Hexcel's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Hexcel Corporation (HXL)

Hexcel Corporation (NYSE:HXL)

Q4 2012 Earnings Conference Call

January 24, 2013 11:00 ET

Executives

Wayne Pensky - Chief Financial Officer

Dave Berges - Chairman and Chief Executive Officer

Nick Stanage - President and Chief Operating Officer

Michael Bacal - Communications and Investor Relations Manager

Analysts

John McNulty - Credit Suisse

Amit Mehrotra - Deutsche Bank

Noah Poponak - Goldman Sachs

Andrew Doupé – Imperial Capital

Steve Levenson - Stifel Nicolaus

Avinash Kant - D.A. Davidson & Company

Mike Sison - KeyBanc Capital Markets

Operator

Good day and welcome to the Hexcel Corporation Fourth Quarter Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Wayne Pensky, Chief Financial Officer. Please go ahead, sir.

Wayne Pensky - Chief Financial Officer

Thanks. Good morning, everyone. Welcome to Hexcel Corporation’s 2012 Fourth Quarter and Full Year Earnings Conference Call on January 24, 2012.

Before beginning, let me cover the formalities. First, I wanted to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company’s SEC filings, including our 2011 10-K, our third quarter 10-Q, and last night’s press release. We expect to file our 2012 10-K on February 8.

Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be rerecorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request.

With me today are Dave Berges, Hexcel’s Chairman and CEO; Nick Stanage, our President and COO, and Michael Bacal, our Communications and Investor Relations Manager. Purpose of the call is to review our 2012 fourth quarter and full year results detailed in our press release issued yesterday. First, Dave will cover the markets, then I will cover some of the financial details, and then we will open up for questions.

Dave Berges - Chairman and Chief Executive Officer

Thanks Wayne. You remind me of the accountant reading the voting procedure for the Oscars. Good morning everyone. Despite a significant drop in sales to wind turbine customers, we had another good quarter with sales of $387 million, 9.5% better than last year on a constant currency basis. EPS of $0.36 for the quarter compared to adjusted diluted EPS of $0.33 in 2011.

Unfortunately as expected, the expiration of the production tax credit for wind turbines did cause a significant decline in our wind business causing us to lose a few points off of our traditional sales growth, but our sales in EPS ended up right in the middle of our October guidance for the quarter. Our full year sales were $1.578 billion just over 15% better than 2011 on a constant currency basis, but the EPS of $1.56 was 26% better than 2011. Also for the year, our adjusted operating income of $239 million was $50 million higher than the prior year. And as a percent of sales, we have pushed past the elusive 15% mark, a full 160 basis points better than the record setting 2011.

Now, let me cover the markets using constant dollars to describe the sales trends. Commercial aerospace sales of $234 million for the quarter were up 11% in constant currency from the same period of 2011. Total revenues from new Airbus and Boeing programs increased by more than 20% for the quarter and continued to account for more than 30% of our total commercial aerospace sales.

Sales for legacy platforms at Airbus and Boeing were up 10% from the fourth quarter of 2011 and in line with build rates. Sales to other commercial aerospace, which includes regional and business aircraft, were about the same as the fourth quarter of the prior year. For the full year, FX adjusted commercial aerospace sales were up 15.5% with new program sales up over 25%, legacy platform sales up more than 10%, and commercial aerospace sales up 7%, I am sorry, other commercial aerospace sales.

Space and defense revenues for the quarter were $93 million, up almost 22% on a constant currency basis. Rotorcraft sales to India and China were particularly strong in this quarter in part due to the concentrated timing of shipments. Sales in Europe were also strong due to helicopters, but also due to the ramp up of the new A400M cargo plane. Rotorcraft sales ended the year at 60% of space and defense sales and again delivered double-digit growth.

In industrial markets, sales for the fourth quarter were $60 million, down by about 10% year-over-year in constant currency. Wind sales were down over 15% from both last year’s fourth quarter and from the third quarter of 2012. For the full year, FX adjusted industrial sales were up about 16% with wind sales up about 30% due to an exceptionally strong first half ahead of the PTC cliff.

Now let me turn the call back to Wayne for some additional comments on the financials.

Wayne Pensky - Chief Financial Officer

Thanks Dave. Gross margin of $96 million for the quarter was 24.7% of sales as compared to 24.1% in the fourth quarter of 2011. For the full year gross margin of $407 million was 25.8% of sales as compared to 24.6% in 2011 due to productivity gains and good leverage in the increased sales volume. Our selling, general and administrative costs were 11.8% above last year’s abnormally low fourth quarter, but about the same run rate as the prior two quarters. Our R&D costs of $10 million for the quarter were up $1.8 million over last year as we continue to invest in new products and process technology improvement. On average we expect R&D cost to remain at this run rate over the course of 2013.

Foreign exchange rates contributed about 30 basis points of the 160 basis points improvement to operating income percentage for the year as compared to 2011. After adjusting for exchange rates, we delivered 23.5% incremental operating income on the sales growth for the year. Our effective tax rate in 2012 was 31.2%, up from the last year’s adjusted effective rate of 30.1%. For the fourth quarter our tax provision was $15.6 million and effective tax rate of 29.7%, up slightly from last year’s 29.5% after adjusting for 2011’s one-time benefits of $5.8 million.

Free cash flow for the 2012 was a use of $31.3 million as compared to a source of $13 million in 2011. Cash from the higher earnings plus reduction on working capital usage compared to last year was more than offset by $105 million increase in cash paid for capital expenditures in 2012 as compared to 2011. Our 2012 accrued capital expenditures were $241 million, in line with our improved third quarter guidance. We continue to expect that even with our projections for growth, our capital spending will stay under $200 million in the coming years as we benefit from yield and productivity improvements as well as reduced cycle time to replicate and qualify new lines.

Net debt at the end of the year was $224 million, which is a decrease of $29 million from the end of September. For the year our net debt is up $23 million. As a reminder because of our improved cash flow prospects in December we announced a $50 million share repurchase program.

We would now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we will take our first question from John McNulty with Credit Suisse.

John McNulty - Credit Suisse

Yeah, good morning just a couple of quick questions. So, with regard to the margins when we look at the Composite Materials segment or even the Engineered Products segment operating margins they are – despite the decent growth that we saw this quarter and I will say through the year your margins are lighter than they have been in over a year in each of the divisions. So, can you walk us through maybe some of the puts and takes on that I know you highlighted R&D was up, was that the bulk of the difference or are there things that we should be thinking about?

Dave Berges

Yeah, John if you look at composite materials, we were 17.3% for the quarter and that did – all the increase in R&D spending happened in that segment. If we actually go back before the fourth quarter of 2011 we actually only had two other quarters in our history where we were above 17%. So, the bar has been raised and we obviously acknowledge that, but in general I wouldn’t say anything unusual in the quarter other than R&D spending. With respect to Engineered Products we were at 13.6% which is just a little bit lower than our targets 14% to 16% and we did here for the year at 14.5%. It’s much more labor intensive in that segment than the materials segment and they do have learning curve on new programs and sometimes they have one-time catch ups with the customer. So, it bounces around a little bit more than Composite Materials, but nothing in particular.

John McNulty - Credit Suisse

Okay fair enough and then on the space and defense business, clearly came in better than what we were expecting. And I think you called out the rotorcraft being particularly strong and maybe some timing issues in terms of deliveries between India and China. Can you quantify what that was and is that something that we – you pulled from the first quarter of 2013 or is this something more that was supposed to go out in the third quarter and actually just got pushed out a quarter instead?

Dave Berges

The exports tend to be done in pretty big lumps and create some choppiness in our quarter-to-quarter and as a fact that India and China both had export release clearances in the fourth quarter. You could maybe spread those over a couple of quarters. I would not call it will pull ahead for sure. The other thing though that it is, its different in 2012 than 2011 is the A400M is starting to ramp. They are close to certifying and starting to ship it, so as you can imagine the whole supply chain had started the drum beat of growth. So, we haven’t talked about that a lot because it’s been a long time coming, but it’s starting to register.

John McNulty - Credit Suisse

Okay, great. Thanks for the color

Dave Berges

Yeah.

Operator

And our next question comes from Amit Mehrotra with Deutsche Bank.

Amit Mehrotra - Deutsche Bank

Great. Thanks for taking my question. Dave, first question on the A350, Airbus was out today, reaffirming that it’s on track for first flight this year and first delivery next year. If I remember correctly, I don’t think you are looking – you are baking in much A350 growth in your 2013 guidance, so can you just help me reconcile the two given some of the longer lead times on the new programs.

Dave Berges

I don’t remember saying, we don’t expect A350 growth. We have had good A350 growth from the beginning. I think lot of people tried to take our projected run rate multiple per airplane times and number of airplanes built and in the development phase for two or three years before that it’s way more than that as people are developing and breaking parts intentionally and yields are down, so we have had significant A350 sales for the last two or three years, I had good growth, second only to the 787 in 2012 and expect good growth next year and the year after and the year after.

Amit Mehrotra - Deutsche Bank

Okay, and just one follow-up, can you just give us some color on the seasonality in the business this year. I mean should we still expect the typical pattern or stronger first half or will it be more balanced or I mean maybe a stronger second half just given some of the ramps on the 787 and A350?

Dave Berges

Well, first let me jump to wind because that’s probably the biggest year-over-year comparison thing you need to be careful of when you are doing your modeling. Last year, I am sorry, yeah last year 2012, the first half of the year in wind was the strongest first half in our history. That was very strong. The fourth quarter run rate was about 30% lower than the first half run rate. So, wind as we moved up to the PTC cliff, went down 15% in the third quarter, down 15% again in the fourth quarter. Now, we delivered good numbers, we delivered record fourth quarter. So, I am not particularly worried about it, but as you are modeling growth, recognized that if that run rate continues as it probably will until the U.S. gets cranked up again and there is more of a recovery going on in the rest of the world, you have got 30% delta, the comparisons for the first two quarters. So, just make sure you factor that and I wouldn’t call that seasonality, it’s a fact of life. I do think we still get single digit growth in space and defense even off of a very high quarter, but I mean a very high year, but remember when you get to the fourth quarter we have got big step up comp because of the export.

Seasonally we also always have a higher SG&A expense in the first quarter because that’s when we deal with variable equity, long-term compensation. You can look at the history on that otherwise SG&A bounces around, but it shouldn’t be anything way out of whack with the current run rate. And let me think what is seasonality wind, always that margins in the second half are lower than the first half because of the number of days and European holidays and such, but generally that’s within two percentage points both on the gross and operating level.

Amit Mehrotra - Deutsche Bank

Okay, if I could just sneak one more and then I will hop off. In the December conference you talked about potential M&A, and I wanted to see how should we think about that from a timing perspective. I mean should we expect something in the near or mid-term, how active is the M&A pipeline and what sort of parameters are you looking at in terms of end markets at even evaluation?

Dave Berges

Boy, that’s lot of questions, to sneaking one in. So, as we’ve said in December we are happy with our improved cash flow prospects. We have passed what we think is the peak for the next few years on capital spending. Our cash from operations was up 36% this year. So, as capital spending moderates and we continue to grow and deliver operating cash, we’re going to have plenty of cash for both internal and potential external growth or returning to shareholders.

We haven’t spelled out any specifics on M&A or any specific timing on M&A only to say that if there are targets that fit our strategy which is being a leader in advanced structural materials in markets that have growth and secular penetration with sustainable competitive advantage. I know that’s a mouthful, but we are not currently planning to go for the sake of growth or to just build up to top line. We like the business model and the slope of our margin improvement leverage and we intend to focus on primarily keeping that on track.

Amit Mehrotra - Deutsche Bank

Okay, great. Thanks so much.

Dave Berges

Yeah.

Operator

Our next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs

Hi, good morning everybody.

Dave Berges

Good morning, Noah.

Wayne Pensky

Good morning.

Noah Poponak - Goldman Sachs

Just a follow-up to the quarterly cadence question, just given the difficult comps on a total company basis in the first quarter, just to make sure we are on the same page. Should we expect total company first quarter ’13 organic revenue growth to be positive or negative?

Wayne Pensky

We’ll we’re not giving quarterly guidance, but wind is less than 15% of the business and its going to have tough comparison. But I don’t know of any other problems, I will let you do the math.

Noah Poponak - Goldman Sachs

Okay, does the wind energy tax credit extension mean anything significant for the industry in your view and anything for your outlook for next year?

Wayne Pensky

Yeah, it means that there are tremendous inefficiencies, anybody who is doing anything in the U.S. on wind turbine business have this. They have people racing to get something and before the clock expires. Long lead items like wind turbine developments it’s just nuts. If you look at the history of U.S. installations compared to anywhere else in the world that, we look like a slinky, it just it’s insane. I’m sure that wasn’t your question, what was your question?

Noah Poponak - Goldman Sachs

The question is really does it generate upside potential to what you laid out for wind in 2013?

Wayne Pensky

No, it takes a long time to get the whole thing cranked back up again. If there are – were programs in the pipeline that were held up and not signed and now they are signed that’ll be great news. But it’s going to take a while to get the whole machine cranked up against I would certainly hope we will see some benefit in the fourth quarter, maybe the third quarter, but it’s not today.

Noah Poponak - Goldman Sachs

Okay and just one other one in the Space & Defense segment clearly rotorcraft huge driver of the strength there, very large part of the segment. Are there are any specific helicopter programs that have now had a big build are much bigger today than they used to be that you can see in the budgets start to flatten out or even start to decline that we should just be all of aware of in thinking of in the out years?

Dave Berges

Sure, the V22 is our most important program. It’s had a good ramp from a just shipments of V22 is not talking about our material, but V22 build rates or deliveries were up 14% last year. I think they were up 30% over the year before that, that’s been great help for us. I think Textron said yesterday, or today, yesterday probably that they sort of see flattening out of that in the H1 actually. So, flattening out we actually think it probably will decline in the out years depending on what happens in congress. But we stand by our single-digit growth projection because we’ve got plenty of other lists to cover.

Noah Poponak - Goldman Sachs

Thanks very much.

Dave Berges

Yeah.

Operator

(Operator Instructions) We’ll go next to Ken Herbert with Imperial Capital.

Andrew Doupé - Imperial Capital

Yes, good morning this is actually Andrew Doupé for Ken Herbert this morning.

Dave Berges

Hi

Andrew Doupé - Imperial Capital

Yeah, hi, good morning guys. I just wanted to dig in to actually the new aircraft growth, I was wondering obviously, it grew 20% in the quarter, is 20% a good number to assume for each quarter in 2013 or is there any – are you guys seeing anything on that front, I was wondering if that’s a decent run rate to assume?

Dave Berges

Well, remember if you are talking about percentage growth or working on a bigger and bigger base, so I am not going to complain about 20%, but as you expect the A380 and the 747-8 are leveling out. So, the growth is now being driven by the 787 and increasingly the A350. So, I think the main driver that you want to monitor is 787 what happens with build rates, you know what that plan was, and if they stay on that plan, we should get pretty good lift from 787.

Andrew Doupé - Imperial Capital

Okay, great. And then I also my last one is on R&D in which guys are just looking to spend there, how is that can be sort of one-timish, I think you may have touched on it in a prior question perhaps, but is that more of just like sort of a spike or do you expect it to be a little more?

Dave Berges

Let me have Nick Stanage give you a little color on R&D spending.

Nick Stanage

Yeah. R&D, two main things driving the increased spend products and processes. We have a number of enhanced product developments that are moving from the labs to larger scale production demonstration runs. The same is true for process improvement projects that target gains in our capital efficiency to reduce future growth spending requirements. As these projects reach production trials, the cost obviously go up. These campaigns will cause some lumpiness throughout the 2013, but we think the fourth quarter run rate is a good proxy for the year’s average. And we are excited about the opportunities and the benefits that these initiatives are going to bring to us.

Andrew Doupé - Imperial Capital

Okay, great. And then just a follow-up on that is it too early to sort of maybe throw out any numbers about how much you expect to save from these various R&D initiatives or is there anything that we can sort of expect just from these higher costs?

Nick Stanage

Those are proprietary, competitive, and sensitive issues. So, we really do not share those. So, I prefer not to comment.

Dave Berges

The focus though I think as Nick said is trying to get more out of our capital assets. So, the reduction in capital spending that Nick talked about on the last call is in part a result of gains we have made in development trying to find ways to increase the output per capital dollar. So, it’s not so much savings, labor, or material savings it’s capital savings.

Andrew Doupé - Imperial Capital

Okay, okay, got it, just as higher output over sort of a fixed cost or sort of some fixed cost.

Dave Berges

Right, plus new products or future sales.

Andrew Doupé - Imperial Capital

Okay, okay, got it. Okay, thanks guys. I appreciate it.

Operator

And we’ll go next to Steve Levenson with Stifel Nicolaus.

Steve Levenson - Stifel Nicolaus

Thanks. Good morning everybody.

Dave Berges

Hi Steve, good morning.

Steve Levenson - Stifel Nicolaus

Can you give us an idea if you have a timetable for the ramp in demand for materials for the CFM LEAP fan blades and fan cases that gets to be a pretty significant program, but I know it’s pretty small right now, when do you see the upturn getting steep?

Dave Berges

Well I think you look to what you see for the programs that it’s going on. They don’t lead that here as much as structural product for a fuselage or something. I think it’s a pretty tight supply chain on engine deliveries. So, whatever are your projections on that on the new programs that use the LEAP, I would say we are on track with that, but maybe beat it by six months.

Steve Levenson - Stifel Nicolaus

Okay. And is that fiber-only or do you sell adhesives and things too?

Dave Berges

Well the blades are fiber, but there is a lot to go into the inlet, the engine to cells, afterburners, acoustical treatment. So it’s in the engine, it’s primarily the blade and fiber and then the cells it’s wide range of products from adhesives, prepregs to honeycomb core and fiber, and noise abatement systems.

Steve Levenson - Stifel Nicolaus

Great, thank you very much.

Dave Berges

Sure.

Operator

And our next question comes from Avinash Kant with D.A. Davidson & Company.

Avinash Kant - D.A. Davidson & Company

Good morning, Dave and Wayne.

Dave Berges

Good morning.

Avinash Kant - D.A. Davidson & Company

A few quick clarifications actually. The first one is that looks like in your prepared remarks, you are talking about the wind business and I think you suggested that the wind business has been down over the last two quarters, but could stay at these levels in the first half of 2013 or you expect further decline?

Dave Berges

We don’t have good visibility on wind as ever, but I think it’s safe to assume that the run-rate that we finished the year with is a good proxy for what the first half is going to look like.

Avinash Kant - D.A. Davidson & Company

Perfect. Second question on the margin, clearly margin profile has gone up lately. Is there any reason to believe that if you were to hit – if you were to hit similar revenue run-rates in the first half of this year, your margins won’t get to the same levels that they were in the first half of last year?

Dave Berges

I am not sure I understand the question. And the top-line sales is certainly going to be – are certainly going to be muted by the tough year-over-year wind comparisons, but in December, we upped our target to 23% incremental leverage over longer periods of time. We try to do that every quarter. Of course, if you look at our 10-year history, we did have EBIT leverage of about 21%, but as you would expect half of the years are over and half of the years are under. And the same thing happens on a quarterly basis, but it is our intent to deliver that kind of leverage, it’s a little bit easier when the growth is significant, so little bit less relevant when it’s minor growth or flat, but we are still targeting incremental leverage gains with growth and thus every year-over-year margin rate should be higher.

Avinash Kant - D.A. Davidson & Company

Okay. And final question on the Boeing 787 of course and the recent developments there, have you seen any impact or if you were to kind of figure out, how would you think about it at least or how could it show up over the next six months or a year so?

Dave Berges

Yeah. So, really we have no comment on the problem, its caused, or the fix or any impact it has on our current projections. We are monitoring the situation closely and we’ll be prepared to take action if needed, should the build rates be affected.

Avinash Kant - D.A. Davidson & Company

Okay, perfect. Thank you.

Dave Berges

Yeah.

Operator

Next we’ll go to Mike Sison with KeyBanc Capital Markets.

Mike Sison - KeyBanc Capital Markets

Hi, guys, Happy New Year.

Dave Berges

Hi Mike, Happy New Year.

Mike Sison - KeyBanc Capital Markets

In terms of space and defense, it was your strongest top-line growth business in ‘12 did that surprise you and any particular reason it couldn’t stay at those levels over the next several years?

Dave Berges

I would say it didn’t surprise us that it was up, it’s been years of being in the 7% or 8% range, I think we did suggest it would might moderate to lower single-digits just because of all the worries of U.S. economy, but the V-22 helped us. Now, the A400M is helping us, Asia is helping us. I think the year gave us a lot more confidence that the single-digit growth is a reasonable expectation even with the threat of sequestration and others just because of the secular penetration and the non-U.S. participation in this market.

Mike Sison - KeyBanc Capital Markets

Okay. And any thoughts on the JSF going forward for you?

Dave Berges

I think incrementally every year has been better than the last one, and I would hope that it would grow more quickly, but I expect that it’s not going away, and that it will still contribute it’s certainly an important program for us in the future.

Mike Sison - KeyBanc Capital Markets

Right. And then final question on the regional business jet area seems to be the only area that hasn’t really moved the needle at all, could that be an area that could generate some – maybe the upside surprise in ‘13?

Dave Berges

Well, it’s not been good for regionals or somebody like Hawker of course, but we have had pretty good growth from people like Gulfstream, Cessna, ATR, Dassault, larger business jets seemed to have been the most resilient and they tend to be more composite intensive. So, I am hopeful that this trend of slow growth that will continue upside probably is more economy based than anything else.

Mike Sison - KeyBanc Capital Markets

Great, thank you.

Dave Berges

Yeah.

Operator

And we will take our next question from (indiscernible) with RBC.

Unidentified Analyst

Hi guys. Good morning, just first question on cash. So, in 2012, capital spending went a little higher than maybe we thought it was going to be at the end of the year, as a result cash was different than maybe what we thought it was going to be at the beginning of the year. So, just looking into ‘13 are there any risks to the capital plan at the moment and is there anything we should be looking out for that can trigger that one way or the other?

Wayne Pensky

Let me just clarify. I mean we confused people between on our cash flow statement, we have showed the cash spent for capital expenditures, but that numbers we give guidance on are the accrual based capital expenditures. And we do disclose both numbers, so the guidance we gave was on the accrual basis. The reason they are so different in 2012 is that if you recall in the fourth quarter of 2011 we incurred a lot of capital expenditures that we didn’t pay for until this year. So, it’s is a long way to say that our accrued capital expenditures that we gave guidance on was actually less than what we started out at the beginning of the year and right in line with the updated guidance we gave in October. So, we ended the year with $241 million on accrued basis and our last guidance was $230 million to $250 million and our initial guidance was $250 million to $275 million.

Dave Berges

Nick any reason where we are going to miss…

Nick Stanage

No, there is not. We are always looking to do better, and I think we can do better specifically on inventory, but as we increasingly use our own fiber, our internal supply chain from PAN to fiber through weaving and prepreg and in some cases to full assemblies our inventories naturally grow. So, I am happy with the year-over-year comparisons and we will continue to work it.

Dave Berges

And capital spending guidance is…

Wayne Pensky

$180 million to 200 million and that’s an accrual basis, but that will probably more closer to cash basis this year.

Unidentified Analyst

Okay, that was going to be my next question, so you are expecting accrual in cash to do a bit of catch up?

Wayne Pensky

That’s correct.

Dave Berges

They should be in line this year.

Unidentified Analyst

And then also just on A350, can you give any color as to where you are running as a delivery behind where Airbus is and do you get any jam up in working capital, let’s say they have a delay in testing and then the ramp moves back three months or six months, how does that affect your working capital and just your general deliveries on A350?

Dave Berges

I don’t think it will have a noticeable impact on working capital. We work very closely with the plants and we have satellite plants that are right across the street in most cases from the major production plants in Europe. And if they are slowing down, we slow down, so there is not an inventory build up. Our prepreg has to be stored in a freezer, so even if we want to build it up, we wouldn’t have the capabilities, so those should track pretty well.

Unidentified Analyst

And any idea or can you say how many months you are running behind their production schedules in general sense?

Dave Berges

Well as I said on a new development program, we ship materials for years before the first delivery. So, they haven’t even flown the first airplane yet and we have had four significant years of sale. It’s just how it works on development programs as test articles are made and prototypes are run and equipment is tried out. So, it’s just not a good, you just can’t use the usual six months lead time that a steady state program runs for us.

Unidentified Analyst

Okay. Thank you very much.

Dave Berges

Sure.

Operator

And next we have a follow-up question from Amit Mehrotra with Deutsche Bank.

Amit Mehrotra - Deutsche Bank

Hey, thanks. Just a quick follow up on your CapEx spend. I know it was recently lowered, but can you just tell us how much of the A350 capacity is now in place and how much more you have to go before you guys are comfortable with that program?

Dave Berges

No. So, first you try to sneak in one more question and then I know the…?

Amit Mehrotra - Deutsche Bank

Not at all.

Dave Berges

I would say when we talk about we expect our future to be inside $200 million per year. That’s an indication that the heavy lifting is well passed off way. But our $200 million a year is everything our programs including A350. So, that’s about as close as we can get you.

Amit Mehrotra - Deutsche Bank

Okay. Maybe just one follow up to that follow up, you said before the $50 million was just the sort of maintenance CapEx and everything above that was growth. So, I mean are there new programs now were you putting in more lines or is it still mostly dedicated to A350?

Dave Berges

Well, it’s not programs you don’t know about its growth in a lot of programs. So, it’s growth in the helicopter rotorcraft stuff, its growth in 787, its growth in fiber for the new engines, it’s the acoustical core treatment equipment to manufacture that for the newest engines. So, it’s over, it’s not A350.

Amit Mehrotra - Deutsche Bank

Okay, thank you.

Dave Berges

Thanks.

Operator

And as we now have no further questions, this does conclude our conference for today. We thank you for your participation and hope you have a wonderful rest of your day.

Dave Berges - Chairman and Chief Executive Officer

Great, thanks.

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