Good day, and welcome everyone to the Lockheed Martin 4th Quarter 20 10 Earnings Results Conference Call. Today's 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. Sir, please go ahead.
Thank you, Karen, and good afternoon. I'd like to welcome everyone to our Q4 2010 earnings conference call. Joining me today on the call are Bob
call is open. These are
forward looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ. Please see today's conference call is being recorded in the 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 call is being recorded on our website today that we plan to address during the call to supplement our comments. Please access our website at www.lockheedmartin.
Conference call 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. Thanks, conference call is being recorded. Our first question comes from the line of John conference call is being recorded.
We are seeing over $20,000,000,000 in order bookings that expanded our backlog
to over $78,000,000,000 while achieving sales growth of 5%. We also call continues to generate exceptional cash flow that provided the opportunity to repurchase a record level of over 13,000,000 shares in call is being recorded. Today's call is being recorded.
We are now ready to begin the Q4
to pay dividends of almost $270,000,000 and to fund $840,000,000 to our pension call is open. This focus on operating cash has been a foundational element of our strategy to provide sustained returns through call is being recorded. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Good Brief strategic update. Over the course of our last several calls, we've described to you our sense of this conference call is today's conference call. All that we see reinforces this perspective and is driving our actions. As an illustration, just since we last call is open.
Welcome to the Q4 of 2019. As our Defense Secretary visited on January 11, the Chinese showcased the pace of their advancement in low observable conference call will be recorded in conjunction with previous demonstrations of anti satellite call is now open. The expansion of submarine capabilities and persistent cyber campaigns, questions about how China might use expanding military strength are growing. Also in the region, it's now estimated that North Korea call will likely have an operational ICBM within 5 years, a prospect Secretary Gates recently call is a direct threat to the United States and one that only adds to the risks associated with an unstable and provocative conference call. On the economic front, our nation's debt now exceeds $14,000,000,000,000 and the recently conference call is being recorded.
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 'twelve for the base budget would be call is set at $553,000,000,000 which represents about $13,000,000,000 less than the prior year's call is being recorded, but also about 3% real growth over the current continuing resolution, which is set to expire March 4. The recorded. The conference call is now open. And flatten out in government fiscal 2015 2016. Given the strength, the alignment and the quality of our portfolio, we expect call is being recorded.
We've been executing a series of cost reduction and efficiency initiatives as well. Relative to our call is now open. We successfully completed the divestiture of the Enterprise Integration Group to Veritas Capital for 8 call is now open. We have a question on the call. Hi, good morning, everyone.
I'm We continue to take out costs by reducing expenses across the board, particularly in travel, 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 Eagan, Minnesota facility by 2013 and the movement call will be recorded in the Q4 of 2019. Our first question comes from the line of John
conference
call actually
and we undertake them with a measure of regret.
Let me know, okay?
Karen, let me call We're getting some conversational feedback. Are we okay on this line?
Sir, your line should be fine. It appears to be the only one open at this time.
Okay, very good. Thank you. While these actions are difficult for our workforce and we undertake them with a measure of regret, call is being recorded and we are confident that we will continue to execute on our call is to focus on execution as improving quality and predictability, while shortening cycle times not only lowers costs and assures that every dollar counts, call puts more critical security capability into our customers' hands sooner, giving them the tools they need to meet complex call is being made by our focus on cash generation and smart allocation. Our desire to return at least 50% of free cash flow call is that we'll give our customers the edge in every mission area. While we're interested in acquisitions, we'll remain very selective following our conference call is being recorded in the quarter.
Our first question comes from the line of John conference call is being recorded. We'll also continue to look at our pension trust relative conference call is open to future funding needs. And finally, we'll continue to invest in our people to assure that we have the professional and leadership skills
conference call is being
recorded in the demanding environment that we face. Turning to operational performance, I'll comes from the line of Kevin Owens, where 2 programs warrant special mention, the F-thirty 5 and the C-130J. Call is being recorded. On the F-thirty 5, we continue to see progress across key areas of the program, but like any development Certain challenges certainly remain. In the flight test program, we completed 141 test flights in the 4th quarter, Representing the highest quarterly level achieved to date as the tempo of flights continues to ramp up.
For calendar year 2010, we exceeded conference call is being recorded. With 212 flights completed, that's 39 flights behind plan. We're We're now working with our customers to finalize the test requirements for 2011. While the discussions are not yet complete, we is open. We are currently looking at about 872 flights in total.
We've flown 36 flights so far conference call is open. In the key area of software development, the Stovall variant conference call is being recorded. Call is the foundational building block for all future avionics software on the F-thirty 5. It represents a key step in the process of validating our call is being recorded. Avionics system and ensuring that it operates in a way that gives our war fighters a clear advantage over every adversary.
Block 1
conference call is being
recorded in the press release and provides initial weapons release capability. In his announcement of January 6, Secretary Gates conference call is being recorded. The Air Force conventional takeoff and landing version and the Navy's carrier version, which represent over 85% of the planned domestic call is proceeding satisfactorily in development. However, testing challenges and delays on the short takeoff conference call is now open
to the back of the overall Joint Strike Fighter production sequence and
to place the Stovall version of the airplane effectively on probation. These call will better position the Stovall variant to demonstrate improved reliability over the next 2 years and get the marine aircraft back on track in terms of conference call is being recorded. We're completely committed to this course of action and very much appreciate the attention the F-thirty five Secretary Gates also outlined the recommendations of the technical baseline review, announcing the intention to add 4,600,000,000 call is being recorded in dollars to the F-thirty five development program over the next 5 years, extending development to 2016. These call is being recorded. The funds are to be used for additional development scope, for testing and risk retirement activities that better position the program for production and to correct prior estimates.
Call is being recorded. The government fiscal year 12 production by our Lot 5 procurement will be budgeted at 32 aircraft and the production ramp call. Call is Since the Lot 4 quantity recently placed under contract was also for 32 aircraft, the near term flattening of lot However, we do believe that with the total quantities of aircraft to be procured, we and our customers have ample opportunity to focus call is on overall affordability objectives and we will. Turning to the C-one hundred and thirty J program, we continued to advance conference call is now open to the Q4 of 2018, both with additional new business awards and increased annual production levels. The government of South Korea became the 14th country to call is being recorded.
We have a number of C-130J aircraft ordered since inception to 3 conference call. We also delivered 9 aircraft in the quarter, bringing our full year production to 25 call is about 50% higher than our 2,009 level. With the current annual production capacity of 36 aircraft, we have the ability to satisfy robust domestic and international demand. In Electronic Systems, the team finished the year with a solid quarter across In late December, the United States Navy awarded us a contract to construct the first of up to 10 Littoral Combat
conference call ships through 2015, an award
with an overall potential value of approximately $3,600,000,000 call is being recorded. On the production front, our second vessel, the Fort Worth was successfully launched in December and remains on cost and on schedule with more than 80% of construction completed, LCS was highlighted by Secretary Gates as a program deserving cost effective system. In Ballistic Missile Defense, we received a contract for over call is being recorded in the Q4 of 2018. We are now ready to begin the Q4 of 2019.
We are now ready to begin the
Q4 of 2019. We are contract to produce Aegis Weapon Systems for the DDG-one hundred and thirteen destroyer with options for 2 additional call is now open. This contract also provides options for an Aegis Ashore system that will adapt the sea based capability
call is being recorded to a land
based system to protect the United States and Allied troops in Europe against ballistic missile threats. Finally, operationally, the conference call is being recorded. International Aerospace System Integration Effort, a contract known as NISC III. IS and GS will compete for task orders to provide a broad range available to the Federal Aviation Administration. IS and GS will serve as the prime contractor in this effort and will build upon conference call is being recorded for the NISC II contract.
I also wanted to congratulate our team on their successful completion and delivery of the 2010 call is being recorded. This effort represents the successful processing of over 165,000,000 census forms and is an essential tool used by our government to determine among other things the number of congressional seats appropriate for conference call is available on our website and the correct allocation of federal funds to state and local governments. In Space Systems, the United States Air Force conference call is being recorded. Awarded a $1,400,000,000 contract for the 4th advanced extremely high frequency satellite. This award expands the conference call is being recorded.
We
are now in the
call is being recorded for the Q4 2020 10 Earnings Results
Conference Call. Today's call
is being recorded in the Q4 2020 and Q4 2020. We believe this approach is an exceedingly smart way to buy these systems in a fashion that will conference call will be recorded in the Q4 of 2020. Also in space, our decades long support of the Trident II missile continued to be recognized with an award of a contract for over $900,000,000 to conference. Finally, I've described for you many times my admiration for the quality of our leadership and our workforce. I is very pleased to see 5 Lockheed Martin employees recently recognized as fellows of the American Institute of Aeronautics and Astronautics.
Call is being recorded. They are Doctor. Ray Johnson, Mr. Frank Capuccio, Doctor. Stephen Englestad, Mr.
Jeffrey Hamstra and Doctor. Pradeep Raj. They are exceptional leaders, and I was gratified to see their talent and contributions widely recognized inside and outside our corporation. I'll turn the call now over to Bruce, who will provide some additional detail on our Q4 financial results and our outlook for 2011. Bruce?
Thanks,
call is today's call. And as I highlight our key financial accomplishments, please refer to the web charts we've included today. Let's begin with Chart 3, our conference call is open. In the quarter, we're over $20,000,000,000 and were strong across all business areas. Most is open for the Q4.
For the full year, orders were nearly $47,000,000,000 which represents the highest annual order level in our history. And I think this is a good indication of the alignment of our portfolio with the needs and requirements of our customer. Turning to Chart 4 conference call is now open.
Now look at our ending backlog. We ended the quarter with a
book to bill ratio of 1.6 and that resulted in growing our backlog by $1,000,000,000 conference call is now open to our year end level of over $78,000,000,000 On the right hand side of the chart, it's no is in
order to see the duration of
backlog for a number of our major programs, particularly if you consider unexercised options that are beyond what's included call is now open. Moving to Chart 5 and our sales for the quarter. Overall, the corporation grew 5% conference call is being recorded. The quarter with Aeronautics was particularly strong with 19% growth, driven by increases in both the F-thirty five and C-one hundred and thirty program sales. Electronic Performance was stronger in the quarter than we expected, resulting in the business exceeding the upper end of its guidance range for the year.
Overall, 3 call is now open. Aeronautics also grew the fastest for the year at 8% growth, followed by Electronic Systems at 6% and IS and GS conference call was recorded at 4%. Space Systems was lower this year by 5% due to lower Orion sales and the wind conference call is now open to the
Q4 of 2020. Thanks, Jeff. Thanks, Jeff. Thanks, Jeff. Thanks, Jeff.
Thanks, Jeff. Thanks, Jeff. Thanks, Jeff. Thanks, Jeff. Thanks, Jeff.
Thanks, Jeff. Good morning, Jeff. Good morning, Jeff. Good morning, Jeff. Good morning, Jeff.
Good morning, Jeff.
Good morning, Jeff. Good morning, everyone. Good morning, Jeff. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Call is posted in 3 main areas. Operational improvements, largely driven by the stronger performance in Electronic Systems, conference call has resulted in $0.12 per share increase. Passage of the R and D tax credit provided another $0.12 improvement and other improvements in our tax provisions Partially offset by the facility consolidation charge in electronic systems and all other items netted to another $0.09 benefit. Chart call is a summary of our cash generation for the year.
As Bob mentioned, our cash flow was very strong this year and we achieved a record level of cash generation conference call is now open to the presentation of $5,800,000,000 before pension contributions, almost 25% more than 2,009 levels. As we outlined to you in the October call, we made over $2,200,000,000 in discretionary contributions to pension plans in 2010, bringing the funding level in conference call plans to over 80% as measured on an ERISA basis. At this level, our plans are sufficiently funded under the requirements of the Pension Protection conference call is being recorded to avoid any determination of the plans being termed at risk. Overall, our cash from operations was $3,600,000,000 In addition, we conference call is being recorded. We received over $800,000,000 from the close of our sale of the EIG business, allowing us the flexibility to make both our pension contributions and call is being recorded for shareholders in 2010.
Overall, we returned $3,500,000,000 an increase of 25% more than 2,009 levels. Share repurchases call is An increase in our quarterly dividend rate announced in October, which brought our annual dividend amount to $3 per share. Chart 10 shows our conference call is being recorded in the Q4. For the full year, we repurchased 33,000,000 shares, also the highest annual level in our history. The call is open.
Record level of share repurchases reduced our share count significantly as seen on the next chart. Chart 11 shows the levels of our share repurchase activities since 2000 and conference call is live. We reduced over 7% of our outstanding shares in the year, again the highest percentage of share count reduction conference call is now open to our repurchase program in 2,002. The 346,000,000 shares outstanding at the end of the year call is being recorded for the Q4 of 2019. Now turning to our financial outlook for 2011 as shown conference call is on chart 12.
As we discussed last quarter, we expect 20 11 sales to grow at a low single digit rate with segment operating profit remaining conference call is fairly flat with 20 10 levels. We're now showing an improved FAST CAS adjustment, primarily due to a higher discount rate than we assumed conference call is being recorded in the Q4. I'll give more details on this change in an upcoming chart. Earnings per share from continuing operations are call is projected between $6.70 $7 per share, and I'm especially pleased that our cash from operations guidance has risen to $4,000,000,000 significantly higher than is being recorded. I should also point out that we are assuming at least $1,000,000,000 in share repurchases in 20 11 and that our conference assumes a timely resolution of the FY 2011 Defense Appropriation Bill this year.
On conference call is being recorded. Aeronautics should have sales growth in the upper single digit range with operating call is projected to increase at a mid single digit rate above 20 10 levels, reflecting the ongoing transition from higher margin production fighter programs to the call is now open for more margin, development and LRIP activities on the F-thirty five program. In terms of phasing for the year, I expect sales to be heavier in the second half conference call will be about 40% in the first half and 60% in the second half. Electronic Systems is expected has slightly lower sales due to the completion of the persistent threat detection system activity last year, the delayed timing of awards such as LCS call is expected to be conference call is being recorded in the second half. IS and GS sales will be lower in 2011 due to the completion of the U.
S. Census work call is being recorded in 20 10, while margins will be similar to what we experienced last year. Sales will likely face lower in the first quarter and first half call is due to the absence of the census program in 2011. Finally, Space Systems revenues are also projected to be flat compared with 20 10 results due to the wind conference call is being recorded. We are now in the conference call.
The new guidance for 2011 is a 9.20 call is a $5,000,000 headwind on projected earnings rather than the $1,200,000,000 level we indicated in October. Drivers of the improvement were: conference call is increasing 50 basis points to 5.5%, higher than the 5% estimate we provided in October. Our actual return on assets was over 13% in call is open. J. Muse:] Resulting from the change in our discount rate, this highlights the sensitivity of our GAAP earnings to the volatility of rapidly changing interest conference call is being recorded rather than the fundamental economics of our business.
Turning to Chart 15, you can see the significant year to year headwind the increased pension expense creates on our EPS conference call is from continuing operations. Removing the FASCAS impact from both 20102011 shows growth in call is being recorded. Our next question comes from the line of David. Hi, good morning, everyone. I'm call is on how well Lockheed Martin is positioned within the industry and as a stock ownership opportunity.
As I see us, there are four key reasons why our stock represents a good value proposition. 1st, we have a strong dividend yield of nearly 4%. 2nd, we have a strong history of consistent call is being recorded. Our share count over the last 5 years and more than 5% over the last 3 years. 3rd, while our cash generation over the past few years has been strong despite the large discretionary payments we've made to our pension plans, those significant cash call will eventually swing to cash inflows as our reimbursements catch up to and surpass our required contributions.
And finally, there's no program in the DoD conference call is being recorded and we are ready for questions.
And our first question comes from the line of Rob Cengarn of Credit Suisse.
Good afternoon. Good morning. Well, I have a joint Strike Fighter question that conference call is a joint question itself. I think it's for both Bob and Bruce. I wanted to ask you, Bob, you went through the
call is going to be
a very strong quarter for the life of the program. We won't be able to target them learning curve wise earlier on. So I'd like to ask you how call is Relative to your earlier expectations.
Well, you thanks for the question, Rob. So you have a sense of where we are in Lot call is recorded. And while Lot 5 is proposed that 32 airplanes as is the typical process throughout the fiscal year, the Congress will review the conference call is for 32 airplanes and they will have deliberation and they will make a decision hopefully with an authorization and appropriation call? No, that supports the quantity to be purchased. When we think of overall pricing, revenue, affordability, margins, we think Without near term volume increases, because volume increases are so intimately related to our ability and really the industry's ability to call is Drive Down Earnings Curves.
So we're seeing a bit of a slowdown in the near term ramp. We call reflected our expectations in the near term in the 2011 guidance. As we look forward to learn more about the
comes from the line of David Strauss of UBS.
Good day. Bruce, quick question for you. What is assumed
in your guidance for share repurchase At this point.
$1,000,000 for it, David. $1,000,000 Correct.
Okay. Thank you.
Thank
Thank you. And our next question comes from the line of Rick Zaffron of Buckingham Research.
Hi, Good afternoon. Good afternoon. Good afternoon. Good afternoon. I wanted to ask about cash.
So given that Does that kind of imply there may be upside to your $4,000,000,000 cash guidance? And also as a kind of like a second part, just wanted to know what the thinking is about dividends versus buybacks. And by that, what I'm asking is, is there a potential here, for example, for More meaningful or higher dividend raises than we've seen previously.
You know what, Rich, why don't I take a shot at this See if Bob has anything to append at the end of it. You're right. Cash was very strong in 2010. I was particularly pleased that if you take a look at all four business areas relative to what our expectations were as we entered the year, all four business areas exceeded You may recall, we were contemplating during 2010 some increase conference call is open. And our working capital throughout the year, we actually ended the year relatively flat, so we did not have that increase.
And we were also call is We're expecting a slight increase in working capital as we headed into 2011, which we're now believing will be flatter still. So That in particular is what drove the cash higher in 2010 and gives us the confidence to You increased the number to $4,000,000,000 in 2011. You talked about the orders. I was extremely pleased with the orders. Again, dollars 20,000,000,000 conference call is open.
The quarter, especially considering it's a quarter that's under continuing resolution and the fact that, that led to 47 dollars for the year, which is the highest level of orders we've ever had as a corporation, I think, is a testimony to the alignment of our portfolio, with the requirements and needs, And so if you ask you were asking about the dividends versus buyback, if there's a change there, we remain committed conference call is being recorded. The 50% return of free cash to shareholders
as we've
stated numerous times, obviously, we have the fire conference call is open. That we demonstrated, especially in the 4th quarter, to continue the share repurchase and the dividend increase. We always revisit the dividends with our Board of Directors sometime in the Q3 timeframe of the year. We'll do that again this year. And I think in short, Rich, we'll be Especially on the share buyback and we'll revisit the dividend policy in the Q3 with our Board just as we always do.
Yes. Rich,
We like the balanced approach with our share repurchase program and our dividend increases that you've seen of us lately. I think if we're able call is We continue to generate cash flow in a superior fashion. We'd like to follow through with more of those actions.
Call is open. Thank you. And our next question comes from the line of Cai von Rumohr of Cowen and Company.
Yes. Thank you very conference call. Could you tell us what you expect the tax rate to be for 2011 in any quarterly pattern? And secondly, you gave us conference call is a delivery pattern for your aircraft in 2011, but sometimes in the past call is being recorded. Changes within a model from one customer to another have resulted in different margins.
So should we expect The aeronautical margins will start out low and get better as we go through the year. Is there any kind of visible pattern there?
Yes. Let me try I'll address the first question first obviously Cai. Tax rates we're expecting next year on a recurring basis are probably About the 30% level. I wouldn't expect to see large changes quarter to quarter. I think that was part of your question as well.
Call is I would not expect to see that. Phasing of the aircraft is going to be a little back end loaded within conference call. Again, as I said, for both S-16s and C-130s, I don't think margin wise, I'm trying to recall call. I don't believe you're going to see a whole lot of changes other than I'll say The normal sort of risk retirement items as we progress down the production of all these aircraft, From a planning perspective, from a guidance perspective, I don't see that that I'd point out to you at this point in time.
Thank you very much.
Thank you, call.
Thank you. And our next question comes from the line of Joe Nadel of JPMorgan.
Good afternoon.
Good afternoon.
Joe. Bob, the F-thirty five SDD contract is something I think I've asked conference call is available on the call. Here in the Q4 in Aeronautics, although that may have just been mixed, but my guess is that there was an SDD issue there. And It seems to me and I'd like your view on this as well, this may be sort of a sore spot in the relationship between Lockheed and
So I know you don't want
to take a bad deal of course, but if you could update us there on how you're thinking about it and where we are?
Yes. I conference call. We started and finished the year in SDD at the same booking rate. So We can clarify that at the outset. There isn't really a sore point or sore conference call is being recorded.
I'm sorry, I missed the spot in our discussions regarding the SDD program with the department, not about the opportunity for fee or call? Profitability, not about it's all about focusing on assuring we're doing the right call is At the right time to deliver 3 variants of the Joint Strike Fighter. And I honestly believe conference call is being recorded in the amount of time the Secretary of Defense has directly spent in reviewing and discussing the circumstances surrounding the conference call is being recorded in the Q4 of 2019. Call is a significantly important thing to us because we share a same goal and the goal is call is to deliver this airplane as quickly as we can and as affordably as we can because when all of us look at the complex in the United States and certainly for regional friends and allies who live in areas that have expanding difficulties. So there are Not really contentious discussions here.
There are full throated views about how we should remedy some call is today's call. Of the issues we're finding in the test program, but it's done professionally, it's done constructively. And I will say of all the observations that have been talked about call is open. Every one of those areas is being evaluated by subject matter experts in the government. Most of them have approved corrective them in development and review.
So I think we're going to increase the momentum and the tempo call is Of the program, including the flight test program, including software development, we're all steering toward the same course and we All share the same objectives.
Thank you. And our next question comes from the line of Doug Harned of Sanford Bernstein.
Good morning or afternoon. I want to continue on the F-thirty five Because some of the statements that Bob you've made in the past and even today suggest that you think that you could go to Higher rates than what the secretary is talking about in the restructured plan. And what I'm interested in is understanding what is the Source of that difference in views. And then also, although I understand that you're ahead on the both the A model and the C model in terms of flight tests, And what are the challenges you face there beyond just the number of flight tests to push this forward and beyond schedule, I would
Yes. Well, let's talk about production capacity first. We've call is to accelerate at a rate faster than 1.5. That's true. And we've done that in concert with our government customers call is being recorded.
I think the Department of Defense is providing their best professional judgment after call is a prudent near term 1.5 escalation in call is being recorded. I'm sure in the future that will be reviewed again based on our performance. We accept that 1.5 rate call is Now we have a lot of areas of interest that we have to go focus on. The F-thirty five, I I think it's important to remember when we're talking about volume now, we're talking about U. S.
Government volume and the F-thirty five has an extraordinary international conference call. And expressions of international interest have been increasing. So I would submit to you Doug call If we are able to execute on a plan that allows everybody to build confidence and that certainly is call is our commitment. Then just as we've had periodic reviews of the program to date that have resulted in some adaptations conference call is available to the program. There can be similar adaptations increasing the ramp rate.
We have an independent manufacturing review call is a team that periodically looks at our manufacturing productive capability, and I'm sure they have been flexible and wise in their judgment thus far, call. It will be that way looking forward. You asked about the A model and the C model and the flight test program. We look at this I think in general terms in call is available. J.
Rice:] The COVOL
variant is in the
flight test program and it is showing signs of improved performance. That's an area we're going Software Development Program. And I think you know we're developing software in 3 blocks. The blocks have interim releases called A and B. Conference call is being recorded.
We've released software block 1.0. We continue to write the other software blocks. We have to synchronize the software block delivery conference call is being recorded with the capabilities being demonstrated in the flight test program so that we can continue to expand the envelope and continue to move these jets closer toward initial operational capability. And then there is another piece for preparation for training call is today's call. Because the jets have to be inserted into a training program with pilots in a curriculum to also prepare them for the initial operational our government customers with the joint program offices, with the services, with the systems commands who bring the engineering talent call is subject matter expertise forward.
It is a large program. It does have complexity. But in that size and complexity, call is There's a lot of strength and experience and judgment that is all dedicated to getting this program right. We're very gratified for that level of cooperation. Conference call.
So there are a lot of moving parts. Sometimes they don't all move in exactly the way we want them to. But generally, that movement is forward. We're showing call. Progress and we're going to continue to apply all the resources we have to make this a successful program.
Thank you. And our next question comes from the line of Jason Gerske from Citi.
Hey, good afternoon, everyone. Hi, Jason. Just a quick bookkeeping question. All things equal, how will pension expense call is open. And then maybe just a clarification on some things that you've chatted about in the past, which is
conference call. So kind of current course and speed, with the same discount rate and same long term asset return rate, 8.5 conference call. And 5.5 percent for the discount rate. I would expect that the FASCAS call is Adjustment from some $925,000,000 headwind in 2011 will drop very dramatically conference call. In 2012, being maybe think of it as maybe a couple of $100,000,000 conference call Or a little more maybe of headwind in 2012.
And then I would think it would flip call is In 2013, so we've actually got a bit of a tailwind at that time frame. Now all this is dependent upon conference And I've tried to predict when this is going to happen. I've been unsuccessful in those predictions in the past. But all this is predicated on when CAS harmonization occurs and its impact on the CAS recovery there. We are assuming when I say that, that, that will occur in 2012.
And as far as full rate production, I'm going to ask Bob to give some comments on that.
Yes. Jason, it's been a while since we talked about moving to full rate production because our focus conference call. There's been so much on the system design development phase and low rate initial production. But at the last time we had these discussions, we were looking at ramping To the neighborhood of about 200 airplanes a year, we were talking in terms of about 1 a day. I don't see any reason Assuming that we resolve the issues that are before us now and continue to execute and demand stays strong for the program, which we call.
That's probably the range of the neighborhood that we'll be looking toward. Relative to timing, call We really need to have the jets proceed through initial operational capability before we get to those levels of full rate Production, that time line now is in the neighborhood of 2016 or so. The services are examining the dates that Would be appropriate for their initial operational capability. But so I think the short answer is in the 200 a year range We don't go to full rate until after IOC and that date today is about 2016.
Call is open.
Thank you. And our next question comes from the line of Ron Epstein of Bank of America.
Yes. Good afternoon. Hi, Ron. Maybe changing the subject a little bit away from F-thirty 5. On Littoral Combat Ship.
You won the recent award domestically. Is there an export market for the vehicle? And can you again conference call. Well, we think there is an export market for the Littoral Combat Ship. The government of Saudi Arabia call is open.
I'd say inquiries as to the suitability of the Littoral Combat Ship. I think call is open. International customers want to get some more information about the vessel and I think they were honestly looking to see What the award would actually look like in its final manifestation. So and that award just At the end of December. The Littoral Combat Ship is the size and class of vessel that we think will call will be of considerable interest to many navies because most navies don't really have a very substantial tonnage in their ships.
And of course, the The modular configuration of the ship, the ability to reconfigure it in near real time for with different mission modules for For different tasks, I think, will have great appeal. And then as we look to the future, we'll look at evolving the ship's capability, for example, for call is And that allows us to reconfigure it and customize it in various ways. So I do think it will have some
Thank you. And our next question comes from the line of Myles Walton of Deutsche Bank.
Thanks. First, just a clarification, Bruce. On the FASCAS for 12, you were saying it's a 200 call. $1,000,000 FASCAS adjustment, not a $200,000,000 headwind to the $925,000,000 is that right?
Yes. Let me be more precise than I obviously was when I conference call. $925,000,000 headwind in 2011 and that's dropping dramatically to about 2 call. $200 ish million headwind not additive to the $925,000,000 in 2012. Okay.
I think you can stop the cardiac arrest out there conference call may have occurred. The real question I have is on maybe for Bob on the conference call. The Stouffville production adjustment relative to the rates, relatively anticipated given the testing and the rebaselining there. But I'm How you think, how we should think about the Air Force's decision to cut it by about 20%. And I mean is It seems like the testing was going well.
It seems like the Air Force's rhetoric is strong. Just curious how we should interpret this? Yes.
Just for because I am sensitive to some of these discussions, I don't want to overly clarify your comment. The Air Force didn't cut the volume of their buy. They rescheduled the rate at which they'll acquire the CTOLL. So the totals still look the Same. I have great empathy for the Secretary of Defense and the leadership in the Pentagon who are looking are security challenges they face.
They're going to be compelled to do more without having more resources in given fiscal years. I think they're simply trying to make the right decisions and balance their load. I'm absolutely confident that As we continue to make progress on the Joint Strike Fighter, including the conventional takeoff and landing version, when we demonstrate that the airplane conference call is being recorded. We're conference call is being recorded.
Thank you for training.
The Air Force strongly desires to begin to phase the Joint Strike Fighter into the inventory. I'm absolutely confident of that. I think I have the same confidence for the United States Navy and I certainly have it with the United States Marine Corps. As I the Service Chief in taking ownership and accountability for getting marine aviation, the F-thirty five He measures performance on a weekly basis. I couldn't ask for a higher level of partnership.
Call And it's circumstances like that when we focus together with the same set of metrics with great transparency on What we've accomplished and what we have yet to accomplish, the progress will be borne. And so I'm really confident that we're going to be able to meet our milestones. And as we
Can you give us an update on what your percentage of international sales were in 2010? And Bob highlight for us the major campaigns you see in 2011 and are you seeing international demand rising or is it flat visavislast year or are you seeing call is a tail off.
Yes. Heidi, I'll answer the international sales question. We ended the year right about 15% sales going to international customers. And that's in line with what at least I've talked about on previous calls about trying to grow call. I know that amount over the next 2 or 3 years up to 20%.
I think we're on a good path to do that. And I would think we will see that conference call
is open. The transition
from where we are today about 15% to 20% ratably over the next couple of years.
And Heidi, when we think of conference call is open. We think there will be greater opportunities there for sure. I mentioned in the remarks when the call opened
conference call
is Some changes in the global security landscape that I think some people may have reacted to which surprised, but Not everyone. It's very clear that technologies continue to proliferate, countries and individuals conference call continues to make investments. And sadly, the threats that people face have not diminished in their call Frankly, the reputation that we enjoy globally, say, in our aeronautics portfolio with airplanes like the F-sixteen and the C-130J, conference call. There's a very high level of interest in securing these kinds of assets. And I think individuals recognize as we increase the Patriot system, we have the THAAD system, we have the Meead system, we have the Aegis system, including Aegis Ashore.
These are Very robust, very proven technologies. Individuals don't take a great deal of programmatic risk and I think they get a great deal of protection.
Question comes from the line of Sam Pearlstein of Wells Fargo.
Good afternoon. I guess conference call. Just one of the questions, which just I think was what where Heidi might have been going is, I don't know, are there specific campaigns you can highlight That we might be watching as we go through the course of 2011 and you had a pretty strong 4th quarter Do you think you'll be able to get a book to bill up at one time as we look through 2011?
Yes. Let me call Sam, if I could, this is Bruce. Let me talk about the phasing of backlog. Last year, we had, I'll say, conference call. The uneven distribution of orders across the 4th quarters, we actually dropped down to what $71,000,000,000 of backlog in the 3rd quarter before we had the 20,000,000,000 call is I think what we'll see in 2011 is a much more even spread.
I mean, in fact, as we're looking here, the first quarter call Actually ends up a little bit even higher than where we ended the year. And then we may drop down a bit. 3rd quarter always seems to be our call is a good point for the year. And I still think we'll end up the year either equal to or slightly higher than we ended the year conference call is open. And then I'll maybe start the bidding with the international opportunities and say probably 1st and foremost, the C-one hundred and thirty sale of to the UAE is likely going to be a quarter, maybe early Q2 event, that will be, I think about as a dozen or so C-130s.
We're still call is being recorded. We're hopeful that we can have sometime this year some interest from the government of Iraq on an F-sixteen buy. And obviously, the I'll take it on, obviously, but one of the bigger ones we're counting on later in the year is call is
The UAE
THAAD program. And I'll go over to Bob and see if you have anything else, Bob.
No. Sam, I would only reinforce those are the active campaigns, probably the UAE THAAD is the most substantial with regard to missile defense.
Thank you. And our next question comes from the line of Peter Arment of Bleacher and Company.
Yes. Good afternoon, Bob and Bruce.
Hi, Peter.
Bob, Could you give us an update on Lockheed Martin's portfolio shaping? You came into 20 10 and you made some 2 significant And announcements and it sounds like PEE is going to
close very soon or at
some point here in Q1. And I know when you're rolling up your 2011 plan, you take a very hard conference call.
Yes, you're very welcome. Peter, we have taken a very careful look. Recorded. We like the portfolio that we have very much. As I mentioned, we're always looking to acquisitions, but they really have to pass some pretty stringent Adding creativity, innovation capability that we don't have today, the right size, the right value, call is We look at a lot of prospective acquisitions.
We don't pursue a lot of prospective acquisitions and we're going to continue to be call is on assuring we run a very tight shop here, cost reduction, and there is no area or no element of our call. Cost structure that we will fail to look at to see if we can get efficiency improvements in productivity. Recently, we announced call With respect to the portfolio internally, I will say we very much like the portfolio that we have in an environment where global security demands are increasing conference call is being recorded in areas where we have demonstrated expertise, where affordability matters and we know economically there are increasingly scarce
is open.
It is why we are so focused on assuring we have sufficient volume and program continuity to allow us to continue To drive down learning curves to give customer real value. So I would tell you today, I really like where our portfolio sits. Karen, this is Jerry. I know we're call is Coming up on the hour here, but if we've got some people in the queue, we can do this a little bit longer. If people want to try and ask their questions, I'd like to try I'll get as many as we could, if that's all right.
Certainly. Our next question comes from the line of Troy Larr of Stifel Nicolaus.
Thanks. Bob, I'm wondering If you can talk a little bit about some of the you guys targeting adjacent markets in the past, you've talked about that, but you really didn't address it in your call is going to be a strong quarter for strategy discussion going forward. Is there less of a focus on that? Or does that just kind of fall
into the acquisitions category? No. We like well, I thought call is The Littoral Combat Ship was representative of our interest and successful pursuit of opportunities in the And frankly, I don't talk about Littoral Combat Ship as adjacencies anymore because it's not it's a core product line for our conference call is maturing with some differential, a little slower than we anticipated. We think there are reasons for that deceleration. It doesn't mean our interest has diminished, but We're not going to lower our standards and pursue initiatives in areas where we don't call is open.
We believe we can be successful and I mean completely successful in delivering value to customers, running an efficient and good operation that we're proud of, that's good for our employees call is
call is
We believe we have a sufficiently strong and well integrated core business portfolio here so as to continue to generate profitable growth from that core. We want to focus on generating conference call is being recorded to make wise investment decisions. We invest considerably in innovative technologies inside our company, conference call is being recorded in the conference call is open. I think of that as enriching the pipeline for future innovation and future If we can't find acquisitions that make a lot of sense or investment areas in these adjacent or call is Horizon markets, where we have high degrees of confidence that we're going to return good value to investors. Call is We'll continue to pursue our share buyback program, our dividend program.
We feel we have enough degrees of freedom to continue to generate economic value conference call is While we pursue superior position in the marketplaces. So we're going to build on the core portfolio that we have.
Call is open. Thank you. And our next question comes from the line of Howard Rubal of Jefferies.
Thank you. I have a cash flow question that's sort of 2 parts. Bob, the first part of it has to do with sort call Tell on how you got to the $4,000,000,000 in operating cash flow. I realize that D and A is probably 700 call And that's probably $2,500,000,000 And so there's obviously there's some working capital or some other items making a difference there?
Well, the terms and Conditions Howard tend to orient around performance based payments or progress payments on U. S. Government contracts. There's call is open. So our cash flow projections include The balance that we're experiencing, our projection of where that balance might go on those 2 cash recovery mechanisms, I will tell you that call.
Great credit to Bruce and the finance team. We spend a lot of time and focus and attention on refining the cash collection conference call is being recorded.
Our next
question comes from the line of John conditions, it's important for us to work contract descriptions where customers know they're receiving value and can therefore release the cash with conference call is open. And I think our cash generation capacity is reflective of the system that's working pretty well. I hope that answers the feel you We wanted to get for the mechanics of cash flow and I'll turn the balance over to Bruce.
Yes. Howard back to your question, how we're getting to the 4,000,000,000 call I'd point to maybe 2 things that I see improvements on going forward. Some of which happened in 2010 as I said, I think
conference call. Some are going to
carry over into 2011. One is, as we start to see international contracts back to Heidi's question on the level of international business we're conference call is open. That will grow over the next few years including 2011. And with that international business, I think we'll see some customer conference call is coming to fruition. And secondly, the thing I'd point to is we've done I think a very, very nice job The IS and GS business area has had a tremendous focus on improving that.
That's where a lot of call Just to be blunt, most of our other business areas tend to get most of their cash collections from a single payment office or a few conference call. Within the federal government, oftentimes out of the payment offices in Ohio, IS and GS conference call is Literally multitudes of payment offices because of their multitude of customers. And I think we've done a very good job of putting that conference call is kind of focused on collecting those across that mixture of payment offices such that we're getting better conference call is Our returns and quicker payments of our cash than we previously received. And I think that's going to continue into 2011. So I'd leave it as those two
Bart Shapiro of AXIS 342.
Yes, good afternoon.
Hi, Bart.
Two part question. One, I wanted to know whatever conference call. What happened to the $600,000,000 profit pool for the STD program that was going to get reset to different milestones? And then the second conference is why in the LRIP IV contract wasn't there a contingency put in there in
call. Well, let me talk to you first, George, about the $614,000,000 We still have not finalized
the discussion on any
call is being recorded. Award fee pool for work done under the system design and development contract. Let me also add that when we contemplate call is The prospective addition of $4,600,000,000 in the over target baseline that Secretary Gates mentioned conference call. And I'd say perspective because we just haven't worked that into the contract yet. In so far as that $4,600,000,000 relates to the extension of The extension of effort already under contract, it won't carry any incremental fee with it.
The $614,000,000 was an award fee conference call will be pulled beyond that $4,600,000,000 It has not been allocated on milestones yet. I think that conversation conference call will begin shortly as we fold in the revised program plan, establish milestones and do this in a very discrete way. Conversations will conclude on the appropriate size of that pool and the allocation of that pool conference call is open. I can't answer you with greater detail because we don't have greater detail. As soon as we get it, we will describe it to you.
On the call is private to you. On the second part of your question was on Lot 4 having a condition About quantities in Lot 5, we don't believe the performance environment on Lot 4 is going to be adversely impacted by the quantity on Lot 5 and don't need a
conference call. The growth that we're going to see on the STD contract, the $4,600,000,000 that Bob talked call is being recorded. And the shortfall from the production contracts that will help to
question for today comes from the line of Pete Skibitski of SunTrust.
Hi, guys. Hi, Pete. Yes, Bruce, I just
want follow-up with you on the earlier question on out year pension projections. Given we may have a 1.5 call. Can you give us your out year pension projections under the scenario where cash harmonization is Maybe delayed a year or 2?
In terms of fast cash, Pete, I'm not sure.
Correct.
Again, we've talked about $925,000,000 I should Myles Walton answer this question probably. He's probably got the numbers as well as I do at this point. But with conference call. The current discount rate and the current asset return, again, we think the FASCAS in 'twelve will go down to About a couple of $100,000,000 as opposed to the $925,000,000
Right. That's under cash Harmonization actually happening, correct?
Your question is will cash harmonization happen?
Yes. What would be the net expense of As harmonization doesn't happen or if it
flies out a year or 2. I think the impact in 2011 as I recall was about call. Couple of $100,000,000 if it were to push out from 2012. I'd say that's one I Hey, Martin. We'll look to have coverage for 2012.
Well, Karen, we've gone a little long on the call. Let me thank everybody call is open. We'll focus on execution here and we look forward to keeping you well informed as to the progress that we're making