MOG.A (MOG.A) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Moog First Quarter Earnings Call for 2012. [Operator Instructions] As a reminder, today's call is being recorded and with that being said, I'll turn the conference over to Ms. Ann Luhr. Please go ahead.

Good morning. Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements. A discussion of these risks, uncertainties and other factors is contained in our news release of January 27, 2012, our most recent Form 8-K filed on January 27, 2012 and in certain of our other public filings with the SEC. We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our Investor Relations homepage and webcast page at www.moog.com. Bob?

Good morning. Thanks for joining us. We began these quarterly conference calls at the end of our fiscal 2000. At that time, our company sales were $644 million and in that year we made about $25 million in net earnings and our market cap was about $250 million. Over the years since then, I've had the opportunity to describe our quarterly results 45 times. One might think that after the first 20 or 30 times it would have become a bit of a chore to prepare the quarterly conference calls. But for me, it's always been an interesting challenge to describe the progress of our company. We have a great story, but sometimes it's not easy to tell because we're a company with so many facets. At any rate, I want to thank you all for your interest and your support. And I know that at least one of you has been with us since we began these calls and we particularly appreciate your interest, your support and your perseverance. I'm very enthusiastic about our new leadership team. I know that John Scannell and Don Fishback will do a great job and will work particularly hard to describe for you what's going on in our company. I expect that as we move into the future, the Moog story will only get better. So here's John.

Thanks, Bob. It's a real privilege to be taking over these calls from Bob. A very impressive track record he's had over the last 2 decades and we hope over the next decade, that the new team will be able to report strong growth and increasing shareholder value, just as Bob has done over the last decades. Hence, fiscal '12 first quarter is the first step on that journey. So before I get into the details of our results, let me start with some macro headlines and how they impact our business. I'll address 4 topics: the defense budgets, the European debt crisis, the slowdown in China and the U.S. economic recovery. Starting with the defense budget. The die is cast for fiscal '12, and we've already seen the results of the reduction in OCO [ph] funding, particularly in our Components Group. But apart from this, fiscal '12 seems solid. What happens over the next few months with budget proposal and how sequestration might play out in still unknown, but we're optimistic that we are on several key programs that will continue to be well-funded. We've been planning for a multi-year ramp up in our defense business driven by the F-35. The budget reductions may temper that ramp, but we are cautiously optimistic that we will still see growth. Turning to the European debt crisis, the crisis has yet to have a measurable impact on our business. The availability of credit in Central Europe and in particular Germany could have a negative impact on our machine building customers, but we have not seen this to date. Two significant drivers of our customers' business are the European Auto Industry and the demand from emerging economies. And so far, both of these seem to be holding up well. Turning to Asia, the recent slowdown of manufacturing activity in China has received some press. Over the last quarter, we've seen some slower growth in China, but there's often a seasonal effect in advance of the Chinese New Year, so we have to wait for another month or 2 to see how things turn out. In addition, many economists forecast that the Chinese government may take steps to boost internal demands. Finally, the U.S. economy seems to be on a slow but steady recovery path. In general, this is a positive effect for us reflected in our medical markets and in our general industrial automation sales. It's early days in the recovery and the pace is very muted, but we are seeing some encouraging signs in our business. So now back to the quarter. Turning from the macro to the micro, we're off to a great start for fiscal '12. First quarter sales were strong, and earnings per share came in $0.07 ahead of what we had planned. Four of our 5 segments had both sales and profit growth. Sales in the quarter of $601 million were up 8% on last year, net earnings were up 9% and earnings per share were 10% higher than a year ago. Taking a look at the P&L, our gross margin was slightly better on the higher sales, R&D was up $6 million in the quarter as we finished off the 747-8 certification program. SG&A at 16% was up marginally as a percentage of sales from last year. Interest expense was down from last year, driven by lower interest rates. Our tax rates in the quarter of 31.3% was up from 27% 12 months ago. In our first quarter last year, we had some tax credits, which did not recur this year. This quarter we had a slightly lower share count as a result of our share repurchase activity in 2011. The overall results with net earnings of $36 million at 6.1% net margin and earnings per share of $0.80. For fiscal '12, 90 days ago, we communicated our plan for fiscal '12. Our plan was to start relatively slowly and then see sequential improvements in earnings as we moved through the quarters. Today, we're keeping our profit forecast unchanged despite the strong first quarter but moderating our sales forecast slightly. So the earnings strength in the first quarter came from work we had originally planned for Q2. So our second quarter is apt to be somewhat softer than our last forecast. In addition, we've seen some significant shifts in exchange rates over the last 90 days. As a result, the translation of our foreign sales would be lower than we had planned. But we do not expect a discernable change in our profitability from currency movements. We're also starting to see some signs of slower growth in our Industrial businesses in Asia, so we want to be a little bit cautious in our outlook for those markets. Putting these factors together, we're moderating our sales forecast for the year by $37 million, down to $2.48 billion. We're seeing a slight uptick in margins in our Space and Defense group and in the Components Group. So net earnings should be unchanged at $152 million, and earnings per share of $3.31 are also in line with our last forecast. Before I jump into the segments, let me give you a heads-up about our format this quarter, which we have changed slightly from last year. Within a couple of our segments, we have rearranged some of the markets into categories, which we think will help our investors to understand better how our businesses work. We hope these changes will provide you with additional insights into the macro forces affecting our business. These changes are reflected in the supplementary data we published this morning, which will help the listener follow along with the text. I'll explain the individual changes as we move through the segments, starting with Aircraft. In our Aircraft segment, we had a very strong sales quarter with healthy increases in both military and commercial OEM. Our aftermarket in both categories was close to last year. For the year, we're lowering our forecast slightly to reflect our latest thinking in some particular programs. In order to simplify our presentation, we will no longer split out navigational aids, instead incorporating it into the military and commercial numbers as appropriate. Our year-over-year comparisons include this change for both Q1 fiscal '11 and Q1 fiscal '12. Aircraft Q1. In the first quarter, total aircraft sales were up 18% to $231 million, Military OEM sales surged 29%, driven by strong SMS sales on the Japanese F15, Korean T-50 and Indian Light Combat Aircraft. These are surprisingly strong in the quarter, and we had been expecting them later in the year. The F-35 program was also up as production continues to increase. We had $6 million more in sales in that program than a year ago. Military aftermarket was up 4% from last year. Fiscal '11 was a record year for our military aftermarket, and we're off to a good start for this year to at least match that record. Turning to commercial in the quarter, it's a similar story. Commercial OEM sales surged 26%, which strengthened all categories. Boeing and Airbus were both strong with double-digit increases from last year. The Business Jet Market had a very strong quarter, up 57% from last year. We're seeing the general recovery in this market and also sales are benefiting from the production start up of the G650 at Gulfstream. The Commercial Aircraft was down marginally in the quarter, we booked $26 million in sales, about in line with the average of the last 5 quarters. Over the longer term, increased use of the fleet will result in higher aftermarket sales but for the quarter, our sales tend to fluctuates. Aircraft for fiscal '12, for the year, we've reduced our sales forecast by $18 million. We're now forecasting military sales of $8 million lower than our last forecast spread out over a variety of programs. On the commercial side, we believe sales at Boeing will be somewhat lower, based on what we have seen in the first quarter. We're also adjusting our commercial aftermarket forecast down $2 million to reflect the run rate of the first quarter. Overall, our new sales forecast of $927 million is still up $76 million from fiscal '11. Margins. Margin in the quarter were 10.7%, up from 10.3% last year, higher sales on the SMS programs we have mentioned resulted in additional operating profit. We're on a multiyear journey of margin expansion in the Aircraft Group, but it's a slow process. On our future growth platforms, we are either in the preproduction stage, for example in the A350 and the G650, or in the relatively early stages of full production. For example, on the 787 and F-35. In both these phases, manufactured units tend to be expensive and hence margins tend to be compressed. Over the coming years as these programs mature and volumes ramp up, we're confident we will see some nice margin expansion. For this fiscal year, we're maintaining our margin forecast at 11%. Turning now to Space and Defense. Sales in the quarter were down 8% from a year ago with the difference being the DVE program. Excluding the DVE program, sales in the quarter were actually up 6% from a year ago. For the full year, we're increasing our sales forecast to incorporate the sales of our recent acquisition of Bradford Engineering in the Netherlands. We're regrouping the sales in this segment into 3 major markets to line up with our internal organization: Space, Defense and Security and Surveillance. For reference, the Space market includes satellites, launch vehicles and NASA. The Defense markets includes missiles and Defense Controls on military vehicles, and the Security and Surveillance markets includes traditional security applications as well as the DVE application. First quarter results. Sales in the quarter were $88 million. The Space market was very strong in the quarter, up over 30% or almost $10 million from last year. NASA programs contributed over half of this increase. But we also saw nice gains in launch vehicles and in our satellite programs. NASA pushed through a lot of work in the final month of calendar 2011 as budgets were still in flux and funding for approved programs was consumed. As we look to the future, we're seeing a shift in NASA's financial model, which will change the outlook for the remainder of the year, but more on that in a minute. Turning to the Defense markets, we have $4 million lower sales the quarter. As part of our missiles work, you may remember that last year, we had strong sales on our storage management program in the first quarter. This program was much smaller this year. The remainder of our Missile business however was strong and our Military Vehicle business was down only marginally from last year. Finally in our Security and Surveillance market, we had $11 million lower sales. We now include the DVE program in this market, and sales in that program were down $12 million from last year. So that was the change. For fiscal '12, Space and Defense for the year, Bradford Engineering should add $10 million in sales in our Space markets. Bradford is a supplier of space components based in the Netherlands and will provide us a base to expand our Space business in Europe. We're also changing the sales mix within the Space market. We're decreasing our NASA forecast by $14 million while increasing our forecast for other launch vehicles by a corresponding amount. We have learned that NASA is adopting a new approach to their work. Their spending is now based on available budget rather than driven by a fixed schedule to get a new launch system into service. As a result, we think some of the work we have been planning for fiscal '12 will move out into the following years. On the positive side, we have identified some new opportunities on other launch vehicles, and we believe this work will compensate for the NASA shortfall. In the other markets, Defense and Security and Surveillance, we're leaving our forecast unchanged from 90 days ago. Putting it all together, we're now forecasting fiscal '12 sales of $384 million. Space and Defense margins. Margins in the quarter of 14.4% were strong, but down from the 16.5% record quarter we had last year. Lower sales in the DVE program and our storage management application accounted for the difference. Given the strong showing in this year's first quarter, we're increasing our margin forecast for the full year from 11.7% to 12.2%. Turning now to industrial systems. Sales in the quarter were up 10% from last year. All our markets were healthy, with particular strength in our U.S. business. For the rest of the year, we're moderating our forecast a little to account for changes in exchange rates as well as some slower growth in our Chinese business. Similar to our Space and Defense group, we're providing a new grouping for our industrial systems sales. We believe this perspective will help our investors to understand better the major drivers on our business. We're presenting the business in 3 major markets: Industrial Automation, Energy and Test and Simulation. Industrial Automation includes our traditional machine vendor market such as plastics, metal forming, heavy industry, as well as a range of niche applications where we supply automation components and aftermarket services. Energy includes our Winds business, as well as components used on power generation equipment and sales into the oil and gas markets. Test and Simulation, as the name suggests, includes our sales of aero and auto test systems, as well as our sales for flight training simulators. Industrial Systems, Q1. Sales in the quarter were $158 million, up $14 million from last year. Sales in Industrial Automation were up 8% from a year ago. 60% of our Industrial Automation business is in Europe, and sales there remain strong. We've enjoyed 10 quarters of sequential growth in this market, and we're now seeing a leveling in demand. Turning to China, we are seeing some slower growth as companies conserve cash ahead of the Chinese New Year. Whether this is just seasonal behavior or a long-term slowing remains to be seen. In the energy market, our Wind business was up about $1.5 million and our Oil and Gas business was also up about $1.5 million this quarter. Wind in China was actually up in the quarter. Finally, the Test and Simulation market, we had a very strong quarter. Our Test business was up $2 million as a result of our work on the Indian automotive test facilities, and our Simulation business was also up nicely by over $4 million as demand for full flight simulators remains very healthy. Industrial Systems, fiscal '12. For the year, we're moderating our forecast by $30 million. Looking forward, the change in exchange rates relative to the U.S. dollar over the last 90 days results in a translation effect of about $20 million for fiscal '12. In addition, we cannot predict how the slower growth in Asia we saw in the first quarter may play out over the remainder of the year. So to be conservative, we're reducing our industrial automation forecast by a further $10 million. The net result is a new forecast of $650 million for all of fiscal '12. Industrial Systems margins. Margins in the quarter were 10%, in line with last year, while margins for the year are predicted to be 10.5% on our higher sales, up from 10% last year and in line with our last forecast. Now to the Components Group. We had another solid quarter in our component business with sales up 2% from last year. As in previous quarters, the strength was in the nondefense markets with defense continuing to weaken, albeit only marginally, compared with last year. As we look to the rest of the year, we're not anticipating much change from our last forecast. Components, Q1. Sales in the quarter were $88 million, up $2 million from last year. Within our A&D markets, which include Aircraft and Space and Defense, 80% percent of the business is related to defense spending. This includes military aircraft, military space applications and military vehicles. The other 20% is commercial, then 2/3 commercial aircraft and 1/3 commercial space. Total A&D sales in the quarter were $45 million, fell 8% from a year ago. The drop was all military related continuing the pattern we have now seen over the last year. Military aircraft sales were down 16% and Defense Controls were down 8%. As we've explained in the past, a range of upgrade programs associated with field operations have wound down over the last year to 2 years. Putting this trend in perspective, our Military Aircraft business peaked 6 quarters ago at $35 million in Q3 fiscal '10 and it drops to $23 million in this quarter. Our Defense Control business peaked 9 quarters ago at $20 million in Q4 fiscal '09 and was down to $10 million or half this quarter. We are, however, optimistic that we're starting to see a leveling in our Defense business, at least for the remainder of fiscal '12. And indeed, Q1 this year was actually up marginally from Q4 last year. The non-A&D markets were up 15% in the quarter. The strength came in the medical markets and in our industrial markets. Our Medical markets continue to improve as the economy continues to recover. Our Industrial business benefits from the additional sales from our Animatics acquisition, which we completed in the third quarter of last year. Our Marine business was up marginally from last year and continues to show strength in bookings that is on-track for a very strong year. For fiscal '12, for the year, we're staying with our sales forecast of 90 days ago of $372 million. We're adjusting the mix slightly within our Defense portfolio based on some individual program movements, but nothing of note. Margins. Margins in the quarter were a very healthy 17%. We enjoy the favorable mix, and costs came in slightly under plan. Based on the strong first quarter, we're adjusting our margin forecast for the full year to 15.5%. Finally, Medical Devices. Our Medical business continues to make progress with good sales and another profitable quarter. The story this quarter is, steady as she goes. The business is performing to plan and there were no hiccups in the quarter. For the year, we're anticipating the same story, steady sales and consistent albeit moderate profitability. In the first quarter, sales were $35 million, up 7% from last year. Pump sales were up 14%, with the strength coming from our international sales, primarily in Europe. In the U.S., sales of our IV pumps were down from a year ago as we work to build up our internal sales channel to replace the B. Braun network. We have our network in place and have completed all of the product training. However, given the sales lead time associated with new pump sales, we think it will take another couple of quarters before the full impact of the new team will show up on the sales line. Sales of administration sets were up marginally in the quarter, although down from the last 3 quarters. Quarterly sales of administration sets are a function of the installed base of pumps in the field, but also the inventory planning of intermediate players in the sales channel. Sales had been running a little ahead of what we had expected for the last few quarters, and in this quarter, reverted to a more normal level. The remainder of the medical business was about flat with last year. For the year, we are forecasting sales of $145 million, no change from 90 days ago. Medical margins. This quarter we had an operating profit of just under $2 million, a 4.6% of sales, this is above the average of the second half of fiscal '11 and in line with our plans. For the year, we're not changing our margin forecast from 90 days ago. We're forecasting margins for the year will be 3.4%. So in summary, putting it all together, we're now forecasting fiscal '12 sales of $2.48 billion, down $37 million from last, or from our forecast last quarter. Sales in Aircraft will be $18 million lower, although still up $76 million from fiscal '11. Sales in Industrial will also be lower by $30 million, reflecting the translation effect of foreign sales and some weakening of demand in Asia. Sales in Space and Defense will be up $10 million, as a result of the Bradford acquisition, and sales in the other 2 groups haven't changed from 90 days ago. Operating margins should be up slightly to 11.3%, so we are keeping our earnings forecast constant. Earnings per share of $3.31 are unchanged from 90 days ago. Q1 has been a strong start to the year, but some of the gains, as we mentioned, reflect some business we had planned in Q2. We're now forecasting quarterly earnings of $0.73 in Q2, $0.85 in Q3, and $0.93 in Q4. Now let me pass it to Don, who will provide some color on our cash flow and balance sheet.

Thanks, John, and good morning, everybody. Our net debt increased by $12 million during our first fiscal quarter of 2012 to $624 million, while our free cash flow was a positive $8 million. The $20 million difference relates mostly to the December 15 acquisition of Bradford Engineering by the Space and Defense Group that John described previously, as well as some foreign currency exchange movements. As you remember, our 12-month free cash flow forecast for fiscal '12 was $110 million. So it would appear that we're off to a slow start, but it is all timing, and we do expect our quarterly cash flow to return to more normal conversion levels as the year progresses. Specifically in the quarter, our working capital increased by $35 million. There are lots of moving pieces, and I'd like to single out 2 of the more significant items. First, invoicing on a particular military aircraft program went out a bit later in Q1 than we had expected due to some contract negotiations that were being finalized. And we should see that program's cash situation catch up in the second quarter. Also, our annual profit-sharing checks that we pay to our employees each year during the first fiscal quarter were sent out. We believe the remainder of the year's free cash flow will be much better on average, and we're maintaining our fiscal 2012 forecast of free cash flow at $110 million. Before leaving cash flow, I'd like to comment on a couple of balance sheet related items. Customer advances increased during the quarter by $18 million to $116 million due largely to late quarter invoicing on the military aircraft program. Loss reserves declined from the current quarter by $3 million to $42 million. Capital expenditures were $27 million in the quarter, on pace with our forecast of $105 million for all of fiscal 2012, and depreciation and amortization totaled $24 million in the first quarter. And we're now thinking that D&A will come in closer to $104 million, down just slightly from our last forecast. Regarding pensions, last quarter we described how we accelerated the payment of our fiscal 2012 U.S. defined benefit pension plan contributions into fiscal '11's fourth quarter. So in Q1 of this year, our global DB plan contributions were only $2 million, while our expense was $9 million. We're currently estimating our full year 2012 global DB plan contributions and expense to be $8 million and $35 million, respectively. Turning now to some of our financial ratios. Our quarter-end net debt as a percentage of total cap was 33.7%, slightly better than the 34.8% from last year's first quarter. Our leverage ratio was 1.92x, and we currently have $542 million of unused capacity on our $900 million revolver, which terms out in 2016, so we have plenty of capacity. Regarding acquisitions, we continue to actively look for strategic properties that will be a good fit with our core business. Our effective tax rate in the first quarter was 31.3%, up from last year's 27.0%. Last year's rate was favorably enforced by a U.S. foreign tax credit that is no longer available as the tax laws have since changed, and by the reporting of a catch-up adjustment for R&D tax credits due to delayed passage of legislation that took place in 2010. We're forecasting our effective tax rate for all of fiscal '12 to be 30.3%, unchanged from our last forecast. As John summarized, we believe we're off to a solid start in a year that should produce a 6% increase in sales to $2.48 billion despite some noticeable currency translation headwinds from a stronger U.S. dollar. Year-over-year, operating margins should improve. Earnings will be up 12% to $152 million, and we think our free cash flow conversion for a growing company will be respectable. Although we're very aware of rainclouds on the horizon in the form of U.S. defense spending pressures and global industrial economic uncertainty, we're confident that we made some good strategic decisions that position us for solid long-term growth and improving financial performance. Now, I'll turn it back to John for any questions and answers.

Thanks, Don. And I'll turn it back over to John to host the callers and give instructions for asking questions. John?

[Operator Instructions] And we'll go to Julie Yates with Crédit Suisse.

So a couple of questions on commercial aftermarket. First, just within the quarter within the flattish aftermarket performance, did you start to see any of the initial 787 spares provisioning?

Yes, there's a small amount of that Julie, and we had plans to have -- there is a plan to have various IP throughout the year, but it's a little bit slower than we had anticipated and of course, I think that lines up with the delivery slowdown that Boeing has seen. So...

Okay. Okay. And then so what's the actual percentage increase that you're looking for now, I believe it was 9% before?

Year-over-year?

Yes, and whole year.

It's about 6%.

Our next question's from Cai Von Rumohr with Cowen and Company.

So why is your Boeing -- your Boeing sales are coming down, is that the 787 or is that other program?

I think you're talking for the year, Cai, are you?

Yes.

Yes, it's actually -- it's a combination of both. There's a little bit of reduction on the OEM side, and that's really just a reflection of what we have seen in the first quarter. It's still -- our plan is that it will be up 9% from fiscal '11. So perhaps our first number out of the box was a little bit more optimistic than we thought. And there's a little bit of reduction in the 787, again, I think that schedule there has been moving out a little bit.

Okay. Would you share with us approximately what sort of build rates you're at currently? And when do you expect to increase that on the 87?

Our anticipated, well, I mean we'd match of course with Boeing's production schedule. But we're thinking that this year it'll be about 40 units on the 787, that's kind of our plan for this year and then kind of ramping up over the next couple of years.

I mean, is that flat throughout year, or at what point do you lift your rate?

Well, I mean our rate will be a gradual increase. So it's not as if from one quarter to the next we go from 2 ship sets to 3 ship sets, and the timing of orders and Boeing's schedule is very hard to connect that back from their delivery of airplanes directly to our production facilities. So I would describe our production ramp will be a gradual production ramp over the course of the next several years rather than we go from 2 to 3 to 4. I think on average if you take a quarter this year versus a quarter last year, we'd be at a higher rate. But I don't think you should think about it as we're going from 2 ship sets to 3 ships sets in -- from quarter 2 to quarter 3. So last year, we shipped about an equivalent of 25 ship sets to Boeing, and this year's it's 40. And of course, you got to keep in mind that if we shipped 25 last year and Boeing delivered 3 airplanes, there's an enormous amount of inventory in the channel already, and that again makes it difficult to connect Boeing's delivery of airplanes directly back to our ramp rates.

Absolutely. And then in Medical, help me understand why you did a 4.6% margin in the first quarter and you're only going to do 3%, 4% for the year.

I think I -- we would prefer to do a little bit better rather than a little bit worse in Medical. Our number may be a little bit conservative. Having said that, we've got 3 quarters under our belt of moderate profitability and at this stage, I wouldn't like to get ahead of myself and suggest that it's going to continue to improve for the year. The business is solid, but there's nothing significant that will change over the next year. We have some sales, as I said, hopefully in the latter part of the year that may come in from the IV pumps as that sales channel starts to build up. But I think we'd like to stay conservative in our Medical business and meet that forecast rather than disappoint, so...

Okay. And then maybe and last question as well. So why is the second quarter down from $0.80 to $0.73 and maybe give us some color on kind of the quarterly patterns you see for the year?

Yes. So while the quarterly pattern that I mentioned is -- so $0.80 in the first quarter, $0.73 in the second quarter, $0.85 in the third quarter and then $0.93. And you...

Yes, but the question is why the $0.73 and the...

Yes, I understand. If you go back 90 days, we had said that we would do $0.73 in the first quarter and then $0.76 and ramp up from there. And our first quarter came in $0.07 ahead of what we anticipated and as I mentioned, that's SMS sales that we had forecasted for the year, but they just came in very strong in the first quarter and we could get product out. So $0.07 of earnings per share came into the first quarter and essentially came out of the rest of the year, and 3 of those came out of the second quarter, that's our estimate. So that's why it goes from $0.76 back to $0.73.

Could you give us maybe the sales by the second, third, and fourth?

No, we don't specifically do that, Cai.

Our next question's from Eric Hugel with Stephens.

Can you talk about sort of where things stand in terms of R&D spend, I guess relative to your prior plan for the 787 and the A350? And has there been any impact to the program because of the recent -- the A350 delay?

Yes, our R&D plan for the year is pretty much -- it's actually the same as last year, it comes in just under $120 million, and there's tiny shifts the plan for the 87 just as people are planning to true that up coming out of the first quarter. But again, it's in the nines, so the 87 is a kind of a $4 million to $5 million pad, the 350 is the kind of $35 million to $40 million. And those numbers have stayed pretty much flat for this quarter from last quarter. So no change of any significance from what our plan was.

And you haven't seen any impact in terms of timing of work statements because of the A350, Boeing?

I think what will happen, as happens on all programs, is not that it's an additional ramp in our spend now, it just means that you continue to spend until the program gets into production. So it isn't that we would see a significant ramp now, it's just that the ramp down that we would be anticipating out a year, 2 years, that ramp down may start to be pushed out a little bit, so you end up spending in total some more money on the program. Now you try to moderate that as best you can, but generally speaking, as programs go longer, the spends continues.

Sure. Any update on, I believe you're still trying to get, was it a large volume pump in the medical business through the FDA, any update there regarding the certification?

No. We said last quarter that it's -- that's -- we need to do some redevelopment work on it. We did some testing on it, market testing. It turned out there was some things that we determined were not what we would like. We're going through a cycle of development work on that, and then we will have to submitted to the FDA and as I said a quarter ago, that's not going to be a fiscal '12 event. Hopefully it'll be a fiscal '13 event, but it depends on an FDA process that unfortunately right now, we and I don't think any other company fully understands because they've just changed the rules, but nobody has actually got new pumps through that process. So how long that process might take, whether it's 9 months, 12 months or 18 months is an unknown, and I guess we'll have to see as that unfolds. So it's not a '12 event.

Did you see that from just an industry perspective that sort of all the players are kind of stymied in terms of getting new devices through?

Definitely in terms of the pumps, word is that's absolutely the case. How it affects broader medical devices, I don't have a lot of information on that, but in terms of the types of products that we're in, the flow of new products to the market has dried up dramatically, I think, over the last couple of years because of the heightened FDA scrutiny on this particular segment of the market.

Fair enough. And Don, can you just maybe give us some numbers in terms of what you guys are expecting for '12 in terms of your corporate overhead, stock comp and interest expense?

Sure. For 2012, I think you asked for 3 numbers. I'll see if I can pick them out. Interest is forecasted to be about $35 million, consistent with where we were last quarter. Our corporate expenses are up just slightly $21 million, it's close to where we were last quarter. And then our equity base comp is forecasted to be $6.6 million for the year.

Our next question's from Mike Ciarmoli with Banc.

Just if I could focus maybe on the military side, it looks like, I guess your $35 million forecast hasn't really changed. In light of what looks to be a reduced production or reduced deliveries to your, kind of laid out yesterday, what sort of risks you guys are seeing around that number if any?

Well, I think fiscal '12, our fiscal '12 was run through the end of September. I think that's fresh. I mean I think the -- what came out yesterday is looking out fiscal '13 and beyond. So I think we're feeling pretty comfortable that nothing's changed in our fiscal '12 plan. We're in over 4 [ph], and I think that's -- that looks pretty good. Clearly as we look out over the next few years, we have been planning a ramp-up in our F-35 sales and that ramp up will now be tempered by what came out yesterday. So that will mean that we have slightly slower ramp-up in sales than we had been hoping for. Not that we've got capital or excess people or anything like in place that we would have to try to reduce. The real positive for us, though, over the last 2 weeks is the fact that the [indiscernible] got out of jail. I mean, essentially, that's given the go-ahead now. And that's a very important program for us because we have almost twice the content on that then we have on the other 2, and the fact that that's got the go-ahead, I'd say it's more positive news for us than the news that came out yesterday, which indicates the ramp up will be somewhat slower. The Defense Department did say that they're committed to the full program and today, the total 2,400 airplanes, and that's great news. So if it takes a couple of years longer to get up to a full raise, then I think we can deal with that.

Okay, that's a good data point. Is there -- does the slower ramp impact what you guys were looking at in terms of your profit booking rate or margin assessments there?

No, no. Again, not for fiscal '12.

Beyond fiscal '12 perhaps?

Well we don't book margins or profit rates beyond fiscal '12.

Okay, and then just if we -- just to follow up, maybe, I think Cai asked it on the R&D. I know you guys have really been spending a lot on some of these bigger programs. Looking out, not maybe this year but beyond maybe 2 years, 3 years down the road, is there the expectation that you may see the R&D holiday and the aircraft control margins can start to tick back up? If that's the case, what are sort of some of the big drivers there? I mean, does it hinge on one program like the A350 with that R&D winding down? Or are you guys looking out and see enough opportunities in the pipeline where this R&D level might just be sustained?

No, I think if you look out a few years, we do anticipate that R&D will come down. It will definitely come down as a percentage of sales just given the ramp up on the sales line. I suspect it will also, even the dollar amounts will start to come down as some of the very big programs like the 87 and the 350 are behind us. There aren't any major new starts that we can see at the moment that kind of match that level of spend that we've done on the 350 and the 87. I mean, there's -- there may be some opportunities for a surface [ph] or 2 on the 777 or the 320, but there's not full scale redesign of those airplanes. And there will definitely be some other smaller jobs perhaps, regional jet or business jet opportunities that I'm sure will come along over the next few years. And it's important, of course, to keep a level of capability in-house that we've dug up over the last year so not lose that capability before the next major overhaul comes along, whether it's the 777 or you pick it. So I do think R&D as a percentage of sales will clearly come down probably in the dollar value, it may be constant or may -- it will probably come down a little bit, and you will see that margin expansion both from the reduction in R&D, but also from improving margins on the production programs. As the production starts to ramp up, we get some units under our belt and we start to get the costs better and under control.

Great. And the just last one, maybe Don, share count for the remainder of the year, given the buyback, how should we be thinking about that?

We've got, in our model, we've got an estimate of 45.8 million shares.

[Operator Instructions] And to the presenters, no further questions coming in.

Well, thank you very much indeed for your time. Thanks for joining us. And we look forward to speaking with you all again in 90-days time. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.