達信公司 (TXT) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Textron fourth quarter 2009 earnings call.

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

(Operator Instructions) As a reminder, this conference is being recorded.

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

Doug Wilburne.

Please go ahead.

Thank you Rochelle and good morning everyone.

Before we begin, I'd like to mention, we will be discussing future estimates and expectations during our call today.

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

On the call today, we have Scott Donnelly, Textron's President and Chief Executive Officer and Frank Connor, Textron's Chief Financial Officer.

Moving on to fourth quarter results.

which appear on slide three of the earnings call presentation.

Revenues in the quarter were $2.8 billion down 21% from a year ago, which yielded a GAAP loss of $0.23 per share.

Adjusted earnings from continuing operations excluding special charges were $0.15 per share down from $0.37 a year ago.

We recorded fourth quarter pretax special charges of $114 million.

This included a $80 million charge to reflect impairment of goodwill at our golf and turf care businesses.

The impairment reflects our expectations of a slower recovery in these markets than previously anticipated.

The remaining $34 million of special charges were associated with our restructuring program.

For the year, manufacturing operations provided $424 million of cash flow compared to our target of $300 million to $400 million.

This included $132 million in manufacturing restructuring test outflows.

And with that I will turn the call over to Scott.

Great, thank you Doug.

Good morning everyone.

I think we've brought a solid close to what for us has clearly been a challenging year.

We have faced volume challenges throughout the year, delivering 289 jets Cessnas versus 467 in 2008.

Our industrial volumes finished the year 29% below the 2008 levels and obviously the financial services market we face the many charges that the industry has faced across the board.

I guess what I would like to do from this point is focus on the action we have taken and how we take our Company forward.

In response to the challenging financial markets, we decided and announced earlier in the year to exit the non capital finance business at TFC and I think our teams made very good progress in executing this strategy.

We've also have taken a number of actions to reduce overhead and restructuring actions to match our production to the actual market demands.

From late 2008 through 2009 this resulted in a head count reduction over 10,000 people, almost one quarter of our work force.

And while these actions have been difficult for our Company and for our employees, I do believe we have cleared a cross structure that should allow us to leverage volumes on markets returns.

We have been very focused on cash integration throughout the year, particularly with respect to working capital improvements primarily related to inventory.

These programs have yielded real results as inventories were down $820 million.

We made a number of important capital structure changes to strengthen our balance sheet and we restored assess to the public capital markets as we have demonstrated through new term debt, convertible debt and equity offerings.

By the end of the year, we reduced our net debt including securitization by over $4 billion.

And while we are not finished, I think we are on track to have a capital structure over the next couple of years which will support a solid investment grade rating for manufacturing company with a relatively modest capital financial business.

So, let's discuss each of the segment details.

In finance, as we mentioned earlier, our team at TFC, did a terrific job of shifting their focus from portfolio growth to liquidation and cash conversion.

We reduced our management receivables by $3.8 billion compared to our initial 2009 goal of $2.6 billion.

And we did this, as you can see on slide four, with high cash conversion with 94% for both the fourth quarter and full year of 2009.

Slide five shows our full break down by portfolio as you see the large reduction of $2.3 billion which was in our distribution finance portfolio.

As we look forward to 2010, we target a further reduction of $1.6 billion bringing our two year target to $5.4 billion.

That's $900 million higher than our original target of $4.5 billion.

We are also off to a good start in 2010 as we recently completed a transfer of another private brand floor plan account, which includes both the forward funding commitments and the current receivables.

As we begin to liquidate an increasing proportion of our golf coarse and resort portfolios and properties this year, we would expect a different mix also on our distribution finance asset.

So in total, we're expecting a cash conversion ratio somewhere in the mid 80's.

This is well within our five year liquidation plan which we discussed earlier.

At Cessna, the business jet market environment remains difficult but stable.

We believe that we will begin to see improvement in order flow through the second half of the year.

In the meantime, we did have a $1.7 billion in cancellations for the quarter, primarily driven by a single large customer count as we announced late last year.

On the order front.

We did see a pick up in activity as we had 32 gross orders in the quarter compared to 38 for the first three quarters combined.

Used citation aircraft available for sale continued to decreased ending the year at 15.4% down from a peak of 17.3%.

Used pricing was essentially flat compared to the third quarter but we are seeing more examples of planes being sold above prevailing rates.

Uses on Cessna aircraft also increased slightly to 0.66 hours from 0.65 hours in the previous quarter.

We delivered 68 jets this quarter which brought our total year as I mentioned to 289 including 125 Mustangs.

This contributed a strong cash flow of Cessna in the fourth quarter.

So, as we look forward to 2010, we're targeting about 225 jet deliveries including 105 Mustangs and much improved cash flow outlook.

We currently have orders for about 70% of delivery planned.

We expect to see low first quarter order rates as the number of the fourth quarter activities were driven primarily by tax incentive buyers.

But we would expect that order rate to pick up throughout the course of the year.

With the additional lower activity we saw in the fourth quarter, we've actually increased our production plan slightly from where we initially set it back in the July time frame.

In the meantime, we continue to work on way to reduce our costs including consolidations of facilities and moving certain activities to lower cost countries.

In the industrial segment, volumes were down 8% in the quarter.

However, our improved cost structure led to a $42 million increase in segment profit despite the fact that the revenues were down $26 million.

The segment also generated strong cash flow over three and a half times segment profit.

Looking to 2010, we're expecting a modest top line growth in the segment led by strong sales at CalTex.

We saw automotive volume increasing in the fourth quarter and the consensus view in the auto industry is to continue to see that growth throughout 2010.

The sales growth should generate a significant improvement and profits in our industrial segment.

Systems also had another strong quarter.

Sales were up nearly 11% from a year ago and we posted 13% margins.

This growth is driven primarily by diverse of the products that we are producing, critical supporting our troops in (indiscernible) conflicts.

We will talk more in our February 9th analyst day, but we clearly see more opportunities for future growth in this business as increasingly we look to foreign military entities for demand in this business.

Bell also had a good quarter which capped off a very solid year of operational execution.

We delivered six V-22 bringing our full year total to 20.

We delivered four H-1s for a total of nine last year.

We delivered all 29 of these military aircraft ahead of schedule despite the six week labor disruption.

In the quarter, we also delivered 50 commercial units bringing the total year number to 153.

While revenues were flat for the year, we boosted the margins into double-digits.

And we significantly increased our cash flow.

2009 was also an important year at Bell because we begin the work necessary to support substantial growth over the next several years.

For example, on the commercial side we received certification of our new 429 light twin and started production processes of our 25 planned deliveries for this year growing to 50 in 2011.

We also ramped up our V-22 and H-1 line to deliver 28 V-22's and 20 H-1's in 2010.

Bell's backlog increased $1.3 billion in the quarter primarily reflecting the next installment of V-22 multi-year funding.

So we ended the year with a $6.9 billion backlog.

Clearly growth is going to be very solid for Bell going forward.

So, in summary, I'd say we had a good quarter as we finish a year of transition.

Looking forward, we clearly want to continue our focus on cash generation and further reducing our debt and enhancing our liquidity and capital position.

We still have work to do with Cessna on our costs, but we have seen the markets stabilize and we do expect improvements as the economy progresses.

Leverage will increase as we see more volume coming through our industrial business and systems has a steady outlook for growth.

As I said, Bell, we believe is in the first of several years of significant growth driven by our backlog particular on military product lines.

Across the board, we certainly expect to continue to invest in new product and services that are critical to future business growth.

With that, I will turn it over to Frank to go over some of the details.

Thanks, Scott.

And good morning everyone.

Let's start with the major factors that drove the $0.22 year-over-year reduction in adjusted EPS which are outlined on slide six of the Earnings Presentation Deck.

As you would expect, the largest driver with lower manufacturing volume which reduced EPS by $0.63.

Taxes reduced earnings by $0.10.

Primarily as a result of the foreign tax credit benefit for the repatriation of foreign cash during last year's fourth quarter.

Higher share count and interest expense costs $0.05.

And inflation rate of 1.2% cost $0.07 per share, slightly out pacing pricing of $0.06 which reflected a rate of 1%.

On the positive side, overall cost performance including lower SG&A and lower used aircraft losses benefited the quarter by $0.43.

And TFC's lower operating loss contributed $0.14 on a year-over-year basis.

Now let's look at the results with each of the segments starting with Cessna.

Cessna's revenues decreased $642 million from the fourth quarter of 2008 reflecting lower volumes across the board.

Cessna's segment profit decreased $170 million due to the lower sales volume which was partially off set by favorable cost performance.

The favorable cost performance included lowering selling and administration expenses largely due to work force reductions in 2009 the benefit of forfeiture income from order cancellations and a decrease in write-downs of pre-owned aircraft inventory.

The absolute impact of used aircraft with adjustments was minimal for the quarter.

Cessna's backlog at the end of the fourth quarter was $4.9 billion, a decline of $2 billion from the third quarter.

Moving to Bell.

Bell's revenues decreased $51 million due to lower sales volume partially off set by higher pricing.

Bell's segment profit decreased $10 million due to the lower volume and a change in the helicopter product mix partially off set by higher pricing.

At Textron Systems revenue increased $49 million due to higher defense volumes, which were partially off set by lower aircraft engine volumes.

Segment profit increased $8 million again due to higher defense volumes partially offset by the lower aircraft volume.

Backlog at the end of the fourth quarter was $1.7 billion down $183 million from the third quarter.

Looking at the industrial segment, revenue decreased $26 million due to lower volume and lower pricing, partially offset by a favorable foreign exchange impact.

The industrial segment profit increased $42 million due to the improved cost performance partially off set by lower volume and pricing.

Our cost performance reflected workforce reductions, employee furloughs, temporary plant shut downs and lower selling and administrative expenses.

Results at the finance segment reflected continuing financial challenge among our customers and the execution of our liquidation strategy.

Looking at slide seven, 60 day plus delinquencies of finance receivables held for an investment increased to $569 million from $440 million at the end of the third quarter.

Nonaccrual finance receivables increased to $1.04 billion from $838 million last quarter.

Charge offs were $22 million compared to $23 million for the third quarter.

Bringing total 2009 charge offs to $115 million.

Loss reserves ended of the year of $341 million.

In addition to loss reserve, the mark to mark evaluation allowance at the end of the year was $185 million.

Collectively the loss reserve and valuation allowance reflects 7.6% of managed receivables.

Now, let's turn to our 2010 outlook.

Looking at slide eight, we expect our EPS from continuing operations before special charges will be in the range of $0.30 to $0.50 per share based on a fully diluted share count of about 300 million shares.

We expect that restructuring charges primarily for Cessna will cost about $30 million pretax or $0.06 per share on an after tax basis.

We are anticipating a strong year on the cash front with manufacturing free cash flow of between $500 million and $550 million.

A quick point on pension.

We are estimating 2010 pension expense will be about $155 million which is $65 million higher than our 2009 expense.

Now, let's move to our segment detail on slide nine.

Our outlook at Cessna is based on reaching the 225 deliveries target that Scott mentioned.

We expect deliveries to be lower in the early part of the year and billed throughout the year.

Specifically, we are planning for 30 to 35 deliveries in the first quarter, which will result in a segment loss for the quarter.

As volumes recover through the balance of the year, we expect margins will follow accordingly.

As we previously indicated, we expect full year margins at Cessna in the low single digits.

At Bell, our military ramp is expected to drive an overall increase in revenues of about 16%.

Our margin expectation in the 10% to 10.5% range reflects increased military mix, higher pension cost and higher R&D.

At Textron Systems, we are expecting mid single digit revenue growth primarily reflecting growth in unmanned aircraft systems and intelligent battlefield products.

We are projecting margins will compress slightly to a range of 11% to 12% as program lots are completed and the favorable productivity performance is rolled into forward contracts.

For the industrial segment, we're anticipating an overall revenue growth rate of 6% and margins in the range of 3% to 4% as we get volume leverage from our improved cost structure.

Moving to our finance segment, as Scott discussed, we expect to liquidated about $1.6 billion of finance assets during the year.

And we are estimating a 2010 pre-tax loss in a range of around $250 million.

I would note that these levels are fully consistent with our liquidation plan.

That concludes are prepared remarks for today.

We look forward to provide more color at our analyst day on February 9th.

And Operator, we are now ready to take a few questions.

(Operator Instructions) First question comes from the lean of Cai Von Rumohr with Cowen and Company.

Please go ahead.

Yes, good quarter.

Scott, can you tell us a little bit about expected trends in R&D at Cessna for 2010.

And I guess you mentioned that used aircraft losses and forfeitures were offset.

But if we could have the numbers for the fourth quarter, that would be great.

Cai, we can give you some color on the Cessna R&D.

We are increasing our R&D spending next year and obviously considering a percent of sales.

And it is focusing primarily at the core to light sized to mid-sized aircraft.

So we have a number of programs going.

They stand gamut of update, block point type changes to a couple of aircraft that ultimately we envision as new entries into the family of our products at Cessna.

So, we don't have anything at this point that we would be publicly announcing.

Obviously, we wouldn't do that for each of the given model types until we thought it was the right time commercially to announce those new products in the market.

But there will be a significant trend and particularly with respect to percent of sales of R&D spending.

On the last one.

I will let someone else go.

When would, one of the rules you are going to look to in terms of when you would expect to announce those products?

Usually, when you announce a new products, it usually generates a pretty strong order flow.

And so, really the gage that we have to use as we go through the course of the year for each model type is understanding what the receptive is going to be out there in the market place.

So, in other words, we don't want to announce, a new upgrade or block point change or aircraft if we don't think there is a reasonable level of commercial demand out there for it.

So, that is one, I think we saw some strength in the level of orders in the fourth quarter.

I would say generally speaking we do feel a higher level of interest and inquiries across the board in terms of new aircraft.

But until we feel pretty confident that there is going to be a strong receptivity, we wouldn't announce a new aircraft in the market.

Thank you very much.

This comes from Heidi Wood, Morgan Stanley.

Good morning, guys.

Can you talk a little bit about Cessna.

How much are you sold out in 2010 vis-a-vis deliveries that you've given us.

And also talk a little about the mix?

Sure, Heidi.

The sold out slots are approximately 70% going into the year.

I don't know if there a whole lot of variation as we go through the different models.

Obviously, there is some but in terms of our view of the strength of the plan.

It is pretty consistent across the various models.

But in general, it is about 70%.

I think you said that in the prepared remarks but I couldn't hear it quite.

All right.

What is the update on the white tails?

Where do you stand as the year-end there?

Well, with the white tails, we ended up delivering about 14 of them through the fourth quarter.

More than we expected.

So, we have about a similar number as we look into next year.

And obviously, we consider that as part of of the delivery forecast for next year.

2-25s.

That we would liquidate all of those through the course of the year.

Great.

I will let someone else ask questions.

Thank you.

The next question comes from the line of Noah Poponak of Goldman Sachs.

Please go ahead.

Hi.

Good morning.

I wanted to dive into Bell a little further.

Can you tell us what kind of military growth versus commercial you are looking for in 2010?

You touched on the margin.

But you're guiding to margin compression here.

Why not better with the V-22 ramp coming in?

First of all, on mix of military and commercial, it follows more or less with the unit forecast that we gave in the prepared remarks.

So, military is going to be a bigger contributor to the growth given as Doug said the unit mix.

And that mix shift to military is one of the reasons you are seeing the margin impact, that the military business has lower margins in the commercial business.

And the margins on V-22 continues to come up, are doing quite well.

But it is that make shift.

It is primarily on the H-1.

Because we are still on a very low single digit lots on that program.

If you looked at the margin, the V- 22 is I would say at this point a very healthy military marching business.

So you're are going to expect that to be high single digit kind of numbers.

H-1, which as you know, historically for us an early loss, was actually a negative program at one time.

And that is strengthening.

And I would expect that over time that we will get it up to be a healthy margin business.

It will positive next year, but it is from a mix perspective as we ramp that volume.

And it is diluted on the margin.

And the other issue that we have, we have a brands new launch of the 429.

Unfortunately, and typically, a lot of the commercial programs, that one is not of cross position of where we would like it to be right now.

But clearly, it is the very beginning of a learning curve.

So, ultimately, I would say that will be a good margin, very successful product for us.

But it is going to be diluted as we introduce the first 25 next year.

And similar to Cessna, we are ramping up R&D as we look forward to new model introductions out in the future.

That's all very helpful.

So, I guess.

If I think longer term and I'm going out beyond 2010.

And you have got all those programs continuing to ramp in the commercial business and recovering and the mix going back the other way.

Can you frame what kind of longer term margin goal we could have here because this being in the mid teens?

Mid teens would be tough.

Just because we are going to have for the next three or four years.

I mean as V-22 continues to grow and H-1 continues to grow and think about those businesses, those product lines.

They are going to be strong.

High single digit margin businesses.

Clearly as the market recovers, and you see more utilization,that will help drive our commercial service business, which is good margin business.

And we would need to get the margins improving on 429.

So, I think the way to think about it.

We will have higher and higher mix shifting towards the military on V-22 and H-1, but the recovery on the both sides of the business and cost performance would off set the growth.

We think we can hold those margins in the kind of guidance that we're giving you at this point as we look at the next two or three years.

Thank you.

Thank you.

The next question comes from line of David Strauss, UBS.

Please go ahead.

Morning.

Morning.

Scott or Frank, when would you expect to see a turn in the nonaccruals and the delinquencies at TSC turn lower?

Well, that's a very good question.

I, obviously we would like to think this is plateauing at this point.

The reality of course is you look at the nonaccrual is that the team is work being very hard.

And I think we also have to keep in mind.

This is a liquidating portfolio.

So every one of the accounts, whether it is in nonaccrual or not nonaccrual, or where it is, it is getting a lot of pretty direct attention in terms of the path forward to be a restructuring activity and sale activity.

So, we are working through the things, sort of hand to hand combat if you will, regardless if it is accrual or not.

I think what is important to note, is that regardless of the nonaccrual status, be it there because of it's delinquency or be it there because of our judgement, that over the long term, we don't think we will get full principle and interest back.

This is all still well within the context that we showed you guys in terms of the ultimate liquidation of TSE.

IE the losses we guided you toward and we presented.

And obviously we will give you an update and go through the full details again on analysts day on the ninth.

That this all falls within that.

So, there is no material change to our view of what the ultimate total losses will be as we liquidate the portfolio.

Ok, With your guidance today, does it imply any change to your forecast by segment for 2013.

The growth rates you have given out.

Specifically looking at the defense business at systems.

It looks like it is a little bit light in terms of the guidance.

I am sorry from our growth perspective?

You laid out for DNI.

Or systems.

You laid out any 10% growth forecast out though 2013, and relative to that kind of ramp, it looks, the guidance looks light on the sale side for 2010.

This is one where we will give you more information as we do the analyst's day.

But I don't think it is not a huge change.

I think that at that time, we indicated most the numbers were back end loaded, certainly on the commercial side.

And I think that applies to systems as well.

As Scott says, it is really not a big departure.

Ok, last one for me.

Your cash restructuring spend.

What was that for 2009?

And what are you looking at for 2010?

About $50 million.

For 2010?

Yes, sir.

Thanks.

Thank you.

Next question comes from the line of Shannon O'Callaghan of Barclay's Capital.

Please go ahead.

Good morning guys.

First, on the restructuring you mention for 2010, the $30 million mostly at Cessna, can you give us a sense of the big things you are going after there that are left to do, to the extent that you can?

Sure, the vast majority of that money is driven by the move of our Columbus, Georgia facility to Mexico and also some of our back shop activity facilities in Wichita down to Mexico.

Okay.

All right.

Thanks.

And then on finance, can you give a little sense of what the environment is like out there in terms of alternative lenders or people interested in the parts of this portfolio.

You took some of the securitization back on in the quarter, started to unload it.

Give us a feel for what you are seeing out there.

Sure, I think it is evolving obviously across a different (indiscernible).

Shannon, the fact that we've done another movement with the private label or the private financing where we took both the forward funding obligation as well as all of the current receivables shows there are more companies come being back into that space.

We saw a series of those transactions over the course of particular late in 2009 and now beginning in 2010.

So, there's clearly are more banks and financial institutions now that are wanting to move back into that space.

And there is yet to be seen as you think about the golf and the resort.

And those are very different assets.

We did see securitization that were done by come companies in the time share space in the latter part of 2009.

So there is some money starting to come back into that.

And I think that it's something that we'll watch closely as we go through the course of 2010.

And as you're thinking about the conversion going down to the mid-80s, how do you expect that to proceed?

Is this people prepaying earlier or actually exiting parts of the portfolio in bigger chunks.

How do you see that?

What is envisioned going down to the mid-80s in cash conversion?

If you look at 2009, where a lot of liquidation came out of the distribution finance business, while we did some discount programs to move some of those assets and a lot the assets moved apart.

In which people sold things off floor plan and they were well collatorized.

And we got our money at par.

So you had a mix that allowed us to keep it in the mid-90s type of range.

As you look at golf and more resort, those are assets where we will do more discounting for someone to go refinance.

somewhere else.

Or in some cases, we anticipate people coming in and say, they would like to buy the asset.

In which case we would expect that would be something that we would do to some degree associated with it.

OK.

Great.

Thanks a lot.

Next question comes from the line of Steve Tusa, JPMorgan.

Please go ahead.

Hi.

Good morning.This is the Textron call.

Just wanted to be sure.

There are like eight companies reporting today.

So, on the Cessna side, how many Mustangs are in the Q1 for the full year.

It is 105 for the full year, Steve.

And we haven't broken out the exact mix on a quarter to quarter basis.

But it is across the year.

It is a little lighter than uniform in the first quarter, given kind of the low volume in the first quarter and the first quarter is as a higher Mustang mix than the other quarters.

Ok.

Just like cost in the fourth quarter from Cessna, is pricing.

How is pricing holding up there?

We were ever so slightly positive on the comparison.

Yes.

On the used side, obviously as we say, there is no kind of used write down.

We are still trying to be cautious, obviously It is a fairly commercially sensitive area and we have been hanging in there on the price side.

Ok.

One more question.

You have a 1Q loss at Cessna.

How about the second quarter.

Were your losses in the first half here and then did that ramp up in the second half or is it pretty linear from the first quarter to get to the modestly positive margin due to the rest of the year.

Let's talk about that at the ends of the first quarter after we get a better sense for how things are going volume wise.

Because obviously it is going to depend on the volume.

Okay, thanks a lot.

Next question comes from the line of Brian Jack Kobe.

Goldman Sachs.

Hey guys.

Good morning.

Couple of quick questions.

One.

Can you just walk us through a little bit about the debt reductions that took place back in the fourth quarter.

Specifically, it looks that TSC had some bonds that came due but it looks like you paid back a little bit more.

Is that securitizations?

What is the number on the debt reduction side at both the Inc and the Finco?

The debt number I think you have.

Did you pay any bank debt back?

I guess that's the question.

No, we have not reduced the bank debt.

We did have securitization that we paid off in full in the fourth quarter that would have amortized in this year.

You can think it as a prepayment in that sense on a securitization.

Ok, so no bank debt reduction.

And then as you're looking at the wind down at the portfolio, and you are saying you're going to

come down closer to the mid-80s, you sort of touched on this before, but are you assuming a certain percent is just run off and a certain percentage is just sales of portfolio?

Can you give us any color on what is behind that assumption with that?

Because it sounded like in the recent past, you weren't really counting on much in the way of out right liquidation or sales of the portfolio in 2010 and that maybe 2011, or 2012, can you have that?

Can you give us color there?

And that has not changed.

And we still do expect the vast majority of the 2010 to come from run offs.

We look at each one the portfolios.

And we make assumptions around what losses were likely to encounter in terms of the balance of distribution assets, which still has an awful lot of liquidation in 2010.

And then we look at more coming from golf where we see larger discounting to get people to refinance those properties.

So, it is very much a mix of that.

Generally speaking, we still expect to be holding to the strategy we had which is the 2010 will be predominantly a year where it is more runoff.

And there will be higher loss associated with some of the balance of what we have in distribution of finance.

And we have always assumed we would have higher discounting or loss associated with things like the golf mortgage portfolio.

Ok, and the last one is also, related to TSC and the X M financing, if you can update us on the $500 million, how much you have utilized.

And there is some stories out talking about potential for other types of options at the XM bank where they could offer guarantees to customers and so forth, similar to what they have done with Boeing.

Is there any opportunity for additional financing options offered by XM?

Well, do you want to give the number?

Yes.

At year end, the number at XM was $180 million.

And we have a very good relationship with XM.

This program has gone extremely well.

We have regular dialogue with them and others about other financing alternatives.

We are hopeful that we will in fact be able to get additional capacity out of XM over time.

Our XM facility is structured differently than what XM has traditionally done.

Where they've done specific asset.

This is in fact a facility.

And so, we've already kind of moved with them to a different nature of a relationship than they historically have done and we expect to continue with the structure.

It is working well for us and them.

This excellent structure, which Frank said, it works very well for us and we are very happy with it.

It is different than what, maybe Boeing and large ticket kind of transactions.

This is more a facility that fits better with our line of business which is more of a flow.

The relatively speaking smaller tickets and a lot of different customers now that it comes back to us.

And it is proven to be very, very effective for us in the international markets and I think it works well with XM for achieving their goals.

We are not concerned frankly about getting to a point where we don't have any capacity under the XM line to support what we think is required for us in terms of international financing.

Credit guarantees where a third party bank could lend whoever buys the jet and they back stop that.

I mean, there is chatter that that could be an option for business and helicopters that XM would pursue something like that.

Is that anything you heard or could be in the works or no?

We have heard talk of that.

And I think that's driven by the fact that other manufacturers obviously would like to have some ability to access XM financing.

But given they don't have a financial business.

It is tricky in terms of how you do that.

So, we've heard those things.

And frankly, that would be great if it existed.

To have a third party financing.

in there for us as well, rather than us doing it.

These things aren't easy on a transaction by transaction basis.

That is a lot of work to provide $10 million financing.

And the facility we have set up with XM, it is pretty efficient.

It's more amenable to a flow of a series of relatively small financings.

Ok.

I just am thinking of the credit side.

And rather see less debt and when you borrow from XM, it is still debt.

And I agree with you.

If such a facility is put in place with a way of doing it, that would be terrific.

But it is not something that being in place or not being in place doesn't have a huge impact on us right now, because we do have the existing XM facility.

Thank you.

Thank you.

Next question comes from the line of Ron Epstein.

Bank of America.

Go ahead.

Hi.

This is Elizabeth actually for Ron.

I wanted to follow up on Heidi's question regarding Cessna's sold out orders for the year.

It is 70% of of the 225 anticipated deliveries are sold out.

What percentage of those are Mustangs.

We are not providing that right now.

It is awfully commercially sensitive to us frankly to give too many data around each particular model with respect to either available or pricing.

So I think we would probably like to stay away from that level of detail.

Okay.

Thank you.

Sorry.

Okay.

Thank you.

(Operator Instructions) Question from the line of Steve Levenson from Stifel Nicolaus.

Good morning everybody.

Good morning.

On V-22, what do you see is the maximum build rate and when did you expect to hit it, please?

The current multi year program ramps up to a total number of units that is about, well 34 and 11 and can ramp up to 40 units.

That is out on say 2013.

Are you seeing international interest?

Is there some point where you think that can kick in?

Well, I fully expect that we will see international interest.

Right now, given the capacity being tied up at least through 2013, there not something that's imminent.

But clearly, we are expecting that there will be international opportunities.

I think that the Marine Corp and the Airforce obviously from operability perspective with some of our allies would like to see this as a platform that goes international at some time.

So, absolutely, we do see it as international opportunities for the aircraft.

But I would caution to say there's is nothing imminent to that regard.

Thank you.

In your expected delivers for Cessna, do you have CJ 4 built in and do you have them built in?

Yes, the CJ4's, we expect first commercial deliveries in the second quarter.

That will ramp up significantly from the second quarter through the third and ultimately fourth quarter.

There are 15 of those on the year.

And lastly, have you given any more thoughts about out sourcing given the thoughts on the Columbus plans.

I wouldn't say that I make a particular comment with respect to outsourcing.

There is certainly a lot of work going on with respect to our cost structure and where and how do we manufacture and in the most efficient way.

The things we have announced are moving things out of our higher cost facilities into our own facilities down in Mexico.

So that is a significant move.

And technically, it's not outsourcing because it's a Cessna run facility in Mexico.

But we look at all avenues.

And if it can result in better quality a lower cost, it's on the table.

Is that the same thought at Bell too.

Absolutely.

OK.

Thank you very much.

All right.

Ladies and gentlemen, thank you for joining us today.

We look forward to seeing you on April the ninth and we will talk to you then.

Thank you.

Thank you.

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