Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Doug Wilburne - VP, IR

Scott Donnelly - President and CEO

Frank Connor - CFO

Analysts

Cai von Rumohr - Cowen & Company

Noah Poponak - Goldman Sachs

Jeff Sprague - Vertical Research

Steve Levenson - Stifel Nicolaus

Ron Epstein - Merrill Lynch

Steve Tusa - JPMorgan

Heidi Wood - Morgan Stanley

Brian Jacoby - Goldman Sachs

Textron Inc. (TXT) Q1 2010 Earnings Call April 22, 2010 9:00 AM ET

Operator

Welcome to the Textron first quarter earnings call. (Operator instructions) I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Doug Wilburne. Please go ahead, sir.

Doug Wilburne

Thank you, Rich, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors which are detailed in our SEC filings and also in today's press release.

On the call today, we have Scott Donnelly, Textron's President and CEO; and Frank Connor, Textron's 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 12.5% from a year ago, which yielded a loss from continuing operations of $0.01 per share.

During the quarter, we incurred special charges which include the following two items; $12 million in pre-tax restructuring costs or $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 or $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 pre-tax role front, manufacturing operations used $153 million of cash, reflecting normal seasonality compared to a use of $286 million in the first quarter of 2009.

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

Scott Donnelly

Thanks, Doug, and good morning, everyone. While overall revenues were down, reflecting lower aircraft deliveries and the wind-down of our non-captive finance business, we had strong performance across the rest of the company.

Industrial revenues were up 33%, reflecting strong growth in the global automotive markets and early signs of growth in our non-U.S. markets for EZ-GO and Jacobsen agreement. Aftermarket revenue with Bell and Cessna were both up solid single digits, reflecting increased aircraft utilization. And our Systems business revenues were up over 9.5%. Bell and Systems also delivered solid margins in the quarter. As we look at the trends, we believe the first quarter margin revenue dropped for Textron and we expect our earnings will clearly grow over the course of the year.

So 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 managed receivables by $769 million in the quarter, bringing our total reductions since the beginning of 2009 to $4.5 billion. About $380 million of 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 total, the credit performance, 60-day delinquencies were $515 million, down from $569 million in the fourth quarter; and non-accruals 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're 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 expectation. Orders in the first quarter were also consistent with our expectations. However, cancellations came in slightly above plan, although a majority were for deliveries in 2011 and beyond. Looking forward, we see additional cancellations in the second quarter, but we're 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 continued to decrease, ending the quarter with 15.1%, down from a peak of 17.3% and 15.4% at the end of 2009. Used pricing remained stable. Average daily utilization of Cessna aircraft also remained stable at 0.66 hours for the quarter, while FA reported takeoff and landing cycles were up. As I mentioned, Cessna aftermarket revenues were up about 6%.

U.S. corporate profit, a key leading indicator, has been up over the past several quarter, and earning results so far in the quarter have been positive as well. And finally, we are seeing increased sales, particularly in our low-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 product development front, the CJ4 was certified during the quarter, and we've already delivered our first unit earlier this month. Looking over the second quarter, we're expecting to deliver between 40 and 45 jets for the balance mixed of Mustangs and light-to-mid sized jets.

In the Industrial business, we're getting conversion on volume growth, achieving a margin of 7.8%. This reflects the positive impact that our cost reduction programs are having on these businesses. We're 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're providing to our troops in today's complex. AAI delivered seven new Shadow systems in the quarter, up from three a year ago. We're also selected to be a key subcontractor for development and initial production of a sophisticated avionic warfare testing system which features AAI's leading-edge RF stimulus and measurement subsystems.

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 our New Orleans based TM&LS 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 V-22s and three AH-1s 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're on track to deliver 28 V-22s and 20 H-1s this year, up from 20 V-22s and 9 H-1s last year. We also delivered 15 commercial units in the quarter.

We have significant sales enquiry activity underway. We remain on track for a commercial helicopter delivery plan of about 150 units. Our first 429 entered into commercial service in the air ambulance configuration this month and has already demonstrated its performance capabilities. With 429 production on schedule, we expect to deliver approximately 25 of these aircrafts in 2010.

So as we look forward for the balance of the year, I'd say we are confident that we can reach our new target of $1.8 billion of liquidations in our non-captive finance business. We feel the cash generation that's been generated to date has allowed us to make substantial improvements in our capital structure. Frank would take you through the details of that shortly. It also gives us the flexibility I believe to make sure that we make the proper economic decisions as we exit the balance of that portfolio.

We talked last year about our restructuring programs and focused on cost reduction and what that would need in terms of delivering additional margin as volume returned. And I think we have demonstrated that in the first quarter in our industrial segment.

Our systems business continues to have a steady outlook for growth and is executing very well. Bell 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 have been difficult in the business-jet market, and has presented numerous challenges for our Cessna business. As I indicated earlier, we believe that this 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 levels of enquiry and sales activity in the latter part of the first quarter bodes well for this industry to start to turn.

So with that, I'll turn it over to Frank to take you through the details on the financials.

Frank Connor

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 are outlined on slide 7. The largest driver was lower manufacturing volume, which reduced EPS by $0.29. Last year's CESCOM sale at Cessna cost $0.12 per share.

The number of discrete tax items which occurred last year resulted in a $0.09 reduction in earnings. An 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 TSC'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 years 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. Segment profit, however, increased $5 million, as positive program performance, non-recurring product launch cost in 2009, and lower warranty selling and administrative cost more than offset the negative impact of reduced volumes. Bell 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 a $140 million increase in our automotive businesses. Industrial profit increased $58 million due to 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 non-accrual 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 non-accrual receivables.

Turning our attention to the 2010 outlook and looking at slide 8, 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 million and $550 million.

As Scott mentioned, I'd like to conclude by reviewing progress we've made with our balance sheet. Looking at slide 9, you can see that we ended the quarter with net debt of $6.8 billion, down from $7.4 billion at the end of last year, and $11.9 billion at the end of 2008. And 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 over the balance of the year.

Now that concludes our prepared remarks for today. And Rich, we're ready to take questions.

Question-and-Answer-Session

Operator

(Operator Instructions) And we will begin with the line of Cai von Rumohr with Cowen & Company. Please go ahead.

Cai von Rumohr - Cowen & Company

I guess first, at Cessna, were there any forfeiture gains in the quarter to buoy those numbers, and what would be expect in the next quarter given the backlog fall off?

Scott Donnelly

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

Cai von Rumohr - Cowen & Company

And then the second quarter?

Scott Donnelly

Second quarter, we're not kind of projecting things on a quarter-by-quarter basis. As we said, we expect kind of more cancellation activity, or cancellation activity to continue, but at a lower rate in the second quarter.

Cai Von Rumohr - Cowen &Company

And then the last one, I'll let someone else go. The industrial numbers really looked 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?

Frank Connor

Okay, I think what's really driving the margin is driven by the automotive industry right now. So, particularly as we look at CapEx, as a result of other restructuring programs, the volume has come back. That's delivered obviously some strong margin. So I guess the only thing I would caveat is, certainly if we can get similar volumes in the automotive sector, we would expect to be able to deliver similar kinds of margin rates.

There's a lot of question in the automotive sector right now, particularly in Europe and the U.S. is, does it hold the rebound that we saw the on the (report) for first quarter. But clearly, if we deliver that in second quarter, you expect to see those kind of margins.

Operator

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

Noah Poponak - Goldman Sachs

Could you guys provide us with the actual unit ordering cancellation numbers in the first quarter?

Scott Donnelly

We're not doing the exact numbers. I think that's kind of commercially sensitive. But I've already seen a couple of notes you guys have out there. And obviously on the cancellation front, no one roughly (average) price was, I think, guys are in the right ballpark.

With those new orders rates in the first quarter were pretty low, but met our expectations. And I think as we look forward, while it's hard to figure out and know the exact quarter, we certainly would say based on sales activity we see it picking up going forward.

Noah Poponak - Goldman Sachs

So are you still feeling okay about your 225 unit number for the full year, because if cancellations were 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 in net orders in the back half. Is that fair or how you're thinking about that number?

Scott Donnelly

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

I would say we probably see still a little more softness in the (inaudible) side on the Mustang side. But as you know, that doesn't tend to drive a whole lot of revenue or margin in the business at this point. So I guess that's kind of the color I'd put around the 225 at this point.

Noah Poponak - Goldman Sachs

And 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 about them as a potential overhang on the order recovery going forward? Is there a fleet rationalization started to take place there?

Scott Donnelly

I mean I would say that what we're seeing in the industry, certainly what we're seeing in Citation, there is a little bit of an uptick in terms of folks looking at getting back into the fractional world. But I think we have to recognize there's 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.

Operator

We'll now go to the line of Jeff Sprague with Vertical Research.

Jeff Sprague - Vertical Research

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

Scott Donnelly

With respect to Cessna, Jeff?

Jeff Sprague - Vertical Research

At Cessna.

Scott Donnelly

Obviously with a long cycle product like this, our production, we set up really in the latter part of last year to run at a pretty steady rate both in the 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 there. So I feel pretty good about that. Again, we'll just 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.

Jeff Sprague - Vertical Research

And 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 dollars somewhere else?

Scott Donnelly

Well, obviously on the Cessna side of things, pricing is still a challenge. I don't think we're expecting to see price increases. Every customer out there, as you can imagine in downside of a cycle, is expecting good deals. I think we've been pretty responsible on the price side and it's holding there okay, but I wouldn't go as far as to say that it's a positive contributor as we think about the year in terms of price out of Cessna.

Frank Connor

Net in the quarter we had positive price across.

Scott Donnelly

Yes, the product line at Cessna, right.

Jeff Sprague - Vertical Research

And I know you're trying to avoid kind of the quarterly guidance, but you typically have given a little bit of a 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?

Scott Donnelly

Well, I guess what I would say, Jeff, is if you think about, we're kind of guiding about 40-45 aircraft. I think if we see 40-45 jets, we feel we've got a good shot here in getting this thing back into a positive number.

Operator

We'll now go to the line of Steve Levenson with Stifel Nicolaus.

Steve Levenson - Stifel Nicolaus

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 Litchfield?

Scott Donnelly

First of all, most of the stuff we have on the auto side, it flows through, right? So there's not really inventory in a system that goes right to the manufacturers in Europe. At times, you go over to the customer in the U.S., obviously there's more dealer inventory. But everything we're seeing in terms of the market dynamic is this stuff is all selling through.

In the other markets, particularly if you look at EZ-GO and Jacobsen, again, I think we have good signs of this stuff is moving through the retail channel. So it's 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're really seeing deliveries that flow directly out through to the field.

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

Steve Levenson - Stifel Nicolaus

A quick question on UAVs. Do you see Shadow and the line extension, the product line extension, you're doing there taking share; or do you see some of the other people coming in that's gathering orders?

Scott Donnelly

The share discussion frankly is very difficult in UAV space because you have so many niches where this thing plays. And Shadow already has a very, very strong position in that gauge of tactical UAV. And I see us sustaining that. I think the extensions to the product and program, it's evolution over time and growth of mission capability is keeping pace with what the military's expectations are.

So, I don't look at numbers. I can't tell you exact share numbers, but certainly I think when you look at what we're doing with Shadow and its growth and mission requirements growth, I think it's holding its own.

Operator

We'll now go to the line of Ron Epstein with Merrill Lynch. Please go ahead.

Ron Epstein - Merrill Lynch

Digging a little more on Cessna, Scott, if we pick out a longer term, why would you do differently into the next biz-jet upturn, so that you don't see the Cessna backlog kind of evaporate as severely as it did this time?

Scott Donnelly

Ron, it's a good question. It's a pretty tough one. I mean I don't think we have ever seen this phenomenon, and obviously I was in the business. But as you look back on previous cycles, you never saw such a dramatic roll-off of backlog. And near as I can tell, it's really just driven by the fact that you came into this thing with such an incredibly unprecedentedly 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've 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 not to ever see that again. I mean, I think we'll have more modest growth on the upside, and you'd like this thing because we're 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 I think the downside of it. So, you had a situation where, even people who still have the economic wherewithal to stay in the backlog, awful lot of people bailed out because they didn't even have a perception of being associated with business jets.

So, it's just been an awfully wild swing in both directions. Obviously, one of the things we're going to do, and hopefully we see this across the whole industry is, look for tougher deposit terms and higher levels of deposits with many of the customers. I don't want to mislead you, right? That's a commercial (term we) condition, and it's a competitive marketplace 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 that we just went through, I'm not sure that would have even had a huge impact.

Ron Epstein - Merrill Lynch

Maybe just a follow-on or two, if that's okay. When you look at the production at Cessna right now, are you guys building white tails, and are other airplanes coming off the line that don't have owners right now?

Scott Donnelly

I guess I want to be careful about the use of the word white tail. I would explain, Cessna production, obviously is a relatively long cycle production and you kind of set your rate and you move. And we all knew the first quarter deliveries were going to be very low, and you start to see that ramp over the course of the year. So, certainly our production rate and our delivery rate are not perfectly aligned. But I would not say that we are in a position where we feel like we're building a lot of aircraft that aren't going to have buyers. So, it's more of a work in progress, and yes, for sure you have some that are getting to that finished goods inventory level.

But that's really more of an artifact of aligning both what your delivery demand is and your production demand. You can't get those on a long cycle business to be perfectly aligned, especially when you're going to have a turn hopefully towards the upside here as deliveries increase over the course of the year.

Ron Epstein - Merrill Lynch

And then maybe just a follow-on to (Jeff's) question, as we think about next quarter, do you expect demand to be any better next quarter?

Scott Donnelly

I do. I mean, I would say that what we saw in the latter part of the first quarter was an increase in the number of individuals that are coming back that are talking to sales folks, are doing demo rides, and with whom there are now active discussions around trying to get purchase contracts. So, I do expect to see the level of order activity pick up as we move through the year. And I certainly expect to see it picking up in the second quarter versus first quarter.

Operator

And we'll now go to the line of Steve Tusa with JPMorgan.

Steve Tusa - JPMorgan

Can you guys just talk about the dynamics of the cancellations? So, were they focused beyond 2011? Can you just talk about the timing of who is still canceling?

Scott Donnelly

I would say that most of it was beyond; it was out 2011, 2012 and beyond. There were some 2010 cancellations, which we expect and would expect to continue through the course of the year. I think we've had a number of our ASR folks that have come back and said they don't have a retail customer, that they have a line of sight to him and want to go ahead and cancel the order. So, we've 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, to them, to grow their fleet size, we tried a couple others where they're already in business, but they fly also small turboprops and they want to go to a jet, but don't feel like right now is the right time for them to make that transition.

So it's been some domestic, some international. It really is across the Board Steve in terms of both customer situation and aircraft configuration.

Steve Tusa - JPMorgan

So I think you said you were 70% sold out for this year, so that number has ticked down. As we stand here at the end of the year, the first quarter and then what it would look like for next year?

Scott Donnelly

Yes, it is modestly down, which we expected, because we knew that the deliveries would be relatively late, orders would be late, numbers cancellation in the quarter. I don't think we're to point yet where we would start talking about what we see the rate going into next year at this point. We got three quarters left in the year, and it's very, very hard at this point, Steve. I think there's no question the dynamics out in the marketplace indicate this thing is going to turn. I wish I was good enough to call which quarter that's going to be. But that will have a big impact on what that rate is as we get into 2011.

Steve Tusa - JPMorgan

Right, but I guess you have a high level of confidence, which is good, that you're not going to cut production this year, but you're not going to be negative in the second quarter imply quite a pickup in the back half of the year. So I'm just curious if you don't see that pickup and the plan to build whitetails at the end of the year and bank on the inevitable pickup to accelerate in 2011?

Frank Connor

We would be very cautious about building a lot of whitetails going into 2011. So if we see this thing, it'd be more muted than what we expected or more delayed than what we expected. We would make appropriate adjustments. Given what we're seeing in the marketplace in terms of both indications and inquiries, we're not at a point right now where I think we need to make that adjustment.

Steve Tusa - JPMorgan

When you say cancellations for the second quarter, is that modest amount of cancellations? It sounds like that's kind of a tone that you're suggesting.

Frank Connor

Yes, I think this thing is obviously in our cancellation we expect to be kind of winding down over the course of the year. And we also expect the trend to be looking out at the '11, 12' kind of timeframe.

Steve Tusa - JPMorgan

Got you. And then one last question just 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.

Scott Donnelly

Well, there's a couple, but there's one that's pretty material, and that's continued U.S. government ASV program. As I think you probably get indications from a lot of defense contractors, the process of going through audit in pre-contract negotiation has become extraordinarily painful and pretty long and drawn out. So we've not been able to put this thing in the backlog, because we haven't signed the contract.

We're through the audit phase now. We think we will sign the contract very shortly. And of course, we've been under production and building under a non-definitized contract. So these things have drawn out to the point where the governments had to put alternative vehicles in place to allow production to continue until you get your final definitized contract in place.

Operator

We'll go to the line of Heidi Wood with Morgan Stanley.

Heidi Wood - Morgan Stanley

Thanks. A question on Bell. The volumes this quarter looked a little weak. Can you talk about what you're seeing happening there? Do you still have confidence in the guidance of $3 billion for the year?

Frank Connor

I'm sorry, Heidi, you're breaking up a little bit, but I think the question was around Bell and the volume this year versus what that means to our full year forecast?

Heidi Wood - Morgan Stanley

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

Frank Connor

Sure. Okay. So the military side (inaudible) report, that was just timing, and we're very confident with respect to our guidance around that and the delivery around V-22s and H-1s. So 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 didn't have any deliveries for 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. In fact, some of it has already happened here in the quarter. They 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 the getting the 150 commercial helicops for the balance of the year.

Heidi Wood - Morgan Stanley

And a question for you, Frank. On the cash flow projections you've given for the year, how much of that is based on Cessna? And if we were to see the second half Cessna deliveries, measurably it'd be about the same as the first half, how would that change your cash flow projections?

Frank Connor

Well, it would impact the cash flow projections, Heidi. As Scott said, 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. And obviously, that would mitigate some of the working capital impact. But certainly kind of a slowdown in Cessna would have some impact on the cash flow numbers.

Heidi Wood - Morgan Stanley

And maybe the last question. As you talk to the customers in Cessna and you think about the second half, because it looks like it's 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 types where you're seeing better demand versus some areas which are still (pumpkin) and maybe touch on whether you're revising any thoughts about Columbus?

Frank Connor

We're not revising any thoughts about Columbus at this point. I would say, Heidi, we really do see a lot of small business and corporate activity coming back which is I think is explaining strength of number of enquiries around Soveriegns and XLSs which is obviously very good for us in terms of mix. The CJ line is also getting a fair bit of enquiry, and good activity going on there. The only one that's still lighter as I said earlier is really on the DLG side on the Mustang side. And obviously we've now delivered over 300 of these things and feel good that we're still going to have some pretty strong volume going forward. But the level of activity where we'd really see the strength in the enquiry side right now is in the light to mid-size, which is good obviously from our mix in terms of both revenue and margin perspective.

Operator

And we'll go to the line of Brian Jacoby with Goldman Sachs.

Brian Jacoby - Goldman Sachs

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 could you clarify that? And then just the magnitude of, obviously, you don't need to pay this down, it's not due till 2012, but obviously it sounds like you're comfortable with cash flow and so forth. But can you give us an idea of what type of a timeframe are you trying to get this reduced to closer to more manageable levels?

Frank Connor

We paid down $250 million of the Textron Corp line, not the finance line. As you'll recall, we are actually providing inter-company financing from Corp to Finance. And so, the intention would be, 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 to continue to pay down the Textron Corp bank line.

And as we've said, the bank deals are not due until April of 2012. We are generating very significant free cash flow reflective of that early, you know beginning to pay that down, and we'll address the bank lines in plenty of time before the maturity, and are continuing to watch the bank market, any improvement in the overall tone of the market, and we'll make those decisions as we roll forward here.

Scott Donnelly

Rich, I understand that we've got a follow up call, so we'll take that before we conclude today.

Operator

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

Noah Poponak - Goldman Sachs

In the receivable run off at TSC, 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 unit targeted before, I guess, was $250 million; you'd have to have the loss accelerating to get there. How are you thinking about that number for the rest of the year?

Frank Connor

Yes, so the total number of the 769, 380 of that was out of distribution finance?

Scott Donnelly

No, that's on page five of the presentation materials. So we'll give you a break down and I guess not only clarify that. It's not so much the good asset, bad asset. I mean it's certainly the longer cycle stuff. So clearly, over the course of the year we will have more and more of this. We'll move in to the resort, golf as opposed to being so much in the distribution of finance side.

But the progress we're making there, as we get towards the end of the year, we're just about running out of distribution plans. And there is no change right now to our guidance in terms of our loss expectations. So in other words we think we can get that additional couple of hundred million dollars of liquidation that we are now forecasting and still live within the loss numbers of that we gave you earlier.

Noah Poponak - Goldman Sachs

And are you willing to comment maybe on 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?

Scott Donnelly

There's nothing going on right now that would lead us to believe that you would sell very large chunks of this. I mean we still don’t see the level of interest or liquidity out in the markets, particularly in golf resort. The resort side, frankly, as we go forward more and more to that is going to amortization and that's where the bulk of that liquidation is coming from.

So people are terming out in their notes, and that's good for us. On the golf side, I'd say that's an industry that's still sort of in a state of flux, but I would not expect to see anybody coming in and looking for large portions of an asset class like that right now.

Noah Poponak - Goldman Sachs

Yes, okay.

Scott Donnelly

I think it's a course here a course there and that's how we're going to work our way through it.

Scott Donnelly

Okay. That concludes our call for today. We thank everybody for joining us, and we'll be seeing you soon. Thanks.

Operator

Ladies and gentlemen, this conference will be available for replay after 11:00 a.m today through July 20th at midnight. You may access the AT&T teleconference replay system at any time by dialing 1800-475-6701 and entering the access code of 138123. International participants may dial 1-320-365-3844.

Those numbers again are 1800-475-6701 or 1-320-365-3844 with an access code of 138123.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Textron Inc. Q1 2010 Earnings Call Transcript
This Transcript
All Transcripts