Ladies and gentlemen, thank you for standing by, and welcome to the Textron First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Mr. Doug Wilburne, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we'll 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, starting with Slide #3. Revenues in the quarter were $2.9 billion, approximately flat with the year ago. Income from continuing operations was $0.40 per share compared to earnings per share of $0.41 in the first quarter of 2012. Manufacturing cash flow before pension contributions was a $425 million use of cash. First quarter pension contributions were $140 million. With that, I'll turn the call over to Scott.

Thanks, Doug, and good morning, everybody. Manufacturing revenues were up slightly in the quarter based on strong commercial demand of Bell, increased deliveries of Textron Systems and sales growth at E-Z-GO. Unfortunately, demand for business jets was soft again this quarter. We were hopeful that demand would recover as the impact of last year's election and fiscal uncertainties were behind us. We also thought the recent strength in U.S. equity markets would have supported improved business confidence and therefore, business jet demand. Sales dialogue and customer recruit was reasonably active during the quarter. However, customers, especially in the light jet segment, who tend to be small business owners, continue to defer purchase decisions, reflecting continued concerns about their financial outlook. As a result, we delivered 32 new jets in the quarter, down from 38 a year ago, resulting in a segment loss in the quarter of $8 million. On the positive side, we continue to see good volume in the used market, leading to a significant increase in used jet sales, which resulted in higher overall Cessna revenue despite lower new deliveries. Looking forward, given the lack of recovery in the business jet market, we're reducing our 2013 business jet delivery outlook and now expect that deliveries will be down this year compared to 2012. This reflects our expectations for lower deliveries in the light category, partially offset by growth in the midsized category. Accordingly, we're adjusting our production schedules and implementing other appropriate cost actions at Cessna. In addition, we've initiated a salary workforce reduction program, the largest portion of which is a voluntary separation plan. While we are taking these immediate actions, we believe the global business market has significant long-term growth potential, and we remain committed to our new product plans, which include the introduction of the…

Thank you, Scott, and good morning, everyone. Segment profit in the quarter was $235 million, down $24 million from the first quarter of 2012 on approximately flat revenues. Let's look at how each of the segments contributed, starting with Cessna. At Cessna, revenues were up $39 million from this period last year, primarily the result of $81 million increase in preowned aircraft sales. We also had an $18 million or about 9% increase in aftermarket revenues. The segment had a loss of $8 million compared to a loss of $6 million a year ago. This reflected lower new jet deliveries and pricing, including the impact of selling our 5 remaining legacy Sovereigns and higher pension cost, partially offset by an improvement in mix. Looking to the second quarter, keep in mind that there will be no new Sovereign or X deliveries, and we expect to record costs of about $25 million for the workforce action that Scott discussed. At Bell, revenues were down $45 million on decreased V-22 and H-1 deliveries and lower commercial aftermarket sales, partially offset by increased commercial unit sales. Segment profit decreased $16 million from the first quarter in 2012, primarily reflecting the lower overall volumes. At Textron Systems, revenues were up $52 million, reflecting higher UAS and weapons volumes. Segment profit increased $3 million. Industrial revenues decreased $28 million, reflecting lower automotive volumes and a $4 million negative foreign exchange impact. Segment profit decreased $16 million, mainly due to lower volumes and unfavorable mix. Moving to Finance. Revenues decreased $19 million from last year's first quarter, reflecting lower finance receivables, while segment profit was up $7 million. Credit performance remained relatively steady during the quarter with non-accruals of $147 million and 60-day delinquencies of $80 million. Lastly, moving to corporate items. Corporate expenses were $55 million, and we remain on track for our full year forecast of about $160 million. Interest expense was $37 million, up $2 million from a year ago. On the tax line, our rate reflected benefits primarily related to the impact of the reenacted U.S. R&D tax credit. We're still on track for our original full year tax guidance of 29%. Moving to our consolidated cash flows, which is the last schedule attached to our press release. We ended the quarter with $791 million in consolidated cash, down $622 million from the end of the fourth quarter. The drawdown in cash in the quarter reflected a net reduction in debt of $236 million; inventory increases, primarily at Bell; $140 million in contributions to our pension plans; slower payments on military contracts; and seasonal incentive compensation payments. During the second quarter, we will retire $250 million principal amount remaining on our convert at the Textron level, and we have $371 million scheduled debt repayments at TFC. That concludes our prepared remarks. So Brad, we can open the lines for questions.

[Operator Instructions] And we'll go to our first question from Robert Stallard with Royal Bank of Canada.

Scott, I was wondering if you'd kick off with Cessna. Last quarter, you commented that there had been a pickup in used activity and also used pricing. Now it seems used activity has continued in Q1. I was wondering if you could clarify how the used pricing has progressed.

Rob, I'd say the pricing has been pretty flat. I mean, the market is -- definitely continued to be strong in terms of the number of transactions. Obviously, you see that in our numbers this quarter, as we've sold a lot of aircraft. I think the market -- the used market in total continues to move. I think that's representative. We've seen a little bit of a tick-down again in terms of used available for sale. But I would say, we still see it as pretty challenged in terms of the pricing itself there in the used market.

Okay. And then, secondly, on Cessna, you said it's going to be down this year in terms of new deliveries. I was wondering if you could give us an idea of just about how much it's going to be down.

Well, look, I mean, we try to stay away from exact numbers on this, Rob. But I think when you look at how we would guide, we're probably talking about a couple of hundred million dollars or so on the top line. It's mostly in the light jet markets. So I'd say from there, you can kind of probably make reasonable estimations in terms of the number of aircraft that we're talking about cutting back. And that's really kind of our revised forecast, as much as we hate doing this. And by the way, we're still out there selling hard. I mean, we're going to do everything we can do to sell aircraft. We're pretty happy, I think, with the effectiveness of what our sales teams are doing. I think our share feels good. But we just have to be open about the fact that, that light market just hasn't recovered at this point, contrary to our expectations. And so we're going to scale back some of the production and reduce the number of aircraft that are out there in that space because I think the demand just isn't there.

And our next question is going to come from Carter Copeland with Barclays.

Just a quick question on the reduction in the cash flow guidance, which you said was attributable to the lower Citation deliveries. Does that reflect a more sizable cut to your anticipated deliveries versus production? How should we think about the mismatch there and if that's really just inventory that will build up over the course of the year?

Yes, it just really is inventory. The challenge, obviously, as we sit here at this time of the year, is to make a substantive change to the production schedule on those aircraft. An awful lot of that material is already in-house. Clearly, one of the things that we'll do as we go through the production change is we'll build things out to logical points in their build cycle so those aircraft are sort of in an appropriate stage of work in progress before we shut down various portions of the production line. And that just means we're going to have inventory, clearly, that's going to roll over to the end of the year as opposed to going out in sold aircraft.

Okay. And with respect to the Cessna margin in your previous guidance, it looks like the cost actions are worth about 1%, but you've lowered the guidance by $0.20. So if it's all related to Cessna, it sort of implies margins that are closer to breakeven. Is that correct?

It's principally related -- almost all of the $0.20 is related to Cessna, that's correct.

And our next question is going to come from Noah Poponak with Goldman Sachs.

Scott, I wondered if you could help me think about backlog. I know we've asked this before, and the discussion is that it's just not as important right now. But first, Cessna specifically. The Cessna backlog was actually more stable in the quarter than it's been in a while. I mean, implied dollar bookings and dollar book-to-bill was as high as it's been in a while. Can you just talk about what the moving pieces were in that backlog and how it's possible that you are kind of okay with production levels while backlog kept coming down and now that it's sort of finally seeing some stabilization that's driving the production level decrease?

Well, Noah, look, we've always -- first of all, if you look at backlog in the quarter, I mean, basically, what it reflects is that we're taking orders and delivering in the same quarter. So there's not a whole lot of stuff going in and out of backlog, right? You're taking an order for an aircraft and you deliver the aircraft, so there's not a whole lot of change going on in the backlog. In terms of...

But [indiscernible], right? And the degree to which that happened in the quarter was at least less than it's been over the past several quarters, right?

I mean, that's been the mode that we've been in, right? So, I mean, we have been, obviously, building to a forecast as opposed to building a backlog for the last several years. Our initial intent as we went into this year is, given the dynamics that we saw in the marketplace, that we would start to see stronger demand than we saw in the second half of last year in terms of the lights, and we're just not seeing that manifest. So at this point, I think it's appropriate for us to say we're not seeing that volume, and we just don't see the number of customer discussions going on that we believe are going to come to closure that would justify continuing at that build rate.

Okay. And I guess, I'm also wondering, is this very specifically Mustang? Because when I look at the deliveries in the quarter that was very light, whereas some of the bigger metal or a lot of the bigger metal was really kind of flat or even up year-over-year. But I know you don't make much money on those and you're lowering the margin outlook so that would imply it's not just Mustang. I know you don't to want to get specific on aircraft, but can you...

Well, it's okay. I mean, when we talk about the light category, we're talking about Mustang through the CJ4. So -- and look, part of the dynamic is when you look at what's going on in the marketplace, there is obviously tighter pricing here as well, right? I mean, so I think that one of the things that we see that's becoming more and more difficult and sort of more and more difficult here in the first quarter is that in order for transactions to happen, there are expectations of lower and lower price. And I get to a point here where we're not going to play that game anymore, so we're going to take some of the capacity out of what's out there trying to transact because we're not going to do deals at price levels that people seem to think that our level is -- has to be for them to make the transaction happen.

Have some of the aircraft beyond Mustang through CJ4 been a little better than you expected or no?

I don't know that they're better than we would've expected. The XLSs have been doing well. We did sell the last 5 Sovereigns that we had of the pre-block-point-change model. That, of course, is never a particularly strong pricing environment, when you're trying to get that lesser-grade aircraft. But it's -- people know they're buying the last of that model type. So I think that XLS activity was good. And obviously, there's a lot of discussion going on around the block point change for the Sovereign and some orders we're starting to take for that. So again, I -- we really do see -- the market behavior in that medium segment has been more consistent with our expectations, whereas the light side has been weaker. And again, it just seems for transactions to happen it's at a price point that I don't think we want to play.

And we'll go on to the next line of Joe Nadol with JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Scott, on Cessna, just one more there. What are your customers telling your sales force exactly as to why activity -- why does your sales team believe that activity did have a slower start to the year than you were expecting a couple of months ago?

Well, Joe, I mean, there's kind of noise all over the place, right? There's -- These are mostly small business guys, so their taxes have gone up. They read all the political nonsense, all this corporate jet loopholes, which, by the way, they mean depreciation, which I'm not sure why that's a loophole since it's actually in the tax code and always has been. You've got this new proposal on user fees, which, I think, is very unlikely that's actually going to go through. But again, it's get thrown on the table, to whack everybody $100 for every flight on top of all their existing operating costs. And people are still a little concerned about where the economy is. So -- and you also have the pressure. It ties back to commentary earlier on the used aircraft pricing. As long as the used aircraft pricing is pretty tough, that means the collateral value of their current aircraft is not as strong as they'd like it to be. So when you look at all those kind of moving pieces, it just -- it kind of leads guys to say, "I'll wait a little while and/or give me a lower price to help incent me to do it." And that's the part of the -- I think it's to say if that's really where the market is, then we'll back off on production and just accept that there's less demand out there in the marketplace. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. On the restructuring actions that you're taking, the $25 million, is that mostly labor or do you have an opportunity to take out other fixed costs besides just labor?

No, the $25 million is virtually all related to severance of employee costs and obviously, as a result -- salary cost. And so as a result, that will obviously accrete back over the balance of this year into the beginning of next year in terms of lower payroll. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then...

There aren't any -- there's no write-offs of equipment or things like that. It's just running at a lower rate. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Right. And then just finally, on the sequester, could you help size -- it doesn't look like you saw much impact in the quarter, if any. But could you help size, as we think about the Bell military aftermarket, what that business looks like for you right now in terms of size and profitability and what you think -- how you're looking at the rest of the year playing out? And if there's any thoughts on systems along the same lines.

Well, sir, you're right. I mean, I think, at this point, we're seeing sequestration issues sort of on the margins, if you will. I would expect it in the aftermarket side of Bell. There will be some pressure in that area. And some of it's going to be OPTEMPO related as things continue to wind down and some of the conflicts. Although I don't see that as being a material number or something that would give us any pause in terms of either our guidance this year or frankly, our own -- our internal thoughts in terms of our long-range plans. So yes, some impact here and there, but nothing material. I think on the system side, as we talked before, the issues that -- or the areas I worry about is that we could see a little bit of impact probably around some of our UAS business and some of the programs associated with that because they are year-to-year funded. And I think it's quite conceivable that in some of those programs, there could be a slowdown of deliveries on some of the upgrade programs or refurbishment programs. There can be some things in some of our intelligence software-related businesses, where some of those agencies have taken a bit of a haircut on sequestration, and it wouldn't be surprising to see them scale back accordingly on some of their acquisitions of some of their intelligence software and upgrade products and things like that. So -- but again, I -- we don't have, at this point, any visibility whatsoever that would say that we have a major program that would be impacted by this or cancellation or anything of that nature, so I really do think that at least this year and what visibility we have in those programs as they go into the 2014 timeframe. Will there be some pressures? I think everybody will have some pressures, but they're all sort of on the margins, not a significant or major program cancellation.

And our next question is from Jason Gursky with Citi.

Actually, Jon Raviv in for Jason. A quick question on V-22. I was just wondering, given the recent budget of V-22 was in line, but going longer term, out to '15, what are you thinking in terms of international orders and how that impacts expected volumes when the multiyear resets in 2015.

Okay. So obviously, the current multiyear is unaffected. The next, multiyear 2 [ph], which have been negotiated, it's now in the process, now the government has authority to go ahead and enter into that contract. That's working its way through the process and should be done here, I would guess, within the next 30 days or so. It goes through the normal congressional notification, and there's just timelines associated with that. But I think that will be signed here shortly. In terms of foreign opportunities, there has been no change in that regard. We have a couple of customers that are already in, I would say, detailed discussions with respect to buying V-22s. Those discussions continue to progress quite well. I wouldn't expect to see any kind of a formal announcement until you get to the point where this is something that's going to be notified to Congress. I mean, these will be FMS transactions, obviously, so they have to go through that process. But in terms of anything that's going on from a budgetary standpoint, we haven't seen any impact to bring in those deals to conclusion.

And then just in terms of volume in 2015, what are the sort of pluses and minuses in terms of where we might go to from like 40 [ph] this year?

Well, the 2015 number is unchanged and I wouldn't...

24.

Yes, it's 24, and I wouldn't expect that, frankly, at this stage, to be changed by one of these Foreign Military Sales opportunities. It's just we're getting too close to the timeline in terms of production volumes to make any kind of a material change to that. I do think it's possible in one or maybe even both cases of the deals that are sort of in the works that it's possible that our customer may allocate a couple of those aircraft to start the initial deliveries with a foreign customer. But it's too soon really to know. But I think that I would not expect to see much change to that number of 24 in 2015. So in the FMS volumes, once we get under contract, would really be added onto the volumes in the -- probably the '16, '17 timeframe.

And our next question is going to come from George Shapiro with Shapiro Research.

Scott, I wanted to pursue one more with Cessna. When you announced on April 2 that you were going to have a reduction in indirect people at Cessna, you made a comment production rates are unchanged. And now 2 weeks later, they're coming down. I was just wondering if anything happened significantly in the last 2 weeks to have that change.

Look, George, I would say that the conversations that Scott and I had, which, frankly, go back into March around what was going on in the business, what we were looking at in terms of market recovery and such that we really probably need to take another look at the underlying cost in the business, okay? Because even at that time, we're expecting 2012 -- '13 to be kind of flat to '12, okay? So it's not like there was an expectation of a big recovery, and we decided that we needed to take some cost out of the business to give ourselves some headroom. We don't like coming in to every quarter -- and at that time, we're trying to figure out, "Okay, are we going to make money? Are we not going to make money?" We decided to do some resizing of the business to make sure that even in the event of 38 jets, we made sure that we had a profitable business. And so the decision was taken at that time to do a voluntary reduction program. We have an awful lot of stuff going on at Cessna, as you guys know, right? We have a lot of new product programs. We have a lot of people working hard to do a lot of good things, and we are trying to balance getting some cost out of the business without, frankly, putting the business through a very traumatic time. And we've already gone through an awful lot of layoffs and reductions at Cessna over the last years. So we concluded to do the voluntary program, and we've put that into place, okay? So when you talk about that April 2, that's when we actually announced it to employees and kind of opened the window to the…

Okay. And a couple more on gross book-to-bill, Scott, was that much different than slightly below 1 net book-to-bill? I mean, we've done with these older cancellations that we...

Yes, there were only a couple of cancellations in there. So I mean, gross book-to-bill was actually just a bit above 1.

Okay. And can you share what percentage of the deliveries for the rest of this year you might expect to come out of the current backlog versus how much yet you still need to get orders for?

No, I don't think we'll...

[indiscernible]

We've got the new products -- obviously, the M2s, which are in the third and fourth quarter, the Xs that are in the fourth quarter, I mean, these are orders that are already booked. So they're -- certainly, all the new models are coming out of backlog.

And we began to build some on the Sovereigns.

Okay. And so we'll see no more Sovereign deliveries until the new ones because you basically stopped production and you're done with the inventory. Would the...

Yes, that's correct, George. We had 5 Sovereigns that were the last 5 of that model type. All 5 of those aircraft sold in the first quarter, and so you'll start to see deliveries of block-point-changed Sovereigns in Q3.

Okay. And one last point, if I might. Industrial, that was weaker than I thought. You mentioned mix. Do I assume then that, relatively speaking, China was worse than Europe? Because I thought you do better in China than you do in Europe?

It was. The -- and the specific issue in China is that our strongest segment of our business in China is our manufacturing that's in China for the Japanese OEMs. And as we said at the end of last year, we saw -- well, in the last year, we saw a dramatic softening in that business as a result of some of the friction here between China and Japan. In essence, there was some boycotting of Japanese product even though it's manufactured in China, and that continued into the first quarter.

Just to be clear, George, our results in the first quarter CapEx were not inconsistent with our expectations.

We expected -- I mean, we knew, based on what was happening late last year, George, that, that -- it was very likely that the friction with respect to Japan and China would continue and affect the sales of those models in China, and it has.

And our next question is going to come from Cai Von Rumohr with Cowen and Company.

So a couple more questions on Cessna. Could you tell us what was the size of the preowned loss in the first quarter? Was R&D up? And give us some color on the pattern of the P&L for the year. I mean, is the second quarter likely to be in the red as a result of the $25 million charge?

Oh, yes, I would absolutely say so, Cai. And again, recognizing that $25 million is something which will accrete back over the balance of the year. But absolutely, when we take the costs of making those severance payments in the second quarter, that will for sure push Cessna into the red. On top of that, we have no Sovereign sales in the quarter because we don't have any block point until the third quarter. And yes, we've had some R&D and SG&A growth. Again, we're putting more sales and resource out there on Cessna, which I think we'll need to continue to do.

Okay. And then to the question of preowned losses. How large were they?

Yes. The used, kind of net of any forfeitures, was mid-single digits, and there was a low-single digit headwind year-over-year.

Got it. And then update us -- I think you mentioned M2 in the third quarter. At one point, I thought that was going to be in the fourth. And [indiscernible]

Yes, I think, Cai, you and I have communicated incorrectly multiple times on this. And I'm not sure whether you started it or I started it, but the M2 will start deliveries in the third quarter.

Okay. And then just the Sovereign is in Q3, early Q3. And when are we talking about the TEN?

The X, by the way, we've gone back to just calling it the X because despite our best efforts, people just want to call it the X, so we've conceded that. The X will be the fourth quarter.

Okay. And then you had a strong profit maybe as indicated, but the profit at TFC, how -- what was the reason there for that profit and the outlook for selling any additional markdown assets?

Well, there were a couple of relatively smaller transactions in the non-captive business, where we're still closing transactions, particularly in the Golf Mortgage portfolio where we have been able to close those at better values than were on the book, and so those resulted in some gains. In terms of the captive business, while there weren't a lot of originations in the quarter, the losses and provisioning and just general operation of the business was pretty solid.

Okay. And then normally, you provided kind of updated sales and profit guidance for the year. I mean, can you offer any of that? You said Cessna is down a couple of hundred million in light jet sales. But any other color on any of these businesses? I mean...

Yes, the only changes that we see in terms of our -- well, what led to our change in guidance, Cai, as I said, you're probably talking about a couple of hundred million dollars or so of revenue at Cessna, which will translate to a low, very low-single digit margin. And that really is the lion's share of the $0.20 reduction. So I mean, I think that math is easy to do. We probably will have and the revised guidance does reflect about a $10 million improvement in the knock that we would expect out of the Finance segment. The rest of the guidance in terms of revenue, margin rates are unchanged.

So really, the shortfall of Bell was related to the ERP issue and you expect to catch that up over the remainder of the year?

Yes, absolutely. We were light on commercial spares. We shut the plant down for a week to make this transition so that put some pressure on us. But I'd actually say that the change has gone fairly well, considering big changes usually don't go well, but it's gone fairly well. But we got a little behind on a number of issues. Just kind of working our way through the bugs in the system that impacted spares, both military and commercial, but commercial probably most significantly. The demand in terms of orders on the commercial spares side actually was strong, and I would expect here, over the next couple of quarters, we will get those spares that are sort of in arrears, if you will, delivered.

And then, the last one, any change in the tax rate expectations? You mentioned corp expenses still the same. Any other changes to the P&L we should be aware of?

No, we don't expect -- as Frank said, I think the year -- the total year tax rate should be in line with what we expected. Obviously, this quarter because of the full year last year of R&D tax credit, as well as this quarter of the 2013 year, it just resulted in an unusually low number. But we would expect on target for the total year.

And our next question will come from Peter Skibitski with Drexel Hamilton.

I guess no Cessna questions left at this point, but let me just ask another one on Bell. Could you just remind us the expected year-over-year decline in margin rate at Bell? Outside of this Q1 issue, what's driving the expected margin rate decline?

Sure, it's mix largely driven by growth in commercial original equipment sales. So we expect to see a significant growth, as we saw this quarter, right, with 40 commercial aircraft versus 30. We expect to continue that sort of trend through the balance of the year. And as we've also talked about in the past, we have pretty significant increases in R&D, largely attributable to the 525, also a fair bit attributable now, as you see, on the V-280 Valor for the future Army program. And we see some increases, obviously, in SG&A as, again, we continue to expand and drive sales to keep growing in the commercial sector.

Okay. So no real change to military OE this year?

No. As we've said before, there's always a pressure point on that as we renegotiate contracts around the next multiyear on V-22, which will really be a 2015 impact. Every year we go through renegotiation on rates on the H-1s. But at the same time, we're also trying to drive productivity and figure out how to recoup some of those costs, so there's always some pressure on the military side. But really, what's driving the margin here in 2013 is just disproportional growth on the commercial original equipment side, combined in particular with the R&D growth for 525 and the V-280.

And our next question will come from the line of David Strauss with UBS.

On the delivery guidance at Cessna, are deliveries -- non-Mustang deliveries going to be actually lower year-over-year? Or are we -- just most of the year-over-year decline is related to the Mustang?

No, this includes Mustang, but also the CJ2, 3 and 4.

Okay. And then, Scott, I think, from what I've gathered, you've had some fairly high-level departures, sales force departures at Cessna. Can you just talk about maybe what's going on there, how you're restructuring the sales force at Cessna?

Well, we've had a lot of changes in the sales force at Cessna over the last few years, and I would say probably the most challenging for some of our people has been the fact that we're adding a lot of sales people. So we've taken regions and we've broken them into considerably smaller regions because we feel we need to do that to get better coverage. I think most of our sales people understand that, and they recognize that having a smaller region and getting better coverage will ultimately lead to more overall sales for the company. But obviously, it puts pressure on individual guys because they don't have as big an area to work with. And most of our folks have been good with that. We've made it a good transition for them, and we've added some real talent in terms of the sales team and the number of people that we have in the sales team. But frankly, we've had some people that have a hard time getting their head around that, right? They say, "Well, jeez, I used to have 10 states, now I only have 3 states." And that's hard for some of them to accept that. And obviously, we try to work with them and say, "Guys, this is not about you. It's not that you're not doing a good job. It's that we've asked you to cover a sales territory that's just bigger than one human being could reasonably cover and really talk to customers and know what's going on and find new opportunities." And as I said, most have been great about that. And we've made adjustments, and I think it's working, if you look at our share for what market is out there. But in some cases, it's just too much for somebody to get their head around and so be it.

And next we'll come to Julian Mitchell with Crédit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: Just on Cessna, I just wanted to follow up on the delivery sort of outlook commentary in that business. I mean, your deliveries were down sort of double digits in Q1. Revenues were up slightly, so I'm just looking at the rest of the 9 months. I mean, what kind of slope of year-on-year change in Cessna deliveries are you embedding? Are you embedding the fact that the year-on-year trend should be fairly similar to what you had in Q1 or with the new jets, with the easy comps, you'll actually get a decent recovery in the second half?

Well, I think given our revised guidance and expectations around the light segment of the market that you would expect to see, given that we'll be down in total year-over-year, that we'll continue to see fewer jet sales per quarter. Now one thing to keep in mind is I think it will be particularly low in the second quarter because you don't have any Sovereigns in that quarter. As you get to the third and fourth quarter, it's likely to be closer. Keep in mind, there's always variability here from quarter-to-quarter. So I mean, this is all sort of rough numbers for you, but clearly, given the revised guidance in total for the year, you'll expect to see a smaller number of jet deliveries for the total year. Julian Mitchell - Crédit Suisse AG, Research Division: Sure. But the guidance, I guess, does it therefore embed, based on what you just said, that in Q3 and Q4, it's down somewhat as well year-on-year?

I don't -- I have not -- we don't have that quite that refined a process. But I mean, certainly, it was down in the first quarter. I would expect it to be down more so in the second quarter, particularly with the Sovereigns not being in there. And so third and fourth quarter will probably be close in terms of number of actual deliveries. But it's just hard to estimate that at this point. Julian Mitchell - Crédit Suisse AG, Research Division: Sure, okay. And then just on capital allocation, and so on, I mean, the manufacturing cash flow guidance has obviously been adjusted. I just wondered what the updated thoughts were on things like the dividend outlook and so on in light of that, the weak cash flow you had Q1.

Well, the dividend outlook, I think, remains. Our position is, right now, our capital requirements are to continue to pay down debt. We did that in the first quarter. We have some fairly significant paydowns that happened here in the second quarter, and we have not published or decided on any revised dividend strategy at this point. Julian Mitchell - Crédit Suisse AG, Research Division: Okay. And then lastly, just thinking about the cost base for businesses beyond just Cessna. Obviously, the South Korean contract has been somewhere else in the last day or 2. The Industrial profits are down 20%. I mean, it sounds like the trends in things like Bell and in Industrial are in line with what you had thought at the end of January. But I wondered if there was any sense of sort of preparation of plans for other segments in terms of cost reduction beyond just Cessna at this point.

Well, so I mean, I think, if you look at all the businesses, at Bell, in fact, there are some cost-reduction programs that are already underway in anticipation of some of the lower military volumes that we see as we go out into that '15 and on timeframe. This thing you mentioned with South Korea is certainly not something we've had in our plans, either near or long term. That's very much -- the product that was ultimately selected there is already very, very embedded in the country and utilized there. So it wouldn't have been a huge transition, frankly, I think to have gone a different direction and going with the Apache in South Korea, so that was never in our plans. And so there's no action we would take as a result of that. There are a number of other FMS opportunities. They're obviously in awards that we think will be things that we have a very real shot at winning on one front. But anyway, we have cost takeout plans and programs that are already underway at Bell, to cite that business, consistent with the military ramp-down, somewhat obviously offset by the fact that we have a growing commercial business. On the Industrial businesses, we're always looking very hard at the costs of that . We did have a much lower margin rate than we would like to have had on a normal basis in the quarter, although we sort of expected that given the dynamics of what was going on, particularly with automotive business in Europe and even more so in Asia, but again, consistent with our plans. So I don't think -- there's not a need or plan at this point that we'd announce any kind of a major restructuring in any of those areas. I think we're just going through some unusual market dynamics, and we'll work our way through that. Julian Mitchell - Crédit Suisse AG, Research Division: And then just lastly, on Bell, the margins there. You mentioned sort of specific issues around commercial aftermarket. And so -- I mean, is the assumption that those are now sort of finished and so Q2, you should see a decent margin ramp off the Q1 margin level that you saw? Or are they going to be similar?

Well, the issue, with respect to the systems transition in the first quarter, was around commercial and to some degree, military spares. And certainly, over the next couple of quarters, those things will catch up. There will continue, however, to be pressure on Bell in terms of margins. And that's factored by the fact that, I think, we'll continue to see growth in the commercial original equipment market, and we'll continue to have the same pressures that we saw in this quarter in terms of increased R&D spending associated with our new product programs. So I don't think there's anything -- there's nothing to happen in the first quarter or any dynamics or changes that we see that are inconsistent with the guidance that we provided for Bell Helicopter for the year.

And our next question is from Ron Epstein with Bank of America.

Scott, so not to beat a dead horse, but kind of back to Cessna, what kind of indicators would you need to see to -- you take the cost out of the business through the voluntary stuff, to start going the other way? I mean, what would give you the confidence to say, "Hey, you know what, actually things are getting better?" What would you need to see?

More customers signing the bottom line on the deal.

Right. And the whole...

I mean, I don't mean to be trite, Ron. I mean, you know this is a tough situation, right? But this is -- I just want to be very clear. This is just our view of the market. And as we went through the quarter, despite -- Ron, you've been in this game a long time as well, right? You look at what's going on with used aircraft sales, you look at used available for sale. I mean, all of the corporate profits. You look at all of the sort of what would be the leading indicators, and all those leading indicators would tell you this market's turning. And yet, we didn't see it turning. And so I think that we have just to sort of face the facts and say, "Guys, it hasn't turned yet." Now I don't know, in 3 months, 6 months, it's -- we can't guess. The good news for us, if you want to look at it as the good news, is we have the inventory. So the material is there. If in the next 3 months or 6 months or 9 months, we start to see more demand where those customers, particularly in that light side of the market, are saying, "Okay, it's time for me to trade my aircraft." And again, most of these guys now have had aircraft much longer than they usually have aircraft. But once we start to see that, we have the ability to react to that. We have material in-house. We have the ability to do final assembly. We can put these things together. We can sell these aircraft. So we won't change our strategy in terms of increasing our sales resource out there. So we're talking to these customers, we know what's going on, we know where they're at. The only difference here is we're not going to try to grow forced deals. We're going to let the market recover and want the deals to take place.

Okay. Yes, that makes sense. So just another quick question, so in the quarter, I mean, the cash flow, you talked about it a little bit, I just want to see if I really understand what's going on. So inventory went up, so a lot of that cash that was used in the quarter was just inventory at Cessna. Is that right?

Actually, some at Cessna. Really, the big inventory build in the quarter was at Bell, and that's really because of the original equipment. Obviously, we had a fair number of dollars here of spare parts that didn't get shipped, okay. So there's a chunk of it that's just -- stuff that's sitting there. As we put the new system and just getting stuff shipped, build and moved is an issue. So that stuff, sitting inventory, which should have translated into revenue, and that will happen here over the next couple of quarters. But also, the fact that we're ramping the number of commercial helicopters. And again, the market on the commercial side, I think, is strong. I think we're going to continue to see good order and sales flow through the balance of the year. And we had what is unusually high amount of inventory build going into Bell, but it's mostly driven by -- again, some of it is sales that should have happened on the spare parts. But a fair chunk of it is just stuff now going to the work in process that will sell out through commercial helicopters in the balance of the year.

Okay, okay. And then maybe one more, if I can. Maybe a much bigger-picture question, and I'm not asking you for guidance for future years. I know you can't do that. But when you think about your plan for the company, what if the business jets stayed slow for a while, I mean, longer than anybody hoped and you do get into an environment where V-22 numbers start coming down? This next multiyear is smaller, right? Probably the same thing happens to H-1. What do you do then? I mean how do you think about growing the business in that backdrop?

Well, obviously that's a challenge, right? I mean, I think, look, if you look at Bell, '13 is quite solid, '14 is quite solid. It's really when you get into 2015 that we have this transition where you see the V-22 numbers coming down. There's not a big transition at H-1 at that point. But part of it, obviously, is Bell on its own, what are we doing in terms of driving growth on the commercial side. The 525 program really kicks in, I think, and we'll start to see revenue generation and margin in the '16, '17 timeframe. So I think Bell on its own continue to be -- can continue to be a company, a business that grows. But there's no question that '15 will be a challenging year for them because you're really transitioning out of the V-22 volumes and you're not yet into the 525 volumes. Now obviously, we're working hard on 412s, and you're looking at the 407s. A lot of things we just announced is designed to drive commercial helicopter growth even before we get to the 525. But there's no question that 2015 is a bit of a swing year in there for Bell. On the Cessna front, I think we're in the fifth year -- it seems like about 20, but I think we're in the fifth year of sort of no growth in the business jet business. We still sort of have to believe this thing. It is a real market. It's a place that, at some point, needed to get back to growth, and I think every market forecast would tell you that. So does that not happen? I mean, we thought, surely, that happens in '13. If it doesn't happen by '15, I think that's -- again, that's way too far out for me to figure that out. Obviously, with the block point stuff coming in here at the end of the year, we think we've done some revamps to the product line that will help us. Also, by the way, when you get out to 2015, you've got the Latitude coming in, which is a fantastic new product. And this is an industry where new products do tend to drive growth, so I think we'll see that. So I think, as you say, it's too early, certainly, for us to even think about any kind of guidance in that range. But there are things that we're doing to try to drive growth through that 2015 around not just hoping the market does things, but also trying to do things in terms of new product. That's probably all I can say about it at this point.

And our next question will come from Myles Walton with Deutsche Bank.

Just a clarification first, the couple of hundred million, that's relatively isolated to the light market, it sounds like, which, just back of the envelope, would look like a pretty significant, kind of a 25%, 30% reduction year-on-year in your light market deliveries. Is that about what you're looking at x M2?

Yes, that's probably about right. Correct, x M2.

So I guess at a high level, Scott, I'm sure you're getting tired of transition years in Cessna, so I'm curious, is this new look at production kind of a different approach, a way to purposely undershoot the demand curve, maybe claw back some pricing. And is the market now rational enough, without Hawker out there, that you could do that and this is actually maybe a positive?

Well, I mean, I am a believer in supply, demand. And I think we are at a point here where we're going to try to have to rationalize that and make a better estimate of trying to match supply and demand. I would say there's no question in my mind that as we look at the first quarter, our expectations for demand were nowhere near as strong as we thought they would be, and we had too much supply. And when you have that situation, I don't think that's particularly healthy from a pricing perspective. So there's no question that this is an effort on our part to do a better job of matching up supply and demand.

I guess, the question is more about, are you trying to purposely undershoot demand so that you can effectively take some medicine now, allow the absorption to happen and then have a better profile going forward, hopefully, as the market rationalizes.

Well, look, I think we're trying to match it. If we go under it a little bit, I'm not sure that's all bad.

And we'll move on to the next line, coming from Jeff Sprague with Vertical Research.

Just a couple of quick follow-ups to all this. One of my questions is kind of analogous to the prior question. If you look at kind of 3 years here in a row of kind of 180 units, plus or minus, and now we're going down, I mean, to what extent do you think the market actually was not allowed to clear, over this timeframe, through the actions of yourself and others on creative trade-ins and other things? And can you actually -- I'm sure you understand the gist of the question. Can you judge really the magnitude or if that is in fact an issue when there's a period of kind of further burning off kind of maybe the overproduction -- although it seems crazy to think 180 was overproduction, but burning off the overproduction of the last few years?

Well, Jeff, I mean, obviously, it's very hard to gauge that. I don't think there's any question that the market was quite soft. As you say, it's hard to believe that 180 is too much, right, from our standpoint. And keep in mind, people don't push somebody's arm to buy a jet, right? I mean, this is a significant capital outlay, so it's not like you're going to force somebody to do it. But I do think that as a result of trying to sell aircraft when you do have a little too much supply, you're going to do things, from a pricing standpoint, that probably you should not do. And I think if you look at -- shares and whatnot have largely held steady through these phases. And I think we're just at a point right now where, from my view, clearly, we were going to have too much supply and that was going to create a lot of downward pressure on pricing in an industry that's already been a tough spot on pricing. So I'll just, to some degree, say, "Okay, guys, look we just -- we don't have this lined up right this year and we're going to make an adjustment." So look, I don't want to be in a situation necessarily where if you have a customer that really wants to buy an aircraft that we don't have an aircraft available. But on the other hand, I think, we have to balance that with not having to go out and try to incent deals to happen that would not otherwise happen. So I mean, it's very -- there's no facts in this, right, Jeff? I mean, I do think we -- supply, demand is a very real thing. And I would probably say, yes, there has been too much supply, not enormously too much supply probably, I mean, as these transactions happen. But it looked to me like we're in a situation here where if we maintain the rates we have, we clearly are going to have too much supply.

Is the overhang from kind of plummeting Hawker used aircraft prices a big part of what's going on with your outlook for the year? Or is that more just kind of a headwind, an issue around the edges?

Well, I think the challenge for customers, okay, for guys that are operating Hawker aircraft, obviously, at some point, these guys are going to trade those aircraft in and buy new aircraft, just like any model of aircraft. There's nothing specific or unique going on there. But there's no question, as I said earlier, if you look at what's happened to the residual values of some of those aircraft, that is creating a challenge for some of those customers. Because that spread between what they can get for that used aircraft and what a new replacement is, is greater. So yes, I think that, that -- what we've seen in terms of those residual values is going to be, frankly, a long-term challenge for a lot of those customers because their collateral is just worth less. They're still going to want to upgrade. They're still going to do that over time, but it is going to put some financial pressure on them.

Right. And then, finally just on FMS for V-22. Obviously, on the second multiyear, the margins to the U.S. DOD come down, should we assume FMS margins come down similar -- obviously, they're ahead of that from the sale, yes, but will FMS margins be similar to the new lower DOD margins? Or will they be somewhere in between the new margins and maybe where you're running today?

Jeff, obviously, not having done one yet, we don't know for sure. But my expectations is that these FMS deals would effectively look like options exercised on top of the multiyear. So you would expect price and margin to be consistent with the current sales under the multiyear 2 [ph] program.

All right, ladies and gentlemen, that brings us to a wrap on the hour. Thanks for joining us. I know that we have a few follow-up calls in queue, and we'll make those callbacks at the conclusion of this call. Thank you very much.

And ladies and gentlemen, this conference will be made available for replay after 10:00 today running through July 16 at midnight. You can access the AT&T Executive playback service at any time by dialing 1 (800) 475-6701 and entering the access code 265925. International participants may dial 1 (320) 365-3844. That does conclude our conference for today. Thanks for your participation and for using AT&T Executive TeleConference Service. You may now disconnect.