Woodward, Inc. (WWD) Q4 2015 Earnings Report, Transcript and Summary

Thank you for standing by. Welcome to the Woodward, Inc. Fourth Quarter and Fiscal Year 2015 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you will be invited to participate in a question-and-answer session. Joining us today from the company are Mr. Tom Gendron, Chairman and Chief Executive Officer; Mr. Bob Weber, Vice Chairman, Chief Financial Officer and Treasurer; and Mr. Don Guzzardo, Director of Investor Relations and Treasury. I would now like to turn the call over to Mr. Guzzardo. Don Guzzardo - Director-Investor Relations & Treasury: Thank you, operator. We would like to welcome all of you to Woodward's fourth quarter and fiscal year 2015 earnings call. In today's call, Tom will comment on our markets and related strategies and then Bob will discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those of you who've not seen today's earnings release, you can find it on our website at woodward.com. We have again included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through November 23, 2015. The phone number for the audio replay is on the press release announcing this call and will be repeated by the operator at the end of the call. Before we begin, I'd like to refer to and highlight our cautionary statement as shown on slide three. As always, elements of this presentation are forward-looking or based on our outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Please consider our comments in light of the risks and uncertainties surrounding those elements. We also direct your attention to the reconciliations of certain non-U.S. GAAP measures included in today's slide presentation and our earnings release and related schedules. Management uses these non-U.S. GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment. Turning to our results for the fiscal year, net sales for the fiscal-year 2015 were $2.04 billion, an increase of 2% compared to $2 billion in fiscal 2014. On a constant-currency rate basis when compared to the prior year, sales would have been $2.01 billion, an increase of approximately 5%. Earnings per share were $2.75 for the fiscal year, an increase of 12% compared to $2.45 for the prior fiscal year. On a constant currency basis, earnings per share would have been approximately $2.91, an increase of 19%. Free cash flow for the fiscal year was $1 million compared to $61 million in fiscal year 2014. Fiscal 2015 capital expenditures were $80 million higher than in the prior year. To focus specifically on the quarter, net sales for the fiscal 2015 fourth quarter were $563 million comparable with the fourth quarter of the prior year. On a constant currency basis, when compared to the prior year quarter, net sales would have increased 3%. Earnings per share were $0.77 for the fourth quarter of fiscal year 2015, consistent with earnings per share for the fourth quarter of fiscal year 2014. On a constant currency basis, earnings per share would have been approximately $0.84 per share, an increase of 9%. Now I will turn the call over to Tom to comment further on our results, strategies and markets. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Thank you, Don. Welcome to those joining us today. 2015 was a challenging year, but I'm pleased to report that we finished in line with our original full-year expectation, despite difficult market conditions. In Aerospace, we saw a solid sales growth across most of our markets, including commercial OEM and aftermarket general aviation and defense. Segment margins expanded significantly even with our new facilities being brought online. Our Energy segment delivered solid results in the face of significant headwinds. Volatile Asian markets and negative foreign currency impacts were partially offset by strength in wind turbines and industrial gas turbines. Despite these challenges, we maintained our segment margins compared to the prior year. We accomplished a great deal in fiscal 2015, most significantly we signed agreements with Aircelle and Boeing to supply thrust reverser actuation systems for two new aircraft, the Airbus A330neo and the Boeing 777X. We also supply the TRAS for the A320neo and the Boeing 737 and 737 MAX, 777 and 747-8. These wins solidify us as the global leader in thrust reverser actuation systems. We were awarded the fuel system for the GE9X, which will power the Boeing 777X through our announced joint venture with GE Aviation. The joint venture will be the exclusive supplier of fuel systems for GE's large aircraft engines, which will power the Boeing 777, 747-8, 787 and 777X. We generated our first sales related to the next-generation narrowbody aircraft in preparation for their approaching launches. On the Energy side, despite the headwinds we faced this year, we continue to introduce new products such as all-electric valves and actuators for heavy frame gas turbines to improve efficiency and enhanced connectivity and a new and expanded portfolio of control solutions for steam turbine. We also launched fuel system controls for dual fuel engines and new controls for diesel engines, which enable us to help achieve Tier IV emission requirements. These accomplishments reflect the success of our system strategy to increase share in content on each new platform as they're introduced. As volumes ramp up over the coming years, this will represent significant market share growth for Woodward. Also, we completed our two new Aerospace facilities in fiscal 2015 and will complete our new Energy facility in the first half of 2016, each coming in on-schedule and on-budget. As we have noted previously, these facilities were designed to add capacity for the new programs we have been awarded and also apply lean principles to our manufacturing processes. Through process improvements and automation, these facilities will drive a step change in productivity. Turning specifically to our Aerospace markets, the Aerospace industry continues to be healthy, driven by increasing demand for more fuel-efficient aircraft, coupled with increased growth in passenger miles and utilization. Commercial Aerospace remained strong with backlogs at record levels. Large transport aircraft orders continue to be positive. A320neo is on track and the first flight of the 737 MAX is expected in early 2016. Commercial aftermarket continues to be driven by higher utilization and growth in global passenger traffic. Defense market remained stable with some growth in aftermarket and smart weapons related to the continued turmoil in the Middle East. Boeing also made its first flight of the KC-46A, which includes significant Woodward content. Overall, our Aerospace segment continues to perform well and the long-term outlook in this market remains bright. Turning to Energy, the heavy frame gas turbine market continues to be driven by the demand for aftermarket parts and services, as gas turbines for power generation are seeing higher utilization due to low natural gas pricing. The increased desire for renewable power is driving growth in the wind turbine market and we expect steady growth in the coming years. The economic slowdown in Asia has negatively impacted many of our industrial markets. The natural gas truck and bus market in Asia continues to be soft, as government incentives, natural gas supplies, and other factors have dampened demand. We believe this business has strong long-term potential and we understand that Energy policy initiatives in China are being proposed that would incentivize the use of natural gas vehicles. Similar to large industrial companies with exposure to Asia, we are seeing softness in many of our markets in the region and we anticipate this to continue into 2016. Near term, share gain realization and aftermarket growth are helping to offset a challenging operating environment. The long-term secular trends of increased electric power demand, greater use of natural gas, and more stringent emission regulations that drive our Energy business remain positive. In summary, in both segments, market share gains are contributing to sales growth and we continue to expand our margins with our focus on lean manufacturing principles and operational improvements. 2016 will be an exciting year as we transition from an investment cycle to a return cycle. We will complete the significant capital investment projects for the last three years and launch the programs that have required a significant amount of R&D. While we believe the economic environment in 2016 will also be challenging, we are well positioned for growth and will remain proactive in addressing an uncertain and challenging and changing environment. Now let me turn it over to Bob to discuss our financials. Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: Thank you, Tom. We finished a challenging fiscal 2015 with a solid fourth quarter and we delivered earnings for the year within our original expectations. In Aerospace, sales increased 5% in the quarter, mainly due to strong commercial OEMs and aftermarket, with both up in the fourth quarter more than 10% compared to the prior-year quarter. Defense sales for the quarter were comparable to a very strong prior-year quarter and for the fiscal year commercial aftermarket sales were up approximately 6%. Aerospace segment earnings were $60 million for the quarter, a 5% increase compared to the prior-year quarter. Segment earnings were primarily driven by the increased sales volume and favorable mix, which were partially offset by higher manufacturing costs, including costs associated with the start-up of two new facilities. Segment earnings as percent of sales were 17.9% for the quarter, consistent with the strong prior-year quarter. Segment earnings as a percent of net sales for fiscal 2015 were 16.2% compared to 14.7% in fiscal 2014, exceeding our one point margin improvement goal. Our Aerospace segment was not impacted by foreign currency. In our Energy segment sales decreased $20 million or 8% compared to the prior-year quarter, strength in both wind and gas turbine markets was offset by negative sales volume impacts from a weak economy in Asia and negative foreign currency exchange rate impacts. Foreign currency exchange rate impacts had a negative $19 million impact on sales for the quarter. On a constant-currency basis compared to the prior year, Energy segment sales for the full fiscal year would have been $941 million, compared to $917 million in the prior year, an increase of 3%. Energy segment earnings decreased $6 million for the quarter. Segment earnings as a percent of sales were 13% for the quarter compared to 14.2% for the prior-year quarter. The decrease in earnings was primarily driven by the negative impacts of foreign currency exchange rates. On a constant-currency basis, Energy segment earnings as a percent of sales for the quarter would have been consistent with the prior year at 14.2% for the fourth quarter. Energy segment earnings as a percent of net sales for the full-year 2015 were 14.4% compared to 14.6% for the prior year, reflecting strong cost control in a very difficult environment. On a constant-currency basis, Energy segment earnings as a percent of sales for fiscal 2015 would have been 15.1%, in line with our margin improvement goal. At the Woodward level, gross margin for the fourth quarter of 2015 was 28.4% compared to 29.7% in the prior-year period. Gross margin for fiscal 2015 was 28.7%, consistent with the prior year. For the full year, we absorbed approximately $10 million of plant start-up costs related to our two new Aerospace facilities. Research and development costs for the fourth quarter of 2015 were approximately $37 million, or 6.5% of sales compared to $38 million or 6.7% of sales in the prior-year period. For fiscal 2015, research and development was 6.6% of sales compared to 6.9% for fiscal 2014. For fiscal 2016, we expect our R&D expense as a percent of sales to be down slightly compared to fiscal 2015. Selling, general and administrative expenses for the fourth quarter of 2015 were approximately $39 million or 7% of sales compared to $42 million or 7.5% of sales in the prior-year period. For fiscal year 2015, selling, general and administrative expenses were 7.7%, consistent with the prior year. The effective tax rate for the fourth quarter of 2015 was 27.2% compared to 31.2% for the fourth quarter of 2014, primarily reflecting impacts related to international tax matters. For fiscal-year 2015, the effective tax rate was 24.7% compared to 27% for fiscal 2014. For fiscal 2016, we expect our effective tax rate to be approximately 28%. Looking at cash flows, we generated $287 million of cash flow from operations for fiscal 2015 compared to $268 million for fiscal 2014. The increase is primarily the result of improved earnings. Free cash flow for fiscal 2015 was $1 million compared to $61 million in fiscal 2014. The decrease is attributable to an $80 million increase in capital expenditures in fiscal 2015 related to increased spending on our capacity expansion projects. Capital expenditures were $287 million for fiscal 2015 compared to $207 million for fiscal 2014. For fiscal 2016, we anticipate capital expenditures to be approximately $180 million. In the second half of fiscal 2016, we expect to see a significant reduction in capital expenditures related to our investments in additional production capacity. These investments are related to our awards on the new narrowbody aircraft and market share gains related to the globalization and expanded use of natural gas. Free cash flow for fiscal 2016, excluding the impact of cash related to the formation of our joint venture with GE, is anticipated to be approximately $75 million. In fiscal 2015, we returned $182 million to our shareholders through share repurchases and dividends. In May 2015, we announced the plan to repurchase $250 million of our common stock by approximately May of 2016. In the fourth quarter, we completed the repurchase of $125 million of our common stock and anticipate completing the remainder in the first half of fiscal 2016. Turning to our outlook; overall, in the coming year we expect the positive demand to add momentum in our Aerospace segment to continue and our Energy segment to show slight improvement despite the considerable market uncertainty we face. We anticipate fiscal 2016 sales to be up 1% to 2% from 2015. We continue to see margin expansion as a result of our focus on lean initiatives, process improvements and cost controls. For 2016, we anticipate our Aerospace segment margins to increase 50 basis points to 100 basis points compared to fiscal 2015. While in our Energy segment, we expect margins to be flat to up 50 basis points compared to fiscal 2015, despite a challenging economic environment in 2016. We anticipate earnings before interest and taxes to be up approximately 5% and earnings per share to be in the range of $2.75 to $2.95, assuming approximately 63 million fully-diluted shares outstanding. Historically, our fiscal first quarter is sequentially lower as a result of normal business trends and a lower number of working days due to holidays and plant shutdowns. In 2015, we experienced a strong first quarter and headwinds related to foreign currency impacts and Asian economic uncertainties had not yet materialized. We anticipate the first fiscal quarter of 2016 will be considerably lower than fiscal 2015, and more in line with previous years. We will continue to aggressively pursue operating improvements and manage our cost structure to deliver improved earnings and cash flow in 2016. In summary, in light of the significant headwinds in fiscal 2015, I believe, we delivered a strong year and a solid fourth quarter. Operator, we are now ready to open the call for questions.

Thank you. Our first question comes from the line of Gautam Khanna. Your line is now open. Please proceed with your question. Gautam Khanna - Cowen & Co. LLC: Yes, thanks. Gautam Khanna of Cowen. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yes, hello. Gautam Khanna - Cowen & Co. LLC: Gentlemen – hello, how you? Thanks for the great color in the prepared remarks. I was hoping you could tease out a little bit more of the segment sales guidance, if you will. What should we anticipate, what are you assuming for the Energy segment and if you could maybe parse out the various end markets within that segment as to your expectations? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure. As we said, Aerospace we believe will remain strong and we're probably looking at approximately a 2% to 4% increase in Aerospace. We do believe that Energy will remain challenging with really no major change in any of the assumptions and we're looking at approximately 0% to 2% on segment earnings for our Energy segment. What I did I say, segment earnings? Gautam Khanna - Cowen & Co. LLC: Yeah. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sorry, sales. Sales, sorry. Gautam Khanna - Cowen & Co. LLC: 0% to 2%, down 0% to 2% and plus 2% to 4% at Aero, is that right? Thomas A. Gendron - Chairman, President & Chief Executive Officer: No, 0% to 2% up for Energy sales. Gautam Khanna - Cowen & Co. LLC: Okay. Thomas A. Gendron - Chairman, President & Chief Executive Officer: And 2% to 4% up for Aerospace sales. Gautam Khanna - Cowen & Co. LLC: Okay. And within Energy, can you talk about some of the major end markets. I assume that you're assuming wind will be much stronger than the other areas, but what are you assuming for Chinese natural gas and truck, perhaps you can also frame IGT derivatives and some of the other power gen markets? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure. Yeah, you mentioned wind first. I would not characterize it as up as strongly as you characterized. We do believe wind will continue to increase as we've called out in the past, we think it's been nice increases, nothing like the very massive increases of the old days, but much more stable. So, we expect to see nice increase overall in wind again. In some of the other segments, we believe most of the underlying assumptions will remain as we have seen this year. So in Asia, we haven't seen anything that would indicate a substantial uptick or a decline overall in Asia and in particular, in the Asian CNG natural gas vehicle market, we do not anticipate a change from the current period. So we believe that will be fairly stable, which means it will be – it was down from 2014 to 2015. We anticipate it will not increase significantly going into 2016 and probably remain in the same general area. We continue to – sorry, go ahead. Gautam Khanna - Cowen & Co. LLC: Sorry, please continue. My apologies. Thomas A. Gendron - Chairman, President & Chief Executive Officer: On the IGT side, we continue to believe that the aftermarket side will remain strong and I think you've seen some of the OEM producers indicate that they do believe OEM should return to some growth in 2016. So, we believe we'll see some growth on the OEM side and remaining strength in the aftermarket side. Let's see, were there any other specific areas you inquired about? Gautam Khanna - Cowen & Co. LLC: No, that was a very helpful discussion. And I just wanted to ask one last one. You made a comment about Q1 being sequentially down as it typically is, but to mirror that of prior years. And were you specifically referencing fiscal 2013 or 2014, and what is actually – because it's quite a range, if you go back to prior Q1. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yeah, if you went back to 2014, 2015 clearly was an exceptionally strong quarter, so we wanted to make sure that the patterns of the past relative to the full year are probably more indicative of the way we believe this year will pan out. Gautam Khanna - Cowen & Co. LLC: Okay. Okay. Thank you very much.

Thank you. And our next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is now open.

Hi, good afternoon, guys. Thank you for taking my questions. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Hi, Sheila.

Hey. Just one follow-up on the Energy one quickly. There was some organic improvement in the quarter. Would you attribute that to, I guess, the IGT business, OEM aftermarket and that's what's expected to continue? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yes, we had good aftermarket in the IGT business, the OE side with our customer mix, it's favorable. You know, with the way the order book's flowing, so we see that as a positive. But what we also saw in the fourth quarter of 2015 and we see going into 2016, the market share gains that we've been talking about the last three years have entered production and we are generating sales from those. So those are offsetting some of the market declines and that covers diesel engines, natural gas engines, as well as steam turbine portfolio and the gas turbine portfolio. So, we are starting to see the market share gains and that's one of the things that's keeping us positive going into 2016 on sales.

Okay. Got it. Thank you. And then just within the Aerospace business on the margin side, the 50 basis points to 100 basis points of improvement, could you maybe elaborate a little bit more on how mix play a factor into that and also R&D and any start-up manufacturing costs we should be thinking about? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Well, the R&D and start-up manufacturing costs are all built into that, primarily what we're seeing is continued margin improvement. And I'd say the bulk of it's coming from our lean manufacturing initiatives, our new facilities are going to facilitate that as well. So, it's all part of the plan we've had. Good aftermarket obviously plays into that and our aftermarket is holding, and do you want to say, progressing as planned, so most of it is coming out of productivity initiatives.

Got it. Thank you very much. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure.

Thank you. And our next question comes from the line of William Bremer from Maxim Group. Your line is now open

Good morning, gentlemen Thomas A. Gendron - Chairman, President & Chief Executive Officer: Hi, Bill. Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: Hi, Bill.

Could you give us an update on the joint venture with GE and how that's playing through for 2016 versus say when it was announced? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Really no significant change whatsoever. We're still on-track. We believe we'll close at the end of the colander year and as we've mentioned in the past, no significant impact to our either top or bottom line. Some geography change and that's about it

Okay. So you basically voiced early and I'm not sure if I heard you correct, the Aerospace up 2% to 4%, that's on a year, right, and Energy 0% to 2%? Thomas A. Gendron - Chairman, President & Chief Executive Officer: That's right.

Okay. And first quarter we're voicing pretty much, you know, more historical for first quarter. Is it mix or what really is the reason behind such a more muted type of first call here on the first quarter? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Bill, it's really volume we're looking at, the delivery books as well as, definitely we have less working days in the quarter, with holidays and shutdowns, we do shut our plants down here in the first quarter. So, when we combine all that, we see lower volume, which is going to equate to lower earnings in the first quarter than last year. Last year was an abnormal – well, it was a positive year. We're going to be more traditional, which is our first quarters are generally down.

Okay. Thank you. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure.

Thank you. And our next question comes from the line of J.B. Groh from D.A. Davidson. Your line is now open. John B. Groh - D.A. Davidson & Co.: Hey, guys. Thanks for taking my call. I think I can probably back into this answer from your guidance, but could you talk about the R&D budget for 2016 and should that kind of mirror what's going on with CapEx, or is it going to be completely independent? Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: It would be more independent. So, we've had high spend in both the R&D side and the capital side. The capital will be falling off in the first – at the end of the first half. The R&D spending will be largely flat is what we called out for 2016. John B. Groh - D.A. Davidson & Co.: And when you say flat, you mean flat dollars or flat percentage of revenue, I guess, when it's flat growth it doesn't make a difference. But... Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: No, you're right. Much to our dismay, but yes. John B. Groh - D.A. Davidson & Co.: Okay. All right. Hey, that's all I had. Thank you. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure. Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: Thanks.

Thank you. And our next question comes from the line of Michael Ciarmoli from KeyBanc Capital Markets. Your line is now open.

Hey, good afternoon, guys. Thanks for taking my questions. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure.

Maybe just on the guidance for next year, if I'm looking at this and doing the math on a share count of 63 million, 28% tax, to get down to that $2.75, it would almost assume margins have to decline year-on-year. So maybe can you give us the puts and takes to what needs to happen to hit that low end versus the high end on earnings or are there any other moving parts in there or anything else going on with corporate? Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: Just to make sure, so the midpoint of the range is $2.85, right?

Right. I'm asking about the low end, though, how do you get down to...? Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: The low end of the range. Yeah, as you point out, there are a lot of puts and takes potentially. We do believe the Energy side of the equation has lots of uncertainty. So further volume reductions on the Energy side would probably be what it would take to get down to the low end of that range.

So would that – but then – would there be revenue downside then on the Energy, I mean assuming it seems like then the EPS bakes in volume declines, but the top line doesn't, I think you guys got it, you said flat to 2% on Energy, so would that kind of volume pressure assume Energy could be worse than flat next year? Robert F. Weber - Vice Chairman, Chief Financial Officer & Treasurer: No. I mean we still believe it will be 0% to 2%. I think from the – obviously there's a lot of mix embedded in that, so there are ups and downs and ups and downs. So that relative mix even on flat sales could cause to us hit the bottom of that range.

Okay, okay. And then just on Aerospace, as the neo cuts in should we – and we start to see Airbus transition to more production of the neo. I mean should we be thinking about a different kind of ramp in the Aerospace segment, just as the cadence of neos versus the current engine ramps up? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Well, definitely as we – the Neo hits in 2016 and the MAX in the 2017 and you see the production rate going up, they're going to be transitioning as you're calling out. So, we see really some nice steady growth in the Aerospace segment between 2016 and 2018 as the lines – as the production ramps and as the lines switch over from the current version to the new versions. Same time we also believe we'll be seeing a much higher level of initial provision in spares tied to the large amount of content we have on these new programs and the launch of a brand new engine. So, as we move from 2016 as the neo gets going and into 2017 when the MAX and then to 2018, that is the future growth profile that we believe we're going to be seeing going forward and it's very healthy.

Got it. You bring up a good point on the provisioning. Do you expect to see any of the neo provisioning sales this year? Will that move the needle or is that you think that'll be more of a 2017 event? Thomas A. Gendron - Chairman, President & Chief Executive Officer: We think we're going to start seeing it in 2016 and with provisioning it's not like a production line, so there's a little bit of timing with it. There's quarterly variability, but we will start seeing in 2016 and definitely in 2017. So it will start this year.

Okay. Perfect. And then just last one for me guys, you called out aftermarket being up 10% in the quarter, were there any – and I think we're still seeing kind of choppiness out there, were there any specific platforms that you guys could point to that drove that growth, was it just kind of strength across the board or any color there? Thomas A. Gendron - Chairman, President & Chief Executive Officer: I would say it was strength across the board. When you get out of the summer season you start to see some maintenance work taking place, so that always helps drive some of the aftermarket and we did have a good spares sale quarter. So, it was across the board mix of all sorts, but very healthy aftermarket.

Got. Perfect. Thank you very much, guys. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure.

Thank you. And our next question comes from the line of Jim Foung from Gabelli & Company. Your line is now open. Please proceed with question.

Hi. Good morning, guys, good evening rather. So I was wondering if you're seeing any pressure from Airbus on the narrowbody production, they increased their, top rate to 60 a month by 2019. But I think clearly they probably want to kind of produce more in the early years, before 2019. So if you could just comment if you've seen any kind of pressure on their part. And maybe even Boeing too, because Boeing most likely will follow the higher production number in order not to lose share? Thomas A. Gendron - Chairman, President & Chief Executive Officer: We've had all of our customers in, both engine level as well as airframe level for the narrowbodys as well as the regionals. Doing what they really we call rate readiness reviews and because of the, I'd say, very good planning we did and customers are very pleased. They are coming in and seeing our new facilities, seeing the capacity we put in. And we've been very able to show them that we can handle all their ramps and all the forecasts they've come up with, because that's what we've plan for. Now obviously as we go to the higher volumes we have to add some more machinery, but we're set to do it, so the reviews have gone very well and what I can say there, Jim, is we're not going to be the bottleneck. We can handle whatever they put at us.

Okay. But you're not seeing them asking you for more output...? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Nothing – we're not seeing any nothing different than they are publicly stating.

Right. Okay. And then just kind of switching gears a bit to the defense business, could you just talk a little bit about what you're seeing there with the defense budget increasing and kind of potential upside you could see in 2016 with growth in that business? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yeah. We still look at defense as being stable to up. It's not going to be huge growth, but some of the things that we're seeing are good, a lot of activity in smart weapons, and we're also seeing if you want to say the maintenance side still continuing strong, and we are anticipating some of the new programs coming online from the Joint Strike Fighter to the new tanker to some of the new – other new programs that we have good content on. So, across the board, defense for us is going to be stable to upside.

Okay, great. Thank you, Tom. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yes. Thanks, Jim.

Thank you. And our next question comes from Steve Levenson from Stifel. Your line is now open. Please proceed with your question. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Thanks. Good afternoon, everybody. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Hi, Steve. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Could you tell us a little bit about the mechanics of closing the joint venture with GE. What's left to do and how the money comes in, and how that relates to the buyback and your interest expense in 2016, fiscal 2016? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Sure. There is very, very little left to do. We have received regulatory approvals and so on, so there's not a lot other than that final sitting down and signing documents one last time. We will see at that time the $250 million related to the sale of future – one half of the future cash flows. There will be large tax bill that will go along with that and then we'll see the net of that next year in cash flow. Other than that, there's not a lot of change. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay. Good enough. Thank you. And what's left to do on the construction both on Aerospace, I know you've completed the facilities, are you all moved in, everything already up and how's the schedule for Energy? Thomas A. Gendron - Chairman, President & Chief Executive Officer: On the facilities, we have two Aerospace facilities. The one in Niles is fully up, operational, everything's moved in. All equipment's in place. On the one in the Rockford, we call the Rock Cut Campus, is supporting fuel systems, facility is complete. We are moving people in. We still have a lot of machinery that's going to come in over the next six months, but we have some of the lines getting ready, get the rest of the equipment in and it would be second half of 2016 (37:43) in production in that facility. So, that's a little bit what Bob was relating first half, second half. Most of the large remaining capital will be in the first half and it would be more in what we refer to as normalized maintenance level capital in second half of the year. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Okay. And on the Energy side, do you expect to see some margin pickup from the move; I mean how quickly do you expect to see some margin pickup from the move? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yeah, the first thing on the Energy side, thanks, I didn't answer that part. The facility itself is to be completed at the end of the calendar year here, end of December, so it's really close. We have about a five-month move plan, for some of the equipment as well as new equipment being put – being installed, some of it's being installed right now, so that transition will be really through the first half of the year. During that transition, it's more expense than it is productivity benefit. We are going to be absorbing just like we did last year, we will be absorbing the move expenses and the like to get the start-up going, but once the start-up gets going, we believe we'll start seeing productivity, really probably more in the last quarter of the year moving into 2017 for that Energy facility. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Got it. Thank you very much.

And thank you. Our next question is a follow-up from the line of Gautam Khanna from Cowen & Company. Your line is now open. Gautam Khanna - Cowen & Co. LLC: Yes. Thanks for the follow-up. I was wondering if you could just expand on your comments about Q1. Are we implying something under $0.40 in earnings in Q1 and if you could talk about the sequential sales level, where are you going to see the greatest sequential decline, which segment? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yes. One thing that I'd like to highlight, we're trying to help everybody – remind everybody that first quarter is a tough quarter. We don't want to get into – not going to get into quarterly guidance, but we will see lower sales in both segments in the first quarter relative to last year. And what we want everybody to do is recognize that and that there will be more of a traditional flow of sale, revenue and earnings as we had in past years. And it won't follow the – what happened in fiscal year 2015. So that's we're just cautioning so everybody can work their models to reflect that. Gautam Khanna - Cowen & Co. LLC: Can you comment a little bit on whether one segment will be down more sequentially than the other? Thomas A. Gendron - Chairman, President & Chief Executive Officer: Energy will be down more. And the reason for that, if you recall, first quarter last year we had not had the hit from Asia yet in there. We had stronger CNG sales and we were saying earlier, we're not really seeing a recovery in that, that's built into our outlook and built into sales guidance that we gave for the full year. So, first quarter would be tough around Energy. Gautam Khanna - Cowen & Co. LLC: Okay. Thank you. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Yes, you bet.

Thank you. Mr. Gendron, there are no further question at this time. I would now turn the conference back to you. Thomas A. Gendron - Chairman, President & Chief Executive Officer: Okay. Well I appreciate everybody joining us today and thanks for your questions. I would also like to remind all of our investor friends that we do have our upcoming Analyst Investor Meeting in New York City on December 11 and hope all of you can join us where we'll be going into more detail on the year, on our business, on our growth outlook for the next five years. So, hope to see you all here in about a month and thanks again for joining us today.