Question-and-Answer Session
Operator
(Operator instructions). Your first question comes from the line of Myles Walton with Oppenheimer & Co.
Myles Walton – Oppenheimer & Co.
I was wondering if you could talk about the defense margins a little bit, it was obviously very strong, but at the same time it looks like DataPath in the mix, DAGR lower, C-130 lower, were kind of working against you again on mix. Obviously incentive comp was a help but were there any program adjustments in there and what is the outlook for 4Q within this business?
Patrick Allen
Myles, there were really no significant program adjustments at all in the quarter. As we have indicated, we do expect the margins to come down a little bit in the fourth quarter due to a couple of things. One is our mix of sales and secondly is – I should say, probably identify three things. One is the mix of sales, two is DataPath itself will dilute margins on the government systems side. The third thing is we have kind of run out of incentive compensation adjustments with this quarter, we are down, now down to 0% accrual, so there'll be no further adjustments in the fourth quarter.
Myles Walton – Oppenheimer & Co.
Was the year on year benefit for lower incentive comp maybe 200 basis points?
Patrick Allen
I would think more like 100.
Myles Walton – Oppenheimer & Co.
100, okay. And the only other question to honor the two question rule is can you talk about what we should be thinking about for both incentive comp and pension expense building into 2010?
Patrick Allen
Well, just to give you a little color, and we haven't, we have not completed our planning process, so the short answer is, I can't give you a whole lot of guidance. But we said about pensions is that we expect the pensions to be higher next year due really to two things. The largest contributor now is the discount rate. As we look at it, it is probably about 125 to 150 basis points lower this year as we sit today than was last year. And as we indicated, that is about $5 million of expense for every quarter point, so you are looking at a fairly significant headwind there. And then the asset performance, now our assets have returned a little bit, so I would say that it's less of an impact next year as we look at it today, but again we've still got three months to go before our measurement day. As it relates to incentive compensation, what we have said is that it is about $1 million for every percentage point of incentive compensation and last year we paid out about $120 million, this year paid out to about zero. So my suspicion is it should be somewhere between those two numbers.
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