Lockheed Martin Corporation (LMT)

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Lockheed Martin Corporation (LMT)

Q3 2009 Earnings Call

October 20, 2009 11:00 am ET

Executives

Jerry Kircher - VP of IR

Bob Stevens - Chairman, President and CEO

Bruce Tanner - EVP and CFO

Analysts

George Shapiro - Access 342

Richard Safran - Buckingham Research

Joe Nadol - JPMorgan

Doug Harned - Sanford Bernstein

Peter Arment - Broadpoint

Myles Walton - Oppenheimer & Company

Troy Lahr - Stifel Nicolaus

Itay Michaeli - Citi

Noah Poponak - Goldman Sachs

Sam Pearlstein - Wells Fargo Securities

Robert Spingarn - Credit Suisse

Cai von Rumohr - Cowen & Company

Joe Campbell - Barclays Capital

Presentation

Operator

Good day and welcome everyone to the Lockheed Martin Corporation third quarter 2009 Earnings Call. Today's call is being recorded. 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

Thank you, Elizabeth, and good morning, everyone. I would like to welcome you to our third quarter 2009 earnings conference call. Joining me today on the call are Bob Stevens, our Chairman, President 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. Please also note that we have posted charts on our website today which supplement our comments.

With that, I would like to turn the call over to Bruce to provide a closer examination of our third quarter results and financial outlook, followed then by Bob with his perspectives on the corporation.

Bruce Tanner

Thanks, Jerry, and good morning, everyone. I hope you all had an opportunity to read today's earnings release with our third quarter results, updated 2009 guidance and initial 2010 guidance.

As the release outlined, 2009 performance continued at a solid level with numerous operational and financial highlights achieved through continued focus on quality and execution.

Financial highlights included our Aeronautics business continuing its upward revenue growth, Electronic Systems continuing its margin generation above 13%, and the Corporation generating near record third quarter cash from operations in excess of $1.4 billion. This performance solidly positions us to achieve our increased 2009 earnings per share and return on invested capital projections.

Turning to our third quarter results; the Corporation achieved solid financial performance, completed significant operational milestones, and won key new business awards. Sales growth consistent with our expectations and strong cash generation were noteworthy achievements in the quarter.

With third quarter activities generating robust cash from operations, we were able to continue implementation of our cash deployment strategy for generation of shareholder value. During the quarter, we continued to repurchase our stock, bringing the year-to-date share repurchase total to over 18 million shares.

In September, our Board of Directors approved a share repurchase authority for an additional 20 million shares, increasing the total remaining authority to approximately 35 million shares at the end of the third quarter.

Our strong cash flow performance also enabled us to increase our quarterly dividend rate by 10.5%, extending our double-digit dividend rate increase to seven consecutive years.

Let me now turn to a review of key events and performance in our business areas. Starting with Aeronautics, our team continued to achieve operational milestones across their programs while winning new business awards. On our largest program, the F-35 Joint Strike Fighter, we continue to retire risks from a development program. The conventional and short takeoff and vertical landing aircraft are flying and continue to achieve objectives of the flight test program, with a 123 test flights completed to-date.

In demonstration of the exceptional design maturity of the aircraft, 80% of the jets have returned from their test sorties, Code 1, with no issues and are ready to fly again. The carrier version aircraft was rolled out in July at the formal unveiling ceremony with the US Navy, and is moving forward through development towards first flight.

In addition to the ongoing progress on the three aircraft variants, integration and verification of the mission systems suite continues on a Cooperative Avionics Test Bed. Other F-35 milestones successfully completed this summer included the first aerial refueling test and software development on schedule with more than 70% complete.

Our C-130J remains on track to ramp up production this year to 16 aircraft deliveries and continues to attract new customers through its position as the most proven and cost effective airlifter of choice.

New international aircraft awards this quarter included an additional order from Iraq for two aircraft and FMS authorization to provide eight aircraft to Kuwait. With proven performance, value, and versatility we believe future new business prospects remain bright for the C-130J and will result in higher production levels in the future.

Turning to Electronic Systems; a critical program milestone was accomplished this quarter with the commencement of construction of our second Littoral Combat Ship, the USS Fort Worth. The laying of the keel marks the start of the module erection process and reflects the ship coming to life.

The Littoral Combat Ship is the most cost effective ship the US Navy has ever produced, requiring only a 40 person crew that can flight in the blue water and in the Littoral environment with unprecedented situational awareness. It can cover a wide range of operational requirements from anti-piracy to search and rescue to support a special forces through utilization of modular mission packages.

We are excited to build upon the lessons learned and success of our previously delivered ship, the USS Freedom as we work to provide our Navy customer these revolutionary naval vessels and help satisfy the 55 ship fleet requirements.

Moving to our Space Systems business; significant operational successes were achieved this quarter for domestic and international customers. Domestic successes included the deployment and on-orbit operation of the PAN next generation satellite for our government customer. This program consists of a novel and robust turnkey commercial-based satellite, ground and launch system to meet the government's future needs. This deployment demonstrated the delivery of a high quality, low cost solution with reduced cycle times for our customer.

As noted in our press release, operational success was also achieved for our international customers this quarter through the successful delivery and deployment of the JCSAT-12 satellite for commercial communications provider in Japan. This delivery marks the deployment of our 38th A2100 spacecraft to international and domestic customers.

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