Leonardo DRS Inc (DRS) 2005 Q4 法說會逐字稿

Good morning everyone and welcome to today's DRS Technologies conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen, this conference call is being recorded.

Now at this time for opening remarks and introductions, I would like to turn the call over to Ms. Patricia Williamson, Vice President, Corporate Communications and Investor Relations for DRS Technologies. Please go ahead.

Thank you, Rose. Good morning, and thank you for joining us on today's conference call to review DRS Technologies financial results for the fourth quarter and full year which were reported earlier this morning. With me today are Mark Newman, Chairman, President, and Chief Executive Officer of DRS Technologies, and Richard Schneider, the Company's Executive Vice President and Chief Financial Officer.

Before we begin I would like to remind everyone that we are providing a simultaneous webcast of this call to the public. An archive of this webcast will be available later this morning in our website, and will remain online for approximately 90 days.

Today's remarks may include some forward-looking statements and certain non-GAAP financial metrics. For more information regarding the Company's definition of these metrics and their usefulness in interpreting DRS's financial results please refer to the Company's fiscal 2005 and fourth quarter earnings release and our filings with the Securities and Exchange Commission.

In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, please note the risks and uncertainties related to forward-looking statements, which are more fully described in the news release and in the Company's filings with the Securities and Exchange Commission. DRS does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future results, or otherwise.

I'd now like to turn the call over to Mark Newman. Mark.

Thanks, Pat, and good morning to you all. I'm pleased you could join us for today's call to discuss the results of fiscal 2005 and fourth quarter ended March 31st. Earlier this morning we reported record results for both periods, as DRS continued to grow as a leading C4ISR technology company. For fiscal 2005, we delivered significant increases in revenues, operating income, EBITDA, and net earnings. Free cash flow was very strong exceeding $100 million for the first time. Organic revenue growth rose into the double digits, 11.5% for the year. A record $1.4 billion in bookings drove funded backlog to a new high of 1.3 billion at the end of the fiscal year, delivering a 1.1 to 1 book-to-bill ratio, and providing us with a strong foundation as we entered fiscal 2006.

Notably we delivered higher operating margins, 11.5% for the quarter, and 10.9% for the fiscal year, which would have been even higher, 13% for the quarter and 11.4% for the year, without the charge we took for the settlement of litigation. Nevertheless, we're pleased to put this legal matter behind us, so we can devote our full attention to growing the business. Net earnings for the year were $2.18 per diluted share including earnings from discontinued ops, compared with $1.80 for fiscal 2004. Earnings from continuing operations were $2.22 per diluted share before the charge for litigation. After the $0.13 impact for litigation earnings from continuing operations were $2.09 per diluted share, on 3 million more diluted shares outstanding than the year before.

Cash generated by continuing operations for the year was very strong, and free cash flow was $102 million. We used our strong free cash flow to continue to pay down debt, prepaying a total of 45 million of our term loan during the year, including $20 million in the fourth quarter. The top and bottom-line growth in the quarter and year was broad-based and attributable to the solid performance of both of our operating groups, as well as acquisitions completed over the past year. The fourth quarter was our 20th consecutive quarter of improvement on a comparative year-over-year basis.

Revenues and operating income were quarterly records, and our operating margin was 11.5%, as I mentioned. Net earnings for the quarter were $0.61 per diluted share including discontinued operations. Before the charge for litigation, earnings from continuing operations were $0.69 per diluted share, after the $0.11 impact from the charge, earnings from continuing operations were $0.58 per diluted share.

As announced in a separate news release this morning, for the first time DRS's Board of Directors declared a quarterly cash dividend of $0.03 per share. This action points to our financial strength and the Board's confidence in our long-term growth prospects. We're pleased to be able to return profits to our stockholders and believe this action will promote broader holdings of our common stock, expanding our institutional and mutual fund base.

When we reported the third quarter, we indicated our intention to divest two company units in non-core business areas, which were acquired with IDT in fiscal 2004. We're pleased to report that during the fourth quarter we completed the sale resulting in a small gain. As part of our plans for strategic growth and in our ongoing program of evaluating our operation we have demonstrated by this action, that we're not only focused on acquiring and integrating carefully select businesses, but we're willing to divest operations that are not a strong strategic fit with our existing operation.

In the fourth quarter we also completed the acquisition of Codem systems. Codem develops and produces SIGINT network interface and antenna control systems used in intelligence operations. Codem is a great fit with DRS's existing intelligence business, providing important systems engineering software capabilities, as well as hardware development for communications and surveillance applications in the growing intel and Homeland Security markets. It brings to our C4I group, a large established installed base of products, long-standing customer relationships, and an international defense presence. As we indicated previously Codem is expected to be accretive to earnings and generate approximately $25 million in fiscal 2006 sales. We're pleased to welcome the management team and all of the employees of Codem systems to DRS.

As highlighted in today's news releases we booked a record $394 million in new business during the quarter and our C4I segment we captured $191 million in contracts for the quarter, with 48 million associated with electronic manufacturing services, primarily supporting the Navy's UYQ70 advanced display systems program, which continues to populate surface ships, submarines and Hawkeye aircraft, with systems all manufactured by DRS. As we've mentioned, Lockheed Martin and DRS will continue providing these systems for the next five years to the Navy.

On the Army side the C4I group booked $44 million in battlefield digitization systems in the fourth quarter. The largest orders were associated with our rugged Appliqué Computer Systems for the Army's FBCB2 program. Having completed qualification testing of the upgraded Appliqué systems, we're now in full production under this multi-year IDIQ award. Demand for these systems remains strong and in the fourth quarter DRS delivered 2,000 FBCB2 systems, with 12,500 delivered in all during fiscal 2005.

These upgraded systems are supporting the Army's blue force tracking requirements in Iraq and Afghanistan, and include beyond line of sight tracking and information integration with the Army's battlefield visualization efforts. Our systems are providing a seemless flow of battle command information and interoperability with external C-2 and sensor systems and are really making a difference in improved situational awareness, down to the individual soldier unit. Support for this program in the five-year defense budget remains strong and is well positioned for continued growth.

Our intelligence systems business had another strong bookings quarter with $42 million in contracts for receivers, tuners, signal processing equipment and recorders in support of intel operations. We expect this business to remain robust with the addition of Codem, and the ongoing interest on national security, in the U.S. and abroad.

$33 million in new orders was booked by our power systems business during the fourth quarter for ship control, power generation, propulsion and distribution systems supporting the current fleet of ships and submarines as well as new builds. While some future platform programs are in somewhat of a state of flux at the moment, over the long term we have confidence that the Navy will not abandon its need to move to electric-drive warships. Electric drive has the ability to transfer sufficient electric power from propulsion and ship service systems to advanced electric weapons, sensors, and countermeasures while the ship is on the move, a capability not currently possible with conventional power systems. In the fourth quarter DRS was notified that it has been selected by DARPA and the Navy to provide shaftless production technology for the Tango-Bravo submarine project. This initiative focuses on implementing innovative technologies, such as electric drive, for a demonstration submarine that will be half the size and cost of current subs.

Turning to our Surveillance and Reconnaissance segment, this group booked a record $203 million in new contracts in the fourth quarter. $51 million of this new business related to our uncooled infrared technology products, and we saw our first large production orders starting to come through on some new programs we won last year, including $36 million in awards under the thermal weapon sites program.

We also booked 25 million in airborne FLIR sensor and sighting systems on the mass mounted site upgrade and Apache Arrowhead program, having successfully transitioned these programs to full rate production. Earlier this week the first Arrowhead target acquisition and night vision sight for the Apache helicopter was delivered to the U.S. Army. Arrowhead begins a new era of advanced target acquisition, designation, and night vision capabilities for Army aviation, and DRS is producing the targeting receivers in this system for Lockheed Martin.

With a focus by the Army on the need to recapitalize ground, as well as air combat forces, funding to sustain Army modernization programs for the current force structure remains strong. We continue to see solid orders for DRS's equipment supporting Army budget priorities, including $18 million in funding in the quarter for ground-based thermal sites incorporating second-generation FLIR technology. Add to this the steady orders for tests and diagnostics systems for the Abrams and Bradley tanks, 16 million in the quarter, and you can see how DRS stands to benefit from the funding support the Army is receiving, for its recapitalization plans for the current force.

We also had a strong bookings quarter for combat training and range support systems with $24 million in new orders in the fourth quarter. The largest awards were associated with the EnRAP and P-5 combat training systems programs. These awards reinforce DRS's key role in military modernization and reflect budget priorities over the next several years. DRS closed the year with a record $1.31 billion in funded backlog.

Our backlog continues to be comprised of hundreds of diversified programs that position us well, and many demonstrate our strength in leap-ahead technologies that support the current force, as well as the regular threats we continue to expect in the future. Our outlook for DRS is excellent, underpinned by several multi-year programs where we are a sole or dual-source provider.

As we indicated in today's release we provided fiscal 2006 guidance for the first time. Sales of $1.45 billion to $1.5 billion are expected, representing an 11 to 15% year-over-year increase. 6 to 8% of the revenue growth should be organic, and our operating margin is expected to be about 11%. We estimate diluted EPS from continuing operations to range from $2.35 to $2.45 for the year on diluted shares outstanding of $28.5 million. We estimate free cash flow to be $40 to $50 million for fiscal 2006.

It's important to note that these estimates reflect the increased interest expense from our fiscal 2005 bond offering, but they do not include the potential benefit we could receive by utilizing remaining cash from the offering for accretive acquisitions. For the first quarter of the new year ending June 30th, we anticipate sales in the $310 to $320 million range, with diluted EPS from continuing operations of $0.41 to $0.43 on about 28.2 million diluted shares outstanding.

Fiscal 2006 is expected to be another strong year for DRS and we're well positioned to continue our participation in growing segments of the defense budget and priority areas of the supplemental. The Company continues to focus on customer satisfaction in excellence and operational and financial performance with all business areas across both segments executing well this past fiscal year.

DRS is in a strong position to continue to capture follow-on and spiral modernization programs, where we can accelerate deliveries of our technologies to the current force. Our position is well balanced with a leadership role in key technologies that are helping the military upgrade its current assets, as well as helping to accomplish transformational objectives in our areas of expertise for a networked mobile future force.

This concludes our prepared remarks for today, and at this time Rich Schneider and I will be happy to take your questions.

Thank you very much. [OPERATOR INSTRUCTIONS]

First, Steve Binder of Bear Stearns.

Good morning.

Hi, Steve.

Can you maybe just touch on whether -- you identified the $5.5 million charge. Were there any favorable cum adjustments or favorable contract adjustments, especially in the S&R group?

Nothing significant, Steve.

So basically, you know, what caused that bump in the S&R margin, then, Rich? You've been tracking more in the 10.5, 11% range. If you back out, looks like you're 13.5% in the quarter. Is that just mix then, or what?

It's mix at year end. All the accruals were trued up. We actually had, you know, with that charge, some of the incentive plans, accruals were reduced, things like that, but nothing large. Just favorable mix.

Was there any other negative items, any other severance charges or inventory write-downs in the quarter?

I'm sorry, Steve? Say that again.

Were there any other negative items like severance charges like you've had in the past, or inventory write-downs?

No.

Can you maybe just touch on the reduction working capital in the quarter? What were the components of that $27 million?

Just for the quarter you want?

Yes.

Okay. Accounts receivable, actually came down 3 million. Inventories went up around 18 million. Accounts payable went up about 11 million. Accrued expenses, other liabilities went up around 16 million. Customer advances around 12 million. Those are the big items.

Okay. Then the size of the gain in the quarter from the dispositions, how much was that?

It was about $700,000 net.

Okay. Does your guidance assume the implementation of 123R or no?

No, for us it will not become effective until our fiscal '07.

'07? Okay. Then, you know, Mark, can you maybe just touch on what you see for bookings in FY 06 and, you know, how much of it can you maybe quantify now how much benefit you can get out of supplemental embedded in that bookings estimate?

We have a normal bookings estimate to get to where we expect to be for the year, which should do better than 1.0 to 1.0. In other words, what we should book minimally, what we sold, and we're expecting to sell somewhere between 1.45 and 1.5.

On top of that there's a possibility, and we just don't know exactly when it's going to come in, of hundreds of millions of dollars associated with the supplemental. So there's a big upside for us, but I just don't know whether it's going to come in in a lump sum, over a couple of years, whether it will straddle a year. It's very hard to define right now. But there is a lot of money in that supplemental that could come our way.

So what are you factoring into your sales estimate for supplemental for FY 06?

Well, you see, a good chunk of it is going to end up in '07, because by the time it gets ordered, and then you buy material and you can start shipping, you probably won't see much until the fourth quarter of '06, and then going into '07. So I think it will bode well for where we'll be the following year.

Is it your sense that organic growth will, therefore, kind of accelerate in '07, or at least be sustained?

That's a possibility. That's a good possibility.

Certainly it will be sustained in the worst case, Steve.

Okay. Thanks very much.

You're welcome.

Our next question today comes from Ferat Ongoren with Citigroup.

Question on cash flow guidance. Your guidance seems to be rated large you know, at 6, and remains below net income, is that due to the fact that you basically received some of the working capital benefits in the fourth quarter?

Yeah, there's two reasons for that why the guidance is where it is right now, Ferat. One is the strong cash flow in the fourth quarter. It does have some impact. Also, in fiscal '05, the year just completed, we paid very little in taxes, and I'm anticipating close to about 85% of the expense as a ratio for cash payments going forward in '06.

Okay.

And also remember the settlement, the $7.5 million settlement will be paid out, or actually it's been paid. It was paid in the first quarter of fiscal '06.

And what kind of working capital consumption do you expect for next year?

In the model that I have, I have working capital increasing by 15 to 20 million.

Okay. And if you look at margins, you have an 11% margin guidance this year if you exclude the one-timers you're higher than that in fiscal '05 and actually you got this high margin NVEC business, so one would think that margin should be closer to developers. Is there something in the business mix that's affecting the margins in a negative way, or is that a conservative estimate basically?

There's no doubt we add very strong year from a margin standpoint. We had a very strong third quarter and that continued into the fourth quarter. We have a plan, an aggressive plan to try and keep our margins at or close to where we were this year. But we do have some challenges going into the year.

We have new production programs, DVE, TWS, which are going to be significant contributors this year, and they're at the front end on the production side, margins on early production are always lower than mature production, so it's going to be a challenge this year to maintain very strong margins like we showed this year, although you never know. Like I said, we have a plan to get there.

And, Mark, what's your expectancy for infrared revenues into '06, you know, from around 400 million this year?

I didn't quite follow what you said. Could you say that again?

What's your infrared revenue growth estimate for next year?

We were actually this past year was probably in the 350 to 375 range, so I think we could see that going up into that 400 range plus. So we were a little -- we didn't quite hit 400. That's a rounded number. So if we do a little better than 400 that will be good but it's very, very strong right now.

When do you expect revenue growth to pick up? '06 or '07?

We'll see continuous revenue growth there.

Thank you.

You're welcome.

Patrick McCarthy with FBR has our next question.

Question on the backlog. Essentially the backlog was flat on a reported basis but given order flow, I would have expected it to be up slightly, so I was wondering if there was a program there that either moved from funded to unfunded, or was money reprogrammed or if anything in particular happened there?

There was in some cases, and I think -- but nothing significant. Maybe you're looking at, you know, 20 to $40 million, kind of got shifted out to the next year, but nothing of any major import.

It's really -- bookings come in as they come in, and, you know, you really don't have a lot of control over how much of that, you know, is going to hit at what levels when. So any time could you stay at better than one-time sales, you're doing well. And I think we've booked plenty. At 1.4 plus billion in bookings I could tell you that the order book is pretty healthy.

When you look at the first quarter numbers for '06, how much of your current estimate includes Codem and -- obviously Codem and NVEC are going to be completely in there, but how much of those two businesses add to your estimate?

Patrick, with the range we gave of 310 to 320, at the low end the organic growth is about 2%, 2.3% at the high end, it's about 5%.

Great. Thank you very much.

Now we'll hear from David Gremmels of Thomas Weisel Partners.

Good morning.

Hey, David.

Mark, does the DD(X) re-plan have any impact on DRS? I know the power system contracts are with Alstom and Curtiss Wright. Is there any change to your existing contracts there?

In reality Alstom and Curtiss Wright don't really have much on DD(X). What you're referring to, is what's been going on with the permanent magnet motor. There's a very small amount of money that's gone their way. There's a lot of money programmed for us, and we're making tremendous strides with PMM. Now, that's going to be a successful program, and that's going to be an enabling technology for the future.

Right now with the commotion is, isn't so much the permanent magnet motor. The commotion is the affordability of DD(X). So what you've been reading recently, is this new idea of maybe buying a couple of DDG-51s, while they try to get their act together on DD(X), then pushing DD(X) out a little bit. Now if they buy two DDG-51's, we have a lot of content on those, so that's going to be a real positive for us, which of course, we haven't even begun to think about because we didn't expect them to be buying those.

In the meantime, we'll continue to finish the development of the PMM motor, which we believe no matter how you slice it is going to be the future of the Navy, that they are going to go electric-drive, and we have every confidence that we're going to participate in that. So I think from the point of view of where do we stand, we're feeling very bullish with the Navy right now. We probably feel better today than we did even a couple weeks ago.

Can you kind of quantify how much revenue comes from DD(X) today, and are there any upcoming milestones to watch for on that program?

We were probably, I don't know, in the 40, $50 million range for DD(X) this past year. I think we had forecasted about 20 or 25 million for '06 when we did our plan, you know, and that's already going back months before any of this stuff came up. So we were never expecting much from DD(X) in our planning for the next year or two. The real play on DD(X) is going to be in the future, or more importantly CG(X) if that ever gets into production, and we think there's going to be a lot of participation there.

Okay, great. And then the NVEC contribution with 17 million in the quarter, that's better than we had modeled. I think before you said they would do 45 to 50 million in the first 12 months. Are they now on track to exceed that or was that strong March quarter just timing?

It's actually something very funny that happened there. Apparently between the time we said we were going to do the deal with the guy, and the time we actually closed, he didn't quite understand working capital adjustment so he had extra working capital on his balance sheet when we closed the deal, we were going to pay him for it, so we went through a period where the guy that owned the company, basically didn't buy any inventory for a few months, so that's why we're forecasting that lower amount, because we now have to catch up for what he didn't buy.

So we're in a very interesting position, and we have tons of requests, and we've got to build inventory to meet the requests, so that's why we're carrying that on the low side. We basically exhausted the inventory, but I think you're going to see that start to build up, and then as we get to the second half of the year that business will get very strong again.

You continue to be comfortable that you'll do at least 45 to 50 million in that business?

Absolutely.

Lastly, what tax rate are you assuming for '06?

In the model I have 42%.

Great. Thanks very much.

You're welcome.

We'll take our next question now from Stephen Levenson of Ryan Beck.

Lately there's been some news about a new design for an armed reconnaissance helicopter, and they said the sight would be moved off the mast to under the nose. Is that something you think you might be participating in? Is it easy to translate in in terms of position, and when do you think that might start, if you are going to participate?

Okay. It's -- the ARH is certainly something that we're looking at. It's going to take a while before you ever see one of those helicopters built, and, in fact, we've just gotten the word, that they're going to increase the life of Kiowa, but we expect to be work on projects that will put us in position to have an offering for ARH, if and when that time ever comes.

Okay.

It's nothing that we're troubled with right now.

Okay. In terms of your guidance, I look at where you started last year, and where you ended up, and it was quite a bit higher. Do you think you're being a little conservative, or where do you think things are actually going to end up? How realistic is that number?

You know, for example, if somebody said to me this time last year are you going to have a $7.5 million litigation settlement, I would have laughed at them. So, you know, you go into a year, and you never know what is going to come up. So what we try to do, because it's so early in the year, is to put our best foot forward and our best guess at where we think the year could come out. We always strive to do better. I wouldn't say that this is a walk in the park. It's going to -- it's a challenging plan, but our goal is always to beat the plan.

Steve, the important thing to focus on as well, is remember we did that add-on bond offering in December, which right now looks like a great move with where interest rates have gone, but some of that cash, a good part of that cash hasn't been deployed yet, and it's having an adverse impact of about $0.03 a quarter right now on our numbers, $0.13 for the year. We know we're going to deploy that at some point in the year, but we don't know when. None of the benefit is factored into our forecast obviously, but the adverse impact of the interest is.

Okay. Makes a lot of sense. And as far as the pipeline goes for acquisitions?

Excellent. We've got a number of things we're looking at. There's no end in sight to what the possibilities are. But as we've always said, we've got a very disciplined approach to acquisitions we don't have to buy everything we see, and you know, we're going to close those deals, that will be the best benefit to DRS.

Okay. Last question relates to unmanned vehicles. I know you've got your waterborne, your surface vehicle. What's cooking there? Because it seems like a lot more is being spent in the area of unmanned vehicles.

That's true. We've got our surface vehicle and then, of course, we have our two air vehicles, you know, unmanned aerial vehicles, and we're seeing orders there, but we're really looking at those vehicles as platforms for sensors, you know, so payloads, as they call them, and that's really what we're trying to develop for the future, and in the long run not just provide them for our own platforms, but provide them for other people's platforms. That's the real play that we're looking for, and as you rightly note, there's going to be a lot more unmanned vehicles in the future, and we'd like to participate in that.

Thanks very much.

You're welcome.

Our next question today comes from Gary Liebowitz of Jefferies & Company.

Mark could you talk a little bit about the Bradley program? UDI has come out and said the supplemental supports the upgrade of several hundred Bradley's, and I was just wondering between the IBAS and the thermal imaging and some of the harnesses, just what type of opportunity this presents, or phrased another way, what kind of content per vehicle would we be talking about for DRS, would it be 50,000, 100,000, what the range might be?

Per vehicle?

Yeah.

Probably at, I would say, -- 600, $700,000 a vehicle.

It's a huge thing for us. Of course, United defense gets the award in some cases, and they've got to flow it down, and it's all a matter of timing, and it's a matter of how the Army buys the upgrades, whether they buy them all at once or buy them in stages, so we don't have the answer to all of that right now, but it's very big for us.

Do you have internally a target for your spend on acquisitions for the year?

For our spend?

Well, how much you expect to spend on acquisitions for the year.

No, we never model that, because every acquisition has to stand on its own, and you never know whether it's going to be large one or a medium size one or a small one. So we have to take those one at a time. Obviously we raised a lot of money in December, at very favorable rates, and we want to deploy that cash.

Thank you very much.

We'll take our next question from [Alok Chopra] of Oppenheimer Capital.

A lot of my questions have been answered, but just looking at guidance for '06, call it $2.40 midpoint, if we add back $0.13 from higher interest expense, and $0.09 from discontinued ops, you know, just looking at the Street numbers versus your guidance, could you give me some clarity on this where, you know, you were guiding the Street before this, and also why is -- and separately along the guidance issue, do you provide margin guidance in the two segments for '06?

The answer to the second question first, no, we do not. We give guidance overall, and we're comfortable at that 11%, but on a long-term basis there's no real fundamental difference between the two segments, although obviously any one year there could be a difference depending where they are in the lifecycle of their major programs. I'm not sure I totally understood the first part of your question.

The consensus for fiscal '06 is $2.41. Your guidance is $2.35 to $2.45 which puts me at the midpoint at $2.40. However, we just took out $0.09 from the business that you sold, and you've got $0.13 of higher interest expense, so that's a delta of $0.22, a $0.22 swing. And I'm trying to understand how much of that is factored into the consensus versus is a new development today?

Okay. Yeah, I'll try and give you a road map, because I'm still not sure I have 100% clarity on your question. But if we look at earnings from continuing operations, we were at $2.09. Okay. Then add $0.13 for the impact of Miltope, and take out about $0.09 for contribution from NVEC, things like that and you come up to an adjusted EPS, say, of $2.13.

Then add let's say a 10% improvement. That's always our goal is to at least grow EPS at least by 10%. We believe we'll get a contribution from NVEC next year of about $0.10. Figure a nickel for Codem. That brings us up to about $2.50 a share, then back out the adverse impact from the interest, and it comes down to -- I think it comes down to about $2.37, somewheres around there.

Interesting that your guidance only calls for about 10% increase in EPS, whereas you've done historically at least double that in the last few years. Maybe not change anything.

Just one other question on the [Bowman] program. How's that going, and what's the outlook there?

Right now our part of Bowman, which is obviously to build the computers, is going very well. The customer is happy with the product that we're providing. I know I've read about some software problems that they're having, but we're not involved in that aspect of it. But the units themselves are doing well, and being shipped on a regular basis, so that's going to be a good program for us.

Okay. Thank you very much.

Our next question comes from Barry Vogel of Barry Vogel and Associates.

Good morning, Rich and Mark.

How are you doing?

Not bad. How about yourself?

Pretty good.

Rich, can you give us the actual capital expenditures in fiscal '05 and your projected capital expenditures in fiscal '06?

Actual in '05 was 35 million, and our model for '06 is a range of 35 million to 45 million.

And how about D&A for each of those years?

The D&A in my model, the depreciation for '06 is 35 million to 36 million.

Is that D&A?

No, just the depreciation is 35 to 36. The A is 8 to 9 million.

How about last year?

Last year it was 40,968,000 in total.

As far as your book tax rate, you're looking at 42% for fiscal '06. Can you tell us what your cash tax rate was in fiscal '05, and what you expect it to be in fiscal '06?

In '06 I said I expected that we'd pay out about 85% of our booked tax expense.

Does that mean 15% cash tax rate?

No, 85% of 42% would be the rate.

So what is it?

I don't have a calculator with me, Barry. It's 85% of 42%.

85% of 42%. And last year what was your cash tax rate?

Last year we paid about $10 million in taxes in total.

What was your total assets at the end of the year?

Our balance sheet -- remember this is our year end. Our balance sheet is not firmed up yet. I'd rather not give that number.

How about shares actually outstanding?

Shares actually outstanding.

We'll take a follow-up question now from Patrick McCarthy of FBR.

Sorry, Barry.

Hi, how are you? Sorry about that. I had a quick question on the bookings in the uncooled business, in the infrared business. It was for the Army, and there continues to be a rumor there's a large U.S. Marine Corps requirement. I was wondering if you've seen any of that yet, or if you have any sense of where that stands, and whether you will be involved?

Yeah, you're right, and I believe we'll be involved.

Okay. Thanks.

You're welcome.

We have no further questions at this time.

No more questions? Well, then, thank you for joining us today, and I look forward to updating you on our progress again in August. Have a nice weekend.

Thank you. That does conclude today's conference call. Thank you all for your participation.