Rockwell Collins FQ1 2010 (Quarter ending 12/31/2009) Earnings Conference Call Transcript

| About: Rockwell Collins, (COL)

Rockwell Collins Inc. (NYSE:COL)

FQ210 Earnings Call

January 28, 2010 11:00 AM ET


Dan Swenson - VP, Investor Relations

Clayton Jones - Chairman, President, and Chief Executive Officer

Patrick Allen - SVP and Chief Financial Officer


Joe Nadol - J.P. Morgan

Unidentified Analyst - Credit Suisse

David Strauss - UBS

Robert Stallard - Macquarie

Heidi Wood - Morgan Stanley

Carter Copeland - Barclays Capital

Myles Walton - Oppenheimer & Company



Good morning and welcome to the Rockwell Collins First Quarter Fiscal Year 2010 Earnings Conference Call. Today's call is being recorded. For opening remarks and management introduction, I would like to turn the call over to Rockwell Collins’ Vice President of Investor Relations, Dan Swenson. Please go ahead, sir.

Dan Swenson

Thank you and good morning everyone. With me on the line this morning are Rockwell Collins’ Chairman, President and Chief Executive Officer, Clay Jones; and Senior Vice President and Chief Financial Officer, Patrick Allen.

Today's call is being webcast, and you can view the slides we will be presenting today on our website at under the Investor Relations tab. Please note today's presentation and webcast will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to those detailed on the slide two of this webcast presentation and from time-to-time in the company's Securities and Exchange Commission filings. These forward-looking statements are made as of the date hereof, and the company assumes no obligation to update any forward-looking statement.

With that, I'll now turn the call over to Clay.

Clayton Jones

Thanks Dan and good morning everybody.

Well our first quarter played out just about as we predicted which after last year should give us all some comfort. Specifically total revenues were down 3% from the year ago to $1.03 billion, and EPS declined 20% to $0.76. The overall sales reduction was primarily due to the lingering effects of the global recession, which resulted in a 15% decline in Commercial Systems revenues.

Government Systems revenues increased 7%, thanks to incremental sales from the DataPath and SEOS acquisitions as organic revenues declined 4% due to lower DAGR and F22 related revenues and a delay in new program growth associated with order timing and a late passage of the 2010 Defense Appropriations bill.

But there were encouraging results in Q1 as well. Although combined segment operating margins of 19.7% did decline on a year-over-year basis, they were up on a sequential basis despite lower revenues, higher pension expense, and the diluted impact of two new acquisitions.

These margins were realized through careful cost control and were helped by the hard work of our DataPath integration team, which has been very quick to realize some of their cost synergies generating a better than expected margins from that business.

Finally we realized strong operating cash flow in our first quarter of $84 million, a $63 million increase from last year despite the fact that we put $98 million into a discretionary pension contribution in October and the build up of inventory occurring as part of our efforts to relocate the manufacturing we were doing in San Jose to other facilities.

With this first quarter completed, I really do feel that the worst of the recession impact maybe behind it and I remain cautiously optimistic about improvements to the balance of the year. Now to support that statement let me give you a sense of the market conditions as we see them.

In our commercial markets we’re seeing clear signs of stabilization. Looking first at our after market business, indicators continue to support our view of a low single-digit revenue growth for the entire year. In the business jet environment there has been steady improvement in aircraft utilization and with the December data just released, we now have our first positive year-over-year comparison in over 24 months.

Utilization statistics were still down for the quarter as our maintenance and repair service were, as was our maintenance and repair service were. But these stabilizing trends support the potential for growth in the second half.

Additionally, our avionic dealer network has noted an increase in the number of calls for quotes in information on avionics and cabin upgrades. While these calls have not yet translated to sales, they are indicative of operators getting informations to set their budgets in place and present potential future retrofit opportunity.

Within the air transport sector, airline passenger traffic continues to improve, supporting our view of a 2 to 3% growth for calendar year 2010. This passenger traffic growth is currently being absorbed through higher load factors and greater utilization of in-warranty aircraft.

But we expect to see greater overall flight hours of out-of-warranty aircraft and an associated increase in our maintenance and repair business in the second half of the year. However the airlines are still struggling with yields as ticket prices are down approximately 20% year-over-year and of course oil continues as a concern.

These factors will limit the FY10 potential for growth in our retrofit hardware business but remain inline with our guidance. Passenger traffic trends also present the OEM side of Commercial Systems with some good news.

We believe it is providing airlines increasing confidence in their future capacity needs, which could serve to reduce some of the risk that Boeing and Airbus will reduce narrow body production rates at least in our fiscal year.

There have also been some encouraging signs of stabilization in the business jet OEM sector. Used jet inventories continue to decline or bit slowly with 16% of the fleet now available for sale, down from the 18% peak we saw in May.

There also seems to be a decline in white tail inventoried the OEMs, which we believe, now stands at less than 30% of its peak level. All these factors support our view that the environment is stabilized for the business jet OEMs.

They do not change our view; the growth in this market is still several quarters away. Additionally, these factors do not change the fact that our second quarter OEM business jet revenues will compare unfavorably against last year. If you recall, we didn't see significant business jet revenue declines into the third and fourth quarters of 2009.

Turning now to Government Systems, through the combination of acquisitions and organic opportunities, we still project 12% growth for the year. As expected organic growth was negative in the first quarter.

Well, the decline in DAGR revenues and the ramp down of F-22 production were the primary causes, delays in order timing contributed as well. This makes the hill a little steeper decline to achieve our expected organic growth of about 6%.

So let me provide some reasons why we believe this is achievable. First, very little of our organic growth is depended on programs yet to be won. In fact, only 5% of our revenues for the remainder over the year are competitive programs and they're in areas where we have strength such as avionics sub grade for the KC-10 tank.

Second, 30% of our revenues for the rest of the 2010 are in anticipated programs we're the incumbent waiting on follow on orders. Our primary risk here is timing which is not insignificant with government programs.

Therefore we're carefully monitoring those programs and staying in touch with our customers so that we get appropriately track the risk of any potential impact on the year. At this point I believe we have it appropriately reflected in our guidance.

Finally about 65% of the organic revenues for the rest of the year are under contracted in backlog. A significant portion of these relate to our strength in open systems architecture and consists of program such the KC-135 Block 45, international C-130 upgrades, avionics for high-demand CH-47 and electronics upgrades for other surveillance aircrafts.

Now these programs are in an attractive niche focused on electronic upgrades which we believe provide cost effective solutions in a budget constraint environment. So in summary, I'm more confidant in our outlook now than I was at the beginning of the year.

Stabilizing trends and business shared utilization, used jet inventories, and air passenger traffic support our expectations for Commercial Systems. And while lower rates of growth in base defense budgets and supplemental mean our government markets are going to be more challenged, I believe we are appropriately bounding that risk in our projections.

These factors reinforce my view that the first quarter was the low watermark for what will come and that we will see sequential growth in revenues and operating profits and ultimately achieve our fiscal year 2010 guidance.

So with that I would like to hand the call over to Patrick.

Patrick Allen

Thanks, Clayton and good morning to everyone as well. Let's get started first by reviewing our results for the total company that are shown in slides 3 and 4. Total company sales for the quarter declined 3% compared to last year sales, while net income and earnings per share both decreased 20%.

This decrease in net income and earnings per share came primarily from lower Commercial Systems revenues but was also impacted by an increase in our effective income tax rate from 32% in the first quarter of 2009 to 33.1% in the first quarter of 2010. This rate increase was due to the expiration on December 31st 2009 of the Federal R&D Tax Credit.

Looking at our cash flow results for the first quarter, what is normally our slowest cash flow generating quarter of the year, our operating cash flow came in at $84 million, $63 million higher than last year.

The main drivers here were all the compensation payments related to the elimination of employee incentive compensation during 2009 as well as lower working capital utilization. Offsetting these items were lower net income and the $98 million discretionary contribution we made to our defined benefit pension plan.

While inventory levels increased $79 million from the end of September to the end of December, we normally see some increase in inventory over this time period due to the level loading of our production facilities during what is normally a slow revenue quarter.

Unique to this year, a little less than half of this increase was due to inventory build up to accommodate the relocation of manufacturing associated with the shutdown of our San Jose California facility. We anticipate the increase in operating inventory associated with relocating our manufacturing operations should burn off by the end of our third quarter.

Turning into slides 5 and 6, we take a look at the first quarter results of our Government Systems business, which achieved a revenue increase of 7% from $574 million in 2009 to $616 million in 2010.

Airborne Solution sales increased $7 million or 2% to $410 million. Incremental sales from the acquisition of SEOS Group contributed $5 million to Airborne Solutions revenue growth while organic sales were relatively flat as lower revenues related to the wind down of our activities in the F-22 program were offset by higher tanker and transport program revenues.

Surface Solutions sales increased $35 million or 20% to $206 million. Incremental sales from the acquisition of DataPath contributed $60 million to Surface Solutions revenue and organic sales declined $25 million primarily due to lower defense advance GPS receiver sales.

Page 6 shows Government Systems first quarter operating earnings decreased 4% from a $140 million in 2009 to $134 million in 2010 while operating margins declined from 24.4% to 21.8%.

The decrease in operating earnings was primarily due to increased pension expense and higher company funded research and development cost, which were partially offset by the increased sales volume. Operating margins were also were impacted by lower margin revenues from our recent acquisition.

Moving onto page 7, Commercial Systems first quarter revenues were down 15% from $484 million in 2009 to $411 million in 2010. Sales related to aircraft OEMs decreased $43 million or 18% to $201 million as a result of a reduced production rates at business jet OEMs. This was partially offset by an increase in airport transport OEM sales related to the adverse impact of the Boeing strike last year.

After market sales decreased $27 million or 12% to a $192 million due primarily lower after market hardware sales and to a lesser extent lower service and support revenue. Wide-body in-flight entertainment products and systems sales decreased $3 million or 14% to $18 million.

On page 8 we see Commercial Systems operating earnings which decreased 30% from $97 million in 2009 to $68 million in 2010 while its operating margin declined from 20% to 16.5%.

The decrease in operating earnings and margins were due primarily to lower sales volume and higher pension expense, which were partially offset by lower research and development costs or reduction in selling general administrative expenses and a favorable contract settlement.

Moving to slide 9, we show the status for capital structure as of the end of the first quarter compared to the end of last year. In addition of $529 million of long-term debt, we had $62 million of short-term commercial paper outstanding at the end of the quarter.

These short-term borrowings were used to fund our acquisition of Air Routing. And in the quarter, we had debt to total capital ratio of 30%, a level we are comfortable with and that in combination with our investing credit ratings provides us ample flexibility to fund our growth mix.

The updated status of our share repurchase program as of the end of the first quarter is detailed on slide 10. During the first quarter, we repurchased a total 500,000 shares at an average cost of $55.15 per share. This brings our total repurchase activity since 2002 to about $55 million shares and $2.5 billion returned to shareowners through maintaining an active share repurchase program.

Now on to our final slide where we provided the details of our fiscal year 2010 financial guidance. Our guidance remains unchanged from when we originally issued on September 17th, 2009.

Looking at first, our revenue projections. We continue to expect revenues for 2010 between $4.6 and $4.8 billion. In Commercial Systems, we anticipate fiscal year 2010 revenues to be down about 7% from 2009.

This consists of overall OEM revenues being down in high single digits, with low double digit growth from air transport OEMs, regional jet OEMs flat to down slightly and business jet OEM revenue declines of roughly 30%.

After market revenues are expected to increase or expected to experience low-single digit growth across air transport business and regional markets while light body IFE revenues are expected to decline by approximately 40%.

Note that we continue to expect revenue declines from Commercial Systems into the second quarter of the year but anticipate after market business conditions will improve enough in the second half of the year to contribute when coupled with much more favorable comps to potentially year-over-year growth in the third and fourth quarters.

In Government Systems, we expect full year revenue growth of about 12% roughly split into organic and acquisition growth. On earnings per share, I'd point out that a range of 335 to 355 is based upon the effective tax rate in the range of 30% to 31%. Liquids approximately at two percentage point full year benefit with the federal R&D tax benefit.

This credit expired in December 31st 2009 however we do expect Congress will renew the credit prior to the end of our fiscal year 2010. As we discussed last quarter, we continued to expect the second quarter tax rate with or without the R&D tax rate to be much lower than the other three quarters due to anticipated tax settlements.

Finally, with regards to cash from operations the $600 million to $700 million now includes cash to be received over the next two quarters due to the recent conclusion of our negotiations with Boeing on the 787 engineering assertions.

That completes my review of the financial results and projections So Dan, back to you to kick off Q&A session.

Dan Swenson

Thank you, Patrick.

In order to give everyone the opportunity to ask questions, we ask that you limit your questions to two per caller. If you further questions simply reinsert yourself into the queue and we will answer those questions as time permits. Operator, we are now ready to open the lines.

Question-and-Answer Session

Your first question comes from Joe Nadol - J.P. Morgan.

Joe Nadol - J.P. Morgan

First question, I missed the very beginning of your comment, so I apologize if you've said something about this. But what do you guys seeing in the business jet aftermarket specifically.

Any -- some utilization number started to pickup towards the end of the year, are you seeing in any of the order rates and are you seeing any pickup at all in discretionary?

Clayton Jones

What I mentioned, if in case you missed the first part of my remarks there Joe was that we're seeing increased quote rates for some of the retrofit activity as we think our distributors and suppliers are setting budgets for the coming year, however we're seeing no increase in sales in major retrofits which would be meaningful to note.

The other thing that we're seeing is, I would say we are still lacking a little bit on the basic MRO rental exchange, while we're seeing increased utilizations that has not yet translated into what I would suggest is a major move forward in MRO.

Now, again we feel that is coming as we look through the balance of the year and the all the indicators would suggest that its in route but I would say and I would say its across the board for air transport as well as business, retrofits as well as MRO, we're just not seeing a lot of increase in activity there but we are seeing stabilization of activity meaning its on a fairly constant level.

Joe Nadol - J.P. Morgan

Okay, second question its just two numbers for you the size of the settlement, if you could in the commercial segment and then the DAGR decline, sales decline you expect for the full year in government.

Clayton Jones

Yes, Joe the, this contract was about $4 million and the year-over-year decline in DAGRs is a little bit more than $50 million.


Your next question comes from Robert Spingarn - Credit Suisse

Unidentified Analyst

Imagine that your fiscal year is a little bit different, Cessna announced their guidance for their 2010 OE deliveries this morning down 22%. Is this consistent with your expectations and your current guidance?

Clayton Jones

Absolutely, our fiscal years are different, I believe so you got to set it over a quarter and those quarter, the calendarizaton gets really important, let me reinforce this when you are looking at business aviation, we really started seeing the fall of the cliff in our third and fourth quarter, which would be second, third calendar quarter of last year.

And so we had a very poor comparable in OEM sales this quarter, this past quarter Q1, to give you a specific number, it was down about 47%, which is inline with what we saw last quarter. And I would expect it to be in that neighborhood for our current quarter, the second fiscal quarter, and then we see improved comparables as we get into our third and fourth quarter.

Now if you put that over the course of the year, and that’s where you get to our down 30%, I think it's the number that you gave, down 30% for the year because we had that one more quarter in our fiscal year than they’re likely to have in their calendar year when we're averaging across the four quarters if you understand that.

Unidentified Analyst

And then second question, could you break out the aftermarket decline between the basic MRO and then the discretionary retrofits and upgrade?

Clayton Jones

Yeah, I think I can get pretty close to on that. Actually we were pretty pleased with our, I'll call it discretionary MRO across our commercial markets, they were down in the order of 3% or 4%, which is not too bad, that’s a fair degree of stabilization. I think in the more discretionary areas of retrofits and upgrades, we were looking at the high teens reductions.


Your next question comes from David Strauss - UBS.

David Strauss - UBS

Clay, if I recall correctly, your guidance factors in the narrow body cuts at the end of your fiscal year, could you just comment your view on that now obviously Boeing came out your saying reiterate that they’re not cutting their by production and if that want to come through what kind of upside would that be to your guidance?

Clayton Jones

Well, I said in my opening remarks David everyday we don’t get a cut as a good day and is of the day of risk reduction. I would just -- we said it’s about a 6 month lead time for us, so if you are looking for sort of a counter milestone at which time I would be feeling a lot better is when you get me through February and maybe end of March then I think the even the opportunity of making an announcement and then seeing it impact this fiscal year gets very remote and so that’s why I say I’m -- I’m feeling better everyday they don’t do that.

You are correct our guidance originally had that in there and just to give you broad numbers if that were not to happen, it would be a positive impact on the order of about $10 million dollars in sales.

David Strauss - UBS

Okay, and on the margin side you’ve guided 18.5 to 19.5 for the full year on the segment basis. You came in higher than that I know commercial include a contracted adjustment, but it would seem that there would be some upside to your share margin guidance given that sales are going to accelerate from here based on your guidance and that the after markets going to look better supposedly from here.

Clayton Jones

I wouldn’t disagree with you David I just think there maybe some margin opportunity, but you also have to factor the fact that there are going to be makeshifts overtime, a lot of the Government Systems growth is going to be related to some development program, development revenues that had been delayed. So I think there maybe a little bit of margin opportunity to our current guidance.

Patrick Allen

Another thing I would mention David just for consideration is remember last year we paid off no incentive compensation and our incentive compensation accruals really had it kicked in year-over-year to a degree, as they will in the later half of the year.

So that’s another sort of dilutive effect that we are looking at that will be more of a play in the last three quarters than it was in the first.

David Strauss - UBS

So was there any thing for compensational accrual in this quarter at all?

Clayton Jones

Yes we've, just to clarify what Clay was really referring to a year-over-year comparability with respect to margins. As we are accruing incentive compensation, we did accrue some of this quarter and if we stay on plan, we will accrue ratably over the course of next three quarters. So I think it is going to be somewhat ratable over the course of the year.

Patrick Allen

In the year-over-year comps.


Our next question comes from Robert Stallard - Macquarie.

Robert Stallard - Macquarie

First of all, I was wondering if you could give us an update on the JTRS program and what milestone you expect on that over the next say six to twelve months.

Clayton Jones

Well, as you know the big issue there is the GMRs. It’s the big cluster. We are in that period of both internal and field-testing, for the GMR or radios that we've already produced and delivered to the army.

Now that testing is going very well by all accounts that I get and as the Pentagon want to do, we are expecting that to last about a year time. And so our expectation is at the end of this calendar year, is when the milestone decision will be reached, assuming everything stays on schedule and we don’t hit any unknown-unknowns for them to move in a low rate initial production.

So that schedule really hasn’t changed significantly over the last I'd say six months and we expect to stay on that. I think the other thing that’s significant to note is that in December, although its very small, the first major JTRS milestone was reached with the MIDS-J introduction and so that will be approaching the field and I think the strategic important there is, we finally have a JTRS radio going into production.

I guess the last thing I would say that as I think should be encouraging to all of us is that also in December the Defense Acquisition Board approve the milestone for LRIP for the Army's Brigade Combat Team Modernization Program.

Suddenly in there which everybody may have missed is there's a Network Integration Kit and that will include GMR radios and it will include integrated computer system components that we produce. So that's another indicator that there is a total number record that's demanding JTRS capability.

Robert Stallard - Macquarie

Then secondly on the 787, I was wondering if you were able to give any more detail about Boeing settlement and also when do you expect to start shipping product again on that program?

Clayton Jones

Well, all I can say on a detail beyond what Pat has talked about here is that we'll probably realizing the benefits of the cash flow from that in second, third quarter and so that's ahead of us here in terms of when you will begin to see that and we can break that out as it occurs.

And then we should start delivering product at the end of the year probably in the fourth quarter of the year it will be relatively modest but every little bit helps when we're back into production.


(Operator Instructions). Your next question comes from Heidi Wood - Morgan Stanley.

Heidi Wood - Morgan Stanley

High level question for you if you don't mind. As we think about the defense side of your business with kind of budget tightness and it seems to be a kind of discussion by some of the DOD are talking about talking about taking a deeper dive beyond examining the margins on the primes and looking into those of the second, third and fourth tier suppliers.

Can you talk to us a little bit about your outlook for margin pressure in defense and what you can do to kind of offset that if that were to come about?

Clayton Jones

It's probably the most frequently asked question we get. Is first thing, maybe it’s the second most frequently, first is how do you get these margins and second how do you sustain them.

Heidi Wood - Morgan Stanley

Have a new dynamic with the pentagon talking about going into the suppliers as opposed to just examining the primes.

Clayton Jones

Yes well, actually we welcome that Heidi for a couple of reasons. Number one, I think part of the motivation of the DOD going into suppliers is they want to make sure that the supply base is going to be there and be healthy so that it can support the defense systems in a declining budget.

A lot of the attentions gets to the primes as you would expect but I think AIA wrote a very good paper about the defense industrial base and I know Ash Carter has spoken openly about making sure that that base is sustained and specifically talking about the lower tiers of that.

And so I think their focus is going to be maintaining economic viability meaning the DOD is an attractive place to do business for the lower base, that’s number one, number two is, I think that there are certain ways that we operate that provide both quality and efficiency to the pentagon that is under appreciated because of the focus on the primes.

And I think that examination of ways of operation and how we create these margins is going to be more enlightened to the pentagon than the fact that we have high margins such as the inner relationship of our joint technology centers of excellence.

The ability to use commercial type technology and product to the benefit of the government in relatively lower prices, the fixed price mentality that we have in our company as opposed to a cost plus mentality, I believe those were all benefits to the government as it's looking to save money in the future.

And I would welcome that conversation. I don't see them focusing on our margins just for its own sake so long as we’re competitive and give them an attractive value proposition, which we've proved we can do.


Your next question comes from Carter Copeland - Barclays Capital.

Carter Copeland - Barclays Capital

I want to just revisit something very quickly that Rob asked about on the 787 negotiations. I'm just wondering if you can appropriately characterize what it was that you've settled, were these unpaid amounts of money that you will collect and will impact cash flow or were these engineering and design changes that needed to be a settled or pricing changes, what exactly did you conclude?

Clayton Jones

All the above Carter. In the omnibus settlement that we had we included the cash flow terms for the product that we have already delivered to them as well as the engineering assertions that have been hanging around in some cases for 3 years. And so this was an omnibus settlement and it basically squares us up with all of the outstanding issues on both of those things we bought.


Your next question comes from Myles Walton - Oppenheimer & Company.

Myles Walton - Oppenheimer & Company

Question for you on the defense side and specifically on rotorcraft, a couple of moving parts with respect to the CAS system and some chatter on Black Hawk upgrades essentially getting deferred or potentially moved out, obviously there is a need there.

But they seems to be a little bit of moving part with respect to new production versus upgrades and kind of hoping you can offer some insight with that what mean to Collins if -- if that upgrade program were to be deferred?

Clayton Jones

I’m hanging on the ragged edge here Miles, but I think there was a singular upgrade for a Black Hawk program that was either canceled or postponed or re-scoped basically to move away from an upgrade.

I think that was a finite numbers, there is a lot of different Black Hawk letters out there depending on what the mission application is, but I don’t think it applies broadly to the Black Hawks, Dan you want to help here.

Dan Swenson

Certainly the referral of the upgrade was to UH-60M, which was going to be an upgrade both -- which is going to be full CAS cockpit. The DOD to decide to defer that upgrade and maintain production of the baseline UH-60 with the current cockpit configuration just simply to be able to shift more dollars into purchasing of those UH60s.

We do have content on that aircraft. We do provide the displays on it as well as the com system on, so there is some revenue content there that were continuing to enjoy.

Myles Walton - Oppenheimer & Company

Okay, but there were no shift with respect to what you would have expected this year as a result of that decision.

Clayton Jones

No, we knew that going into the UH but that was a risk.

Myles Walton - Oppenheimer & Company

And the only other one, so you mentioned (inaudible) got the approval for (inaudible) and the other player on the contracts has received their awards, is your award forthcoming or how does the selection or sourcing for this look?

Clayton Jones

Well, my understanding is that -- that was a single source of word to our competitor for that first tranche and so we will be competing for the next tranche, which will come up I think by the end of this year.

And I think what I would say is, I don’t think it speaks as much to our competitiveness as it does to how the army wanted to deal with the initial award relative to some non-recurring engineering that was in question. So we believe that there will still be plenty of room for both suppliers to have terminals on that MIDSJ program, it's just that we won't to be the first one.


Your next question comes from Joe Nadol - J.P. Morgan

Joe Nadol - J.P. Morgan

Clay, was the -9 part of the settlement with on the 787?

Clayton Jones

You mean the 787-9?

Joe Nadol - J.P. Morgan

Yes, is there an agreement now for the -9?

Clayton Jones

No. I don’t think that was ever - that was never part of it nor does I think that have any significant impact on our systems.

Joe Nadol - J.P. Morgan

But meaning you don’t have - you're not under contract for that variant yet?

Clayton Jones

I think the contract that we have covers all the variants. There is no whole lot of additional engineering work that’s going to require in our systems.

Joe Nadol - J.P. Morgan

Pat, why didn’t the cash flow guidance go up from the success of $100 million, now that you are including the Boeing settlements?

Patrick Allen

I would say that it certainly gives us enhanced confidence with respect to our cash flow profile for the year and if you ask me, I'll probably tell you be towards the upper end of that range will certainly help it today.

But it's early up in the year and there is enough vagaries to cash flow that we didn’t think it was appropriate to adjust it for just for that one time.


Thank you. At this time we have no further questions. Thank you.

Clayton Jones

Okay operator. We've planned to file our Form 10-Q later today. Thank you for joining us and participating on today's conference call.


Thank you. This concludes today's conference call. You may now disconnect.

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