceptanceasopposedtonormalproductionflow.

Sowithoutadoubt,Q4ismuchheavierandasyougothrough2015,you'llseeanormalflowofdeliveriesofthoseunits.

Notallofthecontractunitsallinonequarter.


Gotit.AndsoifwegotoBell,youdid12V-22s.

AsIrecall,you'relookingfor36fortheyear.

Lookslikeyougodowntosixinthefourthquarter.

Sothemixwhichlooksveryfavorableinthethirdwouldlookprettyleaninthefourth.

Isthatcorrect?

Oristhefullyearnumberchanged?


No,thefullyearnumberhasn'treallychanged,Cai.

Lthefourthquarteristhebeginningofthenextcontractyearandsowe'renowsteppingdownfromthemultiyeardeliverytothenextmultiyear.




TherunrateofV-22sisnowgoingtostepdownandstaydownatthatlevelaswegothroughthenextfewyears.


Giventhatyouknowyou'regettingastep-offandyouhavesuchagreatmixinthethirdquarter,doyoustillfeelcomfortableasyoulookatnextyearthatyoucanholdBell'sMarch’senginesMarchmarginsabove10%?


Absolutely.

We'restilltargetingthe12%number.

Ithinkthereasonyou'reseeingthekindofmarginnumbersyou'reseeingandcertainlyourexpectationsformarginsinthefourthquarterisbecausewe'vebeentakingalotofcostactionstopreparethebusinessforthatlowerrunrateofV-22sandIfeelprettygoodaboutwhereweareonthat.

Theteam'sdoneanicejobofgettinguswhereweneedtobe.Obviouslywe'renotgoingtotalkaboutaguideto2015yet.

Atthispoint,thenumberwehaven'tdeterminediswhatourexpectationshouldbeonthecommercialsideofthemarket.

Wecertainlyknowwhereweareonthemilitarizedsideofmarket.

Weknowwhatwe'vedoneintermsofcosts.

We'restilltargetingthe12.Whereweendupwillhavelargelytodowhat'sourperspectiveonvolumeinthecommercialmarketthey2015.


IfwegoovertoCessna,you'veseenapick-upindemandinSeptemberandOctober.

Normally,youkindofsetyourproductiontargetsinthefourthquarterfornextyear.

What'syourstrategygoingtobeinkindofaestablishingtheproductiontargetsforCessna?


They'velargelybeensetbecausetheleadtime,thecycletimeIshouldsayonmanufacturinginthejetworldisdependingonthemodelandobviouslywehavesomedegreesofflexibilityfrommodeltomodel,butyou'reanywherefromsick,nine,12months.

Sowe'realreadyrunningtheproductionlineswiththevolumesthatwewouldexpecttoseein2015includingnewthingslikethelatitude.

Now,wecanmakeandalwayshavetheabilitytomakeadjustmenttossthatandaswegoquartertoquarterwedothat.

Butforthenextcouplequarters,it'sprettywellset.


Ifitisprettywellset,whatkindofflexibilitydoyouhavetotakeitupandtowhatextentareyoumoreinclined




toleaveitandjustbasicallygetstrongerpricing?


Ithinkagain,atthispointweare--ourstrategyiswhatweseeinthemarketplace,whatwestillbelieveisgoingtohappeninthemarketplaceisrelativestabilityintermsofoverallmarketdemandandmostgrowthorupsidedrivenbynewproducts.

Soaswethinkaboutourproductionratesfornextyearaswe'vebeenthinkingaboutourproductionratesnextyear,that'skindofwhatweforecastedthisyearandwhatwe'rethinkingaboutfornextyear.

Sowe'llkeepmostofthevolumesofproductsaboutwherethey'vebeenandwewouldexpecttoseesomeupsidefromgrowthdrivenbytheintroductionoflatitude.


Andthenintermsofcashdeployment,Imean,withthishugestep-upindeliveriesonTCDLs,yourcashflow'sgoingtobeverystronginthefourthquart,kindofasyou'veindicated.

Howcomeyoudon'tbuymorestock?

What'sthecashbeingsavedfor?


Cai,asyouknow,asFranksaid,we'reapitbitseasonalintermsofcashsowedogeneratealotofcashtypicallyinthefourthquarter.

Thatismostlycomingoutofworkingcapital.

Usuallyinventoriesprincipallyaroundtheaviationandhelicopterbusiness.

We'llcontinuetodeploycashaswe'vetalkedaboutinthepastandthatislargelyaroundthepaydownondebt.

WedidtakeonafairbitofdebtassociatedwiththeBeechcraftdeal.

We'vealreadypaiddownacouplehundredmillionofthat.

We'llcontinuetopaythatdown.

We'llcontinuetobeopportunisticaboutstockbuybacks.

Wetookout4millionshareshereinQ3andwe'llcontinuetolookforopportunitiestobuybackadditionalaswethinkitmakessense.


Thanksalotandgoodjob.

Operator:

AndournextquestionwillcomefromMylesWaltonwithDeutscheBank.

MylesWalton(Analyst-DeutscheBank):

Thanks,goodmorning.




FirstoneisaclarificationonthemarginsguidanceforCessna.

Iimagineifthat'swheremostoftheguidanceuptick'scomingfromyoumustbelookingatsomewhereinthemid-4s.

Isthataboutright.


Idon'tthinkwe're--wereallydon'twanttogetintoguidingoneachindividualsegmentbutyou'recertainlycorrect.

Theupsideofwhat'sdrivingtheraiseiscertainlybettermarginsintheaviationsegment,largelyoffsettinglowerinthesystemsbusinessasaresultofsomeofthevehicledelaysandagainwefactorinsomesoftnessontheBellcommercialsidewhichwe'vealreadyfactoredintoournumbersmanyitisdrivenbytheaviationbeatbutIdon'tthinkwe'regoingtoreviseanykindofguidanceonasegmentbysegment.


Allright.

Itried.

AndthenaftermarketcommentarywithinCessnaandBell,ifyoucancommentonthetrendsyou'reseeingthere.

IguessDougalludedtomaybethatwasmaybealittlebitonthetoplinepressureforthefullyear,butjusttheoveralltrendinthequarterthatyousawinthetwosegmentswouldbegreat.


We'restillseeingmidsingledigitgrowthinourservicefranchisesinboththeaviationandtheBellhelicoptermarketsandthat's--there'salittlevolatilityfromquartertoquarterbutit'sbeenprettysteadyandaboutwherewewouldexpectkindofatopline,midsingledigitsortofnumbers.

It'sobviouslyfromarecordedbasisalothigherthanthatbecauseoftheBeechintegrationforthisyear.

Butintermsofactualgrowth,it'sprobablymidsingledigit.


Andtheonelastone,maybeforyou,Scott.

Asyourolloutthenewproductsobviouslythere'saninitialbuzz,andinitialpent-updemandandthenoftentimesthere'sabitofahoneymoonwhereitfades.

SawitontheCJ-4.You'veseenitonotherprograms.HowdoyouthinkaboutkindofthetimingoflaunchingobviouslytheM-2'sgotagreatreception.

Thesovereignlikewise.

Isitaoneyearkindofphenomenonandthenyounormalizetowherethedemandis?

Howdoyouthinkaboutthat?





Ithinkinthismarketit'sreallycertainlyourexpectationwoesbethatdeliveriesonthingslikeM-2sandsovereignwillmoreorlessstabilizewheretheyare.

Idon'tthinkthatthere'sa--therewerecertainlybackinearlierphasesofthecyclewhereyouhadahugeuptakeandthenkindofwentbacktoanormalizedlevel.

We'renotexpectingbigchangesgoingforwardaswelookatthingslikeanM-2orasovereign.

Sothat'swhyIsay.

Ithinkourexpectationisforthosethingswhicharesortofintransitiontobeingalegacyproductifyouwillisthey'lljustfollowgeneralmarketdemand.


Okay.

Gotit.Thanks.

Operator:

AndournextquestioncomesfromJulianMitchellwithCreditSuisse.

JulianMitchell(Analyst-CreditSuisse):

Hey,guys,it'sCharlieforJulian.

Iknowthatyouguyssaidyouwouldn'tcommentonthekindofsegmentmarginsbutjustwascuriousifyoucouldmaybejustcommentatsystems,justgiventhebigkindofswinginrevenueguidancefortheyear,ifthat'spositiveforthemarginsornegativeornegligible.


Idon'tthinkwewanttogetintosegmentmarginguidance.

Sorry.

JulianMitchell(Analyst-CreditSuisse):

Okay.

Thanks.

Operator:

AndournextquestioncomesfromJasonGreerwithCiti.

JasonGreer(Analyst-Citi):

Iknowyoutouchedonthisbrieflybeforebutmaybejustalittlebitmorecolorifyoudonnedmindontheorderactivityyou'veseenhereinSeptemberandOctobertotheextentthatresultsindeliveriliesinthefourthquarterandwhetherwe'rebeginningtotakeordersforperiodsfurtherout,andnowactuallystarting.

Buildsomebacklog.


Absolutely,Jason.




Ithinkthat'swhereweare.

Thisisprobablythepartofthepositivefeelingthatwehaverightnowisthatweclearlyseeafourthquarterwheretheamountofaircraftwehavelefttosellisnotasmanyasthatweprobablycouldsellorthatthisamarketdemand.

ThatwouldleadustostartmovingdeliveriesintothefirstquarterofnextyearwhichIthinkisaveryhealthythingforthebusiness.

Gettingoutofhavingsortofanegativeoronetoonebook-to-bill,Idon'tthink--andwe'vetalkedearlier,Jason.

Ithinkthatthedaysoftwoyears--crazynumbersofbacklogarenotsensecall.

Butwe'dsurebeabletorunamuchmoreefficientoperationandhaveamuchhealthierindustryifwehadsixmonthstoninemonthsofvisibilitysothatwe'renothavingtosortofdoforecastingaroundourproductionlinesandcustomizationsandthingslikethat.

Sothere'snoquestionthatifwecangettoapointherewherewe'reatleastthreetosixmonthsoutthat'samuchhealthierbusiness.

AndIthinkwe'relookingatthefourthquarterasthefirsttimewe'veseeninawhilewhereweclearlyseemoredemandoutthereinthemarketthanwhatwethinkwehaveaircraftavailabletosellinthefourthquarterandthatwillnecessarilypushsomethingsintothefourthquarter,orintothefirstquarter,I'msorry,whichisgood.


Okay.

That'sgreat.

Andthenasyoulookatthetwobusinessestogether,BeechandCessnaandthentheacquisitionswhichyoubroughtinhereoflate,canyoujusthelpusorexplaintoushowyou'rethinkingaboutseasonalityinthat--intheaviationbusinessgoingforward.

Historicallyobviouslyseensome.

Isthatbecomingmoremuted?

Diditgoawayalltogetherorarewestillgoingtocontinuetoseeseasonalityinthesecondhalfoftheyear?


Ibelievethere'salwaysgoingtobeaseasonalityaroundthefourthquarterandthat.

Youhavealotofcustomersouttherethatgiventheirdruthersthey'drathertakedeliveryofanassetwheretheycantakeayeardepreciationinthecurrentyearratherthanbuyingthataircraftinthefirsthalfofthefollowingyear.

Isthatahugenumber?

Idon'tthinkit'sahugenumberbutIdon'tthinkthatthe--someseasonalityaroundfourthquarterwillevergoawayinthisindustrybecauseofthat.

Thegoodnewsis,again,aswelookedatbothofourKingAirbusinessandtheCitationjetbusiness,ithasbeenmorelevelloadedthisyearandthatpartlyreflectssomebetterdemandcomingbackintothe




marketplaceandobviouslyweprefertoseethat.

Wewouldbemuchbetterrunningtheseoperationsonamorelinearbasis.

We'veseenmorelinearbehaviorintermsofcustomersthisyearbutIstillthinkyou'realwaysgoingtoseesomefourthquarterdemanddrivenaroundtax.


Okay.

Andthenthelastonefrommeisontheindustrialside.

Arethereanynewproductsorprogramsthatyou'vebeendesignedintoandanyofthosebusinessesontheindustrialsidethatwillleadtoanaccelerationofrevenuesoverthenextseveralquartersinto2015?


Look,IthinkifyoulookedatourCaltechsontheautomotivesideofthings,we'vehadalotofnewvehicle,newplatformwinsinboththefueltanksideaswellasalotaroundourselectivecatalyticreductionbusiness.

Therewasdemandforthatvehicle,thatfamilyofvehiclegrowsinthemarketplace,that'sgoingtodrivenicerevenuegrowthforourbusiness.

AsIsaidearlier,theonlychallengeforusthereisitdoesusuallyhavealowerROSbecausepartofthatsystemisanacquiredpartwhichwepassthroughatalowerROSthanwouldbetypicalofwhatwemanufacturejustbecauseit'sahighdollarsourcedcomponent.

Butclearly,revenuegrowthandoverallnotgrowthwillbedrivenbythatbusinessandsoit'salotofnewplatformswhichwe'vewonandnewproductaroundtheSERsystem.

Westillseenicegrowthbothorganicallyandthroughacquisitionsinthevehiclebusinessaswellasourtoolandtestbusiness.

SoIthinkgenerallyspeakingtheindustrialsegmentIthinkwillprovidenicegrowthnextyear.


Okay.

That'shelpful.

Thankyou.

Operator:

AndournextquestionwillcomefromGeorgeShapirowithShapiroresearch.

GeorgeShapiro (Analyst-Shapiroresearch):

Goodmorning.

Scott,givenhowstrongyousaidSeptemberandOctoberhasbeen,isitfairtoassumethatthepricingmightevenbesomewhatbetterintheSeptember,Octoberquartersthanwhatwesawinthestrongmarginsinthecurrentquarter?





George,Iwouldn'tbetoobullishonthepricingside.

Ithinkthegoodnewsisit'sfirmedup.Andagain,thisisamarketdynamic.

Asyou'vegotmorecustomersoutthere,itgivesustheabilitytoholdthelineonpricing.

SoIdon'tknowthatweseeastepfunctionbyanymeanshere.

Idon'twanttomisleadanybody.

It'snotlikethemarketisstrongenoughtodemandthekindofpricingthatwasinthelastcycle.

Butcertainlyithasallowedustofirmuppricingandatleastbestable,maybewithsomesmallgainsbecausethemarketdynamicisstronger.

It'sjustsupplyanddemandworkingalittlemoreinourfavor.


Andthestrengthyoutalkabout,wasthatsimilarinternational,domesticorweakerinternational,givenwhatweallreadabout?


Youknow,George,ourorderintakeinQ3IthinkwasstillslightlybiasedtotheAmericas,butit'sprobably60/40,somewhereinthere.

Itbouncesaroundalittlebitfromquartertoquarter.

It'snotwayoutofline.


Okay.

Andjustsomeclarification.

Giventherevenuesyou'resuggestingforCessnainthefourthquarter,lookslikewe'llprobablyget70plusdeliveriesinthefourthquarter.


No.70wouldbe--I'dlovetohave70.That'sanawfullybignumbermanyIdon'tknowifwewanttogetintoexactunits,George,butImean,again,Ithinkwe'veusuallyseenaverageaircraftrevenuesIthinkkindofhowweusuallythinkaboutitbeingsomewhereintheeighttoninerange.

So70somethingwouldbeaprettyhugenumber.


Okay.


Therevenuenumberwillbehigherthanthenumberwetalkedabout.





Okay.

Andthenonelastone.

Doyouhaveanycoloronwhetherthebook-to-billofoneforaviationwassimilaratbothBeechandCessna?


Itwasprettyclose,George,prettycloseonbothBeech,Cessna,militaryversuscommercial.

It'sbeenprettyclosetoonetooneacrosseveryway--everydimensionthatwewouldlookat.


Andyouhowaboutusedmeansalesusedplanesalesinthequarterversuslastyear'squarter?

Muchdifferent?


I'dhavetolook,checktherevenuenumber.

Weusuallyhavebeenlookingatthatonesequentially,George,soI'msorryIdon'thavethatnumberonthetipofmytonguehere.

Certainlyonasequentialbasisitwasbetter,butwe'llhaveto--

FrankConnor(CFO):

We'llgetbacktoyou.

Wasaboutflatfromarevenuestandpoint.


Onayeartoyear?

FrankConnor(CFO):

Onayeartoyear,yes.


Andupalittlebitsequentiallyyoujustsaid,Scott?


HewassayingIthinkwasaveragesellingpricewasupalittlebit.


Okay.

Icancallyouoffline,Doug.


Wecangetthoseforyou,George.




Wejustdon'thaveit.


Thanksalot.

Goodnumbers.

Operator:

AndournextquestionwillcomefromSheilaKahyaogluwithJeffries.

SheilaKahyaoglu(Analyst-Jeffries):

Thanksfortakingmyquestion.

IguesshowdoyouthinkabouttheunderlyingprofitabilityfortheBeechcraftbusinessasitstandstodayandwhereyouseetherunrate,doyouthinkyouneedadditionalinvestmentsintheKingAirportfolioandwhatabouttheservicebusiness,isthereadditionalcapitalrequiredtoincreasethelevelofservicethere?


Sheila,wedon'ttrackorreportseparatelytheBeechnumberandpartofthatisbecausewe'vecompletelymergedtheseenpatmergedentities.

Alltheoverheadpools,alltheengineering,R&D,whatnotisalltreatedasonething.

Iwouldn'tevenhavetheabilitytobreakoutoverallprofitabilityof,say,historicallyBeechversushistoricalCessna.

ButIthinkwe'reatapointwherewefeelprettygoodabouttheproductivitythatisbeendrivenandthat'sbenefitingobviouslyacrossalltheproductlines.

IntermsofR&D,wewillnowandwealreadyarelookingattheturbopropproductlinethesamewelookatthejetproductlineandlayingoutyounewproductroadmapplans,upgrades,enhancements,allthekindofthingspeoplehaveexpectedustodointhejetbusiness.

AbsolutelytherewillbeinvestmentontheR&DsideintotheKingAirandotherhistoricalBeechproductsaswegoforward.

Wethinkjustaswedoonthejetsidewe'llhavesomegoodthingscomingoutinthemarketastimegoeson.Intermsofcapital,Idon'tseeanybigcapitaloutlays.

We'vegotIthinkaverystrongservicenetworknowaroundtheworldandIthinkwe'recapcapitalizingonthat.

We'retryingtotakemostofoursitesnowandmakeitsothey'recapableofdoingnotjustBeechcraftbutalsodoingCitationjetsoriftheywereCitationjetsnowtheycanalsodoBeechcraft.

Thereissometoolinginthatjusttomakesureeachofthesiteshascapabilitytodobothbutit'snotamaterialnumber.

Similarlyontheoverallaviationbusinesssideofthings,whatCapExisinthereisreallydrivenprimarilybynewproductintroductions.

AndsoIdon'tseeanyappreciablesortofchange,ifyouwill,overwhatwe'veseeninthelastcoupleyearsbecausetheflowofthenewproductswillbeprettyconsistentwithwhatwe'veseeninthepast.





Okay.

Thankyou.

Andsojustisthereanywayyoucouldprovidearangeofwherethe--whetherit'sKingAirortheCessnapistonportfolioisa.Isthatataboutabreakeven?


We'renotgoingtogointomarginlevelsbytheindividualproductlines.


AndthenjustlastquestionintermsofBeechcraftsynergies,youmentionedyou'reahead.

I'mguessing2014haslargelybeenfocusedonheadcount.

Intermsofwhat'sleftfor2015,isitsupplychain?

Isitadditionalfootprintconsolidation?

Howcouldwethinkaboutthat?


Mostlywhat'soutin2015reallyisaroundsomefootprintconsolidation.

Wehavesomewarehousingandsites,largelytodowithourdistributionofsparepartsandserviceswherewe'regoingtoconsolidatesomeofthat.

Andthentherearesomeopportunitiestodosomeconsolidationsinsomeofthebackshops,ifyouwill.

Sowedon'tenvisionanysignificantchangestofinalassemblyoperations.

Thosearerunningprettywellandareprettyfocusedaroundthedifferentmodeltypesbutthereisanawfullotofstuffwedotodaywherewehavetwoseparatecompositeoperations,wehavetwoseparatemachiningandmetalbondingandalotoffabricationsortofstuffandwewillcontinueaswegoforwardtoseeconsolidationofthose,toagaindrivebettercostefficienciesandbetterutilizationofthosefacilities.


Gotit.Thankyou.


Ithinkwe'lltakeourlastcallnow,operator.

Operator:

ThatwillcomefromRonEpsteinwithMerrillLynch.

RonEpstein(Analyst-MerrillLynch):

Goodmorning.




Sojustwanttofollowuponkindofoneofmyfavoritesubjectswithyouguys.

What'sgoingonwiththeScorpion?

Areweanyclosertoacustomerorifyoucouldjustgiveusanupdatethere.


Look,Ron,I'dsaywe'regettingcloserallthetime.

Wehaveabunchofcustomers,frankly,thatwe'retalkingto.There'salotofactivityinthemarket.

There'sanumberofcountriesthataregoingtobeputtingoutRFPsforhowtheythinkaboutreplacingsomeoftheiraircraftandpartofthat,frankly,isdrivenbythefactthatthere'ssomethinglikethisouttherenowthattheyseeasaviable,affordableproducttomeettheirmission.

Sowecontinueinprettyseriousdiscussionsonanumberoffrontsandfeelprettygoodaboutwhereweare.

WedidhavetheaircraftoutattheAirForceassociationmeetinginWashingtonafewweeksback.

Wehadatonofcustomerscomingthroughandlookingatit.Wecontinuetogetverygoodfeedback.

We'vehadalotofcustomersthathavecomeouttoseetheaircraftandgothroughprettydetailedbriefingsinWichitaaswell.

SoIdon'twantto--Idon'thaveanythingtoannouncetoyouparticularlytodaybutIthinkwefeelprettygoodaboutwhereit'sgoingandwe'reinprettyseriousdiscussionswithanumberoffolks.


Onthatone,doyouguysseeitasapotentialormaybesomemodificationtoitasapotentialbidfortheupcomingtrainerprogram?


Absolutely,Ron.

We'vebeenparticipatingintheTXprogram.

There'sbeenindustrydays.

There'salotofworkgoingoninthe.

Wearecertainlyinterestedintheprogram.

We'refollowingitquitecloselyasareanumberofothercompetitors.

Look,Idon'tthinktheAirForceisinterestedinabigdevelopmentprogramsoIthinkclearlyoneofthethingsthey'regoingtohavetodoislookatwhataircraftplatformsareouttherethatareavailablethatwithsomeminorapadaptationswillfitwhattheyneedforTX.Wewouldlovetoparticipateintheprogram.

We'reworkingtheprogram.

Andhowcompetitiveweareorwhetherouraircraftistherightaircraftornotwilldependonwheretherequirementdocumentsendup.That'ssomethingIdon'tthinkwe'llseeprobablyuntillatethisyear,beginningofnextyeartoknowwhethertheScorpionoraminoradaptationtotheScorpionistherightanswerforthem.




We'recertainlyinterestedandfollowingitveryclosely.


Maybejustonelastone.

Youguysdelivered33Cessnaaircraftinthequarter.

ThemixwasclearlyskewedmoretowardsM-2s.

Clearlyit'sbeenwellreceived.

Butrelativetohistoriclevels,it'sstillprettyanemic.

Whenwethinkabout--andagain,IguessI'msortofthinkingabout2015,2016,itisokaytowalkawayfromthiscallthinkingwe'reinamarketrecoveryorisitmorewalkingawayfromthiscallthatit'sstabilized?


Youknow,Ron,Istillthinkthewaywethinkaboutitisitestablishstabilized.

MostofthegrowthdrivenbyM-2andsovereign.

Myplanwouldberightnowmostofthegrowthnextyearwouldbedrivenbythelatitudeintroduction.


Gotyou.


Wefeelgoodaboutwherethemarketis.Certainlyappearstohavebeenstabilized.

Welikethelevelofdemandthatwe'reseeing.

ButIdon'twanttosaythatwethinkthere'sbeensomesignificantinflectioninthemarket.

Juststabilityoncurrentaircraftprogramsandnewprogramsdrivinggrowthisstillhowweseeit.


Okay.

Andthenmaybejustonelastone.

Anotherfavoritetopicofmine.

WithMedtronics.

HaveyoupickedupshareyouthinkbyofferingatrainingpackagewiththeCessnaproduct?

Doyouthinkyou'vepickedupsharefromthelikesofCAEandflightsafetyinthatmarket?


Ithink,Ron,it'sstilltooearlytosay.

Idothinkthat--we'vehadgreatfeedbackfromalotofofourcustomers,particularlyourCJcustomersasweacquiredProFlight,whichgaveusthatCJtrainingcapabilityoutintheWestCoast.




AsIsaid,we'venowannouncedthatprobablybythesecondsquarterwe'llhavethatsametrainingcapabilityupandrunninginTampa,thatwedohavealotofourCJcustomersthathavegivenusgreattankk.Takecareofalltheirservicesoftheaircraftandtheirpersonaltrainingintheaircraft.

Idothinkitwillhelpus.Notsomuchashareshiftoftheequipmentsideofthebusiness,butsomeshareshiftinthetrainingsideoftheequation.


Okay.

Great.

Thankyousomuch.


Sure.


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