Textron (TXT) Scott C. Donnelly on Q2 2016 Results - Earnings Call Transcript

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Textron, Inc. (NYSE:TXT)

Q2 2016 Earnings Call

July 22, 2016 8:00 am ET

Executives

Douglas R. Wilburne - Vice President-Investor Relations

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Frank T. Connor - Chief Financial Officer & Executive Vice President

Analysts

Carter Copeland - Barclays Capital, Inc.

Julian Mitchell - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Jason M. Gursky - Citigroup Global Markets, Inc. (Broker)

Samuel J. Pearlstein - Wells Fargo Securities LLC

Noah Poponak - Goldman Sachs & Co.

George D. Shapiro - Shapiro Research LLC

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Seth M. Seifman - JPMorgan Securities LLC

Sheila K. Kahyaoglu - Jefferies LLC

Peter John Skibitski - Drexel Hamilton LLC

Cai von Rumohr - Cowen & Co. LLC

Justin Laurence Bergner - Gabelli & Company

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Textron Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Doug Wilburne, Vice President of Investor Relations. Please go ahead.

Douglas R. Wilburne - Vice President-Investor Relations

Thanks, Stacy, 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 Chairman and CEO, and; Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website.

Textron's revenues in the quarter were $3.5 billion, up $264 million from last year's second quarter. Income from continuing operations was $0.66 per share, up 10% from $0.60 reported in last year's second quarter. Manufacturing cash flow before pension contributions was a $26 million use of cash compared to a positive $106 million cash flow in last year's second quarter.

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

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Thanks, Doug, and good morning, everybody. Before I discuss our results, I would like to comment on the Bell 525 accident, which occurred on July 6 during developmental test flight and tragically claiming the lives of two Bell pilots. Both pilots were highly regarded individuals, well-respected members of Bell's team and very experienced test pilots. We will miss them greatly and keep them and their families in our thoughts and prayers.

We're currently providing assistance to the NTSB in support of the investigation to understand exactly what caused the accident. We've suspended flight test activities on the program until we determine the cause of the accident. In the meantime, we're proceeding with all non-flight related certification and program activities. At this time, we do not have an estimate as to when flight testing might resume or the length of delay in certification or first deliveries. We do remain committed to the Bell 525 program and we'll work to ensure the aircraft will be a safe, reliable and high-performance helicopter.

Moving to the quarter, revenues were up 8.1%, reflecting our ongoing investments in both new products and acquisitions. Segment revenue was up at Systems, Industrial, and Aviation, while down at Bell consistent with our expectations. At Bell, we delivered 6 V-22s, flat with last year's second quarter, 9 H-1s, up from six units last year, and 24 commercial helicopters, down from 39 a year ago.

On the commercial side, our new 505 Jet Ranger X continues to generate strong interest in the marketplace and certification activities remain on track to support initial deliveries at the end of this year.

On the customer service front, during the quarter, we opened a new paint and delivery center in Prague to provide full aircraft completion and delivery capabilities to customers in the region.

Moving to the military side of the business, during the second quarter, we received an order for an additional V-22 under the current multi-year contract for delivery to the U.S. Air Force, and earlier this week, we also received an order for four additional V-22s for delivery to Japan and we continue to work with the DoD to identify sufficient quantities, both domestically and internationally, to support a third multi-year contract.

We also continue to make progress on assembling our first V-280 aircraft as we reached an important milestone of mating the wing and nacelles to the aircraft fuselage in late April, bringing us one step closer to our scheduled first flight next year. We displayed our full-scale mockup at Farnborough last week and had significant interest from a large number of international customers.

Moving to Systems, revenues were up significantly from the first quarter and last year, reflecting international weapons deliveries and higher unmanned aircraft volumes.

On the TAPV program at TMLS, we're making final preparations with our Canadian customer to begin deliveries next month.

At our Unmanned Systems business, we received a contract for upgrading an additional 24 Shadow systems, which takes us through the end of 2018 for this program. The Shadow system also reached a major milestone during the quarter achieving 1 million hours of in-service operation.

Finally, at Systems, earlier this year we acquired a small business located in Newport News, Virginia called Airborne Tactical Advantage Company or ATAC. This business provides tactical flight training and air adversary services to the U.S. Navy, Airforce and Marine Corps using a fleet of 27 fighter and tactical aircraft flown by former U.S. military fighter pilots.

During the quarter, ATAC was awarded a new contract with U.S. Navy worth up to $43 million over the next year. ATAC is a great fit for the company as it has significant synergies with a number of our businesses and a good growth outlook as we believe the U.S. DoD and foreign militaries will increasingly rely on third parties to provide live airborne threat training services.

Moving to Industrial, we saw an 8.3% increase in revenues, reflecting growth at Kautex and Specialized Vehicles. At Specialized Vehicles, we began shipping our newest Bad Boy Off Road product, the Stampede 900, a recreational 4 x 4 utility vehicle with unmatched power and unrivaled hauling and storage capacity. We expect the Stampede will contribute to top line growth as this product taps into an entirely new market for this business.

During the quarter, we also acquired Premier Engineering & Manufacturing, a producer of deicing vehicles for the aviation industry. Premier will be part of our ground and support business, which continues to grow nicely as airlines and airports invest in our infrastructure.

At Kautex, we continue to see good volume growth, reflecting ongoing adoption of our Selective Catalytic Reduction product lines.

Moving to Textron Aviation, revenues were up $72 million, while profits were down $7 million. The increase in revenues reflected delivery of 45 jets in the quarter compared to 36 last year and 23 King Airs compared to 30 last year. The increase in jets reflected nine Latitudes, including our first delivery to NetJets. The Latitude continues to do well in the market with superior performance, range, comfort, and operating costs, and customer acceptance has been strong, including sales of fractions by NetJets to their own customers. As a result, NetJets increased their total expected contract requirement from 150 units to 200 units and accelerated their delivery schedule. However, launch pricing for the Latitude has been less than what we had hoped for due to competitive dynamics in this segment of the market, resulting in a lower per plane margin contribution.

Looking forward, while a large portion of our capacity is currently allocated to NetJets, we continue to see strong end-customer demand, which has translated to improved pricing for second half and next year deliveries. Overall, we believe we're still on track for our Aviation segment profit outlook, although our margins will likely be at the lower end of the range with slightly higher volumes of expected Latitudes.

Longitude development continues to progress as we mated the wing and nacelles to the aircraft fuselage on our first aircraft in May and powered the electrical distribution systems three weeks later. We're on track for first flight later this summer and the aircraft continues to generate significant interest as customers anticipate its entry into service late next year.

On the Service front, we opened our newest line maintenance station in Bremen, expanding our support offerings in Germany and throughout Europe.

Moving to the Scorpion, the program is gaining momentum as we have begun the U.S. DoD accreditation process with this week's signing of a cooperative research and development agreement with United States Air Force. Also, production of the conforming aircraft is nearly complete with first flight expected next month. We believe having the accreditation process underway and the conforming aircraft available for demo flights will help facilitate initial sales of the aircraft.

Last week at Farnborough, we also announced that we were selected by the team of QinetiQ and Thales to supply Scorpion jets for their bid on the UK's Air Support to Defense Operational Training program should they win the competition.

To sum up, demand in our end markets has been challenging, but we continue to believe that our new products and recent acquisitions will continue to contribute to overall growth in revenue, earnings and cash for the year.

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

Frank T. Connor - Chief Financial Officer & Executive Vice President

Thank you, Scott and good morning, everyone. Segment profit in the quarter was $328 million, up $22 million from the second quarter of 2015 on a $264 million increase in revenues.

Let's review how each of the segments contributed, starting with Textron Aviation. At Textron Aviation, revenues were up $72 million from this period last year, primarily due to volume and mix. Segment profit was $81 million, down from $88 million a year ago, primarily reflecting an unfavorable impact from the mix of products sold in the period. Backlog in the segment ended the quarter at $1.1 billion, $122 million higher than at the end of the first quarter.

Moving to Bell, revenues were down $46 million, primarily due to volume and mix. Segment profit decreased $20 million from the second quarter of 2015 reflecting the lower volume and mix.

At Textron Systems, revenues were up $165 million, primarily due to higher volumes in our Weapons and Sensors and Unmanned product lines. Segment profit was up $39 million, reflecting the higher volumes and mix.

Industrial revenues increased $77 million due to higher overall volumes and the impact of acquisitions. Segment profit increased $13 million, reflecting the higher volumes. Finance segment revenues decreased $4 million and profit decreased $3 million.

Moving below the segment line, corporate expenses were $31 million compared to $33 million last year. Interest expense was $37 million, up $5 million from last year.

On the tax front, the Internal Revenue Service approved a settlement on July 11 of our 1998 to 2008 tax years. As a result, in the third quarter we expect to record an income tax benefit including the reversal of accrued interest of approximately $315 million, of which approximately $200 million, or $0.74 per share, is attributable to continuing operations. The settlement results in an immaterial net benefit to consolidated cash during the year.

To wrap up with guidance, we are reiterating our expected full-year EPS from continuing operations of $2.60 to $2.80 per share exclusive of the tax settlement. We also continue to expect cash flow from continuing operations of the manufacturing group before pension contributions of $600 million to $700 million.

That concludes our prepared remarks. So, Stacy, we can open the line for questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. And our first question will go to Carter Copeland with Barclays. Please go ahead.

Carter Copeland - Barclays Capital, Inc.

Hey. Good morning, guys.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Good morning, Carter.

Carter Copeland - Barclays Capital, Inc.

Scott, I wondered if you could speak to the Aviation margin. I know you talked about last quarter when we did the incremental math, the Longitude R&D being elevated ahead of that first flight. Can you quantify how much of an impact that would have had on the incremental this quarter?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, Carter, it did have incremental impact for sure. It wasn't probably quite as significant as it was in the first quarter. I would say probably most importantly from an R&D standpoint, in the first half Aviation had pretty high levels of spending, and that really was largely around getting ready for the Longitude first flights and flight test programs. So we've incurred an awful lot of R&D. So our total year number is still going to be about what we thought it was, but there will be a significant reduction in the second half, just associated with the fact that we're just about complete with the high spending load on the Longitude program.

Carter Copeland - Barclays Capital, Inc.

And on the pricing impact you talked about on Latitude, what gives you the confidence that the pricing improves as you exit this year and into next year?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, the fact that we already have a lot of aircraft sold, and so we're looking at actuals in terms of the realized pricing that we're seeing in the second half of the year and going into 2017 versus the pricing that we had realized on the aircraft that were already shipped in the first and second quarter. So there's no change in the NetJet pricing. That's a fixed number through the period. But when you look at retail aircraft sales, whole (12:31) aircraft sales to end customers, what's already in our book is higher in the back half of the year and into 2017 than what we've experienced in the first half of the year.

Carter Copeland - Barclays Capital, Inc.

Great. Just wanted to make sure it was in the backlog. Thanks. I'll let somebody else ask.

Operator

And we'll go to Julian Mitchell with Credit Suisse. Please go ahead.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Hi. Good morning. Thank you. Just wondered on the Aviation side of things. So, I guess, if you look classically, you do have a very healthy second half versus first-half margin ramp. Should we take from your prepared comments that the margins in the back half are flattish year-on-year with the second half of last year in that segment?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Oh, I'm sorry, Julian. I haven't looked, I guess, in the numbers in front of me just in terms of the comparable from 2015 to 2016 on the second half. But, certainly incrementally as we usually see, you can certainly expect better margin rates as we go through the second half of the year versus the first, in part driven by the fact that we normally have higher volumes and we would certainly expect to see that. But, also as I mentioned, we'll have lower R&D spending as well within that segment.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Okay. But you still think you can get to about 8.5% for the year as a whole in Aviation?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

That's correct.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Thank you. And then on Bell, just very quickly, any color you could provide there on the trends in the commercial side, particularly after market, and I guess there as well, the margins year-to-date running at sort of the low-end of the original full year guide. Should we expect a sort of second half pick up in that?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I think we will have a second half pick up. Look, the end markets in the commercial helicopter business remain very challenging. What's most critical for us, obviously, is around our 412s. I think we still have a reasonable line of sight on meeting where we need to be this year on 412s. As I kind of mentioned on the last quarter, we think there's some – a number of opportunities out there that we're working on, which hopefully will give us some better visibility into the future. But at least in terms of how we think the year will close out at Bell for 2016, I think it'll be consistent with our expectations.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Great. Thank you.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

And we'll go to the line of Jason Gursky with Citi. Please go ahead.

Jason M. Gursky - Citigroup Global Markets, Inc. (Broker)

Hey, Scott. Good morning. Just wondering if you could just walk us around the world and talk about demands, generally speaking, across your varied segments in North America and Europe, and then maybe over into the Middle East and Asia?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I think if you look to the Aviation business Jason, the U.S. remains, probably, the strongest market. We've seen, particularly, earlier in the year a little bit of an uptick in Europe, which has been encouraging. Obviously, we saw a fair bit of dislocation here everywhere in the world in the last few weeks of the quarter with the whole reaction to Brexit. I don't think any of that is actually fundamental at a macro level with Brexit, but just the upset in the financial markets create a lot of uncertainty which kind of froze things up. But, I think other than that we've seen a bit of a strengthening in Europe. South America is still very difficult. I think there's some opportunities that are starting to show in some places, like Argentina, that are starting to improve modestly, but Brazil, most of the economies down there are still very, very challenged.

Middle East, there's activity certainly across most of our businesses, but again, it's a challenging environment. The conflict or wars that are going on down there have a lot of the governments fairly distracted and focused on pretty immediate needs as opposed to much in the way of long-term work. But there certainly are opportunities that are in the works.

That Southeast Asia, frankly, is probably one of the healthiest on the international markets in terms of opportunity. There's – economies are a little more diversified and are doing okay. China continues to be okay for us. It's not the strength of the growth maybe that it was the past, but it's certainly, generally speaking, solid particularly in the Aviation segment.

So, automotive, I think our numbers fairly well match what you see going on in the world. The European market actually has been kind of stronger. North America has had general strength, but there's more strength in the larger vehicles, in the trucks and the high end than there are in some of the smaller models, just, I think, reflecting the price of gas. So, I don't think that you were seeing anything, probably, that would surprise you a lot versus just what's going on in general in terms of what GDP looks like in these various regions.

Jason M. Gursky - Citigroup Global Markets, Inc. (Broker)

Okay. That's helpful. And then, Scott, you made some comments about conversations with customers on the Longitude. I'm just wondering if you could give us a little flavor for how you think pricing is going to shape up in that, given the fact that we had goalposts moved on us a little bit here on the Latitude? And what kind of customer mix are you expecting here out of the gate on the Longitude? Are we going to be selling into the fractional advantage or is this more directly into customers on a one-off basis?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I think at this point we expect it to be primarily just end-use customers on the Longitude. We've had, kind of, our normal customers have been in to Wichita pretty extensively looking at the aircraft. As you may recall, we had a full, not just a mockup, but a full aircraft that we displayed last year, and we kept that aircraft at the plant. We've had lots of people coming in to look at it.

And with respect to pricing, I think our challenge on Latitude is that our competitor in that space has two aircraft, right. One which is a little bit of the smaller aircraft, which is really what we thought we would end up competing with, with the Latitude. That was sort of our intention. And then they've got a larger aircraft, and those two aircraft have created a pricing problem. And I think our performance and our range, were far superior to the smaller aircraft, which is where we wanted to be, but they're just kind of using the larger aircraft to try to compete with us. And that's really what's generated a lot of the pricing problem.

When you look at Longitude, that's kind of a combination now where you have the much larger aircraft and, frankly, performance and range that I think will distinguish us very nicely from where the competition is. And so, certainly our expectation is that we have a much better pricing position because we can distance ourselves in terms of the performance and capability of that aircraft, and there's not another aircraft the competitor has sitting on top of that to try to bring down on price to compete with it.

Jason M. Gursky - Citigroup Global Markets, Inc. (Broker)

Great. Thank you.

Operator

And we'll go to the line of Sam Pearlstein with Wells Fargo. Please go ahead.

Samuel J. Pearlstein - Wells Fargo Securities LLC

Good morning.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Hey, Sam.

Samuel J. Pearlstein - Wells Fargo Securities LLC

Hey. I was surprised that you guys didn't buy any stock in this quarter. And I know at the end of the last quarter you only had about 4.5 million shares left in your authorization. So, can you talk a little bit about, philosophically, how you're dealing with that? And then typically when does the board look at that as to whether you need to expand the buyback?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, Sam, we did an awful lot of buying in the first quarter, so we did back off a little bit on the second quarter. But I wouldn't attribute it to the share shelf that's sitting there. We still do have 4.5 or so million available under that. But if we thought it was the right thing to do, we've had these discussions with the board, and there'd be no problem going back and extending that authorization. So it's just – we haven't officially taken that action because we still have enough that's available to exercise under the previous authorizations that we haven't taken up formal board action. But, obviously, there would have to be a discussion with the board. We have had preliminary discussions, and I wouldn't expect that that would be an issue.

Samuel J. Pearlstein - Wells Fargo Securities LLC

Okay. And then on the Aviation side, the $120 million or so increase in the backlog, is that driven by any particular products or any way to look into that and say, there's a trend there?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, we're trying, Sam, not to go model by model in terms of backlog. But it would be a pretty safe assumption that Latitude is driving the bulk of that.

Samuel J. Pearlstein - Wells Fargo Securities LLC

Okay. Great. Thank you.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

And we'll go to the line of Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak - Goldman Sachs & Co.

Hey. Good morning, everyone.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Good morning, Noah.

Noah Poponak - Goldman Sachs & Co.

Scott, I don't know how far or deep you'll go, but I just wanted to stay on that last question, if possible. It would be really helpful to be able to understand. We see the headline backlog in the headline book-to-bill being better in the quarter. It'd be great to understand how much of that is NetJets Latitude aircraft folding into the backlog, as you've said, you'll do it carefully, versus something at Beech versus just pure underlying regular old business jet?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, no. Again, I don't think we want to get into the specifics on a model by model basis when we haven't done that in quite some time. But, look, I think it's not just NetJet. I think we've been pretty open about the fact that Latitude is selling well. And our expectations for the year was that the overall market would be generally fairly flattish from last year in terms of most of the model types, and most of the growth would be driven by the big new product introduction, which in this case this year is Latitude. And so I think that expectation is kind of what we're seeing.

We are seeing good demand on the Latitude, both on the NetJet as well as on the retail side. And other models are selling fine; they're selling consistent with how we expected. Some models are stronger than others, but in general, the volume on the jet side is what we expected and the thing that's driving the upside in terms of growth on a year-over-year basis. And then we would continue to expect to see that as we roll into next year is based on Latitude. And so the bulk of that increase in backlog, I would say, is going to be attributed to that, both NetJet and retail sales.

Noah Poponak - Goldman Sachs & Co.

Okay. I understand the desire to not get into specific aircraft, but just the NetJet situation alone is pretty unique. And if there were zero NetJets brought into backlog versus if there were 15 to 20, it's a difference between a book-to-bill of 1.1 and of 0.8. It just kind of makes a big difference. I don't know if you guys would consider breaking that out today or in the future or whatever. But...

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Look, Noah, we're not trying to do this on purpose. This is (23:23) competitively very important, I think. I think our competitors and whatnot would love to know which aircraft have what kind of backlog. And I, we can give you guys the absolute number. We can give you the color around sort of where it's going, but I don't think I need to damage the business by providing my competitors a lot of information on where we stand on sales of which aircraft.

Noah Poponak - Goldman Sachs & Co.

Okay. I understand. What's your sense, Scott, of why market-wide used inventory is now back on an upward trend in business jet?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, on a personal note, in total, it is. For the numbers, I'm sure I read all the stuff that you guys read, but there's an awful lot of mix down within that, right? I would say that if you look at our aircraft and, particularly, in that light mid-size, it's been relatively stable. And, frankly, the market's healthy. So the amount of turn, the number of sales that are going on has been fine. So when we look at the amount of used aircraft sales that we had in a quarter versus the previous quarter, it's up. We see the number of transactions that are in our space, involving our aircraft seem to be doing fine. And we see relatively stable residual values. So there's different dynamics, obviously, in terms of what sizes of aircraft and there are different markets. Right? I mean, the heavy iron market behaves differently than the light jet market. So actually for us and for our customers that are looking to sell used aircraft, buy used aircraft, it's been pretty stable, both pricing and volume.

Noah Poponak - Goldman Sachs & Co.

Okay.

Frank T. Connor - Chief Financial Officer & Executive Vice President

And, Noah, just to be clear, the availability of used Citations is not up on a percentage basis. It's down slightly from where it was at the first quarter.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Right. And that's kind of what I'm saying. There's just a lot of variability from aircraft model by model, sizes of aircraft, that you really have to go through all the details. But I think in the Citation side, we haven't seen much change. It looks fine.

Noah Poponak - Goldman Sachs & Co.

Okay. Just finally, then, with all of that and everything today, and it being a little more than halfway through this year, where would you pin the likelihood of up versus flat versus down Cessna production next year?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Oh, I'm probably not quite ready to do 2017 yet, Noah. But, we certainly feel like, our view has been generally that markets are fairly flat, but new products matter. And that's what we saw last year, that's what we're seeing this year. We're not ready to do 2017 guidance. Obviously, we still feel very good about where the Latitude is in the market and its trend in terms of its demand. And obviously as we get into next year, we'll hit Longitude towards the latter part of the year. So I think that'll help us as well. But, again, I think that'll be positive. Longitude will be positive. Latitude will be positive. It's too early to make a call on just the base market, I guess.

Noah Poponak - Goldman Sachs & Co.

Okay. Thank you.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

And we'll go to the line of George Shapiro with Shapiro Research. Please go ahead.

Douglas R. Wilburne - Vice President-Investor Relations

Are you on mute, George?

George D. Shapiro - Shapiro Research LLC

Good morning.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Hey, George.

George D. Shapiro - Shapiro Research LLC

Scott, I wanted to try and pin you down a little bit more on R&D. It was up $11 million, I think, in the first quarter. You said it was up less this quarter, though I kind of figured maybe $5 million. And then do we get a $5 million or $10 million drop in each of the subsequent quarters for the rest of the year?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

That's about right, George.

George D. Shapiro - Shapiro Research LLC

Pardon?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

That's about right.

George D. Shapiro - Shapiro Research LLC

Okay. And then, Frank, what was the aftermarket growth in the Aviation sector?

Frank T. Connor - Chief Financial Officer & Executive Vice President

It was good. It was kind of high single digits type year-over-year.

George D. Shapiro - Shapiro Research LLC

So that's a step up from what we've been seeing as more mid-single digits in the prior quarters?

Frank T. Connor - Chief Financial Officer & Executive Vice President

Well, we also had – I think we were healthy on our historic organic side of the business, and of course we also have Able, which is in the Aviation Services business, which is still coming in as an M&A transaction on a year-over-year basis. And that business is doing well.

George D. Shapiro - Shapiro Research LLC

Okay. And the weaker King Airs in the quarter, Scott, is that just how it fell in the quarter? Or are you seeing impact from oil affecting King Air demand?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I mean, there's a little bit of that, George. I'm not sure that it's just specifically oil and gas. But the King Air has had a strong international marketplace, is a big part of that business, and it's a good part of the business. And it has certainly been a little bit weaker in the first half of the year. And we've, obviously, made some accommodation for that and think it'll be a little bit weaker than we'd like it to be. But again, I think that's mostly driven by a lot of international markets that are just a little softer right now.

George D. Shapiro - Shapiro Research LLC

And lastly, you mentioned talking about pricing up across the product line. Is that pretty much across all the products? Is it more the lower end products versus the higher end? Wonder if you can expand a little bit more on that.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Our product pricing in general, George, has been pretty flat. There's been a couple of models where we've seen a little bit of price. There are a couple of models that are a little bit – at any rate, they're really very small variances on a year-over-year basis or quarter-to-quarter basis. So I would say right now pricing by and large is fairly stable on most of the models.

George D. Shapiro - Shapiro Research LLC

Okay. But you commented that pricing's better in the second half of the year...

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, specifically the Latitude. Yeah, the Latitude is the one that as we work into the second half of the year we're seeing increased price that's already largely booked on that product line. So there has definitely been a positive pricing trend on Latitude.

George D. Shapiro - Shapiro Research LLC

Okay. Thanks very much.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

We'll go to the line of Myles Walton with Deutsche Bank. Please go ahead.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Thanks. Good morning.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Morning.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Doug, you're sounding awfully happy this morning. It must be because you're retiring. So congratulations on that.

Douglas R. Wilburne - Vice President-Investor Relations

Thank you, Myles, and that would be one factor.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

So could you touch on the pricing comment you made, Scott, with respect to the second half of this year and into next year? You're not carrying much of a backlog. So how much visibility do you actually have on pricing into 2017?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I think, obviously, it's mixed across the model. The one that we're largely commenting around where we feel like we've seen some nice positive momentum on the pricing side is specific around Latitude. And that product is pretty well spoken for at this point.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Outside of the NetJet. So from individual buyers, you have pretty good visibility into 2017?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Correct. Certainly through the balance of this year and just starting now as we're selling into 2017.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Okay. And then as we look at the Systems margins, obviously, really good performance there. Were there any positive adjustments outside of just pure mix?

Douglas R. Wilburne - Vice President-Investor Relations

We had a small EAC (30:50), but it wasn't major.

Frank T. Connor - Chief Financial Officer & Executive Vice President

Not material relative to what we normally see.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Right. No. It's primarily driven by the fact that, as you guys know, the Weapons and Sensors business has a tendency to be sort of lumpy, right, because we build at a relatively stable level. But lot acceptance is typical with a lot of international customers. So a lot of the positive margins are the fact that we had significant uptick in volume in the quarter.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Okay.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

And good execution performance by the team in terms of getting it done and doing it productively.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Okay. And the only other one. So just a run rate cleanup on interest expense, the tick there up. Is that the new run rate? Or is $133 million still a good planning number for the year?

Frank T. Connor - Chief Financial Officer & Executive Vice President

$135 million-ish type number for the year.

Myles Alexander Walton - Deutsche Bank Securities, Inc.

Sounds good. Thanks.

Operator

And we'll go to the line of Seth Seifman with JPMorgan. Please go ahead.

Seth M. Seifman - JPMorgan Securities LLC

Thanks very much, and good morning. Just to follow up on Systems with the small acquisition that you mentioned there, the strong margin in the quarter. Can you quantify what the acquisition contributed? And would you say that your expectation for sales and EBIT there is higher than it was at the beginning of the year?

Frank T. Connor - Chief Financial Officer & Executive Vice President

The acquisition didn't play a whole lot into this thing. As you would expect in the initial year of a deal like that, there's step-up. There's the normal accounting for shares. So I would say it's relatively neutral impact on 2016. And we certainly expect it to be a nice accretive contributor in 2017 and on.

Seth M. Seifman - JPMorgan Securities LLC

Okay. Okay. And then with regard to cash flow, you told us in the past to expect the cash flow to be fairly back half weighted. Could you, is there any way to calibrate our expectations? There's a lot of cash coming in in the second half to calibrate our expectations for Q3 versus Q4?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

I'm not sure we want to get into a quarter-by-quarter, but we certainly still feel confident with the numbers that we provided in terms of the overall year guidance. We've talked in the past. We know we have a headwind associated with customer deposits, largely the military payments that are unwinding through the course of the year. So those have been unwinding as we've gone through the first half of the year, and generally speaking for us, will serve to offset an awful lot of that in Q3 and Q4 as we see working capital reductions and a loss of inventory through volume, largely in Aviation and Bell as we go through the balance of the year. And TAPV, of course, which remember, we don't start deliveries of those units here until August. So that's a fair bit of inventory that we've been carrying that we'll see a significant reduction in Q3 and Q4.

Frank T. Connor - Chief Financial Officer & Executive Vice President

And we're obviously always seasonally stronger in Q4, if you just look historically given the volumes that we see in Q4.

Seth M. Seifman - JPMorgan Securities LLC

Great. Thanks. Thank you very much.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

Thank you. We'll go now to Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila K. Kahyaoglu - Jefferies LLC

Good morning, guys.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Good morning.

Frank T. Connor - Chief Financial Officer & Executive Vice President

Good morning.

Sheila K. Kahyaoglu - Jefferies LLC

Just on Bell profitability in terms of margins going forward, does it remain at about a 10% rate if we assume commercial helicopters doesn't recover for some time?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Yeah, Sheila, that's what we've talked about is probably being in that 10% to 11% range. And an awful lot of that will have to do with where we are as usual on the commercial side on 412s. Again, I think we feel pretty good about where we are for 2016. And we'll have a lot more visibility as we get to the end of the year to be able to provide guidance on where we think that will be in 2017. But at least so far, for this year, we'll finish where we expect to be.

Sheila K. Kahyaoglu - Jefferies LLC

Got it. And then just one on the broader military opportunity set, if you could talk about that a little bit, whether it's the V-22 or the Scorpion both domestically and internationally, and how you think about the programs and opportunities there?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, the V-22, obviously, has made some progress with the Japanese deal. And those orders now are firming up and coming in, being exercised either under the multi-year two contract or as some of the potential volume in a multi-year three deal. There continue to be a number of conversations with international customers that are going on. I certainly still think that Israel is a potential. That was talked about for quite a while and sort of moved out. And there's still uncertainty around that, but I think there are still conversations going on which are, at this point, very much government to government. The same is true with a couple of other countries, and so those are things, however, that would all be talked about in the context of a multi-year three. So it's not something that's going to hit here in the next couple of years. The only ones we'll see really will probably be Japan in that near term. So there's certainly a lot of other discussion and opportunities, dialogue, going on, some which is public, some which is not, around H-1s.

The H-1 is performing fabulously for the Marine Corps. It's both the utility and the attack versions of that are in the quote process and proposal processes for several potential international applications. So we'll be following that pretty closely.

Scorpion is still very much a wild card. It was a huge milestone for us to have the Air Force sign up to do the accreditation program. That just happened this past week. We've had, as you know, a number of international customers that have been looking at the aircraft. And there really have been two issues for them. One is, how are you going to get this thing certified so that they can provide their certification on top of it. And not unreasonably, customers want to fly the production fully conforming aircraft. We have the accreditation path checked off, and here in the next month or so, we'll be flying the first production configured aircraft. So, our customers are already talking about when they're going to be able to come in and get a chance to fly the aircraft. So two big milestones, boxes that we needed to check to get done before we can proceed with final sales of the aircraft.

Sheila K. Kahyaoglu - Jefferies LLC

And just on the Scorpion, do you think international or domestic order is more likely?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, international has always been the focus of the aircraft for sure. And so those are the deals that we've been pursuing and working and staying close to those customers for a while. Look, I think there is U.S. opportunity at some point. I think, and there's been some papers here written recently. The Air Force is sort of facing into the reality in the U.S. that cost matters and they need more aircraft that guys can fly and build hours. And frankly, a lot of missions that can be executed that don't need to have very, very, very high end fighter capability. But those requirements I think are still in early formative stages within the U.S. And so I think we'll see how that plays out here over the next year or two.

Sheila K. Kahyaoglu - Jefferies LLC

Ok. Thank you.

Operator

And we'll go to the line of Pete Skibitski with Drexel Hamilton. Please go ahead.

Peter John Skibitski - Drexel Hamilton LLC

Good morning, guys. A couple quick program questions. Scott, on the T-6, you guys have delivered about 22 year-to-date. I'm wondering if you're thinking you'll hit 40 for the full year, because that would make it kind of flat year-over-year. And I was actually thinking it would trend down, because I think U.S. deliveries are over. So just wondering what your thoughts are on that program going forward.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Yeah. Pete, I think it will be fairly flat for the year. The U.S. program is winding down. But we've had a couple of international programs that we won which will fill out the year. So I think 2016 feels fairly solid, and deliveries will be exactly where we expected them to be.

Peter John Skibitski - Drexel Hamilton LLC

Okay. And then just last one for me. Sensor Fuzed Weapon, I think there was some news in the quarter that the State Department was actually considering blocking a sale to Saudi. I was wondering if you heard the same thing, what your thoughts were, if that's real or not. And I know this is a lumpy program, but I think Saudi was one of the meaningful customers. So just to raise a question in my mind there.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, they're not a current customer. They're a prospective customer for sure. They have been a customer in the past. But basically, Pete, you're right. There's a lot of issues going on between the State Department, NSC, and what's going on over the Middle East, and that is certainly, as a minimum, delaying getting approvals. Whether that breaks loose and ultimately is approved or whether it's not is still to be determined. But there's certainly an interest on their part. It's been notified to Congress in the past. It was approved through that notification process, but now going back through and getting the approvals through State, it is hung up at this point.

Peter John Skibitski - Drexel Hamilton LLC

Okay. Okay. That's helpful. Thanks, guys.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

We'll go to the line of Justin Bergner with Gabelli & Company. Please go ahead. Mr. Bergner, your line is open. And we'll go to Cai von Rumohr with Cowen & Company. Please go ahead.

Cai von Rumohr - Cowen & Co. LLC

Yes. Thank you very much. And, Doug, too young a man to retire. So you guys had very nice results at Systems, and that's even without any shipments of TAPV that come here, in here in the second half. On paper, it looks like Systems might have some upside. Is that a potential?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I don't know, Cai. It's probably too early to say one or the other. You know that the SFW side, in particular, can be kind of lumpy just because of the way those deliveries happen. It was a very strong quarter for that business. TAPV will certainly kick in here in Q3 and Q4 as we expected that it would. But, again, it is built into our plan. Right? We did expect the TAPVs to be Q3 and Q4. So it was a very good quarter for that team. I think they're going to deliver a very solid year. But right now, my expectation is it'll be consistent with what we guided.

Cai von Rumohr - Cowen & Co. LLC

Okay. And then alternatively, when you look at Bell, you had a very strong military shipment in the first half, and that looks like it's going to be weaker in the second half. And commercial, again, was weak in the first half. Has to get better in the second half to kind of get you home. My understanding was that commercial margins were lower than military margins, so is there much risk at Bell that, that mix that you come in at the low-end or a little below it?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, I mean, the mix is different even in the commercial world, model by model, Cai. I think that our military margins are solid and will stay that way through the balance of the year. I mean, we're delivering the same V-22s and H-1s that we delivered in the first half. So I think that business is in good shape and they'll deliver to our expectations. I do think we'll be lighter on some of the commercial volume and total number than we would've expected at the beginning of the year. But it's largely in a lot of the lighter helicopters, which on the initial equipment sale is not as material to the business as others.

Now those aircraft, of course, turn into a lot of service opportunities. So I mean, net, the margins in the commercial side are still good because of all the service that those aircraft pull through with them. But to be light in terms of volume on some of the lighter aircraft will not have a meaningful impact within the year. In the end it all comes down, largely, to the larger aircraft, and particularly the 412s, and I think we're on track to do that. And those are more heavily laid into the back half of the year.

Cai von Rumohr - Cowen & Co. LLC

Got it. And then switching to Aviation, so you mentioned the better pricing for Latitude in the second half. Talk to us a bit about the productivity. Does the profitability improve? Because presumably you're coming down the learning curve as time goes by. So should we expect the profitability of Latitude to improve going forward?

Frank T. Connor - Chief Financial Officer & Executive Vice President

Well, I mean, I...

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Okay. I think that in general it will. There's always a little bit of startup cost and variances and whatnot in the early model years. The team has done a nice job on cost, frankly. The aircraft is coming in around the cost where we expected it to be. Is there still some benefit to be had? Certainly. And especially since we have, for the first time in a long time, a fairly significant volume of aircraft, which are to the same configuration, that being NetJets, obviously, which will help. So obviously the guys in the factory are focused on that and trying to drive some incremental productivity and efficiency around that. So we'll see some benefit from that. And I think in part, that'll help us with some of our margin rates as we go into the back half of the year.

Cai von Rumohr - Cowen & Co. LLC

Got it. And then could you conjecture, when you look at the Longitude, when in the second half it might deliver? Does it look like it's very late in the year or could really have any sort of meaningful impact in terms of next year?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, it's largely going to be a fourth quarter issue, Cai. I don't know that we really want to guide too much on it, yet. We're still – we haven't started the flight test program yet. We still have to go through the certification progress with the FAA. So having not yet started flight test, it's probably a little bit early to get a sense of where we are in that process and what the exact schedule will come out to be, but it's easily a year flight test program, right? So you're talking about something that would probably be, best case, late third quarter, probably into fourth quarter.

Cai von Rumohr - Cowen & Co. LLC

Well, that's why I ask, because when do you expect to fly? Because usually I would expect to take at least a year to kind of get the thing certified. So there would be some risk that it might slip out of 2017?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

There is some risk to that, of course. But, again, Cai, we're thinking we're going to be flying here in the next couple of months. So a year flight test program, that kind of puts you at the end of third quarter, beginning of fourth quarter, and as you know, we've been able on other models and programs to get certifications done in that kind of a timeframe and make some deliveries shortly thereafter.

So there is still – there's certainly a reasonable probability that we'll see fourth quarter sales of Longitude next year. Worst case, there's a few month delay, then for sure it could roll into the beginning of 2018, but again, we'll know an awful lot more when we get around to really doing 2017 guidance because we'll be months into flight test and have a better feeling for where we are.

Cai von Rumohr - Cowen & Co. LLC

Terrific. Thank you very much.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure.

Operator

We'll go to the line of Justin Bergner with Gabelli & Company. Please go ahead.

Justin Laurence Bergner - Gabelli & Company

Good morning, guys. I'm sorry about not being there when I was first in the queue earlier.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

No problem.

Frank T. Connor - Chief Financial Officer & Executive Vice President

Good morning.

Justin Laurence Bergner - Gabelli & Company

Two quick questions. First, on this tax impact, will there ultimately be a benefit to Textron from a cash point of view related to this $315 million, and $0.74 from continuing operations?

Frank T. Connor - Chief Financial Officer & Executive Vice President

There will be a little bit of cash inflow associated with it, but it's not material, as we said in the comments. I think obviously the big cash impact is that the avoidance of kind of paying what we had accrued on the books here, obviously, which we always expected, but had the reserves for over a substantial period of time. But there will be some cash inflow associated with it, but it's not material.

Justin Laurence Bergner - Gabelli & Company

Okay. Great. And I know the call hasn't focused as much on Bell, but are you seeing a bottoming in the commercial rotorcraft market, or are you still seeing incremental weakness as you look out to the second half of the year?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

I don't know. It's very hard to say, I certainly hope it's a bottom. It's pretty tough out there.

Justin Laurence Bergner - Gabelli & Company

Okay. What sort of are you looking for on the Bell side to get more confident that you've reached a bottom on the commercial side?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Well, obviously, not to be too simplistic about it, but orders, right? We're talking to a lot of our customers, obviously, and we have a sense of where they are. Oil and gas obviously remains very difficult, right? You've got, some of these guys are in bankruptcy. You've got a lot of their fleet that's sitting on the ground. They're just not being utilized. Now the oil and gas cycle is in all likelihood exactly that, a cycle, right?

So we've seen a rebounding of the price of oil, but not back to where it probably needs to be for them to feel better. It's starting to probably impact possibly in some regions of the world where $50 or so is – you can extract and be profitable at that. There's certainly other parts of the world where it needs to be significantly higher than that to make them feel like that end customers going to start getting stronger.

And of course a lot of these economies – they're just oil and gas petrodollar-based. So their economies will get healthier as that price per barrel rebounds, but we don't really have a great sense at this point what that lag is between where those rebounds and pricing and how quickly that'll flow through to having the ability to invest in their fleets or in general in those economies for people to feel comfortable to start laying out the funding for significant CapEx kind of projects.

But anyway, I wish I had a very prudent answer for you, but we talk to customers every day. Our team's out there working it. We kind of know pretty much every opportunity in the world that's out there. It's just a matter of seeing some of the stuff start to convert to orders. And it's been soft.

I mean, you see that in the volumes in the quarter, and I'd be misleading if I thought it was going to, all of a sudden, materially improve to affect the second half of this year, which is why I would say I would expect unit volumes to be down sort of from where we would've expected them to be, but not with significant financial impact for the year. Again, in terms of how we look out any further than that, that's something we'll have to work on and factor that into how we guide for 2017. And that will depend a lot on just sort of the general outlook of what those conversations are like for customers and, in particular, a number of opportunities out there that are fairly significant that will materialize or not between now and the end of the year.

Justin Laurence Bergner - Gabelli & Company

Great. Thanks for taking my questions and for that perspective on the helicopter market.

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Sure. No problem.

Operator

We'll go to the line of Jason Gursky with Citi. Please go ahead.

Jason M. Gursky - Citigroup Global Markets, Inc. (Broker)

Hey, guys. I wanted to get back onto congratulate Doug, publicly, on his retirement, first and foremost. And then secondly, Scott, just ask you to offer up some perspective on the M&A pipeline at this point in cash deployment going forward?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

I'd say on the M&A front, most of what we've done this year have been relatively small add-on transactions. And I think that's something that we continue to look at. There's a number there in the pipeline that are relatively small. We like doing those deals. In general, they've been attractive for us. They've played out very well in terms of returns and financials as they built into the business. And so our expectations is that's probably how things will continue to play out through the balance of the year. There's always stuff we're looking at, but at this point, there's nothing out there that's of any materiality that's something I would say, hey, guys, here's something we're looking at or doing. But we have a number of things that we're always looking at and whether one of those could happen in the balance of the year or not is still to be determined.

In general, our capital allocation strategy is, kind of, unchanged. We reserve and kind of target a certain amount of our allocation to M&A. But again, it's all totally opportunistic. Right? If it's the right kind of deals and we think it's good, we'll do them. If we don't, then obviously we don't do them. So...

Jason M. Gursky - Citigroup Global Markets, Inc. (Broker)

Great. Thanks.

Operator

We'll go to George Shapiro with Shapiro Research. Please go ahead.

George D. Shapiro - Shapiro Research LLC

Yes, just a couple of quick ones. On the Sovereign, we've seen the deliveries get pretty low. I mean, is it really just getting cannibalized from the Latitude? And kind of what's your outlook for the Sovereign?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

So there is certainly some cannibalization, George, between the Sovereign Plus and the Latitude. The aircrafts are similar in some respects. I mean, it's really a trade-off between the size of the cabin versus the number of passengers and range. So if you are looking and your requirement is to do a little bit of a longer haul and you need to put more packs on board, then the Sovereign's a great airplane, and that's why we still sell them. And we have a number of customers that still looking at acquiring the Sovereign because it's great for that mission and it continues to be a great aircraft in that area.

If you don't quite need the range and you don't quite need the number of passengers, but you want to go with that larger cabin, then the Latitude's a great choice. And I think what you're seeing is that we have a fair number of customers that will give up a few hundred nautical miles and don't need to have the higher passenger count, and they'll err on the side of the Latitude.

So from our perspective, they're both selling. Certainly, with the Latitude being new, it is generating a little bit more demand, which was exactly what we expected. And certainly some of those customers, if you went back two years ago, may have been people that would've bought a Latitude. But it's good having them both in the portfolio. It gives us the ability to work with the customer and say, what's your mission, and which one fits your mission better? And that's kind of where we're continuing to sell.

George D. Shapiro - Shapiro Research LLC

Okay. And on the A-10, Scott, you're still figuring that, that's kind of 6 to 10 a year in terms of the demand there?

Scott C. Donnelly - Chairman, President & Chief Executive Officer

Yeah, I think the A-10, with just the market dynamic out there, George, is just a relatively thin market. It's a great aircraft. We still have customers that absolutely love the airplane. So we still see some demand, but it's going to be a small number.

George D. Shapiro - Shapiro Research LLC

Okay. And then one quick one for you, Frank. Kautex, I don't think they have a huge amount of exposure to the UK. But with the devaluation of the pound happening towards the end of the quarter probably didn't have a big impact this quarter. How much of an impact do you look for in the third quarter?

Frank T. Connor - Chief Financial Officer & Executive Vice President

Yeah, there's a little bit of an impact, George, but it's not that material on an overall basis. It will be a little bit of headwind, but not that much.

George D. Shapiro - Shapiro Research LLC

Okay. Thanks very much again.

Douglas R. Wilburne - Vice President-Investor Relations

All right. Ladies and gentlemen, that concludes our call. And for me, it concludes my 65th earnings call. So I want to say thank you to all you fine analysts and investors and a shout out to one person who has listened to 65 of these, and that would be my wife, Becky. So all the best.

Operator

Thank you, ladies and gentlemen. This conference will be available for replay after 10:00 a.m. today running through October 19 till midnight. You may access the AT&T Replay System at any time by dialing 1-800-475-6701 or 1-320-365-3844, and when prompted enter the access code of 373339. Those numbers again, 1-800-475-6701 or 1-320-365-3844, access code 373339. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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