通用動力 (GD) 2008 Q3 法說會逐字稿

Welcome to the third quarter 2008 General Dynamics earnings conference call.

My name is Shaquana and I will be the coordinator for today.

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

We will facilitate a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the call over to your host for today, Ms.

Amy Gilliland, Staff Vice President, Investor Relations.

Please proceed, ma'am.

Thank you, Shaquana, and good morning, everyone.

Welcome to the General Dynamics third quarter conference call.

I want to remind listeners that as always any forward-looking statements made today represent our best estimates regarding the company's outlook.

These estimates are subject to some risks and uncertainties.

Additional information regarding these factors is contained in the company's 10K and 10Q filings.

With that I would like to turn the call over to our Chairman and Chief Executive Officer, Nick Chabraja.

Thanks, Amy.

Good morning, ladies and gentlemen.

This review of our third quarter performance takes place in what has been and continues to be a tumultuous period in the markets and dislocation in the financial services sector in particular.

As a result, some of you on the call have changed name plates, have new employers, and a few of our regulars and friends on these calls are no longer participating.

Accordingly, I want to wish you all well in the time ahead as we go forward.

Our results are pretty straightforward.

A clean quarter.

General Dynamics had really strong performance in the third quarter.

Compared to the third quarter of 2007 sales increased 4.5% to slightly over $7.1 billion.

Operating earnings increased 16.5% to $933 million with operating margins of 13.1%, a recent high.

I thought that was an all-time high, but we did a little research and we found that we had done slightly better back in 2001 in one quarter, but nevertheless, a great result.

Earnings per share this quarter were $1.59, up 18.7% year-over-year, and significantly better than consensus.

This quarter we generated almost $750 million in free cash, approximately 118% of net income.

Importantly, we have cash and available securities of over $2.8 billion.

It's a great time to have cash and a strong balance sheet.

This quarter's performance builds on the strength of the prior two quarters this year.

Year to date sales have increased 8.7%.

Operating earnings have increased 21.1%, and earnings per share have increased 25.3% when compared to the first three quarters of 2007.

Let me spend the next couple minutes giving you some perspective on our operating performance, focusing first on the defense segments, and then concluding with aerospace, and maybe making some forward-looking statements, particularly with respect to the last quarter of this year and some of the implications for next year as well.

Let me start with combat systems, which performed very well in the quarter.

The businesses in this group had great margin performance each and every one of them.

Margins increased to 14.2%, that's 200 basis points better than a year ago on the strength of improved productivity across almost all of our major programs.

The result of this productivity was a 14.9% increase in operating earnings, even though sales volume is essentially flat against the same quarter last year.

However, year to date, sales have increased 13.8%, and operating earnings have increased 35.4% over the same period in 2007.

In the fourth quarter, I think sales volume will be up significantly over this quarter, but margins should be back in the 12%, 12% plus range.

For the year, sales growth will not be as high as I had previously forecasted.

I had been talking to you about 9% to 10%.

But margins will be significantly higher than the 12.9% to 13% that I had previously forecasted.

So in the final analysis, I think combat systems EBIT will be about as we had forecast.

From an orders perspective, combat systems had a great quarter, adding almost $2 billion to both funded and backlog leaving them well positioned for next year's anticipated growth, with a backlog of $15.8 billion.

As for marines systems, really strong quarter.

They had 12% growth in sales against third quarter of '07, and a 10% operating margin, 120 basis points better than a year ago.

The combination of sales growth and improved margins produced a 27.3% growth in marine systems' operating earnings.

We had booking rate increases in the quarter on the Virginia class, TAKE, and commercial product carrier programs as a result of productivity gains at [electric moat] and NASCO.

Year to date, sales have risen 10.6% and earnings have in addressed 21.6% over the same period in 2007.

While I am celebrating the 10% operating margin, I want to warn you a little bit that it won't be repeated in the fourth quarter, but margins will be well north of 9%.

For the year, we will have sales growth crowding 8%, and operating margins nicely above 9%.

Marine systems is the only operating group where the backlog is down somewhat in the quarter, but don't be misled.

Look for a large backlog increase in the fourth quarter, or at the latest, the first quarter of next year, as we contract for Virginia class block three.

This will provide significant backlog growth and the sales volume growth we have talked to you about over our planning horizon.

Moving on to information systems and technology, sales increased 4.7% on mostly organic growth and earnings increased 6.3%.

Margins were 10 basis points higher than the third quarter 2007.

Year to date, sales have increased 3.5% and earnings 6.3% with margins 30 basis points higher than the same period in 2007.

The growth in sales this quarter, although still modest, represents an acceleration in growth rate, which I expect to continue through the end of the year.

I should caution you that margins are likely to fall in the fourth quarter as a result of mix shift towards more services work.

Backlog, importantly, increased by $600 million, making this quarter the fifth consecutive quarter in which information systems and technology backlog increased and orders were well in excess of deliveries.

Finally, we move to aerospace.

Gulfstream also had a terrific quarter, pretty much all the way around with sales growth of 4.3% and operating earnings growth of 24.3%, driven by an operating margin of 20.5%, 330 basis points better than the same quarter a year ago.

This result was achieved really on -- underpinned by three things.

First was favorable pricing in the backlog.

Second, a very favorable product mix in the quarter, and third, significant manufacturing and completions cost improvement.

With respect to mix, let's see if I can ground you a little bit.

Compared to the second quarter of this year, of '08, we had one more large aircraft, and it happened to be a special mission aircraft with higher margins.

And we had one less medium sized aircraft, and we had no 500s or 350s, all contributing to almost a perfect mix in the quarter.

The internal improvement that I mentioned, the manufacturing and completions cost improvement, effectively offset supply chain cost increases that we incurred in the quarter, leaving the favorable pricing in the backlog to fall to profit.

Year to date, sales have increased 10%, earnings 26.6%, and margins up 250 basis points over the first three-quarters of 2007.

It was a good quarter from an orders perspective as well.

Maybe surprising in light of the markets and the length of our existing backlog.

The back to bill of [3.87] expressed in dollars was driven by large aircraft orders and the new 650 order intake.

A soft spot in that result is slowing of order intake in the mid-size aircraft.

But overall, the backlog increased $3.3 billion during the quarter.

Looking forward to the fourth quarter, I think you'll see increased sales volume in the fourth quarter but lower margins, as a result of a less advantageous mix than we experienced in this quarter.

I have given you some information about the fourth quarter in each of the groups, and in some cases, the year for each, but perhaps not enough for you to pinpoint our expectations for the full year.

I had previously given you guidance of $6 to $6.05.

Let me conclude by increasing our guidance to $6.10, without a range.

It's not unreasonable to add or subtract a couple of pennies to that number and create a range of $6.08 to $6.12, but I think we're looking at $6.10.

As for the future, General Dynamics' backlog grew by $5.2 billion this quarter, funded backlog now stands at $50 billion, total backlog at $60 billion, and total estimated contract value approaching $80 billion.

This backlog, the productivity of our businesses, and a powerful balance sheet leaves us in great shape to enhance value for our shareholders going forward.

If you like steady earnings, and an efficient conversion of earnings into cash, GD's got to be a good place to be.

Hugh, you have something that you'd like to add?

Yes, thank you, Nick.

Good morning.

Following on with Nick's comments regarding the strong balance sheet and cash generation during the quarter, our ability to generate cash has resulted in the strong balance sheet which is improving each quarter.

This is manifest in the financial metrics we provided in Exhibit G to the press release.

Metrics like return on invested capital, debt to equity, debt to capital.

These metrics are strong in absolute numbers and have improved significantly year-over-year.

The condition of our balance sheet ensures continued access to adequate and sufficient short-term and long-term debt markets.

During the quarter net interest expense was modestly lower than in either the second quarter of 2008 or the third quarter of 2007.

At the end of the quarter, cash and marketable securities exceeded debt by $665 million.

For your information, marketable securities were less than $200 million, they are carried at market values which are currently at or above original costs.

In September we retired $150 million of the senior notes upon their scheduled maturity.

Year to date we have retired $650 million of the previously designated long-term debt.

In addition to retiring debt, we repurchased 6.1 million shares during the quarter at a cost of $500 million.

Year to date, through the end of the third quarter, we have repurchased 14.4 million shares, and we've continued to accumulate shares in the fourth quarter.

The effective tax rate for the quarter was 31.2%.

For the full year, 30.9 -- excuse me, for the nine months ended, 30.9%.

With the extension of the R&D tax credit, we now expect the effective tax rate to be slightly above 31% for both the fourth quarter and the full year.

Those expectations are lower than our prior expectations.

So again, just slightly above 31%.

Amy that concludes my remarks, and I'll turn it over to you.

Thank you, Hugh.

Before we move to the question and answer period, I want to remind participants to ask only one question and one follow-on question, so that everyone has an opportunity to participate.

If you have additional questions, please get back into the queue.

Shaquana, could you please remind participants how to enter the queue?

Yes, ma'am.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Ron Epstein with Merrill Lynch.

Please proceed.

Yes, hey, good morning, Nick and Hugh.

The results of the marine business were outstanding.

I was just wondering if you could give us some more color.

Was there any one-time things that happened?

How's also the Daiwoo, JV going?

Yes.

Okay.

Thanks, Ron.

The -- this was pretty straightforward.

The margin gain was propelled by the three booking rate changes that I have identified for you, and on a prospective basis, they will continue to help marine group performance.

There was one, to my memory, sort of contract close out, the last of the SSG Edward, that added about $6 million in both revenue and earnings, that won't repeat itself.

However, you never know quarter-to-quarter what other things will appear, but it's what led me to say I don't believe that the $10 million will be repeated, but I like -- we're averaging, year to date, about $9.3 million in marine, and I think the fourth quarter result will be at least that good.

So we'll finish the year, in my view, at $9.3 million or slightly better, if we get a better fourth quarter run.

So, I'm greatly encouraged.

And it's been a remarkable turnaround, I give a lot of credit to Mike Toner and the presidents of the three ship yards.

They've got this thing going pretty well right now and it's only going to get better.

The relationship with our partners in Korea is working very, very well, and you may have noticed that I included the commercial product carrier in the booking rate increase.

That ship has been launched.

It will be delivered to the customer in January.

It should go to sea before the end of the year for tests.

I'd say it's the best first of a kind we've ever had, where we didn't experience first in class sorts of pail up and pull up as we built the ship.

It pretty much went in accordance with budget, if not slightly below, and we're experiencing significant learning on the second boat.

So the relationship is very good.

The design we got approved, very adaptable to our shipyard and our manufacturing methods.

We couldn't be more pleased.

Great.

And then just one follow-on if I may.

In terms of the demand you are seeing for the aircraft at Gulfstream have you seen any impact yet from what's gone on in the financial market?

Oh, sure, Ron.

What we have is a lot of interest in the product, a good pipeline.

But the absence of credit and the turmoil in the credit markets really kind of seized up demand.

And I expect that to be the case until the credit markets reemerge.

And I expect that here in short order.

We're beginning to see some signs now of markets beginning to restructure themselves and come looking for customers again.

I've had bankers talk to me about a willingness to provide aircraft financing to our customers.

I would say that probably prices for that financing are higher, and credit quality is a very important ingredient.

But I'm beginning to see signs of this market restructuring itself a little bit.

And we'll have to watch this in the fourth quarter, particularly with respect to -- it's more important for us with respect to our mid-size aircraft.

It's not as important for the large aircraft for two reasons: the length of our backlog, and the fact that many of these large aircraft aren't financed.

The larger customers aren't financing purchase of that size.

So, sure, we've seen an impact.

We're not free from impact of what has been so dramatic and came upon us really rather suddenly.

So --

Great.

Thank you, Nick.

Your next question comes from the line of Cai von Rumohr with Cowen and Company.

Please proceed.

Great.

Thank you, Nick.

Great quarter.

You had a spectacular because to bill at Gulfstream.

If we extracted the G650 would the back to bill have been over one?

And secondly, given that those customers presumably made their down payment required for firm orders, how come the advances were down and not up in the quarter, sequentially from the second quarter?

Let me have that second part again, Cai.

The second part is that, clearly you got a lot of G650 orders.

Looks to us like about 60 or so, maybe more.

How come with the advances associated with those firm orders your total advances were down from the second quarter?

I don't know.

I don't know with respect to the second, and I'm not even accepting your statement, because I don't think you'd have the information that let you calculate that.

I'm just talking corporate-wide.

Oh, I have no idea.

We're working off advanced payments all over the corporation.

I have no idea.

Cai, with respect to your first question, I don't know how much granularity I intend to provide, because we don't provide units of sale until the end of the years, and then we do it in groups.

What I think I am going to do for you at the end of the year is separate out the G650, so we'll report jumbo, large, and medium, to give you all some insight.

The one thing I will tell you is we were clearly below one to one book to bill on the mid-size.

But I think, while I haven't done the calculation, I think that the big guys were pretty close.

We were particularly strong on the 550, and I think it was over one to one book to bill, but I don't know for sure, because I'm not trying to do that calculation, and it's not information I intend to furnish.

We're not going to parse this thing.

Folks bought an awful lot of airplanes.

And the follow-on, given the slowdown in the biz jet market, when do you expect to close the jet aviation acquisition, and how are your -- I guess you'd expected it to be accretive.

Do you still think it can be accretive in 2009 after you close it, given what we see in the market today?

Yes, why not?

Got a staggering backlog.

As I've said to you before, their problem with revenue isn't going to find the business.

It's creating the efficiency to run it through the mill.

We fully expect it to be accretive.

Do I expect the services revenue to be as high as we might otherwise have thought from the maintenance repair facility?

Probably not.

The same might be true for FBO gas station sales, but the big bellwether of this business, almost 50% of it, is completions work.

And if we can turn up the wick on that, it might be 55% or 60%.

But to give you a little insight into MRO, our service business is up in the quarter.

I was down there visiting.

They were running at 120% capacity.

So they expect to drop down to 100%.

It will seem like a low.

But it's not like this thing has gone cold.

We're experiencing very nice revenue from services.

And I would expect flight hours to go back up as the price of jet fuel comes down.

I think it particularly impacted medium and light sizes to be more sensitive to operating costs.

I think you'll see some of that.

So there's no gloom and doom here on that side.

When will we close it was one of your questions?

When the justice department gets done with their Hart-Scott-Rodino review and gives us clearance.

That's when we'll do it.

We're hopeful that that happens before the end of this year.

Excellent.

Thanks, and great quarter again.

Thanks, Cai.

Your next question comes from the line of Joe Nadol with JPMorgan.

Please proceed.

Thanks, good morning.

Good morning, Joe.

Nick, just -- you mentioned in combat that you think that sales growth is going to be a little lighter than you thought three months ago, but that margins would be higher.

Just wondering if you could give more color on the changes in the outlook.

Yes, I'd be happy to, Joe.

I think the answer to that is the same if you had asked me why lower this quarter than third quarter '07, I'd give you the same answer.

Here's what I think we've experienced.

This might surprise you.

We have a modest increase over the third quarter of '07 in armored combat vehicles, almost up across the board.

Land systems is up.

We are down at ATP, where we had lower than expected chameleon deliveries, and we were down slightly at OTS on significantly less aircraft tactical munitions business.

In addition to that, for the year, we don't believe we're going to get the check revenue booked for the year and the cash collected.

It's possible, but we think that's slipping into the first quarter.

The relationship there is markedly improved.

The vehicles are undergoing tests at the army.

They have passed tests at what would be our OSD level, and we're working on the renegotiation of a contract for a full compliment of vehicles, but those are the things that really drive the shortfall in revenue, and the improvement in productivity has made up for it at the earnings line.

So I think that's probably the best answer to your question.

Okay, it sounds like mix might have improved, given what is strong and what is weaker.

Is that --

Yes, you're getting -- and that's why I made the point that the armored vehicle line is -- continued to do well.

It might surprise you, if you think back, Joe, in the third quarter of '07, we had a major pick up of MRAP vehicles.

MRAP volume is flat.

So we did very well with MRAP in the third quarter.

So it didn't -- the down draft didn't occur there in the combat vehicle side.

It occurred really on -- in one segment of munitions.

And maybe a little bit a second one.

There's a little less Hydra-70 volume, if you really want to get down in the weeds, but it's -- chameleon deliveries weren't what we had in plan.

Okay.

And then secondly, Nick, I know it's early days here on the 250, but any color on market feedback or early interest, that sort of thing?

Yes, I think the plane is being well received.

We have a considerable number of LOIs, the last time I checked, and I'm confident that some of those will be very soon converted into orders.

We go through a process where we execute letters of intent first and then hammer out the contract details.

But the plane has been well received by the community, and we're seeing a lot of interest from our 550 and 450 customers who are coming to us to fill out their fleets with a couple of 250s.

So I think we've hit that right where the market needed that plane.

I think we've got it right, and I'm pleased with it.

Okay, thanks, Nick.

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

Please proceed.

Good morning, Nick.

Question on Gulfstream.

We're trying to understand how firm is firm for the 2009 Gulfstream deliveries.

And we've seen this trend upwards about 60% of new orders coming from international.

Can you flesh out for us, what gives you confidence that these customers are going to stay entrenched, especially in view of the dollar weakness and rising inventories, and likely next couple quarters decline in prices?

Because then they can get -- they do need the planes, they can get them sooner, and maybe pay less.

I don't know that I can support any of the hypothesis you have just advanced, particularly towards the end.

Heidi, we've taken a good look at the 2009 backlog.

We've scrubbed it.

We think pretty solid credits across the board.

We are not getting much in the way of discussion from our customer base.

I feel particularly strongly about the 450 and the 550 backlog.

The international component of the 2009 delivery is not as strong as the international component of the 2008 orders.

I also have a very large backlog, and it's very easy to pull people forward if we have to, but we're not anticipating that.

We've heard you and others on this subject, your worries, and we are all over it.

And we don't see anything out there other than what is typical.

Every now and then you get somebody who has got an issue, and you work it out as best you can.

The other thing that gives us comfort is the contract terms and conditions we've put in place after the last cyclical downturn, and the amount of cash that we have that we're holding as these planes go through our system.

So it's not very rational to default.

Occasionally people have to default for very irrational reasons, but right now we're feeling very comfortable about it all.

Look, if you want to worry a little bit about Gulfstream, let me kind of get you into the right pen here.

I think where we have some softness is in the mid-size aircraft, and particularly in the 150 model where we don't have as large a backlog.

And if that continues during the course of the fourth quarter, we'll cut production on those aircraft.

They represent a little bit over 10% of our operating earnings at Gulfstream, and we have plans in place to mitigate that.

Those plans include bringing forward production of additional large aircraft.

And we have been spending the last haver half of the year working production planning issues in our supply base to enable us to do that if we must.

So, my feeling about Gulfstream is, I will be shocked if next year they drop below $1 billion of EBIT.

The issue for me is how much can we grow them in this market condition.

But I don't expect a problem.

And I don't expect it on the preowned side, either, where we experienced so much trouble in the last downturn.

I hope that covers your question.

Thanks.

That does flesh it out.

Would you be willing to give us color on the percentage of international in '09 and --

I don't know -- I'd be willing, but I don't know the answer.

I'd have to go tally that up in the backlog.

We gather that data for you all.

It's not something that is as important to us as it is to you.

And we do it on an order basis, but we don't track it through the backlog, but we can do it.

Well, we see that the brick trade is over.

So many of us are wondering what the implications are for your backlog.

Yes, but I don't see is it being over.

I don't have Russians running up to cancel.

You've made up your mind that everybody in that group is broke, and I don't think it's true.

I think they're pulling back their horns, but I think they're honoring their commitments, at least to us.

We deliver planes to those folks, and they write checks, and they make their payments like everybody else does.

I have much more concern about the financial sector in the United States than I do about some of my international customers.

All right, then --

But I can't speculate about conditions in the world or even in the domestic economy.

It's going to be what it is.

But I have an enormous confidence in our ability to manage through our 2009 backlog, and 2010, for that matter.

My follow-up question, Nick, then would be, can you bring us up to speed on your views of cash deployment versus stock repurchase?

We've seen a drop down of a lot of properties out there.

Are we going to see a higher appetite for M&A potentially in '09 as a result?

I think, Heidi, I have a balanced view of that.

General Dynamics stock is increasingly attractive to us, and as Hugh pointed out, we had bought 14.4 million shares in the first three quarters, and we've kept it up, and I think when we stopped for our black out period, we had a running tally of 16.1 million shares in the quarter -- I mean, in the year, and it's handsomely accretive for us.

Will we look at deals?

Sure, we will.

But they're going to have to do a good job for us.

And then there is the issue that we don't have to confront right at the moment for deals of any size.

That is what will the debt markets be when they reestablish themselves.

Right now we can take care of our requirements for jet aviation and anything else we'd like to buy, including our own stock, out of cash and access to the commercial paper market, which we have full and unfettered access to.

But if you are talking about doing a significant acquisition, I don't know what the markets are like out there.

In fact, I'm not seeing any transactions that are significantly financed.

But that will all take shape, I think, in the fourth quarter, one way or another.

We'll know how to price that.

We don't know right now, long-term debt.

So appetites will change, I think, during the course of the quarter, depending on the facts on the ground.

Great.

Thanks very much, Nick.

As a reminder, please limit your questions to one question and one follow-up.

Your next question comes from the line of Myles Walton with Oppenheimer & Company.

Please proceed.

Thanks, good morning.

And a really good quarter, Nick.

Question for you again on Gulfstream.

Sorry to beat this one up.

With respect to preowned inventory as well as trade-in commitments, which were two areas you were burned by in the last cycle, can you tell us what is the current preowned inventory, and also has the trade-in commitments risen from $70 million at the end of the year?

We have one aircraft in inventory that we took in, a G4SP, in September, and we have two kinds of commitments, Myles.

Most of our trade clauses are fair market value, that's established 120 days, I believe, in advance of the trade date.

We have a very elaborate process by which we establish that.

We have a commitment on two aircraft that is of the old kind that we no longer make that is a guaranteed value trade, and there aren't any more.

And as a matter of fact, with respect to new orders, we've quit taking trade commitments of any kind, but we hope to relax that soon, as we see what's going on out in the world.

But we're in dramatically better shape than we were the last time we went into a cyclical downturn, because of both the absence of inventory and absence of commitments of an inappropriate kind.

So, so far, so good on the pre-owned front.

It's not been a bother yet.

Do you -- given the pre-owned inventories are rising and the transactions are going down, do you anticipate more -- getting put more pre-owned as opposed to when it was obviously a good market with transactions?

No one really wanted to put it to you because they could get their price?

I think that depends on the price we establish.

People are going to have to play the same game.

We'll take into consideration as we establish a fair market value the direction of the market.

Okay.

Great.

Thanks.

We'll discount accordingly.

We won't -- the price won't be the last comparable trade, right.

It will be the last comparable trade discounted if the market is moving in a negative direction.

So I think people will place their bets just like they do now, predicated on the direction they think the market is moving.

Okay.

Thanks, Nick.

Your next question comes from the line of Richard Safran with Goldman Sachs.

Please proceed.

Good morning.

Good morning, Richard.

Switching topics, saw your JLTV at the AUSA show.

Want to know if it's possible to get your view on how you see that program panning out.

There embed to be a potential solution with MRAP light and possible the AM General ECV2.

So just wanted to know if I could get your thoughts there.

I think JLTV is a program fully supported by the armed forces.

It is an objective vehicle, which means it's a development program.

I think the army has announced that they intend to make three awards to competitors in this quarter for systems design development contract, and after that, to have a [down] select and a further development, so it will be awhile before they're fielding JLTVs, and they have interim requirements, which you're seeing news about.

But as best I know, MRAP light or other interim solutions with different names are neither funded nor programs of record.

So I don't know how to speculate those for you, although I remain terribly interested in all of that, but I think you'll see JLTV go forward, probably in the quarter.

At least, that's what the army is predicting.

But if it slips, it will be into the first quarter of next year.

I think they've got their funding for this phase of the program, and it will be the objective vehicle, and it will create a very sizable buy over time in a market that's ancillary to and adjacent to what we occupy with the big combat vehicles.

But we love to move into adjacencies, and we like our partner very, very much who participates regularly in this market segment and has terrific reputation.

So I'm very interested in that program.

Okay?

Thanks very much.

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

Please proceed.

Good afternoon, Nick.

Good afternoon, Rob.

How are you?

Good, thanks.

To what extent can you give us some sense of what next year looks like across the businesses?

Well, I don't want to go any further than I already did in my remarks.

We've got a ton of backlog.

We're going to do okay.

We're going to grow the business.

We're going to -- as we do every year, we are going to go through our planning cycle right now.

Businesses are hard at it right now, and they'll be in the first week in November, and then I will be at Gulfstream the second week in November, and we'll have a plan, and it's solid and something I can talk about.

And I will talk to you about it given my first opportunity, which usually isn't until the fourth quarter conference call in the middle of January.

But sometimes, some years, there's been an investors conference or some other vehicle that enables me to get out and give specific guidance.

But, look, I think we've got plenty of business, plenty of backlog.

I think we're going to see very strong combat systems growth.

I've been talking about 10% publicly.

I don't see any reason that that won't be true.

I think we are going to see some IS&T growth.

We've been building for it.

Our marine group will continue to grow.

Gulfstream, we never planned a lot of growth in our out year plans for '09 and '10.

We talked to you about a spurt Gulfstream growth in 2011.

That will, in fact, occur as we begin make deliveries of the 250 and the 650 green deliveries.

Well, that's actually pretty helpful, Nick.

Qualitatively, I might ask, is there an area that you find more vulnerable?

I'm not talking about Gulfstreams but the three military-oriented businesses.

As we go into a new administration, are there particular areas that you think hold up better than others?

Ron, I don't think so.

Look, I think ship building is on a course that's not to be changed.

You are going to have a democratic Congress no matter which party occupies Pennsylvania Avenue, and that Congress is dead set on improving the numbers of ships in the fleet, and I think our submarine program is pretty much locked and loaded.

It's just a question of time.

Performance on that program has been absolutely superlative, and I'm proud of [electrical boat], I'm proud of our partners at Northrop Grumman, Newport News, doing a good job.

We're doing great at NASCO.

There is demand for auxiliary ships, and they're being built now, very successful TAKE program, and there will be follow-ons for that kind of ship.

The vagueness in ship building is on the surface combatant side, where we have some exposure, but I expect they will build something.

It's either going to be DEG-51s, or DDG-1000s.

We'll have some grist for the mill there.

I think there is a pent-up demand for information system in technology both products, network production, and services, as evidenced by our growing backlog over five quarters now.

And George Shapiro who unfortunately isn't with us here, has made a career out of chiding me about absence of organic growth in IS&T.

So you're well aware of the histories of that, but we've suffered a flat spot for a couple of years there that is now obviously providing us organic growth, and it's accelerating.

So I feel pretty good across the board here, and I think it's not going to matter to me too much which party is in the White House.

I think our programs are strong, and that backlog is durable.

And we're in good shape.

I think what we tell our people internally is perform, perform, perform.

Every administration likes programs that are on cost and on schedule.

The ones that are vulnerable are the ones that are -- so we try real, real hard to back up our customer here and make the services look good by having programs that are coming in on budget.

When we don't, we get real unhappy about it.

But good margins for us usually indicate good performance for the benefit of the customer.

Well, you definitely showed that this quarter.

Thanks very much, Nick.

Thanks, Rob.

I think we have time for one more question.

Your next question comes from the line of Harry Nourse with Bank of America.

Please proceed.

Good afternoon.

I was wondering, Nick, whether you could just talk about the international component of combat and how bookings from abroad fared in the quarter.

I don't know specifically bookings, Harry, but they had nice performance in the quarter.

Their margins improved slightly and the volume improved very slightly.

They have a considerable backlog, and there are a number of additional opportunities, some of them sole source and some of them competition, and I know that off-line Amy can give you a lot of help in understanding that.

But that is a nicely growing business for us.

We've been a little bit preoccupied with getting the check issue resolved.

We probably spent an awful lot of time on FRES, which is still, I think, up in the air as to the nature and shape of that program and how we fit into it.

But the opportunity set for European land systems is very good, both their backlog and their future.

And how are those Saudi contracts advancing?

Moving right along.

I think we'll have a contract in place this year for the -- or early 2009, I'm not sure which, either this quarter or next, for 724 vehicles for the Saudi Arabian National Guard.

And we are also working on an unrelated contract, but also for labs with the army for their land forces, and that probably will be later in 2009.

We also expect a tank contract, the award for the engineering effort, for the M1A2S, that's the Saudi version, will be late this year, probably in the fourth quarter.

Certainly in the fourth quarter, if it's going to be this year, but I think that should get done before the end of the year.

And then we'll follow on with the production contract itself.

So all those things are moving slowly but surely into the right place.

Thanks very much.

I want to thank you for joining the call today.

If you have additional questions, I can be reached at 703-876-3748.

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