Lockheed Martin Corporation (LMT)

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Lockheed Martin (LMT)

Q4 2011 Earnings Call

January 26, 2012 3:00 pm ET

Executives

Robert J. Stevens - Chairman, Chief Executive Officer and Chairman of Executive Committee

Bruce L. Tanner - Chief Financial Officer and Executive Vice President

Jerry F. Kircher - Vice President of Investor Relations

Analysts

George D. Shapiro - Access 3:42, LLC

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Richard Tobie Safran - Buckingham Research Group, Inc.

Joseph Nadol - JP Morgan Chase & Co, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Carter Copeland - Barclays Capital, Research Division

Heidi R. Wood - Morgan Stanley, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

David E. Strauss - UBS Investment Bank, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Presentation

Operator

Good day and welcome, everyone, to the Lockheed Martin Fourth Quarter and Year-End 2011 Earnings Results Conference 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 F. Kircher

Thank you, Jovan, and good afternoon, everyone. I'd like to welcome you to our fourth quarter 2011 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.

Let me remind you that 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'd like to turn the call over to Bob.

Robert J. Stevens

Okay, thanks, Jerry. Good afternoon, everyone. Thanks for joining us today. All of us here hope that your new year is off to a very good start.

Let me begin with a quick summary of 2011. In the fourth quarter, we booked almost $20 billion in new business awards from domestic and international customers and finished the year with a record backlog of almost $81 billion. Strong program execution, coupled with ongoing cost-reduction initiatives, enabled segment operating margins to increase to 11.5% for the quarter and 11.4% for the year, which reflected improvements over prior-year levels.

Cash generation was exceptional with $1.1 billion in cash from operations in the quarter after making accelerated pension contributions of $1 billion and over $4.2 billion for the year, surpassing the prior year by more than $450 million. We paid $325 million in dividends in the quarter and $1.1 billion for the year as we continue to execute our $4 a share annual dividend payout.

Share repurchases continued in the quarter and totaled almost 32 million shares for the year, enabling the retirement of 7% of the outstanding shares. With this focus, we generated a 21% total shareholder return with 16% stock price appreciation and a 5% dividend yield. These results reflect the quality of our workforce, the dedication of our leaders and the strength of our corporation and the focus we all have on delivering value to our customers and to our shareholders. Thanks to everyone in the company who played a role in driving these results.

Since we last spoke in October, we've seen an expansion and in some cases, an amplification of the uncertainty evident in the global security environment and in world economic conditions. The events playing out in Afghanistan, Pakistan, Iraq, Iran, Syria, Egypt, North Korea, China and many other regions of the world underscore the complexity and the volatility embedded in the mission of maintaining global security. Many signs of economic stress remain, and the global recovery appears to be, at best, uneven and slow.

On the domestic horizon, we see change as well. Earlier this month, the administration released a new security strategy highlighting priorities for our 21st century defense. Citing the strategic turning point after a decade of war that is now concluding, the joint force will be reshaped to be smaller and leaner, but more agile, flexible, ready and technologically advanced. Forces are to be rebalanced with more emphasis on the Asia-Pacific region and the Middle East while assuring additional focus on the critical priorities of Space and cyberspace, Intelligence, surveillance, reconnaissance communications and navigation systems, counterterrorism and irregular warfare and effective nuclear deterrent and counter weapons of mass destruction capabilities. There will be an emphasis on air and naval forces while reducing land forces, and on building more effective security cooperation partnerships with friends and allies.

The President's 2013 budget is also set to be delivered to Congress on February 13. And Secretary of Defense, Leon Panetta, gave an executive summary look at the DoD portion just 1 hour ago in a press conference at the Pentagon, which actually may still be ongoing.

The Secretary described a fiscal '13 budget request of $525 billion in the base budget that compares to a $531 billion defense budget in fiscal '12, along with a request for $88.4 billion for overseas contingency operations. This new budget reflects the new security strategy and includes the effects of last year's Budget Control Act that triggered the administration's proposal to reduce the defense top line by $487 billion through 2021, with $259 billion of that reduction occurring between 2013 and 2017. This significant and substantial $487 billion reduction, in conjunction with the new security strategy, assures that commitments to deficit and debt reduction are met while maintaining an adequate security posture necessary in the uncertain and volatile world that we see today.

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