Good day, and welcome everyone to Lockheed Martin's First Quarter 20 10 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 Kerscher, Vice President of Investor Relations. Please go ahead, sir.
Thank you, Sean, and good morning, everyone. I'd like to welcome you
to our Q1 2010 earnings conference call. Joining me today on the call are Bob Stephens, our Chairman and Chief Executive and Bruce Tanner, our Executive Vice President and Chief Financial Officer. I'd like to remind everyone that statements made in today's call that are not historical 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. 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, Jerry. Good morning, everyone. Thanks for joining the call today. 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 a defense budget for 2011 at $549,000,000,000 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 5 year horizon, maintains an overall 3% growth projection for at DoD. And then finally, the Quadrennial Defense Review, that more strategically oriented document and 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-thirty five Joint Strike Fighter for the fleet replacement aircraft, our THAAD, PAC-three 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 missions that communication supports and our Littoral Combat Ship for advanced surface naval combatants.
Clearly, our customers continue to address the dual demands 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 and focused 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 Q1 that included 20 new F-sixteen aircraft for Egypt, 2 new C-130J airlifters for Tunisia, Sniper and lantern targeting systems for Turkey and a 10 year logistics support contract for New Zealand's Defense Forces. Last year, we increased our goal for international revenues such that we 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 and 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 3 areas that warrant greater discussion. The F-thirty 5 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 non McCurdy recertification process align. And included a variety of estimates of risk factors that could affect the program.
The restructuring was initiated to reduce the overall risk of the program in order to facilitate the non McCurdy recertification. When we look at the Restructuring segment, you'd see a 13 month extension to the system design and phase of the program while adding $2,800,000,000 in funding, expanding the resources available United States Navy carrier version of the aircraft to improve our overall ability to turnaround test flights. You'll see the addition of an additional low rate initial production contract that we refer to as LRIP 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. The non risk security recertification is led by the Department of Defense, specifically headed by Doctor.
Ash Carter, the Under Secretary of Defense for Acquisition Technology and Logistics, and we play a supporting role in that process. I think that Mechanism has been kicked off. There are 5 evaluation criteria that have to be satisfied and we believe that Process will successfully conclude probably in the June timeframe. On the F-thirty 5, we are focused on execution And know we need to improve our performance. And a key objective for us will be to build momentum in the program.
That's momentum as we work To finalize the tasks in the development phase of the program, momentum as we efficiently accelerate the production ramp up of the program, and importantly to build on the accomplishments that are being achieved in the test program. In that test program, 2 flight tests were particularly meaningful to us. The achievement of the short takeoff and vertical landing of the Stovall aircraft, where we were able to measure the behavioral characteristics of the airplane, Power lift, control, stability, all of which were excellent and I think all that observed the test were very pleased with those results. And the first flight of the mission systems equipped F-thirty 5, which happened on April 7, which demonstrated an avionics capability that no other fighters So we're going to continue to focus additional resources on execution and we'll continue to strengthen the team on the F-thirty 5. In Aeronautics, we're also building volume on the C-one hundred and thirty J production program.
We've commented to you over time our desire to And this phase of the program building on our 16 aircraft delivered last year to 26 airplanes delivered this year. I think we've noted that those deliveries are likely to be phased toward the second half of the year, but overall demand for the airplane looks very solid and the performance of the aircraft has been really superior. Also in aeronautics, we've been modernizing the C5 Galaxy Craft, this is the very heavy lift segment of our U. S. Lift component and putting new engines and essentially new cockpits and new avionics in the aircraft.
This program has successfully passed a very rigorous Operational test and evaluation set of criteria and has now been certified as effective and mission capable. We've delivered 3 of these airplanes to the United States Air Force in the current plans call for us to deliver 52 fully modernized C-5s by 2016. It's my sense that if we continue to show real value here, real excellence in execution and performance And if the demands on U. S. Airlift continue, there may be opportunities to talk about expanding that number in the future.
But here again, we're very much focused on executing the current program of record. Marilyn Houston and our electronics team continue excellent operational performance across the portfolio, And I think the Littoral Combat Ship deserves special mention. Our first Littoral Combat Ship, the USS Freedom, was deployed by the Navy this quarter and it was deployed 2 years ahead of schedule. And I think the Navy is very proud of that accomplishment and I can certainly tell you that We and our LCS team are very proud of our ability to shorten cycle times, which has been a key objective of our company and in alignment with the objectives of our customers. In operations, the ships already intercepted 4 drug smuggling ships.
I think the crew of the Freedom is demonstrating superior performance in their prosecution of important missions. Our second ship, the Fort Worth, is more than 30% complete and is on its planned schedule and cost profiles. We've submitted our bid for the next 10 ship buy that would result if we were Successful in prevailing in the competition to an initial award of 2 ships and options for 8 further ships And the Navy's decision as to selecting the winning design for the overall 55 ship fleet will probably be undertaken in the Q3. So we'll keep you posted and look forward to that. I don't want to play through the demands we're focusing on competing for and winning the instant contract with the United States Navy, but I would note one of our objectives has been to try Try to look to aggregate demand for systems that have solid baselines that are flexible and extensible for a variety of customers and this includes bringing in international customers in the baseline programs because It's really quite manifest.
It's very good for U. S. Customers because it lowers the cost of every ship the U. S. Buys.
It's very good for the international customers because it has the same Cost advantage and it's good for us because we have a broader more stable program that lets us integrate the global supply chain more effectively, get higher quality and really drive value for everyone. And so I am pleased that given the nature of the design of our ship, Its performance in an operational environment, the steel semi planning monohull design, all of which appeal strongly to a variety of international customers. So as you might expect, we're very focused on assuring we present good value to the United States Navy in our bid. Moving to Information Systems and Global Services, Linda Goodin and the IS and GS team have also achieved a key milestone this quarter with the commencement of their support of the 2010 Census program. And I know you've all heard a lot about the Census, the role we play through Our DRIS program, it's the Decennial Response Integration System, is to conclude form processing and data capture That standardizes the response from potentially more than 300,000,000 American citizens.
The U. S. Census effort, as you know, is crucial to assuring the right resource allocation across the country. It's required by the Constitution, and We feel confident that we'll be in a position to enable the administration to complete and review the census by December. In my judgment, our work on the census is a good example of the broad range of information technology Programs and support and services that IS and GS provides to a wide variety of U.
S. Government agencies. And finally, in our Space Systems Group under Joanne Maguire. We continue to make significant progress on the advanced extremely high frequency satellite system. This is a next generation communication system that's an essential element in secure military communications and our first spacecraft It's moving very close to delivery now in preparation for a launch in mid-twenty 10.
These new secure communication satellites The Milstar series of satellites that many of you are familiar with. To give you a sense of performance and how performance adds to value because I think we spend a lot of I'm talking about capabilities that we're delivering. A single advanced DHF satellite provides more communications capacity and the entire Millstar constellation that's flying today. So while we face challenges from time to time on cost and schedule, We do have meaningful accomplishments in adding to overall value. The capability of systems like the measurable capability improvement on advanced DHF, Many of our satellites last considerably longer than their design life, which we call mean mission duration, so they last longer that provides value.
And as I mentioned in the case of LCS, we're able to shorten the cycle time and move resources into the operational theater sooner, which is of genuine value to customers. On Advanced DHF, we're under contract for 3 satellites, but we envision a possible Expansion of this constellation to include 6 satellites as DoD now looks to assure the appropriate priorities for secure communications in space. Before I leave Space Systems, we've had much discussion with you and others about human spaceflight And the constellation program for NASA, particularly our component of the constellation program, the Orion Crew Exploration Vehicle. Last Thursday, President Obama, when visiting the Cape in Florida, outlined a revision for the program calling for a modified version of the Orion capsule To act as an emergency escape vehicle to serve the International Space Station. In the earlier Plan that was described in February with the release of the President's budget submission to Congress.
The Orion program was to be eliminated. This new capsule, we believe, would likely be launched within the next few years And we'd certainly leverage and utilize the significant technology advances that our team has achieved since the original Orion contract I think these operational highlights illustrate our corporate wide focus on program execution, on continuously improving quality and importantly on focusing on affordability, which our customers need. As I look forward, I remain optimistic about our future because our product portfolio remains well supported based on the recent budget submissions for 2011, based on the revised priorities that have been outlined in the Quadrennial Defense And based on the changing security environment globally and quality of our portfolio is viewed through the eyes of our international customers where I think there will be more international opportunities. We also maintain our interest in the potential that may reside in adjacent and horizon markets As we explore opportunities in cybersecurity, logistics and sustainment, particularly the logistics and sustainment activities that are improved through the application of information technology resources, prospects for healthcare information technology or energy management for Renewable Power Generation. So we're carefully examining the quality and changes in those market segments.
And I would be very much remiss if I didn't comment on the quality of our workforce, because I think Our team has had an outstanding quarter and that is very much due to the dedication and professionalism of the women and men who work in our company. They have Not allowed themselves to be distracted by the increasing velocity of events or the increasing tempo of activities that we see around the globe. They're very much focused on our customers. They're very much focused on achieving excellence in what they do, and I'm very proud to have the opportunity to represent them and work with So, let me turn to Bruce and he'll give you some additional detail on the quarter and then we'll open it up for your questions.
Thanks, Mylan. To help with our discussions today, we've included some charts on our website, and I would encourage you to open the charts and follow along as I make my comments. So starting off with the Q1 sales summary on Chart 3. Overall, the corporation grew 3% in the quarter. That was actually slightly higher than what I mentioned during the January call.
Aeronautics had the strongest growth at 5% over last year's number is driven by the F-thirty five program, which grew over 25% when compared to 2,009. IS NGS grew 4% with most of that coming from the civil and defense lines of business. And comparisons with the 2,009 performance were hurt somewhat because Sales for the TMOS and remember TMOS is the ground segment portion of the TSAT program and the MTA contracts were included in Q1 2019 results that were terminated in the Q2 of last year. Electronic Systems was flat when compared to last year. This was actually also somewhat higher than expected given that the Presidential helicopter were in our 2,009 results And we had growth in Missiles and Fire Control Missiles Fire Control and Training, excuse me, that was able to offset that reduction.
Space System was also flat versus in 2019 and there we had higher activity on the Orion program, which was offset by lower activity in our strategic and defensive missiles line of business. Turning now to Chart 4 and our cash flow. We had record cash generation over $1,600,000,000 in the Q1 and that did represent the highest Quarterly cash from operations in our history. Due to the strong generation of cash in the quarter, we increased our full year cash from operations guidance by $100,000,000 to $3,300,000,000 If you now look at Chart 5 for a discussion of our net debt and debt maturities. As a result of our strong cash generated in the quarter, our net debt is around $1,500,000,000 That combined with no debt maturities until 20 team gives us great flexibility and a strong capital position for a number of years.
On the next chart, Chart 6, we'll discuss our share repurchase activity. You can see we repurchased 6,500,000 shares worth over $500,000,000 in the quarter. We're on track or ahead of our goal to buy back at Leased $1,000,000,000 of shares this year and these actions reduced shares outstanding to 368,500,000, the lowest level in our history. And at quarter's end, we also had 22,000,000 shares remaining in our share repurchase authorization. Next, I'd like to highlight our earnings per share performance on Chart 7, like many other companies this quarter, we had an unusual charge as a result of the recently enacted legislation affecting Medicare Part D, which we disclosed in an 8 ks filing last month.
That resulted in a $0.25 reduction to our EPS. And if you adjusted our GAAP EPS for this And for the FAS CAS impact, the resulting adjusted EPS would be $1.89 per share. Finally, if you turn to Chart 8, we will reconcile the revised 2010 EPS guidance with our January numbers. Starting with our January guidance of $7.15 to $7.35 per share, the effect of the Medicare Part D charge I talked about earlier reduced the guidance by $0.25 We were able to offset a portion of that impact through an improved outlook in our investment income and other corporate accounts And this $0.10 improvement results in a net $0.15 reduction in our new guidance of $7 to $7.20 per share. So overall, a solid quarter and in line with our expectations.
As we look forward to the rest of the year, We expect the 2nd quarter sales growth over 2,009 to be similar to what we experienced in the Q1 and overall the second For the full year, we should have higher growth in the first half with the Q3 in particular having higher growth than the Q4. We expect margins to remain in the mid to upper 10% range in both the second and third quarters and then move higher in the 4th quarter as we discussed on the last call. We expect cash from operations will be lower in the next three quarters compared with 1st quarter as we make $1,400,000,000 in discretionary Contributions to our pension trust, in particular the second quarter will likely be about $1,000,000,000 lower than the first quarter As we had a $325,000,000 tax refund in the Q1, a similarly sized tax payment in the Q2 and our initial pension contribution is also beginning in the Q2. With that, I think we're ready for your questions.
Our first question comes from Robert Spingarn with Credit Suisse.
Excellent. A question for Bruce and then a quick one for Bob, if I may. Bruce, IS and GS has been viewed by some as a proxy for government services as a whole and we've had some pressure on margins there over time. You were just above 8% this quarter, but you're guiding to about 8.4% for the year. If you could talk about what needs to happen to get there?
And then separately, Bob, if you could simply comment on the possible Laws of F 'twenty two sustainment and what that might mean? Sure. Yes, I'll start off, Rob. You're right, IS and GS, we did 8.1% March and the quarter. And I tried to tee up on the last call, the January call, if you recall that we thought TiAs and GS would have probably its lowest quarter margin wise in the Q1 and that's reflected more than anything else because of the timing of award fees.
I always like to remind people that IS and GS has the largest percentage of its operating profit that it receives in the form of award fees. In this particular year, 2010 As a greater abundance of that award fee pool in the second half of the year, most specifically in the Q4 of this year, that's just The way the contracts kind of fell out this year. So our expectation going forward, Rob, is probably the next three quarters are going to be Somewhat similar to Q1, maybe a little bit higher than that, but then we would expect some movement higher than that in the Q4 as we recognize the receipt Some of those are word dates.
Rob, let me pick up the F-twenty two sustainable. We're under contract with our customer now through 2012 and we're under discussions as to how we can best continue to serve customer interests beyond 2012. And without certainly any arrogance intended in my comment, we obviously know a great deal about the F-twenty two. We have specialized skills and knowledge that we think would be of value. In other words, to try to replicate Some of these capabilities would have a certain set of consequences with it.
So I think we're in a very good position to Continue the sustainment of the F-twenty 2, but we're under contract through 2012 and we're having very constructive discussions with customers now about how to extend that sustainment in a way that and is valuable to them.
Our next question comes from David Strauss with UBS.
Good morning. Good morning. Bob, there's been a lot of discussion in the press about this $614,000,000 in award fees on F-thirty five. Could you just comment on your ability to actually capture a portion of those award fees going forward? And What does your guidance for margin improvement on the F-thirty five assume there?
And then just a quick one for Bruce. Bruce, could you give us an update on CAS harmonization.
Yes, David, I'll be happy to and I'll ask Bruce to go ahead and comment on the guidance segment of your question. But so If you look at the system design and development contract, the award fee remaining is $614,000,000 What we are doing now with our customers as we work on what I've described as the rebaselining of the program is to reorient the scope of work that needs To be done, to highlight those critically important milestones that demonstrate tangible accomplishment, that is and to be able to put our resources and talent against those expectations such that we have very measurable results at a milestone point. We are then working with customers to allocate the award fee potential that's embedded in that $614,000,000 to each of those milestones to reflect their relative value. The degree to which we are able to earn that $614,000,000 It's absolutely tied to the degree we are able to execute the requirements that those milestones are associated with. If we are perfect or near perfect in our performance, then we ought to be able to recover all or near all Of that $614,000,000 if we aren't, we'll keep you posted about how much of that we are able to recover.
But I'm very pleased with the quality and the character of the discussions that orient our ability to earn award fee as a function of our demonstrated performance against milestones. In the vernacular, this is described as more Objective measures of performance rather than subjective measures, and I think we all like the objectivity of knowing What we have to do to earn a fee in the SDD program?
David, I'll try to address your the margin improvement question. I hope you saw that excuse me, in our press release today, we actually did reflect a step up on our early production Lots on the F-thirty five program. I'd say we're progressing about as we expected to on those early production lots and we retired risks On each of the first three lots that allowed us to actually increase the booking rates on each of those contracts, I I think your question was probably more related to the SDD program, the development program. And there we still expect that we're going to have some ability to have some margin in the latter part of this year and that's more associated with the milestones remaining this year quite frankly at this point than The negotiation of the remaining $614,000,000 of award fee, that's something that will affect us more in later years than this year. So I think your last question, David, concerned cash harmonization, I think we're frankly kind of from my perspective, we're almost getting late to need In that regard, and I think the latest that we're hearing and it's a little fuzzy at this point, but that the harmonization might in fact Actually slip out to 2012.
I'm not speaking for anyone when I say that, but we're approaching May here and I would have thought we would have had this done by now, but we're There you go.
Our next question comes from Sam Pearlstein with Wells Fargo Securities.
Good morning. Since everybody else is doing 2, I'll throw 2 in as well. Bruce, you had talked about the C-one hundred and thirty J being 25% to 30% of your yearly deliveries are going to be in the first half. If I look at what you did in the Q1, does that mean only 1 or 2 In the Q2, so I'm just wondering what that means for Aerospace in Q2? And then secondly, you had talked about the ULA equity earnings Having a huge Q4 in terms of timing, seems like the equity earnings were heavier in the Q1.
Is that just a timing issue?
Yes. Thanks for the question, Sam. C-one hundred and thirty, I did tee up the fact that we thought the deliveries would probably be on a scale of about 25% to 30% in the first half of the year and 75% or So in the second half of the year, that's still what we see happening. We did have 3 deliveries in the Q1. You mentioned one delivery in the 2nd quarter.
We'd actually think it'd be more somewhere in the 4 ish range probably with the remaining deliveries Probably 19 or so getting up to the 26 we expect to happen in the year occurring over the second half of the year with a majority of those in the 4th Your second question dealt with ULA Equity Earnings and talked about the spike that I mentioned last The spike I'm talking about is actually associated not with ULA, it's actually associated with USA, the United Space Alliance. That think of that as The entity that provides shuttle operations support and the reason for the increase in the 4th quarter is because as We have the planned wind down of the shuttle program taking place in the Q4. We think there are some risks that will be retired at that point that will allow us to make A pretty good increase in the bookings through that joint venture that will flow into our reported results and you will see that there will be a noticeable improvement in our space systems company in its 4th quarter performance versus the other 3 quarters. ULA was a little higher in the Q1 of this year, but expecting it to Basically, stay similar to that level for the rest of the year, nothing else than a timing issue in the Q1 there.
Our next question comes from George Shapiro with Axis 342.
Yes, Bruce, you commented that the revenues in Electronics, which seem to me to be a little better than what you So, I thought and space a little bit. So, why not raise the revenue forecast for the year or were these just timing issues?
Jordan, I think especially in Electronic Systems, we did I made in my opening remarks, I made the comment that we were Pleased, I'll say, and maybe a little bit surprised at the results. I personally have kind of thought we'd be down a little bit in the year over year comparison in the Q1 simply because of the Presidential Helicopters activity last quarter. We did have some good volume in the Q1. I I think we're still sorting through that, George, whether that's timing or whether that will carry through for the year. I actually feel pretty good about The year forecast in Electronic Systems, I wouldn't expect it to be too much higher on the revenue side.
Even if this does translate into a little bit of increase, I wouldn't expect it to be dramatic by any stretch. Space, we Space was basically tracking right in line with our expectations and I don't see a change in anything we've talked about from a guidance perspective there either.
Our next question comes from Douglas Hardin with Sanford Bernstein.
Good morning. Good morning. Can you comment some on the long term expectations for F-thirty Five margins. So what I'm getting at is if you're if you can contrast it with other aircraft programs when they reach maturity, How would you expect the F-thirty 5 to perform from a margin standpoint and particularly in light of discussions on potentially some lower volumes to the Air Force and some pressure from foreign buyers on costs. Could you comment on where you think the Where do you think this ultimately will head and what could change it?
Yes, I'd be happy to, Doug. I think part of what frames my view personally Is taking a quick look back at airplane programs, but I don't want to say Because that sounds like too long a time horizon, but I'm old enough now that I've done this a few times. Every airplane program I've ever worked on and every airplane program that Reviewed has a similar set of circumstances that they face. We go through the development program. There are challenges in development.
I assure you, we do not take these challenges lightly. In fact, I would tell you, we respect the degree of in designing and developing and fielding new complex systems as much as anybody on this planet. I don't see anything at all extraordinarily More challenging on the F-thirty five that should adversely affect our ability to generate profitability and earn out margins here. In fact, there are several features of this program that I rather like. The more volume we have, the more stability we have and that's why we're working so closely with the department now to get a restructured program that increases the probability of over the long run because that increased probability of success increases our probability of meeting all our expectations, including margin Expectations.
Having the international content and I would say even with all the Varying descriptions about the program that certainly there is no shortage of available today. International interest remains Strong with 8 partner countries and we have about 8 countries who are not in the partnership basis who are making inquiries. So the FMS potential looks healthy as would the direct foreign sales potential. So our goal and we addressed it a little bit on the SDD A segment of that $614,000,000 be efficient in our ramp up of production, where we ought to be able to build upon the risk Reduction in the program to improve our margin performance there, which I think is well established in the overall behavior program And then look to the international marketplace. The other feature of the F-thirty five that I think is very interesting relative to Profitability is the overall sustainment opportunity in this program because the architecture is quite different.
Looking to So I think there's every bit the earning opportunity on the F-thirty 5 as we've seen on any of our programs.
Our next question comes from Heidi Wood with Morgan Stanley.
Yes. A 2 part question, I guess, for Bob and Bruce. You commented on the flight test on some of the successes, but You didn't talk about the number of flight tests you achieved in the quarter. How many have you done year to date and how is that versus planned?
Yes. Heidi, We're happy to talk about any detail of the program at any time because that's part of the building momentum process. And in that building momentum, I think there are going to be some periods where we do better than planned and some periods where we don't do as well as planned, but my Goal here is to look at the long term trend and the opportunities and make sure we're responding properly. I'll tell you that If I look at January, February, March April year to date, we're a little bit below our cumulative plan. We were Good in January and let me say February March and I think we completed the quarter a couple of tests ahead of The 4 tests over the plan of 29, so we were at 33.
April to date, we're delivering more assets into the flight test program, so we expected a more vigorous last In every flight test program and we're no different here, we face the traditional Things of planned maintenance actions, which really affects the phasing of the 29 flights that we wanted To accomplish and then unplanned maintenance actions, which essentially means you take the airplane out to the flight line and an actuator doesn't work or you get a because these are instrumented airplanes, you get a reading on an instrument that is off nominal. We don't fly the airplane when we have that occasion because We want to understand the whole purpose of the test program is to understand the characterization of the airplane or weather delays, which we've seen, I think, a Fair number of weather issues. We are going to fly this airplane irrespective of all of those challenges. So I'd tell you the arc of the test program is good to me. We're accelerating through about 400 Pests that we planned for the year of 2010,
and we'll keep you posted at
each step along the way because It is certainly important that we demonstrate the maturity of the test program. I would tell you what Action to did you fly at 2 o'clock today and the consequences of that, which I think maybe amplify apprehension that isn't warranted. But on the other hand, it is absolutely necessary and for us to fly more sorties with the 12 flyers that we have to deliver them into the flight test program and demonstrate the maturity of the airplane and we're doing and we're not going to do that in a way that attempts to skirt any test at all. And our behavior has very consistently been to put a priority on building a very high quality jet that meets all the key performance parameters and then go test that, not to thrift on any of the performance to try to
Our next question comes from Rob Stallard with Macquarie.
A quick question for Bob. Bruce highlighted the strong cash flow in the quarter and your low leverage. Do you think this is an opportunity to have another look again at Your dividend payout and whether Lockheed should be paying a high yield?
Well, we look at that, Rob, as you might expect. I think our first goal has always been Go get the cash and cash generation has been a significantly high priority. I'm really pleased with the company's ability to generate Consistent cash flows like this, I think it is a conspicuous strength of our company and a strategic advantage. And then we very much routinely look at how we can best deploy that cash. I know you're familiar with the discussion because it's not a new Discussion for us, we certainly look at dividend policy, we look at share repurchases, we've committed to at least 50% of free cash flow return to investors Because of the strength in our cash generation, we've exceeded that goal consistently and considerably.
And we look at the string of pearls acquisition strategy, which we want The ability to go generate cash because we've earned that and then also how we can best deploy that cash to the interest of our shareholders and that will include taking a look at dividend policy. We've had double digit increases, I think for 7 years on the dividend policy. It will include a careful examination of our repurchase strategy and philosophy that has really been based on opportunistic share And then we'll continue to work an aggressive screen in the string of pearls acquisition philosophy for Those enterprises that would add sustained enduring value that would be at the right price and the right quality levels.
Our next question comes from Joe Nadeau from JPMorgan. Thanks. Good morning.
Bob, you went over the Orion change. I'm wondering though since the NASA landscape is so fragmented right now and I guess so uncertain And there's this big $6,000,000,000 hunk of money, for example, out there for crew transport With not that much detail around it yet, are there other opportunities for Lockheed Martin to gain market share in human spaceflight?
That's a great question, Joe, and I wish I had a great answer. But the honest and short answer is I don't know. We are focused now on working with NASA to get more a more detailed description of what the crew rescue vehicle that Orion will become will look like, what its content will be. And whether or not there are more opportunities for us to gain market share And our judgment is going to be very much determined by the quality of that market. If there are competitive opportunities, We have a long, I think, well understood set of capabilities in not only human spaceflight, but exploration.
So We'd be interested, but you know that those opportunities are going to be characterized By among other things, whether we're asked to invest, what the quality of the investment would look like, would there be a return on investment. The one thing I think we know about The space environment, particularly human spaceflight, it is a tough demanding environment. In other words, the performance levels For Escape Velocity, among other things, are so extreme and the performance margins are so tight, you've really got to be at the top of your game here and we work hard to make sure we are at the top of our game. The other aspect that aligns with our interests on the overall From the Atlas and the Delta systems that are in ULA. But again, that's pretty much yet to be determined as we see More definition on the NASA plan and strategy going forward, but there might be some, particularly in the near term opportunities for ULA.
Our next question comes from Ron Epstein with Bank of America.
Yes. Bob, I was wondering if you could talk to the new presidential helicopter program and when you think that's going to the timing on that and you guys are Teamed up with a different team now, if you could speak to that. Sure. Well, the timing is a little bit off on the horizon. We're looking at requests for information As the administration now looks to based on all that was learned on the VH71 program, What the right definition, what the right systems components, what the right mission profile would be for a Replacement to the presidential helicopter.
So I would tell you we're at the early stages of conceptualizing What would be required and what would be necessary, while we're including in the broader conversation the lessons from The VH71 program. We have had, Ron, I think very good experience and Really high quality credentials in putting mission systems into helicopters and that is an area of specialization for our company and I say respectfully, we're good at it. And we've had a relationship with Sikorsky on the 60 Romeo and Sierra Helicopter Programs where we play that role in a Sikorsky platform in a fashion that's been good for Sikorsky, good for us and I think highly valued by our customers. And so it's the basis of that relationship and the The quality of the interface and the interaction that we've had there and our own reflection that we have learned a lot would be certainly valuable to take a serious look at. And our relationship with Sikorsky and our experience of working together, Being the mission system integrator on their airframes has been a good and productive one that's familiar to us, familiar to them and has given good value to
Our next question comes from Peter Arment with Broadpoint.
Good morning, Bob, Bruce. Question on, I guess, international sales. You mentioned, I think, you've got a goal out there for 2012 of 20% of your overall mix. If you could just give us some color where is it today and what you're seeing out there in the international marketplace, Bob, in terms of any changes in timing Regarding achieving that goal and maybe some color on some major campaigns, if you could.
Thank you. Yes. I'll start and Bruce will back up a little detail. So I mentioned earlier, Peter, the Compliment to Secretary Gates on advancing again the discussion of Providing genuine reform to the export control policies of the country. We do this a lot as you would And our observations about the system are very clear.
We have a lot of really good people Working in the government, overseeing a process to assure that we don't diminish the security of our country because We allow technologies to escape. The people are good. The process is not as effective as it should be. And what we've asked the people to do is to essentially work harder and harder and harder and more diligently in a process that is Serving us well because the process is too broad and too amorphous. And in that broadness, It slows down the overall tempo of companies like ours to effectively compete in an accelerating global marketplace.
And I assure you nobody, particularly nobody here will ever take a step toward releasing The kind of technology that would make our country less secure and that is an immutable condition. But we think if we focused Absolutely safeguarding them with rigor and letting the rest of the market flow, it would improve our Prospects internationally, we think it'd be enormously good for the U. S. Economy. I think it would probably be part of a formula that would add to job creation.
And then I look at our company specifically and note we've got a mature portfolio. That portfolio includes programs like the F-sixteen, The F-thirty 5, the C-130J, air and missile defense programs like THAAD and Patriot and Aegis that already have international content. I mentioned the prospects again without overreaching current set of challenges, the Littoral Combat Ship The prospects of a joint light tactical vehicle that would have not only key interest in the U. S, But have the ability to build international constituencies. I like that very much because I think those Kinds of program opportunities really create an architecture where you can give the very best value for our U.
S. Government customers and Citizens and taxpayers who fund those programs give them the very best industrial opportunities for international suppliers with whom we have great partnerships and also give those foreign governments great access to systems that are not only high quality in and of themselves, but tend to be far more interoperable and far more aligned so that when our nation has to act with other nations, these systems have already been balanced so that they work effectively and well together. So I do think our goals are achievable here and we build our systems architectures around the prospects that We can secure the technology we can't release. They will be open and extensible and interoperable so that we can include international participants.
Yes. Peter, I'll jump Ben, you asked for some kind of specifics as far as how we go about achieving the objective of 20% of sales in 2012. We started off, we had a good first I think Bob hit several of these, but we did have the F-sixteen buy to Egypt for 20 aircraft. We also had a sale of some for targeting Sniper and Lantern actually targeting and navigation pods for Turkey. And we have the 2 aircraft that Bob mentioned for C-130Js with Tunisia.
Later this year, we're looking to hopefully close on a potential C-one hundred and thirty J deal for the UAE worth somewhere in the order of 12 aircraft potentially. There's also a PAC-three deal for both Taiwan and UAE towards the latter half of the year. And I'll just say that as we sit here today, we feel good about our ability to get to that 20%, because As we sit especially as we get towards the end of 2010, a lot of what's going to materialize in terms Sales in 2012 will be in backlog by the end of 2012, specifically the S-sixteen program and the C-130s, We can already see the international content that's going to be delivered in 2012 and we know with a high degree of certainty what that looks like today And that's what gives us confidence in that 20% number.
Our next question comes from Joe Campbell with Barclays. Your line is open. Please state your question.
Yes. Hello. Can you hear me?
Yes, Joe. Good
morning. Yes, great. Good morning. The new CEO at SAIC said the other day that the outlook for his addressable Fed Services This market was flat to down that the days of rising tide lifts all boats are over and that Growth in his view would have to come from taking share from competitors and he planned to do that. I wondered, the Service business looked okay in Q1 for you.
I wondered if you could compare and contrast your own outlook for the Services business to that somewhat bleak outlook by the new SAIC See CEO.
Yes. Thanks, Joe. Bruce will come back and give you a little detail about the outlook. I'll say that And we know and work well with the new CEO at SAIC. We've not built a philosophy based on a rising tide lifting all boats.
We're very selective about what we have in our portfolio. I kind of highlighted the census. I think we have a very broad A set of capabilities of points of presence in customers, well beyond programs in civil And in defense, we're putting an additional level of focus and attention on the execution parameters in those businesses as we've described to you before. And I believe that the guidance that We've given reflects our expectation that we're going to continue to perform well in these markets and Bruce will give you the detail there.
And Joe, I just remind you, we operate in three lines of business in that area. Think of that as what we like to call the civil, They're pretty easy to understand, civil, defense and intelligence. Defense is both civil and defense are roughly 37%, 38 8% in terms of the sales volume in the business area and our intelligence business is about 25%. Both the defense and intelligence, we expect those two lines of business to grow somewhere in the upper Single digit range is getting close to 10%. We think the Intel business will stay fairly flat, more a function of Just the smaller size of the individual contracts being awarded there, the sheer numbers of contracts we're seeing in the intelligence side Haven't necessarily changed, but the dollar size of those programs has diminished somewhat.
So our growth is going to be driven by those 2 LOBs, Civil and Defense, and we still feel that somewhere in the 6% to 8% range for the year is achievable. As we look at the backlog we had at the end of last And what we won in the Q1 of 2010, that still looks very doable to us.
Sean, this is Jerry. I think we're coming up against the hour. Maybe one more question.
Our final question comes from Troy Lahr with Stifel Nicholas.
Just wanted to kind of follow-up on that last IT. Are you seeing pricing pressure out for some of these new contracts. And do you have to kind
of lower your pricing or do you
think there's value add there that you guys don't have to?
Troy, I will say this marketplace has a lot more competitors today than it had a few years ago. So I'd say There is definitely a greater number of like size competitors in the arena than say we had a few years back. I think that has put some pricing pressure on that. We're seeing that. I think that's one of the reasons why we've I'm trying to tailor our margin levels at the levels we're talking about as we think that's achievable, but getting that particularly affects our Civil business and given that our Civil business has been the part of the business area, the LOB, which has been growing at the fastest clip, that's put some of the pressure on the margin.
That's the reason you
Hey, Sean, I want to thank you for your help on the call today. Thanks everybody for spending your time with us this morning. We're looking forward to talking to you soon And certainly updating you on our next call together. So we'll sign off at this end. Thanks again everybody.
Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect.