達信公司 (TXT) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Textron 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 our host, Director of the Investor Relations, Mr.

Doug Wilburne.

Thanks, Rich.

Good morning, everyone.

Before we begin, I'd like to mention we will be discussing future estimates and expectations during the 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, Chief Financial Officer.

Our customary earnings call presentation can be found in the investor relations section of our website.

Moving now to first quarter results which appear on slide three of the presentation.

Revenues in the quarter were $2.2 billion down from 12.5% from a year which yielded a loss from continuing operation of $0.01 per share.

During the quarter we incurred special charges which included the following two items, $12 million in pre tax restructuring cost worth $0.02 per share on an after tax basis and a discrete tax charge of $11 million related to the recently enacted Federal healthcare law worth $0.04 per share.

Adjusted earnings from continuing operations excluding special charges then were $0.05 per share compared to $0.26 a year ago.

On the free cash flow front, manufacturing operations used $153 million of cash reflecting normal seasonality compared to use of $286 million in the first quarter of 2009.

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

Thanks, Doug.

Good morning, everyone.

While overall revenues were down reflecting lower aircraft deliveries in the wind down of our non-cap finance business, we had strong performance across the rest of the Company.

Industrial revenues were up 32% reflecting strong growth in the global automotive markets and early signs of growth in our non-US markets for E-Z-GO, Jacobsen agreement.

After market revenue at Bell and Cessna were both up solid single digits reflecting increased aircraft utilization and our system business revenues were up over 9.5%.

Bell [systems] also delivered solid margins in the quarter.

As we look at the trends, we believe the first quarter margin revenue trough for Textron and we expect our earnings will clearly grow over the course of the year.

Let's discuss highlights of each of our segments beginning with finance where we continue to make excellent progress with our liquidation strategy.

We reduced management receivables by $769 million in the quarter bringing our total reduction since the beginning of 2009 to $4.5 billion.

About $380 million of the first quarter reduction occurred in our distribution finance business which contributed to an overall favorable cash conversion rate of 95%.

We also made progress in our timeshare portfolio in the quarter reducing it by $100 million.

In terms of credit performance, 60 day delinquencies were $515 million, down from $569 million in the fourth quarter and nonaccrual stabilized at $1.03 billion, down modestly from $1.04 billion last quarter.

Charge offs were $31 million, up from $22 million in the fourth quarter as previously reserved losses were realized.

Looking forward, we are increasing our 2010 liquidation target by $200 million to $1.8 billion which will bring us to a two-year reduction of $5.6 billion.

At Cessna, we delivered 21 mustangs and 10 light mid-sized jets in the quarter consistent with our expectations.

Orders in the first quarter were also consistent with our expectations; however, cancellations came in slightly above plan, although the majority were for deliveries in 2011 and beyond.

Looking forward, we see additional cancellations in the second quarter but we are expecting orders to pick up as market and economic indicators continue to trend in the right direction.

For example, used citation aircraft available for sale continue to decrease, ending the quarter at 15.1% down from a peak of 17.3% and 15.4% at the end of 2009.

Used pricing remains stable.

Average daily utilization on Cessna aircraft also remained stable at 0.66 hours for the quarter while FAA reported take-off and landing cycles are up.

As I mentioned, Cessna after market revenues were up 6%.

US corporate profits, a key leading indicator, has been up over the past several quarters and earning results so far in the quarter have been positive as well.

Finally, we are seeing increased sales increase particularly in our light to mid-sized jet models.

In the meantime, we continue to work on reducing costs, including consolidation of facilities and moving certain activities to lower cost locations.

On the new development front, the CJ4 was certified during the quarter and we already delivered our first unit earlier this month.

Looking to the second quarter, we are expecting to deliver between 40 and 45 jets with a balance mix of mustangs and light to mid-sized jets.

In industrial business, we are getting good conversion on volume growth, achieving a margin of 7.8%.

This reflects a positive impact that our cost reduction programs are having in these business.

We are also pursuing new business opportunities to launch new products, winning new accounts, and expanding geographically.

At Textron Systems, growth was driven by a diverse array of products we are providing for our troop in today's conflicts.

AAI delivered seven new shadow systems in the quarter up from three a year ago.

We are also selected to be a key sub contractor for the development and initial production of a sophisticated avionic warfare testing system which features AAI's leading edge RF stimulus measurement sub systems.

ASV program also continues to move forward as we expect to sign new contracts soon which would increase backlog and extend production through the first quarter of 2012.

Another product manufactured by New Orleans based TMLS operation is the 47 foot motor lifeboat.

During the quarter we delivered the first of six for the Mexican Navy and are pursuing additional international opportunities for that product as well.

At Bell we also had a good quarter demonstrating continued operational execution.

We delivered four V22's and three H-1's compared to five and four respectively a year ago but consistent with our delivery plan for the year.

This is simply a matter of timing and we are on track to deliver 28 V22's and 20 H-1's this year up from 20 V22's and nine H-1's last year.

We also delivered 15 commercial units in the quarter.

We have significant sales inquiry activity under way and remain on track for our commercial helicopter delivery plan of about 150 units.

Our first new 429 entered into commercial service and the air ambulance configuration this month and has already demonstrated its performance capabilities.

With 429 production on schedule, we expect to deliver 25 of these aircraft in 2010.

So as we look forward to the balance of the year, I would say we are confident that we can reach our new target of $1.8 billion of liquidation in our non-captive finance business.

We feel the cash generation that has been generated to date has allowed us to make substantial improvements in our capital structure.

Frank will take you through the details of that shortly.

It also gives us the flexibility to make sure we make the proper economic decisions as we exit the balance of that portfolio.

We talked last year about the restructuring programs and cost reduction and what that would mean in terms of delivering additional margin as volume returned and I think we demonstrated that in the industrial segment.

Our systems business continues to have a steady outlook for growth and is executing very well.

Military is successfully executing the middle of a multi-year ramp on the military side of the program and I think we put the right people and the right products in place to capitalize on growth in the commercial sector going forward.

Clearly, the last 18 months has bee difficult in the Business Jet market and has presented numerous challenges for our Cessna business.

As I indicated earlier, we believe that the cycle is going to follow its normal course.

We see the right early indicators, including most recently corporate profits getting stronger, and I would say the increased level of inquiry and sales activity in the latter part of of the first quarter bodes well for this industry to start to turn.

With that, I will turn it over to Frank to take you through the details in the financials.

Thanks, Scott, and good morning, everyone.

Let's start with the major factors that drove the $0.21 year over year reduction in adjusted EPS which is outlined on slide seven.

The largest drive with lower manufacturing volume which reduced EPS by $0.29.

Last year CESCOM sale at Cessna cost $0.12 per share.

A number of discrete tax items which occurred last year resulted in a $0.09 reduction in earnings.

In inflation rate of 2.3% cost $0.11 per share which outpaced pricing of 1% which provided a $0.05 lift.

A higher share count in interest expense cost $0.03 per share and our pension headwind cost $0.02.

On the positive side, overall cost performance and lower S&A benefited the quarter by $0.38 per share and TFC's lower operating loss contributed $0.02 on a year-over-year basis.

Now, let's start with the results for each of our segments starting with Cessna.

For Cessna in the quarter, revenues decreased $336 million reflecting lower aircraft volumes.

Segment profit decreased $114 million due to the lower sales volume, the gain related to last year's CESCOM sale and higher inflation.

These items were partially offset by improved cost performance which included lower selling and administrative expenses largely due to workforce reductions, lower inventory reserves and lower used aircraft losses.

Cessna backlog at the end of the quarter at $4.1 billion, a decline of $820 million from the end of last year.

Looking at Bell, revenues decreased $124 million due to lower sales volume.

Segments profit, however, increased $5 million as positive program performance, non-recurring product launch costs in 2009 and lower warranty, selling and administrative costs more than offset the negative impact of reduced volumes.

Backlog at the end of the first quarter was $6.9 billion, down slightly from the end of last year.

For Textron Systems, segment revenues and profits increased $40 million and $3 million respectively, primarily due to higher defense volumes.

Backlog at Systems ended the fourth quarter at $1.4 billion, down $220 million from the fourth quarter of last year.

For the industrial segment, revenue increased $150 million which was driven by $140 million increase in our automotive businesses.

Industrial profit increased $58 million due it higher volume and improved cost performance partially offset by higher inflation net of pricing.

Cost performance improved due to workforce reductions and other cost initiatives.

For the finance segment, revenues decreased $46 million compared to the first quarter of 2009 largely due to the revenue impact of lower average finance receivables, a mark to market adjustment on our held-for-sale portfolio and suspended earnings on nonaccrual receivables.

Finance segment losses improved $8 million primarily reflecting lower loan loss provisions, reduced selling and administrative expenses partially offset by the impact of the lower average finance receivables, the mark to market adjustment and suspended earnings on nonaccrual receivables.

Turning our attention to the 2010 outlook and looking at slide eight, we continue to expect EPS from continuing operations before special charges will be in the range of $0.30 to $0.50 per share with free cash flow from continuing operations for the manufacturing group of between $500 and $550 million.

As Scott mentioned, I would like to conclude by progress we made with our balance sheet.

Looking at slide nine, you can see we ended the quarter with net debt of $6.8 billion down from $7.4 billion at the ends of last year and $11.9 billion at the end of 2008.

Given our improved liquidity position, yesterday we paid down $250 million of Textron's bank line.

Based on our current projections, we would expect to make additional payments on the Textron bank line for the balance of the year.

That concludes our prepared remarks for today.

Rich, we are ready to take questions.

(Operator Instructions) We will begin with the line of Cai von Rumohr with Cowen and Company.

Please go ahead.

Yes.

Thank you very much.

I guess first at Cessna, were there any forfeiture gaines in the quarter to avoid those numbers and what would we expect in the next quarter given the backlog falloff?

The forfeitures in the quarter were $15 million and that was about the same level as we saw for the prior year quarter.

And the second quarter?

Second quarter we are not kind of projecting things on a quarter by quarter basis.

As we said, we expect more cancellation activity or cancellation activity to continue but at a lower rate in the second quarter.

Okay.

The last one and I will let someone else go.

The industrial numbers really look spectacular.

Given that normally the second quarter is better and the economy is improving, should we expect that margin of 7.8% to be sustainable or could be better for the total year?

Cai, I think the margin, what's really driving the margin is driven by the automotive industry right now, so particularly as we look at CalTex as a result of all the restructuring programs, the volume has come back.

That has delivered obviously some strong margin.

So I guess the only thing I would caveat is certainly if we could get similar volumes in the automotive sector we would expect to be able to deliver similar kinds of margin rates.

There is a lot of question in the automotive sector right now, particularly in Europe and US, does it hold the rebound that we saw in the first quarter.

Clearly if we deliver that in the second quarter, we would expect to see those kinds of margins.

Thank you very much.

We will go to the line of Noah Poponak with Goldman Sachs.

Please go ahead.

Hi, good morning.

Good morning.

Could you provide us with the actual unit order and cancellation numbers in the first quarter?

We are not doing did the exact numbers.

That is kind of commercially sensitive.

I have already seen a couple notes you guys have out there and obviously on the cancellation front knowing roughly average prices, I think guys are in the right ballpark with those.

The order rates in the first quarter were pretty low but met our expectations and as we look forward, while it is hard to figure out and know the exact quarter, we would certainly say based on the sales activity we would see it picking up.

So, are you still feeling okay about your 225 unit number for the full year because if cancellations were a little worse than you thought in the first quarter, if you run the numbers it sort of implies you have to get close to 100 or so net orders in the back half.

Is that fair or how are you thinking about that number?

Yes.

If you look at the 225, Noah, right now, at least the level of activity we are seeing particularly in the light to mid-sized range, we feel pretty good about where the number is and just looking at prospects out there and the number of people doing demo rides and people we believe are customers that really do want to move on the aircraft that we are feeling pretty good about that.

I would say we still see still a little bit more softness in the very light jet side on the mustang side but, as you know, that doesn't tend to drive a whole lot of revenue or margin business at this point.

So I guess that's kind of the color I would put around the 225 at this point.

Okay.

Maybe one longer term question at Cessna, what still needs to happen with the fractionals?

Are they entirely out of your backlog at this point and how do you think of them as a potential overhang on the recovery going forward is there fleet rationalizations still to take place there?

We really, I would say what we are seeing in the industry is certainly what we are seeing at Citation Air is that there is a little bit of an uptick in terms of folks looking to get back in the fractional world but I think we have to recognize there is a lot of capacity out there.

So from our perspective over the next couple of years, I discount any fractional sales down to virtually zero.

Okay.

Thanks a lot.

We will go to the line of [Jeff Spade] with [Vertical Research].

Please go ahead.

Thank you.

Good morning, everyone.

Scott, could you give us a little color on the actual production in the quarter and what it looks like in Q2?

With respect to Cessna, Jeff?

At Cessna.

Yes.

Well, obviously with the long cycle production like this, our production we set up really in the latter part of last year to run at a steady rate for last year and all the way through 2010.

So, that production rate which we started again late last year is holding steady.

As I kind of indicated, we don't see anything in terms of the level of customer interest, the key leading indicators that would cause us at this time to make any modifications to that so I feel pretty good about that.

Again, we will kind of watch this thing as the market plays out here through the balance of the year, but I don't see a reason right now based on demand to be making any significant changes to our production rates.

Corporate price I think Frank said was up 1%.

Did Cessna fully pull its weight as it relates to that or was the pricing in Bell or somewhere else?

If you look obviously on the Cessna side of things pricing is still a challenge.

I do not think we are not expecting to see price increases.

Every customer out there as you can imagine in down side of a cycle is expecting good deals.

I think we have been pretty responsible on the price side and it is holding there okay but I wouldn't go as far to say that it is a positive contributor as we think about the year in terms of price out of Cessna.

Well, that in the quarter we had positive price across the product line at Cessna.

Right.

I know you are trying to avoid the quarterly guidance but you have typically given a little bit of margin framework or some kind of framework, a little bit of a look into the coming quarter.

Can you give us any help on how to think about Cessna margins in the second quarter?

Well, I guess what I would say, Jeff, if you think about, we are guiding around 40, 45 aircraft.

I think if we see, 40, 45 jets, we feel we have got a good shot here at getting it back into a positive number.

Right, thank you very much.

We will go to the line of Steve Levenson with Stifel Nicolaus.

Please go ahead.

Thanks, good morning.

On the industrial side, do you think the good revenue result is in part due to restocking or do you think this is going to be a stable level on which to build?

Near as we can tell, first of all most the stuff that we have on the auto side it flows through.

There is not really inventory in the system, it goes right to the manufacturers in Europe and tends to go right to the customer, in the US obviously there is more dealer inventory but everything we are seeing in terms of the market dynamic is this stuff is all selling through.

In the other markets, particularly if you look at E-Z-GO and Jacobsen, again I think we have good signs that this is moving through the retail channel so it is not a restocking.

In fact, in particular the European markets which historically will do some restocking through the winter season didn't really do that so they held off on taking inventory and, as a result, we are really seeing deliveries that flow directly out through to the fields.

So, I don't think we have seen any signs that there is a whole lot of retail restocking going on.

It really is going retail.

Thank you very much.

Quick question on UAV.

Do you see shadow and the line extension, the product line extension you are doing taking share or do you see some of the other people coming in as gathering orders?

The shared discussion frankly is very difficult in the UAV space because you have so many niches where this thing placed and already has a very, very strong position in that gauge of tactical UAV and I see us sustaining that.

I think the extension of the product program is evolution over time and growth of mission capability is keeping pace with what the military's expectations are.

I don't look at numbers.

I can't tell you exact shared numbers but certainly I think when you look at what we are doing with shadow, it's growth and mission requirements growth, I think it is holding its own.

Okay, thank you very much.

Sure.

We will go to the lean of Ronald Epstein with Merrill Lynch.

Please go ahead.

Good morning, guys.

Good morning.

A little more on Cessna.

Scott, if we can take a longer term view, what would you do differently in the next biz jet upturn so you don't see the Cessna backlog evaporate as severely as it did this time?

Ron, that's a good question.

It is a pretty tough one.

I don't think we have seen this phenomenon and obviously I was in the business.

If you look back on previous cycles, you never saw such a dramatic roll off of backlog.

Near as can tell, it is really just driven by the fact that you came into this thing with such an incredibly strong market in terms of demand for business jets and then of course the depth of the economic collapse on the other side was just as severe.

So I think we have seen the results of this decline, the backlog, are just an intersection of an unprecedented strong period followed by an unprecedented weak period, obviously most of us hope never to see it again.

I think we will have more modest growth on the up side and you'd like to think we are never going to see the kind of economic collapse that we saw and, of course, you throw the politics on top of it which also exaggerated the down side of this.

So you had a situation where the people still had the economic wherewithal to sustain the backlog, an awful lot of people bailed out because they didn't want to have a perception of being associated with Business Jet.

So, it has just been an awfully wild swing in both directions.

Obviously one of the things we are going to do and hopefully we see this across the whole industry is look for tougher deposit terms and higher level of deposits with many of the customers.

So, again, I don't want to mislead you.

That's a commercial term and condition and it's a competitive market place out there but clearly from our perspective we would like to see higher levels of deposits to help make people be more attached to the aircraft, but even so the severity of the cycles we just went through I am not sure that would have had a huge impact.

Yes, yes.

Maybe just another follow on or two if that's okay.

When you look at the production of Cessna right now, are you guys building white tails and other airplanes coming off the line that don't have owners right now?

I want to be careful about the use of the word white tail.

Cessna production is obviously a relatively long cycle production and you set your rate and you move.

We all knew the first quarter deliveries were going to be low and you start to see that ramp over the course of the year.

Certainly our production rate and delivery rate are not perfectly aligned.

I wouldn't say we are in a position where we feel like we are building a lot of aircraft that we are not going to have buyers.

So, it is more of a work in progress.

And, yes, for sure you have some that are going to be finished goods inventory level but that's more of an artifact of what the delivery demand is and production demand.

You can't get those on a long cycle business to be perfectly aligned, especially when you are going to have a turn hopefully towards the upside here as deliveries increase over the course of the year.

Okay.

Maybe just follow up on Jeff's question.

As we think about next quarter, do you expect demand to be any better next quarter?

I do.

I mean.

I would say what we saw in the latter part of the first quarter was an increase in the number of individuals coming back that are talking to sales folks and doing demo rides and they are doing active discussions and arched trying to get to purchase contracts.

So I do expect to see level of order activity pick up as we move through the year and I certainly expect to see it pick up in the second quarter versus first quarter.

Okay.

Great.

Thank you.

We will go to the line of Steve Tusa with JPMorgan.

Please go ahead.

Hi.

Good morning.

Can you talk about the dynamics of the cancellation?

Were they focused in beyond 2011?

Can you just talk about the timing of who is still canceling?

I would say that most of it was beyond, it was 2011 and 2010 and beyond.

There were some 2010 cancellations which we expect and we expect to continue see during the course of the year.

I think we have had a number of our ASR folks that have come back and said they don't have a retail customer, they have a line of site to it and want to go ahead and cancel the order, so we have seen some of that.

We've seen a couple of small charter operators with mustangs that in some cases already have some aircraft and are operating and successfully operating but don't see enough demand in the economy yet for them to grow their fleet size.

We have had a couple of others where they are already in business but they fly, let's say, small turboprops and they want to go to jet but don't feel like right now is the time to make the transition.

So it has been some domestic and some international.

It really is kind of across the board, Steve, in terms of both customer situation and aircraft configuration.

So, I think you said you were 70% sold out for this year, so that number is ticked down a tad as we stand here at the end of the first quarter and what do you look like for next year?

Yes, it is modestly down which we expected because we knew the deliveries would be relatively light versus cancellation in the quarter.

I don't think we are at a point yet where we start seeing the rate going into next year at this point.

There is just, we have got three quarters left in the year and it is very, very hard, Steve, at this point.

There is no question that the dynamics out in the market place indicate this thing is going to turn.

I wish I was good enough to call which quarter it was going to be.

That will have a big impact on what that rate is as we head in to 2011.

Right.

I guess you are being - you have a high level of confidence which is good.

You are not going to cut production this year but that would, if you are going to be negative in the second quarter, imply quite a pick up in the back half of the year.

So I am curious if you don't see that pick up and you don't plan to build white tails at the end of the year and bank on the inevitable pick up to accelerate in 2011?

We would be cautious about building a lot of white tails going into 2011 so if we see this thing be more muted than would be expected or more delayed than would be expected we would make appropriate adjustments but I don't think, given what we are seeing in the market place in terms of both indications and inquiries, we are not at a point right now where I think we need to make that adjustment.

Sorry, when you say cancellations for the second quarter, is that modest amount of cancellations?

It sounds like that is kind of the tone that you are suggesting.

Yes, obviously the number of cancellations we expect to be kind of winding down during the course of the year and we also expect the trend to be looking out at the 2011, 2012 time frame.

Got it.

One last question on the ASV.

You talked about a contract coming up.

Are there a couple of contracts there or is that a specific one that we should be watching?

Maybe just give a little more color on that.

Well, there are a couple but there is one that is pretty material and that is the continued US government ASV program and as I think you probably get indications from a lot of the defense contractors, the process of going through audit in precontract negotiation has become extraordinarily painful and pretty long and drawn out so we have not been able to put this thing in the backlog because we have not signed the contract.

We are through the audit phase now.

We will be signing the contract very shortly.

Of course we have been under production and building under another definitized contract so these things have drawn out to the point where the government has had to put alternative vehicle in place to allow production to continue until you can get your final definitized contract.

To allow production continue to get the final contract in place.

Got it.

Thanks for the great detail.

I appreciate it.

We will go to the loin of Heidi Wood with Morgan Stanley.

Please go ahead.

Great, thanks.

Question on Bell.

The volumes this quarter looked a little weak.

Can you talk about what you are seeing happening there, do you still have confidence in the guidance of $3 billion for the year?

I am sorry, Heidi, you are breaking up a little bit.

I think the question was around Bell and the volume this year versus what that means to our full year forecast?

Absolutely.

I wanted to get some color on what you are seeing in the commercial trends, why the quarter was so weak and why you are still confident in $3 billion for the year.

Sure.

Military side is straightforward.

That was timing and we are very confident with respect to our guidance around that and the delivery around V22's and H-1's.

I feel like there is no issue there.

The commercial side was pretty light in the quarter but I think as the 429 is coming on, we did not have any deliveries of 429 in the quarter, those will all be for the balance of the year.

We have a number of customers, particularly 412 customers, a couple that were originally supposed to be in the quarter that had some contracting issues and are going to happen and in fact some that have already happened here in the quarter, it just moved from the first quarter to the second quarter.

So, in general, I think that it was an unusually light quarter for us on the commercial side without a doubt but I think we still feel pretty good about getting the commercial 150 helicopters for the balance of the year.

Great.

Question for you, Frank.

On the cash flow projections for the year, how much of that is based on Cessna?

And if we were to see the second half Cessna deliveries measurably be about the same as the first half, how would that change your cash flow projections?

It would impact the cash flow projections, Heidi.

As Scott said, if we -- were we not to see the uptick in order activity and market activity that we expect we would, therefore, look to kind of adjust production activity, if required.

Obviously that would mitigate some of the working capital impact but certainly kind of slow down in Cessna would have some impact on the cash flow numbers.

And maybe last question.

As you talk to the customers in Cessna and you think about this the second half because it looks like it is going to have to be heavily back end loaded towards a better mix in the second half, can you walk us through the different plane ties where you are seeing better demand versus some areas which are still (inaudible) and maybe touch on whether you are revising any thoughts about Columbus?

We are not revising any thoughts about Columbus at this point.

Okay.

I would say, Heidi, we really do see a lot of small business and corporate activity coming back which I think is explaining strength of number of inquiries around sovereigns and XLSs which is obviously very good for us in terms of mix.

The CJ line is also getting a fair bit of inquiry and good activity going on there.

The only one that is still lighter, as I said earlier, is really on the VLG side, on the mustang side.

Obviously now we delivered over 300 of these things and feel good that we are still going to have some pretty strong volume going forward.

The level of activity where we really see the strength in the inquiry side right now is in the light to mid size which is good obviously from a mix in terms of revenue and margin perspective.

Great.

Thank you very much gentlemen.

We will go to the line of Brian Jacoby with Goldman Sachs.

Please go ahead.

Good morning, guys.

The question I had was around the comment earlier on the bank debt reduction.

Just to confirm, did you say that was paid down at the finance operation or can you clarify that?

And just the magnitude of obviously you don't need to pay this down, it's not due until 2012 but obviously it sounds like you are comfortable with cash flow and so forth.

Can you give us an idea of what type of timeframe you are trying to get this reduced to closer to more manageable levels?

Yes.

So, we paid down $250 million of the Textron Corp.

line, not the finance line.

As you recall, we are actually providing inner company financing from Corp.

to finance so the intention would be to, given our liquidity position which we ended the quarter at about $1.5 billion worth of cash, that we would apply excess cash throughout the year as we continue to generate free cash flow and to continue to pay down the Textron Corp.

bank line.

And as we have said, the bank deals are not due until April 2012.

We are generating very significant free cash flow reflective of that early beginning to pay that down and will address the bank lines in plenty of time before the maturity and are continuing to watch the bank market and the improvement in the overall tone of the market and will make those decisions as we roll forward here.

Okay.

Thank you.

Rich, I understand we have a follow up call and we will take that before we conclude today.

Correct.

We will go back to the line of Noah Poponak with Goldman Sachs.

Please go ahead.

Thanks.

In the receivable runoff at TFC, what percentage was distribution versus, I guess, lower quality assets relative to the past couple of quarters and maybe if you could update us on the full year loss number you had targeted before I guess was $250 million, you would have to have the loss accelerating to get there.

How are you thinking about that number for the rest of the year?

Noah, of the total number of the 769, 380 of that was out of distribution finance.

Noah, that is on page five of the presentation materials.

So we give you a breakdown.

It is not so much the good asset, bad asset.

It is certainly longer cycle stuff so clearly over the course of the year we will have more and more of this.

We will move into the resort, golf as opposed to being so much in the distribution finance side, but the progress we are making there, as we get towards the end the year we are just about running out of distribution finance.

And there is no change right now to our guidance in terms of our loss expectations.

In other words, we think we can get that additional couple hundred million dollars of liquidation that we are now forecasting and still live within the loss numbers we gave you earlier.

Are you willing to comment maybe how close we are at this point to being able to sell very, very large chunks or maybe the entire remainder of TFC, excluding aviation, at some kind of reasonable price?

There is not, nothing going on right now that would lead us to believe that you would sell very large chunks of this.

We still don't see the level of interest or liquidity out in the markets, particularly in golf and resort.

The resort side, frankly, as we go forward more and more of that is going to amortization and that's where the bulk of that liquidation is coming from.

People are terming out, paying their notes and that's good for us.

On the golf side, I'd say that's an industry that is still in a state of flux.

I would not expect to see anybody coming in and looking for large portions of an asset class like that right now.

Okay.

I think it is a course here, course there and that's how we will work our way through it.

Great.

Thank you.

Rich, do we have another follow up that is queued in?

We do not at this time.

Okay.

That concludes the call for today.

We thank everyone for joining us and we will be seeing you soon.

Thanks.

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