Good day everyone and welcome to the Lockheed Martin Corporation Second Quarter 2008 Earnings Conference Call. Today's call is being recorded. During the question-and-answer session, we ask that you limit yourself to one question and one follow-up question, so that everyone will have the opportunity to ask a question. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Jerry Kircher. Mr. Kircher, please go ahead sir.

Thank you Rufus and good morning everyone. I'd like to welcome you to our second quarter 2008 earnings conference call. Joining me today on the call is Bruce Tanner, our Executive Vice President and Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law, actual results may differ. Please see today's press release and our SEC filings for description of some of the factors that may cause actual results to vary materially from anticipated results. We have posted charts on our website, which supplement our comments today. And with that, I would like to turn the call over to Bruce.

Thanks Jerry. Good morning everyone and welcome to the call. Consistent with our expectations, we had a strong second quarter. Our results reflect the operational, strategic, and financial progress we are making across the corporation. This progress is enabling us to build upon our continuing momentum in delivering value to shareholders and customers. As our press release outlined, second quarter results across the corporation were strong, highlighted by an 18% increase in reported earnings per share. We also achieved a 50 basis point increase in segment operating margins that help generate our earnings growth. This margin expansion is a result of improved performance and successful risk reduction activities across multiple programs. Electronic Systems continue to generate operating margin in excess of 13% and our other three business segments all expanded margins this quarter. In the area of cash flows, we generated $1.5 billion in cash from operations in the quarter, bringing our year-to-date total to $2.4 billion. Our cash performance as is well positioned to achieve full-year cash flow and generate free cash in excess of the earnings for the 11th consecutive year. This long-term performance is a direct demonstration of our strong focus on management of working capital and cash optimization. With this established expense in cash generation, we remain focused on optimal utilization of our cash to enhance shareholder value. As a part of that focus, we are continuing to implement our long stated practice of making opportunistic share purchases. During the second quarter, we repurchased over 7.3 million shares of our stock for $770 million. This activity brings our year-to-date share repurchases to 18.6 million shares for $2 billion. Our repurchase actions had enabled us to continued to reduce our weighted average diluted share count to approximately 410 million shares for the second quarter, the lowest quarterly…

Thank you sir. [Operator Instructions]. And for our first question, we go to George Shapiro with Citi.

Hi good morning Bruce.

Good morning George.

If you could go through a little bit in the Aero business, I mean obviously F-16 sales were down based on the deliveries and they will probably go down similar. But where did JSF stand in F-22 and C-130 was up despite same amount of deliveries. So, can you just provide a little more color there and then also the performance issue that was mentioned on the C-5?

Sure. Yes, you are right George. As I look at the Aeronautics business area, let's start-off with the F-16 program first. We were down quarter-over-quarter compared to 2007 five aircrafts. I think, I teed [ph] on previous calls that we had 41deliveries last year and we are moving to... around 28 this year. Five of that reduction was in the first quarter and the other eight are pretty evenly split between the third and fourth quarter, so that really drove the reduction there. F-35 was actually fairly close, fairly flat to where we were in the prior quarters. So, I don't see a lot of change there. F-22 slight downer, but not much there, pretty flat as well. We actually had some good growth in our other sustainment business, which also contributed to the margin growth there, and obviously the performance on our legacy production programs, C-130J, F-16 and F-22 was strong, and significant and that led to the improvement in the margins there on those three programs. The C-5 issue that you brought up, we did talk about that. I would characterize this as dealing with an early transition from a development program to production program. I should add that we have had a multi-year very successful development program on the C-5 program for both the RERP, which is the replacement of the engines and the reliability enhancement part of the program as well as the Avionics Modernization Program, those are concluding very well. We have three aircraft and test program, they are all coming out very well. This issue is on the very first lot , the production contract. There is only one aircraft in this lot. And again I would kind of characterize this as an early production issues primarily associated with the amount and timing of expenditures on our tooling required to perform the contract as well as just achieving our basic learning curve expectations on the first lot of the production build cycle. Look at the... at the end of day, this is... production programs are what we do well, especially in the Aeronautics business, and I think we are going to get this right coming out of here.

And a follow-up Bruce, why wouldn't you sit there and if you had to take the issue with only one plane and Lot 1 on the C-5, I mean, why won't you spread that over bigger lots... other lots?

We are into contract for the first lot right now George and that's as per contract accounting that's the way we reflect it in accordance with accounting works..

Okay. Thanks very much.

Yes. Thank you George.

And we go next to Robert Spingarn with Credit Suisse.

Good morning Bruce.

Hi Rob. How are you?

Yes thanks. Just on the F-22, this is sort of follow-up to that. What point is the commitment date on future aircraft beyond the contract, don't you nearing that point?

Let me talk just kind of broader terms first. We are still in the middle of the multi-year contract and that multi-year contract runs with deliveries through the end of 2011 and think of it taking about three years from contract award to delivery of aircraft. So towards the end of 2008 is the timeframe. The end of this year is the timeframe, and we will need to have a decision as far as whether or not we are going to get advance by money or lot of lead funds to procure lots beyond the current multi-year time frame.

So something like October?

We actually go little later than that, but yes I think it is within fiscal year '09 budget time frame.

Okay. And then just on Space, it looks like the second half of the year, we have a sequential sales decline from the first half kind of flattish I guess with last year, can you talk a little bit about that?

Yeah. Space was up to your point. In the first half of the year, we actually had some... additional satellite launches in the first half of the year. We actually have zero deliverable items in the second half of the year of '08 whereas we had three in the second half of 2007. So that's... I think there is... I know it's tracking pretty much according to plan, but for those delivery events, two satellites in this third quarter, and one in the fourth quarter of last year, zero in the third quarter of this year and zero in the fourth quarter of this year.

Thanks very much for the help Bruce.

You bet Rob.

We'll go next to Troy Lahr with Stifel Nicolaus.

Thanks. Just another follow-up on this last Space question there. I mean, how quickly is GPS III going to start ramping up and are you going to start seeing growth this year out of that program?

GPS III is, I think, starting off very well. We're having... had our meetings with the customers to get our strategies together and to get our plans in place, baselines in place and the like and get our customer buying to those approaches. I don't see huge levels of growth in 2008 associated with that bid, but I would expect that to be more significant in 2009 and beyond.

Okay. And then why the margin fall off in the back half at Space also, I didn't... I wasn't quite following that. Is that just kind of volumes or is that the mix ramping up on GPS III some lower margin contracts?

No. We had... we have one item in the first quarter where we had a contract, we had a successful negotiation on a permitting contract. We don't expect that to replicate in the second half and pretty much anything else is fairly constant, maybe a little bit of balancing around with the... our cost plus contracts performance there, but I don't see that as any kind of issue from first quarter to second quarter... from first half to second half there. We should also add... I should add... Troy, we also add in the first half, we did have the one commercial satellite, which had quite a bit of improvement over the commercial satellite in the second quarter of last year quarter-over-quarter.

Okay. But at Space, I mean, should we be thinking Orion CEV is kind of flat now or are you still seeing growth out of that program?

We are still seeing growth out of Orion going forward.

Okay. Thank you guys.

Thank you, Troy.

For our next question, we go to David Strauss with UBS.

Good morning, Bruce.

Hi, Dave.

The growth you're seeing out of your sustainment business there are not, is that C-130, F-16, what else is in there? You gain any benefit from some of these performance-based logistics contracts you have recently signed up?

Yeah, we are seeing pretty much broad brushed growth in our sustainment business scenario, not extent of that is we continue to... as we field more and more F-22 units, we continue to see the F-22 sustainment business growing. We are still seeing growth in the C-130 business, you might recall the discussion we had earlier, in the first quarter I believe, about the Canadian deal, where we got a 20-year sustainment contract to keep the Canadian C-130Js flying up there. We are also seeing, which may not be on your radar, we are also seeing growth, we've got some activity, we just recently started putting additional wings on the P-3 aircraft and we are seeing some international activity there both in Norway as well as with the U.S. government with some of their customs and border patrol aircraft. So pretty much again broad brushed support for sustainment, and now they are going in the right direction for us.

And your margins in the sustainment business, are they meaningfully better than kind of the 12% average margin, so far or not?

I always like to characterize the margin that levels, it's been fairly consistent with the overall margin within the business area.

Okay, fair enough. And your pension plan performance in the first of the year, what is that roughly?

Well, as you might expect, if you like at your own portfolio, [inaudible] it hasn't been as high, if we like it to have been, are not yet on track for 8.5% after return that we'd hope for the year, but it's too yearly to tell. We will make the decision as far as what the expectations are after the end of the year. Performances has actually been a little better than the market in general, but not up to the 8.5%.

Okay. Well, congratulations for that.

Yes, thank you David.

Thanks.

Yes.

We will go next to Richard Safran with Goldman Sachs.

Good Morning.

Good morning, Rich.

Just first thing and I fully recognize now you don't give quarterly guidance, but if we take a look at 3Q, it looks like you finished delivering commercial satellites just about. F-16s as you mentioned before are down and you had an extra week in 1Q, which will be offset by one less week in the third quarter. So, my question is how much pressure, is there being... pressure being put on your third quarter results?

Well, two comments, Rich. So, one I guess, you are right. We don't give quarterly guidance, but you're pretty accurate in your assessment of what we think is coming up in the third quarter. I'll try to give kind of a high-level view of where I see the third quarter, maybe a couple of items thrown in at the end as well. We talked about F-16. I think I was pretty clear on that. We are going to be down some eight F-16s in the second half of the year and again, think of that is pretty evenly split between third and fourth quarter. What's probably not apparent is, we still expect to have obviously six C-130J deliveries, but just because of the phasing, the planned phasing of those aircraft deliveries, we expect to see more in the fourth quarter than the third quarter, and I think that's going to have some headwind effect on the third quarter and some [inaudible] in the fourth quarter. You also mentioned the fact that we had zero commercial sats in the third quarter whereas we had two of those in the same time frame in 2007. You mentioned the one less week in 2007, one other item I mentioned is, in Electronic Systems, we actually did have a higher-level deliveries on our kind of delivery recorded sales for things like the MPA aircraft for the U.S Coast Guard, PAC-3 Missiles, fire control systems, et cetera. So, that'll be a little lower in the second half. And just overarching, I would look at third quarter is probably being closer or probably lower than the 2007 level. I'm thinking somewhere in the 10.5, 10.6 level. On the flip side may be of the discussion, I'd like to see if I guess that there is the... potential as we see yesterday, we'd look at the manifesto out there to have two unusual events in the second-half of the year, neither associated with the Proton launches, probably one in the third quarter, and one in the fourth quarter as we said here today and this is not premise to our numbers because they are unusual events. But these are the last two events that allow us to recognize the deferred gains that we talked about before we recognized, we had a little bit of that deferred gain in the first-quarter. This would retire that risk and recognize that deferred gain, probably equally split between third and fourth quarter.

Thanks. And just last thing is... and just simply. So you raised your ROIC forecast by 1% to 20% ?

Right.

I just wanted to know on the invested... if there was anything there that was benefiting on the invested capital side?

Yes, couple of things. Obviously, the numerator went up because we increased profit on the up side. On the denominator side, we increased cash flow to 100 million bucks and we actually have a little pool to the left on the timing of our cash flow. So, we are seeing a little bit lower invested capital over the time frame there, that's the biggest driver.

Thanks a lot.

All right, thank you.

We'll go next to Joe Nadol with JP Morgan.

Thanks Bruce, good morning.

Hi Joe. how are you?

Good. My first question is on the F-35. I heard your comments in your introductory remarks, but... so, lot of conversations you know in the press and such this quarter about schedule, timing of the I guess the next 17 development aircrafts, and international partner competitions. I was just wondering if I guess on those two items, the international competitions and the development schedule of those next bunch of aircrafts, if you could kind of give your latest views.

Sure. Maybe I'll start with just kind of an overarching view of the F-35 program in general. I think, hopefully you are aware... I'm sure you are that we just provide the STOVL early in the second quarter, essentially on schedule from a schedule we've put together 18 months, two years ago. So that was gratifying to us. We've now got both the AA-1 version, as we call it and the STOVL aircraft flying that the... the STOVL aircraft has had multiple flights since that initial flight. Both are progressing well, and I think, we are very satisfied with where we are performing on that contract. You talked about the remaining 17 aircrafts in the development contract of the build cycle. I think we are progressing well there as well. I think the next big milestone you will see on the program from a delivery perspective will be the roll out of the first aircraft for the carrier variant aircraft for the U.S. Navy. I believe that is in the latter part of the first quarter or early second quarter of next year. And then we start rolling out aircrafts pretty regularly thereafter in that time frame. So, I think we are progressing well and I don't see anything that causes any alarm there. As far as the international partner status in competitor aircraft evaluations, I think you can fully understand when you're going to spend the kind of money that these countries are in the percentage of their defense budgets on a buy of aircraft as large as the plans of our division. They want to make sure they are getting the best deal and they are evaluating all the [inaudible] and oftentimes that's literally, laws of that country to have these sorts of competitions amongst multiple contractors. So, we're not surprised by that and we are not discouraged by that at all. We think the aircraft is prepare very well in those competitions. We are adding ongoing discussions. I think, there were some... at one of the briefings at Farnborough [ph] which talked about some of the consortium buying discussions we are having with international partners. I think, we're getting good momentum on that discussion front right now. And a lot of talk amongst those eight partners who... they will allow us to build or to develop a more predictable build sequence and build schedule that will add some stability to the firm as we go forward. I'm particularly encouraged quite honestly by the... some of the early indications from some of the non-investment partners, the FMS buyers [ph], and particularly Israel has come forward with an LOR for 25 aircraft and an option for 50 aircrafts. So, I think that's the indication both of the preference for the aircraft and the confidence that the international community is putting in our place to produce these aircrafts on a timely basis.

Okay. Thanks for that. As a second question, you revealed [ph] up a whole bunch of big wins that you've got in the second quarter. Your backlog though was down in the first six months and it was particularly down, I guess in the Electronic Systems. I'm just wondering if you could kind of put that into context. I know, obviously backlog is lumpy and you only show unfunded or total backlog as opposed to just funded. But any color you give in Electronics in particular will be helpful.

Yeah. Let me try to may be give color on all of the backlog, beyond Electronics. You're right. Electronics was down on the first half basis. I've looked at the profile of the Electronics orders and is this typically the case in Electronic Systems. They are very, very heavily loaded, actually not just in the second half, but actually in the fourth quarter of the year. And an awful lot of those are, I'll say sole source follow-on production contracts like, for instance, the next fiscal-year, award of PAC-3 Missiles, for instance, as one example. So, I don't know that I'm surprised. I'm not surprised by where we sit today, backlog wise in Electronic Systems. I think we've won the competitions that were scheduled to occur at a cliff that we're very satisfied with in terms of our win rate and we've won the strategic wins that we talked about. I did talk about my prepared remarks such as the GPS III , AMF JTRS and other contracts such as that. As I look forward Joe, I expect the third-quarter as I look at our orders profile, we'll probably actually show a drop, a further drop in our backlog and expect to recover in the fourth quarter, and I still do expect to actually grow backlog for the year, year-over-year versus 2007.

Okay. That's helpful. Thanks Bruce.

You bet Joe.

We'll go next to Myles Walton with Oppenheimer.

Thanks. Good morning.

Hi Myles.

Bruce, I was hoping you can offer some information on '09 in the last few years. On the second quarter call you've been kind enough to provide some pieces on how the next year is shaping up. So, maybe if you are able to do that on top line margin opportunity in EPS growth, I know it's early, but conceptually some of your early thoughts there would be helpful.

As you will hear in my closing statement, we are obviously going to provide guidance in the third quarter for 2009, but as I have stated today, looking at 2009, I think couple of things, I'll comment on, one is we've looked at Aeronautics and we exceed [ph] for a long time, the drop in the F-16 sales in 2008 and the fact that we believe that will be offset by primarily F-35 growth going forward. We still believe that to be the case, we still believe Aeronautics will come back in 2009 higher than 2008, and probably you know comparable or higher than what we saw in 2007. I think the other three business areas we are still hopeful and strongly believe that the IS&GS business areas are strongest growing business. I still think that's probably a double-digit year-over-year revenue growing business. Electronic Systems is probably kind of steady area for us, always kind of in the mid-single digits and that's why, what I see in 2009, and I think as I have said up in the past that Space is likely to be flat for a couple of years at least including 2009. So that's cost side Myles and then as far as bottom line, I still think there is margin improvement out there on most of our business areas. I think it is becoming more difficult for us, but we've not given up on that, I still think there is opportunity to exceed in that area.

Okay. That's really helpful. So, the only other one I had for you is on clarification of the PT&E, I guess charge or the adjustment of performance claim that you mentioned in the press release?

I think that was... it was PT&E, are you sure, you're talking PT&E?

It is declines in operating profit at PT&E is due to mainly performance in the second quarter?

Yes. We've had a very strong growth in our PT&E business, quarter-over-quarter very strong top level growth, top line growth and margins are down year-over-year within our PAE Group. Think of that is probably down about a 100 basis points or so. This is really a mix issue, not a performance issue and we're expecting higher margins in the second half. This is a... PAE is a... I'm sorry, you've said PT&E, and I'm talking PAE, don't you Myles.

Yeah, that's okay. Within Electronic Systems, there was a commentary in the press release regarding platform training and energy --?

Yeah, my apologies... my apologies. I'm giving you different explanation than you asked for. The platform integration piece, but that's what's on the press release, think of this, this is an international electronic warfare contract and this is a contract that has a very, very complicated environment that it operates in incredibly set of difficult requirements. Both we and our subs for that matter have not performed as well as we would have liked and we did have some issues there. This is a single contract. There is no kind of follow-on business from this contract. We simply have not performed very well. We think we have the separate understood, and we think we have the problems behind us at this point.

Okay, thanks.

Thank you. Sorry for the distraction there.

No. I'm not worried.

We go next to Robert Stallard with Macquarie.

Good morning.

Hi, Rob.

Bruce, first of all, on the C-130J. We talked last week about how the prospects of that are looking good and you intend to ramp up production, how do you think that is going to phase in as we move out into 2009 and 2010?

Yes, we did talk at Farnborough Rob and I know there was briefing by Ross Reynolds on the program at the Farnborough as well. Now, as we look at the current backlog of the Canadian orders we just recently received, some of the C-130Js I mentioned in the prepared remarks, the GWOT aircraft for instance. We do see a ramp-up taking place on the delivery profiles, the C-130 programs. I have teed up, I think in the past that we think of us as currently delivering about 12 aircraft a year. I do believe that ramp rate will double probably by the end of the decade to the 24 level or even slightly higher than that. And you can... I won't give the... necessarily the ramp rate between those years, but you can imagine that it won't be a fair step... it will be a more leveled progression from where we are now for that doubling of rate.

And do you think as a result of this that you'll be able to realize higher margins on the program as well?

I think that certainly sets us up for that Rob and it helps from a... an over rate absorption issue, it's nothing else than that. I think this... this partner is performing exceedingly well. I'd like to see it continue that even with the ramp rate increase we're talking about and that is probably the objective.

Right. And secondly on the Electronic Systems, your guidance suggest that margins ease off a bit in the second half. What do you think is the fact of that like to cause it?

I don't know that I'd see margins slackening off in the second quarter or the second half to be honest. I think they're going to be fairly consistent with what we saw in the first half at the end of the day.

Okay. That's great. Thank you very much.

You bet.

[Operator Instructions]. We go next to Doug Harned with Sanford Bernstein.

Hi, good morning.

Hi, Doug.

Hi. If we go back to Sats for a minute, when you look at Orion, Orion being up, military satellites being down. If you take out ULA for a moment, how margins trended there? And ULA was obviously a big contributor in margins.

Well let's see, for our second quarter or first quarter or all the above?

The second quarter.

Just second quarter. I think our Sats business has actually improved over from... the second quarter of '08 and second quarter of '07. We had some nice... I think I mentioned earlier, nice improvement on our commercial satellite that we launched this quarter, compared to what we did last year. It's actually a very good program for us. That was the biggest driver and everything else I will say on the government business, the Orion contracts and the like... is fairly flat. Profit wise, margin wise and then the ULA contract as you mentioned is actually the other piece that's getting up some margin boosts in the quarter.

Okay. And then on IS&GS, you mentioned the global services that you've seen some weakness in the margin there and that's a mix issue.

Yeah.

Could you comment perhaps a little bit more on that on the mix issue and then as well you mentioned a contract restructuring in the information services area as well. What was the impact of that?

Let me start with the PAE first. I apologize, again I started giving this response to Myles. I'll try to give a similar response to you Doug.

That's okay. That was my question. Where did you got started on it?

Yes. Getting a good head start here. I think I'll start to say... the margins were down year-over-year. I think somewhere in the neighborhood of about 100 basis points or so. And this really is not a performance matter and there has been no write-offs or those sort of things. It has been a mix issue. We're having extremely high growth at the top line, but most of the contracts we see happening on PAE are what we call the ID/IQ contracts and definite delivery and definite quantity contracts. Those have a tendency, not a tendency, but those are tend to be recorded from a sales recognition perspective be a service contract accounting. And that tends to create more variability between the quarters especially at the early start of those programs then in the later part. I don't see that being an issue and again I think margins are going to improve in line with our expectations in the second half of the year just as planned. I am sorry your second question, I didn't --?

On the information services, you referred to a contract restructuring that you benefited from.

Yeah, I think we actually mentioned that in the first quarter. And I think that's probably in the press release talking about the first half of the year.

So there is nothing new there.

There is nothing new. We did have a contract restructuring in the first quarter. It was a fairly, had much more impact in the first quarter but it does actually benefit us in second and beyond as well.

But I take it on margins that's not a material impact on the second quarter in terms of your...

No, it's not.

Okay, great. Thank you.

Thank you, Doug.

We go next to Cai von Rumohr with Cowen & Company.

Yes, you performed very well in the Aeronautical sector.

Thank you.

Was sustainment up... given that I guess, sustainment is going to continue to rise and the F-16 down a little, but you know the mix going forward looks about the same. What's the chance that the margin in the second half there could be close to where you were in the second quarter?

Close to what we're in the second quarter you said.

Right, or at least that... your guidance for the year just on paper, it looks like it has some opportunity.

Yeah. As I look forward, Cai, the big drivers that are going to make its margin improvement for the second half for the same things we've been talking about for the last 18 months or so, and that's the big three production programs, the F-16, F-22 and the C-130J. I will tell you those programs are performing superbly, collectively and individually. And assuming that we continue the kind of improvement going forward in the second half of the year, I think we have opportunities to have improvements there. I think your question of, could we get to the second half margins and I think it's possible. But we have to continue that kind of performance levels we've seen in the past to make that happen.

Okay. And then, I guess cash redeployment, you raised your op cash flow target for the year, you had good cash flow. In this quarter, any kind of sense in terms of priorities, are you seeing more in terms of on the M&A front more interested in the tough market buying your stock and how do you look at that?

Yeah, just thinking a while Cai, I would think that we would see some reduced level of share repurchases in the second half. That's obviously dependent upon what the stock does. I mean we're still bullish on our stock or we will be buying at the levels we are. And depending on what happens to the second half that will determine what we do with more or less share repos. We don't intend to have the option exercised in the ESOP contributions for our plan, dilute the share count, so you will see at least purchases for that level in the second half. Again the rest will be probably dependent upon what the share prices do for the rest of the year. Relative to your second question I'm sorry Cai was the...

In terms of... if in fact you're going to decelerate the share repurchase even though you kind of have the debt, but that issue you still have very substantial cash flow. Any...

Yeah.

Any parts of with greater interest in M&A?

Yes. I think we obviously take a look at the fourth quarter at our dividend policy and that's a decision we'll discuss with the Board at that time. But relative to M&A, I do see, as I look at the pipeline of what we have got hopefully on our horizon. I do think we're going to see more opportunities for M&As in the last six months, it wouldn't surprise me if we do two to four kind of with the smallest level of acquisitions that we have done in the past and get those closed in the second half of the year.

Great, thank you very much.

You bet.

We will go next to Ronald Epstein with Merrill Lynch.

Good day, and good morning Bruce.

Hi, Ron.

A question for you with regard to the Aegis System. There has been a lot of talk in the press men on the hill about the kind of the face off between DDT-51and DDT 1000. If we were to see the DDT 1000 go away and see more 51, what's the net opportunity for Lockheed?

Well, the net opportunity in the DD... the Aegis Weapon System which is kind of the backbone of the DDT destroyer. First off, it's performed superbly over the past few years and it's grown, its capabilities have grown immensely from kind of a anti-aircraft tracking... missile tracking system towards now very effective as of that, and I have spent a last few launches we've had with Ballistic Missile Defense. So, I think that the weapon system has grown capability wise, we've also been able to shrink its footprint to have it to be usable starting with cursors down to destroyers now to frigates, including in the international market place. So it's a very flexible, very capable system first off. Relative to our possibilities going forward, we were looking at doing Aegis sorts of retrofits, find out the right word, but enhancements on the existing fleet of Aegis Systems to begin with. This would be over and above that obviously. My reaction, I guess, is the Navy like every other service had it's one set of budget pressure. I am sure that's why they're exploring this option and quite honestly, we stand ready to support the Navy in its decision.

Okay, great. And then if I can just follow-on with another question. Could you just give us some more color on maybe what your launching list of upcoming programs would be and what we can keep an eye on for potential things you are competing for?

Sure. Again, third-quarter, let's just talk that I mentioned in the prepared remarks the IHOP contract that actually is the third quarter event, it was not reflected in the second quarter numbers that it was... we really I think we won that July 3rd. So that's a big big win... continuing the trend of large significant wins within our IS&GS business area. We've a... a fairly large opportunity, I think GSAT, probably three months ago or so, I'm not sure I would have stopped. But, that had quite as much as opportunity to be an award this year . But, I think the current thinking, the current planning on the part of the customer is that as of September, possibly a later fourth quarter award, that's one that you want to be watching there. From a kind of a strategic perspective, we do expect probably at the end of this summer, the Joint Light Tactical Vehicle down select from six to three players on the tech demo phase to occur and we are going to watch that closely... you want to watch that as well. I'm hopeful , I think I teed up and in terms that I was wrong, but I teed up in the second quarter that is up that we would give hopefully get a C-130 international contracts signed in the second quarter. I think that's still a possibility in the third quarter without naming... names there for probably think of it up to four C-130s or so. And then we've also get the DOE Hanford contract which is a large another large competition for the IS&GS business area in the third quarter. Fourth quarter, we think there is... the large weather satellite for NOVA, the GOES-R satellite is upcoming. We are hopeful, although it's... I'm a little bit of cusp on whether or not it can happen this year or not, that we will get some positive news on Romania for F-16s. And then maybe finally, I did mention in the third quarter, we're hopeful will there be a down select on the JAGM, the Joint Air-to-Ground Missile competition that we are pretty excited about as well. So that's a handful, that's sort of the larger ones that I see on the horizon and hope those ones you will track with us.

Great, super. Thank you.

Thank you, Ron.

We'll go next to Howard Rubel with Jefferies & Company.

Thank you. Returning to cash flow for a moment Bruce. Your customer advances for the first six months are essentially flat relative to a source of I think $700 million a year ago. How would you see the second half playing out, I mean that clearly will make your already strong numbers look a little better?

Yeah. Thank you Howard. First, let's just talk on working capital in general. I think we talked in the first quarter and there was some concern about the high level of accounts receivable we saw in the first quarter and the high working capital growth. We teed up the notion that we thought... we'd see improvement in both AR and as a result in working capital in the second quarter, that's exactly what happened. As I look at the second half of the year, I actually see some growth, probably to the $0.5 billion level or so in our working capital account. Most of that growth coming as a result of lower advances occurring. So, I think that is probably a delta of about $200 million or $250 million between now and the end of the year.

And that's not... that's pretty good precision, given the volatility in that business. With respect to international, there are a number of foreign military sales that are outstanding. You know, some that you alluded to and some that are in the pipeline. Do you find that the negotiations are taking a little bit longer, let's say in some of the non-aeronautical areas or is it... is it just, is it just the typical lumpy nature of the business?

I would, honestly Howard, characterize... I mean, I worked most of my career in parts of the business that had large contents of international business and the one constant is the fact that it is hard to predict when international customers are going to buy their products. I don't see this as the ordinary out of the expected results, and I am not aware of any sort of peculiar stretching out associated with international sales.

Thank you. And then just... if we were to look at your programs, I mean it was good that you highlighted a couple of challenges. As you look at your entire list of programs, are there still just a handful of red ones or is there anything really changed where red is gone to yellow or green?

We're talking internally about kind of the headline partners, the ones that kind of catch people's eye or peoples attention and they are the usual suspects, right, I mean, get the VH-71, LCS and lot of programs like that, the Cyprus contract. I can honestly say as I look at those contracts from where we were at the start of the year, I think each and everyone of those contracts is doing better today than it was at the start of this year. And I am very encouraged by the trend that we see in those high profile contracts. I teed up or we just discussed two programs in the second here. The C-5 and the platform integration electronic warfare program that kind of popped up, those things happen, is a charge off to try to minimize those and stretch those out, so they don't happen as regularly as we prefer it does not happen. But we are talking still just a handful of contracts, I don't think any performance issue besides that.

Thank you very much Bruce.

Thanks Howard.

We will go next to Harry Nourse with Banc of America Securities

Good morning.

Hi, Harry.

Hi. Can you just remind us when how far out your F-16 backlog stretches to?

Sure. With the award of the Moroccan deal... and first up I think we are standing at about a 115 aircraft in backlog and that kind of the current build rate that takes us out somewhere towards the end of 2013, I believe. So, it's a good long time still to go and again I sit back in amazement sometime as I look at the F-16 program. I started my career in that program you know and that production wise that started in production phase in probably 1978. Here we are at 2008, and we just settle to our 25th international customer, when the program is still is vibrant today as it was for a number of years back, I am very exited about the opportunities and prospects going forward.

So obviously the time in these things is outside of your hands. But beyond that on the Romanian thing and also the Indian, are there other things out there that we just don't know about the possibilities as well?

Well, I think there's been a lot of news, a lot of press... rather about the potential sale for 66 F-16s in Taiwan. That is clearly been asked for by the new Taiwanese administration. But that's clearly the decision that needs to be embedded [ph] at the government to government level. We are happy to sell the aircraft, but we will only do that obviously if the Department of State feels says that is the right thing to do. But that's that 66 aircraft either would have happened, it would happen at the very late part of this year or sometime early next year and also slightly going to get pushed off or deferred into the next administration.

Okay. And on that F-22, obviously the decision has moved off into the next administration, what level of commitment might you have to provide to keep the line going?

Commitment, do you mean financial commitment?

Yeah.

Well, we have not committed to do anything financially, to keep the line going quite honestly.

Yeah, but would you, in the absence of orders?

I'd say what, we're not going to make like F-22s, I can tell you that much. And if can figure out a way to minimize the build... sequence of the build timing the schedule, how long it takes to build an F-22, or if there is some low dollar suppliers that would build us some time frame there, we might look at that, but we're not talking anything of any size whatsoever.

Okay. Thank you.

Rufus, this is Jerry. I think we are coming up on the time. Maybe one more question and we wrap up.

[inaudible] will come from Joe Campbell with Lehman Brothers.

Actually, good morning it's Carter Copeland. Good morning, Bruce.

Hi, Carter, how are you?

Good. Just pigging back a bit and I've got a question on M&A and you did talked about opportunities for a couple of things in the second half. I wondered if you might characterize as some of the things you're seeing in terms of the attitude of potential sellers, I mean obviously valuations have come in a bit here, are you seeing expectations change given where the budget outlook stands and given where some of the various opportunities within the budget stand. Are people more or less willing to sell or what sort of things are you seeing in general, from sellers?

Just an overarching view, we have had a tendency to look at a lot of private deals here recently, and I still think we're seeing potential opportunities in the private arena that we are excited about, and I think those deals, we wouldn't be doing it, if we didn't think they are reasonable. I don't know that we saw the huge variation swings in terms of valuation in the private market that maybe we did in some of the public market particularly with some of the international money chasing, some of the public deals. So, we have not seen that, that's not the element that we are targeting in any event and I've not seen that.

Great thanks.

You bet.

And with that Mr. Tanner, I will turn the conference back over to you for any closing remarks.

Okay. Thanks for joining us on the call this morning. I do appreciate the time. I'd like to close by thanking you for your questions and for joining the call. We look forward to talking to you again in October when we discuss our 2009 financial outlook and guidance. Rufus that concludes our call.

Thank you sir. And again ladies and gentleman this does conclude the Lockheed Martin Corporation second quarter 2008 earnings conference call. We do appreciate your participation and you may disconnect at this time.