Lockheed Martin Corporation (LMT)

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Lockheed Martin (LMT)

Q4 2010 Earnings Call

January 27, 2011 3:00 pm ET

Executives

Bruce Tanner - Chief Financial Officer and Executive Vice President

Bob Stevens - Chairman, Chief Executive Officer and Chairman of Executive Committee

Jerry Kircher - Vice President of Investor Relations

Analysts

Cai Von Rumohr - Cowen and Company, LLC

Peter Skibitski - SunTrust Robinson Humphrey Capital Markets

Jason Gursky - Citigroup

Douglas Harned - Bernstein Research

Howard Rubel - Jefferies & Company, Inc.

George Shapiro - Citi

Ronald Epstein - BofA Merrill Lynch

Joseph Nadol - JP Morgan Chase & Co

Richard Safran - Goldman Sachs

Heidi Wood - Morgan Stanley

Robert Spingarn - Crédit Suisse AG

Samuel Pearlstein - Wells Fargo Securities, LLC

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Myles Walton - Deutsche Bank AG

Peter Arment - Gleacher & Company, Inc.

David Strauss - UBS Investment Bank

Presentation

Operator

Good day, and welcome everyone to the Lockheed Martin Fourth Quarter 2010 Earnings Results Conference Call. [Operator Instructions] 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. Sir, please go ahead.

Jerry Kircher

Thank you, Karen, and good afternoon. I'd like to welcome everyone to our Fourth Quarter 2010 Earnings Conference Call. Joining me today on the call are Bob Stevens, our Chairman and Chief Executive Officer; and Bruce Tanner, our Executive Vice President and Chief Financial Officer.

Statements made in today's call that are not historical facts 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'd like to turn the call over to Bob.

Bob Stevens

Thanks, Jerry. Good afternoon, everyone. For those on the East Coast, I hope you're digging out of the snowstorm satisfactorily and for all on the call today, I hope you're looking forward to a prosperous 2011 as we are.

I trust you've had the opportunity to read today's earnings release on our fourth quarter results. As the release outlined, operational performance in the fourth quarter continued at a solid rate and enabled us to achieve strong financial results, including over $20 billion in order bookings that expanded our backlog to over $78 billion while achieving sales growth of 5%.

We also continued to generate exceptional cash flow that provided the opportunity to repurchase a record level of over 13 million shares in the quarter, to pay dividends of almost $270 million and to fund $840 million to our pension trust.

This focus on operating cash has been a foundational element of our strategy to provide sustained returns through share repurchases and dividends, while still ensuring appropriate investments in the business, and that approach is working well.

Let me start with a very brief strategic update. Over the course of our last several calls, we've described to you our sense of this new reality that we're working in. One characterized by growing complexity in the global security environment and continuing pressures in the world's economy. All that we see reinforces this perspective, and is driving our actions.

As an illustration, just since we last spoke in global security, as our Defense Secretary visited on January 11, the Chinese showcased the pace of their advancement in low observable technologies with the J20 aircraft. In conjunction with previous demonstrations of anti-satellite systems, advances in communications and intelligence surveillance and reconnaissance capabilities, the development of antisurface ship weapons, the expansion of submarine capabilities and persistent cyber campaigns, questions about how China might use its expanding military strength are growing.

Also in the region, it's now estimated that North Korea will likely have an operational ICBM within five years, a prospect Secretary Gates recently called a direct threat to the United States, and one that only adds to the risks associated with an unstable and provocative government.

On the economic front, our nation's debt now exceeds $14 trillion, and the recently convened 112th Congress will soon need to address the prospect of increasing the debt ceiling as executive branch agencies contemplate overall spending reductions.

On January 6, Secretary Gates took a step in that direction by presenting a revised DoD future year Defense program, indicating that the President's budget request for government fiscal '12 for the base budget would be set at $553 billion, which represents about $13 billion less than the prior year's estimate but also about 3% real growth over the current continuing resolution, which is set to expire March 4.

The Secretary indicated the rate of real growth in the base defense budget will remain positive in government fiscal '13 and '14 and flatten out in government fiscal '15 and '16. Given the strength, the alignment and the quality of our portfolio, we expect to continue revenue growth through this period, and we continue to refine our strategy.

In parallel with the government efficiency drive, we've been executing a series of cost reduction and efficiency initiatives as well. Relative to our portfolio, we successfully completed the divestiture of the Enterprise Integration Group to Veritas Capital for $815 million in cash, and we believe we will likely have an agreement for the sale of our Pacific Architects and Engineers unit by the end of the first quarter 2011.

We continue to take out cost by reducing expenses across the board, particularly in travel, participation in air shows and the like, by carefully scrubbing our capital requirements, by tightening our organizational span of control and improving agility, through actions like the voluntary executive separation program and other measures and by focusing on consolidations to remove excess capacity, optimize facility utilization and efficiently balance our workload.

Most recently, we announced the phased closure of our Egan, Minnesota facility by 2013 and the movement of our contract work from Baltimore, Maryland to other company sites by 2011. While these actions are very difficult for our workforce and we undertake them with a measure of regret, they are necessary to meet the demands of this new reality that we're in. We'll continue to seize opportunities to reduce costs, increase productivity and drive affordability throughout our company and throughout the supply chain.

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