通用動力 (GD) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the General Dynamics fourth quarter 2006 earnings conference call.

My name is Lateisha, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of this conference. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes.

At this time, I will now turn the presentation over to your host for today's call, Mr. Ray Lewis, Staff Vice President, Investor Relations.

Please proceed, sir.

Well, thank you, Lateisha.

And I would like to welcome everyone who is on the call today; members of the investment community as well as the business press.

As always, I want to point out that you're likely to hear some forward-looking statements today -- that these represent our best estimates for future performance.

They do not necessarily represent what will actually happen, as our business, like any business, faces some uncertainty.

You can read in our 10-Qs and 10-Ks a more fulsome discussion of what those uncertainties are.

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

Thank you, Ray, and good morning.

If you have seen our press release this morning, you may have noticed that we've slightly changed the format of the press release and the attachments.

The schedules, however, I think are largely self explanatory.

With that in mind, I will only briefly review the quarter, comment, also, briefly on the year, and spend a little more time providing detailed guidance for 2007.

After my remarks, Hugh Redd, our CFO, will address a couple of items that may require some additional explanation.

In the quarter -- I am pleased with the results for the quarter.

It was a solid conclusion to a very good year.

Revenue increased 13% over the same quarter in 2005.

Operating earnings grew by 14.9% -- almost 15%, indicating an improvement in overall operating margin, primarily driven by Gulfstream performance.

Cash during the period was very strong.

We generated $687 million in free cash flow from operations.

As a result of the strong cash flow in the fourth quarter, we completed the year having generated $1.822 billion.

That is 107% of net income from continuing operations.

By the way, I would like to observe that this is the fourth year in a row that we have generated in excess of 100% of net income, so pretty good performance.

The cash generation allowed us to reduce net debt to $1.2 billion, a reduction of nearly $800 million during the quarter.

Across the four segments, we had a good order intake.

We took in orders of $7.4 billion in the quarter which increased our backlog -- total backlog by $1 billion and funded backlog by $1.1 billion.

The results for the full year, in many respects, are similar to the fourth quarter, a little bit better overall.

Revenue grew by 14.7% as we crossed the $24 billion mark in sales for the first time.

Operating earnings grew even faster than sales, at a rate of 20.5%, as a result of a 50-basis point increase in overall operating margin.

And I like to see that -- I like to see that operating leverage.

Net earnings from continuing operations were $1.7 billion, which resulted in diluted earnings per share of $4.20, a 17.3% increase over 2005.

I think that's a particularly good result, given the expensing of options in 2006 which was a 8% -- I mean, $0.08 per share drag on earnings compared to 2005.

By the way, we also beat my guidance to you by $0.05 a share, and that was serious -- carefully considered guidance, so I thought we did pretty well.

I should also add that our ROE, return on equity, will be in excess of 19% this year.

I can't tell you exactly the final figure because we'll have the impact of some charge to equity with respect to pension plan rule changes, but without that, we're in excess of 19%.

So all in all, a pretty good return on equity.

I want to talk now about each of the groups, talk a little bit about their performance during the year, but really spend most of the time telling you how I think they're going to come out next year.

Information Systems and Technology, which has been our real growth vehicle for the last three or four years, experienced 20.3% sales growth for the quarter and 15.3% sales growth for the year.

However, this growth was primarily due to acquisitions that we made in the year, most notably Anteon, but there were four others.

Organic growth for the quarter and the year was approximately 2%.

That was made up of reasonable growth coming from our services business, Network Systems, and Anteon and our tactical communications business, was offset by declines in intelligence missions systems and the Bowman program in the United Kingdom.

Let me give you a little insight here.

Spending to support operations in Iraq and Afghanistan obviously provides some additional funds for some of our programs, most notably in Combat Systems.

But it also shifts funds away from other programs, in particular, IS&T.

That said, we still see IS&T sales growth in 2007 of approximately 8%.

As I've indicated to you before, there will be some margin compression, approximately 40 basis points, compared to 2006, primarily from a shift in product mix as services and development work become more prominent.

And also as we integrate these acquisitions and go to work on bringing their margins up over time.

Moving onto Combat Systems, its revenue grew 19.2% year-over-year.

Margins were reasonably stable year-over-year, and orders well exceeded sales.

At the end of 2006, backlog approximates two years of sales for Combat Systems.

So obviously, our Combat Systems businesses are well-positioned to support our customer's needs in 2007 and well beyond.

We expect revenue growth in 2007 to be between 12% and 13%, with margins improving over 2006 by approximately 50 basis points.

Turning to Marine Systems, its sales grew 5.2% in 2006.

But maybe the most heartening aspect of their 2006 performance was the 230 basis point improvement in margins.

We have now had five quarters in a row with margins in excess of 7%.

Next year -- this year in 2007, we expect Marine Group sales will be flat, but margins should reach or modestly exceed 8%.

With respect to these three defense segments, these projections that I've given you -- forecasts, reflect our best estimate of the impact of funding from defense appropriations and supplemental spending bills.

Precise forecasting is becoming increasingly difficult because of the lack of programmatic details attended to supplementals and the greater than normal delays in the approval of supplementals and the issuance of contracts.

I would caution you, as I have before, not to overreact to the impact or timing of supplemental activity.

Now Gulfstream.

What can I say here?

Gulfstream is performing at optimal levels in almost all respects.

Sales for the year increased almost 20%, and earnings grew by 30%.

Margins improved, as they had, to 120 basis points.

From the order point of view, the book-to-bill was 1.4 to 1, expressed in terms of units.

In 2007, we expect Gulfstream to again experience considerable sales growth of between 17% and 18% and achieve margins similar to 2006 performance, as they run into some negative mix shift and increased research and development spending, largely offset by improved pricing and operational efficiency.

So we look for their margins to look pretty much like they did last year.

What does all that mean?

All up, we anticipate revenue of approximately $26.3 billion, an increase over 2006 of slightly more than 9%; net income approaching $1.9 billion; and earnings per share of $4.60, an increase of 9.5% over 2006.

If I look at the difference between our forecast and guidance to you and some of the models I've looked at, the principle difference is on the revenue side.

I've seen -- most of the forecasts seem to have us with another billion dollars of revenue.

I cannot forecast that right now.

It is not impossible, however, given the vagaries of the funding issues that I have talked to you about before.

But for us to outperform this guidance, it is going to have to come on the revenue line, and right now, I can't forecast higher revenues.

Let me break that $4.60 guidance into quarters for you.

We anticipate $1.02 for the first quarter and then increasing by $0.08, $0.09 and $0.10 quarter-to-quarter.

I will do the simple math, $1.02, $1.10, $1.19 and $1.29.

Okay.

I think I have been as specific and as clear as I could be on these questions.

But before we get to your questions, I would like Hugh Redd to provide some additional color, and then we'll get back to your questions.

Thank you, Nick.

I would like to spend just a moment to shed a little additional light on three items; first, the effective tax rate, second, results from discontinued operations, and finally, backlog.

First, the effective tax rate for the full year 2006 was 32.3%.

You may recall that's 40 basis points lower than what we were forecasting in October for the full year.

To bring the full year rate down to 32.3%, we recognized a rate of 31.5% for the fourth quarter.

Absent any significant tax event, we expect run rate for 2007 in the same neighborhood as the tax rate of 2006.

Moving to the results from discontinued operations.

In the quarter, we reported an after-tax loss of $55 million.

The details of this charge are provided on exhibit J to the press release.

The loss included the results of ongoing operations at Freeman, as well as the pre-tax charge of about $61 million related to our anticipated sale of Freeman.

Notwithstanding the losses associated with Freeman, we reported an after-tax gain of $146 million for the full year, due principally to the gain on the sale of Material Services in the second quarter.

Finally, as Nick mentioned, the strong orders this quarter resulted in an end-of-year backlog of $43.7 billion.

That's approaching -- it is beyond 1.5 times a year's worth of sales and on its way to two times a year's sales.

Exhibit G gives the break-out of total backlog by segment, and that's spread across funded and unfunded, as well as by segment.

In addition to the total backlog, exhibit G shows the potential contract value of unexercised options and IDIQ contracts.

This is a slightly different presentation than what we've shown in the past in that we're combining options with IDIQ contracts.

Therefore, we've reformatted the third quarter 2006 and the fourth quarter of 2005 for comparative purposes, and they're displayed on Exhibit G.

That concludes my comments.

Ray, I will turn it back over to you.

Thank you, Hugh.

Lateisha, if you would explain to people the mechanics of our Q&A process, how to get in, and our policy of one question per query.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Joe Campbell with Lehman Brothers.

Please proceed.

Good morning.

Good morning, Joe.

I wondered if you could tell us a little bit about some of the new programs, in particular Land Warrior and MWRAP?

And how you see the selection -- or how this process is going?

And if you were to be successful in these programs, what the impact would be?

Joe, I don't know how to handicap that for you.

We'll know better when we see the President's budget for 2008.

I have no idea.

Your next question comes from the line of Steve Binder with Bear Stearns.

Please proceed.

Nick, maybe you could just tell -- you did touch on IS&T and some of the issues there, and you addressed the issues back in the third quarter.

But I think back in the third quarter you expected to see some fairly nice growth in Q4, and I guess you didn't see it.

So maybe you can -- would you say the stretch-outs are of a greater magnitude than you anticipated back in October?

And maybe just given your growth rate for '07, I presume you're not expecting any organic growth in '07?

That's not true, Steve.

There is organic growth built into that.

And it is a little better than this year's, but not a whole lot.

I don't know that I had any particular expectations with respect to this stretch-out.

I don't try and forecast those things.

We take them and play them quarter by quarter.

And I think nothing in the description would have changed from what I said in the third quarter.

We have some wonderful program wins where the programs are slow to get into production, and they're staying longer in research and development phase at lower margins and at lower revenues.

When that will break loose, I can't tell you.

But we like the business.

We like the way it's positioned, and we like its backlog.

Backlog continues to grow.

So a lot of good things here.

We'll just have to see.

Growth rates are going to be what they are.

And as we know more, we'll tell you more.

Your next question comes from the line of Joe San Pietro from Wachovia Securities.

Please proceed.

Good morning.

Nick, with regards to Combat Systems margins in the fourth quarter, they were a fair amount lighter than what we were anticipating.

And I was wondering if you could add some color to that?

Yes, I think I can, Joe.

Thanks.

I think they were a little lighter than what I was anticipating.

I can give you some color here.

Land Systems, the largest business, performed very well.

Their margins were consistent with the margins a year ago.

I would say our biggest disappointment probably came out of Europe, where we had increased revenue and decreased margins over a year ago, and we didn't get some commercial trading margin that we anticipated in the quarter.

And I think that the group has addressed their issues in Europe and look forward to not having that problem next year.

I would also say that in our Ordinance business, our margins were off in the quarter for two -- really easy to see reasons.

One of them was the start-up of our small caliber ammunition line and a pick-up of revenue, so a mix shift.

And the second one was we had a high margin plant that was down for repairs a good chunk of the quarter.

So between those two things, margins were off in the quarter.

But as I indicated in my earlier remarks, I -- they were good year-to-year.

We were relatively constant with 2005 for 2006, and I expect the 50-basis point improvement in 2007.

And if you have a sense for my conservative nature, I don't expect I am out on a windy corner on this one.

Your next question comes from the line of Heidi Wood with Morgan Stanley.

Please proceed.

Good morning, Nick.

Hi, Heidi.

Kind of a big picture question for you for Gulfstream.

Can you kind of talk about what you see happening to account for the consistent demand strength we've been seeing at Gulfstream for the past couple of years?

And fold into your answer some color on the international market for Gulfstream.

And perhaps help us reconcile on the balance sheet this spread on the customer advance and deposit decline versus the peak Gulfstream backlog.

I will do our best.

Heidi, it is a terrific market, what can I say to you?

It is booming in all respects, and we believe -- always believed that it would.

It is an expanding demand for these services, and it is in part driven by increased demand outside of the United States.

And I am kind of scurrying for a little chart that I keep on that subject.

But our sales in the United States -- well, North America, United States and Canada, wound up being, I think, 56% of our sales this year, where last year they were about two-thirds, and the year before that about 70%.

So it has been a slow, steady increase in our export.

And I would give you the same answer I did at the end of the third quarter -- I see the chart.

Let me look at it and see if I'm right.

Hold on a minute here, and I will give it to you.

There we are.

It was 58% in the United States.

And our largest growth area is what we call Europe -- took up 21% of our market.

Europe includes Russia, where we've had significant sales growth.

So we also have seen no let-up in demand here, as we're into the first quarter.

The Gulfstream sales team was -- went into the year with a considerable number of letters of intent, many of which they have converted into orders already, here in the first quarter.

So I don't know that I can give you all of the economic underpinnings of this market demand, but we are obviously in a place where our products are serving an increasing demand.

And I don't think we're alone, I think we're seeing this across the sector.

And I don't particularly see it as super-heated.

It is going along at a reasonable pace.

And you had a balance sheet question that you built into all of that, and I don't know that I am prepared to deal with balance sheet today.

We'll take that one offline, Heidi, because I don't think we remember the question particularly well.

-- deposits.

I will take that after this call.

Our next question comes from the line of Troy Lahr with Stifel Nicolaus.

Please proceed.

Thanks.

Can you give us some insight into the Aerospace margins in the segment?

I know all year you've been talking about this negative mix shift and higher R&D, but you really had your highest margins in the quarter.

Can you maybe give us kind of quarter-over-quarter what R&D was looking like at Gulfstream?

And then what else is driving that?

Troy, I think we did better than I anticipated at Gulfstream, and not quite as good as I anticipated at Combat Systems in terms of margin.

But, yes, I pretty well have it.

R&D spending was $5 million less than we thought it would be -- than we had in our internal forecasts.

Because we managed to sign a contract with a supplier to one of the aircraft under research and development, and we received a $5 million supporting -- yes, launch assistance.

And we also had lighter SG&A expense than we had a year ago, for a whole lot of reasons.

So while we were increasing research and development expense, we got an offset that I hadn't anticipated.

And we had a little less sales and administrative expense than we anticipated, for a wide variety of reasons.

We did a little better than we anticipated on productivity increases, particularly on the G-450 line.

So that all made up for a very wholesome quarter.

And I think I indicated in my earlier remarks, we see our general overall margin of roughly 16 -- 15.6% being the kind of run rate we'd look at for next year.

We're going to get some additional negative mix shift.

We're going to sell and deliver more G-200s and G-150s, both programs coming along quite nicely.

Our learning curves will flatten out.

On the other hand, we're going to get a little pop from better pricing for next year's deliveries.

So I think on balance, it is a fair forecast to say it is going to be about the same.

R&D expense will continue to go up a little bit quarter-over-quarter.

Our next question comes from the line of George Shapiro with Citigroup.

Please proceed.

I want to go back to IS&T where you said if you have like 8% growth maybe you're going to talk at 9.7 or 9.8 in revenues, and you should have, just from the timing of Anteon acquisition, maybe $700 million additional revenues from Anteon.

So you if do this -- if you go back and do the subtraction, you do get somewhere around no organic growth.

So I would like you to tell me where my arithmetic is wrong.

George, you don't quite have the Anteon picture right, because you can't take their revenue and what we sold out of it and make the neat little back of the envelope that you've just done.

But look, if you want to call it zero, George, I don't mind.

I am going to tell you what the top line is.

All right?

How it gets there, I am not much interested in, right now.

Our calculation is that it is modest organic growth.

You and I have been having this quarrel now for three quarters, and I don't much care.

You call it the way you see it.

Our next question comes from the line of Cai von Rumohr with Cowen.

Please proceed.

Thank you, Nick. 12 to 13% in Combat -- what does that assume about the supplemental?

Is there any supplemental in there?

It obviously hasn't been passed.

And what does it assume about the backlog of 1,800 foreign vehicles you have and --

Cai, I am not going to go through every assumption we have with respect to that.

I've given you very clear guidance.

If you want to have it be higher, please do so.

We do not have great clarity into the supplemental.

There is upside opportunity there, on the volume side, but it would be a blue bird.

It would have to be something we don't know about right now, and it would have to get into contract in a very big hurry.

We look forward to those things in that supplemental, but that looks to us to be, for us, fiscal year 2008 business.

Our next question comes from the line of Howard Rubel with Jefferies.

Please proceed.

Thank you very much.

Nick, could you talk a little bit about Marine from two perspectives?

One, how are you doing at Electric Boat?

And second, how are you mitigating the risks, with respect to the Littoral Combat Ship?

Obviously, that's been a bit of an item of late.

We did well at Electric Boat.

The margins at each of the shipyards were up, every one of them, over the same quarter a year ago.

They're doing fine.

Like any ship we build, first of a class, we're working hard on it.

First of a class are difficult for anybody, and we're doing okay.

We're about 50% complete on the first ship.

And it's had some scope change, some additional requirements, as a result of that, and even the aftermath of Katrina, we have had some costs growth.

But there is nothing in that program, Howard, at this point, that I would see as a difficulty that's beyond what might be normal for a first in class.

Our next question comes from the line of Byron Callan with Prudential Equity Group.

Please proceed.

Good morning, gentlemen.

Nick, I just want to maybe take one more crack at the whole question on the supplemental spending.

Do you guys have any sense about what actually is in the supplementals that hasn't actually been put on contract yet?

I imagine it is still a pretty sizable number.

And this still sounds like it is more of a timing issue as opposed to money that may be in one account that could migrate to other accounts and therefore go away, as far as an opportunity is concerned for General Dynamics.

Can we take one more crack at that?

Can you elaborate on that?

Look, Byron, we have a lot of information about what's in the supplementals that hasn't been reduced to contract, but I am not about to bite the hand of my customer to give you information.

We'll keep that closehold as we work these opportunities.

They have their hands full trying to make sure that this supplemental money, first and foremost, gets the war fighter.

And as they do their balancing act, I am not anxious to parse it, particularly publicly.

Our next question comes from the line of Joe Nadol with J.P. Morgan.

Please proceed.

Thanks.

Good morning, everyone.

Nick, I just want to return to IS&T and really hone in on Anteon.

We've seen bad quarters from a couple of its former competitors -- or public competitors recently, and it seems like there is some accounting issues with regard to how you're accounting for revenue, consolidating it.

But it seems that fundamentally, it has been a little bit weaker than you might have expected.

Can you address that specifically -- Anteon specifically?

And whether you think it is a market issue or there are things within the company, specifically, that -- for surprise?

No surprises within the company, Joe.

You might remember that from the time we announced this deal, it really dragged on as it went through the regulatory phase.

It was really painful.

And it resulted in our selling a piece of Anteon on reasonably good terms and conditions.

But we think that the team lost a little impetus and a little direction while that delay went on.

And I think we're happy with the way it's integrating.

And the market is as I have described it to you.

I think it's reasonably obvious.

They're going along.

It is a little hard for us to determine now what's Anteon and what was Network Systems.

As old programs go off and new ones come on, we don't have the ability to split that hair.

But we have had growth.

Our real, meaningful, organic growth is in that segment still.

We're flat as can be overall.

But that, as I indicated in my earlier remarks, is the growth segment.

Is it growing at the rates that it was earlier?

No, it's not.

But it's still a reasonable rate of growth.

We're slowed down in the United Kingdom, and while we have some -- we're eeking out some marginal growth in tactical comms, it is not what we want, and it is where we have the margin contraction issues.

And to our surprise, in the intelligence and missions systems area, which we thought would be a very good growth market, has been where we've seen a slowdown.

So that's the best I can do for you.

Our next question comes from the line of David Strauss with UBS.

Please proceed.

Good morning, thanks.

Nick, could you update us on the status of the Expeditionary Fighting Vehicle, the program there?

And as well on any change on A-12?

The A-12, I haven't heard anything other than what we have made public.

The EFV remains in research and development.

I anticipate that while it is in that stage, we'll make some new prototype vehicles for further tests.

Our next question comes from the line of David Gremmels with Thomas Weisel.

Please proceed.

Thanks, good morning.

Nick, I was hoping to look at the Combat Systems question maybe a different way.

I think the revenue growth guidance of 12 to 13% would translate into maybe 6 or 7% organic growth if you pulled out SNC and CMC.

So just forgetting the supplemental uncertainties and looking at the actual funded orders that were received in '06, I guess I'd expect some pretty significant growth potential in '07, '08.

I am surprised we're not seeing more organic growth there.

Did the backlog have a longer tail than it's had historically?

Or is something else at work?

David, you guys throw numbers out, and you do calculations with numbers you don't have.

The two businesses you referenced are relatively small businesses, so I would -- I don't have that calculation, but I doubt, very seriously, the validity of your calculation.

I would anticipate that this is still a double-digit grower, even if I took those out.

Our next question comes from the line of Douglas Harned with Sanford Bernstein.

Please proceed.

Good morning.

I would like to -- on Marine, I would like to understand -- as I look back, you've become more and more confident in the ability to get margins up in Marine Systems, and now saying that you should be above 8% in 2007.

Can you talk about what you're looking for, in terms of changes on specific program's improvements that is going to be able to get you there?

Yes, sure.

It is almost across the board, Doug.

We've had operating leverage across the board.

At Electric Boat, we're improving on the Virginia-class submarine, we're getting into revenues that are in the second flight, which is a fixed price contract.

We have some opportunities to improve our performance and do better.

Bath, as I previously indicated to you, improved booking rates on DDG program.

And NASSCO is doing materially better, from an operating standpoint, across its programs.

We still have, as I've indicated to you at length on the last quarter, a risk item here, and that is the successful resolution of our request for equitable adjustment in the PAKE program.

But -- and that is also an opportunity as well.

So I am highly confident -- we're doing very well from an operating standpoint, and we have some opportunities.

So I'm giving you my best forecast.

It is the one that my guys give me, and it is the one that I am holding them to for their performance for the year.

Our next question comes from the line of Myles Walton with CIBC World Markets.

Please proceed.

Hey, Nick, good morning.

Good morning, Myles.

I was hoping you could comment a bit on capital deployment, particularly share repurchase and M&A.

It looks like on the share repurchase front, it was a pretty quiet year, did not like like there was much of anything in the back half of the year.

Is there anything that kept you out of the market, with respect to your ongoing acquisitions?

And secondly, with respect to M&A, the last couple of deals have been in the Combat Systems areas.

Is there is still potential for consolidation, specifically in Combat Systems, that you're looking at?

I am not going to make any comment with respect to what I am looking at in the market.

The market is now sufficiently consolidated that there is no point in telegraphing any of my thoughts in that regard.

We will continue to purchase shares, maybe more aggressively this year than we did last year.

We'll consider -- the Board will consider, in March, its dividend policy.

And we'll continue to use our capital, I think, wisely.

Our next question comes from the line of Rob Spingarn with Credit Suisse.

Please proceed.

Good morning.

Good morning, Rob.

Nick, could you talk a little bit about the backlog trend in Marine -- if commercial's rolling off there or how the submarine programs might be affecting that?

And perhaps an update on the upcoming commercial contract, the timing on that, and what kind of margin and revenue impact we should expect, and when?

Look, I think from a backlog perspective, the Marine backlog is large, and it comes in big chunks when it comes.

So what you should expect are many quarters with very little order activity, and then a quarter with very large order activity as we sign multi-years.

And you will, one of these days soon, see a submarine multi-year.

And you will see -- you've already seen some of the impact of the commercial work.

I don't want to speculate about margins in commercial work until we start those ships, and we'll get there.

We think we bid them to make money.

And when we start building them, we'll decide what we're going to do about a booking rate, and we'll let you know.

Our next question comes from the line of Joe Campbell with Lehman Brothers.

Please proceed.

Nick, I wondered if you could give us kind of update on the Gulfstream products, with regard to where we might look to either enhancements -- or what you're thinking with regard to the product offering that you have and the product offering that you would like to have, if we look out over the next two or three years?

Joe, look, let's see if I can't dance around that one because we obviously haven't made any public announcements about where the research and development dollars are going.

We have very strong product offerings in the market right now.

We're the leader in our long-range and ultra long-range markets.

And those products are relatively new right now.

The 450, we just began delivering it in '05.

Let me just say that that money is being spent on both mid-cabin and large cabin aircraft.

And we'll announce those at a time we think it is appropriate, from a market perspective.

Our next question comes as a follow-up from the line of Steve Binder with Bear Stearns.

Please proceed.

Nick, I was wondering if you could just address your Skyline?

You did the spec in the prior conference call, but I think you were hoping to get the 82 large cabin aircraft in '07 and 83 in '08, and you've talked about having the theoretical capacity to get to 95 to 100 aircraft.

Can you maybe update '07, '08 for the large cabin and the medium?

I think '08 is, as I told you, nothing's changed, it is 82.

And we're currently scheduled to produce 83 in 2009.

We'll see what happens for 2009.

On this year, you can bank it.

Somebody -- one of the analysts I saw report, Steve, that said we'd missed their production estimate by one.

I mean, I don't know why anybody needs to make an estimate.

I am going to tell you exactly how many it is.

It could be off by one if we don't make a delivery, if something happens, or if for a customer reasons, one gets pulled forward.

But to speculate on that is crazy.

I mean, take the number I give you on the production.

Our next question comes from the line of Robert Stallard with Banc of America.

Please proceed.

Good morning, Nick.

Good morning.

I was wondering if I could ask you about defense exports, whether you see some interesting opportunity there for General Dynamics over the next twelve months?

And what sort of timetable we should expect for revenues flowing from previously announced -- or recently announced defense export deals?

Well look, it -- there has been an interesting upsurge in market activity, not always resulting very quickly in orders.

But certainly, there are markets that are open to us that hadn't been, such as India, eastern Europe, which we largely service out of our European subsidiary or subsidiaries, and even some interest in defense products in Latin America that's greater than it has been in the past.

So we've been working those opportunities.

And I think little by little -- I wouldn't call it grand, you've seen our -- as we've released international figures, you've seen that grow.

So I think it is a good supplemental market for us, and that's the way we look at it.

It is not the bread and butter, except for our own domestic overseas operations.

We're located in Canada, the United Kingdom, Austria, Switzerland and Spain in a serious way.

And those countries, on a regular basis, produce for us revenue that's crowding $2 billion on an ongoing basis.

So export market is repleat with opportunity right now.

Our next question comes as a follow-up from the line of Cai Von Rumohr with Cowen.

Please proceed.

Thank you, Nick.

The last time we heard I think you were still -- your contract went until the middle of 2008.

Could you maybe update us with your own thoughts about whether you might stay longer and your status of any discussions with the Board?

Or when you'll decide?

Yes, Cai, you correctly state the terms of my agreement.

It is to expire late spring/early summer next year.

I think it's the most poorly guarded secret in America that I intend to remain at least another year until -- through the first half of 2009 at a bare minimum.

And the Board and I are going to address that this spring.

They would like to address that right now, and I would like to get through, maybe the first of March, because with the Sarbanes-Oxley requirements that have accelerated all of the filings that we have to do, this is a time of the year that has become obscenely hectic for corporate managers.

So we'll turn our attention to that.

And I don't see any impediments to reaching an agreement with the Board that -- we've talked about it, they've asked me to stay, I've said I would, and we've just got to get busy and document it.

So I think you guys are stuck with me for a little longer than you probably wanted.

Lateisha, I think we can take one more call, and then I think we need to wrap it up.

Our next question comes as a follow-up from the line of George Shapiro with Citigroup.

Please proceed.

Nick, in Gulfstream, if I roughly look at it, it would seem like the mid-sized business in '07, relative to the large size in volume, is maybe about 20%, about the same as this year.

Now, maybe there is more G-150s relative to the G-200s -- ?

Let me see if I can't turn in my book to the -- to see how that equates for you.

We do know that we're going to go from 73 to 82 in the large cabin, and I will give you the figures.

We're going to go from 41 to 57, George, of the mid-cabin.

But the pronounced growth is in the G-150.

So within the mix shift we have another mix shift.

And it is our lower margin aircraft -- and it doesn't have to inherently be, George.

It is just -- we're initiating both the learning curve from outfitting that aircraft and our partner is beginning the construction.

And we're, I think, attractively pricing the plane for its introduction into the market, as you would expect.

So that is the reason I gave you, as a slight negative to margin, which I believe we'll overcome.

Does that address your question?

Ladies and gentlemen, this now concludes the question-and-answer session.

At this time, I would turn the call over to Mr. Lewis for closing remarks.

Thank you, Lateisha.

Those of you who might have come in on the call late or who have colleagues that might want to listen to the replay, this call will be replayed starting at 1:00 this afternoon.

The number to call is 888-286-8010.

There is a passcode -- passcode is 71524900.

I am going to go grab a quick bite to eat, and then I will be available for further questions this afternoon.

My phone number is 703-876-3195.

And my colleague, [inaudible], will also be available.

Her number is 703-876-3748.

And good afternoon.

Thank you for your participation in today's conference.

Ladies and gentlemen, this concludes the presentation.

You may all disconnect and have a good day.