Good day, and welcome everyone to the Lockheed Martin Fourth Quarter 2010 Earnings Results Conference Call. [Operator Instructions] At this time for opening remarks and introductions, I would like to turn the call over to Mr. Jerry Kircher, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Karen, and good afternoon. I'd like to welcome everyone to our Fourth Quarter 2010 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. 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'd like to turn the call over to Bob.

Thanks, Jerry. Good afternoon, everyone. For those on the East Coast, I hope you're digging out of the snowstorm satisfactorily and for all on the call today, I hope you're looking forward to a prosperous 2011 as we are. I trust you've had the opportunity to read today's earnings release on our fourth quarter results. As the release outlined, operational performance in the fourth quarter continued at a solid rate and enabled us to achieve strong financial results, including over $20 billion in order bookings that expanded our backlog to over $78 billion while achieving sales growth of 5%. We also continued to generate exceptional cash flow that provided the opportunity to repurchase a record level of over 13 million shares in the quarter, to pay dividends of almost $270 million and to fund $840 million to our pension trust. This focus on operating cash has been a foundational element of our strategy to provide sustained returns through share repurchases and dividends, while still ensuring appropriate investments in the business, and that approach is working well. Let me start with a very brief strategic update. Over the course of our last several calls, we've described to you our sense of this new reality that we're working in. One characterized by growing complexity in the global security environment and continuing pressures in the world's economy. All that we see reinforces this perspective, and is driving our actions. As an illustration, just since we last spoke in global security, as our Defense Secretary visited on January 11, the Chinese showcased the pace of their advancement in low observable technologies with the J20 aircraft. In conjunction with previous demonstrations of anti-satellite systems, advances in communications and intelligence surveillance and reconnaissance capabilities, the development of antisurface ship weapons, the expansion of submarine capabilities and…

Thanks, Bob, and good afternoon, everyone. As Bob outlined, our financial performance in the fourth quarter was both strong and broad based, and as I highlight our key financial accomplishments, please refer to the Web charts we included today. Let's begin with Chart 3, our 2010 orders. Orders in the quarter were over $20 billion and were strong across all business areas. Most visible awards were the finalization of the F-35 LRIP 4 contract and the first of potentially 10 LCS ships. But you can see every business area has large awards in the quarter. For the full year, orders were nearly $47 billion, which represents the highest annual order level in our history. And I think this is a good indication of the alignment of our portfolio with the needs and requirements of our customer. Turning to Chart 4, and a look at our ending backlog. We ended the quarter with a book-to-bill ratio of 1.6 and that resulted in growing our backlog by $1 billion during 2010 to our year-end level of over $78 billion. On the right-hand side of the chart, it's noteworthy to see the duration of backlog for a number of our major programs, particularly if you consider unexercised options that are beyond what's included in our current backlog amounts. Moving to Chart 5, and our sales for the quarter. Overall, the corporation grew 5% in the quarter, with Aeronautics was particularly strong with 19% growth, driven by increases in both the F-35 and C-130 program sales. Electronic Systems performance was stronger in the quarter than we expected, resulting in the business exceeding the upper end of its guidance range for the year. Overall, three of the four business areas showed growth in the quarter with Space Systems showing a decline due to the absence…

[Operator Instructions] And our first question comes on the line of Rob Spingarn of Credit Suisse. Robert Spingarn - Crédit Suisse AG: I have a Joint Strike Fighter question that is a joint question itself. I think it's for both Bob and Bruce. I wanted to ask you, Bob, you went through the restructuring alluded to by Secretary Gates back in the earlier part of the month. And the push to the right some of the timing on some of the lots, redirection of some funds into R&D, et cetera, and you talked about the fact that this is going to perhaps move savings initiatives toward the life of the program. It won't be able to target some learning curve-wise earlier on. So I'd like to ask you how we should think about Joint Strike Fighter revenue and margins over the four- to five-year period the Secretary was referring to relative to your earlier expectations?

So you have a sense of where we are in Lot 4 and while Lot 5 is proposed at 32 airplanes as is the typical process throughout the fiscal year, the Congress will review the request for 32 airplanes, and they will have deliberation if they will make a decision hopefully within the authorization and appropriation bill that supports the quantity to be purchased. When we think of overall pricing revenue of affordability, margins, we think that it will be exceedingly difficult on the affordability front to get near-term cost reduction opportunities without near-term volume increases, because volume increases are so intimately related to our ability and really, the industry's ability to drive down learning curves. So we're seeing a bit of a slowdown in the near-term ramp. We fully reflected our expectations in the near term in the 2011 guidance as we look forward learn more about the Congressional actions. We'll be sure to update our guidance accordingly and keep you well advised.

And our next question comes from the line of David Strauss of UBS.

Bruce, a quick question for you. What is assumed in your guidance for share repurchases at this point?

$1 billion.

And our next question comes from the line of Rick Safran of Buckingham Research.

I wanted to ask you about cash. So given that cash flow came in meaningfully higher in 2010 than you expected and given the strength of bookings, et cetera, does that kind of imply there may be upside to your $4 billion cash guidance and also as a kind of like a second part, just wanted to know what the current thinking is about dividends versus buybacks and by that, what I'm asking is there a potential here, for example, for more meaningful or higher dividend raises than we've seen previously?

Rich, why don't I take a shot at this and see if Bob has anything to add at the end to it. You're right. Cash flow was very strong in 2010. I was particularly pleased if you take a look at all four business areas relative to what our expectations were as we entered the year, all four business areas exceeded those expectations. You may recall we were contemplating during 2010 some increase in our working capital throughout the year. We actually ended the year relatively flat, so we did not have that increase, and we were also expecting a slight increase in working capital as we headed into 2011, which we're now believing will be flatter still. So that, in particular, is what drove the cash higher in 2010 and gives us the confidence to increase the number to $4 billion in 2011. You talked about the orders. I was extremely pleased with orders again, $20 billion in the quarter, especially considering it's a quarter that's under continuing resolution. And the fact that, that led to $47 billion for the year, which is the highest level of orders we've ever had as a corporation I think is a testimony to the alignment of our portfolio with the requirements and needs, again, that the customer’s needs. And so if you're asking about the dividends versus buyback if there's a change there, we remain committed to the 50% return of free cash to shareholders as we've stated numerous times. Obviously, we have the firepower that we've demonstrated especially in the fourth quarter to continue the share repurchase and the dividend increase. We always revisit the dividends with our Board of Directors some time in the third quarter time frame of the year. We'll do that, again, this year and I think in short, Rich, we'll be opportunistic especially on the share buyback. And we'll revisit the dividend policy in the third quarter with our Board, which is what we always do.

Rich, I'll only add that we spend a significant amount of time focusing on cash generation because we recognize that is the single most significant source of our ability to run this business effectively and return value to investors. We like the balanced approach with our share repurchase program and our dividend increases that you've seen of us lately. I think if we're able to continue to generate cash flow in a superior fashion, we'd like to follow through with more of those actions.

And our next question comes from the line of Cai Von Rumohr of Cowen and Company.

Could you tell us what you expect the tax rate to be for 2011 in a quarterly pattern? And secondly, you gave us a delivery pattern for your aircraft in 2011. But some times in the past, changes within a model from one customer to another have resulted in different margins. So should we expect that the aeronautical margins will start out low and get better as we go through the year? Is there any kind of visible pattern there?

Yes, let me try to address the first question. First, obviously, Cai, tax rates we're expecting next year on a recurring basis are probably going to be about the 30% level. I wouldn't expect to see large changes quarter-to-quarter. I think that was part of your question as well. And I would not expect that. Phasing of the aircraft is going to be a little back-end loaded within Aeronautics. Again, as I said, for both F-16s and C-130s. I don't think, margin-wise, I'm trying to recall at the top of my head the quarterly spread of our margins within Aeronautics. I don't believe you're going to see a whole lot of changes other than I'll say the normal sort of risk retirement items as we progress down the production of all these aircraft. But from a planning perspective, from a guidance perspective, I don't see that, that I'd point out to you at this point in time.

And our next question comes from the line of Joe Nadol of JPMorgan. Joseph Nadol - JP Morgan Chase & Co: Bob, the F-35 SDD contract is something I think I'd asked you about one or two of the past two to three quarters and I just want to ask again as to where you are. My guess is that it impacted the margins here in the fourth quarter in Aeronautics, although that may have just been mix. But my guess is there's an SDD issue there. And it seems to me and I'd like your view on this as well, this may be sort of a sore spot in the relationship between Lockheed and DoD right now. So I know you don't want to take a bad deal, of course, but if you could just update us there on how you're thinking about it and where we are.

Yes, I will say that we started and finished the year in SDD at the same booking rate. So we can clarify that at the outset. There isn't really a sore point or sore spot in our discussions regarding the SDD program with the Department. Not about the opportunity for fee or profitability, it's all about focusing on assuring we're doing the right things at the right time to deliver three variants of the Joint Strike Fighter. And I honestly believe we see that reflected in the amount of time the Secretary of Defense has directly spent in reviewing and discussing the circumstances surrounding the F-35. For a Secretary of Defense to be literate and conversationally competent about the details of the technical baseline review is a significantly important thing to us, because we share a same goal. And the goal is to deliver this airplane as quickly as we can and as affordably as we can because when all of us look at the complex changes in the global security environment, we see an increasing need to have this airplane sooner for three services in the United States and certainly, for regional friends and allies who live in areas that have expanding difficulties. So there are not really contentious discussions here. They are full-throated views about how we should remedy some of the issues we're finding in the test program, but it's done professionally, it's done constructively. And I will say of all the observations that have been talked about that are developing in the system design and development phase, all the test areas that need correction, we're working cooperatively. Every one of those areas is being evaluated by subject matter experts in the government. Most of them have approved corrective actions in place and we're executing against those corrective action plans. And the ones that don't have them approved have them in development and review. So I think we're going to increase the momentum and the tempo of the program, including the flight test program, including software development. We're all steering towards the same course, and we all share the same objectives.

And our next question comes from the line of Doug Harned at Sanford Bernstein.

I want to continue on the F-35 because some of the statements that, Bob, you've made in the past and even today suggest that you think that you could go to higher rates than what the Secretary is talking about in the restructured plan. And what I'm interested in is understanding what is the source of that difference in views. And then also although I understand that you're ahead on both the A model and the C model in terms of flight test, what are the challenges you face there beyond just the number of flight tests to push this forward and be on schedule, I would say, on every aspect of this programs?

Well, let's talk about production capacity first. We've facilitized the Joint Strike Fighter line to accelerate at a rate faster than 1.5. That's true. And we've done that, in concert with our government customers, in full cooperation. I think the Department of Defense is providing their best professional judgment after, undoubtedly, one of the most thorough reviews that any program has ever had with the results of the technical baseline review. What is a prudent, near-term 1.5 escalation in quantity year-over-year. I'm sure in the future, that will be reviewed again based on our performance. We accept that 1.5 rate now. We have a lot of areas of interest that we have to go focus on. The F-35, I think it's important to remember when we're talking about volume now, we're talking about U.S. government volume, and the F-35 has an extraordinary international potential business base here. And expressions of international interest have been increasing. So I would submit to you, Doug, that if we're able to execute on a plan that allows everybody to build confidence and that certainly is our commitment, then just as we've had periodic reviews of the program to date that have resulted in some adaptations to the program, there can be similar adaptations increasing the ramp rate. We have an independent manufacturing review team that periodically looks at our manufacturing productive capability. And I'm sure they have been flexible and wise in their judgment thus far, and they'll be that way looking forward. You asked about the A model and the C model and the flight test program. We look at this, I think, in general terms in a couple of pieces. One is assuring that we're demonstrating the flying qualities of really all three variants and the STOVL variant is in the flight…

And our next question comes from the line of Jason Gursky from Citi.

Just a quick bookkeeping question. All things equal, how will pension expense trend into '12 and '13 and then maybe just a clarification on some things that you've chatted about in the past, which is what you would view as full rate production on the F-35 program and the year in which we might get there and the level of revenues that one might expect once we reach full-rate production.

Jason, I'll tackle pension question first. You asked about going forward in '12 and '13 and the way we always characterize it is if things don't change from current assumptions so kind of current course of the speed, the same discount rate and same long-term asset return rate 8.5% and 5.5% for the discount rate. I would expect that the FAS/CAS adjustment from some $925 million headwind in 2011 will drop very dramatically in 2012 being -- maybe think of it as maybe a couple of hundred million dollars or a little more maybe of headwind in 2012. And then I would think they would flip in 2013. So we've actually got a bit of a tailwind at that timeframe. Now all this is dependent upon and I'm trying to predict when this is going to happen, I've been unsuccessful with those predictions in the past but all this is predicated on when CAS harmonization occurs and its impact on the CAS recovery there. We are assuming when I say that, that will occur in 2012. And as far as full-rate production, I'm going to ask Bob to give some comments on that.

Yes, Jason, it's been a while since we talked about moving to full-rate production because our focus has been so much on the system design development and phase and Low-Rate Initial Production. But at the last time we had these discussions, we were looking at ramping up to the neighborhood of about 200 airplanes a year. We were talking in terms of about one a day. I don't see any reason assuming that we resolve the issues that are before us now and continue to execute and demand stays strong for the program, which we believe it will. That's probably the range of the neighborhood that we'll be looking toward. Relative to timing, we really need to have the jets proceed through initial operational capability before we get to those levels of full-rate production. That time line now is in the neighborhood of 2016 or so. The services are examining the dates that would be appropriate for their initial operational capability. So I think the short answer is in the 200-a-year range, and we don't go to full rate until after IOC and that date today is about 2016.

And our next question comes from the line of Ron Epstein of Bank of America.

Maybe changing the subject a little bit away from F-35. On Littoral Combat Ship, you won the recent award domestically. Is there an export market for the vehicle and can you expound on that?

Well, we think there is an export market for the Littoral Combat Ship. The Government of Saudi Arabia has expressed some interest very directly in the performance characteristics of the ship, and they're looking to modernize their Eastern fleet. So there is a prospect there. We've had some additional, I'd say inquiries, as to the suitability of the Littoral Combat Ship. I think international customers want to get some more information about the vessel, and I think they were honestly looking to see what the award would actually look like in its final manifestation. And that award just took place at the end of December. The Littoral Combat Ship is the size and class of vessel that we think will be of considerable interest to many navies because most navies don't really have very substantial tonnage in their ships. And of course, the modular configuration of the ship, the ability to reconfigure it in near real time with different mission modules for different tasks, I think will have great appeal. And then as we look to the future, we'll look at evolving the ship's capability, for example, for ballistic Missile Defense capabilities and actually, we are interested in listening to potential customers as to how they might want to customize or reconfigure the vessel for very specific mission purposes. The ship was really built to have additional flexibility, small crew, high performance, use information technology wisely, and that allows us to reconfigure it and customize it in various ways. So I do think it will have some interesting international opportunities. We'll look for them and we'll be sure to keep you posted as these matters mature.

And our next question comes from the line of Myles Walton of Deutsche Bank.

First just a clarification, Bruce, on the FAS/CAS for '12, you're saying it's a $200 million FAS/CAS adjustment, not a $200 million headwind to the $925 million, is that right?

Yes. Let me be more precise than I, obviously, was when I first answered. So $925 million headwind in 2011, and that's dropping dramatically to about $200 million headwind, not additive to the $925 million in 2012.

The real question I have is on, maybe for Bob, on the F-35. The STOVL production adjustment relative to the rates, relatively anticipated given the testing of your rebaselining there, but I'm curious how you think, how we should think about the Air Force's decision to cut its buy about 20%. And I mean, is this -- it seems like the testing was going well, it seems like the Air Force is rhetoric and strong. Just curious how we should interpret this.

Because I am sensitive to some of these discussions, I don't want to overly clarify your comment, the Air Force didn't cut the volume of their buy. They rescheduled the rate at which they'll acquire the CTOL, so the totals still look the same. I have great empathy for the Secretary of Defense and the leadership in the Pentagon, who are looking at load-balancing in a period of this new reality that they see, too. There are fiscal challenges that they face, there are security challenges they face. They are going to be compelled to do more without having more resources in given fiscal years, and I think they're simply trying to make the right decisions and balance their load. I'm absolutely confident that as we continue to make progress on the Joint Strike Fighter, including the conventional takeoff and landing version, when we demonstrate that the airplane can fly effectively, that we're burning down our test points, that we're meeting our flight test schedules, that we're delivering software on schedule and we're meeting the milestones in reparation for training, the Air Force strongly desires to begin to phase the Joint Strike Fighter into the inventory. I'm absolutely confident of that. I think I have the same confidence for the United States Navy, and I certainly have it with the United States Marine Corps. As I mean with the Commandant of the Marine Corps with some regularity, he is personally and substantially involved as a service chief in taking ownership and accountability for getting Marine aviation the F-35B version. He measures performance on a weekly basis. I couldn't ask for a higher level of partnership, and it’s circumstances like that, when we focus together with the same set of metrics, with great transparency on what we've accomplished and what we have yet to accomplish, that progress will be born. And so I'm really confident that we're going to be able to meet our milestones and as we demonstrate the milestones, there'll be greater confidence in the airplane and actions will flow accordingly.

And our next question comes from the line of Heidi Wood from Morgan Stanley.

A sideline non-aero question for just a second. Can you give us an update on what your percentage of international sales were in 2010. And, Bob, highlight for us the major campaigns you see in 2011 and are you seeing international demand rising? Or is it flat vis-à-vis last year? Or are you seeing its tail off?

Heidi, I'll answer the international sales question. We ended the year right about 15% sales going to international customers, and that's in line with what at least I have talked about in previous calls about trying to grow that amount over the next two or three years up to 20%. I think we're on a good path to do that, and I would think we will see that transition from where we are today about 15% to 20% ratably over the next couple of years.

And, Heidi, when we think of International business, we think there'll be greater opportunities there for sure. I mentioned in the remarks, when the call opened, some changes in the global security landscape that I think some people may have reacted to with surprise but not everyone. It's very clear that technologies continue to proliferate. Countries and individuals continue to make investments and sadly, the threats that people face have not diminished in their entirety. When we look at the maturity of our portfolio, the quality of our products and frankly, the reputation that we enjoy globally, say, in our Aeronautics portfolio with airplanes like the F-16 and the C-130J, and I believe the F-35 will take its position right alongside really venerable programs in aircraft like that. There's a very high level of interest in securing these kinds of assets, and I think individuals recognize as we increase our production rate, we lower our cost, our quality is good. When they're thinking of affordability, this is a very opportune time to think about recapitalization needs along those lines of business. With the proliferation of missile systems, Missile Defense capabilities become preeminent. We have the Patriot system. We have the FAD system. We have the MEADS system. We have the Aegis system including Aegis Ashore. These are very robust, very proven technologies. Individuals don't take a great deal of programmatic risk, and I think they get a great deal of protection. It seems to us that international opportunities will vary perhaps a little less so in Europe for perhaps obvious economic reasons, but probably more so in the Middle East and more so in the Asia-Pacific theater. We're concentrating our efforts there. We're getting substantial inquiries from those areas.

And our next question comes from the line of Sam Pearlstein of Wells Fargo.

I guess one other question, which just I think what where Heidi might have been going is, I don't know if there are specific campaigns you can highlight that we might be watching as we go through the course of 2011, and you had a pretty strong fourth quarter order rate. Do you think you'll be able to get a book-to-bill up at 1x as we look through 2011?

Yes, let me talk about the -- Sam, if I could, this is Bruce. Let me talk about the phasing of backlog. Last year, we had -- I'll say that even distribution of orders across the four quarters, we actually dropped down to what, $71 million of backlog in the third quarter before we had the $20 billion in the fourth quarter. I think what we'll see in 2011 is a much more even spread, I mean, in fact as we're looking here the first quarter might actually end up a little bit even higher than where we ended the year. And then we may drop down a bit. Third quarter always seems to be our low point for the year, and I still think we'll end up the year either equal to or slightly higher than we ended the year 2010 with. And then, I'll maybe the start the bidding with the international opportunities and say, probably first and foremost, the C-130 sale to the UAE is likely going to be a first quarter, maybe early second quarter event. That'll be, think about a dozen or so C-130s. We're still hopeful that we can have some time this year some interest from the government of Iraq on an F-16 buy. And obviously – maybe not obviously - but one of the bigger ones we're counting on later in the year is the UAE FAD program. And I'll throw it over to Bob and if see he has anything else. Bob?

So, Sam, I would only reinforce those are the most active campaigns probably the UAE FAD is the most substantial with regard to Missile Defense.

And our next question comes from the line of Peter Arment of Gleacher and Company. Peter Arment - Gleacher & Company, Inc.: Bob, could you give us an update on Lockheed Martin's portfolios shaping? You came into 2010 and you made some two significant announcements and it sounds like PAE is going to close very soon or at some point here in the first quarter, and I know when you're rolling up your 2011 plan, you'd take a very hard look at this. Could you give us an update on that?

Peter, we have taken a very careful look. We like the portfolio that we have very much. As I mentioned, we're always looking to acquisitions but they really have to pass some pretty stringent tests of adding creativity, innovation, capability that we don't have today, the right size, the right value. We look at a lot of prospective acquisitions. We don't pursue a lot of prospective acquisitions, and we're going to continue to be selective. On the divestiture side, we don't have anything else in queue beyond PA&E. We did a very thorough assessment that led to the divestitures of EIG and PA&E. I think our focus will be on assuring we run a very tight shop here. Cost reduction, and there is no area or no element of our cost structure that we will fail to look at to see if we can get efficiency improvements and productivity. Recently, we announced the closing of Egan, as I mentioned, and some repositioning work out of Baltimore. We'll continue to look at ways to optimize ourselves with respect to the portfolio internally. I will say, we very much like the portfolio that we have in an environment where global security demands are increasing, in areas where we have demonstrated expertise, where affordability matters and we know economically there are increasingly scarce resources. It is why we are so focused on assuring we have sufficient volume and program continuity to allow us to continue to drive down learning curves to give customers real value. So I would tell you today I really like where our portfolio sits.

Our next question comes from the line of Troy Lahr of Stifel, Nicolaus. Troy Lahr - Stifel, Nicolaus & Co., Inc.: Bob, I'm wondering if you can talk a little bit about some of the -- you guys targeting adjacent markets. In the past, you've talked about that but you really didn't address it in your strategy discussion going forward, is there a less of a focus on that? Or does that just kind of fall into the acquisitions category?

No. Well, I thought the Littoral Combat Ship was representative of our interest in successful pursuit of opportunities in the adjacent market. And frankly, I don't talk about Littoral Combat Ship with adjacencies anymore because it's not. It's a core product line for our company, and that's how we build the core of the business and we're pleased with that. I will tell you that when we explored the market on the horizon for energy opportunities, we still have a keen interest in those areas, in cybersecurity, in health care information technology. Let me say our judgment about the quality in those markets is that it's maturing with some differential. A little slower than we anticipated, we think there are reasons for that deceleration. It doesn't mean our interest has diminished, but we're not going to lower our standards and pursue initiatives in areas where we don't believe we can be successful and I mean completely successful in delivering value to customers, running an efficient and good operation that we're proud of, that's good for our employees and generating the kind of financial returns that will more than satisfy our investors. I'll return to the quality of the portfolio that we do have. We believe we have a sufficiently strong and well-integrated core business portfolio here so as to continue to generate profitable growth from that core. We want to focus on generating cash. As we generate cash, it gives us considerable latitude to make wise investment decisions. We invest considerably in innovative technology inside our company, in business ventures with other organizations who bring value added either in the quality of their portfolio or their customer points of presence. And we have done that over the last year. I think of that as enriching the pipeline for future innovation and future opportunities. If we can't find acquisitions that make a lot of sense or investment areas in these adjacent or horizon markets, where we have high degrees of confidence that we're going to return good value to investors, we'll continue to pursue our share buyback program, our dividend program. We feel we have enough degrees of freedom to continue to generate economic value while we pursue superior position in the marketplaces. So we're going to build on the core portfolio that we have.

And our next question comes from the line of Howard Rubel of Jefferies. Howard Rubel - Jefferies & Company, Inc.: I have a cash flow question that's sort of two parts. Bob, the first part of it has to do with sort of contracts and the terms and conditions that you're seeing. And then the second part of it, Bruce, is could you give us a little more detail on how you got to the $4 billion in operating cash flow? I realized that D&A is probably $700 million-plus and net it's probably $2.5 billion and so there's obviously, there's some working capital or some other items making a difference there.

Well, the terms and conditions, Howard, tend to orient around performance-based payments or progress payments on U.S. government contracts. There's been a little bit more discussion about shifting the balance a bit from performance-based payments to progress-based payments, I think we've seen that a little bit but not in any wholesale way. So our cash flow projections include the balance that we're experiencing and our projection of where that balance might go on those two cash-recovery mechanisms. I will tell you that a great credit to Bruce and the finance team. We spend a lot of time and focus and attention on refining the cash collection cycle here, and our focus on working capital but really focusing on demonstrating value. And when you talk about contract terms and conditions, it's important for us to work contract descriptions where customers know they're receiving value and can therefore, release the cash with confidence. And I think our cash generation capacity is reflective of the system that's working pretty well. I hope that answers the feel you wanted to get for the mechanics of cash flow, and I'll turn the balance over to Bruce.

Yes. Back to your question on how we are getting to the $4 billion. I'd point to maybe two things that I see improvements on going forward. Some of which happened in 2010. As I said, I think some are going to carry over into 2011. One is as we start to see international contracts, back to Heidi's question on the level of International business we're doing, that will grow over the next two years, including 2011 and with that International business I think we'll see some customer advances coming to fruition. And secondly, the thing I'd point to is we've done I think a very, very nice job here recently in 2010 throughout the year. And I suspect we can still do a little better, particularly in the accounts receivable area, where I think in particular the IS&GS business area has had a tremendous focus on improving that. That's where a lot of -- just to be blunt, most of our other business areas tend to get most of their cash collections from a single payment office or a few payment offices within the federal government. Often times, that is the payment offices in Ohio. IS&GS has literally multitudes of payment offices because of their multitude of customers, and I think we've done a very good job of putting that kind focus on collecting those across that mixture of payment offices such that we're getting better returns and quicker payments of our cash than we previously were seeing, and I think that's going to continue into 2011. So I believe that those two things as the main drivers.

And our next question comes from the line of George Shapiro of Access 342.

Two-part question. One, I wanted to know whatever happened to the $600 million process pool for the SDD program that was, I guess, reset to different milestones and then the second is, why in the LRIP 4 contract wasn't there a contingency put in there in case production rates didn't grow as expected, given that there was clearly some risks that, that would have happened in the budget environment that we're in.

Well, let me talk to first, George, about the $614 million. We still have not finalized the discussion on any perspective reallocation of the $614 million as it relates to an award fee pool for work done under the system design and development contract. Let me also add that when we contemplate the prospective addition of $4.6 billion in the over target baseline that Secretary Gates mentioned, and I say prospective because we just haven't worked that into the contract, yet. In so as far as that $4.6 billion relates to the extension of effort already under contract, it won't carry an incremental fee with it. The $614 million was an award fee pool beyond that $4.6 billion. It has not been allocated on milestones yet. I think that conversation will begin shortly as we fold in, the revised program plan, establish milestones and do this in a very discreet way. Conversations will conclude on the appropriate size of that pool and the allocation of that pool to specific milestones. I can't answer you with greater detail because we don't have greater details. As soon as we get it, we will describe it to you. On the second part of your question was on Lot 4 having a condition about the quantities in Lot 5. We don't believe the performance environment on Lot 4 is going to be adversely impacted by the quantity on Lot 5 and don't need provision in the contract as such.

George, I'll add one thing to that. If you consider the growth that we're going to see on the SDD contract the $4.6 billion that Bob talked about, there will be some overlap obviously, and the cost profile of that SDD extension and the shortfall from the production contracts that will help to mitigate a lot of that impact on our LRIP 4.

Our final question for today comes from the line of Pete Skibitski of SunTrust.

Bruce, I just want to follow up with you on earlier question on out-year pension projections. Given we may have a $1.5 trillion deficit now, can you give us your out-year pension projections under the scenario where cash amortizations may be delayed a year or two?

In terms of FAS/CAS, Pete, I'm not sure.

Correct.

Again, we've talked about $925 million. I should have like Myles Walton answer this question. He's probably got the numbers as well as I do at this point. But with current discount rate and the current asset return, again, we think the FAS/CAS in '12 will go down to about a couple of hundred million dollars as opposed to the $925 million.

That's under cash harmonization actually happening, correct?

Your question is, would CAS Harmonization happening.

Yes. What would be the net expense of cash Harmonization doesn't happen or it slides out a year or two.

I think the impact of 2011 as I recall was about $100-ish million or so when we pushed CAS Harmonization out. My guess, since it's another year later, it’s probably a couple of hundred million dollars if it we were to push out from 2012. I tell you that's what I think we and the industry, we're going to be looking for that to happen. I think we've delayed that beyond what was originally contemplated when the Pension Protection Act was put in place. We were carved out very specifically, a large defense contractors as needing an adjustment to the CAS as a result of the PPA requirements, and that's one that I think as an industry and we, Lockheed Martin, will look to have coverage for in 2012.

Well, Karen, we've gone a little long on the call. Let me thank everybody for the additional time. Certainly thank you for your questions. We appreciate your thoughts. We're going to go focus on execution here, and we look forward to keeping you well informed as to the progress that we're making. Again, thank you for your time today. Karen, thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.