Ladies and gentlemen, thank you for standing by and welcome to the Textron Second Quarter Earnings Call. At this time all participant lines are in a listen-only mode. Later there will be an opportunity for your questions. [Operator Instructions]. And I would now like to turn the conference over to Doug Wilburne, Vice President of Investor Relations. Please go ahead.

Thanks, Leah, and good morning everyone. Joining me today are Lewis Campbell, Textron's Chief Executive Officer and Ted French, Textron's Chief Financial Officer. Before we begin, I'd like to mention our discussion today will include remarks about future estimates and expectations. These forward-looking statements are subject to various risk factors, which are detailed in our annual SEC filings and also in today's press release. Finally, you can also find a slide deck containing key data items from today's call in the IR section of our website. Revenues in the quarter were $3.9 billion, up 21% from a year ago. Earnings per share from continuing operations were $1.03, up 21% from $0.85 in last year's second quarter. Relative to our updated guidance, which specified a range of $0.93 to $0.98, the factors that contributed to the $0.05 performance above that range were two additional jet deliveries and stronger performance at Cessna and AAI. Free cash flow through the first six months was $221 million or $220 million compared to $145 million in '07. With that, I'll turn the call over to Lewis.

Thank you Doug, good morning everybody. Even in the midst of prevailing economic weakness and challenges in our finance segment, we achieved another solid overall result this quarter, and we continue to build backlog for our future, which is also important. Before I dive into the details, I would like to go back and review what our initial economic assumptions were coming into 2008. I'd say our world has changed a bit, and I want to update you now on how we're thinking about the balance of the year and beyond. In January, back then we were expecting modest world economic growth with commodity prices remaining at what was perceived to be back then pretty high levels. In United States, credit and housing issues were expected to result in a mild downturn with soft corporate profits at least mid-year. Well, as we all know, since we first discussed our outlook, oil has been up by over $50 per barrel versus end of your last year and other commodities are up significantly as well. This is having a direct impact on us to increase cost particularly in our Industrial segment. Higher commodity costs have also further stressed the U.S. and global economies. Nonetheless, strong performance in our Aircraft and Defense businesses, the size and resiliency of our backlog and the actions we are taking give us the confidence to maintain our overall outlook for the rest of the year and beyond, a key point. So, let's take a closer look at what's going on in each of our businesses, and what we think it says about our future. I'll start with TFC, where we encountered a number of late quarter developments. Before I do that, I like to revisit what I said on our call in April, when we discussed the…

Thanks Lewis and good morning everyone. We appreciate you being here with us. I want to start with a few comments about the economic environment. We're in an unprecedented territory with the current price of oil and other commodities, and there appears to be no clear consensus on whether these rates represent some sort of bubble or if this is a new systemic level based on supply and real demand. And as a result, where prices are going to go from here. On the other hand, we are also entering a new world era with many emerging economies now consuming our products. The upshot is that while we expect some uncertainty for some period of time, plus contraction in demand in some of our markets, we believe our long-term outlook is very positive. Now, let's move on to our analysis of what drove second quarter results. Earnings per share from continuing ops were up $0.18 from a year ago. Volume and mix provided $0.19, higher pricing of about 3.2% added $0.29 a share, while inflation also about 3.2%, cost us $0.23 a share. Performance across our businesses was a positive $0.19 and acquisitions provided a benefit of a penny. Headwinds from engineering, research, development and depreciation cost $0.12 and Textron Financial was lowered by $0.15. So, let's start our normal segment discussion this time with Textron Financial. Revenues at Finance were down $62 million in the second quarter, primarily due to lower market interest rates and a decrease in fee income which reflected last year's $21 million gain from the partial sale of a leveraged lease, offset by about $5 million in higher securitization gains this year. Revenues were also reduced by the Sale-In, Lease-Out issue we announced last month. Profits in the Finance segment decreased $55 million due to…

All right. Thank you, Ted. Now, I'll begin with our third-quarter outlook. At Cessna, we are expecting revenue to be approximately $1.5 billion with margins of about 16.5%. Our expectation assumes jet deliveries in a range of 120 to 125 for the quarter. At Bell, we are expecting third-quarter revenue of around $570 million with margins of about 8%. These revenues reflect delivery of two V-22s, two H-1's and somewhere between 40 to 45 Commercial helicopters. At D&I we are expecting revenue to be about $545 million with margins of about 9.5%. This forecast reflects about 150 ASVs. Industrial revenue was expected to be approximately $900 million with margins at about 3.5% reflecting normal summer seasonality at Caltex. Finance revenues are projected to come in at $175 million plus or minus with the segment profit at about $30 million. Now, for the full year, for Cessna, we're expecting still '08 revenues of about $6 billion, but we slightly bumped full year margins to about 17%. At Bell, we're also reconfirming our revenue projection of around $2.6 billion with margins up about 9%. While this margin is up from our previous full year guidance of 8.5% when you work through your models you'll see that second half margins are expected to be down from the first half. Primary drivers here are positive program adjustments booked in the first half and higher expected R&D spending in the second. At D&I, we're still on track for revenues of about $2.2 billion with margins of about 11%, up about 100 basis points from our previous guidance. D&I margins will also be a bit lower in the second half on a sequential basis due to the non-reoccurrence of favorable program adjustments. At Industrial revenue, still expecting about $3.7 billion with a lower margin expectation of about 5% now reflecting the higher commodity costs that we spoke about before. Finally, at our Finance segment, our new outlook is for revenues of about $750 million and we're pegging profit for the full year now at about $130 million. We expect interest expense of about $120 million and corporate expenses of about $220 million. Our full year tax rate is expected to be between 32% and 33%. Finally on the call with TFC coming up on August 6, we'll be issuing a notice with all the calling information for that, but you may want to note your calendars that we'll begin that call at 4:00 p.m. Eastern. In addition to Ted and me, we'll also have Jay Carter, President of TFC, Tom Cullen, CFO, and Angelo Butera, Chief Credit Officer at Textron Financial. So with that, that concludes our prepared remarks. Before we go to questions, I'd like to ask each of you who queue in to please limit yourselves to one question with an optional follow-up. And with that, Leah, we are now ready to open the lines for questions. Question and Answer

Thank you. Ladies and gentlemen, [Operator Instructions]. And our first question is from the line of Jeff Sprague from Citi Investment Research. Please go ahead.

Thanks, good morning everyone.

Hey Jeff.

Hi, Jeff.

Hey, I guess the fundamentals are what they are Lewis, but everybody's kind of scratching your head here today, right. The stock got rattled with this guidance heightened late in the quarter, you beat that and now we've got, kind of Q3 guidance where the margins need to be down year-over-year and sequentially in every business. It just kind of begs the question of, the type of visibility you really have into the business, and I guess I’d like a little bit more understanding of why the margins would be down sequentially across the board Q2 into Q3?

Well, let me tackle the margin piece specifically, and then Lewis can add in if he wants to on the visibility questions. The largest answer to that is the continued ramp-up of R&D development and that's the primary driver at Bell's business. When we put Dick in there, he turned down some of the investments for a period of time to make certain that he was comfortable with all the product development programs, and where those programs were going. And, that's starting to come back onstream. And in the second half versus the first half between IR&D and SG&A we would probably have about a $40 million growth in that investment. And those are all investments we think are critically important to the future of the business, and are driving the organic growth for many, many years to come. But, there is a bit of a... the timing factor between the first half and the second half. On the Cessna side, it's somewhat the same, but there is... it's also compounded with some product mix. We're ramping up more Mustangs in the second half, more single engine, there is more revenues coming out of CitationShares, and perhaps most importantly, we'll have a much larger used aircraft sales coming through in the second half, which essentially have no margins. So, there is nothing going on there with the fundamentals of Cessna's performance. It's really a mix of sales, and then likewise, engineering development costs for the second half for almost $30 million higher at Cessna than in the first half. So, I would say there is nothing fundamentally different. It's really just a normal ebb and flow of how things get timed through the course of the year. We pushed hard to get some deliveries out there in the second quarter that could have just as well happened in the third quarter. So, nothing that's fundamental.

And the thing I would add Jeff is, if you've… I tried to make this point, maybe I didn't do it as well as I could have. But, if you think about where we were at the beginning of the year, and we've taken guidance up once already this year, and the fact that oil is up basically 50%, $50 a barrel, probably a little more than that. And the fact that the global economy has certainly not gotten any better to say, to make a simple comparison versus year-end of '07, but I think our company has shown great resiliency, and as I've said a couple of times on calls in the past, it's certainly interesting to note and should give our Investors confidence that so much of our business is very solidly locked in this sector growth that doesn't relate to the economy. You take Bell, you take Cessna, you take Defense and Intelligence, those businesses are so solidly positioned, and you really don't read anything these days that says anybody has got a better position in any of those markets than we do. So, I feel very good about Textron right now and our future as a matter of fact. So, and our backlog, needless to say, is certainly very strong. I can say that with a smile. I've never felt better about our backlog and that bodes well for our future as well.

And I guess, as maybe a sign of that confidence, I mean there was some share repurchase in the quarter. But, it was this quarter a year ago that you guys raised a dividend, and announced a share repurchase, why not step it up here in the phase of a very weak stock and a lot of uncertainty in the outlook among Investors?

No, we're being very tactical in that regard and we did step it up very significantly for the period of time we were able to be in the market right at the end of the second quarter. We're balancing that against the fact that we made certain commitments, when we acquired AAI that we would rapidly get the balance sheet back to where it was before that acquisition, and we are way ahead of schedule on that and we have essentially gotten there in two quarters versus the four quarters that we originally talk to the rating agencies about. So, we've got to balance that. We have to also balance the fact that there are some liquidity concerns out there in the market. We have not had any real problems, but we want to be sure we don't have any problems as well, but I think you can continue to expect us to be very tactical in our execution and we certainly like the stock at the price right now as a buyer.

Thanks.

And next we move on to the line of Steve Tusa from JP Morgan. Please go ahead.

Hi, Steve.

Hi, good morning.

Hi, Steve.

Good morning.

What's the... can you just maybe talk through Brazil, what gives you the confidence in your TFC projections given the volatility you have seen lately maybe... and a little bit more detail and that we can get more, I guess, on the August call, but just at a higher level?

Well, we started a... let me just start by saying there is a lot of uncertainty in the markets that are out there, it would be naïve to say otherwise, but we've spent the latter part of this quarter as we start to see some things coming up doing some very deep dives into some of our businesses and really all of our businesses and doing it with some independent reviews where we send people from different businesses and to look at other people's businesses as opposed to their own to try to get a unbiased, unvarnished view of what could happen and we've run a whole series of models and scenarios around great environments and around potential charge-offs in each of the businesses, potential non-performing assets in each of the businesses and we've taken the number down pretty aggressively and we've taken it down to a number that we think is the most likely case right now. But, I still say that also with the confidence that whichever way TFC moves around and I think we’ve put the number in at a guidance that's the midpoint. The range of guidance for Textron in total is still quite significant between $3.80 and $4 and we have high confidence that that’s what we're going to deliver in the end if TFC is a little better or a little worse it's not going to take us off that march.

Okay. And then maybe could you just walk through a couple of the puts and takes and a little bit... quantify them a little bit more on the Bell and D&I side with regard to the margin stepdown in the second half of the year looking at the volume projections. It just looks a little bit conservative, but you talked about program adjustments, there are a lot of moving parts, maybe could you just step us down… help us step down to that level in the second half?

Well, I think, at D&I, it's primarily program adjustments we did over the course of the first two quarters, close out the first two original large lots of ASVs and those both closed out with substantial profit pickups as a result of our continuing learning curve performance on that program as we move into later lots where we had the benefit of longer history and better estimates. We have some potential, I wouldn't say there is none to get some additional good news on those lots as they progress. But, right now we are not projecting that we'll have the same big program pickups on those that we’ve had in the first half. And that is the... that's the primary driver. Could we have…

How much was that in the second quarter?

How much was the ASV pickup in the second quarter?

Hang on, one second, we’ll try to find that. And then, let me keep going and we'll come back to that. In Bell, it is primarily, this year I think I really already gave the answer to which is the way that they have chosen to hold down the IR&D that we've given them as an approval for the year in the first half and some other development... global development expenses in SG&A and those two things are… it's almost exactly 40 million higher in the second half than the first half and that's the primary driver. We also had some net small pickups on program reviews at Bell in the first half that we are not projecting in the second half but that's not as significant as the ASV pickups.

Sorry, what was that ASV pickup again?

We're still trying to get that number, hang on a while.

All right. Thanks a lot. And then one more question is…

The answer is $8 million in the second quarter. C. Stephen Tusa – JPMorgan: $8 million. And then one more question is, what are the gating factors for that, Cessna production target next year, I mean, is that kind of an inflexible number given the supply constraints or how much variability do you think is around that number, if you have a pretty precise number as opposed to a range?

Well, Steve I think that number is pretty solid. We continue to work with our suppliers, which are the primary gating factors really, I mean, there is nothing inside our facility that keeps us from producing more aircraft. As we tried to explain over the call... during the call, in our conversation before we did the Q&A. We've looked at about every possible way you can stress the backlog, you can create whatever economic situations you want in the U.S. or outside the U.S. and our take on seeing increased production in '09, '10 and '11 is very solid. Second, on next year, there is not very much going to get in our way on that number... I mean I... right now we don't see anything that's a bottleneck or a gating factor or I would be disappointed if we don't beat that a few... but we’ll have to see about that.

Okay.

Our customers would love us to get a few more than that and we are…

Right.

We're working hard for them to try to do it, but we have to rely on what commitments we can get out of our supply chain partners.

Okay. Thanks.

Yes.

And next we go to the line of Shannon O'Callaghan from Lehman Brothers. Please go ahead.

Hi, guys.

Hi, Shannon.

One follow-up on the Cessna production, I mean, Lewis, your comments about the expected pace of orders and obviously at some point to have to moderate from the pace they have been at. But it sounded like, you were viewing that less as a impact of the global economic slowdown and more as a function of how little availability you actually have in the jets given your backlog, so, I guess I am a little surprised you wouldn't really be pushing even harder to take production rate up, if you actually think they are going to see an order impact from lack of availability?

Yes. Well, I think I've done this on a couple of calls, but it's been about a year since I have done it. So let me tell you how this number rolls up, because I have been here since 1992, so I have seen the planning process so to speak upfront and personal. We really don't set the total number of jets to produce, let's say, 530. We don't really set that number that way. We take a look at each individual model, we project a five-year run rate and then we look at at what point should we announce a block point change or a replacement model for that particular model. And some models run for 20 years and some run for 15 and some run for 10. I'm trying to think how long the Citation 10 has been running, but it's well over 10 for sure, and probably bordering on 15. So my point is that what 530 is, it's an accumulation of the volume... annual deliveries for each one of the individual models. And of course we do have pent-up demand, there's no doubt about that. And we're trying to predict as best we can how to have sustained increases in volume without up one year, down the next, up one year, down the next. And if you think about it, we've increased our annual production every year since 9/11 at a fairly specific and fairly constant rate. So, Shannon, I'll have to tell you I... could we make more? Yes, we probably could stress the system and make 560, well, we could. But then again, what that does is, then if we had to slow down, we have to lay people off and we have to move production around... sorry, employees around based on seniority. And so what we've developed is a model of production that I think is superior to anybody else in the industry. Our quality is fabulous, our customer satisfaction is super, our employee workforce is just in a great shape, more outlays, I just don't anticipate us going to 600 and back to 500 one year. I think we're going to keep the same balance and we're going to try to moderate the lead times in some of our models and we're going to do that the best we can. But again, staring at what some people think is an uncertain future to make a statement that we're in increased production in '09, '10 and '11, that's pretty damn solid statement. So... and our customers are happy with us too, so… as evidenced by the order intake we've been receiving. So I'll give you another whack at it if you want, but that's my view on it.

Yeah. Now I just say with 3.5 times backlog as you were saying, it seems like there's some room to take it up unless... I mean, you mentioned it's illogical but it assumes the cancellations, I mean are you seeing anything on that front incrementally that keeps you cautious enough?

I would say, yes. With everything that's been written about this time would be, real frankly, as everything has been written about the slowdown in business jets, the cycle is coming at us. We have had two, one, two cancellations and most of those have been discussed with customers too which said, can you do us a favor, these are not business failures, these are not guys who have gone bankrupt and that business has gone underwater, these are two good customers we decided to move some from year one to year two. And by the way had an effect of those because we have people ready to step up to take those jets. So, we really only have two this year-to-date, very low number.

This is really more driven by making sure the overall supply chain works efficiently and that we can get commitments from our suppliers, as well as internally, we've broken most of the internal constraints. We still have some more capital to put in to get to the level that we think we're going to need to be at five years from now. But, in the next year it's really what do we think we can get committed from our suppliers, and safely and efficiently build, and when we try to stretch it a little too far we get all kinds of inefficiencies in our system.

Okay. And just one more follow-up on the quarterly guidance pattern here. I understand some of the points of first half versus second half things ramping, but I mean you do have... Bell then implied to go back up in margin sequentially in the fourth and same with Cessna, is there anything in the 3Q in particular that makes it fit all... even more in one quarter?

No, there was some... they shipped some units in both cases a little bit in the second quarter that had previously been in the third quarter expectations, so there was a little bit of move there. But, let me step back and say... when you normalize our business, the percent of EPS we have forecasted in this third quarter as a percent of the full year is dead on our normal performance. And the third quarter is always the challenging quarter for our businesses and if you take over the last decade what is our normalized earnings in the third quarter as a percent of the year, we’re right at it.

Okay. Thanks a lot.

And next we go to the line of Nicole Parent from Credit Suisse. Please go ahead. Nicole M. Parent - Credit Suisse Securities (USA) LLC: Good morning.

Good morning, Nicole. Nicole M. Parent - Credit Suisse Securities (USA) LLC: I just… not to nitpick, but I just want to get a sense, when we look at the guidance by subsegment, obviously for the full year you got better results at Cessna, Bell, Defense and Intelligence, you have industrial and finance weaker. When I look at the corporate expense and the interest expense, it looks like in aggregate it’s probably going to give you a dime higher relative to your forecast in the first quarter. So I'm just wondering how I should think about that? Is that just your best guess, should we expect that to move around or is there potential upside elsewhere or downside that we're not sure of elsewhere?

Well, let’s do both of them. Interest expense, there's no doubt, we've got a little more cash in earlier in the year. We ended up in a better position at year-end last year and we've had a better performance earlier in the year than what we expected and rates are a little bit better on the CP side of things. So, that's real performance that's happening on the interest expense side. On the corporate expense numbers, unfortunately the way we have to account for our hedge of our stock price is all of the noise you are seeing. Our corporate expenses are highly predictable, they are highly stable quarter after quarter after quarter and all of that variability you see on the corporate line is offset dollar-for-dollar on the tax line with virtually no EPS impact. So, I apologize for the accounting rules because they sure do make it confusing and difficult for everyone, but there is really nothing on the corporate side that's running through and causing any kind of EPS noise, it just causes line item noise. Nicole M. Parent - Credit Suisse Securities (USA) LLC: Okay. And I guess with respect to finance, I know we are going to get more in the August 6 call, but could you give us a sense what each of the subsegments did, you have the 10-Q from Finance yet just to give us a better sense of where we saw, I mean, did distribution finance have a loss in the quarter, did golf finance have a loss, that type of stuff?

I don't have the final details for the queue level, we may be able to get it if you give us a second. But clearly, distribution finance and golf finance were the two that had the most difficulties. We have businesses like resorts and aviation that are ahead of plan and doing very, very well. But the big hits were in those two businesses, distribution finance on kind of a homogenous business basis because we did see higher levels of chargeoffs and issues arise late in the quarter that are consumer durable-related in markets and that's across a broad range of businesses where the golf business was all the single hit. The bottom line, yes, distribution finance lost $3 million and golf lost $7 million. Nicole M. Parent - Credit Suisse Securities (USA) LLC: Okay. Thank you. And just one last one, as we think about margins, I mean, I always kind of look at that cost performance number that you guys give on the cargo analysis, and it looks like it was certainly an acceleration from the first quarter as we think about kind of lean implementation and Six Sigma, maybe Lewis, give us your sense of where you think the company is in terms of just how much upside is left when you think about the cost performance?

I think we had more upside than we have seen so far, really we've had a lot of big meetings this first quarter trying to take a look at the progress we've made, and where we can improve and what areas we ought to tackle next, and have been meeting with over 200 some folks and attendants discussing that topic. And I would expect that we have, like I said, more to be gained than we picked up. What happens in the factories and in the offices is, you gain momentum by having a few successes and a few more and a few more, and then pretty soon it's kind of just becomes a natural part of the DNA and that's what’s starting to take place. So, Nicole, I expect us to continue to make big gains in productivity improvement, whether it's processing an invoice or producing a business jet for the next decade really. And I'm excited about it.

I'd just add. In spite of what looked like very good numbers there on cost performance over many, many quarters here, that number often includes a lot of investments that we've been making in the future. So it's held back to some extent. Nicole M. Parent - Credit Suisse Securities (USA) LLC: Super. Thank you.

Yes.

And next we go to the line of Robert Vallard from Macquarie. Please go ahead. Excuse me, Robert Stallard, I apologize. Robert Stallard - Macquarie Capital (USA) Inc: That's all right. Thank you very much. Good morning everyone.

Good morning.

Morning, Rob. Robert Stallard - Macquarie Capital (USA) Inc: I first got a couple of questions actually about Cessna. Lewis, you might be the best person for it. I was wondering if you could comment on how U.S. demand has tracked year-to-date for new orders and how you expect that to progress in the second half?

Yes, well the U.S. demand is tracking about where we expected and the forward forecast for U.S. demand stays strong. International demand is stronger than we would have predicted last year, although we kind of caught up with our forecast early in the year and saw what was happening internationally. But, the mix is pretty solid internationally, in fact more solid than I think anyone predicted. We're seeing some, I'm going to say probably 70% of the current order book.

Year-to-date.

Year-to-date, being international and about 27% being domestic, which is really how we like to see it right now. And we've got pretty good distribution across Europe, Latin America, Asia-Pacific, just a good balance. So actually our order mix is flowing just about exactly as we thought it would. So that's a positive story from my standpoint. Robert Stallard - Macquarie Capital (USA) Inc: And if we look at some of the traditional lead indicators of where the U.S. market is going, what are you seeing on things like usage, second hand availability and pricing?

Well, pricing has been fine except, if you think about it, we're three, we're out two or three years on delivery, so anything you do on price now affects something delivered in 2010 so pricing is whatever it is. As far as use is concerned, it’s, I'd say, pretty normalized. I think it's around between 11% and 12% now, which is kind of where we like to see it. We have seen no observable deterioration in any of our prospective customers' financial situation, and that's good, no major softness in tractional, as I said, order cancellation is only two. Our sales force has come back and said that they think our order rate for this year should exceed 570, that's not a forced number, that's an up from the grass roots number, kind of. So, and you’re not seeing any big competitor looming up over us going to take our share away. So I think the concern over Cessna's future health is… anyone that has a concern like that has probably misplaced. As far as we can see, every factor we look at is at least neutral if not positive. Robert Stallard - Macquarie Capital (USA) Inc: And just finally, if you were to look at the last downturn, you mentioned that there were some cancellations last time around. What sort of percentage was the backlog do you think is potentially at risk in a worst-case scenario?

Would you say that last sentence again, I missed it, did you say what percentage of backlog? Robert Stallard - Macquarie Capital (USA) Inc: Yeah. With this what percentage of the backlog do you think this is potentially at risk [inaudible]?

Last time, we saw two years in a row with about 10% of beginning backlog cancelled within each of those years. But again the bigger impact was order intake falloff rather than cancellations. But that's what happened the last time and that was the worst down cycle that we've seen in general aviation for as long we've been watching them. Robert Stallard - Macquarie Capital (USA) Inc: That's great. Thank you very much.

Hey, Bob, just to clarify, on that basis, in the last down cycle, over a period of three years we had a total of 170 orders cancelled and we expect something less than that will occur over the next three years and two months… or two quarters into it, we've got two. So I'd say we're tracking pretty well so far. Robert Stallard - Macquarie Capital (USA) Inc: Okay, thank you.

And next we go to the line of David Strauss with UBS. Please go ahead.

Thanks.

Hey David.

Good morning.

Good morning.

Obviously new order activity at Cessna is still very strong. What about your service business? What did it look like in the quarter and what are you thinking for that business moving forward?

You mean Cessna service?

Yeah, Cessna service.

Well, it continues to increase year-over-year as far our revenues and also profits. We have not seen the slowness that some of the commercial aftermarket people have been talking about though. And I would even circle back to the question that Rob asked, because in his question he included usage, and while usage on business jets on a per jet basis is down slightly, we've never seen a correlation between usage and the jet cycles. In fact in the last cycle, usage went up because usually when people have the jet they use it and they may choose to defer or not fly as many discretionary trips, but it hasn't provided a real meaningful look.

Service business was up 19.2% versus prior year in the quarter.

Okay. Great. And then you talked about you haven't seen really any cancellations, but are you seeing any more delivery slots being put up for sale in the market?

No. That's not permitted at Cessna.

No, we haven't really...

Our customers are not allowed to sell a slot.

Yes.

Occasionally, one will sneak through on us and I mean, one out of 570 orders. So, it's kind of a small number, but that's really an anomaly because we don't allow it.

We have a pretty darn good due diligence process on anybody that places an order. We just don't take the order and say, thank you very much. We know every one of our customers, we know what they're… why they're buying the plane, we know what they're selling, we know a lot about our customer base. David Strauss – UBS: Yes. And one last one. Do you, Ted, do you know what the total loan loss provision was in the quarter and at TFC and the total charge-offs. And then, what you're… what’s basically baked into your $130 million forecast for the rest of the year?

Yes, the total provision in the second quarter was 40 against charge-offs of 19. So we built reserves of 21. The year-to-date provision is 67 against charge-offs of 30. So, we built 37 of reserves year-to-date. Our expectation is a charge-off… is a provision number for the full year somewhere in the 110 to 120 kind of range. I don't have… I have a full-year charge-off rate, but I don't have a full-year charge-off dollar. We'll see if we can find that for you.

Okay, or the rate would be fine.

The full-year rate we think is going to go to about 50 basis points. That's up from about an unbelievable 25 over the last couple of years.

Okay. Great. Thanks guys.

And next we go to the line of Harry Nourse from Bank of America. Please go ahead.

Good morning.

Good morning.

Good morning.

I was wondering whether you could just quickly get into about Defense and Intelligence. If you had $8 million of benefit... I mean, if your margin was just north of 11% in the quarter, it’s going to go down to about 9.5% for the rest of the year. Can you just explain a bit further why it’s going to go down?

No. I'm not sure I can right now.

Yes. I think the $8 million was just the ASV. There were...

There were some other program investments.

Investments at AAI [inaudible].

Okay.

And the... and we just reduced expectations, as you roll the pricing forward on the basis of your past performance, then you have a lower target margin in the program going forward.

Yeah. Right.

Okay. And on Industrial, can you just give a bit more detail on the cost grade, perhaps give an idea of how much of your operating costs oil now takes up?

Well, I've got… I know the year-over-year impacts. I don't know too specifically. Let's just see, this is not Industrial either, this is everyone.

Okay.

All the major commodities across the Industrial businesses are up, forecasted to be about an $80 million increase this year. And of course we are out trying to price through as much of that as we can, and some of our businesses are fairly successful in doing it. Our most challenged in doing it in the short-term is Kautex, where resin prices have been significant, with probably total company hit on resin costs this year is over $30 million. And in the year, we're not going to get... we'll get half or better of that back, but we're not going to get much more than that back in the year. We are working hard to renegotiate our commercial contracts to put more and more passthrough clauses in, so that we can have a more immediate adjustment to those kind of costs. But, in the short-term, we don't have that.

Okay. Thanks very much.

And next we go on to the line of Cai von Rumohr from Cowen and Company. Please go ahead. Cai von Rumohr - Cowen & Co., LLC: Yes. Thank you very much. Your guidance for this year implies that the margins pop up in the fourth quarter at Cessna, and yet your delivery plans for next year, if we kind of back out the Mustang where at one point you talked about going from 100 to 150, really only implies a 4% increase in Citation jets. Is that conservative or is the idea that you'll get the big uptick in the Mustang and much less growth in the Citations?

Well, I think that's a problem of being too literal. We are going to do about 100 Mustangs this year, and about 150 next year. But, it's not necessary, you can't just simply take that as a guarantee, there is going to be a 50 increase. Maybe a little different number than that. But, I think it's, as Lewis said, we are going to do what we can to try to get a few more units out. I think that's a solid number. We feel very comfortable. We have all of our supply base lined up to deliver that number for next year. But, we have customers that would like us to do more, and if we can we'll try to get a few more out. But it's not going to be a material difference. Cai von Rumohr - Cowen & Co., LLC: Okay. And then you...

Hey, let me just follow up on that, Cai, I mean, again going back to Lewis's comments about, you have to look at the planning process and it's not like, okay, let's decide how many jets we are going to ship next year? In a large way, that decision was made a year or more ago. Two, three years ago, in some cases with respect to your supply chain. So, what has happened is that as we've seen orders come from the international markets as this S curve adoption has come along, we have raised considerably our outlook for world shipments on a systemic basis. And so, basically capacity now has to catch up with that, that new view where we are heading to over the next five years to a 700 level. So, we are very capacity constraint relative to the supply chain and we could get a couple of more out of there maybe but it... I would not characterize our view of next year as a conservative view, it's really what we think we can do.

And where you can assume we are already executing, we are two years into what will probably now be a seven-year plan to put capacity up at Cessna. And those plans are set in place and discussed with all of the supply chain to get everyone on board and it's not something we can jerk round by 20 airplanes in one year because there is a stronger backlog. Cai von Rumohr - Cowen & Co., LLC: Could you follow up, I thought you're basically saying the upper end still looks good, which seems to be the trends we are seeing in the biz jet market particularly if your international business is strong I would assume that would say the upper end of your product line and obviously the Mustang too would be where you are seeing the strength, can you give us any color just generally about the upper versus the lower end of the line in terms of order strength?

It's pretty balanced. It's amazingly balanced. Actually, I'm trying to think there are not many models you can get in 2010 actually.

It's age of model rather than sign. Probably the most available aircraft we have is the [inaudible] Plus and it's one of our longest in the two aircrafts. So, it's more a function of how recently we have developed the product versus high-end, low-end. The Mustangs are selling like crazy. Cai von Rumohr - Cowen & Co., LLC: Okay terrific. Thank you very much.

Yes.

And we have a question from Ron Epstein from Merrill Lynch. Please go ahead.

Hi Ron.

Hi guys. A quick question for you. At Bell, on the commercial side, you guys discussed what kind of pricing increases you've seen over the past couple of years?

Yes. We've, well the last… the couple of years has probably been close to double-digits two years ago, and then it was moderated. This last year down to kind of mid single-digits, but it's been very strong we kind of took one-step function up. I want to say almost 24 months ago, maybe off by a quarter or two, we took a pretty big step function increase when the demand really started to build up out there. And last year, we didn't need to do quite as much, but I think it was still somewhere between 4% and 5%. I mean, the interesting thing now is that we have backlog in the commercial helicopter business that we've never had before in this business. So we've got… of our four major models and we are now reconfiguring and we are discontinuing a few models to focus on the long 206, the 407, the 412 and the 429. Other than the 412, which has some near-term availability, the 206 and the 407 are out to 2010. And obviously the 429, which hasn’t launched yet is booked out to 2014.

Okay. Great. And then another quick question, I think you mentioned the flight hours flown for business aviation year-to-date, do you guys have an idea of where that's gone?

Yes, total flight hours flown is up, but flight hours on a same ship basis is off just a touch. In fact, until about last month, for about six months in a row, we were seeing utilization rates. So that's an existing aircraft flying extra number of hours this year versus last year, down just this close, which we think is somewhat fuel price related, but that number has been overwhelmed by the fleet size growth in the one year or so, obviously it's not a very big number. So, total flight hours is up, flight hours on a per ship basis is just marginally down.

And I think where most of that decrease in utilization per ship is coming in the fractional segment of the market, where people who in the past have a tendency to fly more hours than they purchased are kind of economizing to stick within their hours but they are the ones to see the fuel surcharge right on the invoice…

Yes.

Whereas most of our customers don't see that quite so obviously.

All right. Great. Super, guys. Thank you.

Yes.

All right. Leah, do we have any more questions in queue?

No, we do not.

Okay. Great then, thanks everybody for joining us and have a good day. I hope to talk with you on 26th.

Thank you all.

Take care.

Ladies and gentlemen, this conference is available for digitized replay after 11 A.M. Eastern Time today through October 15 at midnight. You may access the AT&T executive replay service at any time by dialing 1-320-365-3844 with the access code of 896297. Again, the digitized replay is available after 11 A.M. Eastern Time today through October 15 at midnight and you may dial 1-320-365-3844 with the access code of 896297. That does conclude your conference for today. Thank you for your participation and using AT&T executive teleconference. You may now disconnect.