Ducommun Inc (DCO) 2009 Q1 法說會逐字稿

Good day, ladies and gentleman, and welcome to the First Quarter 2009 Ducommun Earnings Conference Call. My name is Dan and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conduct a question and answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's call, Mr. Joe Berenato, Chairman and Chief Executive Officer. Please proceed.

Thank you, Dan. Good morning, I'm Joe Berenato, CEO of Ducommun and joining me this morning are Tony Reardon, our President and Chief Operating Officer; and Joe Bellino, our Vice President and Chief Financial Officer.

Welcome to Ducommun's first quarter 2009 conference call. Actually, we had two press releases today. The first was our Q1 2009 results and the second was a $75 million contract with RUAG for Fuselage Panel Assemblies for the Bombardier regional jets 700, 900, and 1000 models. This marks a significant step forward for us in fuselage skin assemblies.

Today, Joe Bellino will cover our financial results, and Tony Reardon will follow with an update on the aerospace marketplace and a review of our operational performance. I will then make some final comments on our outlook before we take your questions.

And with that, Joe I will turn in over to you.

Thanks, Joe, and good morning. Earlier today, we reported net income of $2.6 million or $0.25 per fully diluted share, versus $5.3 million or $0.49 per share a year ago from the similar quarter. The reported results reflect a $4.4 million pre-tax reserve related to the Eclipse Aviation and their filing of Chapter 7 during the quarter. This event impacted net income by $0.27 per diluted share. Excluding this event, earnings per share would have been approximately $0.52 per share.

Sales. First-quarter sales of $111 million were up 13% from the $99 million a year ago as both segments of our business, AeroStructures and Technologies showed solid gains year-over-year. AeroStructures growth was aided by our fourth quarter 2008 acquisition of DAS New York, and this business unit added $11 million in sales.

We saw solid growth on the commercial side and very good growth on the military side, particularly in the helicopter programs. We still have some effects of the Boeing strike in the early part of the quarter. In March, we saw schedules for the 737s ramp up giving us momentum going into a second-quarter. Ducommun Technologies realized same-store sales growth of 11% during the quarter as we benefited by increased revenues in the F-15, F-18, and military and missile programs.

Tony Reardon will discuss these programs in more details in his remarks. In terms of business mix and backlog, in this environment we continue to see a greater increase in military business than commercial, as some of you have seen in recent quarters. Our Q1 2009 sales comprised of 61% military, 37% commercial, and 2% space.

Our backlog at the end of the first quarter were approximately $434 million. In looking at adjusting operating income, excluding the Eclipse inventory reserve it was $8.9 million for the quarter, compared to $8.5 million for last year's first quarter. The adjusted operating income resulted in a slightly lower operating margin in the 8% range compared to the year ago's 8.6%.

The overall adjusted operating margin was primarily in the DAS segment. Operating results were down somewhat year-over-year, although a portion of this can be attributed to two events. One, is the development costs we are incurring related to the new programs RUAG and Embraer and, in addition, some purchased accounting entries as a result of our DAS New York acquisition had an impact on our margins. In the short term, this affects our reported results.

We were pleased to see the solid increase in operating performance in the technology segment. As a result, we experienced higher operating margins here. We are now seeing the results of actions we have taken in the latter half of 2008 and they are now contributing to improve results, including higher sales improved product mix and lower operating costs.

In terms of liquidity and capital resources, during the quarter we used cash in our operations. That's a normal trend we see in the companies first quarter and even first half of the year. The amounts were greater than our normal experience partially a result of our planned investments and new programs, which require additional tooling costs and are carried on our books as inventory.

In addition, the credit environment has had a short-term impact on some of our customers' credit availability. As a result, we have seen an increase in the number of days and receivables outstanding. We are monitoring this closely and are taking actions to reverse this trend.

Unfortunately, we continue to maintain a low leverage position and our debt-to-cap was 20% at quarter end. Our leverage ratio was still below our targeted debt-to-cap ratio of 30% and we feel that given the economic environment and the uncertainty in credit markets this is an excellent position for us to be in.

We expect CapEx for fiscal year to be approximately $14 million; that compares to $12 million a year ago. We feel confident that as we navigate through the balance of 2009, our strong financial position will allow us to take advantage of several marketing opportunities, and this enables us to benefit from our strong credit risk profile.

Now, I would like to ask Tony Reardon to make some overall business comments. Tony?

Thank you, Joe, and good morning. Let me start by saying that Ducommun had a solid operational performance in the first quarter. I'll walk through some of the particulars, but first let me give you a brief overview of how we see the market.

As we look at the overall marketplace, we are still seeing shifting in the commercial airplane market as passenger miles are down about 10% year-over-year, and freight traffic is down 20% as airlines continue to park their older less efficient aircraft and consolidate routes. The overall credit market tightening also offers challenges for the less capitalized airlines.

Having said that, that the Boeing announced scheduled adjustments on the 777, 747, and 767 models should not impact us until very late in 2009, if at all this year. As indicated by Joe, we delivered over 28 shipsets to Boeing on the 737 program in March of this year, and are poised to increase that to about 31 shipsets in the second quarter. Boeing is holding firm on their current 737 forecast for 2009.

Airbus cuts and the A320 family had little impact on our business. Military and defense spending is still solid, but the 2010 budget as presented looks to offer some challenges for Congress as the debate to spending authorizations. Of course, the C-17 is a particular mention to us. The missile and space defense support requirements, as well as the fixed wing and helicopter programs are at this time remaining solid for 2009.

The regional jet and civil aviation markets have been hit hard and we continue to see schedule adjustments and reduced build rates. Regional jets represent about 10% of our AeroStructures business. As an example, we have seen the decline in our 2009 projected winglet sales to Dassault.

At the same time, we have had some new business wins in these areas such as the RUAG contract announced today, which has the ability to offset some of the build rate reductions in 2010 and beyond. To counter the impact of market adjustments, we have been diligently working to capture new business and have made appropriate reductions in overhead spending.

Our backlog at the end of Q1 was approximately $434 million, versus an '09 starting backlog of slightly over $476 million. The Q1 backlog versus the -- Q1 '09 backlog versus the Q1 '08 backlog is comparable, when discounting the additions of the DAS New York at the end of '08 of approximately $41 million.

Our backlog tends to be lumpy, and we are in line with our projections at this time. Our first quarter sales are up year-over-year primarily on the addition of DAS New York. Our same-store sales in Q1 '09 are slightly up over Q1 '08, primary on higher sales from DTI, and more specifically our Miltec Engineering Division.

Miltec had a solid quarter in both the missile systems engineering support work, as well as the missile and space development portions of our business, where we just announced the sale of eight nanosatellites to the United States Army. These satellites were fully designed and developed by Miltec.

AeroStructures sales without the DAS New York was slightly lower than 2008, on lower sales on the Apache helicopter blade and lower Carson helicopter blades, sales partially offset by higher Chinook and Blackhawk helicopter sales. The Boeing 737 commercial sales were down slightly Q1 '09 versus Q1 '08, as we saw some increases in Boeing direct spare sales resulting from line startups.

DTI had a solid first quarter in improving Q1 '09 versus Q1 '08 operating income performance. We saw increased margins on the Lighted Panel and Switch business, resulting from slightly higher sales and operational improvements from our Lean Six Sigma efforts.

The Radar Electromechanical Assembly business also improved margins on slightly lower sales, resulting again from our lean Six Sigma efforts, and a favorable mix caused by exiting low-margin and unfavorably priced product lines. Ducommun AeroStructures without considering the effect of Eclipse and the effects of DAS New York had lower operating performance Q1 '09 versus Q1 '08 on slightly lower sales.

The lower income was driven, as Joe said, by lower Apache sales and investment in new program development on the Embraer Legacy 450, 500 program wing moveables, as well as the investment in the startup of the RUAG contract. We had some continued develop on the military version of the Carson helicopter blade, which slowed production and impacted revenue and resulting income.

Going forward, we could see continued development on the new programs to support our growth of the Carson helicopter commercial program and that should be on track in the second quarter, with continued development on the military version of that blade as well. We're looking to the future and are excited about these new programs. We're extremely pleased by the DAS New York acquisition.

The integration is on plan and their sales and operating performance is per our forecast. The overall operating performance by DAS New York is somewhat impacted by the amortization of intangibles and inventory, but operational performance has been excellent. We are seeing an excellent synergy with our other AeroStructures operations.

I would like to close by reiterating that we believe Ducommun is performing well in the tough market. Our Lean Six Sigma efforts, coupled with the continued development of our employees, will be the keys for growing profitably. We are very pleased by our recent awards at the two major programs RUAG and Embraer, as this moves us up to value chain. In addition, we are working very hard to acquire new additional programs.

Thank you, and I would like to turn it back now to Joe Berenato.

Thanks, Tony. Since our last conference call in February, the outlook for 2009 has solidified. Business in regional jets have seen a number of deferrals in cancellations causing a significant drop in our build rates. The business jet and regional jet market makes up about 10% of our total sales.

In the large commercial jet market, we have seen a reduction in the 777 build rate, which will affect us at the end of the year, but otherwise this segment looks stable in 2009. The large commercial jet segment is about 25% of our sales. The military segment, likewise, looks stable for 2009, with the exception that our Apache build rate has been reduced starting in '09. But, Blackhawk and Chinook are growing programs. The military segment is approximately 60% of our sales.

While 2010 may see additional build rate reductions, we continue to seek and win new contracts, which expand our scope of work and add new customers to our key customer and key program list, including recent wins with Embraer for designed flight services, RUAG for major structural subassemblies, and the United States space and missile command for the nanosatellites.

We are expanding our capabilities and our customer list, and we're diversifying our program concentration. We remain confident that we are building a bigger, better and more profitable Ducommun for the 21st century.

And with that, Dan, Tony, Joe, and I would be happy to answer any questions.

(Operator Instructions)

Your first question comes from the line of Troy Lahr from Stifel Nicolaus. Please proceed.

Thanks. Just wondered if you could talk a little bit about the new contract award today RUAG -- what you kind of assuming for production rates from the business -- from the regional jets over the next few years? I would think that there is pressure there. We might see some production cuts. Has that kind of already factored into your decision, or the amount of $75 million over three-and-a-half years, I guess?

Troy, this is Tony. There is two elements to it. One, the $75 million is based on the production rate that was given to us at the time when we awarded the contract and that's the rate that is built into the contract value, what we are projecting currently and the revenue base going forward is about four shipsets at the month, and that is down from the current seven.

So, we -- they are operating at about seven shipsets, we believe we are going to see somewhere between three and four month going forward. So that's kind of what the projection would be. That would probably stretch the deliveries out into probably 2013.

Okay, so the $75 million is probably actually over now through 2012 -- might be 2013?

Yes, based on whatever the production rate schedule slide would be.

And if the production rate slides a little bit, should we see some profit -- some lower profits on that? And then also, as that program starts up should we see that starting to dilute margins little bit?

I would think that it will, Troy, dilute the margins. We've built-in in our plan -- the start-up cost of course. We are investing in the program with regards to the upfront investment in the tooling, so there will be some start-up costs going forward, and has the potential to dilute some of the margins going forward. But, it also has the potential of adding significant absorption capability with the higher labor hours in the factory. So, they should be somewhat offsetting.

So we've put together a forecast on the program that we think is attainable. We are on track right now. We're on budget right now. So, I think things are moving in the right direction.

Okay. Should we think about this as one of the major program wins that you guys were looking for to kind of offset some of the wind down work?

Yes, absolutely.

Okay. So from a scorecard standpoint, we are at -- maybe you need another one and a half -- two maybe, is that kind of how you guys are looking at it?

Yes, about one and a half.

About one and a half. Okay. And then, can you just help me understand the Apache work? I thought that that was going to be winding down a little quicker, I think it was off maybe 20%. Does it keep falling down, or is your 50% estimate kind of conservative?

No, it keeps falling, Troy. What we saw was a carryover from the fourth quarter. We actually -- if you look at our rate in the fourth quarter, we are a little bit lower, we're probably 10% lower. So, we took to residual out and will be down at the 50% rate starting in the second quarter.

Okay, perfect. And then just last question -- DAS New York. Is that fully integrated now? And maybe -- can you tell us what the impact was in the quarter on integration costs and things like that?

It is fully impacted -- it is fully integrated. I can't be complementary enough about the way it was integrated, but in terms of the impact of the cost, I think I'll let Joe answer that.

Yes, from an operational standpoint we feel it is integrated and there is some -- several things up front. We are going to go through here and there is more so in the second half and ERP implementation to be on our Ducommun company-wide platform. There will be some investment then expenses their, Troy.

But, we really haven't been able to fully realize all the synergies yet in supply chain management and some other benefits that we see in Six Sigma and Lean because there's only been active for about three months. So certainly, the cost to integrate on our ERP system will show up in the form of some expense money -- some cap cost. But, we expect to offset those in the second half with these three synergies that we're counting on.

Okay. I guess I was actually just focusing more on the first quarter -- I guess excluding the charge for the inventory write-down. You did 11.5% margin. I mean, did you have more integration cost in the first quarter -- $1 million, $2 million that kind of lowered those margins a little bit?

It was more purchase accounting. Tony mentioned in his remarks, there is some amortization of intangibles, and we also for purchase accounting had a step-up inventory and we ran those through the cost of goods sold during the quarter and we still have some of that here in the second quarter.

Okay. All right that's helpful. Thanks, guys, I will jump back in queue.

Your next question comes from the line of Michael Lewis from BB&T Capital Markets. Please proceed.

Good morning, thanks for taking my call.

Hi, Michael.

Hi. Joe, I was wondering with the F-22 ending production at 187 units, you have a small piece of business with the 22, but have you explored looking at opportunities to increase any new exposure to the 35?

Mike, this is Tony Reardon, actually we are working on a program on the F-35 right now and not really at liberty to discuss the whole thing, but it's a relatively -- it will be a bigger place of the F-35 than we have in the F-22, let me put it that way.

It would be another one of those one and a half programs that we need. If we get this it will be one to one and a half.

Okay, so the content is larger exposure there. That's good news. Also, it looks like Blackhawk and C-17 revenue were very strong in Q1. Now, is this typical to the seasonality that we witnessed in the past in these programs, or where these results on these two platforms above your internal plan?

Actually on the Blackhawk, Mike, it was basically on plan with what we had seen. And, if you look across at United Technologies Sikorsky is up in terms of their production rate on the Blackhawk, and then we delivered a lot of spares to the field for overhaul and repair on the blades. So that has been a big part. And, of course, the DAS New York is a big portion of Blackhawk. That is a large portion of their revenue base. And then in terms of -- I'm sorry, I lost the other program --.

Chinook.

On the Chinook program.

Actually, it was C-17.

The C-17 is seasonal, yes. So there was some spare panels that we delivered on that, so that was a little higher than normal.

Just to shift gears here and look at technology for a second, the margin print was the highest level we've witnessed since early 2007. Now, would you guys anticipate this level of margin to come back down here after the first quarter back into say high 6%, low 7% range as the more sustainable rate for this type of business?

We feel that we've really gained some momentum from the actions that we took in '08, improving the product mix, demarketing some unprofitable items, continued improvement in our operating cost environment and the growth of sales and technology. Joe mentioned that Miltec's sales grew; we expect that momentum continue.

We also expect to see further growth from the replacement radar racks and the F-15 for the contract that we announced last October, which is starting to ramp up. So, we feel the prospects are good and the opportunities to improve profitability still are quite positive.

Yes, that is very helpful. And just a final question, and I will get back into the queue. Joe, how do you see free cash flow playing out through the end of 2009 with regards to kind of a yield estimate on net income, let's say?

I go back to the last two years as we look through the third quarter, we were about breakeven on cash flow from operations, and then we wound up in '07 with $42 million of cash from operations, and last year $26 million. We expect a similar trend, although probably not as much. I would think one of the reasons are the investments we are making in some of these developmental programs require us to have tooling cost that stay into inventory for a while.

And also, just in the credit market environment, we start the same caliber in blue-chip customers in this credit environment, even our most highly credit worthy customers are slowing down the payments. And as we continue to grow, I think we're going to see a little bit higher permanent level of investments in receivables than we have in the past. So we still see a positive, but probably not as much as the last two years.

Okay, thank you.

Your next question comes from the line with Edward Marshall from Sidoti & Company. Please proceed.

Hey, guys.

Hey, Ed, how are you doing?

Good. So the production cuts, late in 2009, you said there was going to be an impact. What is that impact for you? What do you guys estimate? From a sales perspective I guess, I'm sorry.

It is tough to estimate at this time. The biggest impact would be in our DAS New York division, and I'm trying to rattle that through because we're actually you are cutting about 20% on the 777 program. The 747 and 767 never ramped up, so really no impact in terms of revenue implications going forward on those. I'm trying to think -

Well, the fact is that because it comes so late in the year and because the 777 is not one of our top five programs, it is not going to have a significant impact on sales in the fourth quarter.

Okay. And then looking onto 2010 -- I mean, am I right to take the full-year impact and just -- 80% down that should be the number? I mean, are you going to get some additional content or prices increasing on the 777?

I think that would be the right thing to do.

Okay. And then, the other question is that the $11 million or so that you received from acquisitions give you a little organic revenue growth in the quarter. As a effect, you've -- the margins were diluted because of the acquisition among other things. My question I guess is, what is the focus of acquisitions? I mean, how do you think about these as more of just a accretion, or are we looking at a return on invested capital et cetera?

Actually, we were pretty proud of the way DAS New York called it in because our attitude is that because of the amortization and intangibles and step-up of inventory, we usually expect the first year to be at best breakeven, and we are ahead of that schedule through the first quarter.

When you look at the larger picture of acquisitions, certainly acquisitions in their first year are dilutive to margins, but we are making acquisitions to try to buy businesses that will be additive to margins as we go down the road. So, while there will be a drag on margins in their first year, we're -- our expectation is that they will be helpful to us in margins in year two and beyond. So, that is the plan.

So the execution, of course, is always where the rubber meets the road, but we are not looking to make acquisitions just to get bigger and get much profitable. We want to get bigger and more profitable. So, when you look at the vision statement it makes reference to profitable growth not just growth.

It is good to hear. The debt on the balance sheet -- the increase in debt is that related to the acquisition?

No it is not. Ed, when we complete the transaction last year and we continue to receive cash flow from the time between December 23rd and the beginning of the year, we actually paid down all of our debt except for the acquisition notes. The increase this year is really our use of the revolver to finance working capital growth.

And then can you explain the ramp up in the Bombardier program? I mean, you had mentioned three to four shipsets, I can't imagine in the third quarter or are you going to go right to that three to four per month. How do you anticipate that ramping up throughout the remainder of the year?

Mike -- we are going to deliver about four shipsets this year.

Total?

Total. And then, we will to ramp up from about two shipsets in the first quarter and then up to four -- three to four in the second and third.

And then just a housekeeping question if I can, Joe. The -- the exact number of the reserves both pretax and after-tax?

On the Eclipse?

Right.

$4.4 million pretax and $2.7 million after-tax.

I mean, $4.4 million in change or what was the actual number? So, I can run it through the model here. Sorry, about that.

It will be in the queue, but it --.

I can look in the queue that's fine. Is that the remainder of the Eclipse receivables that you have?

That was for inventory and that completes and [pares] out any kind of an impact for Eclipse going forward.

I'm sorry you faded out for a second.

Oh, I'm sorry. That reserve of $4.4 million was for inventory.

Right.

We had taken the receivables in the fourth quarter of last year, and so we have no further exposure on Eclipse.

Excellent. Thank you.

The exact number is [$4.359 million].

Thanks, Joe.

You are welcome.

Your next question comes from the line of Alex Hamilton from Jesup & Lamont. Please proceed.

Good morning, gentlemen.

Morning, Alex.

Quick question. A top five program is 737 -- I know production rates haven't been canceled yet, can you've remind me A, what your dollar volume is per shipset and what would the lead-time be, if there was to be a program cut?

Well normally, Alex, we don't give you the dollar volume on the shipsets, but the current run rate -- the current build rate on that aircraft is going to go to 31 shipsets a month. And then the lead-time on the contract -- the lead-time for the actual parts is 12 months. However, the contract clause has a six-month schedule -- deceleration clause in it so --.

Understood. Great, thank you.

Your next question is a follow-up from Troy Lahr from Stifel Nicolaus. Please proceed.

Yes, could you help me understand the C-17? When do you think that that could eventually wind down, I guess assuming the US doesn't buy anymore, but maybe we get some international orders -- just how you're thinking about that?

You know, I guess I have been saying this for several years, my belief has always been that the program would be canceled sometime between 2010 and 2012. I've actually become a little more optimistic about that. Secretary of Defense Gates' comments notwithstanding, but we will see how it plays out. My expectation would be that we are at 15 shipsets a year right now, and that it will stay that way into 2010. And then, I would expect to see the build rate come down substantially, but go out longer than the 2012 period.

And that will be a combination of reduced buys from the US, and layered into that would be international sales. So maybe the build rate goes to six to eight a year when you get past 2011, but that is just a guess. And certainly, it is not a prediction that is been made by Boeing, that is just my take home things. If nothing were done further than what exists today, the program would shutdown towards the end of 2010.

Okay, perfect that's helpful. Also, I think you said in the quarter you had lower Carson revenues, can you help me understand what is going on? It sounds like it is a timing issue. And maybe just kind of how you think about that program kind of throughout the rest of the year. I don't think it is a top five program yet. I mean, do you think it gets there eventually?

It could, but probably not this year, Troy. But basically, what happened in the first quarter is we were building development blades for the military to qualify the units, so there is some different requirements on the military blade, so -- which am not at liberty to go through, but basically suffice to say that it is a somewhat different blade than the commercial blade.

So, it impacted the commercial delivery, so the deliveries were down quarter-over-quarter. But, the ability for us to qualify the military version of the blade opens up an extensive market for us. So throughout the rest of the year, we would see it to be probably steady-state with last year, with the opportunity that we finish qualification later on in the third quarter and opportunities to pick up new military orders going forward. So, we would project it to increase high in the 2010 and '11 timeframe.

Okay, that is helpful. And then just lastly, can you talk a little bit about some of your overhead rates going forward? I think you said you are looking to step up the bid proposal activity. And then, kind of follow-up to that, can you maybe help me understand how you balance this going forward? Are you getting more aggressive and in a sense are you taking on more risk by trying to replace some of these programs that might be winding down a little sooner than expected?

Well, let me -- first of all, we are working diligently to get our overhead rates down. And then in terms of risk -- the risks in terms of the programs are how well you execute once you win. So, that is the way we look at it. You know, we've talked for the last three or four years about the implementation of Lean, and I think that is an important part of really understanding the way that we run the business.

So, we actually attack a program right up front, we look at how we are going to manufacture and what it is going to take, and then we make some pretty calculated estimates on taking the program on. In terms of investments in the program, I think that we are seeing the marketplace today, where that is more and more required going forward such as we are talking about on the RUAG program, where we're actually going to carry the tooling for certain number of shipsets and amortize that cost into those.

And so, that's I think part of the nature of the business going forward. But in terms of our execution and how we are attacking new business, from our risk standpoint I would not say that we're assuming higher risks, we do an IRR calculation on each one of the programs that we look at and we have a threshold that we won't go below. So, as we go forward we take a look at that and then we put the proper execution tools in place in order to make sure that we hit those targets, and it is on a consistent monthly measurement program.

Troy, some additional flavor to the notion of how we are trying to handle overhead -- since the beginning of the fourth quarter of '08 because of changing build rates and work activity, we've reduced headcount across the cooperation about 7% and it's been roughly an equal split between indirect and direct labor.

Okay. But just maybe kind of going out it a little bit differently -- I guess your bid proposal activity -- as you go forward over the next couple of quarters are you going to be going after more work, should we see that translate through the higher SG&A as you are bidding on more work?

You know, a fair amount of course of our SG&A is fixed, but we see a lot of opportunity actually still out there. And so we are bidding at a pretty high level -- don't think we will see that increase from where we are, but we are already at a higher level. Certainly, if we were going to increase from the level we were at, we would probably have to add some people, but we think there is a lot of opportunity out there and we are chasing to ones where we think we have a probability of winning.

We are not the kind of company that goes after everything that's on the street. What we try to do is identify where we have a competitive advantage and key capabilities that puts us in the position to win and then those are the work packages that we go after. So, there may be a lot of stuff on the street or available to bid on that will pass on because we don't think we bring a unique solution to the problem.

Okay, so SG&A at around $3 million that is kind of a pretty good run rate going forward?

I would say, yes. Yes, I think that's right.

Yes, I think the most important point there -- we don't see any step changes in our SG&A at this time.

Okay, great. Thanks, guys.

Your next question is a follow-up from the line of Edward Marshall from Sidoti & Company. Please proceed.

The C-17 program that we discussed -- to follow-up on the question that was asked earlier, you said that if nothing else changes, we will see that ramp down somewhere in the back half of 2010, is that to say that you will recognize revenue throughout 2010?

Yes.

Yes.

Okay. At same run to it?

Yes.

Okay. And then your comments on the production rates of the time of the contract that was landed this morning -- the $75 million run right, you said that was at the time of the run rate when that program was -- when that contract was awarded, has there been a revision in production rates since that contract was awarded?

No. And we anticipate it just based on what we're seeing in the industry, but there has been no revision. No.

Okay. And then the performance on the commercial side of the business in the first quarter, I think you mentioned there was a catch up from the shutdown from Boeing in the fourth quarter, did you quantify that catch up?

I think if you look year-over-year, we are slightly less like within a couple of hundred thousand dollars of what we performed in the first quarter of 2008. And the run rate was higher than we had originally anticipated, but we saw a significant number of spares -- spoilers in particular and some polls on our spare products that we sell to Spirit because of the requirements first line startups. So, all in all the quarter was relatively close on the 737.

Okay. Thank you, guys, very much.

At this time, there are no further questions in queue. I would now like to turn the call back over to Mr. Joe Berenato for closing remarks.

Thank you, Dan. While in conclusion, we believe we are growing capabilities, sales, and customers. We continue to look for complementary acquisitions to enhance our profitable growth, supported by our strong balance sheet, and the consistency of our strong cash flow, whether in up or down markets.

And here at Ducommun, we have a history of emerging from downturns stronger than when we went in, and we expect this downturn to be no exception to that. We look forward to meeting with you again in July to discuss our progress in Q2. Thank you very much. And, Dan, I will turn it back to you.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.