Alison Harbrecht - General Dynamics Corp. Phebe N. Novakovic - General Dynamics Corp. Jason W. Aiken - General Dynamics Corp..

Robert M. Spingarn - Credit Suisse David E. Strauss - UBS Securities LLC Carter Copeland - Barclays Capital, Inc. Ronald J. Epstein - Bank of America Merrill Lynch Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC Howard A. Rubel - Jefferies LLC Samuel J.

Pearlstein - Wells Fargo Securities LLC Cai von Rumohr - Cowen and Company, LLC Jason Gursky - Citigroup Global Markets, Inc. Myles A. Walton - Deutsche Bank Securities, Inc. Robert Stallard - Vertical Research Partners, LLC Seth M. Seifman - JPMorgan Securities LLC.

Good morning and welcome to the General Dynamics first quarter 2017 earnings conference call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Alison Harbrecht, Staff VP of Investor Relations. Please go ahead..

Thank you, Gary, and good morning, everyone. Welcome to the General Dynamics first quarter 2017 conference call. Any forward-looking statements made today represent our 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 10-K and 10-Q filings. With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic..

We are flying three test airplanes in the first 4.5 months since first flight, really quite remarkable. So we are off to a very good start in the Aerospace group, somewhat better than our guidance to you at the operating earnings level. We expected a strong first quarter for the reasons we discussed with you at the beginning of the year.

However, the operating performance was better than expected. Let me turn to the defense side of the business with Combat Systems. Compared to the first quarter of 2016, sales were up $42 million or 3.4%, and operating earnings were up $18 million or 9.6% on a 90 basis point improvement in operating margin.

We had particularly strong performance on a quarter to year-ago quarter basis from European Land Systems. Sequentially, revenue was down $374 million, but operating earnings were down only $25 million on a 210 basis point improvement in operating margin.

The sequential comparison is particularly difficult on a revenue basis because this group always has a very strong fourth quarter, largely related to contract deliveries at OTS and ELS.

Also in the quarter, we largely completed the transition from engineering and prototype production on our two large international vehicle programs for Canada, the Mideast, and the U.K. These programs will now enter full production and continue apace for the next several years.

Even given Combat's large backlog, they had nice order activity in the quarter, with a 0.7 times book-to-bill. All in all, extremely strong operating performance once again at Combat Systems. With respect to Information Systems and Technology, we experienced very good operating leverage in the quarter.

While revenue was down $182 million or 7.8% against the year-ago quarter and down $125 million sequentially, operating earnings of $236 million were essentially flat with the year-ago quarter on the strength of an 80 basis point improvement in margin.

On a sequential basis, operating earnings were up $5 million, once again on an 80 basis point improvement in operating margin. These results are consistent with our guidance of an around 11% operating margin.

I think it's important to note that IS&T's backlog grew by $255 million in the quarter, with a book-to-bill of 1.1 times following strong book-to-bill of 1-to-1 on average for the last four years. The significant orders in the quarter included a $415 million contract from the U.K.

Ministry of Defence to design and develop its next-generation communication and information system; $85 million from the NATO Communication and Information Agency to upgrade its technical infrastructure; and $160 million from the National Geospatial Intelligence Agency for the new Campus East.

So a pretty good start to the year from a new business perspective at IS&T. Finally, let's turn to Marine. Revenue of $1.93 billion was down $188 million or 8.9% compared to the year-ago quarter, but up $37 million or 2% sequentially. Operating earnings were down $23 million or 12.5% against the year-ago quarter and up $119 million sequentially.

The revenue variance from the year-ago quarter was solely attributable to lower Virginia-class Block 3 material volume, offset only partially by higher Columbia-class engineering volume and higher repair volume. Earnings were driven by a delay in the scheduled delivery on one ship in Block 3 of our Virginia-class submarine program.

Our performance on the Virginia-class program continues to be solid. Also at EB, we are already over 40% complete on the design of the Columbia-class ballistic missile submarine, four years before start of construction.

This performance is far better than any submarine first-of-class design maturity to construction start date in history, so we are pleased. Bath's ship-over-ship performance on the remainder of the DDG 1000s is outstanding, and we have stabilized the DDG 51. NASSCO continues to show performance improvement on each of its ships.

So the company is off to a very good start to the year, somewhat ahead of our expectations. We do not as a practice change guidance at the end of the first quarter. It is our practice to give you a full review of our expectations at the midpoint of the year.

Suffice it to say that we are a bit ahead of the operating plan upon which our guidance was based. As always, we will continue to consolidate our improvements and strive to continue to improve our results. I'd like to turn the call over now to our CFO, Jason Aiken..

Thank you, Phebe, and good morning. Net interest expense in the quarter was $25 million versus $22 million in the first quarter of 2016. The increase was due to a $500 million increase in our outstanding debt last year. On the capital deployment front, we spent $354 million on the repurchase of 1.9 million shares in the first quarter.

When you combine our share repurchases with our dividend payments, we spent $584 million in shareholder-friendly actions during the first quarter, almost 125% of our free cash flow from operations. We continue to anticipate deploying all of our free cash flow this year to share repurchases and dividends.

We ended the quarter with a cash balance of $2.2 billion on the balance sheet and a net debt position of $1.7 billion. As Phebe mentioned, our effective tax rate was 24.5% for the quarter.

The lower first quarter rate was anticipated based on the timing of the vesting of our restricted stock and the associated tax benefits and is consistent with our full-year tax rate forecast. So despite coming out of the gate with a lower rate, we're still anticipating an effective tax rate of about 28% for the year.

Alison, that concludes my remarks, and I'll turn it back over to you for the Q&A..

Thanks, Jason. As a reminder, we ask participants to ask only one question so that everyone has a chance to participate. If you have additional questions, please get back into the queue.

Gary, can you please remind the participants how to enter the queue?.

The first question comes from Robert Spingarn with Credit Suisse. Please go ahead..

Good morning..

Good morning..

So, Phebe, as you said, good performance across the board. In Marine, you've got a lot going on. I wanted to ask you about that. It's a multipart question, but it really gets to CapEx over the next several years with the Columbia class coming in, a construction contract rumored to be around $5 billion.

You have the advanced procurement money that went into the December CR that's nearly I guess $0.75 billion.

And then we've got this very ambitious 355-ship force structure assessment, where large surface combatants go up from something like 88 to 104, attack submarines go up from 48 to 66, going from two per year perhaps to three, same with the destroyers.

Given that, how do we think about the requirement for you – for GD to invest in CapEx over the next several years?.

So let me give you our investment philosophy across the board. We invest in programs that we believe we can earn a sufficient and proper return. So to the extent that those returns become increasingly clear, that then informs our investment, and that's true across the entirety of our portfolio.

So I think you need to think about our investment proposition through that lens. With respect to the increase in shipbuilding, to the extent that that materializes and we can understand both the quantum and the timing of those increases, we have the capacity to increase production in each of our shipyards, as does the majority of our supply base.

But with all of these – with any increase in production, we would need to replenish as needed our workforce, the supplier base, and facilities over time. And again, all of the potential investments with respect to that growth will be determined with our customer as we begin to identify the return..

So, Phebe, would we go through a period where there is some pressure on cash flow from the added CapEx and maybe pressure on margins as you hire and prepare for future higher revenue?.

So our current plan anticipates an investment in our shipbuilding program commensurate with what we see the growth to be. So we may see in the out years some cash demands as a result of those investments, but I believe it will be well within our capabilities.

And remember too, the cash that's tied up at Gulfstream will begin to unwind naturally as well. So we will consider all of those puts and takes as we think about our investment into the future. You had a second part of that..

I was simply talking about the possible impact to margins as you start to hire and so forth, yes..

So we have done a very careful plan on what our margin expectations are. And we see our margins throughout at least our initial plan period of four years as essentially flat in the mid-8% range.

And that's because the increase in Columbia volume will continue to be cost-plus, and then offset somewhat by the Virginia-class submarine performance and that long-term successful program as we have continued improvement ship over ship. So think about flat in the near term.

As we go out into the future, then it's our job to manage that growth appropriately. And as you can imagine, with all – when you think about shipbuilding, it's all about planning. That's really the competitive advantage and the key to success in shipbuilding.

So we have put in place very, very detailed hiring plans, training plans, supplier base plans, and facility plans to support that growth. So as we sit here today, I'm very comfortable that we are both anticipating and thinking through the potential risks of growth..

The next question comes from David Strauss with UBS. Please go ahead..

Thanks, good morning..

Good morning..

Good morning. Jason, maybe could you touch on the EAC's cume adjustments in the quarter on a year-over-year basis given the new reporting structure? And then, Phebe, I wanted to ask you about Combat Systems and specifically the U.S. business. How prepared are you or your production lines, Stryker or Abrams, for a potential ramp-up there? Thanks..

So as it relates to the EAC adjustments, as you're probably alluding to, we had been expecting with this transition to the new revenue recognition rules and specifically the cumulative catch-up approach to our defense businesses to start to see a little more volatility, perhaps a little bit more in terms of magnitude on this side.

As it turns out for the first quarter, in any event, the aggregate number was actually about $50 million and not too different from what we saw a year ago on a restated basis. I think that was $58 million. So still TBD in terms of what we'll see quarter to quarter over time still.

We're probably expecting some level of volatility, but for now it was a relatively inconsequential quarter..

So with respect to Combat Systems, there has been quite a lot of discussion in this new administration about potential increases to the land forces in the United States. And to the extent again to which those increases actually occur and the timing and the amounts of those increases, we will look at that as the details emerge.

But we have plenty of capacity and plenty of operating leverage both within Combat Systems and within our supply base. So I have very little doubt that we can ramp up to meet any expectations that our customers, both the Army and the Marine Corps, may have in the future..

Next question, please?.

The next question comes from Carter Copeland with Barclays. Please go ahead..

Hey, good morning, Jason, Phebe..

Good morning..

Good morning..

At the risk, Jason, of asking again the nerdy accounting question on the EACs, just since you guys have never really had this before, is that $58 million – or that $50 million, is that a net favorable/unfavorable number? And if so, can you give us the pieces? And then one for Phebe. I just wondered.

You made a statement about stabilizing the DDG 51 at Bath. I just wondered if there was something beneath that, what metric you're looking at in terms of stabilization that gave you the confidence to make that statement. Thank you..

So good question. I didn't clarify that earlier. Both the current quarter and the year-ago quarter were net favorable adjustments. And in parsing that, there was no material up or downs in there on any segment or any program. So there were some positives and negatives, as you'd expect, but nothing material..

So let's talk a minute, and this might be a good opportunity to give you a little bit of color on Bath. And let me break that into two buckets, first the DDG 1000, and then to your specific question on the DDG 51.

So we delivered the lead ship of the DDG 1000 last May, and the final two ships of this class are demonstrating very good levels of ship-over-ship learning in terms of labor-hour performance, which is our prime metric that we look at when we look at shipbuilding.

And in fact, we experienced the best ship-to-ship learning curve we have ever seen at Bath on that program. So to the extent that there was any risk, I believe that is behind us. With respect to the DDG 51, just to give you a little bit of background, we delivered the DDG 115, which was our first ship after the four-plus year break in production.

We delivered that in February. We just floated off the DDG 116. But let me give you a little color here. That four-year break caused us a bit of a challenge, which the DDG 1000 program exacerbated. And I think by way of illustration a recent example can give you a sense of how we've managed through all of this.

Before the DDG 1002, we had late equipment deliveries into the shipyard that required us to rephase our production, and it created a production gap between the DDG 116 and the DDG 118. We'll see some learning from ship to ship as we realize steady-state production on this, but the costs associated with those challenges were recognized in 2016.

So going forward, I'm very comfortable that the performance at Bath has stabilized. I like where they are..

Thanks, Phebe..

The next question comes from Ron Epstein with Bank of America Merrill Lynch. Please go ahead..

Yeah, hey, good morning, everyone. Phebe, just maybe shifting back towards Gulfstream but maybe from a different angle.

If Northrup were to win the JSTARS program, how do you think about the impact that could have on Gulfstream across the business, and specifically for the G550?.

Well, it is our practice to refer any questions about JSTARS to the prime, Northrup. But with respect to the G550, let me take some license with a quote that Mark Twain said, that the reports of his demise were greatly exaggerated.

We have sufficient orders, both on the commercial side and international orders, for the G550 to keep that production line open for the foreseeable future. So JSTARS would be additive to that if in fact the Northrup team prevails. So I very much like where we are on the G550..

And then just maybe as a follow-on to that, broadly speaking, can you maybe characterize more what's going on in the wide-cabin market? Are you seeing any customer hesitation around tax reform, accelerated depreciation, that kind of thing, or are you seeing follow-through with the pickup in the market that seemed to really happen post-election?.

So in the first quarter, our activity was pretty much as we've seen for the prior years, but we have definitely seen frankly for about the last solid year now increased interest in our aircraft. And the extent to which we execute on that interest and put all those planes into backlog, that's simply a question of timing.

But we're seeing some very nice demand for our products as we have for the last few years, but I do see an uptick. So whatever set of reasons, different customers are motivated by a different economic reality..

The next question comes from Doug Harned with Bernstein Research. Please go ahead..

Yes, thank you..

Good morning.

Good morning.

I was interested in looking at, now that you're getting close to the G500 coming into service, when you look at the ramp for that program, how would you compare that to what happened on the G650? Are you looking at a similar production increase over the next few years to the G650 ramp?.

So, if you recall, the G650 was the first aircraft that we had a purpose-built manufacturing facility to outfit and bring in assembly and then outfit the airplanes. We experienced and had quite a bit of learning around that – around how we performed during that period.

So when I think about the ramp up on the G500, we've taken yet another purpose-built facility, applied the lessons learned on the G650, and I expect and our plan anticipates that we'll have a very nice ramp up both in terms of volume and performance relative to the G650..

And I know there obviously were some problems on the ramp in the G650.

But if you look at the size of the program say, and if things go smoothly and say they go smoothly for the G650, is this one that would look at a similar kind of a rate increase over time to the G650?.

I think we'd see a little bit in terms of timing and amount a little bit faster, but step back and think about the G500 and the G600. When we entered into the test program, we had retired an enormous amount of risk even before we had our first flight.

And at every step of the way on both the G500 and now the G600, we have met or surpassed our milestones and the capabilities that we had designed into that airplane. So the design maturity of even the test airplane is far in excess of what we saw on the G650.

So the disequilibrium that I think I talked about back in 2013 where we had a bunch of G650s on the tarmac that we had to go back in and retrofit, we do not anticipate anything like that for the G500 and G600, simply because the test airplanes were really manufactured to production standards.

So we'll all go back, and as we have had changes and updates in some design parameters, we've done those at that time. So I don't anticipate – in fact, there's nothing to indicate that we would see anything like we did on the G650.

Does that answer your question?.

Yes. And if I can, on the purpose-built facility, because a lot of what happened on the G650 is you made some pretty dramatic improvements in manufacturing processes. I know you've done a lot of work in that regard on the G500 and G600.

Would you characterize the potential to improve cost of manufacturing on the G500 and G600 as a step comparable to what you did from the G550 and the G650, and should we see an improvement like that?.

Given that we will start out at a higher rate, perhaps the incremental improvement plane over plane may be less than what we saw on the G650, but I think that we are poised to have a very nice learning curve plane over plane in both programs.

And that's how we have – all of the analysis that we have done in terms of production preplanning suggests that will be the case..

The next question comes from Howard Rubel with Jefferies. Please go ahead..

Thank you very much. I will just use the cash flow statement to ask about four questions. No, to be serious for a moment, thank you, Phebe. But to be serious, there are two points. One, to go back to Doug's question a little bit, we didn't see a lot of increase in inventory.

And so if we're preparing for reasonable growth in or entry into service of the G500, can you explain the puts and the takes there? And then second, I thought at some point we would get some further advances from some of your international Combat Systems business.

And when might we expect that? Are there some milestones related to that? And then just one small follow-up item, could you talk about FirstNet for a moment? Thank you..

Howard, I'll take your first part of your question on the inventories. This is one of the other many underlying subtleties of the new revenue recognition rule that we maybe skipped over at the year-end conference call as we touched on the major muscle movers.

But in this case, we used to have a fairly – in the balance sheet categorization – I'll try and be as quick as I can on this.

Of these accounts, we used to have what we called contracts in process that was almost exclusively related to the defense business, and inventory that you could pretty – as a general statement, pretty closely correlate to the Aerospace business.

The new rules have us categorizing these two accounts as what we called unbilled receivables and inventories now, and it now co-mingles some of the different pieces of the defense and commercial Aerospace businesses.

So there were some decreases in inventories associated with the defense businesses in the quarter offsetting some of the increase that we've talked about in the Gulfstream business as we built up on the G500 and G600 programs, so there's a little bit of netting going on in there that you're seeing.

But still, the story on the aerospace inventory build and the working capital is consistent with the production ramp we've talked about..

So turning to our international Combat Systems vehicle orders, we have, up until this point, had milestone payments, but we move in this quarter, in the second quarter, into payment on delivery. So we anticipate that we will have a more regular order of cash on the unit of deliveries. And again, we are ahead of plan on our production.

So I'm comfortable that the cash flow that we modeled at the beginning of these programs we will execute on appropriately. FirstNet, we have been careful to refer the general questions to AT&T, to whom we are a sub. But we consider this a potential growth market into the future and for many years to come. And again, it will be a nice franchise for us..

Thank you very much..

The next question comes from Samuel Pearlstein with Wells Fargo. Please go ahead..

Good morning..

Good morning..

I was wondering if you could talk about two different segments in terms of the guidance.

Just IS&T, why the revenue looked so weak this quarter, and can you still get that back to up modestly for the year? And I guess if you can address Aerospace, the same thing with the margin, where it is this year would seem as though your low 19% is a pretty low hurdle..

So let me address in the inverse order. We had a particularly outstanding quarter. I think that was obvious. We anticipate that we'll be at about a 20% margin in the second and third quarter and then a decline in the fourth quarter. So as of today, we're still holding to our guidance. With respect to the IS&T revenue, let me talk about two things here.

Remember, these are two – the two businesses in that group are short-cycle businesses, so we had anticipated a lighter volume quarter. It was a touch lighter than we had anticipated, largely because as we changed administrations, we had some slowdown in the execution of the contract line items in a number of particular programs.

So our view today is that we are very much poised to recover that, and we're holding to our guidance. Let me talk to you a little bit about though – and I think this might be an opportune time – talk to you a little bit about how we built the guidance for this year and equally importantly in the out years.

When we built our plans in the fall, we considered only those then-known programs. We factored them accordingly and then built into our plans the attendant cash flow. To the extent across the defense portfolio that we see additional funding, that represents upside to us. That's true in Combat, in the Marine group, and particularly in IS&T.

So I think understanding the context in which we built these plans will help you get some sense of our confidence in our revenue estimates for the year as we stand today..

That's helpful, thank you..

The next question comes from Cai von Rumohr with Cowen and Company. Please go ahead..

Yes, thank you very much.

So, Phebe, as I thought I heard you talk about Gulfstream 500 certification flights into October and then certification two months later, are we talking about certification late in the year? And is that consistent with still hitting some initial deliveries in the fourth quarter?.

This has been – there's nothing that has changed in our plan with respect to certification from the FAA. And I think our plan anticipated, and we're on track to do that, one delivery.

We'll have multiple green airplanes, but just right now we're looking at one completed entry into service airplane on the G500, again consistent with what we have been anticipating..

Okay. And then based on what you said about the margins at Gulfstream, I think on the fourth quarter call you talked about the quarterly earnings pattern, given where you started the year.

Could you maybe update us because if the margins are going to go down in the fourth quarter, on paper that would seem to be a tougher compare?.

One thing I think we talked about in January on the call was with – and I think we talked about it in light of the transition to the new revenue recognition rules, how we were anticipating having a stronger first quarter, and Phebe went into this in her remarks about the green deliveries, the extra green deliveries in the fourth quarter of last year and how those would translate into more outfitted deliveries in the first quarter.

But as we then went out of the year, we had been anticipating green production, as she just discussed, of the G500s, which would now be deferred till they're outfitted deliveries into 2018.

So while the year guidance is what it is, the slope is a little bit different than perhaps typical with the stronger first quarter and a little bit of that shift in the fourth quarter because of that transition to the G500.

So I can't reverse-engineer it for you here specifically, but I think that slope is what we alluded to at the end of the year and consistent with Phebe just described earlier..

The next question comes from Jason Gursky with Citi. Please go ahead..

Yeah, good morning, everyone. Phebe, I wonder if you could spend a few minutes back on Aerospace and talk a little bit about services aftermarkets at aviation.

Just maybe describe a little bit about the current demand environment, particularly on the completion side of things for Jet, what you're seeing in cycles, and the aftermarket for the existing Gulfstream fleet.

And then talk a little bit about the longer-term outlook for your businesses there, some of the recent M&A activity we've seen there, and some of the other investments that you're making, and what your view is on the longer-term growth outlook for Aerospace Services? Thanks..

So our Aerospace Services business did very well in the quarter, both in terms of volume and particularly at Gulfstream in terms of volume and margin. And the service business is somewhat cyclical, but we have continued to improve our operating performance on our service end at Gulfstream.

With respect to Jet, we've got a nice pipeline of opportunities in the quarter. They're a bit of a drag on a book-to-bill basis in the quarter, but we expect a strong second quarter on the completions side in terms of demand. And the demand at Jet Aviation has been pretty consistent for the last couple of years.

It's somewhat lumpy, so as we – the additions into backlog of new orders have been a touch lumpy on the completions side. On the services side, we've been making a series of very targeted small investments to augment our FBO capability and our managed fleet capability.

One of the things I'm particularly pleased about is that we've seen additional synergies between Gulfstream and Jet Aviation as we have matured Jet and begun to provide them additional resources and assets to support Gulfstream worldwide, and we're continuing that path. So completions business steady, lumpy in terms of order activity.

But on the service side, we see nice growth in the future, and we're very pleased with the performance of the investments we've made heretofore..

The next question comes from Myles Walton with Deutsche Bank. Please go ahead..

Thanks, good morning..

Good morning..

I was wondering if I could circle onto Gulfstream just for a second.

The fourth quarter margin of 19%, is that more indicative of the completions that were carried over being better margin than the first half of 2017 and the flow-in of initial deliveries of the G500? And what does that tell us about 2018? You've talked about the top line growth in 2018, but I don't think you've said if the EBIT grows in 2018..

So, as it relates to the fourth quarter, I don't know if you can state it that simply. As always, the quarter-to-quarter margin in the Aerospace business is going to be the result of a number of factors. We've touched on them from time to time over the years. Obviously mix is an important part of that.

You alluded to that, so there's a piece of that there. But it's also the level of pre-owned activity, the service business, Jet Aviation, R&D. All of those have meaningful points that can move you 10, 20, 30, 40 basis points in a given quarter on each of those particular items.

So I wouldn't chalk it up to any one influence, but that's what the mix is shaking out to be as we're looking at the fourth quarter..

So when you think about margins and earnings too, but let's talk about – let's go back a couple years ago when we – as we entered into this transition from the G455 and G50 to the G500 and G600, we told you all that our goal was essentially flat earnings. And we were going to accomplish that by feathering in some additional G650.

We've done that, but on top of which we've had superior cost control and nice operating leverage at Gulfstream. So that's combined to allow us to meet that commitment.

As we go into next year, we are anticipating – we haven't given you specific year-over-year guidance on margins, but we're going to bring down that G650 production a touch, as you would expect as we move up the ramp on the G500 and then ultimately the G600. So when you look at – the past has to be prologue.

When you look at the operating performance of Gulfstream, I am very comfortable that they'll do nicely on their margin performance. But we're not going to get into 2018 details until we get a little bit further. In fact, we'll do it at the end of the year, as is our constant practice..

Okay, all right. Thanks..

The next question comes from Rob Stallard with Vertical Research. Please go ahead..

Thanks so much, good morning..

Good morning..

Phebe, I was wondering if you could comment on this whole continuing resolution situation, whether you've seen any impact of that, particularly on your short-cycle businesses, and what your expectations are if this should drag on..

The Congress – the customer has made it quite clear to the Congress on the impacts on national security of failing to enact a budget. That said, we've done an analysis of a potential full-year CR, which we do not anticipate. But if we actually experience a full-year CR, the impact on our 2017 is not material.

So that tells you something about the strength of our backlog, by the way..

So there's been no impact in IS&T that you've seen so far?.

No, not yet, other than it's a little slow to execute on some of the contract task orders, but we anticipate that increasing..

That's great, thank you very much..

Gary, I think we have time for one more question..

And the final question will come from Seth Seifman with JPMorgan. Please go ahead..

Thanks very much, good morning..

Good morning..

Phebe, I wonder if you could talk a little bit about the M&A landscape these days and whether anticipation of a growing defense budget causes you to look at anything differently or whether high valuations remain a deterrent..

So I have an answer that I've been giving for the last four years now under the fifth, and it's we're not going to comment on M&A. It's simply not appropriate. You all understand the landscape, and we haven't seen much changes in valuations, so no real change..

Okay, fair enough. And maybe I'll sneak in another quick one then.

And maybe as you talk about – thinking about the business jet market and where you think about the opportunities longer term, I guess, as you think about investing in new platforms, not necessarily a specific plan, but whether you'd think about smaller or large, and also your future plans for the G280..

Let's answer this in this regard because any more specificity is inappropriate. You can expect that we will continue to have a robust R&D profile to fund new product development now and into the future. That's our business proposition. And in that regard, we're going to stick to our knitting.

We're going to stick to our market in which we have excelled, and frankly we're the only company to fully excel. So steady as she goes, past is prologue..

Great, thank you very much..

Great, thank you for joining our call today. If you have additional questions, I can be reached at 703-876-3311. Have a good day..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..