Ladies and gentlemen, thank you for standing by. And welcome to the Textron First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Doug Wilburne, Vice President of Investor Relations. Please go ahead.

Thanks, Katie, and good morning, everyone. Before we begin, I'd like to mention, we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Moving now to first quarter results, which appear on Slide 3 of the presentation, revenues in the quarter were $2.5 billion, up 12.2% from a year ago, which yielded earnings per share from continuing operations of $0.10 compared to a loss of $0.01 in the first quarter of 2010. Last year's result included $0.06 in special charges. First quarter manufacturing cash flow before pension contributions reflected a use of cash of $55 million compared to a use of cash of $134 million during last year's first quarter. With that, I'll turn the call over to Scott.

Thanks, Doug, and good morning, everyone. Let me start by saying that we had mixed results in the first quarter. On the positive side, while our commercial aircraft deliveries of Bell and Cessna in the quarter were flat on a year-over-year basis, order and customer inquiry activity was higher than it was a year ago. Specifically at Cessna, gross orders improved from last year's first quarter as did used aircraft sales. In terms of leading indicators, availability of used Citations also continued to improve, dropping to 14% of installed fleet from 14.5% at the end of the year and a high in the cycle of 17.3%. Based on overall current customer activity, we still believe jet deliveries this year will be up slightly from 2010. Inquiries are broad-based geographically, including the U.S. where the bonus tax depreciation incentive is still in effect. This will likely drive Q4 sales in a similar fashion as we experienced last year. Now let me address Cessna's financial performance. Revenues were up $123 million, primarily due to higher mix of light and mid-sized jets and an increase in new jets in sales. Despite the increase in revenue, Cessna posted a segment loss of $38 million. While there are a number of items in the quarter, which contributed to the magnitude of the loss, I would say that our underlying operational performance at Cessna was disappointing. The production ramp of the new CJ4 is going well technically but is above our production cost targets. We have seen price stabilizing across most aircraft models but inflation did erode margins and even at low levels of production in the factory, I believe we can do better in terms of driving productivity. We have taken a number of actions over the past couple of years at Cessna but clearly…

Thank you, Scott, and good morning, everyone. Segment profit in the quarter was $123 million, up $27 million from the first quarter of 2010. This reflected an increase of $13 million across the Manufacturing segments and a $14 million improvement in Finance segment loss. The Finance segment improvement reflected lower loan-loss provisions and lower operating expenses, partially offset by lower interest margin on the reduced portfolio of finance receivables and higher portfolio losses. Looking at Slide 5, nonaccrual finance receivables decreased from $850 million to $836 million, while 60-day-plus delinquencies increased slightly to $418 million from $411 million. Charge-offs in the first quarter were $16 million compared with $24 million in the fourth quarter of 2010. At Cessna, revenues were up $123 million on new jet deliveries, as Scott mentioned. We posted an operating loss of $38 million, which compared to a $24 million loss in last quarter's first -- or last year's first quarter. This decline reflected a number of items including lower deposit forfeiture income, higher engineering and development costs and inflation, which more than offset profit contribution from the higher revenue. At Bell, revenues were up $131 million, and segment profit increased $17 million. Segment profit increased as the impact from higher military production and deliveries more than offset increased research and development costs. At Textron Systems, revenue was down $13 million, primarily due to lower ASP aftermarket services. Segment profit was down $2 million on the lower revenue. At Industrial, revenues were up $78 million on higher volumes, generating an increase in segment profit of $12 million. On a capital structure front, we ended the quarter with $4.7 billion in net debt, down $352 million from the end of the year, which you can see on Slide 6. Last month, we established a new Textron credit facility with a $1 billion undrawn line. We also continued to pay down the TFC bank line, ending the quarter at $1.2 billion outstanding. We expect to retire the balance of the TFC line well in advance of the April 2012 due date, as proceeds from further liquidation to TFC, cash flow from manufacturing operations and a quarter-end cash balance of $1 billion should be more than sufficient to do so. That concludes our prepared remarks, and we're ready to take questions. Katie?[Operator Instructions] And our first question will come from the line of Peter Skibitski from SunTrust.

I was wondering if you could give us some more color on Cessna profitability. Can you tell us how much forfeiture income you had this quarter versus the prior year quarter and maybe quantify how much R&D and inflation impacted?

Sure, and we can give you a couple of the big categories, Peter. Engineering was about $9 million higher in the quarter than it was a year ago. Forfeiture deposits were lower by about $9 million than they were a year ago. Used aircraft write-downs were about $3.5 million to $4 million worse than they were a year ago. So those are some of the items I’d kind of mention. It's a bit of a laundry list of things, but that's the bulk of it.

Sure. You're still expecting profit at Cessna for the year? I think you guided to 1% to 3%?

Yes, we are.

Okay. Will Q2 be profitable, do you expect?

Again, it ties into the number of deliveries, but I think it will be somewhere in that breakeven area.

Okay, okay. And then lastly, and I'll move aside. The new Union contract at Cessna looks pretty good on paper, and you have the Mexico facility ramping up. So it seems like your cost should be down materially, I would say. But do you think the full effect of the Union contract hasn't really come through yet? Or are the guys kind of struggling with implementing that? Can you give us some color there?

Well, I can give you some color there. I mean, this is where I sort of refer to some things disappoint here but the Mexico thing, for instance, I think, is a significant play for us. I think we have to recognize a lot of stuff is in the transitioning process. Some parts are completely transitioned. An awful lot of stuff is still in process and, obviously, in many cases, particularly these aircraft early on in the cycle are actually aircraft that have a lot of parts that were built in a higher-cost labor place because we actually built ahead to then be able to transition to tooling to get it down to Mexico to make that transition happen. So, you're certainly not seeing the full effects of what we're trying to do in terms of transitioning some of that high-labor content work down into Mexico. In terms of the labor agreement, I think we will see -- obviously, we will see benefit in terms of both productivity as well as having some relief here of not having escalating labor cost. But again, I think you will see more impact of that as we start to bring more people back in, as we start to increase production rates. But these aircraft, obviously, have been built still in pretty well the trough of where we are in terms of overall production rates.

Okay, okay. So we'll see the Mexico impact maybe flow through in the second half of the year and...

I would expect so, yes.

Okay, okay, okay. Thanks very much.

And our next question comes from the line of Heidi Wood with Morgan Stanley.

This is actually Kevin Boone calling in for Heidi. I had a question on Bell, just given the flat results in the quarter, what do you expect going through the year? And I think there was a relatively positive helicopter conference you had done in Orlando and would you see some of that carry through throughout the remainder of the year?

Yes, we absolutely do feel good about where we are on the Bell commercial side of things. The flat deliveries in the quarter, I think, you would really look at this and say that the commercial market really started to move towards the latter part of next year. We started to accumulate actually some backlog. We feel good and continued to accumulate that as we went through the first quarter. Heli-Expo, obviously, an important part of that and we do expect that we're going to continue to see a good ramp up in terms of commercial deliveries throughout the balance of the year. So, we will come out -- I'm very confident we're going to end up with higher deliveries in 2011 than we had in 2010. So, I think the first quarter being flat, just in terms of the numbers of aircraft, is not something that is a worry to me or something that I would interpret in a very big way. We're going to see continued growth in our Commercial business as we ramp through the year.

And how about on the after-market side? What did you guys see in the quarter for the commercial side?

I'm not sure I have that number right in front of me, but I mean flight hours have been strong. So I think we -- I don't want to give you the wrong number here.

Aftermarket was up a bit, so we continued to see some improvement in that area.

Great. Thank you.

And our next question comes from the line of Cai Von Rumohr from Cowen and Company.

Yes. Thank you so much. Could you comment on where the cash conversion was of the liquidations of TFC?

In the quarter, it was about 92%, Cai.

Okay. And your expectation for the year?

Well, as we kind of keep saying, and I know it hasn't happened yet, but we do expect as we get through some of these other assets, it's going to get -- it's going to degrade over the year. But in the first quarter, it was pretty strong. We had a sale of a number of receivables in our amortizing pool, on the resort side that went at a very high level, which helped to keep the number pretty high here in the first quarter, and we'll continue to see some of those sorts of transactions. But it's clearly going to trend down into the 80s even the 70s, I think, over the course of the year, Cai.

Okay. And could you give us some color on the impact that the CR has had and the tough budget environment we're in and of how you look at both at Systems and Bell on the military side?

Sure. In terms of the CR, I would not say that we had any programs that were directly impacted necessarily by the CR. But I think what we've seen happening, Cai, is a number of new program opportunities, particularly in the Systems business, where we're going through the usual process, where the government’s issued RFIs and then they’re issuing RFPs and going through that proposal valuation process. Whether it's directly because of the CR situation or just frankly, a lot of things going on in the building with respect to working now on the '12 budgets and dealing with all of the churn that’s going on, a number of those things have just been delayed. I don't think those programs are going away, but some of them are clearly sliding to the right just in terms of the time lines that the government articulated with respect to those programs. And you know that business, Cai, I mean, it's not unusual for that to happen, but I think it's being -- it's happening more driven by a lot of the churn around the CR and just the budget challenges they have in total. So again, from my perspective, no direct impact and the programs that we're following, that we're bidding on, I don't believe are impacted in terms of will the program happen. But we're seeing some things slide to the right. On the Bell side, we really haven't seen any impact, to be honest with you. Obviously, the multi-year MV-22 has continued to move right along. The H-1 funding has been solid, and we're delivering at our forecasted production rate. So on the Bell side, we really at a macro level, haven't really seen any impact on the CRs at this point.

Thank you.

Our next question comes from Robert Stallard with RBC.

Thanks very much. Scott, I was wondering if we could start on Cessna. The backlog was down again this quarter. There's a lot of moving parts here. But what's your thought on when we might see the inflection point in the backlog?

Well, Rob, I think it's going to be to the latter part of this year. I mean, we are, as I said, seeing -- we did see more growth orders up a good bit in the first quarter. The market is clearly coming back. I would say it's coming back slower than we would like. And I think a lot of the uncertainties out there with oil and economies and conflicts have slowed things a bit. But the encouraging part is that the orders are starting to flow and certainly, the customer activity and discussions are happening. It's just taken a while to bring things to total closure. So that's why we say our color, at least, as we look at the year is that we still feel pretty good about the demand being where we expected it to be to meet our commitments in terms of the number of deliveries. But realistically, at this point, I mean it's not like the thing is rushing back. So I would say that getting to a point where you start to build positive backlog versus the order rates that we see and, obviously, the aircraft that we're selling as we go through the year, I think it's going to be, best case, towards the latter part of the year before you would see any real change in backlog.

Okay. And secondly, at Textron Systems, you noted that ASV aftermarket was down year-on-year in the quarter. What's the trend like here? Is this a one-off occurrence partly relating to CR or something or are we starting to see this trending down going forward?

I mean, I think just part of that is timing. I wouldn't read too much into that. I think the opportunities that we're really looking at in terms of the ASV business over the next year, 2 years to 3 years almost, is really becoming more a function of bringing in new contracts and foreign opportunities. And we still feel pretty good about that. And we did announce a deal here in the quarter. We've seen some options exercise. So, at least, I think, over the next couple of years that business is still in pretty solid shape.

Okay. Thanks very much.

Our next question is coming from the line of David Strauss with UBS.

Scott, just to follow up on that in terms of Cessna, could you give some color in terms of what you're seeing maybe by geography or product line? I mean, I've certainly heard that the domestic market seems to be picking up a bit. Are you seeing corporates come back to the market and look at -- potentially looking at refreshing their fleet after having put it off for a couple of years at this point?

We are. As I said, the geography of this thing is pretty broad. We see a lot of activity in Asia, in Latin America, Europe, actually, quite a number of inquiries and the U.S. does seem to be coming back as well. One of the things that we're struggling a bit with is, in the U.S., obviously, the bonus deprecation is helping to incent some people back into the market. And I think those deals are going to happen. One of the challenges that we have is trying to get them not to all want to happen in the fourth quarter. And, in fact, we're already having conversations with customers that basically says, "Look guys, we can't deliver all the aircraft in November/December." We're sort of filling up those slots. So we're going to start getting people to take earlier deliveries just because we'll run out of capacity to physically do the delivery process towards the end of the year but -- so, yes, I mean, I think the geography is very broad based. It's not just one region of the world. We're seeing folks, and I think a lot of it is, folks were getting to a point where they’d say, "Look, normally, we would have done our refreshes and our upgrades 2 years ago, a year ago, and it's time to get on with it."

And then on the used aircraft side, could you give a little bit of color of what's going on there, where you are in terms of used aircraft inventories relative to where you were last year? And is some of this being driven by you, at all by you giving used aircraft or trade-in kind of guaranties and taking a hit on that, just some color there?

Well, in terms of the trade-ins, I mean, there still are some trade-ins happening but, certainly, any time that we would look at a trade-in with respect to sort of reference to an over trade, right where -- I mean, if we're going to give somebody a trade that's more than the aircraft is worth, I mean, that hits our P&L right away because we mark these things, as you know, every quarter to what the actual asset value is. So, we generally don't do that. To the extent we do it, it's totally transparent because you see that hit the P&L immediately. In terms of dynamics in the used aircraft market, we feel pretty good about where it's going, and we sold two used aircraft, I think, in the first quarter of '10 and we sold 11 in the first quarter of '11. So, the used market has clearly come back to life. You see that reflected in the number of aircraft available for sale. So that's certainly been a very positive trend. And as you look at where we were in terms of the number of units, our inventory actually went down a little bit sequentially from the end of the year to where we are now because we were able to sell 11 aircraft in the quarter.

Okay, thanks a lot. I’ll get back in the queue.

Our next question comes from the line of Carter Copeland with Barclays Capital.

This is Mayur in for Carter. Scott, you talked about the guidance, overall top line guidance. I was just wondering were there any changes within the segments that set out, either revenues or margins.

No, we really don't see anything materially different as you look across the segments. I mean, we expect kind of a question around Cessna given the loss in the first quarter, but we still think we'll get that back to the range that we guided.

Okay. And on Industrial, margins in the quarter were pretty good. You've been trending recently above what you were doing through the 2000s. How much better do you think you can do in terms of industrial margins looking forward?

Well, the Industrial margins, I think, we're pretty pleased with where they are. I think when you look at the mix of businesses, there’s still opportunities for improvement. On the other hand, I always kind of caution a little bit, remember that the automotive market tends to be very strong in the first half of the year and tends to soften just in terms of the volume, the build, the number of manufacturing days. I mean, we're obviously on the Kautex side very tied to what's going on with the auto OEMs. So the first quarter is usually the strongest for them. I'm expecting the second quarter to be a little weaker just given that we're expecting some OEM softness with the Japan impact. But again and hopefully picking some of that back up in the third and fourth quarter. So, I don't think that the margin rate you see is not one I would extrapolate for the full year. Auto will be just seasonally -- I mean, I don't think you'll have a different characteristic if you look at historically how we've done in terms of the Industrial business and volume and margin through the course of the year.

I was just thinking a bit longer term because I think back in the 2000s, the margins were about 10%. It was high-single digits, mid-single digits through most of the last decade. And I was just wondering whether or not we can see those sort of 10%, sort of come back.

Mayur, the composition of our Industrial business back in 2000 is much different than it is now. Not to mention that the characteristics of the Auto, the Component business are also different. But I think that as we've said before, we can trend to the high-single digits in this business, and that's going to generate 20%-type returns on capital.

Our next question comes from the line of Jason Gursky with Citigroup.

That's actually Jon Raviv in for Jason. Just a quick question, you mentioned some of the delays you're seeing in Systems within the DoD. I was wondering if you had any specific examples of what programs you're seeing delayed, and if you expect that process to improve or if it still seems kind of slow.

Well, I think when you look at some of the larger programs, we're going to be bidding on a Ship-to-Shore Connector, which is a big program in our Marine & Land Systems business. That's a pretty sizeable program. It has gone through the RFI. It's kind of waiting now for the formal RFP to come out. So I'd say that's one that has been sort of just delayed and hung up, I think, primarily driven by pretty senior people in the Pentagon being pretty busy, running around, working on these other budget issues. Again, I think it's a program that's from a budget perspective, our indication we get is it's in good shape. It's a necessary program. It's going to happen. It's just going through some delay. So that's probably the biggest. There are some recap programs on Humvee's in both the Marine Corp and the Army, which, similarly, I think, are just sort of delayed in terms of getting around to getting the process moving.

Do you guys plan on bidding on the Humvee reset?

We do.

All right. Thanks.

Our next question comes from the line of George Shapiro with Access 342.

I wanted to pursue a little bit more the CJ4. Are you not on the learning curve that you want to be on? Are you just seeing higher inflation affecting cost or is the pricing still reflecting the early orders that you have? So just trying to get a little more color as to what's actually going on there.

Well, George, It's really more of a cost issue than anything. I think when we laid out the program, the CJ3 was, as you would imagine, was a product that was used to do most of the shared cost analysis based on that because it's sort of a delta from that. And the reality is, the cost for most of the key components have come in at a higher level than we would have forecast based on our modeling of what it should cost, based on where we were with the CJ3. So, I don't think this is a -- it's not as simple as simply, hey guys, after we get a few more aircraft going through here, the labor hours will go. It really is -- a lot of that product is purchase material cost, which is coming in too high and the solution is not complicated either. It's just sort of blocking and tackling and going back through all those key components of the cost, a lot of which is purchase and sitting down with those suppliers and saying, "Look, this cost is out of line compared to what we buy from you on other programs" and hammering our way through that. So it's not particularly complicated or a lot of science involved here. It's just going back and really kind of realizing where we are on the cost of that program. It's not where we need to be and hammering away at it one day at a time.

Okay, yes, because you kind of adjust for all the numbers that you've said, the incremental margins are pretty low for the business, and it seems like it's got to be related to that CJ4.

Well, there is no doubt, George. I mean, the first quarter of 2010, we had none. And I think we had 8 in the first quarter of this year. So, when you're talking about sort of an $8 million, $9 million airplane, so there there's a fair bit of revenue in there that does not have the gross margins that we're accustomed to having in the light to mid-sized jet market.

Okay. And then, Frank, you had mentioned that the aftermarket was up at Cessna. Could you just be a little more specific as to how much and how about -- same with Bell, the aftermarket?

Yes. We said the aftermarket, the commercial aftermarket, at Bell was what I said, was up a bit in a kind of single digit, lower-single digit-type numbers, and Cessna was a bit stronger than that on the revenue side in the aftermarket.

Okay. Thanks a lot, guys.

And our next question comes from the line of Jeff Sprague with Vertical Research.

Thank you. Just for starters, can you give us some idea of how much of the Cessna backlog is deliverable in '12 and beyond?

I don't think we publish that, Jeff.

I guess, second question, Scott, is just a little bit more of kind of the body language on how customers are behaving. You're talking about inquiries picking up, and you mentioned a little bit maybe a fire drill again in Q4. I mean, Q4 last year seems unusual, right? I mean, it was, 44% of your deliveries were in Q4. It's always your biggest quarter, but that was kind of way out of balance relative to what's normal. And that seemed like kind of a rush to get bonus depreciation before it went away. I don't think anybody is going to think it's going to be extended again for '12. So I'm not sure why we would have that fire drill at the end of Q4 again. Is it just the timing of people's cash flows that they want to delay that delivery as long as possible or is there something else going on there?

Well, I think it is mostly just people saying, "Look, I want to make sure I get it done this year to take advantage of it." And obviously, some customers want to take aircraft now. They want to do it. So those that were thinking, well, maybe I could wait 'til later on it, they want it, they’re incented to try to get it done this year. I think that what was particularly strange about our profile last year, Jeff, was as you recall, we had a very light third quarter and then a very heavy fourth quarter. And so what we're already trying to work on is, say, “Guys, we just don't want to go through that again.” So we're working with customers and say, "Look guys, we just can't do a fourth quarter delivery. We need to move some of these back into the third quarter and not end up with that very difficult hockey stick at the end of the year." So, I think fourth quarter will be a heavy quarter, which is good, but I do think the issue that, really, if I look at last year, we were too light in the third quarter. We need to move some of that volume back and get some of that delivery done. And look, the reality is that the order flow and the level of customer activity is considerably stronger than it was in this time last year. If you remember, last year, we got into this time of year and basically, conversation stopped based on the euro crisis and sovereign debt and all that sort of stuff. We haven't seen that this year. Even though there are some challenges out there, the conversations are happening. So I would expect we will bring a lot more deals to closure earlier on in the year than we did last year, where the market at Cessna and the business jet like this really kind of went quiet for 6 months before it started to pick up again in really the October kind of time frame. And those conversations are happening now. So I would expect from a timing perspective, we won't -- we're obviously not planning on seeing that period of no activity and, therefore, very light deliveries in the third quarter of the year.

And then just finally from me, you're not going to preannounce new products on this call, but can you give us a sense of the magnitude of the R&D increase in the quarter and how that might play out over the balance of the year?

Yes, the R&D increase in the quarter was about $9 million. And I would expect to see those kind of impacts in every quarter throughout the balance of the year.

Very much.

And our next question comes from the line of Julian Mitchell with Crédit Suisse.

Yes, thanks. My first question was just about the inflation, cost headwinds you mentioned that had hurt Cessna's margins in Q1. Can you talk a little bit about how that splits out maybe between materials and labor and how you see those moving? You talked about labor earlier, but maybe on any kind of non-labor inflation, what your sort of core expectations are in your guidance for the balance of the year?

I would say material/labor is probably in the 50-50 kind of range. It's a number on the order of around $6 million total. So, it's not an overwhelming number, but those are roughly, Julian, where the numbers are.

And when you think about the delta of sort of the input costs and the output price on deliveries, how do you see that moving for the balance of this year versus what you had in Q1?

Well, I think we've seen some price stabilization as I said in most models as we've come into the year. I think we will see some modest positive pricing through the balance of the year, and we had some allowance programs and discount programs were done in the latter part of the year, which have stopped and are stopping. So, I think we will actually probably yield a little bit better pricing through the balance of this year. On the input cost side, I mean, we obviously had some come through on the material side, some of the things we're obviously doing around CJ4 and other programs is going back to a lot of that supply base on the material side and trying to drive some productivity there and push back some of that inflation. And as you can imagine, the conversations with our suppliers is that we haven't seen pricing power over the last couple of years in the industry. There’s no reason why we think you should be seeing some pricing power with us. But, obviously, that's a negotiation that goes on supplier-by-supplier and sometimes, part-by-part.

Okay, thanks. And then just a follow-up on TFC, what sort of provision expectations have you got for this year? I mean, how has that changed, I guess, in the last few months?

In terms of -- what kind of provisions, Julian?

Well, I mean, Q1, they were...

You mean for the $12 million in provisions for losses?

Yes.

I mean, the thing that you have to be careful about on finance, and we still expect kind of the same loss range that we had talked about of $140-ish million is, depending on how things get liquidated, it can either end up in provision or end up in a portfolio loss or charge-off. So those numbers really kind of move around depending on how things end up being liquidated. So you kind of have to -- I'd focus on kind of the total numbers.

Got it.

And our next question comes from the line of Myles Walton from Deutsche Bank.

Scott, maybe, within the 1% to 3% margin range for Cessna, are we -- given the 1Q results and CJ4 and inflation you're seeing, are we squarely at the low end? I'm just trying to reconcile if 2Q is breakeven, the implied back end for the mid or the high end seems like a little bit of a stretch unless Mexico productivity comes through or you get better pricing. Just curious what you're seeing within that range.

Well, I mean, I don't think there's any question considering the level of loss in the first quarter that it's more likely to hit towards the 1% than the 3% at this point. But, I guess, that we're still very early on in the year. And I think there’s still a lot to be understood in terms of dynamics of the recovery and how much pricing power’s out there and things like that so it's probably a little early in the year to try to go on record and narrow the guidance range, if you will, between 1% and 3%, I guess, at this point.

And then your assumption or you're suggesting that the pickup in demand would be coming in the back half of the year and backlog book-to-bill potentially turning above one towards the end of the year. Is that in any way predicated on new aircraft products in the market spurring some order to pickup?

No. I think that's just going to be the sort of the flow of the year and predicated really on just our expectations in terms of the recovery kind of building momentum as you go through the end of the year. It's really not built around any new product launch that’s going to generate a big future year's backlog, if you will.

Okay. So it would be book-to-bill above 1% on the current big book of business that you're doing?

That's where we'd like to be.

Okay, great. Thanks a lot.

And our next question comes from the line of Steve Tusa from JPMorgan. Stephen Tusa - JP Morgan Chase & Co: Just first quickly on Bell. The V-22 is obviously up very nicely, and I'm not sure what the price is on that. We have it around $40 million for you guys, kind of on a booked basis per aircraft. Is that right?

That's not correct, Steve. It's lower than that. But always remember that we're generating revenues outside of the OE delivery as well. Stephen Tusa - JP Morgan Chase & Co: Right. So, I mean, I'm just curious, why weren't Bell revenues a little bit better with the big ramp in V-22s? Is there something in Bell that was down materially within mix in the commercial aircraft? I'm just curious.

There was lower spare and support on the military side in the first quarter, Steve. Stephen Tusa - JP Morgan Chase & Co: Okay. And then just on Cessna, as far as the inquiries are concerned, are you -- has the dynamic changed a bit with Embraer where these inquiries, you're seeing people come, but it's a much more of a -- relative to the previous cycle, it's much of a, I guess, competition-heavy discussion where previously, you had a customer base that was, I don't know, 80% of your sales went to your existing customer base, whatever, I think that was the number you used to put out there. How has that changed now with Embraer kind of in the mix here? And also, just what was the realized price in the quarter at Cessna?

So, in terms of the color of the discussions, Steve, I don't see any different dynamic when we're running -- working with a customer that's in space of a certain size of aircraft. I mean generally speaking, these are all competitive transactions. If it's a CJ4 discussion, you have a customer that's also looking at a Phenom 300. If it's a Sovereign discussion, it's somebody that's looking at a Hawker. So, I mean it's really -- I don't think that there has been any real change in the dynamic in the marketplace. I mean we have always had, even when you're talking about a CJ4, there’s Lears in there and there's Hawkers in there, so it's -- I don't know that it's very different in that regard. I would say what's different this year, is we actually see deals come all the way to closure, which is encouraging. And I think we're winning our fair share of that stuff. So, we feel pretty good about that in a competitive environment. And I would say, I think, in the first quarter, Cessna realized price was probably pretty flat, not really -- not a lot, one way or the other. Stephen Tusa - JP Morgan Chase & Co: And you expect -- is the backlog have more negative price in it or is this -- are we at kind of a trough-y levels from a price perspective?

I think we're at pretty trough-y levels. I think as we look at some of the deliveries that are going to be happening over the balance of the year, the price of backlog looks a little bit better. But obviously, there is still slots to fill, too. Stephen Tusa - JP Morgan Chase & Co: Okay. Great. Thanks a lot.

And our next question comes from the line of Ron Epstein from Bank of America.

Kind of back to Cessna again, sorry about kind of beating this horse but when you look at the demand, where you're seeing kind of more tire-kicking from customers, now can you speak what part of the world is it coming from? Is it generally North America or is it Europe, Latin America, but can you speak to that?

Ron, it really is pretty balanced. We have a number of deals that are going down in Indonesia. We have a number of transactions in Latin America, Eastern Europe. We actually have a number of deals that are in the works right now in France and Germany. And the U.S. market, as I said, is also coming back. So, it really is pretty broad-based. I'd say the U.K. right now is still very quiet, if I had to pick a country where there is really not much going on. But as I said, other Western European and Eastern European countries are there. Little bit of activity in the Middle East, but it really is pretty broad-based.

And on that point, and this is kind of the next question, on the Middle East, given what has happened there, have you seen a slowdown or activity there kind of go on ice a little bit because of the instability in the region?

I mean I try to think like every place, there's a little bit of a slowdown and reluctance in some of these things. But I would kind of have to say that Yemen and Libya were not big markets for Cessna. They actually are markets for Bell. And so we've seen probably a little slowdown maybe in some foreign military opportunities in some of those places, but not of a material impact at this point.

Okay. And then one more back on Cessna, when you look at the Cessna product offering and where you are having customer conversations, is it at the lower end of the product line, kind of the mid to high, I guess what I'm asking is, how are the XLS and the Sovereign doing?

XLS and Sovereign are doing well. Actually, there is probably as much or more demand there than even in say the Mustang side.

Okay, great. Thank you very much.

And our next question comes from the line of Steve Levenson with Stifel, Nicolaus. Stephen Levenson - Stifel, Nicolaus & Co., Inc.: Thanks. On the new multi-year agreement you're negotiating for V-22, do you see any impact in terms of quantity or timing based on the budget situation?

I guess, I would have to say, I don't think so. The negotiations are underway or discussions, I should say, are underway. We understand what we need to do from a pricing standpoint to get the authorization for another multiyear. I think that we feel pretty confident that we will get there. The rates that have always been envisioned in that second multiyear are lower than the rates that we have today on the first multiyear, but again that's something that we've always understood. And you're talking out in 2015-'16 kind of time frame, so there’s actually a lot of discussion with our customer and other prospective customers on what we do in terms of that rate. In other words, there is room to be able to build some aircraft for customers other than our current customers. And there is a number of opportunities for potential fits for that aircraft in other applications, and we're pursuing those. So, in terms of just strictly speaking, the multi-year with the Marine Corps, I'd say we're making good progress. I think we will get there. It will be slightly lower production rates than what we have today, but we have a number of opportunities to fill that up to continue to be able to run at the capacity that we have. Stephen Levenson - Stifel, Nicolaus & Co., Inc.: Okay, thanks. And in terms of the other customers you mentioned, are those other U.S. customers or foreign customers?

It's a mix actually. There are a number of other applications within the U.S. DoD, and there are expressions of interest on behalf of some foreign militaries for fleets of V-22s. Stephen Levenson - Stifel, Nicolaus & Co., Inc.: Okay, thanks. And just going back to Cessna, there was the recent Shanghai Show. Do you have any commentary from what's going on in China?

I'm not sure I have anything in particular. I mean, we still expect that market to continue to open up. We had some good deliveries there last year. We still certainly see that as a market that's going to be emerging for both Cessna and Bell. And as I said, we've had pretty good luck selling into there over the last year or so, and we're also making some investments in the country in terms of expanding our service footprint to make sure that we have more presence within China not only to sell, but also to support our aircraft as that fleet grow. So we're over there, and we're working it pretty hard. Stephen Levenson - Stifel, Nicolaus & Co., Inc.: Great. Thanks very much.

And our next question comes from the line of Brian Jacoby with Goldman Sachs.

Thanks for taking my question. Quick questions around Textron Finance, just with liquidations. Do you expect liquidations to actually cover the total bank debt reduction for this year or do you expect to have to perhaps dividend money from the parent? But based on your guidance, it looks like the answer is no. It looks like meaning you won't have to dividend money, and that you're expecting liquidations to cover the entire sum. Is that the right way to think about it?

No, well, certainly liquidations will cover a very meaningful piece of the bank debt pay-down. But as we've said, we are effectively also continuing to in part finance TFC through intercompany lending from the parent. And so we will continue to see the intercompany loan, which was about almost $400 million at the end of the first quarter. That will continue to build throughout the year as well, as we pay off that bank loan.

Okay. So it's not the guidance around the capital contributions of $190 million and dividends of $210 million, we should think of those loans going forward just completely separated. So it's going to be a loan item number that you'll get back in, what, 2012, 2013?

Yes, I mean that then pays down as we continue to reduce the size of the portfolio. It's just more efficient for us kind of to be effectively financing at the parent level, if you will, than having TFC go out and try and access capital on its own for this interim period of time because we have this kind of just timing differential between how things are liquidating relative to some of that bank debt pay-down. But we will not need additional capital into TFC.

You’ve got to separate the cash discussion from your base premise, which is correct. We will not need to make a capital contribution.

Okay. And then more of a housekeeping item, what exactly is the short-term debt increase at the parent company?

We've begun to access the commercial paper market. As we've continued to reduce debt and stabilize the balance sheet, we wanted to just get back into that market to kind of have the ability to help us deal with just short-term working capital swings. So, obviously, our first quarter, as we said, is typically a user of cash on the manufacturing side, it just helps even out those working capital swings.

Okay and with that, I guess, if that's something that down the road, you're going to, hopefully, continue to be able to use, any dialogue with the rating agencies in terms of maybe improving the ratings just given where you are from a ratings perspective? I would imagine CP is an area where you have access but as a A2/P2, it's kind of tough. Or actually, are you an A2/P2 at this point?

Yes.

Yes.

And look, we've seen good receptivity there. We're not looking to kind of build that program in a very substantial way. Again, it's going to be relatively modest and just help us with working capital swings. As you might imagine, we have regular dialog with the rating agencies. We think we've made very good progress on kind of our debt reduction and improvement in our financial ratios and the rating agencies will move at whatever pace they decide to move at. But I think they are encouraged by the progress that we have made. And we continue to believe we'll make further progress.

Okay, great. Thank you.

All right. And I'm sorry, it's A3/P3.

Yes. Right. And if we got upgraded back to where we were, we'd go back to A2/P2. Just to give you a sense, again, we're talking about a couple hundred million dollars in the CP market, just to re-establish ourselves. We don't have any intention of going back to using the CP as a primary funding vehicle like we were doing in the financial service days, right? This will be purely the way companies like ours would normally use the CP market for working capital and then the dollars we're talking about are easily supported by the size of that market for an A2/P2 issuer.

And we have a follow-up question from Peter Skibitski with SunTrust.

Guys, the Systems margin in the first quarter was really good, especially compared to your guidance. Can you remind me what's going to happen the rest of the year that's going to make that trend down? Or maybe you'd like to adjust that?

Well, I think that the Systems business is going to be a little lumpy as we go through the year, with programs and deliveries particularly some blocks of out of a couple of our more profitable segments. So I would not use that margin rate this year and say, hey, that's a total upward provision to that guidance or sustain that. It's going to be a -- that number’s going to move around. I think we'll stay a good double-digit business, but it's going to move around over the course of the year from quarter-to-quarter.

Is Sensor Fuzed Weapon, is that the big mover there?

Well Sensor Fuzed Weapons is one of the ones that moves it around. And we will have some quarters this year where we have some, and we're going to have some quarters where we don't have any. So that will be one of the contributors as we go. It was not a big contributor in the first quarter.

Okay, okay. And then just a couple of housekeeping, are you expecting a 31% tax rate still?

Yes.

Okay. And still 55 to sixty 429 deliveries for the year?

Yes.

Okay, great. Thanks guys.

And our next follow-up question is from the line of Cai Von Rumohr with Cowen and Company.

Yes. Given your sales looked a little light in Systems and you had the budget delays, can you still get to $2.2 billion for the year or near that?

Cai, I would -- of all the segments I look at, that's one that I worry about just because we are seeing some pushouts on some of these programs. So we feel pretty good where our margin rates are. But if there’s one that's going to be one we'll watch closely just in terms of softness at the top line, it's going to be Systems. And again, it's just -- it really is just some of these programs that are pushing out where we would have expected some of them to get under contract. And I'm not sure we'll get under contract by the end of this year.

Okay. And then I think you said a near breakeven at Cessna in the second quarter, and for the full year you could still do near $3 billion and 1% to 3% margins. Did I hear that correctly?

That's correct.

But that really implies quite a hockey stick in the third and the fourth quarter. I mean, if we take the midpoint, that would really imply margins about 5% in the third and the fourth quarter. Is there anything happening beyond somewhat greater volume, I mean R&D mitigates or anything else?

No. I mean, it's really more driven by just volume and performance through the balance of the year, Cai. But you're right. This is going to be a -- it's going to be a hockey stick. And obviously, as I said, one of the things we're got to do is try to figure out how to make it not be a predominantly fourth quarter hockey stick and try to drive as much back into the third quarter as we can.

What does that say about 2012, if anything, for Cessna?

Cai, I haven't spent a lot of time on 2012 just yet to be perfectly honest with you. But I mean, as we watch the order backlog build over the course of the year, obviously, we'll get a lot more insight into that. And there’s no question, a lot of customers we are talking to are looking at orders that are in all likelihood going to be 2012 deliveries.

Got it. Thank you very much.

All right. Ladies and gentlemen, that concludes our call today. Thanks for joining us.

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