通用動力 (GD) 2005 Q4 法說會逐字稿

Good day and welcome to the General Dynamics fourth-quarter 2005 financial results conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the conference over to Mr. Ray Lewis.

Please go ahead, sir.

Thank you, Jessica and welcome to the investment community and the press that are listening today.

I would like to, as always, caution you that you will hear some forward-looking statements today.

These represent the best estimates we have of potential future results but they are always subject to the risks that face any business and recommend that you go to our 10-Qs and 10-Ks for a more thorough explanation of what those risks might be.

With that said, I'd like to turn the conference call over to our CEO, Nick Chabraja.

Thanks, Ray and good morning.

I think that our press release and the attached or accompanying schedules are pretty straightforward this year but for those of you who may not have had them timely maybe let me give it a little color.

I am pleased to be able to report that we had another strong quarter that really brought to a strong conclusion an outstanding year for us here at General Dynamics.

Almost every important financial metric improved substantially over the year-ago quarter, the third quarter of this year as well and for the year when compared to the full year 2004.

Let me talk a little bit about sales and earnings in the quarter.

We kind of have a growth story here.

Sales were 5.8 billion in the quarter.

That is 13% above the fourth quarter of '04 and 8% higher than the third quarter of '05.

Three of our four major segments delivered double-digit sales growth in the quarter paced by our Combat Systems unit with 23% increase.

While the sales growth was impressive, operating earnings even outpaced the sales growing by 16% on the strength of 10.5% operating margins.

All four major segments contributed to that growth in the quarter.

Addressing the year, 2005 full year sales of 21.2 billion represent an 11% increase over 2004 while operating earnings increased 13% for the full year to 2.2 billion.

For both the quarter and the year, IS&T, Combat Systems and Gulfstream enjoyed solid double-digit margin rates and in the quarter, almost with pride I point out that there was significant improvement in the Marine group.

I might observe that the Gulfstream margin slipped somewhat on a comparative basis.

They were down to 13% in the quarter.

I should point out however that margins were up in both -- these are internal metrics, but I'm happy to share them with you -- margins were up in both new aircraft manufacturing and service and the higher costs in the quarter were limited to research and development expense and SG&A.

And let me comment a little bit about both of those.

We had a little unusual research and development expense in the quarter in addition to our normal run rate, which has been fairly consistent through the year.

We came to the finalization of the G-150 R&D effort, which culminated in the type certification of that aircraft in the fourth quarter and some of our research and development was done by IAI at our request.

And in connection with our arrangement with IAI, we paid them in the fourth quarter, their payment being contingent upon certification of the aircraft.

So we had sort of a onetime unusual blip in R&D.

The SG&A expenses were high really related to the number of orders and the dollar volume of those orders that we received in the quarter and a change in our commission structure that compensated highly productive salespeople when they went over their threshold for a number of orders and a change in the way we accrued and spread those commissions.

We also went to more trade shows and events in 2005 and incurred expenses associated with that and really had a major upsurge in flight usage for demo purposes.

So what does all that mean?

I think it's important to note that Gulfstream's full year rate is 14.4%, which is about 140 basis points above last year.

And I would expect margins for 2006 in this business to be between 14% and 14.5% for the year.

They will start a little bit below that and increase sequentially.

Remember here we are going to have a mix shift.

The number of lower margin midsize aircrafts are going to increase.

We will produce and sell about 50% more of those, from 26 this year to 39 next year.

And that will have an impact on the margin.

On the other hand, we are looking for EBIT from this business next year of between 575 million and 600 million on revenue of approximately 4.1 billion.

It is pretty well estimable.

The only variant in the revenue side it seems to me is what we do in the way of preempt.

That I can't estimate but we take a stab at it.

Okay.

Cash.

Cash may be the real story in the quarter where our performance exceeded even our own expectations.

Net cash provided by operating activities in the quarter totaled 900 million. 2.1 billion for the full year.

Both of which far exceeded the numbers for what we thought was an outstanding fourth quarter in 2004 and the full year 2004.

Let me talk for a moment about the metric that we use most internally and we report to you, free cash flow from operations, which is after CapEx.

That was 788 million for the quarter and almost 1.8 billion for the year.

Both of those numbers are also well above last year.

As a result, our net debt at the end of the year was down to 960 million versus 2.3 billion this time last year.

I will close my remarks with a brief comment on backlog.

New orders in 2005 totaled about 22 billion.

That allowed us to maintain our total backlog at about 42 billion, slightly above where we ended 2004.

The new order story for the year is clearly Gulfstream on the strength of 124 new aircraft orders during the year, 121 net after cancellations and that's 26 more than 2004.

Gulfstream's backlog increased by $1.2 billion to 8.1 billion.

If I express it in dollars as opposed to units, this is the sixth quarter in a row that their book-to-bill ratio exceeded one.

Production for large aircraft is sold out for the next six quarters green.

Leaving Gulfstream for a moment, if memory serves me correctly, three of our four operating groups have a larger backlog at this point in time than they did at the end of 2004.

Only the Marine group is down somewhat but I think that is to be expected because they receive their orders in large multi-year terms.

It seems to me that that is particularly impressive because, as most of you know, we didn't get a defense appropriations bill signed until it was far too late in the year to have any quarter activity that we normally experience in the fourth quarter.

So I would expect the first-quarter order activity to be reasonably good.

In summary, we did very well and we are poised to have a very good 2006.

You have seen my guidance on that subject but I am pleased to answer your questions a little later.

But I would like Mike Mancuso, our Chief Financial Officer, to give you some insight to a few other metrics that he has on his mind.

Thanks, Nick.

Good morning, ladies and gentlemen.

I will add some additional detail to what you have in hand and then we will move quickly to your questions.

As Nick indicated, I want to remind you that there is a wealth of additional information on the financial exhibits attached to our press release, including Gulfstream's deliveries and aircraft orders for both the quarter and the full year.

The first topic I will address is share repurchases.

During the quarter, we acquired approximately 1.4 million shares at an average per share price of about $115 spending 158 million in total.

For the full year 2005, that brings our repurchases to 3.3 million shares at an average price just above $107 or about 358 million in the aggregate for the year.

And we currently have 1.2 million shares of purchase authority remaining.

Other income.

You will note that other income in the quarter totaled $24 million.

That was generated by surplus property sales of about $13 million, another $5 million of translation gains on foreign currency, a couple of million dollars in the quarter, which amounts to about $7 or $8 million for the year on equity income from our joint ventures, particularly in the ammunition business and the rest of the items are just onesies and twosies miscellaneous items.

Fourth-quarter net interest expense is $12 million lower than last year.

That is obviously a product of our strong cash performance throughout 2005.

Our tax rate for the quarter was 33.6%, slightly higher than last year and it is about what you should expect for a 2006 run rate.

In summary, I think Nick said it all.

We had a very good quarter, a very solid year and we look forward to delivering more value to our shareholders in 2006.

With that said, I'll turn it back Ray to initiate the Q&A process.

Thank you, Mike.

And Jessica, if you could explain the folks how to get into the queue.

Let me remind people that we ask you to ask one question.

If you want to ask more than one question, get back to the end of the queue.

This gives more people a chance to chat with us, okay.

(OPERATOR INSTRUCTIONS).

Howard Rubel, Jefferies & Co.

Nick, you addressed the revenues at Gulfstream.

Might you also touch on what you are seeing for the other business units if you wouldn't mind please?

Howard, I'm not sure I understand your question.

I didn't talk much about revenues.

I talked about orders at Gulfstream.

I'm sorry.

I apologize, Nick.

You indicated you were looking -- that the business plan calls for about 4.1 billion in revenues at Gulfstream or at Aerospace and around -- at the upper end -- 600 million for profits.

Might you for a moment address what you are expecting for some of the other business units?

We are going to crowd -- (indiscernible) would be about let's say 2.35 billion in sales and I am excluding the impact of --.

Anteon?

Of Anteon.

Let's say -- I am short on that, aren't I?

Closer to -- where are you?

Let me take a peak. 23 billion.

And look generally for IS&T to have a margin rate very similar to what they currently have.

Look for the same thing from Combat Systems, maybe up a little bit.

I have already explained what we are going to do at Gulfstream and maybe another 100 basis points out of the Marine group.

Heidi Wood, Morgan Stanley.

Nice quarter, Nick.

Can you give us some detail on IS&T breaking out, kind of what was organic and acquisition and give then us a breakdown on division and discuss the key elements driving the growth there?

I don't know.

Mike, you have a handle on the organic -- Mike's note to me is 50% of the growth is organic quarter-over-quarter.

So I think in general the business that enjoyed the greatest growth in the quarter and over the course of the year was C4 Systems, which is now a very large business.

That is our tactical coms business.

There was growth in all of the businesses but it was more modest when it comes to AIS, our United Kingdom business and network systems.

But each of the slower growing businesses reported some margin improvement.

So for the group, they had nice margin improvement over last year.

I think they finished the year -- they were down a little in the quarter by I noticed that they are every year.

And it is an improvement quarter-over-quarter but from the third to the fourth it was a bit of a decline.

But we expect them to have a year next year in IS&T that the margin rates will look similar.

If they beat this performance, it will be by 20, 30 basis points and if they are off it will be by a little bit.

So you don't see a big change in the mix of development versus production?

No, I don't think so, Heidi.

I think we are moving along pretty much just the way we had planned, the way we thought we were going to do, doing a little bit better.

But their commitment to us is about the same margin rate.

And then we will push them a little bit.

They will get their stretch somewhere in the middle of the year and hopefully if all goes well they'll do a little bit better.

Cai von Rumohr, SG Cowen.

Nick, good quarter.

You had again very good book-to-bill at Gulfstream and so the backlog goes up.

And at one point I think on the last call you talked about feeling uncomfortable with this extending leadtime.

Could you talk about any thoughts about possibly increasing the delivery schedule for '06?

Is that possible?

Well you know what you give reference to I in fact said at the end of the third quarter.

Apparently the marketplace disagreed with me.

And they came in and got in line.

But it now takes us a couple of years to be able to put an airplane in service, maybe a little bit more.

But we are increasing production.

We are going from delivery of 89 aircraft this year, that is 63 of the large cabin and 26 of the midsize, to 111 airplanes next year.

Seventy-two of the large ones and 39 of the midcabin and in 2007, we are increasing production even further.

We will go to 79 of the large cabin and 48 of the midsize.

I mean that is a production rate we deemed to be prudent, that we can handle and keep our costs under control, keep our supply chain management in good shape and run the business very, very efficiently with out taking risk from it for the long haul.

So we couldn't be more pleased with our business model at Gulfstream and the way the products are being received in the marketplace.

And frankly I am very pleased with the research and development effort and their continuous effort to bring new technology and new product to the market.

Steve Binder, Bear Stearns.

Nick, I think your comments on Aerospace and Gulfstream's margins were I think pretty much year-over-year if I'm not mistaken.

If you just look sequentially, the delivery mix is very similar as far as large cabin and midsize.

I was wondering your profits when you back at used aircraft profits are down $18 million sequentially and you touched on the items R&D and selling expense and if I'm not mistaken, you said back in the queue and on the conference call previously that the mix might not be quite as good in Q4 as in Q3.

But can you quantify how much of that delta change was R&D and how much was selling expense?

No, Steve, I can't and I don't really intend to get into it but that is largely the explanation.

Two large lumps of cost.

Can I ask one other thing?

Go ahead.

Just on cash flow just quickly.

I imagine customer deposits must have given you a pretty good shot in the arm in the quarter.

Can you maybe -- just like your working capital fell I'm guessing 325 million in the quarter but how big a number was customer deposits?

Well we had some customer deposits at Gulfstream obviously.

Their cash was outstanding.

But in every group except the Marine group our cash exceeded net income.

So it was a pretty strong performance all the way across and the Marine group result wouldn't surprise you any given the charges we took in the year.

So Gulfstream helped, customer deposits helped but so did everybody else typically by taking inventory down and working capital.

George Shapiro, Citigroup.

Nick, if you take a look at your comment that Gulfstream makes 575 to 600 million next year and you get around 23 billion in revenues in the margins and the other areas are relatively flat, it seems to me you will get somewhat above what you are guidance is.

So I was just wondering where you might be looking at weakness in some of the other areas?

I'm really not, George.

But I am always accused of being a little bit conservative and plans a little bit conservative and we still haven't delivered out the BP tankers.

So I don't know at the end of the day whether we have got that perfect or not.

So you take it the way you want to take it.

But it's kind of interesting.

You guys can do it with a pencil and I have got to get out there and earn it.

So we will be a little cautious and we hope you go along with us.

And just if I might follow up one on the Aerospace.

If you looked year-over-year, Nick, last year you had a very good order fourth quarter too.

So I would think that SG&A or selling commissions wouldn't be a lot higher this year than last year.

So is the difference year-over-year primarily that R&D?

George, I can tell you that the SG&A line changed fourth quarter over fourth quarter by $25 million and it is attributable to three things really.

While the number of units are similar, they are really more in the fourth quarter because we give you net of cancellations, right?

We pay the boys on the gross orders and there was a change in the commission structure, which accelerated payment as opposed to distributing it and we made a stronger effort at trade shows with demonstrations than we did a year ago.

So all in all, that is up $25 million in the quarter over that quarter that you talked about.

We had an interesting -- we are up 15 million on research and development in the quarter over the year-ago quarter.

So those are pretty big rucksacks to carry.

So they had some margin deterioration but still had a quarter that was very acceptable to me and they will get the benefit now of having prepaid those expenses as they go forward with the delivery of these aircraft as we recognize revenue and take margin in the quarters to come.

But I think I'm giving you a very fair expectation for Gulfstream next year.

I expect the revenue to be about 4.1 billion and I expect the margins to be between 14 and 14.5.

That is the overall mix and it will result in EBIT of 575 to 600.

I would be very surprised if we are outside of my range.

Troy Lahr, Stifel Nicolaus.

I'm wondering if you guys can talk about the orders.

You provided the actual units in the past and towards year end you've given dollar values on those orders for large aircraft and midsize aircraft.

Could you give us those numbers this year again?

I suppose we can if somebody has got their hand on it right here.

I don't think I have it by aircraft to dollars by grouping of aircraft.

Just large versus midsize?

I don't think we have got it right here, Troy.

You can get it from Ray later.

If you give Ray a call because we don't have it.

We don't have it broken up that way.

I guess then could you talk about -- is there a mix shift in 2006 on the large aircraft side?

You expect more orders but are those of lower margin aircraft for the large aircraft?

No, no, that is not the case.

The mix on the 72 larger body aircraft is consistent with 2005.

If anything, modestly more favorable.

But the real difference is we are going to increase by 50% in the number of midsize aircraft we produce and as you would expect, most of that gain comes from the brand new 150.

So that is what is going to alter the mix for margin purposes.

And that becomes even more so in 2007 where we will go to 48 of those aircraft.

So the margins will never again be comparable in this business to what we once had.

It is a different business.

People always ask me -- back in 2001, Nick, you enjoyed 19, 19.5% margin.

Well of course we did.

We had only two products, high-end products and we had yet to stimulate the R&D development that we are doing today.

Today, we have six products and some of them lower margin than the two flagship products.

But we are thrilled with it.

We are getting more revenue and more earnings and our return on invested capital, particularly on the midsize airplanes, is really outstanding because of the way we source that aircraft.

So I think it is almost chasing your tail to be worrying about margin on that side but that's okay.

We will respond to that.

David Strauss, UBS.

Nick, could you talk a little bit about what you are expecting specifically out of Combat next year in terms of revenue growth, what you're assuming in terms of funding related to the supplementals coming through?

Yes, David, if you remember -- let's go through that entire saga.

We began this year with an expectation that our business would increase somewhere between 18% and 20%.

And it wound up being 14.

So where was our estimate good, where was it bad?

It was particularly right on in two of our businesses who serve the United States Army.

Land Systems forecast was correct and OTS, our ordinance and tactical systems, forecast was correct.

They both may have outperformed slightly our forecast.

We fell a little bit short at armament and technical products principally on aircraft-related products there but not terrible.

And we fell way short of our goal in Europe, particularly late in the year.

But you might remember that when we were seeing 18% to 20% for this year, we were talking about 8 to 9 for 2006.

I now want to talk about a number about 12% for 2006. 11, 12 but it is going to be a double-digit number.

Can you talk if anything what that is assuming in terms of the supplementals coming through?

Have you had a chance to take a look at the recent supplemental?

I think most of that is embedded in the plan.

We might get a bluebird or two but I wouldn't want you bake that into your expectations.

I think in general it is tough to track the stuff out of the supplementals.

It is tough to get it embed.

It doesn't come down with the language that is associated with typical appropriations bill.

So it is harder to put it to any rigor.

But I think we have anticipated most of the programs and if we get a little lucky so be it.

(OPERATOR INSTRUCTIONS).

Nick Fothergill, Banc of America Securities.

A question on Marine.

The margin upside you talk about there in 2006, is that excluding any turnaround in the BP tanker system?

In other words, where is it coming from?

And then further to that, what sort of traction do you see on the hill at the moment with the CMO's new provisional shipbuilding proposal and how excited are you getting about this and how realistic do you think it is?

Okay.

I will address the margin question.

Nick, I think you can see in the quarter that they did very well but I wouldn't want to suggest to you that that is a normal run rate for next year.

They will be better but my assumption when I tell you that they are 100 basis points better has two things embedded in it.

That there will be no further losses on the BP Amoco tankers and that there also won't be any income, any positive news on that subject.

That there won't be any adverse news on the T-AKE project and that we proceed the pace at BIW and Electric Boat.

That is the assumption.

And I am comfortable with that assumption.

Could we be a little bit better?

Yes, maybe, if everything breaks right but it's not the way I'd want to fit it.

But we will be better next year.

And we will be better yet the year after that and a little bit better yet in 2008.

What Mike Toner is tasked to do is to get this business to be an 8% business and I am trying to get him there by the end of 2008.

That's a hell of a challenge but they are great shipbuilders and they wouldn't surprise me.

But I'm not going to give you those kinds of optimistic forecasts and embed them in my advice.

I think we will have a year where we slug it out this year, 2006, but we will be poised as a result of the gains we make this year to really move ahead in 2007, 2008.

Fair enough.

Now the broader question.

I almost forgot.

Look, I think what is encouraging to me in addition to the CMO's public remarks, which you've heard and they've been well-covered by the press, which indicate a major enthusiasm for shipbuilding and a plan to strengthen the fleet.

I haven't seen the QDR nor has anybody else but it seems to be very well-covered in the press.

Both Bloomberg and Defense News I think have had what one commentator calls a scoop and if you read that, a lot of what the CMO has been saying, he appears to have sold to his colleagues within the Pentagon because it seems to be reflected in the outcomes, at least as reported by the press.

So yes, I am encouraged;

I'm not excited yet.

What they really have been saying about submarines is a second one by 2012 for sure but if we can get the cost down to their $2 billion target, they can accelerate that buy.

I believe they can do that.

And I believe that he has the trade space to get that done if we can handle our end of the task, which is to get the cost down.

We are very committed to that.

So we are encouraged that he is getting support on DDX, getting support for strengthening the submarine buy and all across -- the Littoral combat system ship seems to be well-supported.

So some things that were debatable a year and a half ago seem to be getting a little solid here.

So as I promised for a long time, I want to be in the shipbuilding business for General Dynamics because I think that we are a seafaring nation and that we will in fact find the need to build ships again.

When that happens, we are in the right place with the right assets.

David Gremmels, Thomas Weisel Partners.

Nick, you mentioned the T-AKE program and I know the current EAC assumes you get some relief from the Navy.

Can you just touch on the status of those discussions and just how much risk do you see in that program in general?

Well look as things stand right now, this program is not earning us profit but I believe it will over time.

We have embedded in our EAC a recovery on our request for equitable relief.

We believe that that is very realistic and may be understated.

We have total REA claims well in excess of 500 million and it would take only a portion of that, a modest portion of it to bring our program into complete equipoise.

So I don't see it as a major risk item.

I don't think anyone else does here but they need to be resolved.

And I believe they will be during the course of the year.

I don't know much about the discussions other than it has been reported to me that the Navy has received our claims.

They understand them, that there are friendly discussions and professional discussions and exchanges taking place and that this will go through the normal process.

I don't think there is any question that there has been change on these boats.

Everybody recognizes it and there has been increased cost as a result of it and what they have to parse through is how much of it is really the Navy's and how much of it is our own fault.

I know they will get to that issue and I expect a fair resolution of these claims.

And that is all we want.

We want to produce a very good product for the United States Navy at a very fair price.

That's helpful.

And if I could ask a follow-up on Marine, on the margins, if you did little over 7% margins in Q4 and the '06 margins don't assume any losses on the Amoco tanker then was there anything one time in Q4 that benefited the margin in Marine?

No, not really.

But we're going to get some mix shift next year that takes some profitable stuff away.

I just don't think we can perform at 7 3 for the full year.

You may see a quarter out of us that's at plus 7 but I think on balance, let's look at this as about 100 basis points better than this year.

Myles Walton, CIBC World Markets.

I was just wondering if you could comment on the bookings in defense there.

You commented on the DoD budget delay attributing to some of the reduced bookings there.

But if you thought about the budget getting passed, what was kind of your anticipation for book-to-bill in defense in the fourth quarter?

I don't know that I had any specific book-to-bill but I will give you one right now that the ninth T-AKE would have been in the backlog now and it is not.

There would have been other programs but I don't know that I had a specific expectation.

Very good.

And then also as a follow-up, you mentioned that a lot of people consider you to be a conservative guy when you initially give out guidance.

Where looking in the mirror do you think you are most conservative on the outlook in '06?

Oh, I don't know.

I think it is -- I think we have a chance to outperform in every one of the groups.

You know we try to give you a 50-50 look at things but these are highly motivated executives and they will try to beat their plan and you know history tells me that most of the time they do.

But some of them come up short.

So we will see what happens out there.

I don't know that I want to put the bogey on one of them as opposed to all four.

I would be happy to get a little bit more out of everybody, wouldn't you?

Alright.

Good enough.

Thanks.

Joe Nadol, JPMorgan.

Nick, I want to go back to Gulfstream margins even though we've hit that a few times already.

I'm just trying to get my arms around operating leverage on the large aircraft specifically a little bit more.

I know there's a mix shift next year but with 15% production growth '06 or '05, it just would seem to me that the operating leverage embedded in your plan doesn't improve very much and I'm wondering if there's something else going on like cost growth, raw materials.

No, no.

As a matter of fact, they are coming down the curve fairly nicely.

We had some cost growth with the introduction of two new aircraft, really four.

Earlier in the year, we weren't meeting our cost numbers but we have come down the curve quite nicely and particularly so in the fourth quarter.

So no, we are not experiencing any materials, cost growth or sourcing growth, pretty much as predicted.

So do you have significant expansion of large aircraft margins such as offset by mix next year?

Maybe my numbers don't add up or are you being very conservative or --?

We have modest expansion of margin in large aircraft that comes from two sources of continuing to come down the learning curve and from improved pricing sequentially over time offset significantly by the introduction of a brand new airplane and the delivery of 15 of them when we delivered three of its predecessor.

That is a delta of 12 units of reasonably modest margin aircraft.

Initial sales of which were taken at reasonable margins because you have got to get the puppy off the ground, right?

So that is what I'm telling you.

I'm giving you the number.

Okay.

So I guess maybe the margins on this new aircraft are maybe lower than I might have expected might be the difference.

You might remember that the kickoff customer was NetJets and they have taken a big chunk of them, right?

And they sell at below --when you sell to NetJets, you give them a little volume discount.

So we will work our way through that.

But this is where I think we will be next year.

Am I going to turn it down if they come in at 6.25?

No, we will be happy.

We'll throw a party, we'll celebrate.

It will be a good year.

But this is the forecast.

Doug Harned, Sanford Bernstein.

I wanted to go back to Combat Systems for a minute and just talk about European Combat Systems.

You talked about it being perhaps the weaker performer I guess over the last year.

What do you see going forward there, particularly given the tough pressure on European defense budgets?

Look, we expect a very strong year next year.

What we had there was just a slip.

It wasn't that they were performing badly.

They just had some orders that didn't come in in a timely fashion.

But we expect revenue in that group to be up in excess of a couple hundred million with profit to follow.

So we think that what some of what we didn't get this year we get next year.

And so far, the orders have been heavily from within Europe.

Are you still expecting some real export opportunities outside of Europe?

Yes, to some degree, Middle East.

You will see Latin America to some degree but you know it's -- the market right now is Eastern Europe.

Good.

That's very good.

Thanks.

Joseph Campbell, Lehman Brothers.

Nick, I don't have very many questions.

The disclosure and the Q&A was pretty great.

Maybe you could remind me about your own plans to stay at the helm of GD and any plans for succession when and if that is appropriate?

Okay.

Joe, thanks for your kind words about the Q&A and the charts that we distributed being helpful.

You know my contract with General Dynamics expires midyear 2008 and the Board and I regularly go through succession planning exercises.

We talk about it all the time.

We have leadership development exercises ongoing here.

We think it is premature to engage in speculation and identification of candidates this early and frankly we haven't even talked at all about nor have I thought about whether I am willing to extend and whether the Board would be interested in that.

So all these things are possible but I am approaching normal retirement age, Joe.

At that time when my contract expires I'll be 65 years old.

Thanks for the update and I hope you make it even longer.

Thanks, Joe.

So do I.

Byron Callan, Prudential Equity Group.

I'll echo Joe's sentiment there.

Just can you quickly reflect our corrective memories on what kind of program opportunities you have coming up in 2006, first half of 2007, the kind of things you are looking to bid on?

You know we have a number with Europe that we advise you of from time to time.

There are a number of active wheeled vehicle programs, midway programs.

Let me kind of take a look.

Yes, I mean our competition is in Belgium, Croatia, Czech Republic, Denmark, Kuwait, Latvia, Oman and Slovakia, all with respect to armored vehicles that we could bid either out of Europe or out of Canada.

We expect significant activity on the Combat Systems side but largely without competitive bid.

There is going to be a lot of activity in the IS&T side but mostly on programs that aren't of a size that you would recognize them by acronym nor do I carry them in my hip pocket.

And Gulfstream is always in a competitive market.

So I don't think that there is any of what you would call a catalyst.

There will be more shaping of our markets where we enjoy fairly strong positions.

Is there anything, Nick, on the ship systems side?

You have mentioned the Littoral Combat Ship.

That still has got to come to some resolution I hear ultimately.

That's a little bit on the horizon I assume.

I think that's not what we're talking about right now.

I think the plan is Lockheed Martin is going to build a couple of ships and put their systems on it.

We're going to build a couple and put some radical new open architecture on it and Navy is going to take them and try them and then it won't matter so much what we say in the press but how the guys operate the ships and how they like them and what they do for the war fighter.

But that is out a little bit but that is an important procurement for us over time but it is not in the near term.

Okay and I guess the same is true of Aerial Common Sensors since that is now kind of back on the court or whatever is going to replace that requirement?

You know, Byron, I don't know how I can say this.

We will have to consider at that time whether Gulfstream is an appropriate participant in the Aerial Common Sensors and that will depend a little bit on what the market is like.

Right now for me, it is a blessing that we weren't chosen and aren't participating because I don't know where I would get the airplanes.

Robert Spingarn, Credit Suisse.

I sort have a multipart question on IT really about Anteon.

First, if you could just update us on the status there and then perhaps on the back of Byron's question, what kind of IT opportunities are there and is there perhaps a timing or a line in the sand this year that you would like to have this thing done that you can better compete in some of those IT opportunities as a prime with them?

As a final part to that question, would you care to update us on your thoughts of what the financial contribution accretion would be from Anteon in '06?

One at a time.

Anteon has their proxy on TheStreet.

Their meeting is scheduled early March.

Assuming that we get through the regulatory hurdle as quickly as I think we will, we should be able to close in the month of March.

But if not then, early in the second quarter would be my best guess if all goes well.

I will not comment with respect to economics for the transaction until after it has closed and at that point, I will update the financial community on what our expectations are and how that might amend our guidance to you.

But around here, we don't ever count them until we close them.

And as I said at the time we announce the Anteon transaction, there was a world of opportunity if we could combine their mission systems activity with our network systems activity and better position ourselves for larger opportunities and we see some of those in the mix.

But I am going to let all of that rest until that transaction closes.

Jessica, we have time for one more question.

Ron Epstein, Merrill Lynch.

Just have a quick question going back to Gulfstream.

I have come across some anecdotal evidence that in this last year for the large cabin business jets that we have seen demand from let's say outside of North America greater than has been the case in the past.

Is that what you have seen?

Ron, I'm glad you asked that question.

I probably should have volunteered it.

I frequently get asked about international interest and I usually say I'm kind of disappointed.

We built these planes for the Pacific Rim and we sell 70% to 80% in North America.

These year's mix was a little bit different. 35% of our orders are international.

Still the strongest part of that market is Europe and the Middle East.

But we have seen some activity now out of Asia, which is encouraging.

So yes, there has been a mix shift and I think it has been helped a little bit by the relative value of the dollar to foreign currencies.

So we have made some inroads with respect to our international sales and are very pleased about it.

I want to thank you all for being on the call today.

My associate, Carl Johnson, and I are going to get a quick bite to eat and then we will be available to talk to you on the phone.

My number, Ray Lewis, 703-876-3195.

Carl's number is 703-876-3172.

Good day.

Thank you.

This concludes today's presentation.

Thank you for your participation and have a wonderful day.