Good day and welcome to the Hexcel Corporation hosted first quarter 2014 earnings call. Today's conference is being recorded. Hosting today's conference are Mr. Wayne Pensky, Chief Financial Officer; and Nick Stanage, Chairman, Chief Executive Officer and President. At this time, I would like to turn the conference over to Mr. Pensky. Please go ahead sir.

Great, thank you. Good morning everyone. Welcome to Hexcel Corporation's 2014, first quarter earnings conference call on April 22, 2014. Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward-looking statement we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings, including our 2013 10-K, our first quarter 10-Q in last night's press release. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be rerecorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO and President; and Michael Bacal, our Communications and Investor Relations Manager. The purpose of the call is to review our 2014 first quarter results detailed in our press release issued yesterday. First Nick will cover the markets, then I'll cover some of the financial details before we take your questions.

Thanks Wayne. Good morning everyone. As you have seen in last night’s release, 2014 has gotten off to a strong start, with first quarter sales of almost $462 million, up 9.7% in constant currency from last year. Our growth was driven as expected by a 12% increase in commercial Aerospace revenues and helped out by nearly a 19% increase in industrial revenues, as all sub markets rebounded from a very soft quarter last year. Our operations continue to perform well delivering first quarter operating margins of 16.2%, up 110 basis points from last year’s period. Our adjusted diluted EPS of $0.50 was about 16% above the first quarter of last year, great conversion on our top line sales growth. Now, let me turn to our markets. As usual I will discuss year-over-year comparisons in constant currency. Commercial Aerospace sales of $303 million for the quarter were up 12% from the same period of 2013. Total revenues from new Airbus and Boeing programs increased by over 25%, primarily driven by the 787, A350. Sales for legacy platforms at Airbus and Boeing were up about 4% from last year’s first quarter. Sales to other commercial Aerospace, which includes regional and business aircraft, were up over 10% compared to last year’s quarter and we are at about the same level as Q4. Space & Defense revenues for the quarter were almost $96 million, down 1.4% versus last year. The decline was primarily due to some softness in Aerospace in Asian helicopter sales, which offset growth in the A400M program. However, sales were up about 8% from the fourth quarter levels. In industrial markets, sales for the first quarter were about $63 million, up almost 19% year-over-year. Wind sales were up by over 15% from the levels of last year’s weak first quarter. Other industrial sales were also up nicely, increasing over 20% from the first quarter of 2013. Now, let me turn the call over to Wayne for some additional comments on our financials.

Thanks Nick. Gross margin of $129 million for the quarter was 28% of sales as compared to 26.9% in the first quarter of 2013, thanks to growth in continued operational improvements. Our SG&A costs for the quarter were $41 million or 7.9% above last year. Remember due to the timing of our equity compensation grants, first quarter SG&A is about $5 million to $6 million higher than the typical run rate for the remaining three quarters of the year. Research and Technology costs of $13.6 million for the quarter were $2.6 million higher than the comparable 2013 period, as we invested in several development programs for Aerospace. We expect our first quarter spend to be the peak for 2014. Our operating income as a percent of sales was 16.2% this quarter, this compares to the 15.1% in last year’s period. Exchange rates had a nominal unfavorable impact as compared to last year, as margin improvement would have been another 20 basis points higher if adjusted for the exchange rate impact. For the quarter, operating income leverage was 25.6% on the incremental sales. We did have nearly a $3 million increase in depreciation expense this quarter over the last year. Our effective tax rate for the quarter was 31.3%, up from last year’s effective rate of 29.2%. The 2013 quarter benefited from the full retroactive impact of the extension of the 2012 U.S. Research & Development tax credits that was enacted in January 2013. Our guidance for the balance of 2014 remains at 31.5%, reflecting our best estimates for mix of income by country and state, as well as the R&D tax credit not being extended. Our net-debt increased $75 million this quarter. First, the free cash flow was a use of $22 million compared to the use of $15 million…

Thank you. (Operator Instructions). And our first question comes from Steve Levenson from Stifel. Please go ahead sir.

Thanks. Good morning Nick and Wayne.

Good morning.

Good morning Steve.

Okay, understand, thank you. And can you talk a little bit more about A350 and how you see the ramp of – the latest I’ve heard is that they expect to be at nine planes per month in the 2017 timeframe and how does that relate to you with lead times?

So with respect to lead times, I think we’d mentioned that we ship about six months in advance and keep in mind, we have about 50 ship-tos for the A350 to support that program. So we basically continue to stay aligned with Airbus on their production schedule and at this point in time the sales have been growing nicely, but we’re really not at liberty to share the schedule that we’ve had on that program.

Okay. Thanks very much.

Our next question comes from Amit Mehrotra from Deutsche Bank.

Yes, thanks. Hi Nick. I had a question on margins. For the last several years the company has largely been focused on growth, but my question really centers around the cost side of the equation. Are there any incremental opportunities for cost savings and I’m particularly thinking about here, with respect to the supply chain and the company’s ability to achieve savings from your suppliers as volumes ramp. Could you just help us put some meat around the opportunity there?

Certainly, Amit. First off, productivity with respect to our supply chain, whether its purchasing activities or improving our throughput, scrap reduction, cycle time, etcetera, is all part of our 23% margin expansion. So, certainly as we grow and continue to leverage the volume, that will provide us opportunity to continue to deliver on our 23% incremental margin on the up-side sales. So productivity will be an ongoing part of the business and we certainly do still see opportunity as we grow.

Okay. I mean I would have just through the – I mean that would imply then the – just the pure operating leverage from the volume growth is lower than 23%, because you are getting some non-volume related savings there. I mean is that how we should think about it then?

Well, I think you need to look at it in all total. We obviously, the volume leverage in utilizing our assets and running more through our plants with similar infrastructure creates great leverage, as well as the buying opportunities as volume goes up, as well as quality improvement. So we really don’t break it out for you, anything other than our 23% incremental margins going forward.

Okay. All right, just one quick question for Wayne if I can. It looks like SG&A expense was down or about flat after adjusting for the stock comp expense year-over-year. The sales were up double digits, so obviously a great performance on cost control there, but can you just offer some guidance with respect to, should we expect an inflection in SG&A expense as the company gets bigger and maybe provide some sustainable SG&A. What’s the sustainable level of SG&A maybe as a percentage of sales for company as it grows so quickly?

Yes Amit, we still what to get leverage of SG&A, but on the other hand we still need to continue to add some people and some infrastructure to support the growth as we go forward. We’ve been pretty good about managing to add people, but only at a rate that’s sort of less than our sales growth. If you look at constant currency, SG&A was up 6.7% versus last year and if you look over the last three years, our sales are up 12.7%, but SG&A has been up 6%, so we have managed to both increase it, but still get some leverage there and we’d expect to continue that.

Okay. All right, thanks guys. Good quarter.

Thanks.

Thanks Amit.

Our next caller comes from Howard Rubel from Jefferies. Please go ahead sir. Howard Rubel – Jefferies: Well, thank you very much. Nick, in your shareholders letter you pointed out you were making good programs with Boeing on partnering for success. Could you talk for a moment about that and then how is that lesson being implied to other parts, other customers if you will, so that you can grow business opportunities there?

Good morning Howard. So partnering for success is not the only initiative or request we have from our customers. As you can imagine, we get productivity and cost reduction opportunities and request across the Board. So with respect to Boeing, we really do not give details of specific programs, but I would tell you that we continue to help Boeing, work with them to improve their manufacturing processes just like we do with our other customers and I guess what I would point out is that’s in finding ways to take true cost out, whether its volume leverage, substituting materials, alternate materials or jointly through qualifications, finding more cost effective solutions that we can share with them. It’s not just giving away margin and price or op-income, which we’ve worked so hard to justify our heavy capital expenditures. Howard Rubel – Jefferies: Oh Nick, I was not impaling that you are giving away. Anything given, given the lightweight and strength of the solutions you offered, what I was trying to stress was that you’ve probably learnt some lessons here and that’s probably helping you more competitively in a number of other opportunities and was hoping maybe you would point to some other successes elsewhere or even that you’ve been able to – its been able to lead to improved penetration at Boeing.

Howard Rubel – Jefferies: Just to follow-up, you invested a very significant amount in R&T this period. I think it’s probably the largest the company has ever invested in a single quarter. When might we be able to see some indications of success related to that or can you point to where you’ve sort of focused it?

Well, you could anticipate with the NEO and the MAX and the 777X and a host of other new programs. As we said before, anytime there is a new opportunity, whether it’s a new plane, new wing, new engine, we’re working on it. R&T can be lumpy depending on the development program and the specific testing and work we are doing with our customers. So it’s hard to predict exactly when that will flow through. It will depend on when we win and what we win on those respective programs. I’d also point out that we continue to invest in improving the productivity of our processes and equipment and that too can be lumpy as we break into production and do those testing and qualification efforts to improve the processes. Howard Rubel – Jefferies: Thank you very much Nick.

Thank you, Howard.

Our next question comes from Noah Poponak from Goldman Sachs.

Hi, good morning everyone.

Good morning Noah.

Hey Noah.

In the industrial business, what should we look for revenues sequentially through the rest of the year, compared to that first quarter number?

Yes, so Noah we obviously had a good start for the first quarter and obviously the first quarter of 2013 was low, so that was what made the comparison easier. I think as you look forward, we are not going to get quarter-by-quarter guidance, but we started the year with saying we expected both wind and industrial to be up in the mid-single digits and clearly we’re on track to hopefully exceed that number. But in the absolute dollar that’s probably not a big number with respect to the total company in terms of how much we exceeded, but we are hoping it will hold at probably the first quarter levels, but hopefully its higher than our initial guidance.

Okay, great. And in the space and defense segment, is that sort of similarly, maybe trending slightly weaker than the initial guidance, where maybe the comps are a little tougher.

Well, as we said before, Noah you know we benefit from a broad range for programs, which are lead by Rotorcraft, and that’s around the globe, including military and commercial. This quarter was down slightly from last year’s first quarter although up 8% from the fourth and primarily driven by Asian and some European helicopter programs, basically due to some normal lumpiness and supply chain timing. So obviously keep our eye on that, but our outlook really has not changed. We still see single digit growth for the year and are not changing our forecast on that. We are a little cautious with the decline in European and Asian helicopters and like I said, we’ll keep an eye on that.

Okay. Is it possible to update us on what the handful of largest single program contributors are to that segment now, on a full year run rate basis?

Sure, I guess that’s fine. I mean V-22 remains our largest program and it still is. If we are talking a few years from now it won’t be, but as of today it still remains our largest program. A400M is now our second largest program. After that you got a number of helicopter programs. The C-17 still hangs in there makes our top 10 and as we know that’s eventually going to go, but we expect that to go away next year and the other ones that are at the top 10 just remains the Joint Strike Fighter and the Eurofighter, that’s the main programs.

Great, that’s very helpful. Thanks very much.

Thanks Noah.

Our next question comes from Gautam Khanna with Cowen & Company. Please go ahead. Gautam Khanna - Cowen & Company: Yes, good morning.

Good morning. Gautam Khanna - Cowen & Company: A couple of questions. I guess first, you mentioned the Defense & Space, the helicopter programs. I mean, are you seeing any evidence of formal de-stocking or is this just more timing of orders they will recover later in the year.

So again we have numerous helicopter programs in the Space & Defense and in the U.S. actually they were up somewhat and we really do not see an impact of de-stocking or inventory correction as we saw a little bit of in the fourth quarter of ’13. Gautam Khanna - Cowen & Company: Okay, that’s helpful. Just in terms of uses of cash going forward, you obviously bought back quite a bit of stock in six months. Can you talk about the M&A opportunities out there if you see any and how big they might be?

So first, I again would like to remind everyone that our priorities have not changed and first and foremost it’s to invest in technology and maximize our content on new programs within our core business, that’s number one and we continue to do that. Number two, continue to look at the M&A pipeline and how we can enhance our offering to our customers to position us even better than we are today. So we really do not give specific with respect to targets and/or plans. I could just say we are mindful of the landscape. We stay current and are looking for the right opportunity if and when it presents itself. And last but not the least, returning money to shareholders. Those three continue and they are not exclusive. They are in total – that makes up our strategy to manage and basically manage our capital structure. Gautam Khanna - Cowen & Company: Okay. And maybe can you comment just a little bit about new growth vectors. I mean some of your competitors are trying to get bigger into the automotive space. Kind of what do you guys think about the automotive space and how are you positioned there?

Well, we’ve spent part of automotive; its part of our industrial segment. Again remember, industrial in total is about 14% of our total business. Just over half of that is wind. So that puts all the other segments, automotive being part of it, rack, sporting, a whole host of other industrial sub segments as pretty much a small driver to our top line growth. Having said that, we continue to invest in technology where we can identify sustainable competitive advantages and we’re doing that within the automotive segment, just like we’re continuing to do it in the recreation, in wind, and other portions of the industrial segment. Gautam Khanna - Cowen & Company: But this is probably not an area you would augment via M&A in terms of kind of – that’s not where the focus is on the M&A front.

Again, I’m not going to get into specifics in that. Again, our M&A would be focused on technology solutions for our customers and really when we talk about our customers, its where we can drive competitive, sustainable advantage; where we can offer technical solutions and I’m really not going to limit where that growth might be. Gautam Khanna - Cowen & Company: Fair enough. Thanks a lot guys.

Thanks.

Thanks Gautam.

Our next caller comes from KeyBanc, Mike Sison. Mike Sison – KeyBanc: Hey guys, nice quarter.

Hi Mike.

Hi Mike. Mike Sison – KeyBanc: This is the first quarter you added the NEO and MAX “new aircraft program commentary.” I know it’s early, but can you maybe talk about exactly what happened there? What your shipping relatively speaking and how you see those two programs peaking over the next couple of years?

So as a reminder Mike, our expectations are that ships of content will go up as much as 50% on the programs over the current models. Now NEO is obviously further along and we expect the content will be fairly firm within the next several months as Atlanta Production in ‘16. The MAX is a little bit behind that, entering service in 2017, so things are a little less secure and more preliminary on that program, but we still feel good about our forecast on the 50% incremental volume. Mike Sison – KeyBanc: Okay, great. And then a couple of your competitors have announced a new IM fiber, that for what its worth maybe claims to be at the level of your highest IM fiber. Clearly you’ve been – I think you’re the only one whose been expecting an aerospace application there, but any thoughts on your competitive advantage with these two new offerings.

Well we are always introducing new technology. I believe we introduced our IM 10 fiber a year or two ago. It’s been in the marketplace, so I really will let our competitors comment on their offering and what they are targeting, but we think we are in very good position. We continue to innovate and don’t for one minute think we’re standing still. Mike Sison – KeyBanc: Got it. And one quick one; just you’ve done a nice job at winning a lot of the A350. When you think about the 77X, can you maybe talk qualitatively your strategy there in terms of how you’re going to go after those applications? Particularly the wing maybe where you use your highest IM fiber, use similar technologies on the A350, any thoughts there?

Well, I will tell you, we will certainly propose the best technical solution for the application and I wouldn’t limit it to the wing, but the total 777X is obviously a position where the incumbents have very strong positions and when I say incumbents I’m talking about the aluminum guys and the other composite guys. Having said that, we think we’ve got excellent technology. We’ve got strong experience not only in the 777 aircraft, but the engines. GE9X will be a great engine with respect to the performance, as well as the new engine in the sale and it will build on the past success of the JV90. Keep in mind we’ve got the fan blades on the JV90 and I believe that our plane engine just hit 40 million hours of operation with excellent overall performance. So we’re excited about 777X. We remain very confident that we’re going to increase our content and again, other than that I don’t want to comment on programs that are still in development and being worked. Mike Sison – KeyBanc: Got it. Thank you.

Thanks Mike.

Up next we’ll hear from Yair Reiner with Oppenheimer. Please go ahead. Yair Reiner – Oppenheimer: Great, thank you. Just first maybe a quick follow-up question on that. Can you give us a sense of maybe what inning your in or Boeing is in, in terms of developing your offerings for the 777X and when you think you might be able to start hearing back on some of your proposals?

Well, I saw some news in the press the other day on the same question regarding systems and the basic electronic components on the engine. I think it depends. If you look at the plane, it’s scheduled to enter into service in 2020. There’s obviously long cycles and it will depend on the components, whether its engine related, cell related, primary structure related, secondary structure related. So I think it will happen over the course of time, but I’m really not going to predict when Boeing is going to make their decision or for that matter comment on our content until its secured. Yair Reiner – Oppenheimer: Can you maybe give us a sense of what in the year-end in terms of your development work for the RFP is?

Again, same comment; it varies. Again we’re working, keep in mind the engine in the cell contained composites and compost structures, as well as the aircraft, so it varies. Yair Reiner – Oppenheimer: Okay. On the A400M, what is the production rate right now and where does it peak and when?

Actually Yair, I just don’t remember off the top of my head. I know it will continue to grow over the next few years, but off the top of my head I actually can’t remember. Yair Reiner – Oppenheimer: Okay, are you kind of fairly early on at the ramp or are you getting towards the peak rates right now?

I wouldn’t say we’re getting near the peak, but we’re meaningfully into it. Yair Reiner – Oppenheimer: Okay great. Thank you very much.

Thank you.

Up next we’ll hear from Richard Safran from Buckingham Research.

Hi, good morning.

Good morning Richard.

Nick, I guess I wanted to ask you about this, the new seat that you’re developing with zodiac. There’s been a trend towards integrated interiors. I was just wondering how you’re thinking about this? Is this part of a larger initiative to integrate composites into the cabin interior? I know that you do have some other products in that area, so I’m just looking for any comment on how your thinking about this partnership with Zodiac.

Well Richard, I’m glad to hear that you’re attending the Interiors (ph) show, so I was very impressed with the display of Zodiac. I can tell you and you’ve already mentioned it, we participate in the interiors with Boeing and Airbus and others and have for a long time and we continue to look for opportunities to provide solutions that can meet weight reduction initiatives. The seat is one of those opportunities with Zodiac. It’s early in the program obviously. Clearly trying to find opportunities to minimize space and reduce weight and if you take the composites with the strength they offer and the weight reduction, its an ideal solution. So it comes down to cost rate, it comes down to the interior requirements with respect to FST and quick producing methods. Things like molding, which we continue to invest in and develop new products for.

Okay, thanks and I’m just going to try this. I know in the past you’ve been somewhat reluctant to speak about this. So on your share buybacks, I just wanted to know if you could maybe make a comment here about if how your thinking about maybe a new repurchase program, because Nick in deference also to the comments you made earlier, you know just beyond the $62 million current program.

Yes Richard, we really are going to stick to – we’re not going to provide any guidance on returning to shareholder, just like we can’t provide guidance if and when we get into an M&A. We will report on it on a quarterly basis after the fact and believe me, if something gets approved, you’ll be the first to know in our announcements.

Well, that’s fair. Thanks very much.

You bet.

Up next we have Avinash Kant with D.A. Davidson & Co. Please go ahead. Avinash Kant - D.A. Davidson & Co.: Good morning Nick and Wayne.

Good morning Avinash. Avinash Kant - D.A. Davidson & Co.: I had a few questions, the first one related to capacity. Could you talk a little bit about your capacity utilization currently and also in anticipation of the ramp in some of the key programs like Neo, MAX, Airbus 350, several of them ramping right now, how far do you think you have already built the capacity out? Like would you say that you have the capacity currently to meet demand upon through maybe 2015, ’16, how should we think about that?

Okay Avinash, there’s a few questions in there. I’ll try to hit them all. If I don’t, come back at me. So again, first remember, our assets for the most part are fungible or flexible. We make multiple products with respect to fiber, with respect to prepreg, so when we’re adding fiber capacity; PAN, carbon fiber or prepreg, you have to think of it as we only add it when we’ve secured programs and we’re in essence full on our existing capacity. Having said that, you also have to recognize, depending on the type of equipment it can be up to three years, from the start time until the time the products qualify in producing material off that new asset. So we have a wide range of products and processes and there’s not one answer that can tell you what our utilization is, but just know that when we’re investing and putting in new assets, our assets that are sitting there are pretty much being used. So let me just follow up, because I think you were getting at, if you think of A350 where are we with the investment? We do not give specific with respect to how much we’ve invested in the A350, but I can tell you A350 per Airbus is scheduled to be at rate in late 2018 and our CapEx spending and time that capital comes in place is aligned with that ramp rate. So we do not have all those assets currently available to produce that and that’s part of our continuous growth curve on our CapEx investment. Avinash Kant - D.A. Davidson & Co.: Right, right. So that’s where I was hoping to get a little bit more color if you could, because I know the ramp is from here to roughly next five years right. So what I was trying to figure out is that, how much ahead of the ramp you try to be, like six months, a year or two? Like when do you put capital? How much ahead of time you put the capital for the demand that you see?

I really do not want to get into how we ensure that we’re never short, because obviously being a sole source provider for many of these materials, that’s not an option. So I can’t tell you or I’m not going to give you a number, because it varies. I can tell you we’re always working to make sure we’re protecting our customers and their delivery requirements. Avinash Kant - D.A. Davidson & Co.: Right, right, right. Yes, okay. So beyond that the one other thing I had was, in the wind business you have started to see some improvement lately and I think you talked about the year-over-year growth. I believe the business was up sequentially to roughly – my math says roughly 10% or so. So how should we think of that sequentially for the rest of the year? Do you expect any improvements throughout the year?

Yes, so Avinash, one your math sequentially is in the right ballpark. In terms of the outlook going forward, again we don’t give quarter-to-quarter guidance, but we expect the first quarter levels to hopefully hold for a while. Our expectation is we ultimately get back to 2011 levels for when – remember after 2011 you had 2012 high and 2013 low and we’re on pace to actually exceed 2011 levels and probably that’s our expectations for this year. Avinash Kant - D.A. Davidson & Co.: And the final question, coming back to the CapEx itself, I believe you know if you look at the CapEx budget you have had over the last maybe 10 years or so, 2014 maybe the second highest CapEx budget you have had in the history of the company I believe at least for the last 10 years or so and then should we think of 2015 going up or down from current levels? At least qualitatively any color on that?

Well, to the next point it will just depend on what the build rates and the ramp up look like and we are not going to be short in terms of capacity to meet our customer requirements. So it will just depend on how quickly things ramp up. Avinash Kant - D.A. Davidson & Co.: Perfect. Thank you so much.

All right. Thanks Avinash.

Up next we have Ken Herbert with Canaccord. Please go ahead sir. Ken Herbert – Canaccord: Hi, good morning.

Good morning Ken.

Hi Ken. Ken Herbert – Canaccord: I just wanted to ask you a question on the guidance. I mean you didn’t change the full year EPS guidance. It implies about 10% for the next three quarters over last year, which is certainly lower than the average you’ve seen for the last few years. Can you just talk about some of the puts and takes your seeing from the earnings front, either from the market standpoint or what you see as maybe the top few swing factors or variables for the rest of the year.

Well Ken, we still feel good to deliver double-digit commercial growth. The programs we’re on, the predictable growth rates with the backlogs, give us confidence that we’re going to continue to deliver on the commercial side. As we said on the Space & Defense and you’ve seen it over quite a period now that we continue to deliver single digit growth and that’s based on our secular penetration in the Rotorcraft and just the breadth of our global product offering, so we feel real good there. Industrial is a little bit of the unknown and that you know we came off a record year in 2012. 2013 was very challenging, especially in wind with the production tax credit late renewal. There’s a big rebound in the first quarter as you saw 15% on the wind growth. So the question will be, where will the production tax credit go from the balance of the year? Will that affect the second half of the year and how will the global economy and the recovery impact the other industrial segments? So we remain optimistic, but we’re not at a point where we feel that we’re ready to change our guidance on the top line. Ken Herbert – Canaccord: Okay, that’s fair enough, but it sounds like from Wayne’s commentary earlier that you’re feeling pretty good about wind at, at least 2011, if not slightly better than 2011 levels. So I mean it sounds like you are feeling better about this business certainly after the first quarter. Would that be a fair statement, maybe relative to three months ago?

Well, that’s a pretty easy statement compared to 2013, so we’re optimistic. Again Vestas has done a lot of restructuring and comes in with a good backlog, so we’re feeling good. Ken Herbert – Canaccord: Okay. And then if I could; just on the A350, I understand the comments on the capital spending and you certainly don’t want to be late to your customer, but you don’t want to get too far in front from an investment standpoint. How should we think about margins on that program as the volumes ramp, assuming Airbus hits the targets they’ve talked about from a delivery standpoint.

So Ken, we’ve talked about that, the A350 margins won’t really change the overall margin for the company and remember again, we’re selling materials, we’re not making parts, so we don’t have huge learning curves. I think the only swing items is more, its not really A350 directed, but more just about when new equipment comes onboard and when the depreciation starts and the equipment is obviously not going to be full day, one, when you start a new line and you’ve hired and trained workers and as you go through that process. So any swings will probably be more caused by that than anything else. Having said that, we’ve been living with that for years you know and hopefully you never notice it. So I don’t expect any big swings to come. Ken Herbert – Canaccord: Yes, okay. And then just finally on that though, I mean clearly you continue to outperform from a margin standpoint. When you go back over the last few years, as you think about the curve on the A350, is there any reason to think maybe you can continue to do better on that program or where do we think about that program relative to company averages moving forward?

Well, we’re always continuing to push productivity and working to do better. Having said that, we are giving and providing guidance based on a learned rate or a rate and content app rate. So that’s built into our 23% incremental operating margin as we look forward. Ken Herbert – Canaccord: Okay, great. Thanks a lot and great quarter.

Right, thanks Ken.

Thanks Ken.

Up next we have Steven Cahall with RBC. Please go ahead sir. Steven Cahall – RBC: Yes, thank you. Maybe the first question just on the growth of the legacy aircraft in commercial Aerospace. Can you maybe talk about the growth rate there? It looks like it has eased a bit sequentially and is there any upside to that going forward or should we continue to expect it to ease as Airbus and Boeing hit sort of the full rate on most of their legacy programs?

Yes Steven, I think its just going to follow the build rates, that’s been publicly announced by both Airbus and Boeing. They’ve been tracking very well over the last several years to meeting their announced build rate increases. There’s still a few more left and so it’s really just following that. I mean I don’t see any big swings from that. I mean there’s always a little noise, but not huge amounts. Steven Cahall – RBC: And we’ve also seen some sequential slowdown on the new aircraft programs. Is there a potential for that to inflect again as A350 begins to ramp up or is the distance between what your shipping now and where the rate is going, suggests that we probably won’t see any sort of snap backs over the next say four to six quarters.

Yes, so if you look at new programs, we still have the A380 and the 747-8 in there. Those obviously aren’t growing anymore and so it gets a little bit hard to make statements with respect to the growth rate going forward. I think as you think about the 787, its now near its – there’s still a little bit of run rate as the announced increases to 12 and 14 a month, but its at its rate for the moment and so really going forward its about the A350 and then the NEO and the MAX as they kick in, so it really just depends on how quickly those things ramp up. Steven Cahall – RBC: Okay, thank you. And then just a follow up on the L3C. I was wondering if you could talk about how your looking at this in selling to SFE versus retrofit in terms of how the business model looks and could you give us any sense of maybe what your ship-sent content on aero body that has that L3C that’s on it?

Yes, we’re way early days in this and I think even the moment I thought it was much more of a concept than something that’s actually fairly far along, so its way too early and again, we’ll just be the material provider in this as opposed to the one waiting the sales parade. Steven Cahall – RBC: Okay, and then just a last quick one on the gross margin. Is there anything in the cost of sales that was a particular tailwind for you in the quarter? Anything in inventory that was particularly cheap and we might expect that to come down going forward or is that something where you feel pretty good about as a sustainable gross margin given where you are on the operating leverage?

Yes, I’m not sure about sustainability and I don’t mean that kind of negative, just the results depends on the mix, but I would say the quarter was pretty clean. There was nothing unusually that are good or bad in it. Steven Cahall – RBC: Okay, thank you.

Okay.

Our last question comes from Chris Kapsch with Topeka Capital Markets. Please go ahead.

Yes, good morning. I have some follow-ups on the performance in the industrials business and the contribution from that business. Historically the margins in industrial have been lower than I guess the corporate average. So I’m just wondering with the strong sales growth in the quarter, did the mix there add to or detract from the corporate margin performance, the overall margin performance.

Yes Chris, so we live in an incremental world here and we are comparing to the first quarter of last year, we’re in the process of sales going down and since that time we’ve made a lot of efforts to both cut costs and like I said, take costs out of the system. So when the sales come back, actually on an incremental leverage basis they contributed greatly this quarter. Now obviously they can’t sustain at the rate they did in terms of an incremental leverage number, but they’ve done a nice job of getting profitability back. So comparing to the first quarter of last year, well we look great.

And then I just want to understand the demand. Part of it just did the soft comp, but historically when there’s been periods of when the industry adds carbon fiber capacity since there’s kind of step change function and when the slugs of capacity and when that’s targeted for the aerospace applications where your expecting and there’s some time there. There’s periods of time when there’s fiber availability that ends up wanting to find a home in the industrial space and I just wondered if any of that’s contributing here to your growth in the quarter. Just you know you had some excess fiber. Maybe that’s ultimately going to find its way onto some commercial planes, but in the meantime its was convenient to develop some demand in the industrial applications or is it just simply a recovering demand across those end markets that you talked about.

It gets tougher and tougher now, because there’s so much competition for carbon fiber outside of aerospace. It gets tough and tough to take aerospace carbon fiber capacity and sell down to the industrial market, so I wouldn’t assume that that was an outlook for it or a big one.

Okay, fair enough. Thanks guys.

Okay, thanks Chris.

That concludes today’s conference. We appreciate everyone’s participation and we hope you have a good day.

Great. Thanks.