通用動力 (GD) 2006 Q2 法說會逐字稿

Ladies and gentlemen, good day, and thank you for your patience.

We'd like to welcome you to today's General Dynamics second-quarter 2006 financial results conference call.

As a reminder, today's call is being recorded.

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

Mr. Lewis, please go ahead.

Thank you, [Dalia].

I'd like to welcome members of the investment community and the media who are listening today.

I would like to remind you, as always, that we are likely to make some forward-looking statements today.

And while those are our best estimates given the information we have at this point, they are subject to the same risks and uncertainties that any business faces.

If you're interested in a more definitive list of those risks, I would direct you to our 10-Ks and 10-Qs.

And with that said, I would like to turn it over to our Chairman, Nick Chabraja.

Good morning.

We had a strong quarter by almost any measure.

Earnings per share of $1.03 from continuing operations modestly exceeds consensus.

Revenue was up almost 800 million over the year-ago quarter.

That is about a 15.5% growth.

The growth was driven, obviously, by 29% increases in both Combat Systems and Gulfstream.

I might point out that this is the first time Gulfstream has exceeded 1 billion in sales in a quarter, and I expect to see more of that.

I should add that it's really interesting to observe that the Marine group revenue is up 7% as well.

And we have been getting stronger Marine revenue this year and at the tail end of last year than we had anticipated.

We had seen this as a largely flat business.

But incrementally, the revenue has been stronger.

Lastly, while IS&T revenue is up about 7%, most of the revenue growth is from acquisitions.

I should point out, however, that the revenue in the second quarter of 2005 for IS&T was abnormally strong, due largely to ramp up in the United Kingdom for the program which is now, frankly, ramping down.

Our operating earnings are up over 20%, a greater rate of growth than revenue.

This obviously suggest margin expansion, which in fact, happened.

Overall, margins were 10.9, a full 40 basis points better than the year-ago quarter.

Three of our sectors had very nice (technical difficulty) [net] margin expansion, while IS&T slipped 40 basis points due to acquisitions and some mix shift to large, new development programs.

Aerospace earnings were up over 33% over the second quarter a year ago on the strength of the increased volume, improved pricing, some learning curve efficiencies and 13 million of margin from preowned activity versus none in the year-ago quarter.

Combat Systems operating earnings were up 40% over the second quarter 2005 on significantly improved volume.

This led to improved efficiency, overhead absorption, and resultant margin improvement.

Importantly to us, for the third straight quarter, the Marine group enjoyed margins in excess of 7%, noting increasing stability in that sector.

A minute on free cash flow from operations -- in my view, it was adequate for the quarter at 258 million.

Year-to-date free cash flow from operations of 664 is 44% better than we were in the first half of 2005, and equals about 82% of net earnings from continuing operations.

So it's a good place to be at this time of the year.

Both funded and total backlog grew in the quarter, as did ID/IQ contract value.

Three of the four groups participated in backlog growth.

Gulfstream enjoyed very strong orders in the quarter.

Its book-to-bill was 1.5-to-1 when expressed in dollars, and 1.45-to-1 when expressed in units ordered.

I think it is normal, and it should be obvious to you that it is normal on a quarter-to-quarter basis, that the Marine backlog does not grow.

That is not a quarterly order business.

We receive our Marine orders in large, multi-year tranches.

The last time we had a submarine order, we got six.

The last time we got a DDG order, we got four.

The last time we got a [PHAE] order, I think we got two.

So those come in large tranches, and then we burn backlog.

You should expect that, and view it as typical.

We have given guidance in our press release of $4.15 -- a word on that.

This is the results of a bottoms-up review here at corporate headquarters together with our business units.

It is a balanced number, with equal amounts of risk and opportunity.

It is not a conservative number.

I have reviewed a number of the sell-side analysts' publish models -- maybe not all of them, but most of them.

On average, we show slightly more net income in our forecast.

But we also have a larger share count -- 407 million fully diluted in our forecast.

And that is larger than every model I have seen.

I might also point out that we are using a figure that I think is pretty accurate of 119, 120 million of net interest expense, which I think is slightly more than most of the models I have seen.

That having been said, I would like to pass the baton to Hugh Redd for some remarks in greater depth on a few issues.

Thank you, Nick.

I would like to briefly address three subjects -- discontinued operations, share repurchases, and net debt.

First, discontinued operations.

You can see on exhibit A of the press release that discontinued operations net of tax yielded a $216 million gain, predominately as a result of the sale of Material Services Corporation, the aggregates company.

Additionally, Freeman Energy, the coal company, is now being held for sale and, it is highly probable that a transaction will be completed in a short period of time, certainly within a year.

Accordingly, operating results from Freeman Energy are now reported in discontinued operations.

Data from prior quarters shown in this press release for comparative purposes have been restated to reflect the reporting reclassification of Freeman Energy to discontinued operations.

With the sale of Material Service and the movement of Freeman Energy to discontinued operations, the line previously identified as "Resources" is now entitled "Corporate."

In this period, this line represents predominately option expense under FAS 123R.

Second, share repurchases -- during the quarter, just over 1 million shares were repurchased at an average price of approximately $63.50 per share.

Year to date, approximately 1.2 million shares have been repurchased at average price closer to $62.50 per share.

As a result of these repurchases, shares outstanding were reduced by 100,000 shares during the quarter.

I should explain that diluted weighted average shares outstanding increased in the quarter because of option exercised late in the first quarter, the impact of which was not fully recognized in the first quarter due to averaging conventions.

Finally, net debt -- net debt of 2.25 billion increased approximately 400 million over the balance at the end of the second quarter of 2005.

During the last 12 months, acquisitions totaled 2.4 billion, and shares repurchased totaled 233 million.

That expenditures of 2.6 billion for acquisitions and share repurchases resulted in debt growth of only 400 million really underscores the strength of cash generation during this time period.

Thank you.

Ray?

Thank you, Hugh.

And Dalia, if you would explain to folks how they can get into the queue for Q&A.

I do want to remind everyone that our policy is that we would like you to ask one question so that as many people as possible can get into the queue.

And if you have a second question, just go to the back of the line.

And there's a good chance you will be able to get back onto the phone.

And with that, Dalia, if you could explain how they get in the line, I would appreciate that.

(OPERATOR INSTRUCTIONS).

Cai von Rumohr.

Yes, Nick; that's a very impressive book-to-bill in the quarter, particularly compared to prior years.

Could you comment -- what are you seeing in the tone of business?

You had given us some indicators that you look at to tell whether the business is still firm.

And secondly, what does this book-to-bill portend, if anything, in terms of a delivery schedule for 2007 at Gulfstream?

Okay, Cai -- obviously, it was a strong order quarter; a lot of activity.

More importantly, we went into the third quarter with a significant number of funded letters of intent, which suggests to me that we are going to have a strong order quarter in the third quarter.

The reports I get from the Farnborough Air Show is -- you know, we're a sideshow at Farnborough.

That really is for the major commercial company.

That is a Boeing versus Airbus activity.

But we are out there are signing some folks up, which is kind of encouraging.

And I would say part of the strength I am seeing is an international component here -- Europe, Middle East, Asia, even Latin America.

Our pipeline is large and growing.

And our biggest problem, of course, is this big asset -- this large backlog, which puts us -- quite a [weight].

People are buying 2009 green delivery spaces now for the large (technical difficulty).

So it is a tough way to satisfy your customer.

Now let me address the second part of that question -- what does it portend for '07 an '08?

I guess this year -- I will limit my answer to the large aircraft, because those are the ones that are in my memory.

We will deliver 72 this year.

We had intended to deliver 79 in '07.

We have upped that to 82.

And in '08, we are going to deliver 83.

Now at those numbers, we are running very close to our efficient capacity.

And can we build more?

Yes.

Can we build more and enjoy the margins we are enjoying?

No.

We'd screw it up.

We can generate greater efficiencies over time, but we are very close to our current capacity when we build 82 and 83 of the large aircraft.

So that having been said, we are even doing very well on the mid-size.

The 150 is enjoying a good introduction.

And it will enter into service this quarter.

We had five green deliveries in the second quarter.

So all is doing very well at Gulfstream.

And our research and development activities continue apace.

We appear to be on schedule there and on budget, if not slightly under, with respect to our development activity.

So I think that's a pretty comprehensive response, Cai.

Next question then?

Steve Binder, Bear Stearns.

Nick, in light of the fact that you have delivered five green G150s in the quarter, and you were able to essentially, when you back out the preowned equipment, pretty much sustain your margins from the first quarter -- maybe down a tad, but essentially flat -- which is consistent with what you said before, but you did have five G150s.

I'm just wondering, do you still expect Gulfstream margins to come down the second half of the year?

Yes.

Gulfstream's margins will contract on increase R&D spending and increased delivery of mid-size aircraft, offset slightly by improved manufacturing margins on the large aircraft.

Next question?

Howard Rubel, Jefferies & Co.

Nick, with respect to Marine, you indicated you were a little surprised by the volume increases.

Yet, I think we have seen some [writeoffs].

And could you explain also where you are with respect to the request for equitable adjustments on the T-AKE?

Yes.

Well, I am surprised by the volume.

It is holding up and growing better than we would have thought.

And like any business of this size, even if it is growing, that doesn't mean that that growth is occurring all at the same place.

NASSCO business is growing.

Bath is showing a little bit of volume increase, while Electric Boat is faced with some declining revenue, and is, in fact, laying people off, principally right now in the engineering design workforce -- so some good news and some difficult news for the workforce, depending on location.

What was the other part of that question? (multiple speakers) Oh, the REA claim -- I think we are having good, professional discussions with the Navy on that matter.

And the folks who are involved tell me that they are looking forward to a resolution of that claim hopefully by the end of the year.

I think what pleases me in the quarter is that we are very close to the delivery of the fourth and final BP Amoco tanker.

And you don't see any charges in the quarter, which suggests that we have that program stabilized, and that it is nearing an end here for us.

And we will do okay there.

Our next question, please?

George Shapiro, Citigroup.

Given -- you commented that you had relatively flat organic growth in IS&T, and part of it due to the strength last year.

What do you look for organic growth the second half of the year at IS&T?

It will be modest, George.

But we are looking for organic growth, not what you correctly label as essentially flat in the (technical difficulty) [quarter].

We will get some modest single-digit growth.

And that is because of what I alluded to earlier that will begin to hit us now, a significant falloff in revenue on the BOWMAN program.

We are also, as I indicated, experiencing some mix shift to a large new development programs as a result of programs we have won.

Some of them are slow to get started and engage.

And in others, we are fighting just margin as a result of the mix shift.

But all in all, the business is well-positioned.

I think it should expect modest revenue growth, organic, in the second half -- aided, of course, by Anteon, which is not organic.

And they will fight margin through the rest of this year before they have themselves positioned to turn it around and increase.

Next?

David Strauss, UBS.

On IS&T, looking at the backlog in the quarter, it looks like if you strip out the backlog that Anteon brought, that the backlog would actually have been down.

Could you just give some color on what kind of order trends you are seeing in the business?

They actually have pretty good orders in the quarter.

And you can not linearly transfer Anteon's backlog to us, and that's what you're doing.

We are going through a bottoms-up review here.

And we are taking it a contract at a time before we are taking it in.

You should also remember that about 25% of Anteon's stated backlog was transferred to Alion in connection with a sale to them.

And with respect to the remainder, we have not taken it all into our backlog.

That is in the process of review.

We have taken some.

So there was pretty good order activity in the quarter.

The other thing I can tell you is that we were one of a number of contractors that won the [IDs 2] award.

That is a $20 billion ID/IQ contract.

We haven't taken any in yet because of a protest of that award that was resolved the other day.

But we haven't added that to our numbers.

So all in all, I am pleased with the activity.

More importantly, I am pleased with the opportunity set that's out there for these businesses -- an identifiable addressable market -- programs that if you are with us tomorrow you will hear more about.

Troy Lahr, Stifel Nicolaus.

At IS&T on the margins, can you just talk about how much going forward in the second half is going to be this mix shift for development work and how is much is going to be from Anteon and lower margins that they might have?

I don't know that I can parse that for you today.

We are going to struggle with our margins in IS&T.

You ought to see a little erosion as more Anteon comes on.

We had very little Anteon volume in this quarter.

You will see more next.

So it is a combination of adding lower-margin work -- Anteon was running at about 9, 9.2 -- and the amortization of the intangibles, which will impact us and was anticipated and planned, and we had so advised -- I am not sure everybody always pays attention.

So they will normalize that through the balance of the year, get that under control, and fight the cost equation and begin to grow their margins.

I think as people look at the pattern that we had when we brought (technical difficulty), you will see the kind of thing we are talking about.

There was a decline, and then we gradually it got back to our normal run rate.

Robert Spingarn, Credit Suisse.

Nick, just staying on the Anteon thing for a moment.

If you strip out Alion, could you give us a sense of the '06 versus '05 same business growth there at Anteon?

No, I don't have a notion.

I have not looked at that.

Well, okay -- since you can't answer that one, maybe one on Gulfstream quickly.

With the big ramp at the commercial aerospace level, you're all competing for resources from suppliers.

To what extent has that been a constraint for you?

I think we have had to work hard on the supply chain, Rob.

And we have had some fits and starts.

But largely, we are doing okay.

Our bigger issue is our own facility and our own workforce.

To have growth rates that are greater than what we planned, we would have to do hiring and training in a way that is inefficient for our operations and incur overtime charges that would begin to depress margins.

So I think our more fundamental problem is internal capacity, workforce-related issues.

We are adding people, but we are bringing them on in a measured way.

And in this regard, I am going to listen to Joe Lombardo, who is our Chief Operating Officer down there at Gulfstream.

He is a capable professional.

And he is going to guide me the right way.

He has been a winner.

We have ramped up very well in the past, and we're doing well this time.

(OPERATOR INSTRUCTIONS).

Myles Walton, CIBC World Markets.

We have seen a little bit of build up in the used Gulfstream inventories in the market.

Are these levels getting to a point where you are seeing any type of impact in your OE side?

And also, if you can just give us a couple of data points on your preowned inventory as well as your trade-in commitments, if those have materially climbed or decreased given your level of (technical difficulty)

Good question, Myles.

I think one should fully expect some build up in used inventory, given the rates at which people are ordering airplanes and we are delivering.

There is a normal changeover.

But the preowned market has done very well, as you can see from our profit margins in the quarter.

But we have essentially no units available for sale.

We have five preowned units in inventory.

Three are on accommodation leases to customers.

And two, at the end of the quarter, had contracts on them.

So I don't have any inventory down at Gulfstream available for sale, and precious little exposure.

And it certainly has not been a problem for us at the OEM level.

In fact, part of what we're doing right now as we work customers, when we can't make delivery to them for entry into service for over two years, is trying to find them temporary lift if they don't already have an airplanes that they can hang onto.

So we spend a lot of time out there sourcing aircraft for our customers when we can.

And I think -- the inventory is growing, but as best I can tell, pricing is firm on late-model aircraft.

And they are turning relatively rapidly.

Doug Harned, Sanford Bernstein.

Could you talk about Marine a little bit?

And particularly, you have said in the past that you're looking toward 8% level margins by '08, and an important part of that being the Virginia class.

And if you could talk a little bit about how that program is proceeding now that you're on the fixed-price production boats -- you and Northrop Grumman?

We are just beginning that part.

And we are doing a little bit better than we thought.

The margins in the program are improving.

I think on the cost-plus boats, we are saying some significant improvement in the third and fourth boats, one at each yard.

Both are performing quite well right now, which gives, of course, a big push as we get into the same sections of the next six boats.

So all in all, we are optimistic about our progress on Virginia.

We are doing well in some other aspects at Electric Boat, and we are continuing to improve at Bath Iron Works.

Their efficiency is actually becoming quite remarkable right now.

And we're straightening out our problem slowly but surely at NASSCO.

So I am satisfied with and encouraged by three quarters in a row now of 7% plus performance.

And we will see how we go.

I feel very comfortable with my forecast to you that we will get to 8% in '08.

And we will try like hell to get there next year, but whether we can or not, I don't know.

But we have got some things that we are working on that I think are bearing fruit.

Mike Toner and his people -- three shipyard leaders providing great leadership.

I think we are getting this thing to the place where it is going to be a business we're proud of.

Joseph Campbell, Lehman Brothers.

It is actually [Carter Copland] with Lehman Brothers.

Nick, I was wondering if you could briefly comment on the strong Combat Systems margin in the quarter?

I know you highlighted briefly that overhead absorption was a key contributor.

How much of the volume that is contributing to that absorption should we consider is sustainable?

And what is the impact later on in the year?

Was it just that we were lumpy in Q2, or are we pushing things through (multiple speakers) at levels that [that] sustains for a while?

You know, it may not be quite this good.

But we're looking for continued strong margins out of Combat Systems.

It will be lumpy, but not directionally lumpy.

You are going to get 30, 40 basis points around the mean.

But what I want to point out to you here is -- so you really understand this a little bit, a year ago, in the first two quarters, we sort of disappointed ourselves.

We were forecasting 20% revenue growth over 2004.

And we came up short in the first two quarters.

And we thought we'd still make it -- made a great run at it; didn't get there.

We had about a 14% growth over 2004.

That didn't mean that it went away.

We had previously forecasted a 9% growth in 2006.

And instead, all of this backed into 2006.

So look, you have had some spectacular growth in Combat Systems in both the first and second quarters compared to the first half of last year.

But in the second half, we got stronger.

So while we will continue to grow here, the growth rate won't be quite what you saw in this quarter, which was 29%.

It will moderate.

That having been said, I believe we will get margins throughout the remainder of the year north of 11%.

Whether they can hold themselves at 11.9 or not, we will have to wait and see.

I would doubt that.

But they are going to be very good.

Steve Binder, Bear Stearns.

Nick, you talked about cash flow being adequate this quarter.

Obviously there's some cash for capital growth.

Can you expand on the term "adequate"?

I mean, first half cash flow, if you look at it as a percentage of the full year, is running -- if you look at the past patterns, equal or better than you have been in the past.

So I'm just wondering if you could expand on the term "adequate".

That is what I really meant.

We are equal to or better than where we had been in the past.

We are not typically at 82% of net income.

And I feel like we are doing particularly well because there is a lot of program delay.

We have a lot of advanced work authority requests where people are asking if they can go ahead and do work; create inventory, in effect -- work in process, pre-contract activity because they have a lot of stuff that they have a lot of faith in, and the supplementals are slow, or the promised money has some issue with respect to it.

So there's a wide variety of issues here.

And we're not satisfied.

That is why I use the word "adequate".

I mean, I am never happy when I see growth in working capital.

But it is a description.

It doesn't mean that I accept the explanation.

And we are going to go out after that growth in the second half like we always do.

And I think we will have a good year from a cash flow point of view.

Cai von Rumohr, Cowen & Company.

Nick, a little confusion on Gulfstream.

You did sixteen large aircraft in the second quarter, 34 in the first half.

If you do 72 for the year, you are going to do an average of 19 or more in the second half.

You did 13 mid-size, of which five are the G150s.

If you do 39, you will do an average of 10.

So on paper here, unless the numbers have changed, it would look like the mix would be shifting up toward the large aircraft.

And with (technical difficulty) presumably higher margins.

So could you (multiple speakers) explain why the margin --

You are throwing numbers at me that don't mean anything to me.

Give them to me again?

Well, you did deliveries of 16 large aircraft in the second quarter, Marine aircraft.

And I believe the plan was 72 for the year, which would suggest you have got 38 to go or essentially more.

So the run rate in the third and fourth quarter on average would be higher than in the second quarter.

Similarly, when I look at the mid-size aircraft, you did 13 this quarter.

And if we're still on track to do about 39 or 40, we would be doing fewer in the second half than in the second quarter.

So it would look like, on paper, unless the numbers have changed, that the mix would be getting more positive.

Am I missing something here?

Yes, you are.

We have 34 deliveries of large aircraft through the first half.

But you're just looking at green deliveries, right?

You don't have the completions in the [deal].

And while we have green deliveries on the , the completion is what is important, because that is where our revenue is, principally.

Our revenue share partner is the green side of the deal.

So for example, we are now going to get into our end of the G150.

And we will deliver 39 to 40 aircraft, but completed aircraft in that area, whereas now, we've got 20 green.

So you don't have enough information to make the calculation that you are fiddling around with.

David Strauss, UBS.

Nick, back to IS&T.

In your Q, you had talked about mid to high single digit growth for IS&T.

And now you're talking about low single digit growth.

Is there anything that changed there?

In the second half, in the second half, in the second half.

And I was talking about going forward, right?

I don't know that anything has changed.

It is just a bottoms-up analysis on our part.

We're slightly more cautious with respect to growth, because money is slowing down a little bit.

It is not that it's not there.

It's not that the programmatics aren't there.

It's that the money isn't being released in a timely way.

The starts are slow.

Howard Rubel, Jefferies & Co.

It seems to me that with the supplementals done for '06, there is a substantial amount of procurement in hardware or the armored systems part of the world.

Could you elaborate a little bit on what you saw, and what opportunities?

Because it does look like you have been able to gain a little bit of market share as a consequence of sort of your performance and other opportunities.

Howard, I don't really think about market share very much.

I don't know that it's a market where we are competing against other people.

We have some product that the Army is ordering.

We still have a lot of tank activity.

The Stryker activity has been strong.

We have had continuing work on the development side, and the future combat systems.

Our medium caliber activity has been very strong.

Conventional ammo business has been very strong, both nationally and internationally.

So all parts of that business have been moving very, very strongly.

There is growth across the segments.

And we expect a very strong second half from our European land combat systems.

So I think that it is going fairly consistent with our expectations.

And I think the expectations we have given to you -- business may grow more than 14% this year, but that's still kind of what we're looking for.

And top line, I think it is going to pretty much end up just a little bit shy of a $6 billion business.

(OPERATOR INSTRUCTIONS).

Troy Lahr, Stifel Nicolaus.

Have you guys had any preliminary discussions with the DoD or the Marine Corps about possible budget cuts to the expeditionary fighting vehicle?

I think the Marine Corps kind of agreed that they need it, but the question is do they need 1,013?

Have you guys started having these talks?

I don't think the Marine Corps is in the habit of discussing with me or anybody on our team their requirements.

They are very supportive of EFV, both in terms of programmatics and their support of the program up on the Hill.

But all big programs are going to have budget pressures.

What is important to us is not who throws around what number.

We have to do a good job in low-rate initial production, and then get into full-rate production and get the first units fielded.

And believe you me, the numbers with respect to what the customer will ultimately order will result from what is fielded and what the troops have to say about it, and how they fight the vehicle, not from budget discussions between us and the Marine Corps.

So I pay almost no attention to that kind of stuff.

Everybody has budget problems.

And it's not unusual that order quantities get tossed around in budget discussions.

But that's a wicket that I don't want to get lost in.

George Shapiro, Citigroup.

Nick, you had commented about the amortization at Anteon for the second half.

Could you just provide what the D&A is going to be for Anteon for the second half of the year? (technical difficulty) (multiple speakers) for all of next year, either way you wanted to do it.

I don't know.

Let's take that one later.

I don't think that I have that at my fingertip right now, George.

Okay, then let me ask one different one.

Gulfstream -- you were saying 550 to 600 in profits.

Have you revised that upward in light of the new earnings guidance?

Because it would certainly seem that you would be --

Yes -- no, that is true.

Embedded in that earnings guidance, George, is a number north of 600.

Okay, that makes sense.

I would say that in general, we are not as high as most of the analysts with respect to Gulfstream.

I think -- many in your community are fighting the notion that we are going to have compressed margins in the second half.

They are resisting the notion that the midsize are going to compressed margins because we're delivering more of them.

And I don't think they kind of appreciate the ramp-up in research and development the second half.

But those two things will temper margin.

But you are absolutely correct.

We will have a figure that will probably be in the 615 to 620 neighborhood.

Robert Spingarn, Credit Suisse.

Nick, I am thinking that since we are in follow-up, maybe I can do two quick ones here.

(laughter) Go ahead, if you can get away with it.

Okay, I will try.

First on Gulfstream -- your bookings are strong.

You are currently doing quite well in the marketplace.

We think there might be some broader industry signals, potential demand slowdown perhaps elsewhere.

Would you concur that while Gulfstream maintains momentum, perhaps the pie is shrinking a little?

No, I don't think there's anything in our data that would suggest that to us.

We are doing well.

And we monitor this very carefully because I'm sure you will agree the macroeconomic data has been mixed.

But our sales pipeline and all of the information that flows through it from our software packages indicates to us that this is still a very, very impressive demand.

And frankly, a little slowdown in demand wouldn't hurt us a whole hell of a lot right here.

You think your competitors are seeing similar demand?

As best I can tell.

Best I can tell, both Bombardier and Dassault are enjoying a strong order market.

I don't know much about what is happening in the broader mid to light part of the market.

We are doing okay in our part of it.

We are hanging in there.

It's not as strong as the big aircraft, but it is perfectly good.

(OPERATOR INSTRUCTIONS). [Steve Sterrell], [Accounting Asset Management].

I was curious -- with respect to the 870-some million of short-term debt, is it -- one, is it safe to assume most of that is [CP]?

And would we expect to see you whittle that away over time going forward, or would you keep those balances outstanding?

I think in the ordinary course, the CP would get whittled away.

I think the broader issue for us is whether we intend to go to the marketplace with a debt issuance.

And I don't think we have made up our mind with respect to that activity.

The current cash flows enable that to pretty well go away.

Myles Walton, CIBC World Markets.

Just a quick one.

You mentioned 80 to 85 large aircraft is the efficient production level at present.

I know that you are doing some seven-year investments at the facility.

Is that targeted any way at increasing that efficient number?

Or is 80, 85 kind of the number where you're going to governor the business to?

We are building a new facility, Myles, for production of large aircraft.

And we will rationalize to some degree the existing facilities.

But it is fair to assume that it will result in increased capacity.

Robert Spingarn, Credit Suisse.

Well, Nick, you were correct -- I did not get away with the two questions before. (laughter)

The other one was on Marine.

We were hearing that you might be potentially looking at a commercial program order with U.S. shipping partners.

Is there anything you can elaborate on there?

You know, Rob, that is a very good question.

You had seen in the past an announcement from us with respect to a joint venture that we had entered into with a subsidiary of Daewoo to enable us to service a particular kind of product carrier with respect to design and some purchase activity of internal components.

I think you should stay tuned in the next day or so with respect to further developments on the order front in that connection.

But I don't want to get ahead of the news.

And everyone, that does conclude our question-and-answer session.

I would now like to turn the conference over to Mr. Lewis.

Thank you, Dalia.

Just so people know, if you came in late on the call or if you have colleagues that you would like to have listen to the replay, that will start this afternoon at 2 PM Eastern daylight time.

You would call 719-457-0820.

There is a passcode for that.

It is 500-4149.

I am going to go grab a quick bite to eat.

And then I will be taking your phone calls for any additional information you may need.

My number is 703-876-3195.

And that does conclude today's conference call.

Thank you, everyone, for your participation.

Have a great day.