Lockheed Martin Corporation (LMT)

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Lockheed Martin Corporation (LMT)

Q1 2010 Earnings Call

April 21, 2010 9:00 am ET

Executives

Jerry Kircher – VP IR

Robert Stevens – CEO

Bruce Tanner – EVP & CFO

Analysts

Robert Spingarn – Credit Suisse

David Strauss - UBS

Sam Pearlstein - Wells Fargo

George Shapiro - Access 342

Doug Harned - Sanford Bernstein

Heidi Wood - Morgan Stanley

Robert Stallard – Macquarie

Joseph Nadol - JPMorgan

Ron Epstein - Banc of America

Peter Arment - Broadpoint

Joe Campbell - Barclays Capital

Troy Lahr - Stifel, Nicolaus

Presentation

Operator

Good day and welcome everyone to Lockheed Martin’s first quarter 2010 earnings results conference call. At this time for opening remarks and introductions I would like to turn the call over to Mr. Jerry Kircher, Vice President of Investor Relations; please go ahead, sir.

Jerry Kircher

Good morning everyone, I would like to welcome you to our first quarter 2010 earnings conference call. Joining me today on the call are Robert Stevens, our Chairman and Chief Executive Officer, and Bruce Tanner, our Executive Vice President and Chief Financial Officer.

I’d like remind everyone the statements made in today's call that are not historical fact are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of Federal Securities Law. Actual results may differ.

Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results.

We have posted charts on our website today that we plan to address during the call to supplement our comments. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts.

With that, I would like to turn the call over to Robert.

Robert Stevens

Thanks Jerry, good morning everyone, thanks for joining the call today. I hope you had an opportunity to read our earnings release and take a look at our updated guidance. Overall in the quarter our operational tempo and our execution were strong.

Quality levels were good and each business area achieved expected results. In the United States since we last spoke, several events have occurred. The President proposed the defense budget for 2011 at $549 billion which was 3% over 2010 budget levels.

When we look out over the longer-term the future year defense program, that’s the projection that looks out over a five year horizon, maintains an overall 3% growth projection for DoD and then finally the Quadrennial Defense Review, that more strategically oriented document, was also completed and released and the priorities outlined in the QDR provide a solid level of support for a number of our lines of business and our programs, including the F-35 joint strike fighter for the fleet replacement aircraft, our THAAD, PAC-3, and Aegis systems, for mobile and sea based missile defense, the advanced DHF satellite for space command control communications, and the intelligence surveillance and reconnaissance mission the communication supports, and our Littoral combat ship for advanced surface naval combatants.

Clearly our customers continue to address the dual demand of expanding missions and fiscal pressures and we’re working hard to support them by meeting our commitments, to shorten our cycle times, to overall reduce our costs and focus more on affordability.

Internationally we see the opportunity horizon expanding with demand aligning well with our product portfolio. And we were pleased with the international awards we saw in the first quarter that included 20 new F-16 aircraft for Egypt, two new C-130J airlifters for Tunisia, Sniper and Lantern targeting systems for Turkey, and a 10 year logistic support contract for New Zealand’s defense forces.

Last year we increased our goal for international revenue such that we’d generate 20% of total revenue from our international business and we’re on track to achieve that goal by 2012, and yesterday we were pleased to see a renewed call for export control reform that was brought forward by Secretary Gates.

Let me turn to our operations for a moment where I think we had a solid quarter and we met some key objectives in each business area. In aeronautics Ralph Heath and the aeronautics team maintained overall a good operational tempo. And there are three areas that warrant greater discussion.

The F-35 is getting lots of extra attention, as a result of the restructuring process that addresses risk and positions the program for success and working through the Nunn-McCurdy recertification process. And I think here there may be some confusion about how the restructuring of the program and the Nunn-McCurdy recertification process align.

They are both really borne out of the same fundamental assessment of the program that evaluated our ability to execute and included a variety of estimates of risk factors that could effect the program. The restructuring was initiated to reduce the overall risk of the program in order to facilitate the Nunn-McCurdy recertification.

When we look at the restructuring segment you’d see a 13 month extension to the system design and development phase of the program while adding $2.8 billion in funding, expanding the resources available on the program to reduce risk by adding software labs or adding resources to the flight test program, very specifically the addition of one United States Navy carrier version of the aircraft to improve our overall ability to turn around test flights.

You’ll see the addition of an additional low rate initial production contract that we refer to as LRIP No. 9. We’ve had a re phasing of the production ramp while incorporating some buy to budget flexibility that means if our program performance is on track there will be an opportunity to add airplanes to the ramp rate, and then revising the program milestones.

Read the rest of this transcript for free on seekingalpha.com