達信公司 (TXT) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Textron's first quarter earnings call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your Vice President of Investor Relations, Mr.

Doug Wilburne.

Please go ahead, sir.

Thanks, Alex and good morning, everyone.

Joining me today are Lewis Campbell, Textron's Chief Executive Officer, and Ted French, Textron's Chief Financial Officer.

Before we begin, I would like to our discussion will include remarks about future estimates and expectations.

These forward-looking statements are subject to various risk factors which are detailed in our annual SEC filings and also in today's press release.

Finally, you can also find a slide deck containing key data item from today's call in the IR section of our website.

Beginning with this quarter, we are reporting Textron Systems as a separate new segment.

We named this segment defense and intelligence.

Correspondingly, Bell Helicopter will also be reported separately as the Bell segment.

Historical financial statements have been recast to reflect the new segment reporting structure, and these recast financials for the years '03 through 2007 can be downloaded from the Investor Relations section of our company's website.

Moving now to our results for the first quarter.

Revenues were $3.5 billion, up 18.7% from last year's first quarter.

Earnings per share from conditioning operations were $0.93, up 19.2% from $0.78 a year ago.

You'll see on the free cash flow calculation attached to our press release that we have modified our calculation to make our definition more consistent with that being used by most of our peers.

Our new definition no longer includes adjustments for capitalized leases and will result in a slightly lower reported free cash flow for the year, but we're not changing our target.

A schedule free cash flow for the year as '03 through '07 is included in our key data package accompanying today's call which again is available on our website.

So, free cash flow in the quarter on this new basis was $78 million compared to $28 million a year ago.

With that, I will turn the call over to Lewis.

Thank you, Doug, and good morning, everyone.

With our strong first quarter results, we're not only off to a good start for the year, but we also created excellent future growth opportunity as global demand continues to be brisk across our aircraft and defense businesses which in turn led to another significant expansion in our backlog during the quarter reaching a new record level.

One major contributor to expanding backlog during the quarter came from the V-22 program as we booked $1.2 billion for the first lot from the new multi-year contract that we inked with the DOD in March.

We're quite pleased that we are able to reach an agreement for a multi-year commitment because that essentially removes funding risk, it provides a predictable supply chain environment and allows us now to focus even more strongly on production improvement and costs.

The new contract calls for 167 total units over five lots with deliveries beginning in late 2009 and running through October 2014, and we'll be reaching an annual production rate of 38 per year by 2013.

Importantly, the customer also has an option to add five additional units each fiscal year so there is potential upside there depending on funding availability and mutually agreeable delivery dates, and looking even further in the future, we look forward to additional multi-year contracts at the conclusion of this one, and by that time possibly producing for foreign military demand as well.

In the meantime, we're now fully engaged with our supply chain to affect a substantial ramp-up in delivery volume and to be prepared for even higher levels of demand should the government exercise any of its options.

We also had a nice addition to the backlog of the commercial side of Bell as we added 51 new helicopter orders reflecting strong demand at the Singapore air show and HAI, and we have additional purchase agreements from the shows that is will go into backlog as we complete the contractual requirements necessary to put them into backlog including orders for the 429.

Operationally at Bell we had good margin performance in our commercial business as cost reductions and positive pricing contributed to improved profitability.

On the H-1 program, this aircraft continues in Phase II of operation evaluation as it should be, and we anticipate a successful outcome later this summer.

Also during the quarter, we came to an agreement with our new cabin supplier with respect to revised delivery schedule and cost targets, and we're new working these issues with the customer for future lots.

A defense acquisition board review for a full rate production decision on the H-1 is scheduled for early fall, and we anticipate a contract award for lot 5 which calls for 15 aircraft soon after that.

On the armed reconnaissance helicopter or ARH, systems development and demonstration activity is going well, and we just received the RFP for the first two lots which call for 38 aircraft with deliveries beginning in earnest in 2010.

We're now working on contractual details of the ARH program with our customer.

Turning to Cessna, demand also continues unabated at our Cessna unit as we booked 235 new jet orders.

We're quite pleased this including 36 of our new Columbus model, an excellent start on the initial order book as well as another validation of the general business jet demand environment.

Additionally, we're excited that we booked our 500th Mustang order during the quarter, an impressive milestone for this young aircraft.

With our target annual production rate of 150 units, we now have Mustang backlog in the 2011.

Geographically, the overall order pace for business jets on the international front remains robust.

However, I have to be quick to point out that the U.S.

demand is also strong as we took 80 orders during the quarter.

So with another quarter of solid global demand, our expectation for increasing jet deliveries over at least the next three years remains solidly intact.

We also saw strong demand for our newly acquired model 350 and 400 high performance single engine products and increased 2009 production plans as a result.

On the other hand, we are seeing some slowing in demand for our legacy single engine piston line at Independence.

Financial performance at Cessna was also excellent once again as we made up most of the profit shortfall associated with delivering nine fewer jets than expected in the quarter.

By the way, these delivery misses derived primarily from transactional issues around international deliveries, not production shortfalls.

Therefore, we're confident we can hit our full year target of 470 jets.

Turning now to our new defense and intelligence segment, the integration of AAI is going quite well.

In fact, well enough that we just announced the promotion of Fred Strader.

He was the former head of AAI to the position of Chief Operating unit -- Chief Operating Officer for the entire segment.

We backfilled Fred's position with Ellen Lord who was an executive at Textron Systems.

Earlier this week, with our partners Boeing and SAIC, we submitted a proposal for the 27-month technology and development phase of the JLTV program which is a family of future light tactical vehicles for the U.S.

Army and Marine Corps with an estimated ten-year contract value of $30 billion, the JLT V is an important program and we'll be making the appropriate developmental expenditures to make our offering competitive.

At Industrial, excluding foreign exchange, revenue was up about 1%.

EZ-GO and Jake were down reflecting soft golf and turf markets.

Our EZ-GO had a very successful launch of the new RXV golf car and based on that excellent response, we have increased our mix of RXVs in our production targets for the year.

Organically, Greenlee was approximately flat in the quarter but has begun to see a slight fall off in demand in future quarters.

On the other hand, we have a strong year at fluid and power with record backlogs at double-digit revenue growth in the quarter.

We're holding our own at Caltech as global volumes were up ever so slightly as the rest of the world overcame weakness in the U.S.

Finally, I will make a few comments about Textron Financial.

Coming into the year, we discussed our expectations for higher loan loss provisions and unfavorable borrowing spreads which was the primary reason our original outlook was flat on a year-over-year basis.

As it turned out, the first quarter was worse than we had planned on both both of these counts.

Ted will get into the first quarter details in a minute, but let me continue with a few comments relative to the rest of the year at finance.

Our revised outlook now reflects a more conservative view based on the expectation that the general economy continues to soften moderately and corporate financing markets remain challenging, but do not deteriorate too much further.

On this basis, we're reasonably confident in our outlook reflecting the high quality of asset classes in our portfolio and the rigor of our traditional strong conservative underwriting process.

However, we recognize in today's environment there is a risk to any finance outlook, but we believe our risk at TFC is manageable, and importantly, we believe the strength and opportunities in the rest of our enterprise substantially offsets this risk.

That's a key point.

In conclusion, we're very pleased with the first quarter both on the basis of what we've accomplished and in terms of what it signals for our future.

We continue to work on our transformation journey, and our selection is one of the fortune's most admired companies this year was confirmation that we are indeed making progress.

But let me assure you that that recognition has not caused us to relax in any way relative to our commitment to continuous improvement and our strong determination to create increasing shareholder value well into the future.

With that, I will turn the call over to Ted.

Thank you, Lewis.

Good morning, everyone.

Thanks for being here with us.

I want to start with a comment about our aircraft and defense backlog because as large as it is at $22 billion, with the V-22 multi-year, it is really over $26 billion if you allow for the unfunded portion of the contract, and on top of that keep in mind we have another billion in potential backlog for the Bell 429.

So while we have to carefully navigate our way through the current economic challenges, we have tremendous growth ahead of us with excellent visibility.

Now let's move back to our analysis of what drove first quarter results.

Earnings per share from continuing operations were up $0.15 from a year ago.

Volume and mix provided $0.07.

Higher pricing of about 2.8% added $0.22 a share, and inflation also 2.8% cost about $0.18 a share.

Performance was a positive $0.15, and miscellaneous items including favorable foreign exchange and a lower share count collectively provided about $0.03.

The headwinds of engineering, R&D, and depreciation cost a dime, Textron Financial was lower by $0.03, and corporate expense cost us about a $0.01.

You may be wondering how a $10 million year-over-year decrease in corporate expenses, if you look at our financial statements, could result in an unfavorable EPS causal impact.

The answer lies in understanding how we hedge our stock-based compensation exposure to Textron stock price movements.

Due to the nontaxable nature of gains or losses from the hedge, the impact flows through both corporate expense and the tax rate.

Taken together, the effect is EPS neutral, and we remove the impact from both corporate expense and tax rate when we do our causal analysis, so excluding the impact that our drop in share price had on compensation expense, corporate expenses were actually up about $2 million which rounds to about a penny a share.

Now let's review each segment starting with Cessna.

Cessna's revenues increased $278 million in the quarter from last year, reflecting delivery of 95 jets compared to 67 last year, improved pricing, and revenues from the Columbia acquisition.

Segment profits were up $52 million reflecting the additional 28 jets, improved pricing, and favorable warranty performance partially offset by inflation and increased engineering and product development expense.

Cessna's backlog at the end of Q1 was $14.5 billion, up from $12.6 at the end of '07.

Bell's revenues decreased $6 million for the first quarter while segment profits were up $28 million.

As a reminder, these results are for Bell Helicopter as the new defense and intelligence segment results will follow.

U.S.

government revenues increased $50 million in the quarter due to higher V-22 volume and higher spares in service revenue.

These increases were partially offset by lower H-1 program revenue.

Revenues for the commercial business were down $56 million due to lower helicopter volume partially offset by higher pricing and a benefit from newly acquired businesses.

The lower volume reflects our emphasis this year to support long-lead component manufacturing for the V-22 ramp-up.

In the meantime, we're making the necessary manufacturing capacity adds to allow us to significantly ramp commercial deliveries over the next several years.

U.S.

government profits increased $27 million as a result of improved cost performance and higher volume.

Improved cost performance reflected the impact of a $25 million charge for the H-1 -- excuse me, the ARH program that we took in the first quarter of last year.

In the H-1 program during the quarter, we recorded $4.5 million in net costs reflecting a number of items including a charge for the impact of the cabin supply issue on the remaining lot 3 and lot 4 deliveries.

On the commercial side of the business, profit was up $1 million as favorable program performance and higher pricing more than offset the unfavorable impact of lower volume and inflation.

I want to point out that the impact of the favorable commercial margin performance, while continuing, will not be at the same magnitude through the year, so we're forecasting slightly lower margins at Bell for the rest of the year.

Bell Helicopter backlog at the end of the first quarter was $5.2 billion, up from $3.8 billion at year end '07.

Moving to the defense and intelligence segment, revenues increased $216 million in the quarter due to the acquisition of AAI partially offset by the impact of a reimbursement related to hurricane Katrina in the first quarter of '07.

Segment profits increased $5 million year-over-year, reflecting the benefit of the AAI acquisition and ASV program adjustments to say recognize positive program performance partially offset by last year's $28 million Katrina reimbursement, inflation and unfavorable pricing.

The ASV benefit in the first quarter is not expected to repeat, so we expect lower margins at D&I for the balance of the year.

Backlog at the segment was $2.3 billion, down slightly from year end.

Revenues in the industrial segment increased $62 million reflecting favorable foreign exchange and higher pricing which more than offset slightly lower overall volumes.

Lower volumes reflected decreases at Jacobson and EZ-GO offsetting increases at fluid and power and Caltechs.

Profit decreased $10 million as higher pricing only partially offset inflation, an asset impairment at Caltechs and project launch costs at EZ-GO.

Revenue in the finance segment increased $4 million.

This increase reflects an increase in securitization gains and other fee income, higher revenues resulting from higher average finance receivables, and the impact of a residual value impairment charge last year partially offset by a decline in market interest rates.

Profit in the finance segment was down $10 million due to an increase in the provision for loan losses primarily in our asset-based lending and distribution finance businesses and an increase in borrowing costs caused by market conditions partially offset by the increase in securitization gains and other income.

The 60-day delinquency percentage declined to 0.33% of finance receivables from 0.43% at the end of last year.

However, nonperforming assets increased to 1.84% of finance assets up from 1.34% but still well within a normal range.

The higher NPA primarily reflected softer credit performance in the asset-based lending and distribution finance portfolios while NPA's remained favorable in our resort, aviation, and golf portfolios.

Now for our earnings outlook.

For the full year we're forecasting EPS in the range of $3.80 to $4.00 a share and for the second quarter we expect earnings between $0.90 and $1.00 a share.

Our cash flow provided by continuing operations forecast of about $1.3 billion remains unchanged and likewise, our '08 capital program forecast remains about $550 million which results in expected free cash flow between $700 million and $750 million.

In closing, we're pleased with our performance in the first quarter, and in spite of remaining economic risk in our finance and industrial segments, we remain reasonably confident about the rest of this year.

Now I am going to turn it over to Doug to give you some additional '08 modeling information.

Thank you, Ted.

I will begin with our second quarter outlook.

At Cessna, we're expecting revenue to be approximately $1.5 billion with margins of about 16.5%.

Our expectation assumes about 115 jet deliveries for the quarter.

At Bell, we expect second quarter revenue of around $575 million with margins of about 8%.

These revenues reflect anticipated deliveries of three V-22s, one H-1, and about 35 commercial helicopters.

At D&I or Defense and Intelligence, we're expecting revenue to be $540 million with margins of about 9.5%.

This forecast reflects about 150 ASV deliveries.

Industrial revenue is expected to be approximately $1 billion with margins around 6%.

Finance revenues are projected to come in at $180 million with segment profit of about $45 million.

Now for the full year.

No appreciable change for Cessna, but to recap, we're expecting '08 revenue of approximately $6 billion on delivery of about 470 jets with margins around 16.5%.

At Bell, we expect revenue of around $2.6 billion with margins of 8.5%.

Our full year delivery forecast reflects 17 V-22 deliveries, nine H-1s, which is one fewer than our previous estimate, and about 160 commercial helicopters.

At D&I we're expecting revenue to be about $2.2 billion with margins of 10%.

Industrial revenue is expected to be approximately $3.7 billion, slightly higher than our previous target primarily due to foreign exchange with margins of approximately 5.5% to 6% reflecting higher commodity costs driven by the weaker dollar.

At our finance segment, our new outlook is for revenues of $765 million with segment profit of around $200 million.

We expect interest expense of about $135 million on the year and corporate expenses of $240 million.

Our full year tax rate is expected to be about 32.5%.

With that, that concludes our prepared remarks, and before we go to questions, we'll ask that each of you please limit yourself to one question with an optional follow-up to be fair to the other callers.

So, Alex, with that we're now ready to open the lines.

Thank you.

And our first call comes from the line of Nicole Parent of Credit Suisse.

Please go ahead.

Good morning.

Good morning, Nicole.

First, just on deliveries as we think about the kind of the quarterly space out, it looks like Mustang is going to be back half loaded.

Can you just give us a sense, first on how you see the mix working out and then also, were there any particular timing issues in the first quarter versus what you were expecting?

Timing relative to deliveries?

Yes.

We had a number of international deliveries that didn't get delivered in the first quarter that we had had previously in our forecast, and there were a whole variety of kind of strange events, but not strange in some respects because we anticipated as we get a larger and larger international mix, deliveries are a little bit more challenging from a timing standpoint, so I won't give you too many anecdotes, but we had a wire transfer that went into the wrong account and didn't arrive until a day late that missed a delivery, we had a strike in Brazil with the regulatory authorities, couldn't get a plane certified, missed a delivery and there are a number of things like that.

All of the aircraft were built during the quarter, so we're in good shape regarding a production standpoint.

Your other question relative to Mustang, Mustangs very much are back end loaded.

We delivered 15 Mustangs in Q1, and we'll ramp all the way up to 38 Mustangs in the fourth quarter, so that has a couple of impacts.

It obviously gives us a lot of confidence we're going to get our total production for the year because those are coming out of a separate plant and its ramp up is going very well, and it obviously also does have margin impacts as we get both ramp-up related expenses and then lower margins at the early stages of a new aircraft on the Mustangs as they went from being $35 million of revenue in Q1, they're going to be almost $275 million for the year, so that does have a pretty meaningful impact.

Great.

And Lewis, you commented on U.S.

orders specifically, which I don't recall you guys doing previously.

Could you give us a sense of the 80?

Is that an acceleration in the U.S., a deceleration, and how should we think about that?

I would say if you -- I would say it is pretty balanced actually.

We didn't think it would come in that strong.

Orders in total are stronger than we thought when we entered the year obviously, so the backlog number and the order rate is exceptionally strong and continues to prove that both international and domestic customers really want our products.

What I found interesting, Nicole, to expand on that a little bit, is we usually get the question of what's the backlog look like?

The backlog actually is split just about 50/50 international and domestic, so that's a good way of thinking about it, just coincidentally, and if you then take another look at it, small business, less -- smaller than Fortune 500 businesses add about 30% to that, and individuals including NetJets which is 10 plus individual buys which is about eight, so you have a good spread of desire across the U.S.

constituencies, and then, I don't have the breakout of international, but as I said it is about half of our total backlog.

Our total backlog in units is about 1.5 billion.

Sorry, a million -- sorry, 1,500.

1,550.

Got it.

Our next question comes from the line of Shannon O'Callahan with Lehman Brothers.

Please go ahead.

Hi, Shannon.

Good morning, guys.

Hey Ted, can you just go through what your expectations are around TFC as you look out the rest of the year given what you are seeing going on inside the business?

How bad do you think it can get assuming what we're, the deteriorating situation we've seen broadly in the economy and what are you assuming?

Let me give you a couple of data points here.

There were really two things that happened to us to knock us off plan in the first quarter.

One was another hit, or bigger hit than we had forecasted around the industry's mismatch issue, and I think that is going to turn around nicely for us.

That cost us.

We had about $3.5 million in the forecast, and it cost us closer to $8 million to $10 million, depending on how you calculate it, but really kind of flukish in the quarter because the Fed dropped, the Fed funds rate so rapidly with the 75 followed by another 50% basis point drop that LIBOR did not do a good job this time of anticipating which it usually does better, so had when that happened, we got a lot of negative repricing to our customer that is we didn't offset and we GAAPed out a little bit.

The positive thing going forward -- it is not to say that can't possibly happen again, but I don't think you will see that kind of reduction happen again, and then the very positive thing for us is as of the end of the first quarter, about $2 billion of our portfolio had hit what we call prime floors where where the customer's prime rate can't drop below a fixed amount no matter how low interest rates go.

So I think we're through the worst of that, but given how the credit markets have behaved, I won't say that emphatically, but I think we are.

And then the other thing that happened to us in the quarter was around loan loss provisions, and it was really isolated to mostly one business.

We have a very small business inside of our asset-based lending called Financial Company Services where we lend to small finance companies.

It is about 2% of our total portfolio, and inside of that there is about half of that, or about a little over $130 million of exposure is to guys whose collateral is residential real estate, and we all know what's gone on in the residential real estate market, so we had spent a lot of the quarter going out and looking at each of those clients.

It is only six accounts that we have concerns about, and we've looked at them and done a lot of appraisals of their residential real estate collateral and concluded that we needed to put up fairly substantial reserves against that amount, and with what we've done in this quarter, we now have almost $20 million of reserves against that $130 million portfolio, so hopefully there we've also kind of taken all of the whack, but to be a little more con conservative, we did miss our plan by $10 million in the quarter, but we took down the rest of the year by another $10 million to say $200 million as a guidance number.

We've done a bunch of modeling, looking at worst case, best case, how do we counter plan that and get back to where we want it to be for the year, and our range of outcoming probably looks anywhere from 175, worst case to 215 best case, so we think 200 is the most reasonable answer right now, but clearly it is hard to be precise when the in the finance businesses today, but if you think about it, that's probably in my 90% confidence interval that it will be somewhere in that range and clearly if that's the case, that's easily absorbed within the overall range of guidance for the company.

Okay.

Thanks a lot.

That helps.

Just on Bell, can you talk through some of some of these positives again, just give maybe repeat the numbers and tell us if there is any other things that don't repeat?

You had the Bell piece at a little over 9% margin and the D&I a little over 12%.

Obviously, both of them have to go down a decent amount to get to the guidance for the year, so can you just size the non-repeatable benefits?

Well, we did have -- it is hard to call things non-repeatable at Bell.

Because as you know, we have got a lot of program adjustments that is just happen all the time.

But clearly on the commercial side, we had very, very strong program adjustments, about $10 million favorable, across a number of programs.

The single biggest pickup, though, is definitely not going to be repeatable, although it is good news story for the future, and that's on the Bell 427 which is a helicopter we're still building where the end of its life is coming as we're introducing the 429.

We have marked down that program and taken lots of charge offs back over the years based on unsold units, based on an expectation of what pricing was going to be, and with the tremendous robustness that we're seeing in the commercial helicopter space right now, we have dramatically increased the price of that helicopter and pretty much sold out the rest of its life.

That alone picked up $6 million in the quarter, and will now result in that being a profitable program for the rest of the production run where it had been a break even program in our prior expectations, but that won't -- that will be smaller amounts each quarter as units get delivered.

So I would call that largely a one-time or those commercial adjustments unlikely to be as strong.

On the other hand, we had small net negative charge on H-1 during the quarter as well, so it is really hard to honestly say, this or that item is totally a one-timer at Bell because we have a collection of them, but clearly our forecast going forward doesn't have those commercial impacts repeating, so we do have a lower margin assumed for the balance of the year.

Also had by the way -- we're ramping up IR&D and overhead rates at Bell along our program for new product development as well as capacity expansion, and they're a little behind in the first quarter, so that was good news for the quarter.

Bell was still trying hard to make that all up and spend it by the time the year is over.

We may have some opportunity if some of that slips out, but we really do need to get all of that work done, so it is getting a little back end loaded as well.

Just the, in the ASV or any other benefits in the D&I piece?

Yes, huge.

ASV benefit in the quarter, we closed out the first two contract lots for ASV and had a -- probably a $15 million benefit come out of that.

I think there is potentially more good news coming out of ASVs as we get well down the learning curve and we're doing well on it.

But that was clearly a big one timer in the quarter.

Okay, great.

Thanks a lot.

Next question comes from the line of Jeff Sprague with Citigroup Investment Research.

Please go ahead.

Good morning, Jeff.

Thanks.

Good morning, everyone.

Hi, Jeff.

Maybe just to follow-up, a quick one on Bell and the miscellaneous charges and everything.

I think you guys actually thought you over compensated on this cabin issue in Q4 and maybe we are going to get some back from the supplier and yet you've taken a little bit more.

Do you see any signs of that reversing back later in the year and is there an open item on this helmet yet that maybe is a question mark on H-1 costs over the course of the year?

On the cabin supply, we, at the end of last quarter, we booked our best estimate based on our position with the supplier, obviously they were asking for a different number than we were, but we have now completed negotiations and reached a conclusion with the supplier around probably as much of a schedule as costs, and what the schedule changes do to the overall program cost profile, and that's what we booked in the second quarter, so I don't think there is any change coming to that.

Jeff, this is Lewis.

On the helmet, let me just say a couple of things.

You may not recall, but Phase II operation evaluation has been a planned event since we exited Phase I because the helmet the government picked wants the war fighter fluid, they decided they didn't like that design so they decided to change it.

That's a government-furnished specified gear, and it is not ours but still on our helicopter, so operation evaluation Phase II started as it was supposed to, and we also cleaned up some issues from (inaudible) just ought to be cleaned up just because it makes a better helicopter.

Second, the war fighter really needs this machine because it out performs its existing models in the field dramatically, and so this is something we're going to see through to fruition, something we are going to put into combat as quickly as we can, and there is no -- there is all pull and no push back on this one from the government.

I can tell you that.

I don't -- we really don't have any visibility Phase II (inaudible) because they put a cone of silence around that, so you don't really know until you exit what the result is, but truthfully, this is in such high demand and there is no other alternative for this product that no matter what comes out of operation evaluation, we'll fix it and go on down the road, so it won't affect our production rate any because it is not a pacing item for us.

Could you give us a little bit color on how things are playing out with Columbus?

Obviously a good start.

You're feeling good about that 70 unit target for the year?

Well, I talked to Jack a couple of times this last month on a variety of different issues, and he feels good about this, off to a good start first quarter, and you don't know how the economy is going to move up and down the balance of the year, depending on who you read and on what particular day and what publication, but assuming things stay the way we think they're going to stay, we feel pretty good about the number of 70.

It might go up or down a little bit, but the fact that you're getting that many orders for a plane that is not going into commerce until 2013 Christmas, that's a fabulous thing.

Imagine laying a million dollars out on the table and getting your first one, getting -- putting some more in and being able to fly your investment in 2014, for example.

That just shows how strong Cessna's brand is.

I really feel good about this.

I was glad we got off to a good start.

I think it represents the brand well and represents our future well.

So I feel good about it.

36 was ahead of the pace we thought we would have at the end of March.

What do you think about those going into backlog at 27, 28 million, that's the number that hit in the quarter?

Yes.

Well, the first 50 at 26, so those would have all been at 26.

Yes.

And then just one quick follow-up on TFC if I could.

That was a lot of color you gave to Shannon's question.

Just maybe additionally, just what part of the balance sheet do we think of just being out of sync with the spread issue, your funding costs versus what you can charge to customers, and secondly, what role do securitizations play in guidance this year?

We've got about $8 billion out of our $11 plus billion is floating rate paper.

Of that we have a little less than half of that that's got floor rates, though, so that's the positive as we go forward, and we probably have about over $2 billion of floors that have actually already been tripped by the rates levels that we have today, so going forward we have less exposure to the mismatch and also don't think we're going to see the kind of circumstances, of course, knock on wood we've -- every time we think the credit markets are getting normal again something else goes squirrelly, but I don't think we're going to see just because I don't think the Fed has the room to do what they did on a repeat in the first quarter again, so I think that issue is largely behind us, but not to say there is zero risk, and I think the more interesting one is continuing to watch these portfolios where we have collateral that's getting stressed a little bit, and we think we've looked at it pretty well.

We've got a whole series of field reviews.

We're going out to the field to every account in the whole financial company services group during the second quarter.

We had a strict process around what type of appraisals we have to get on what types of properties, et cetera, so we'll continue to be all over it.

We probably had two full day credit committee meetings that have only looked at these accounts, so we think we have our hands around it.

Could there be some more exposure, yes.

Is it a big number?

I don't think so.

That's kind of why we took the guidance down to the $200 million mark.

Just securitizations?

What specifically?

How much are they going to be up year year-over-year or are they going to be up year-over-year?

In total securitizations?

I think they'll be up slightly.

We did 62 in '06, 60 last year, and probably be up from that a little bit from last year.

Not a lot, no.

Thank you very much.

Yes.

Our next question comes from the line of Steve Tusa with J.P.

Morgan.

Good morning.

Hey, Steve.

Just a question on the delivery misses this quarter.

I know in previous quarters you guys have actually delivered an extra jet here or there, and it has had an unusual impact.

What's the impact on the margin of not delivering those eight extra planes?

Is there any impact on the Cessna margin?

Yes, it would be modestly positive.

On an as-delivered basis, because of the typically the ASR sales commissions on an international delivery, they're a little bit less.

Doesn't mean they're less long-term because we've got more fixed infrastructure supporting the domestic deliveries, but in a quarter on a contribution margin basis they're a little less, so margins would have been helped by having those deliveries be missed.

Right, because that's an extra $80 million-ish of revenues that you're just losing out on and those should fall through at an incrementally higher rate?

I am sorry?

$80 million of the incremental revenue that you're missing out on at a higher rate than what --

A little less than 80.

But no, we missed them -- they would have been at a little lower rate.

If we had delivered all the international, obviously we would have had higher revenues, but we probably would have had a slightly lower margin but not a rounding error almost.

Got you.

And then on the Bell side with regards to commercial, how much price are you getting there now?

Depends on the product.

We have probably 5% or 6% on average on delivered product.

Got you.

Okay.

Thanks.

Our next question comes from the line of Cai von Rumohr with Cowen and Co.

Please go ahead.

Yes, thank you and terrific orders at Cessna.

Thanks, Cai.

If we back out Columbus, you did 199 orders, and your plan was 500 for the year, so that means 300 if the plan is the same.

Is that the same or should we be raising that number and could you give us some color in terms of the progression going through the quarter?

Did it slow as we went through the quarter, and kind of what's the color?

Right now you're seeing international and domestic.

Well, first of all, we are on track to get the orders we need for the year.

That's not a number we're going to continually update, but you can certainly assume we're well on track to get what we need to get through the course of the year, and I think while we did end up higher in the last month than what we said, the progression of orders through the quarter was pretty steady.

We tend to get a rush of orders the last month of a quarter anyway, salesmen are all out there pushing to ramp something up and get it in the book, but we have pretty solid January and February and probably a little stronger March.

Okay.

And any color kind of going forward in what you're seeing domestic and international?

Obviously international is going like gang busters, but both are strong.

I think it is coming from all over the world, and it has been very robust.

And again, with 1,555 orders in backlog, even if we do eventually see a slowdown in orders, we're still very comfortable with our outlook for growing deliveries over the next three years.

Orders is not really going to be the driver.

It is backlog.

Cai, one of the things I thought about as we got ready to talk about backlog and all of that was what's really happened out there?

My take on what's really happening, if you remember the spreads of who is buying the planes, and I don't have the split of who is buying internationally, you just have the dog gone category of international, and I will get that the next time we have a call, but first of all, the international business is surprisingly and finally strong, and I think it is going to get stronger, so it is just exactly what we thought it would happen, but it happened sooner than we thought if you follow that, and who knows when the China guys are going to open, but you hear that China's now opened a (inaudible) through the skies for the business jets to fly in for the Olympics, so what's that's going to do for that market, and we're selling into China now, but not in huge numbers but we're well represented there.

So I think internationally you can almost predict that that's going to be a strong opportunity for us, and our planes really fit well with a lot of the needs of international customers.

Then if you look here domestically, we have such a broad cross-section of business that buy our product which is good, it is not one single, five big companies buying a bunch of our planes, it is a big spread, and NetJets, although they're not a big portion of our number, they're only 10% in the total outlook which is not a huge number by any stretch, where are those planes going?

Well, we don't have those tracked, at least not in front of me this minute, but some portion of their orders are going internationally as well, and they're telling to us speed up our deliveries to say them so they can place them internationally, so looks to me like the demand is pretty dog gone solid, and I really like the fact that we got the 80 orders in the U.S.

because that just confirms that everything we're looking at that predicts downturn and order delivery is not telling us it's going to turn down.

Let me give you a piece of technicolor we don't usually do, but to give you a sense of the breadth, we sold -- in the first quarter we took orders for 80 in the U.S., 59 in Europe, 38 in Latin America, 30 in Asia Pacific, 14 in Mid East Africa, six in Mexico, four in Canada, and four in international unknown, whatever that means.

So, it is very broad-based, and it is becoming much more of a global business.

Terrific.

Thank you.

Great answer, guys.

Okay.

Take care.

Operator, do we have any more calls in queue?

There are no other questions, sir.

Okay.

If that's the case, we thank everybody for joining us today and we'll talk to you in a quarter.

Thanks, everyone.

Take care.

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