CPI Aerostructures Inc (CVU) 2010 Q2 法說會逐字稿

Good day everyone, and welcome to the CPI Aero second-quarter 2010 conference call. At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. Thank you.

I will now turn the conference over to Mr. Ed Fred.

Thank you Christie.

Good morning, and thank you all for joining us for our second-quarter 2010 conference call.

If you need a copy of the press release issued this morning, please contact Lena Cati of The Equity Group at 212-836-9611, and she will fax or e-mail a copy to you. Also if you would like to listen to this call again, you can hear a replay on our website's investor relations section in about an hour at www.CPIAero.com.

Before we get started, I want to remind investors that this conference call will contain forward-looking statements which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. Included in these risks are the government's ability to terminate their contracts with us at any time, the government's ability to reduce or modify its contract if it's requirements or budgetary constraints change, the government's right to suspend or bar us from doing business with them, as well as in the competition -- the competition in the bidding process for both government and subcontracting contracts.

Our subcontracting customers also have the ability to terminate their contracts with us if we fail to meet the requirements of those contracts or if their customer reduces or modifies its contracts to them due to budgetary constraints.

Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statement contained in this conference call.

Additional information concerning these and other risks can be found in our filings with the SEC.

This morning I will give you a brief overview of our first-half results. I will then hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details. Then I will comment on the current business environment, outlook for the remainder of 2010, and then briefly wrap things up and open the call to questions.

As reported earlier this morning, for the first half of 2010 revenue was approximately $23,550,000, compared to approximately $21,129,000 in the first half of 2009, an increase of approximately 11%.

Pretax income was approximately $3,130,000, compared to pretax income of approximately $2,216,000 for the same period last year.

Net income for the first half of 2010 was approximately $2,066,000 or $0.32 per diluted share, compared to net income of approximately $1,449,000 or $0.23 per diluted share in the first half of 2009.

Selling, general and administrative expenses for the first half of 2010 were approximately $2,870,000 or 12.2% of revenue, compared to approximately $2,575,000 or 12.3% of revenue for the same period of 2009.

So with that prelude, I will now hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details.

Thank you, Ed.

As reported in this morning's press release, comparing the second quarter of 2010 to the second quarter of 2009, revenue increased 10%, to $12,544,625, from $11,437,691.

Gross margin was 26.7% as compared to 24.8%.

Pretax income increased 31% to $1,826,254, compared to $1,389,489.

Net income increased 33% to $1,205,254 or $0.18 per diluted share, compared to $903,489 or $0.14 per diluted share.

Selling, general and administrative expenses were approximately $1,485,000 or 11.8% of revenue, compared to approximately $1,386,000 or 12.1% of revenue.

At this point let me hand the call back over to Ed for an overview of the business.

Thanks Vince.

As Vince just reported, the gross margin for the first half of 2010 was higher than that of the prior year's first half. We expect that there will continue to be normal quarterly ebbs and flows in our gross margin as our new programs progress, but we arrived at our 2010 guidance based on a 24% to 26% gross margin range and expect to end up in that range.

New orders through June 30 of 2010 were approximately $31.1 million, significantly higher than the $4.9 million reported this time last year. Additionally, during April we received a $10 million increase to our overall order from Boeing on the A-10 re-winging program.

The total award amount of all of our programs should increase significantly over the next two quarters, as we expect to receive follow-on releases on some of our major programs. There is also a real business potential from the approximately $288 million of un-awarded solicitations outstanding, once these programs are funded and/or awarded.

In the past several years, our reputation has been elevated in our industry, thanks to our impressive list of customers, the success we've experienced on the important programs we are working on, and the exposure we have had and contacts we've made at various aerospace and defense institutional investment conferences.

We are now in the midst of establishing relationships with additional prime manufacturers, including other helicopter and business private jet companies, who have come to recognize CPI Aero as a premier supplier of aircraft structure.

Among the un-awarded bids outstanding are contract opportunities with these potential customers. We look forward to reporting on our progress of turning solicitations with these prospects into awards and contracts in the future.

As previously announced, based on the visibility we currently have, we project 2010 revenue will be in the range of $48 million to $51 million with resulting net income in the range of $4.3 million to $4.8 million.

It is our expectation that our three major long-term production programs -- the A-10, the E-2D, and the G650 -- will be in full scale production and generating consistent revenue during 2011, and we therefore project that 2011 revenue will be in the range of $78 million to $81 million, with resulting net income in the range of $8.9 million to $9.5 million.

Additionally, using 2008 as the baseline, our 2011 guidance affirms our expectations for a three-year compounded annual growth rate for revenue in the range of 30% to 35%, with a resulting compounded annual growth rate for the net income in the range of 50% to 60%.

In early April we completed a registered direct offering and raised $3.5 million in net proceeds through the sale of 500,000 shares of our common stock. Through this offering we strengthened our financial position in preparation for continued growth, and enhanced the potential liquidity of our stock.

CPI's future has never been brighter, and we will continue to get that message out to the investment community as often as possible. During the first half of this year, CPI presented at the ROTH, Cowen, B. Riley, Stephens, and Noble conferences with much success, and we're scheduled to present at the D.A. Davidson aerospace and industrials conference in November.

Through our ever-continuing positive financial results and the exposure we have received at these venues, the company's stock price, which began the year at $6.01, has seen a 52-week high of $11.12 just a week ago.

Additionally, for the first time in CPI Aero's history, we now have independent research coverage of the company, not just by one firm but by three firms. ROTH Capital initiated coverage on CPI in mid July, followed just days later by Stonegate Securities. And last week, Capstone Investments also initiated its report on us. So our efforts to get the message out and increase investment community awareness of CPI is obviously having a significant impact.

Before closing I would like to thank all of our shareholders for your continued support of CPI Aero, and I assure you that your management team and your Board of Directors are working diligently to continue this profitable growth and reach our full potential as the world's premier small-business supplier of aircraft structure.

And I would be remiss if I didn't once again thank the CPI management team for sharing my vision of where we can take this company, but more importantly for making it happen. I would also like to thank all the employees of CPI Aero for executing on that vision and being an integral part in winning such impressive awards as the ones mentioned earlier.

I look forward to the future of this company with great eagerness and anticipation of now executing on these contracts and then attaining new ones due to the quality of our work.

Now, before I open the floor to questions, we had two questions sent to us previously, so I will respond to those first.

The first one comes from a Robert [Urbanek]. The question is, are there plans to list the shares of CPI Aero on the New York Stock Exchange?

Currently we are on the New York Stock Exchange -- not the Big Board, obviously. We are on the NYSE Amex. When the American Stock Exchange was purchased by the New York Stock Exchange, we moved over, along with that purchase, and a separate exchange has been created for companies that came from the Amex but were too small to list on the Big Board.

At this time we are still way too small to list on the Big Board. Keep in mind that prior to yesterday our market cap was somewhere between $70 million and $75 million, which is way, way, way too small to be listed on that.

But again, we are on the New York exchange. At this point there are only two major exchanges, the NYSE and the NASDAQ. We are on the NYSE in a subdivision of that board.

The second question comes from a Kevin Stone, and he asks -- please have Mr. Fred update us on CPI, the UTX Sikorsky Supplier Gold status. If I remember correctly, the expectation was for CPI to have already received this status.

Mr. Stone, we are still in the process. Nothing CPI has done to delay the process. We are dealing with a very, very large institution, obviously, in Sikorsky.

I won't give you the exact date, because I don't think I should be giving out Sikorsky information, but we are being presented to the Supplier Gold Board this month, the month of August. You are correct. It was supposed to be both June and July.

Again, nothing that we've done incorrectly. We have met all the standards to be Supplier Gold. That's why we are being presented later this month. And we fully anticipate getting approval. I cannot give you a time frame as to how long the approval will be after we are presented.

But again, we are very, very confident that we will be approved and in the very near term we will be able to announce the distinction of being one of the 15 or so Supplier Golds for Sikorsky.

Now at this point I would like to open the floor to questions. Christie, can you allow callers to place questions now, please?

(Operator Instructions) Rick [Hunt], ROTH Capital Partners.

Just on gross margin, I know the range is 24%, 26%. Is there anything you can give us in the reason why it was stronger than that range?

Just the mix of programs in this quarter put it slightly higher than what we are going to call the average. Does that mean we are going to have a significant drop-off in the quarter? No, not necessarily.

(Inaudible - microphone inaccessible)

Right. Yes. No, the mix should still stay in the range. It will probably be in the higher end of that range, as we've become more efficient on some of these newer programs much more quickly than anticipated. But that's really the only reason, Rick.

So there is a component of process improvement then within that number?

Oh, absolutely. Always.

Okay. And then on the SG&A, a little bit of a tickup sequentially. Is that just a function of revenue being that much higher? Or is there a couple of things in that number?

Well, the quarter was lower, the overall was higher. That's because with the stock price moving as much as it did, we had tremendous stock volatility in the Black-Scholes calculation. We pay all of our Directors' fees -- or much of our Directors' fees in stock options versus cash. We are not a company that wants to spend a lot of cash on that kind of activity.

And because of the volatility in the stock, the stock option non-cash expense was very, very high, which in general made the overall SG&A much higher.

Other than that, I think you can see that growth in revenue for us is not necessarily dependent on increased SG&A, in a percentage basis certainly. So just $200,000 more at the half-year, but again, we are not looking at -- for example, we have the projection out there for 2011 to take sales from almost 50 to almost 80. We don't anticipate a major gear-up or ratchet-up in SG&A to accomplish that. It's not necessary.

And then the last question from me -- the $288 million in bids --

Yes sir?

I'm assuming none of this is in guidance.

Minimal amounts, Rick. We always have a piece of new business in our guidance. It's not usually a significant piece. Major awards out of that $288 million would add to the guidance we have out there.

Okay. So just thinking of historical performance perspective, of the bids that you typically solicit -- or you place, what percent do you think is just a reasonable expectation for wins?

Rick, we can't give you that anymore because our business model has changed to some extent.

When we used to be 100% direct to the US government, we could anticipate winning 13%, 14%, 15% of the bids outstanding, even though the industry average was in the vicinity of 5%.

Now with the way we bid, the fact that we are bidding major, large contracts to major OEMs, it's not the same. For example, with Spirit we are one for two. Now, I can't sit there and tell you that in my package I'm going to win 50% of my bids.

Kind of the same thing with Boeing. So it's not a percentage basis anymore that we can go off of. It would -- if I gave you that answer, it could very well skew it.

I can win one contract right now in that number that would be 20% of the overall outstanding at the moment. Now, that might be the only one I win, and lose seven others. Am I really a 20% or am I at 12%?

So that's not as easy to quantify anymore.

Okay. But point being that this $288 million is really -- if you're successful, it would be a decent upside potential to your outlook for '10 and '11?

100% correct.

Okay. Thanks gentlemen.

Marco Rodriguez, Stonegate.

I was wondering if you could talk a little bit about your top line in the quarter. Did everything come in according to your internal plan?

Absolutely. Right on the money, actually.

And then kind of following up on a previous question in regards to Sikorsky and the Gold member supplier status, could you provide a little bit more color in regard to this presentation that either you are making or somebody is making to (multiple speakers)

Sure. We obviously internally have had to prepare presentations to make to what I will call the Sikorsky team that comes out and does the analysis of whether or not you qualify. We are done with that process. We obviously have 100% on-time delivery. We've had 100% quality.

Then the third element of this is a lean manufacturing score. The last two times they have been in to audit us, our lean manufacturing score has exceeded their requirement, which now has us eligible to be presented.

They will take and make a presentation. The Supplier Gold team that visits the companies will now take CPI, put the presentation in their format, and present CPI to the Sikorsky Supplier Gold board of review, if you will, and present to them why they believe CPI is now deserving of Supplier Gold status.

Once that is done, then UTC is notified that Sikorsky is making us Supplier Gold.

What that does is allow other divisions within the UTC family to know that CPI is Supplier Gold, so if anything comes up in Hamilton Sundstrand or Pratt & Whitney or any company like that, they can go to a list and say, huh, let me see, this company, CPI, makes structural parts, they do assembly, let me see if there's anything they can do with us since they're now Supplier Gold.

So that's really the process. We are being presented by the localized committee to the board of review in the coming weeks, in month of August, and we will see where it takes us from there.

Okay. So just (technical difficulty) so you're not present at that particular meeting?

No, we are not.

Okay. All right. And then I was wondering if you could update -- what was your cash flow from operations and CapEx for the quarter? And then kind of discuss the expectations of your cash flow for the second half of this year.

Well, the full Q will probably be filed tomorrow.

Our cash flow for the quarter was slightly negative due to a build-up on some of those bigger programs. We anticipate that our cash flow for the remainder of the year will come back around to the way it was in the fourth quarter of last year and be positive again as we start delivering on those orders.

So -- but it was slightly negative in the second quarter.

Was that the whole question?

Yes, so okay. So like (multiple speakers)

CapEx -- so you were asking about CapEx. That was the other part of the question. I knew I remembered something else.

CapEx is -- was actually fractionally lower this quarter than the -- this previous six-month quarter -- six-month period.

And then so given your expectations for cash flow the remainder of the year, is there an expectation that you will be perhaps tapping your line of credit again or anything of that nature?

Not in the current cash flow projection, no.

Okay. And then last question I have -- in regards to the bids outstanding, if my memory serves me correctly, I believe the Sikorsky was -- or maybe perhaps still is maybe 40% to 50% of that. Is that still the status?

Correct.

Okay. Great. Thanks a lot guys.

Michael Callahan, Capstone Investments.

Good morning guys, and a nice -- nice quarter.

One question I had, on the revenue going forward, it looks like there's quite a bit of growth baked into, first of all, the second half of the year and then obviously accelerating into next year. Really I guess the first, on 2010 -- I know you expect to be up to pretty much full production on the major programs, but do you have any insight as to the timing of how that might flow through? Because obviously there is going to be a big pickup since this current quarter.

The third quarter will be up slightly from the second, and then the fourth quarter is where you'll see the biggest increase, getting us up into our revenue guidance range -- if that's what you're asking.

Yes.

And then 2011 should -- again, as it happens every year with CPI, 2011's first quarter will be much better than 2010's first quarter, and then going forward the buildup will be steady and consistent quarter to quarter throughout 2011.

We are now hitting stages where there are delivery schedules that we will be building to versus -- build three of these and then wait because we have to test them and do this and do that. Well, with them all getting into production phase, the quarterly revenue stream will be even more predictable than it is today.

Okay, thanks. And then I guess this fourth-quarter increase, where it really -- that's where you see a substantial amount of the growth. Is that going to be consistent year-on-year pretty much (multiple speakers)

Well, what it is going to be, it's going to be consistent with previous years. And for whatever reason -- and I guess the reason is probably obvious -- is other companies, our other customers -- first it was the US government who would let out a whole bunch of new contracts in early October each year, and you would go ahead and start working on them very rapidly, and that's what boosted the fourth quarter prior to us going to subcontractors.

Now obviously they want to deliver as much to the US government as they can, or to their -- if it's a commercial program -- to their customers, and so the fourth quarter just seems to have a big push put in it.

I think what's going to happen though now with the production in 2011 time frame and with the clearly defined delivery schedules, is it will be much more predictable, and I will call it much more of a steady growth versus a big push into -- in the fourth quarter that we've seen every other year.

So '10 will have the big push in the fourth quarter again, and then I think '11 will be much smoother, increasing from first through fourth on a much more linear basis.

Okay, thank you. And then just maybe one more thing on your bids outstanding -- are you guys looking to maybe change the mix of your business, heavier weighted towards commercial with the current business you're going after? Or are you still just seeing a lot of opportunity on the military side?

Right now a lot of it is still on the military side as a subcontractor.

Commercial I think will start to pick up -- the ability, I should say, to bid on commercial things will start to pick up, I think, as 787 starts to define itself, people are over the worries of whether or not they can be produced on time, the delays that Boeing has experienced. I think once that happens, you will either see -- we will either see us have the opportunity to bid on 787 work or bid on other commercial work as a subcontractor because those companies are taking on 787 work.

So to me that's the big driver right now in commercial, at least for us, is 787 -- getting it on schedule, getting its start to -- into production. And again, we will see either the ability to directly bid on 787, or we will get indirect opportunities because the other companies are gearing up the 787.

Okay, great, thank you. That's all for me.

Russ Silvestri, SKIRITAI Capital.

A couple of things. One, you didn't mention Spirit at all, and I was curious about that.

Second, I was curious (multiple speakers) the other questions I have related to the SG&A in particular. How much of the SG&A component was stock-based compensation, and also just a little bit -- depreciation as well on the cash flow?

Let's start with stock-based compensation. In the six-month period, $0.5 million in round number, $497,000 -- if you want the exact number.

Depreciation for the six-month number is 174.

And third question -- the Spirit Aer, it wasn't mentioned anywhere in the press releases, and I was just curious what's going on there.

Simply because right now it's we are not in high-level production. We are in a bit of a dip with them, as planned -- nothing surprising, because they are in their test flight mode. If you've been following General Dynamics' conference calls and press releases, they have flown I believe three or four planes now, one set that we're -- one set of leading edges that we've worked on is now going through bird strike. We are slowly building units six, seven and eight. So we are in the expected low on the 650 program.

Once they get flight certification, which they are expecting by the end of the year, we go back right onto the schedule that they've given us previously, which will generate a bunch of revenue in '11 and certainly in '12.

So 650 is right where we hoped it would be. I don't know how much any of you on the call have followed them, but in their call their CEO once again -- General Dynamics' CEO once again reiterated they have over -- they have -- he's saying 200 firm orders on the G650. Any dropouts they've had have been backfilled with new customers. And some of the articles that are being printed say there's at least 250 orders now.

I'm not going to speak for General Dynamics, certainly, but you can read from that what you will, whether it's 200 or 250, just keeping in mind that all of my projections are based on only 134. So if we get to 200 somewhere along the way, there will be an increase to our revenue in the out years or what have you. If it is 250, if it's 500, if it 1 million -- will all be out-year increases.

Got you. And what kind of revenue do you generate per plane?

I can't really discuss that, because then that gives the out, if you will, to the general public, the cost that Spirit is paying for certain parts, and they would really frown on me doing that.

And then the last question I'll ask is related to 2012. In the past you've gone forward and given us the year-out guidance, usually at this time of the year, and I was wondering, are you expecting to do that at the end of the third quarter? Or when do you -- would we expect to see or hear about 2012?

I would think the end of the third quarter when I make my third-quarter conference call announcement, it will be in the press release and in our public projections.

And what would cause you to change or target growth on revenue and earnings, particularly for 2012?

What would cause me to change 2012?

Well, just you -- you've kind of -- you've come out with your revenue guidance and your earnings growth of 50% to 60% with top line growing 30%. What would cause 2012 to be different than 2011?

Well, first off that was done in 2008 for a three-year period. At this point I'm not sure it's going to be 30 to 35 or 50 to 60; we are still analyzing that. If I knew that for sure, I would've announced it in this quarter, to be honest with you. I like to give you folks as much information as I can.

We are still trying to put that together, looking at some of the contracts that might be close to award before I go -- I don't want to put out a 2012 now and revise it three months from now. It's a little silly. But we are looking at the company, continuing to grow, and we can get more specific about it probably three months from now.

Thank you very much.

John Kohler, Oppenheimer & Co.

Thanks for the additional balance-sheet information. I thought it was pretty helpful.

Good, we're glad.

I did get a question out of it, so you're lucky.

Oh, that's good.

I noticed that there was an increase in the treasury stock shares.

Yes.

And I was wondering when those were purchased and what was the reasoning behind that.

It wasn't that they were purchased. I traded in shares of stock in order to exercise stock options. So I bought -- I used cash for part of it and some of the shares I held as part of it.

Okay, great.

So those shares go into treasury stock.

Got you, okay.

Next question -- you sort of touched on it before, on the gross margin and the mix. I'm curious if I could get a little more information on the improved time and product cycle efficiency that you're seeing. Is that meeting your expectations? Or do you still have some work to go in meeting those? And how much more improvement do you think you can wring out of that?

Well, I think the way I guess I would characterize it is, we always expect to make improvements once we are into a program. Have the improvements come a little bit quicker than we might have anticipated? Yes, absolutely. I think that's why you saw the good margin this quarter.

But again, that's also involved in product mix. So for example, part of the programs that made up this mix, we are very -- we're becoming more efficient on more quickly. That doesn't mean next quarter if we work on some -- another new program and it has a high level of revenue, that we're as efficient on that one yet.

In general, why you see the tremendous growth in everything in 2011 and '12, is because we certainly expect to be completely efficient on all of those jobs.

How much more we can squeeze out is very difficult to tell. I mean, that's not necessarily predictable. We are always looking for new ways, and whatever that is, whether it's a better assembly methodology, whether it is lowering the factory overheads that go into the overall general rate of the entire company, we are always consistently looking to keep SG&A down wherever possible, because quite honestly it adds nothing to the bottom line of the company. So if we can keep it down, we do.

And that's really the best answer I can give you right now.

How are you holding out on floor space?

We are still good. We are still good. We took, I think, 4,000 square feet next door, literally next door, a building that has probably 25% usage now due to the bad economy, and used it for storage. So all of our shipping boxes that you had seen when you came to visit us, etc., have been moved to that location, which created more actual production or assembly space within the company. So we are still in terrific shape there. (multiple speakers)

And you still think you can add a shift if you need to (multiple speakers)

As long as the things are the kinds of things we are working on now. If we win a whole lot of these bids that are out or we win a variety, we may have to take more space, but that will be a pleasant problem to have.

Okay. And then last question and I will let someone else take over -- you mentioned in the press release the E-2D and the C-2A for wing panel kits.

Yes.

Can you break that out? Is it possible? What the split was between the two on that -- the $27.6 million award? Was it predominately Hawkeye or was there --?

We actually can't tell you that, because we don't know it necessarily. They tell us they need X number of wings. At this moment, we don't know what that breakout is, but we will find out eventually, between C-2 and E-2. We don't know that answer.

Okay. Great, thanks very much.

Michael Potter, Monarch Capital.

Congratulations on another really good quarter.

Thank you. Before you ask your question, let me just tell everybody, Mike is solely responsible for the full balance sheet and income statement you see on our press release, folks. So thank him, not me.

Yes. Please send me the gifts.

(laughter)

Anyway, just a couple of quick questions.

On the Supplier Gold, if I heard right, you mentioned that 50% of the bids outstanding were with Sikorsky?

Just about right -- $130 million, $150 million. Somewhere in that vicinity.

Will the Supplier Gold status, will that help to break the logjam that has been occurring there for a long time?

We can only hope so. Again, I think I've said this numerous times -- historically when they've given out Supplier Gold to a company, they've also accompanied it with a decent-sized award. So yes, we are hoping that -- we've got $130 million outstanding with them -- that we get a nice chunk of business to go along with that Supplier Gold award.

The logjam is constantly being -- we constantly try to break it, even without Supplier Gold. We literally have a person up in Sikorsky every single week of the year, and sometimes two days of the week. Because, A, they're that big a customer, they're that important a customer to us. B, their general vicinity allows us to be up there with an hour and a half ferry ride. And we are trying to get as much of their business in this facility as we can.

So I do believe it will help amazingly if we are able to get the supplier gold.

Okay. Then on the Boeing, on the A-10 opportunity, we won some additional work. Can you just review exactly -- is there a further opportunity for Boeing to offload more work? And on the I guess orders that we've received so far, does that cover all the wing sets that Boeing has -- is contracted to provide the Air Force?

Okay, first answer -- the first contract that we got, basically $70 million, $71 million.

We got another $10 million added to that. I will call it unsolicited. We didn't put out a bid for it.

What we are doing is providing wing subassemblies, if you will -- the wing tips, a pylon, various either flaps or slats or panels or whatever.

I think they wanted to see how good we really were. You know, to a lot of companies CPI is still a very small, very unknown entity. Once they saw the quality of what we produced and how we went about our job, they came back to us and said, you know, when your stuff gets here, we are putting in lights, we are putting in the various tubing, we're doing this, we're doing that. We think we'd like to give you that so that we don't have to do it here. You can add more and more to your assembly -- and that's what accounted for the $10 million worth of extra work that was added to that.

Now you ask, is there more potential? Absolutely. We are discussing with them now more of that same exact potential, where they say, well, you did this really good, now you've added the lights and they look terrific, and we love what you did on the flashing thing at the end of the wing tip. How about these things, too?

So we are constantly talking to them about increasing the scope of what it is we do; okay? So that's the answer to your first question.

The second part is, as of right now we are under contract, that the $81 million that we have in contracts from them is for the 242 ship set orders they have with the US government.

Now, there's an awful lot of talk going on that that 242 will go up somewhere over 300 ship sets. There are about 368 10's. There a discussion as to how many of them are sitting in the desert. It's anywhere from 0 to 20 or 30. But they have asked the US government to re-outfit the entire fleet with the new wings. We will see if that occurs. If that occurs obviously we would expect to be producing X number more units over 242.

Okay, that's terrific. Thanks, guys.

(Operator Instructions) Scott Hudson, MSI Fund.

Regarding the three major long-term production programs, can you give me sort of feel as to how those trend post-2011? Do they -- is it a drop-off -- or a significant drop-off, or is it kind of a ramp-down? How does -- how should I look at that?

It's neither. It's still an increase on all three major programs. 2011 is just the first year of major production.

If you do a little industry research and look at GD's delivery schedules for G650s, look at Boeing's delivery schedules on a 10-A wing sets, you'll see '12, '13, '14 should all increase on those three programs.

There is nothing here -- we don't want you to have the impression that 2011 is our banner year. It's our banner year compared every year prior. It is not our banner year going forward. We anticipate if we continue to bring new business into this company that 2012, 2013, 2014 should all be better than 2011, because the three major programs are all going to be better than they were in 2011.

Got you. Thanks so much.

Paul [Berger], TLA Associates.

Oh, no.

Good morning.

How are you, Paul. (laughter)

Good. On the outstanding bids, I'm interested in, separately, the half that's with Sikorsky and the other half. Can you give us any more color? And has anything been added or dropped out? And do you see any fruition?

I can't give you any more color. You know, I really can't talk about who the customers are and what their programs are, etc.

As far as dropout, it was a very quiet quarter. There wasn't a lot of dropout; there wasn't a lot added -- which is not atypical for summer months, quite honestly -- for whatever reason, besides vacations and the obvious. No major proposals tend to come out during this period of time. So there was, like I said, a little bit of dropping out, a little bit of adding in.

Some of the dropping out weren't programs that went away, but as we've told you guys in the past, that number we give you is only for things that are less than 12 months old. There are one or two that are more than 12 that we've taken out but are still very active, not going anywhere, not going to be un-awarded, in our opinion.

As far as fruition, yes, we are hoping a lot of it comes to fruition. There is a healthy chunk of it right now that we know is extremely active and will be awarded. Now, will it be us? I sure hope so. I can't guarantee that, obviously. We know where we are highly competitive and where we may not be as competitive, and we kind of figure that into our winning percentage and possibility going forward.

Okay?

Very good. Yes.

I thought maybe you fell asleep on us there, Paul.

I was thinking about it. (laughter)

Thanks, Ed.

(Operator Instructions) There are no further questions. I will now turn the conference back to management.

Thank you, Christie.

Since nobody asked the question, I will address it very briefly, and simply tell you, no, we have no idea why the stock price did what it did yesterday. There was no news. There was no secretive news. There is no anticipated bad news.

Whatever occurred yesterday occurred. Again, completely outside the realm of anything we said, did or had control over. So again, I assumed somebody would ask the question today. You didn't, so I just felt that I would address it. But there is no knowledge on our part as to why the stock performed the way it did yesterday. So --

With that I will thank you all for participating in the call. We will talk to you again in three months. And thanks for your support.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. And have a nice day. All parties may now disconnect. Thank you.