Jerry Kircher - Vice President Investor Relations Robert J. Stevens - Chairman & Chief Executive Officer Bruce Tanner - Executive Vice President & Chief Financial Officer

Doug Harned - Sanford Bernstein Peter J. Arment - Broadpoint Ron Epstein - Banc of America Howard Rubel - Jefferies & Co. Joseph Nadol - JP Morgan Joe Campbell - Barclays Capital Richard Safran - Buckingham Research Group George Shapiro - Access 342 Heidi Wood - Morgan Stanley & Co. Myles Walton - Oppenheimer & Co. David Strauss - UBS Cai von Rumohr - Cowen & Company Troy Lahr - Stifel, Nicolaus & Company Robert Spingarn - Credit Suisse Securities. Sam Pearlstein - Wells Fargo Brian Ruttenbur - Morgan Keegan Itay Michaeli - Citi

Welcome to Lockheed Martin’s Fourth Quarter Earnings Conference Call. Just a quick reminder, today’s call is being recorded. Now at this time I’ll hand the call over to our host, Mr. Jerry Kircher, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Bo, and good afternoon everyone. I would like to welcome you to our fourth quarter 2009 earnings conference call. Joining me today on the call are Bob Stevens, our Chairman and Chief Executive Officer, and Bruce Tanner, our Executive Vice President and Chief Financial Officer. I’d like remind you the statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of Federal Securities Law. Actual results may differ. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. We have posted charts on our website today that we plan to address during the call to supplement our comments. Please access our website at www.lockheedmartin.com and click on the investor relations link to view and follow the charts. With that, I would like to turn the call over to Bob.

Thanks Jerry. Good afternoon, everybody. Thanks for joining the call today. It’s probably a little late in the year for this, but let me wish you all happy New Year and hope 2010 is off to a good start for you all. As we entered 2009, we certainly had some expectations about the environmental circumstances that we would face during the year. With a new administration, we expected some new priorities, although it was difficult at the outset to predict exactly how those new priorities would unfold. Given the work that we do with our customers all around the world, we were absolutely certain that the global security environment had many growing challenges that we needed to face. And like all of you, we watched as the global economy struggled, mindful of the potential pressure that might be applied to our company and certainly those that might be applied to our suppliers in the form of insufficient liquidity or other impacts that they might face. By about mid-year 2009, we had a pretty good assessment of where the program priority shifts were likely to occur as the new administration made some changes and several of our programs were terminated or canceled or capped, some with immediate effect. Now, that certainly was a circumstance that we have not seen in prior years. One that confronted us with some sizable near-term operational and financial challenges that required us to take immediate action to rebalance our portfolio and realign our operations. We did by strengthening our executive focus on operations and reconstituting the Chief Operating Officer position, by reallocating talent and resources to different parts of the company where we thought they would be best applied and by making the difficult but necessary reductions and consolidations to emerge leaner and in good fighting…

I like to build on Bob's earlier comments regarding our solid performance in 2009 and we've included some charts on our website to help with my discussion. I'd encourage you to open those charts now and follow along with me as I make my comments. Starting with the fourth quarter sales summary chart, chart 2, overall the corporation grew 13% in the quarter. Three of our four business areas grew at greater than 10% in the quarter. And if you take a look by the individual business areas, the aeronautics growth was driven by F-35 volume and C-130 production ramp up. I’ll remind you that we had about 16 C-130 not about , we had exactly 16 C-130 deliveries in 2009 and we are looking to go to about 26 or so in 2010. Electronic systems growth was driven by missile defense, tactical missiles and our stimulation and training business. Move over to space, space was driven by a classified satellite delivery in the quarter and also we had a commercial launch, where we had no commercial launches in the fourth quarter of 2008. IS&GS growth was driven mostly by the defense line of business, with some continued delays in our civil line of business lowering the overall growth compared to the prior year’s fourth quarter. We now turn to the full year sales chart, chart 3. All of our four business areas grew at rates ranging between 4% and 8% and overall the corporation grew sales by 6% to a record $45.2 billion. If you now look at chart 4, you’ll see the quarter’s book-to-bill ratio and backlog for each business area. Three of the four business areas had strong bookings with aeronautics, electronic systems and IS&GS all well above a 1.0 book-to-bill ratio. Space was less than 1.0,…

I do want to take a few minutes to update you on the F35 as there has been much activity and even more speculation about this program. And I want to cover four subjects with you today. Whether the airplane is needed, whether we have the right approach and by that I mean whether we’re going about this the right way, whether we’re emphasizing the right things, how have we’ve been doing on the program to date and importantly where are we likely to be going in the future. Let’s start with the need for the airplane, which has been repeatedly validated and reinforced by the Department of Defense and will again be validated in the 2011 budget submission and in the quadrennial defense review . Here is why. Air power is key to a broad range of security challenges and missions. That’s been true historically. It is true today and will certainly be true for missions in the future. The aircraft in service today that are meeting these responsibilities are ageing because the operational tempo has remained very high. So, re-capitalization of the tactical aircraft fleet is a very high priority. The proliferation of antiaircraft radar and missiles systems continues and this is an area we probably don’t highlight or talk a lot about, but the sophistication of these systems does create a real threat for tactical aircraft and this threat highlights the value of fifth generation stealth capabilities embedded in the F35. And the F35’s ability to penetrate denied air space is superior. So the F35 is a high priority because it fills a very critical need. Next, there is the approach we’ve been taking on the program, which directly aligns with Secretary Gates’ principles for guiding what the Department of Defense will buy and what it will…

(Operator Instructions) Your first question comes from Doug Harned - Sanford Bernstein.

On the F-35, as I follow this, it seems that over the past year or so, sounds like almost an adversarial relationship with the JPO and you all sort of taking one point of view and then the jet team and others taking different points of view, I mean the program seems to have slipped, just roughly six months late, at the end of the year. Are you talking now about a fundamentally different way of working as you go forward with the customer?

Well, let me say it this way, I don’t know that I would expect although appreciate your comments, I wouldn’t expect the notion of an adversarial relationship. Let me tell you what I do see here. We believe strongly and profoundly in our ability to deliver this airplane. I don’t want this to sound arrogant or filled with hubris. We’ve built a lot of airplanes. We’ve actually compiled in our company all the experience that we’ve had, even reaching back to programs like the SR 71, the F-117, the F-16, the F-22, now leading to the Joint Strike Fighter. We care deeply. We care passionately about the commitments that we make and we are going to deliver this airplane. There are those in the government who have reviewed lots of airplane programs over time. They are smart. They are dedicated and I think they are equally passionate about their conviction. It is a good thing to bring people together provided that we share the same set of objectives and outcomes and I assure you we do. This nation needs to re-capitalize the attack air fleet. So there has been some energetic discussions that might from time-to-time appear to be contentious because of the strength of the beliefs , but what we have accomplished together over these last weeks and months and these ensuing discussions is a recognition that we’re going to drive to a position of accommodation that we will stop arguing the relative merits of individual points and what we will do is, is sample a group of collective points that will create the architecture upon which a successful program will be built. That means that we will go to a more conservative profile on the program because more conservatism here will reduce some of the risk moving forward…

Your next question comes from Peter J. Arment - Broadpoint

Question on the JSF again. This is obviously an enormously complex program and difficult for us on the outside gauge how you’re doing and you gave us obviously a very good assessment of that in terms of the design and the propulsion and things that are yet to be completed, but how should we view it going forward for this year, is it cumulative flight tests, what's the best way for us to assess how Lockheed is making that transition this year?

You know, Peter, I can appreciate how this might be difficult to evaluate, let me tell you at least one reason why. There have been occasions where we could have put a jet into the flight test program earlier, but we deliberately did not and of course we don’t take that action without fully discussing the merits of the action with our government customer. The reason we wouldn’t put a jet in the flight test program would be a circumstance where we would know there is going to be a change made to that program, maybe an update to the software, maybe an update to the configuration, and it is part of the ordinary ebb and flow of any development program for systems like this. And therefore we would not have the asset in place. We would not be able to fly a test mission and the arithmetic scoring of that would say you were supposed to fly a test mission, you didn’t, you’re down one, you’re down two, and all of that arithmetic is fair game . But we believe that we’re in the long term optimizing the overall flight test profile because with the software upgrade, the airplane will fly a more proficient test program. There is a risk that if you know there is an update necessary and you don’t put it into the airplane, then you have to re-fly the sortie doubling the number of tests and delaying the tests program. You just pushed that delay farther out in time where it is actually less rather than greater to the advantage of the program. In that fashion, we and the joint program office and our government customers have been thinking about how you optimize the quality of the flight test program, have it thorough, and make…

Your next question comes from Ron Epstein - Banc of America.

,:

Yes, actually I don't see any of that. I mean first of all the discussions that we've been having with building about acquisition reform really have been mature and adult, and I mean that. For example, I think sometimes sources report in a discussion about fixed price contracting, every contract now irrespective of maturity , irrespective of risk is going to be required to be assumed by contractors on a firm fixed price basis. That's not at all the discussions that we've had with anybody in the Pentagon. There's no view on their part that one size fits all. There is a very clear appreciation that there are technology readiness levels, there are degrees of complexity in systems, there is the maturity of capabilities and what we have all agreed to do is to have a constructive discussion that seeks to identify almost on a case-by-case basis, when a system or program will have the maturity and have the characteristics where fixed price contracting methodology can be applied. I must tell you, Ron, I'm all for that. I like the stability, and the visibility, and the confidence you have in an environment where requirements are stable, and funding is stable, and bring the game in the Lockheed Martin, make this our responsibility, because I think we play a very good game when we have good definition like that, and I like all features of it as do they. We have not been asked to undertake a contract type in any of our program areas and I'm talking well beyond the F-35 here and where we have taken fixed price contracts like in the case of Littoral Combat Ship, we had already built one, we have already understood it, the configuration was frozen, the requirements were set, and that’s exactly the…

Your next question comes from Howard Rubel - Jefferies & Co. Howard Rubel - Jefferies & Co: . Your preamble sort of indicated that you took eye off the ball this year a little bit in a couple of areas. When we open up the proxy later in the year, will we find that the incentive compensation sort of reflected those misses and what are you going to do to sort of setup some incentive comp targets, because you sort of talked about transparency and obviously you talked about bringing Chris on to sort of help you in a number of areas so that we can see some either operational targets or some what I call program objective targets?

Yes, I can actually save you the wait. You don’t need to look at the proxy. I will absolutely assure you that this is a pay-for -performance institution. I and others are held accountable for our performance. When we think our performance should have and could have been better, then I will tell you, Howard, speaking for me personally, I think my performance could have and should have been better. I have been held accountable by our board. We hold our management accountable for this performance. Management holds one another accountable and you would see that reflected in compensation all throughout this organization. I don’t think we necessarily took our eye off the ball. I will say and others may have a different view of this. When you have a couple of programs terminated in mid-stride , it does introduce into the operations, an unusual turbulence. It takes the momentum out of some of the focus areas that we have built and I would submit to you if you look year-over-year in areas where that was not the case, where we didn’t have terminations, I think we had more consistent operational performance. That is not an excuse. We are a full-service house. We are going to deal with every and any situation that comes our way. It's appropriate for others to expect us to behave that way, that’s what we expect of ourselves. I think in complex businesses of a portfolio nature, there are always parts of the portfolio that seem to perform a little better than other parts of the portfolio. My job specifically, and you mentioned Chris Kubasik, and I'm delighted that he in place as the Chief Operating Officer, my job, Chris's job, Bruce's job, the job of others is to flow some of the prodigious resources we have in this company into those areas where they can make the maximum difference. And that means encouraging every aspect of this business that had a really superb operational and performance year in 2009 to absolutely continue that beat in an uninterrupted way. And for those parts of the business that didn’t perform to expectations that realistically, soberly we are going to go address those issues, make the changes that have to be addressed and drive those businesses to higher levels of performance. We have been able to do that in the past. I expect to be able to do that again in 2010 and I assure you that I will be held accountable for my ability to do that.

Your next question comes from Joseph Nadol - JP Morgan

Bob, just going to a different segment of the business, specifically the Services business, and you referenced this when you answered the last question, but I think that was one of the areas of struggle this past year, clearly you lowered your guidance a couple of times and then here in the fourth quarter, you missed the number. I understand what went wrong because it has been a very difficult macro-environment for Services, but I'm wondering specifically within the company what took you so long to realize that because you had sort of this constant degradation of guidance. And then looking forward into next year, you have it bouncing back now with high single-digit growth and margins up a little bit. I'm just wondering how you can be confident on that?

That’s a fair question, Joe. I had some expectations of performance. I have been personally and substantially involved in looking at the Services business components and actually I would tell you that we did not treat that business any differently than we treat any other business relative to, let me say, time and attention for executive resources and so forth. I will tell you that it is my sense that the business, let's think in terms of time spans of discretion, how much volatility, how much visibility do you have in the business, how far can you look forward? If you look at our airplane business or our space systems business, I think you get one range of visibility. I think one of the observations I've had Joe and I think it's embedded in your question about why didn't you move faster, why didn't you see more clearly? My sense is that it's just a little harder to look forward in a services business where there’s not that level of visibility or the uncertainty sort of builds faster, sooner. And you have to make some assumptions about how you will perform internally and how markets perform externally, and that was a good lesson I think for me and us to see and we’re trying to adapt, adjust to that now and get greater acuity and greater visibility, and put some people and systems in place that will help that out a bit.

I'll add just my view of it. You talked about the fourth quarter maybe not coming in flight as strong as we had hoped for and I'd say that’s a fair assessment, I don't think we've seen the improvements occurring as we had hoped they would by now. On the other hand, we haven't seen deteriorations either. I characterize it as we've kind of stabilized the business at this point, and I think we've made some pretty significant changes, particularly in people and processes. I feel really good about what we've done on kind of the front end of the business to make sure we have the right contracts filters, if you will, to make sure we're signing up the good deals. I think we've made real good strides there. And as far as the confidence in 2010, as I look at 2010, there’s much less reliance on larger awards where we need to unseat incumbents as compared to what we did in 2009, and that allows for the opportunity for protest in 2009 as well. So if we look at 2010, the first half there, fewer large competitions in general and secondly where there are in fact competitions we tend to be the incumbent. So assuming we do win those contracts, protest by the losing competitor would not reduce the revenue because of our incumbency. And you mentioned the margin, we do have a slight margin improvement year-over-year in IS&GS and I think that’s within our ability to perform at that level.

Your next question comes from Joe Campbell - Barclays Capital.

Can you help us out a little bit with and I don’t really want to focus too much on all the stuff about the Joint Strike Fighter, but what is really being debated, it sounds like you are, we read all the stuff in the rags about some changes that moved money and lowered the rates. Are there open issues that you are still fighting for like the chance to get back, that you would like to have, but Ash and Bill and others and or maybe the Congress do you want to approve this? What is the open issue that you would like to see and who is it that needs to go along with it?

Yeah, that’s kind of a broad question, I’ll do my best, Joe. So there is not a lot of discussion let me say that has Congressional impetus right now. And I would just note that in prior budget submissions by the executive branch the requests for funding for the Joint Strike Fighter have been honored, save for the discussion about the second engine. So let me just separate that, because that’s not really part of what I am talking.

No, I don’t want to know about the second engine.

So what we're talking about inside the Pentagon today is, let me use the term reconciliation between a number of sets of assumptions, projections, estimates and let me say experience. And I'll use two positions that will maybe contrast this although there are more than two. The joint estimating team has done a careful analysis of the development of lots of aircraft programs. And they make a set of assumptions here about the things that can go wrong and might go wrong and it's all a probability assessment. And we do the same thing and others do that. I think we don't have the same conclusion when we look at where we are on the program today and of course we're compelled here to look 5 to 10 years out about the kind of things that would happen. We don't have the same conclusions. The joint program office has a set of conclusions that are slightly different than ours, say - let's say more time and more cost and let me just assume more risk. And then the join estimating team has even more, a sense of more risk and more exposure than the joint program office. So we are all talking about essentially the same test program. The question is, well, what would be the right number of test assets to put into a test program, how many flyers do you need to fly cards that have test points that it would allow us to test how many test points before you know with confidence the airplane will always do what you wanted to do. I'll set up some purely theoretical boundaries; you can't test everything that an airplane can do because you'll test the airplane forever. Now that’s not one of the proposals on the table but it…

Your next question comes from Richard Safran - Buckingham Research Group.

I wanted to ask you on your -- on cash deployment and your share buyback, what you are anticipating or what you’re including in guidance and what you are anticipating for buybacks, it just seems a little bit lighter than what I would have expected especially when I look back at what you have done in the past. I just was wondering, is there an interest for example in doing a large acquisition in 2010 and I just wanted to know if you also just cover in general just what you are thinking about M&A activity in 2010?

I’ll ask Bruce to give you a little comment on the share repurchase, because I think that will be helpful, relative to a big acquisition in 2010 that’s not in our planning. We like the acquisition approach we’ve had, it’s been described as a string of pearls. To me, it’s a very clear, very precise, very measurable approach relative to our ability to add value, provide important technology, adjuncts to our portfolio, be able to serve customers better. Actually, my feel at the beginning of the year is that there may not be as much M&A deal flow I think just in a general sense. I don’t know if prices and valuations are going to come inline with the kind of capabilities that folks might be looking forward. In our case, we have never really set an objective to let's go buy something big. We don’t need that kind of action here. And frankly, I would rather focus our attention and our effort on initiatives like the Joint Strike Fighter and other operational improvements from which I think we can absolutely yield greater value. And I ask Bruce to give you a comment on the share repurchases.

We've historically have, as Bob just said, we are going to get back 50% or more free cash flow in the form of dividends or share repurchases. And at the least as I went around and talked to a number of investors say in the later half or later quarter of last year, a number of them expressed concern particularly as we started talking about the funding requirements of our pension plan going forward, that would we be able to continue to the sort of cash deployment activities as we've done in the past? And so when we took the $1.5 billion out in the fourth quarter of last year, we obviously had a lot of cash on the balance sheet at that time. With that infusion, we made a large significant contribution to the pension plan. But we wanted to demonstrate, and the reason we came out with the guidance we did that included a $1 billion of share repurchases in 2010 is we wanted to send the message frankly that we are going to continue with the cash deployment practices that we've demonstrated in the past. If you just take a look at the percent of free cash flow that we are giving back in 2010 at the levels we're talking about, it's already 89%. And as we go through the year 2010, we have the firepower to do acquisitions. As Bob said, we are not looking for the big bang acquisition, but we do have firepower to do some acquisitions. And if in fact, we continue with the kind of cash performance that we've demonstrated amazingly well in 2009, we will have the firepower to do even better share repurchases throughout the year.

Hey Bo, let me just check in with you because I see we’ve kind of gone an hour. Let me ask are there others still on the line.

Your next question comes from George Shapiro - Access 342

I just wanted to clarify a couple of things. First I assume that the JSF margin that you had articulated before would be going from around 5% to 6% is still intact despite all of the discussions that we have been hearing.

No changes whatsoever, George.

Okay and then on the other side, I find it ironic that every sector except ISG, you were well above your guidance and the one I highlight or ask you to put some detail on particularly in space, you had raised the guidance significantly from October to January and you are still well ahead of it and yet I didn’t see you raise the projection that you put out for 2010, so I was just wondering why not?

As I’ve said in my discussion going through the chart deck, there were two delivery events, if you will, that happened in the fourth quarter of 2009. One I mentioned was a classified satellite delivery, that one was frankly kind of on the bubble of what we thought that was going to occur at the end of 2009 or 2010. When we talked to you in October, we thought it was more likely to happen in the 2010 timeframe, it turns out it happened sooner than that, it happened very successfully. So that event was close to a $400 million item in and of itself. On top of that, as I mentioned, we have one commercial launch vehicle that went off in the fourth quarter. We have zero commercial launch vehicles in 2010 plan. So if you just take a look at that delta for those two particular items, we’re down $500 million for two events that are likely not to occur again in 2010. Helping to offset that in 2010 frankly is, we’re seeing some growth in our advanced VHF, extreme high frequency satellite and as well as some classified space activities in 2010. So that’s helping to mitigate, if you will, the loss of those two events.

Your next question comes from Heidi Wood - Morgan Stanley & Co. Heidi Wood - Morgan Stanley & Co.: :

That’s an obviously an area of keen interest for us, and it is also an area that not only we but I think others in the industry have advanced with regard to discussions to try to get some clarification here. I will say a statement that hopefully sounds like something you would expect to hear from us. We don't want to be in a conflict of interest position. It doesn't ever work well for the business. It doesn't serve long-term interest. We don't want to find ourselves ever, and I'll use this as a hypothetical position, where we would build a precision guided system and fly it down the range, then we on the other side would be the ones to evaluate the performance of that. That’s unhealthy. We know that, we avoid that. That is the kind of conflict of interest that we would avoid. Whether any areas of sensitivity in the work that our company does, we set up firewalls, and there are, I think time tested means and mechanisms here that work really effectively for this kind of discussion. What our company and I think I can say this, what the industry has asked for is, could we get some clarification and some guidance out of the Department of Defense relative to what the rules of engagement here will be? What activities here would be prohibited, what kinds of businesses, what kinds of initiatives, what kinds of task orders and then we’ll go structure our business accordingly, because we are going to play by the rules. We just want to make sure we understand what those rules are. So there is no intention or expectation on our part at the moment to divest any segment of our business. If we learn something when the draft guidance is released and my best recollection of the timeline Heidi would be probably sometime let me say in February, we are likely to get some draft guidance outlines here for what a conflict of interest policy would look like. Then we’ll, if we have the opportunity, we’ll make comments to that policy and whatever that policy is we will certainly abide by it.

Your next question comes from Myles Walton - Oppenheimer & Co. Myles Walton - Oppenheimer & Co.: Hopefully this will be a relatively discreet question. The independent manufacturing team set up a number of discrete milestone for you to achieve before they’d recommend your movements to higher levels. Can you give us just a couple of those long poles in the recommendations? And second you had previously talked about $15 billion on JSF in 2015; given what you see today what does it look like?

Yeah, I am going to differ on the second half because a lot of that's going to depend on the ramp rate and those assessment smiles [ph] that we provided were on the, let me say existing base line. To the extent that we load conservative numbers into production and are able to beat them, I think there will be a range of numbers. I will commit this to you when we get better visibility as to the discreet points and expectations about how we'll load a production base line here probably by the next time we talk, next quarter on this call, we will have some more discreet detail there. Relative to the independent manufacturing review team, I think they always look at, how do you get more maturities sooner into a production line, do you have the right level of tools, do you have the right level of training, do you have the right level of expertise, that gives you like an interesting I think data point that applies to fiscal '11. The independent manufacturing review team concluded that we would be in a position to produce about 48 airplanes in that fiscal '11 time period. So when I look at the near term objectives for our desire to improve the ramp rate, I look at that floor moving from 32 airplanes to 42 airplanes on the conservative side, and our sense that if we can do better we'd like to go to 48, 48 resides within the range of effective production capability that the line possess now in accordance with the manufacturing review team’s assessment. What they also look at is that think about 5 year to 10 year out how do you get to higher rates of production and we're working on those initiatives along with the government.

Your next question comes from David Strauss - UBS.

Constellation is in the newest lot, potentially the rumor is out there that potentially the administration could look to cancel Constellation with the budget on Monday. Could you talk about the exposure there and your take on the way forward?

I can but I will say here again because the budget is coming out Monday, we don’t have complete level of visibility here as certainly you would like us to have and that quite frankly we'd like to have. We obviously break project constellation down into its component pieces. The spacecraft component, which is our responsibility and the launch vehicle segment of the program, which is not our responsibility. On the Orion program which has to do with the spacecraft, we are doing well, I mean we are executing a program plan, we are accelerating the design, we are testing components and configurations of that design. We know that on the spacecraft side, we've incorporated the flexibility in the spacecraft for, let me say, a broader range of missions. And by that I mean the spacecraft is configured to be very effective for transit to lower orbit as well as in a slightly different configuration being able to complete a lunar mission and even with more adaptations being sufficiently flexible to look at a beyond lunar mission say to Mars. But those are all based on aspirational goals. So, if in the ensuing dialogue that you and we and others are looking forward to as to how will the vision for human space flight be altered, if it’s to be altered, and if that vision were to contract the profile of human space flight moving back from Mars to the Moon or pushing the lunar mission off in time, this spacecraft we're working on still has the flexibility to meet the responsibilities of the lower orbit mission. So in our human space flight portfolio, of course, we focus on flying off the shuttle, which we are doing, and we’re just head down and focused on assuring we’re meeting the criteria associated with the spacecraft segment. And when we know more again, we’ll be able to update you without any delay, and I guess the only other thing I would add is, there was a panel that was commissioned by the administration to look at the human space flight area. They have made some recommendations, but those recommendations have not been incorporated into a new vision or new program plan and I presume that’s part of what the ongoing process is now.

Your next question comes from Cai von Rumohr - Cowen & Company Cai von Rumohr - Cowen & Company: Quick one on the F-35, you said you would be willing to sign a fixed price contract for Lot 5. I believe that negotiation is this summer and I guess you said that would depend on whether the design was sufficiently firm and well documented, I mean it sounds like you are going to sign - you are under pressure to sign a fixed price document and you are likely to do so. What are the terms that you view as kind of critical for Lockheed Martin shareholders i.e. the type of sealing and share pattern you would be looking for in that kind of a contract?

Well, let met just clarify, Cai , it wouldn’t be negotiated this summer. It would be a year away from this summer. We were anticipating a fixed price incentive contract and I know your comments included that but I wanted to be clear for everybody. It's not for fixed price. It would be a year out. I don’t want to commence the negotiations with you now on the telephone about points of total assumptions and share lines. We are very facile and familiar with the characteristics of fixed price incentive contracting methodology. But part of that share line in direct answer to your question, is part of these terms and conditions, features will be exactly based on how much we do know. Did we achieve requirement stability? Did we make the progress that we thought we made? When you think of us trying to align the risk profile that we'll undertake with shareholder interest, so I would submit to you that we made those decisions before, we've been asked to take a fixed price contract once upon a time, earlier on in the Littoral Combat Ship program, we did not. We felt we could not even though that was a great desire on our part, quite obviously to get alignment with the customer on a critical mission area that we know today is critical and we believe them to be critical. We could not find the pathway to meet an expectation about a contract type given the nature of the uncertainty that we proceed in that business. That’s the standard that we are going to maintain. But I assure you Cai, we are not being “pressured” to go do anything. There is a discussion that encourages the government and the industry to work hard on securing the conditions around fixed with -- around when fixed price contracts can be used sooner rather than later. But that is not a mandatory, you must do this, and I think quite honestly, I know I don’t speak for everyone in the industry, but having come off a year in 2009 when I was Chairman of the Aerospace Industries Association, the general sentiment of the members that I think is very well understood by the leaders in the Pentagon and the administration is that it is unwise to pay contracts of a fixed price nature before the environment warrants that. And I would submit to you that fixed price contract in words [ph] the key to program success, I guess we would conclude that the A400M is the most successful airplane program in development today. I for one cannot make that conclusion. So we will be very prudent. We will keep our risk profile aligned with that of our shareholders and we will certainly do all we can do to work with our government customers to secure the conditions around which fixed price contracting makes sense.

Your next question comes from Troy Lahr - Stifel, Nicolaus & Company Troy Lahr - Stifel, Nicolaus & Company: You talked about the software on the F-35 being 80% developed. When do you expect that to be 100% and is that kind of a critical milestone that would allow you to feel more comfortable about the program.

Well there is developing the software, Troy, and then there is integrating and testing the software and software development is going to be a process that unfolds over the next years. We are on track today. In other words, when you lay out these long term plans that were put in place years ago and we projected expectations if these things are done, we'd be about in this point, we are in that zone, but I will tell you again, software development, the integration of the software, the full integration of all the vision systems on the aircraft is a key focus area for us. It has been a key focus area on every program not just our airplane program portfolio, but every program, and I would tell you honestly it's a key area in the business of every company that does this. We recognize it, the government recognizes it, and that’s why in the development phase of this program, we’re talking about putting more software development resources in place to simply assure that if we are running a software load test - and there were features that were found in that load that required a quick turn around of, what are called trouble reports and so forth, we would be able to do that in an expeditious fashion that we would have a system integration lab that would have the capacity in parallel to do multiple tests, because we all know our goal is to accelerate the pace of the program. When you accelerate the pace of the program, you need some resources and infrastructure in place to do that. So I think it's very smart for us to talk more about software development.

Troy, I'll just add a little bit to that. The software is going to essentially track somewhat to the flight test program. And if you think of the incremental capabilities that the flight test program will open up in terms of the envelope of the aircraft, you will see software requirements similarly following that trend. :

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I guess this is a question for Bruce, you already talked about margin on Joint Strike Fighter, but perhaps you can talk about any changes perhaps in your assumptions in 2010 for top line on JSF and thence the rest of the major programs in the aeronautics.

If I look at the F-35 in 2010, I don’t see a change, I still think we’ve talked about probably some 25% growth year-over-year from 2009 to 2010, think of that in the billion-dollar range. I think that’s where we are going to run, nothing has changed us from that perspective.

Are you closer to $5 billion there or $6 billion?

Think of it, mid 5s level. I will say the one thing that I would like to point out just, maybe I’ll just go around the business areas here but let’s talk about 2010 facing and maybe first quarter specifically because I think it’s important that we do talk that. We are probably going to see a slower ramp to the year in terms of both sales and earnings than maybe our history would suggest and there are several reasons for that and really they hit each of the business areas. .: So you should think of that as, the back half of the year being much more heavily loaded with C-130s than the first half and when I say much more heavily I’m talking 25% of the deliveries in the first half of the year, maybe 30% and 70% to 75% deliveries in the second half, and again that's just a phenomena, the first time buyers and the special packages that are going on these particular aircraft. If I look at space, I think earnings there are also going to be back loaded, particularly due to the equity earnings on the ULA, United Launch Alliance, United Space Alliance, joint ventures. I expect to have a very large fourth quarter from an earnings perspective primarily associated with the United Space Alliance operation and as the shuttle operations come to a close at the end of 2010. So fourth quarter is going to be an earnings spike compare to the rest of the year in space. Electronic system, if I just compare that to the first half of 2009, the first half of 2009 has the presidential helicopter in it, and we don't have that obviously in 2010. So we're going to have a slower compare to the first half of 2010 for that event. If you just take a look at the 2000 plan in general, I think there are more deliveries or program events in the second half than in the first half of the year. And then if I go to IS&GS, it's somewhat similar to the other business areas in that they are probably more back end loaded in the second half than there's in the first half. : So that first quarter, we think is going to be a little lighter than the rest of the year. And overall, just looking at the bottom line of the first quarter and comparing that to what you might expect versus a comparison in 2009, I think we are going to see sales growth in the 1, 2% range compared to last year, I think it’s going to be the lowest margin quarter for the year, probably somewhere in the mid 10s could be my outlook as I sit here today.

Your next question comes from Sam Pearlstein - Wells Fargo

You talked about your use of cash and I guess I'm just thinking about, you raised all the debt in the fourth quarter, debt to cap is now 29%. Can you just talk about what is your ideal capital structure and what are you going to do with that cash to offset the $75 million in interest. And then Bruce, just if - I'm assuming some of that is going to the pension plan but can you just talk about, assumptions don’t change, what does that FAS/CAS look like into 2011 versus 2010 right now.

Look, as far as the optimal capital structure, there is – frankly, we looked at that and we try to be, I will say opportunistic and we really look at the debt when it is opportunistic and needed. So I don’t think we have a per se perfect capital structure. I'll say if you do any kind of analysis from a weighted average cost of capital and the like , we are not quite to that point yet and yet we're fine with that because that - we think that gives us some fire power if we need it going forward. As far as the FAS/CAS and the pension impact, I took a look at that just recently, remind the folks on the call, we had a 20% return on assets in 2009, so much better performance than we did in previous years obviously particularly 2008. We also have the slight down tick in the discount rate. We’re much more sensitive to the discount rate than we are at the asset return. But if you just take our performance at the end of 2009 and you assume going forward similar levels of asset returns as we promised in the past, the 8.5% return, and we hold the discount rates flat at the current five and seven eighths, I think I said on the third quarter call that we probably see a fairly significant FAS/CAS increase compared to 2010. It’s still fairly significant, but it’s lower than it was and you might think of it in kind of the couple of $100 million higher than the FAS/CAS impact in 2010, and you didn’t ask it, but I’ll throw out 2012 as well since I mentioned that on the third quarter call as well. 2012 kind of current course and speed again 8.5% discount rate, or excuse me, 8.5% return on assets and flat discount rate would actually turn break even or actually a slight income item for us in 2012.

Your next question is from Brian Ruttenbur - Morgan Keegan.

You talked a little about weighting of revenue and earnings, it’s going to be light in the first quarter. Is it going to ramp from there gradually, are there going to be any dips or swells and then can you repeat the 2011 pension adjustment again?

I think we are going to see ramp quarter over quarter as we go throughout the year 2010 and obviously we tend to have strong fourth quarters. I think this fourth quarter will be very strong compared to history, but think of it as sequential growth quarter-over-quarter and where most of the growth year-over-year comparison-wise will actually occur in the fourth quarter.

And sequential growth will also be sequential growth in terms of margins too, the margins should go up sequentially?

Yes, I would think so. Again though, because of the space event, I think we are going to have a somewhat out of the ordinary spike in our fourth quarter margins, because of that. And you asked about 2011, is that right?

Yes, just if you could repeat the pension adjustment?

Yes, we are sitting at the -- as we look at 2010, had about $440 million FAS/CAS drag. That number likely grows to, think about kind of a couple hundred million dollars higher than that, so maybe the 640, 650 number, and then as I said earlier, again the 2012 actually reverses itself completely to break-even or maybe even a little tailwind, if you will.

Your next question comes from Itay Michaeli – Citi.

On the Q3 call, you also touched upon 2011 and 2012 revenue and margin guidance or an outlook, granted there is a lot of issues yet to be negotiated in the program. So can you maybe just touch upon how you are feeling about the mid-to-high 10% margin outlook for '11, '12 and sort of 5% plus revenue growth in those two years as well?

Everything we see right now still says, that is what we are tracking to. We still think we are going to grow faster in the years 2011 and 2012 than we are showing bottom line growth from a sales perspective in 2009. We still think the margins are about right, I mean obviously we are all going to get some information next week when the QDR comes out, the FY11 budget comes out and somewhere down the road the five-year defense plan comes out. But everything we’ve seen, heard, rumored, et cetera, we still think that our product base going forward is well supported in the out years. We think most of the transition for us occurs in the 2010 timeframe, that’s what we are experiencing this year and then beyond that we think we are well supported .

And Mr. Kircher at this time, I would like to turn the conference back to you, sir, for any closing comments.

First, let me thank everybody on the call today for hanging in. I know we went a little longer to 90 minutes, but we appreciate you being on the call today. Bo, let me thank you for your help, and if we don’t get a chance to talk to you before then, Bruce, and Jerry and I look forward to talking to you on the next quarter. Be well and we hope to see you soon.

And again, ladies and gentlemen, that will conclude today's conference call. We thank you all for joining us and wish you all a great day.