通用動力 (GD) 2006 Q1 法說會逐字稿

Good day and welcome to the General Dynamics first-quarter 2006 financial results conference call.

Today's call is being recorded.

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

Mr. Lewis, please go ahead, sir.

Thank you, Matt, and I'd like to welcome the investors as well as members of the press that are on the phone or listening today.

I would remind you, as always, that we may make some forward-looking statements today.

These represent our best estimates of future performance, but they are obviously subject to the risks that are in front of any normal business.

I would recommend that you go look at our 10-Qs, 10-Ks, annual reports for a more wholesome discussion of what those risks might be.

With that having been said, I'd like to turn it over to our Chairman and Chief Executive Officer, Nick Chabraja.

Thank you, Ray.

I intend to be brief this morning.

I think the press release and the attached schedules that we have issued pretty well tell the story.

Obviously, we had a very good first quarter, which gives us a sound start to what I anticipate will be another very good year for General Dynamics.

We had net earnings of 374 million and diluted earnings per share of $0.92, $0.94 from continuing operations.

That is well in excess of consensus, and, frankly, our own expectations.

The result was driven by significant improvement compared to the year-ago quarter in sales, operating earnings and operating margin rates.

As a result of the increased operating earnings and some good management of operating working capital, cash flow also significantly exceeded the first quarter of 2005.

Sales -- sales, almost 5.6 billion in the quarter, represent a 16% increase over the year-ago period.

There was meaningful growth in sales in all four of our major segments, paced by Combat Systems with a 30% increase;

Aerospace grew 23%;

IS&T gained 13%.

I was particularly pleased with the better-than-5% growth in Marine Systems.

Operating earnings grew by 28% with sizable increases as in all four segments.

Marine Systems almost doubled its earnings over the year-ago quarter while improving its margin rate to 7.6%.

I might add that that's the second straight quarter on which the Marine group had operating margins in excess of 7%.

Combat Systems and Aerospace margin rates also increased significantly.

IS&T was able to hold at a very respectable 11.2% rate.

Free cash flow from operations, which is net of capital expenditures, was 406 million; that's 106% of net income and 89 million higher than the year-ago quarter.

During the quarter, we announced the acquisition of Ammunition Systems Integrator, SNC, the divestiture of our aggregates business, a 15% dividend increase, two-for-one stock split, and a facility expansion at Gulfstream, and the award of several new large contracts here and in Europe.

In short, it was an eventful quarter.

So, in summary, I think we are off to a great start to what I am sure will be a very good but challenging year.

As you have come to expect, we will continue to focus on increased shareholder returns through crisp execution and continuous process improvement.

With that said, I'd like to turn it over to Mike Mancuso for some additional comments that he would like to make.

Thanks, Nick, and good morning, ladies and gentlemen.

Again, I would like to remind you that there's a wealth of additional financial information attached to our press release, including a breakdown of our backlog by segment at three different time periods and Gulfstream's aircraft deliveries by aircraft size.

If you have a copy of our earnings statement, Exhibit A, I'd like to direct your attention to interest expense.

You can see that our expense is half of what it was last year.

This is the result of a much larger average cash balance this quarter, generating $18 million of interest income.

This large balance will dissipate as we fund announced acquisitions with a combination of cash and term debt.

Staying with the income statement for a moment, as Nick pointed out, our sales grew by a 16% and our operating earnings by 28%.

However, our net earnings increased about 11%.

You'll notice that last year's tax provision was abnormally low, a result of a $66 million tax credit.

Without that credit, first quarter '05 net earnings would be lower by that amount, which would drive this year's net earnings increase more in line with our operating earnings growth.

Also, I need to remind you that, upon adoption of FAS 123R this quarter, we recorded a pretax charge of $13 million of stock option expense reflected on our resources corporate segment.

This had the effect of reducing after-tax earnings from continuing ops by about $9 million, thus lowering EPS this quarter by roughly $0.02.

On Exhibit C, reading down the page, the third item is net debt.

Our strong cash generation for the past year, including this quarter, has reduced our net debt by 1.1 billion.

Earlier in the quarter, we repurchased approximately 73,000 shares at an average pre-split price of $114.42.

Finally, having signed a definitive agreement to sell our aggregates business, we are reporting their results in discontinued operations.

We expect that sale to close later this second quarter.

With that said, I will turn it back to Ray to initiate the Q&A session.

Thank you, Mike.

Matt, if you would, once I explain sort of the rules of the game, if you could tell people how they could get into the queue.

As some of you already know, we have instituted a policy this year, this past actually several quarters, where each person asks one question and if they want to ask more than one question, that's fine but you'll need to get back to the end of the queue.

This gives us a more diverse set of questioners through the course of the event today.

So with that said, Matt, will please explain how they can get in the queue?

Absolutely, sir. (OPERATOR INSTRUCTIONS).

Heidi Wood, Morgan Stanley.

Good morning, guys.

Nick, can you talk to us about the sustainability of the Gulfstream margins that we saw here in the first quarter?

I anticipate that Gulfstream will enjoy this kind margin in the first -- in the second quarter, but as we begin to deliver the 150 product later in the year and as we continue our ramp-up of R&D spending, I would expect that margin rate to moderate somewhat, Heidi.

Can you talk to us a little bit about what the demand environment is looking like?

By my math, it looks like you've got about 800 million of orders in the first quarter; it looks like it's about flat with last year.

What does it look like as you look ahead?

Demand was very good in the quarter.

We had more orders, both in units and in dollars, than we had in the year-ago quarter.

We are about 0.95 book-to-bill in the quarter on dollar volume.

I think we have a robust pipeline.

We are off to a strong start in the second quarter.

I think you have to recognize that even though we beat the year-ago quarter in units, we also upped our deliveries significantly, so I think our biggest problem here isn't the absence of demand; it's absence of product, the relative scarcity of product.

People have to wait an awful long time, so they are taking a little longer in the pipeline before they commit.

It's hard for the buyers sometimes to come to grips with the fact that they have to wait several years for an airplane.

But, very good demand continues at Gulfstream.

Howard Rubel, Jefferies.

Nick, earlier in the quarter, you had indicated that it was going to be a tough comparison, and as we look through here, almost all of the business units sort of did a little bit better.

Was this year's management team just sandbagging you a bit?

Mr. Rubel, since we didn't get your name right -- (LAUGHTER).

Thank you, Mr. Chabraja!

I don't think so.

I think they were probably a little conservative and some things came to pass.

I think we were all surprised at how will the Marine group did, including the Marine group.

That was helped in part by volume.

Gulfstream did very well.

I probably should have been able to figure that out in advance;

I didn't.

You might remember that they had some expense in the fourth quarter that was aberrational, and that we told you on the call was aberrational.

We had some high SG&A as a result of sort of one-time research and development costs to our partner, and we had a change in our commission structure that, coupled with the really tremendous volume in the fourth quarter, increased in our commission expense.

I think, if I had probably parsed through the math, I would have done a better job of estimating how they were going to do in the quarter.

But look, all in all, this was as good a quarter as we could have had, almost perfect execution across the board.

That's pretty hard to predict, Howard.

I appreciate that.

Thanks, Nick.

Steve Binder, Bear Stearns.

Nick, not to get too granular because I just wanted to follow up on your last point on R&D and the selling expense, but I think you are averaging about 7.5.

Those two buckets, if not mistaken, R&D and SG&A, were about 7.5% of sales and you bounced up towards 10% in the fourth quarter for those two items you just mentioned.

Were you back to the more normal levels where you were tracking at in the first three quarters of '05?

Yes.

Okay.

Then can you maybe just -- I don't know.

I also wanted to touch just on that order environment you mentioned before with Heidi's question.

Would you say internationally today is stronger than domestic because of the wait?

No.

I would say that international orders are increasing at a more rapid rate than domestic orders, but the domestic piece of our business is still the larger.

The North American piece, let me put it that way, is roughly two-thirds of our orders, but that's gone from what used to be 80% down to 75, to 70 and now two-thirds, but it's still our biggest market.

In the Health and Marine Systems margins for the quarter, how much of that was mix, would you say, versus volume?

I think it was a little volume;

I think it was a little mix.

We did very well on some repair work, which was a nice turnaround from when Electric Boat had had some problems last year, you might recall.

You know, [TAKE] volume was up a little bit but mostly I think it's a couple of things here that -- let me say something about Marine margins.

While I am thrilled with this performance, don't view it as steady-state.

I had forecast to you about a 100 basis point improvement over last year.

That is going to turn out to be modest.

We will do better than that; we will do much better than that.

But to believe that we will continue at this pace as an ordinary run rate is not feasible.

So, watch for this.

We will continue, I think, to do well in Marine.

We are on the turn here, very clearly.

I'm very excited about what Mike Turner has been able to do and his leadership, new leadership at all of the shipyards.

But I would think that this was almost a perfect quarter.

Don't expect that; don't bake that into your models.

I mean, would you kind of care to touch on the full year for the whole company?

You mentioned about Marine but where else would you say there's puts and takes for the full year?

I mean, you gave -- you never really -- as far as a change in guidance, you know, Marine you're suggesting could do better.

How about the other businesses?

Steve, you know, I think that the obvious question raised by this quarter and by the financial information you've received is what are its implications for the remainder of the year.

If that's the question you're asking, I'm going to defer answering it.

Frankly, we've given guidance that has been I think translates to 3.90 to 3.92 per share.

I think we feel very strongly we're going to beat that guidance, but that guidance no longer represents the view of the Company.

On the other hand, I don't think we have enough information yet to give you intelligent guidance for the rest of the year.

We're going to have an off-site soon where that will be the subject of our discussions.

So I will be in position, certainly no later than the second-quarter conference call, to give you meaningful guidance with respect to the remainder of the year and guidance that you can rely on.

Right now, I think it's a little speculative, and other than to say we feel very good about it, we will in fact exceed the guidance we've previously given you.

I don't want to give you water torture and be changing it every quarter or as more information is revealed.

George Shapiro, Citigroup.

Nick, did Combat Systems where you had 30% growth -- I mean that was still even above the army outlay growth of 22 in the quarter.

I mean, what do you look for happening the rest of the year and what contributed to it this quarter?

Okay, George, to really understand that, you almost have to have in front of you the quarterly sales volume of Combat Systems last year.

You might remember that, going into last year, we predicted a 20% sales growth in Combat Systems and we didn't get it.

Right.

We got about 14, I think, when all was said and done.

We got off to a slow start at 1.57 million in the first quarter of 2005, so we are comparing this quarter to what was by far and away the lowest quarter in last year.

So, while the 30% growth rate is particularly impressive, I don't want to drink the bathwater here.

We're going to continue to grow and have a very good year at Combat Systems, but the growth rate will slow as we go through the quarters where we're getting to compare against a better performance.

But is it safe to say that this quarter's revenue will be the lowest quarter of revenues?

I don't know that, George, but it could be -- could be.

I expect certainly to finish strong in the fourth quarter, as we did a year ago.

This quarter was higher than the first three quarters of last year by a fair measure, behind only the fourth quarter, where we did 1.6 billion.

So, look, I think it will build steadily during the year, but I still don't know the answer to -- you know, the guidance I've given everyone was to expect about 14% growth out of us for the year in Combat Systems.

I don't know how to change that.

I expect to beat it but I don't know by what amount, George, so that's part of the reason I was a little bit circumspect in answering Steve's question.

Okay.

In Marine, Nick, can you talk about the status?

You know, you've put out in the K that you're booking the take at breakeven and you've got this negotiation going on with the Navy.

I mean, what's kind of the status of that and when do you expect some resolution?

George, I think it's best sort of towards the end of the year, but it could also be an early '07 event.

But we're comfortable and so are our auditors with the way we are booking that right now.

Okay, thanks a lot.

Okay.

Matt, I would like to remind folks that we really would like you to stick to one question, if you could.

Cai von Rumohr, Cowen & Company.

Yes, Nick, if I could follow up a little bit on George's question, my understanding was that you kind of missed in the fourth quarter in Europe but you were not going to pick it up because they basically don't deliver a lot in the first quarter.

So theoretically, we have some good catch-up still to come at Europe, coupled with all of these orders you've announced.

You know, if you normally have your hockey stick, is this the area that has maybe the most upside for the year?

Cai, I think that, with respect to Europe, they will in fact have a very good year and plenty of volume, but we've anticipated that.

The orders that you speak of, or awards is a better if word for it, because by and large, apart from Portugal, they haven't been definitized and reduced the contracts, and we haven't taken then in the backlog -- are going to impact 2007 and only modestly so this year.

Robert Spingarn, Credit Suisse.

Nick, just going back, you said you're very pleased with the sales growth at Marine Systems.

I know this was asked earlier from a guidance perspective.

Do you expect that kind of -- you sort of guided flattish for the year, I think.

Do you expect some continuation here for the year?

How might this JV that you announced earlier in April with Korea -- how might that play in?

Does that suggest further participation in commercial market now?

Well, let me take those -- the compound question in the order in which you offered it.

I can't tell you, Bob, at this point, what I think about the continuing volume in Marine.

We had some repair work that was a little more than anticipated.

Whether that will continue or not, I expect kind of at the end of the day, we will see a little sales growth in Marine, and it won't be flat to generally tailing, which is what we ask you to expect.

What was the second part of the question? (multiple speakers) -- it had to do with the JV.

Oh yes.

No, you correctly anticipate what that JV is all about.

We will -- we are planning to do more commercial work, and the venture we entered into with Daewoo is to facilitate and become more efficient, both in design and in procurement in anticipation of commercial work.

When that occurs, we will of course make a public announcement.

But we are obviously positioning ourselves for that market.

Does that specifically target some of the problems you've experienced in the past on the commercial side?

Yes, we believe it will make us more efficient.

I'd don't know that it addresses our problems; our problems had to do with misestimating and misunderstanding the risks that we were taking, but in each instance, it was with respect to a new and original design.

Our arrangement with Daewoo enables us to use a design for a product that we will offer to the market, a design that is established and that can be produced in our yard and make us more efficient in the management of the supply chain, frankly, taking advantage of their significant purchasing power.

So there -- an effort to be more efficient, to anticipate the demand in the marketplace, to meet that with a product that we can build efficiently, and we will see where we go from there.

(OPERATOR INSTRUCTIONS).

David Strauss, UBS.

Nick, could you talk -- touch on this facility expansion that you've announced at Gulfstream?

What potential upside there might be from streamlining production, as well as what you're looking for or as far as taking total capacity too at the facility?

David, I can't tell you a whole lot about that because some of it is close-hold.

But I can tell you there we're building a new service facility, because of demand, where we will almost double our capacity on the service side, which will help increase our revenue and for that matter our efficiency as we handle that work.

We've also already obtained a new engineering facility on a lease basis; that ultimately is temporary.

We will build, on our own campus, a state-of-the-art engineering building later in the development.

We are currently undertaking to renovate space for a new sales and design center.

We will ultimately renovate the remainder of the corporate headquarters there.

We will ultimately build a new operating facility assembly building that -- where we will manufacture and final assemble our next-generation products.

A completion center will move to what is currently our service facility, so when the dust clears on all of this five to seven years from now, we will have a new campus essentially in Savannah, but it will be done over a period of time.

The implications of this are in part what you have identified.

We will have greater capacity, produce more aircraft and more varied aircraft, and we will also have created an environment where we can produce them more efficiently and to our engineering work and product development more efficiently.

So all in all, it's an investment in the future of a great business to make it greater.

Thanks, I will abide by the rules.

David Gremmels, Thomas Weisel Partners.

Good morning, Nick.

I'm hoping you might provide some additional color on the supplemental, now that you've had a little bit more chance to digest it.

I know we've had some additional -- I'm sorry, Abrams Funding added back in there.

Can you just talk about what you see for General Dynamics, how it compares with your expectations, and what's factored into your expectations today with respect to the supplemental?

This is really hard for me;

I'd rather wait until somebody passes the supplemental.

I can tell you that we are grateful to both the Senate and House Appropriations Committee who have seen fit, in their mark, to add money for Abrams' program across the board in relatively significant amounts; and we're grateful to the United States Army for indicating to the Congress that that was an unfunded priority of theirs.

So all in all, we are very pleased with what we can see is going to happen to our various tank programs.

But with respect to the remainder of the supplemental, I'd rather not speculate until the Bill is past and we can visit with our customers and see what is really in there.

Fair enough.

Thank you.

Troy Lahr, Stifel, Nicolaus.

I'm wondering if you can talk about the 2007 production cycle, how much you guys are sold out for that?

If you are fully sold out, are you getting there?

Is there any upside where you could probably squeeze a couple more in 2007, or is it really 2008 is where you could expand it out?

Let's talk about 2006 first. 2006, our production is 100% sold for the large-body aircraft that we build in Savannah. 2007, for green aircraft, we are well in for the third quarter.

That doesn't mean entry into service; it means green deliveries.

Entry into service is more than two years.

So, we plan an increase in production in each of those years.

It has been planned and we've talked about it.

This year will represent a significant increase in green aircraft.

You might notice that we delivered I think 18. 18 multiplied by 4 is 72, and the guidance has been 72 or 73.

If we get an opportunity, due to operating efficiency, to pull an airplane or two forward at the end of the year, we will do it if we can.

But, it's not something we are planning on.

You know, that sometimes is driven by our efficiency and the customer screaming that he needs his airplane prior to year-end, so we try to accommodate that if we can.

But I expect to go ahead and that next year we will produce the number we've already indicated, which if memory serves me correctly is another seven aircraft, so about 10% more.

The facilities we are talking about won't drive production until into the next decade, talking about 2011.

Okay.

When you said the production was sold out for 2006 for 100% for large bodies, is that the same for the mid-sized aircraft?

No, no, it hardly ever is.

They are on a shorter turn.

But they are significantly sold out. 100% of entry in the service aircraft are sold.

I would say that there are a couple of open positions in the fourth quarter for green aircraft on our G200 but very little availability.

Joseph Campbell, Lehman Brothers.

Actually, it's [Carter Copeland].

First off, good quarter.

I think I was wondering if you could give us a little bit of color around the Stryker program.

It looks like this recent order pulls us up to around 1800 Strykers out of the original order for 2100.

Yes, I think so.

I think that's about right.

So, it seems like -- I mean, there's still another 800 million in Stryker money in FY '07 that's sitting there now.

Could you provide maybe a little bit of color about whether or not there is a possibility for more Strykers than we had initially anticipated, or if there are some other opportunities out there that you think about for the Stryker program, more for the longer-term?

I think that the Stryker program is a great program and the response of the soldier to the vehicle has been tremendous.

Its performance in Iraq has been outstanding.

Its time on-station has been great, better than any vehicle in the fleet.

So we expect that this program has some legs.

Just the shape that that will take remains to be discerned, but my suspicion is that there will be Strykers beyond what was originally contemplated.

Do you think there are reset opportunities in there as well, like we see with the Bradleys at UDI and some of the other vehicles?

Sure, absolutely.

Myles Walton, CIBC World Markets.

Nice quarter, Nick.

So, since the last quarter's call, you were awarded a short-term like a six-month $300 million IED countermeasures IEIQ contract.

I'm just curious if you can give us an update on that in terms of what that originally contemplated in your guidance and how much of that was worked against in the first quarter.

Did that explain some of the strong performance year-over-year?

Myles, you I think read the popular press, what the view of the Department of Defense and our customer community is about discussing IED removal contracts apart from saying we've gotten one.

So I'm don't intend to discuss it further.

It's a hot button.

All right, can I have one follow-up?

Yes, go ahead.

Since I didn't answer your last question, you get another one.

Exactly.

So if you look of the 10-K, it looks like you had a 1% increase in your sales with respect to fixed-price programs year-over-year, 2005 over 2004.

Given the trend in 2006, do you expect that trend to continue upwards, that is more fixed-price work, rather than cost-plus?

I think it's at 54% fixed-price.

you know, Myles, I would only be speculating as I sit here today because I haven't spent any time analyzing that.

I think, if you look out over time, a major driver of cost-plus has been the four Virginia Class submarines that we've been doing, so you're getting a cost (inaudible) in an unusual place.

As we gravitate towards the multi-year for those submarines and begin building the fifth, sixth, seventh of that class, our mix is going to shift.

In my view, the dynamics will shift towards more fixed-price work.

But I haven't made a current assessment to compare this year's expectations with last year.

I look over at Mike Mancuso for help and he kind of shrugged his shoulders, so (LAUGHTER) I think he can't contribute anything on that one either.

All right, that's good enough.

Thank you.

Byron Callan, Prudential Equity Group.

Yes, good morning.

Just briefly if you can touch on where we are in Anteon, if you still think that will close sometime in the second quarter, maybe a little bit later.

Then related to that, how are you thinking about capital deployment after that deal has closed?

Could we see a step-up in the share repurchase program?

The people working on that transaction tell me it's proceeding apace and that we should get it closed in the quarter, probably towards the latter part of the quarter, which is pretty much what we predicted when we announced the transaction.

Okay, so once Anteon is closed, what next?

Look, I think we will do what we need to do with our capital to create value, and we will change the mix from time to time between share repurchase and acquisitions, depending on what's available to us and what the market gives to us, in either direction.

So I think hard to predict.

Okay, I guess it's not as if there's another full pipeline or there's a lot of interesting things in the acquisition market.

Maybe that's another way of asking the same question.

Oh, there's always a lot of interesting things, Byron.

The question is whether they are affordable.

Okay, understood.

Okay, I'll honor my one question.

Thanks.

Doug Harned, Sanford Bernstein.

Good morning.

Back on Marine, you talked about some of the margin improvement as being due to mix and the repair work.

But if you look at NASCO and also Virginia Class, could you talk a little bit about how that has progressed over the last quarter?

Virginia Class is a cost-plus program, and it's moving along.

From a booking rate point of view, it's uneventful.

BAT is doing well in the DDG program, and NASCO, for a change, made a little money.

They did well in the repair, didn't suffered any losses on any of their work, and showing signs that they are making significant progress in their productivity.

So, that all made for a good quarter.

But on the Virginia Class, I know it is cost-plus but one of the challenges I know has been with Northrop Grumman that they are not as far in the learning curve as you are on the program;

I know you share the margin.

I mean, has there been any improvement there?

Yes.

Look.

They are getting better, just as we are.

They are getting better and they will get better.

The question is will it be fast enough?

The implications of our -- (technical difficulty) -- aren't with respect to current earnings; they are how will we do when we get into the multi-year ships.

Our performance on those ships will in part be informed by how we are doing to these ships, whether we're getting down far enough the learning curve to make our profit expectations and predictions reality.

But I have confidence in the team they will get where they need to get and we are moving along.

Okay, great.

Thanks.

Joe Nadol, JPMorgan.

Nick, I was wondering if you could update us on a couple of the other smaller M&A transactions you have underway -- the sale of the aggregates business, the acquisition you announced, maybe a couple of thoughts on that, and then any thoughts on what you might do with the coal business.

Let's see.

We've talked about Anteon already; we've talked a little bit about a transaction we've announced called SNC, an ammunitions integrator.

That's a perfect fit with our OTS operations.

I suspect that that's a second-quarter event.

What was -- (multiple speakers) -- oh, material service.

I think that should also close by the end of the second quarter, hopefully.

Freeman -- you know, it's hard to imagine, Joe, that that business is going to remain with us over time, right?

That wouldn't fit, or it doesn't fit our strategic portfolio.

It's a matter of how and when we will exit, not whether.

Mike might have said this earlier on but I think I missed it.

Just all these different transactions, what kind of P&L impact should we be looking for, net, in Q2?

I don't think any.

Just in terms of gains, discontinued ops, that sort of thing.

Oh, there is a significant gain on the Material Service transaction.

Okay.

All right, thank you.

Ron Epstein, Merrill Lynch.

A quick question for you -- you talked about that new campus at Gulfstream five to seven years down the road, but you did allude to kind of the next generation of products.

I realize you can't talk about details, but just kind of strategically, in broad terms, can you talk about what you're thinking about Gulfstream and that next generation of products?

I can tell you what we've been saying publicly, and that is that we are in fact working on product development, that we intend to bring out either brand-new product or evolve product every seven, eight years with respect to a product.

When people ask me what will they be, I say they will go further, faster, in greater cabin comfort than their predecessor aircraft.

So that's what you should expect from us.

But we won't talk about it a lot, unlike the habit of the many in the industry.

We don't like to talk about an airplane until we are certain of what it's going to do and what its configuration will be.

I would rather wait until it's flying.

My colleagues at Gulfstream don't always agree with me about that, but I like to be in the air.

Then we talk about it.

But I don't see any reason to take orders or to gibber on about it.

But there is significant work apace; we are funding and they are doing well.

It involves several products, not just one.

A follow-up question from Howard Rubel with Jefferies.

Howard, are you still there?

(OPERATOR INSTRUCTIONS).

Moving along, we will take a follow-up from David Strauss with UBS.

Nick, can you talk about financing for the deals that you have pending, what do you think your balance sheet might look like after all these deals are closed?

I don't want to talk about that.

We haven't resolved that with our Board yet, and I hate to get ahead of them publicly.

They have some views on it; management has some views.

We will comment once we have agreed on our structure here, but obviously we don't have to break a sweat to finance these transactions.

It's a question of how we will structure it.

Okay, fair enough.

Thanks.

A follow-up from Byron Callan with Prudential Equity Group.

Yes, Nick, I think, last quarter, you just discussed some of the opportunities which subsequently closed some of the armor programs in Europe.

Can you just update us on what does the plate look like for the balance of 2006, both domestically and internationally?

Any large programs that have come up recently that are in your sights?

Byron, there are additional programs and competitions in Europe.

There are areas, both track and (indiscernible) potential in Greece.

I can't remember some of the others, but there are a number of opportunities that continue apace in Europe.

Just where those programs are, I'm not quite sure because it's not what I'm focused on right now.

I'm trying to focus on getting the considerable awards we've already won under contract and enter into production.

But there are a number of international activities that are ongoing.

That is a nice market right now.

Is there much in IS&T, Nick?

You guys do pretty well in some of these areas like network assurance, I don't know, even some of the space areas that really don't get a lot of attention in these calls.

But anything you could highlight in that sector?

You mean in terms of foreign or international orders?

No, I'm thinking domestically, U.S.

Nothing I would want to highlight right now, Byron.

Okay, I thought I would ask anyway.

Thanks.

David Gremmels from Thomas Weisel Partners.

I just wanted to throw the Gulfstream supply chain question out there.

Obviously, nice growth forecasted in the delivery plan.

Have you encountered any constraints in the supply chain or any concern on regarding its ability to grow with you at this point?

So far, so good.

We always worry about it.

Sounds good.

Okay.

Matt, I think we can take one more question and then we will need to break.

[Todd Ernst], Neuberger Berman.

Yes, good morning.

I just had a quick question for you on IS&T.

Nick, can you just discuss the trend there?

It appears that the total backlog and funded backlog has been falling over the last year.

I just want to see where you think that's going.

It's not significant to the extent that it has fallen.

I think backlog in this world is always dicey.

You have an extraordinary number of IDIQ vehicles and how they gravitate from where we carry them in the backlog is sometimes a great mystery.

But they are not suffering from a shortage of work, and I think, to the extent you may be looking at a number that I'm not looking at, but my recollection is that, to the extent that there has been a drop in total backlog, it's relatively modest.

It's been a fairly aggressive growing -- I mean, as you look forward in that area, do you see it continuing to grow as it has been growing?

Oh, I don't -- I've said this over and over again.

I don't think so.

I don't see anything that would justify the kind of growth, the organic growth that we've experienced going forward, but I think it will be a nice grower.

What do I mean by that?

It will be in mid to high single digit growth rates as we go forward, which is a very nice business, particularly one that's performing at the level that this one is.

But, things can't grow forever at the kinds of organic growth rates that these businesses have experienced, which has been pretty much double-digit growth for many years now.

Okay, thank you.

Okay, I'd like to thank everyone for joining us today.

I'm Ray Lewis, staff Vice President-Investor Relations, and I will be happy to take your calls once I grab a quick bite to eat.

My phone number is 703-876-3195.

Thank you all for joining us today.

Good-bye.

That does conclude today's teleconference.

We would like to thank everyone for their participation and wish everyone a great day.