Good day and welcome, everyone, to the Lockheed Martin Fourth Quarter and Year-End 2011 Earnings Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Jerry Kircher, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Jovan, and good afternoon, everyone. I'd like to welcome you to our fourth quarter 2011 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. Let me remind you that statements made in today's call that are not historical fact 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.

Okay, thanks, Jerry. Good afternoon, everyone. Thanks for joining us today. All of us here hope that your new year is off to a very good start. Let me begin with a quick summary of 2011. In the fourth quarter, we booked almost $20 billion in new business awards from domestic and international customers and finished the year with a record backlog of almost $81 billion. Strong program execution, coupled with ongoing cost-reduction initiatives, enabled segment operating margins to increase to 11.5% for the quarter and 11.4% for the year, which reflected improvements over prior-year levels. Cash generation was exceptional with $1.1 billion in cash from operations in the quarter after making accelerated pension contributions of $1 billion and over $4.2 billion for the year, surpassing the prior year by more than $450 million. We paid $325 million in dividends in the quarter and $1.1 billion for the year as we continue to execute our $4 a share annual dividend payout. Share repurchases continued in the quarter and totaled almost 32 million shares for the year, enabling the retirement of 7% of the outstanding shares. With this focus, we generated a 21% total shareholder return with 16% stock price appreciation and a 5% dividend yield. These results reflect the quality of our workforce, the dedication of our leaders and the strength of our corporation and the focus we all have on delivering value to our customers and to our shareholders. Thanks to everyone in the company who played a role in driving these results. Since we last spoke in October, we've seen an expansion and in some cases, an amplification of the uncertainty evident in the global security environment and in world economic conditions. The events playing out in Afghanistan, Pakistan, Iraq, Iran, Syria, Egypt, North Korea, China and many…

Thanks, Bob. Good afternoon, everyone. As I highlight our key financial accomplishments, please follow along with the web charts that we've included today. Let's begin with Chart 3 and an overview of the full year for 2011. We grew sales for the company by 2% over our 2010 level and given the environment we operated in throughout the year, we're pleased with those results. We're even more pleased with the record backlog amount for the full year driven by almost $20 billion in orders in the fourth quarter, as Bob said. Segment margins were 40 basis points higher than last year, reflecting a strong performance year for us with much of that improvement stemming from cost-reduction actions that we took earlier this year -- or last year, excuse me. Our earnings per share from continuing operation were 11% higher than 2010, and we generated $4.3 billion in cash from operations while accelerating $1 billion in pension contributions previously planned for 2012. So overall, 2011 was a very strong execution year, and our results reflect that performance. On Chart 4, we'll look at sales by the 4 business areas. Two of the 4 business areas grew sales for the year led by a strong 10% increase in Aeronautics sales over 2010 levels. Electronic Systems had 2% growth for the year, better than what we premised when the year began. As anticipated, IS&GS declined by 5%, driven mostly by the absence of the U.S. Census activity this year. And Space ended the year relatively flat compared with 2010 as we expected. Turning to Chart 5, and our backlog to end the year, all 4 business areas grew backlog in the fourth quarter, and the company increased backlog by about $8 billion in the third -- from -- over the third quarter level.…

[Operator Instructions] And our first question comes from Jason Gursky with Citi Investment.

Just a quick question on the guidance and the Secretary's comments that he made this afternoon. Does your guidance reflect the things that he had to say this afternoon or is there a potential risk either to the upside or to the downside after you parse through his comments?

Yes, Jason, I'll take that one on. Obviously, we're still sorting through what the Secretary is saying. But I think in any event, I don't think there is a change to the 2012 guidance. Essentially, anything that would happen at least that I'm aware of in the conversations that he had today would affect 2013 and beyond, but we've still got some sorting out to do to see exactly what that impact would be. Bob, offer any other comments as you might want...

Jason, just another thought. I think the Secretary gave some executive summary views, and so we and others could get a sense of the shape and overall feel. But I think our experience has been entirely valuable to get into the details, the time phasing and other facets of the budget proper, and I don't think that's going to be available to us until February 13. So I think we'll give you -- we'll be able to give you much better insight as to our overall reaction to what is just really breaking news today when we next speak with you. But as Bruce said, it doesn't feel likely that we're overly sensitive in fiscal -- in our current fiscal year.

Our next question comes from the line of Doug Harned with Sanford Bernstein. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: I wanted to get an update on your views on the F-35 right now. I know when -- Bob, when you talked after Q3, there were issues when you look at LRIP 5 in terms of the structure of that program, the risks involved in potentially having to –- pay for work on prior airplanes. So if you could, if you could update both on LRIP 5 where that stands today, and then also when you're looking at some of the technical challenges on the airplane such as the arresting hook, helmet-mounted display, could you give us an idea how some of that progress is going and when you expect a resolution of some of those issues?

Sure. I'll do my best, and you'll let us know if it's thorough enough, Doug. So when we last spoke, we had a very unique issue on LRIP 5, and it had to do with risks associated with concurrency costs. And the in -- at the time of our discussion, the formulation that we were reviewing from the government had a substantial risk transfer to industry, our company and our partners and our suppliers. Through negotiation and discussion that unfolded subsequent to the call, we negotiated the parameters associated with concurrency, and I would tell you, put it into a formulation that both we and the government felt was appropriate with regard to risk and execution, where we are accountable and they are accountable, and that's what partners do. So I think that matter is resolved. We are in the process of negotiating Lot 5 now. I don't have a time horizon where I can give you some assurance that negotiation will be complete, but we are leaning forward in an attempt to negotiate the final terms, conditions, pricing and provisions of Lot 5. Relative to some of the technical issues that you described, Doug, and I think a number of those over time were associated with the STOVL variant of the Joint Strike Fighter, I tell you we're making progress along each of the items that are identified. I think that progress was reflected in the 2011 performance of the program overall, certainly, the flight test program that ran a little bit ahead of schedule. I think most people would have noted that the STOVL variant was removed from probation after personal involvement by Secretary of Defense Leon Panetta. The Secretary visited the Pax River Naval Air Station. He spoke directly with the pilots and the maintainers and others…

And next on the line, we have Rich Safran with Buckingham Research.

I wanted to ask a question on your backlog. So taking a look at your book to bill was pretty hefty, 1.6x this quarter. You finished the year greater than 1x as you said last year. Following last year's greater than 1x book to bill. Not meaning to sound like someone who's saying what have you done for me lately, just wanted to know if you could comment on the opportunity set for 2012. What's your view on 2012 book to bill? And what I'd really like to get a sense of is do you feel -- do you kind of feel that book to bill has peaked in 2011 or do you see an ability to repeat that this year?

Hey, Rich, I'll take that one also. Hey, I was looking at this actually recently, we kind of did a review of the plan for 2012 and the outyear look as well. The thing that struck me as I was looking at that is there's not just a large number of I'll say high dollar awards in the first quarter or practically for that matter, in the first half of 2012. So what I think we're going to see, at least in the first half of the year, is some reduction in that backlog. So our book to bill will be lower than 1.0. I'm trying to think off the top of my head some of the larger orders we have in the first quarter, but things like the fiscal year '12 F-22 sustainment contract as one example. The authorization under a UCA in all likelihood of the F-35, LRIP 6 contract, and some international sales within Aero, perhaps for some C-130s might be highest dollar items in the first half of the year. I think we will likely have greater than 1 point. At least as we sit here today we'll likely have greater than 1.0 book to bill in the second half of the year. In the third quarter, a little bit different maybe than years past, which has always historically been our lowest quarter of the year from an orders perspective, and we've always dropped backlog more in the third quarter than any other quarter. I think that might change somewhat at least as we see here today that the third quarter will actually see some backlog growth. And I'm hoping, Rich, that by the end of the year, I think we might see some slight reduction. But I'd like to think we can be around the $80 billion mark for the year. And I don't think that's -- I guess that's a stretch goal I'd like to have for ourselves to kind of keep the backlog starting in the 80s. That's not a slam dunk by any stretch, but that's, again as we sit here today, that's the way I think about it, Rich.

And next on the line, we have Heidi Wood with Morgan Stanley.

Bob, 2 questions for you. One simple and the other more big picture. First, when do you get to rate on the F-35? And the second question is can you talk about the state of IR&D? The DoD doesn't seem to be clear about where their R&D priorities are going to be beyond bomber? So where does your IR&D future look like since DoD may be a less reliable source of R&D going forward?

Yes, thanks, Heidi. On both of these fronts, the answer has gone a little -- it would be a little bit, we're going to have to wait and see. For example, rate on the F-35 is going to be function of we think of new quantity adjustments that will phase out. I'll give you our best understanding today. Phase out of the nearer-term lots, some of the build cycle probably more or less leveling the quantities at around 30. Again, we'll look for the detail, and then accelerating out of there. I think in conjunction with that, Heidi, our understanding today is that the total quantity to be procured domestically remains at 2,443. So we're looking at a phasing, the phasing will have dual advantages of lowering the budget demands, aligning to fiscal pressures, as well as creating some time for the maturation of the airplane that might minimize some of the revisions to the configuration. Both of those things we think makes sense. I think the other aspect of rate or volume at least in the near term, we will, in the very short term, get some clarity and insight as to the U.S. government's buy plan. And we'd like to anchor that as a foundation. And then revisit with each of our international partners and each of our potential foreign military sales customers not just those who are already on board the program like Israel or Japan, but maybe future purchasers like South Korea where there is a tender and others, and begin to then build this revised acceleration plan that will lead to rate so that we can do that in the most efficient and effective way possible. So I think that's about the best summary of F-35 volume over time to rate that we have today.…

And next on the line, we have Cai Von Rumohr with Cowen and Company.

So on the F-35, looking through your commentary, it looks like revenues last year were down about -- were up about $700 million on both parts of the program, and profits may be off $35 million, so the margin's off may be 1 point. Could you give us any sense now that you seem to have the concurrency issues resolved? Do we have any opportunity on margins this year -- or excuse me, moving into the future?

Hey, Cai, it's Bruce. I'll take that one on. Look, without commenting on your math, your math is usually pretty accurate. But without commenting on it, the way I'd look at 2012, let's start with the revenue on the F-35 program. I think the F-35 LRIP contracts are growing somewhere in the 9-ish to 10% range year-over-year. So we're still seeing some good growth there. That's being offset because the development contract, the SDD contract, is going down compared to 2011 as you might expect. I think net-net, the F-35 is up some mid-single digits growth year-over-year. As to your question on margins, I would expect us to see some margin improvement on the F-35 in 2012, primarily because if you just sit back and think about what we're going to accomplish in the year, we're going to deliver a lot more aircraft this year. We're going to deliver, and I'm quoting this from memory here. We're going to deliver all the LRIP 2 aircraft, all the LRIP 3 aircraft and a good portion of the LRIP 4 aircraft all in 2012. And so as you might expect, we have a historical practice of not booking from a booking rate perspective at the at-completion position or as we expect the programs to run at their end or at their completion until we've retired the risk on those contracts. And so as you might expect, we've got some risk retirement that we're expecting to become finalized with the final delivery of those aircraft. And again, because a good chunk of those 3 LRIPs are all finishing in 2012, we would expect to see some margin improvement compared to 2011 for the F-35.

And next on the line, we have Peter Arment with Sterne, Agee & Leach. Peter J. Arment - Sterne Agee & Leach Inc., Research Division: Just a question on capital deployment. You guys have been setting the standard amongst your peers in terms of dividends and buybacks. I wanted -- how are you approaching it going forward now that we kind of have pretty good feel directionally, where the budgets are going to be and potentially a lot of moving parts amongst your peers when you weigh that against a selective M&A? How are you looking at that in terms of going forward on the strategy?

Well, with -- in today's environment, we're looking at cash deployment pretty much the same the way we have been, and we're not communicating with you any change in strategy or philosophy because I think you know that the first thing we do is start by getting the cash. And I don't say that lightly, but we have a very rigorous focused and disciplined process here that is institutionalized around the company that cash management matters a great deal relative to our ability to both make appropriate internal investments and then return appropriate value to shareholders. So we're rigorously focused on that, and we like the balanced cash deployment approach we have that you highlighted, a component for share repurchases and a component for dividends. We spent a lot of time talking with the investors in the company to make sure that we understand your sense about how we ought to be thinking about cash deployment, but I don't think you should expect a change in our approach.

Peter, this is Bruce. I don't think I said in my remarks, but I'll say it here because it relates to your question, obviously. The guidance that we provided for 2012 assumes that we're going to have at least $1 billion of share repurchases contained within the earnings per share number that we gave you. And I think that's the at least some indication that we're going to continue the practices that we've done and demonstrated in the last few years.

And next on the line, we have Carter Copeland with Barclays Capital.

Just for Bruce, a quick clarification on your comments around the Aeronautics margin and then a question about long-term pension funding. On the margin, back to what you were talking about on the F-35 and your sort of historical behavior pattern on EACs and risk retirement around the end of a contract, as you look to the end of the F-22, should we be expecting anything that kind of intra-year quarterly patterns of margin in Aeronautics that's worth noting in 1 quarter versus some of the others? And then secondly, you provided some commentary around pension funding. Obviously, that's in the guidance in 2012. I just wondered if you might give us some color on how that stands where we are today for 2013 and beyond.

Yes. Thanks Carter. So let's say, I'll start with the sort of the F-22 question, would you see the same thing that we described. I think that was your question as we saw or as I commented on the F-35. I think there's 8 aircraft left to deliver on the F-22 production program. All of them have literally left the factory, and they're sitting in what we call our flight line operations going through, as you might expect, flight testing both with our pilots and with the government pilots. So there's not a lot of -- frankly, there's not a lot of cost left to do on those aircraft. Again, they are all built, at this point in time, they were finished last year. So most of the risk retirement that you would associate with the end of the program occurred in the 2011 time frame, not the 2012 time frame. So while there might be some opportunities for improvement, I wouldn't expect it to be as substantial, for instance, as we saw in 2011. Longer-term pension funding, again, we accelerated $1 billion of the required payments from 2012 into 2011. As we look for and I think you're probably aware of the CAS Harmonization rules were recently passed or implemented. I think they're actually effective not until next month, but I think the notification came out at the end of December of last year. We should see cash recovery rise in the next few years, but the actual payments from the ERISA perspective looking into from 2012 into 2013, I think we're paying now about $1.1 billion in 2012. That number grows to about $2.1 billion in 2013. The flip side of that is the CAS recoveries about $1.1 billion. So think of that as being sort of a breakeven position. CAS risk -- excuse me, risk of payments out and CAS recoveries in for 2012. The CAS recovery in '13 is more like $1.4 billion. So we're getting some of the benefit of the CAS Harmonization, but not much. ERISA payments are probably at similar level in the year after and the CAS recovery grows some beyond that. So slow recovery I'll say it back to -- sort of getting back to a breakeven position, primarily because the CAS Harmonization got pushed out further than we had expected when we started first talking about CAS Harmonization. That's still expecting in the not-too-distant future for that to get close to breakeven, then start to flip the other way around where we're getting more collections than payouts.

And next on the line, we have Joe Nadol with JPMorgan Securities. Joseph Nadol - JP Morgan Chase & Co, Research Division: Bob, on the capital deployment front, you have made maybe a subtle shift in the strategy or maybe it's just the timing, but you've done a couple of acquisitions here in the fourth quarter that were -- they weren't huge, but they were bigger than certainly than you've been doing. You've also over the last year or so divested a couple of the deals that you had done a few years ago. And I think all 4 of these acquisitions, I'm including the -- or all 4 of these deals, I'm talking about the 2 acquisitions you made in the fourth quarter as well as Savi and PAE, they're in adjacencies. So I was wondering if you could maybe characterize big picture how you're viewing acquisitions in adjacencies? And then maybe a little bit on each of the deals and why you decided to divest Savi and then acquire these other 2?

Sure, I'll be happy to, Joe. I think that we are -- you mentioned timing here. I think that's maybe a little bit of timing. We've had a-string-of-pearls approach. We like that approach. We look for companies that give us access to markets, unique technology, they provide a good fit, they have some ease of integration and they meet our overall test for valuations. I think the acquisitions you're referring to were Sim-Industries and QTC. They are part of an adjacent market strategy that we've had in place for a number of years now. We are certainly interested in moving this business forward in the technology areas that we think customers will increasingly value and in areas where we can back up some synergies. If you think of Sim-Industries in the market for simulators, we've been in the simulator business for a long time. This extends our portfolio. We're not unwilling to take that portfolio beyond our traditional customer sets to bring in some of those business practices into our core business. We think there is real synergy there. We'll continue to explore for businesses that fit our portfolio, fit our business model and that will now align with the contours of this new National Security Strategy and the portfolio we've put in place. So to the extent that there would be a business that would provide for us international opportunities, we will certainly look at that. With regard to the cyber domain, I think there'll be a continuing and even growing demand for capabilities in that regard. Our Systems Integration businesses is always one that we'd like to reinforce and support. And certainly the emerging field of energy and here, we're going to be selective because one size isn't going to fit all. But we do have some interest…

And next on the line, we have George Shapiro with Access 3:42.

42, LLC: This is for Bruce. If you take a look at Aeronautics, you disclosed this quarter that you had risk retirement of $70 million on the F-16, and another $35 million on the C-130 and C-5, and together, it's maybe 270 basis points addition to the margin. Can you just describe what they were actually related to and what the opportunity is for getting more of those next year? And is there any way we can kind of anticipate some of those coming? And then one other one in that area. The F-35 profit margin is clearly implied to be down in this quarter based on your commentary. I just want to validate that, that's probably LRIP 4 being booked in higher revenues and a lower margin that's kind of swamping your overall numbers, and there wasn't any change in any of the other program margins.

Okay, let me start, George, with the first question, the F-16 step-ups and the C-130 what drove them and what's out there for next year and what should you be looking for. The F-16 we've -- I'll say a lot of that was sort of ordinary run-of-the-mill program execution, clicking off performance milestones and retiring risk accordingly. There was on one of our international contracts, a particular item that we were tracking towards that we actually reached closure on in the fourth quarter that we felt justified a step up. So that particular item, which was -- I'm trying to think off the top of my head, George, that was a pretty good chunk, probably 1/2 or so of the F-16 pick-up, that will likely not repeat next year on the F-16 program. The C-130 program is again just sort of the clicking off the normal manufacturing activities. The only thing that was a little bit unusual on the C-130 is we had a really, really good performance on the sustainment contracts on the C-130 activities in the quarter. And I'd like to think that we have the opportunity to do that in 2012 as well. We're -- I think we've really hit a stride where customers are seeing great value in the sustainment support that we are providing those, particularly obviously, the international customers is where that -- most of that happens. And I'd like to think that, that was -- be something that you'll continue to see in 2012 as well. As far as the F-35 profit margins are concerned, I mean, there was no -- and I'm doing this again from the top of my head, that there was no profit adjustments upwardly or downwardly in the quarter. So any margin change that happened was purely volume related. We are starting to get some heavier activity in the LRIP 4 contract as you described in your question. And that's again because as I said earlier LRIP 2, 3 and part of 4 will start delivering this year. So that volume is starting to come in, and some of that margin improvement that we're looking for in 2012 will be on contracts such as LRIP 4 as we start to see production aircraft roll-off the line as we anticipate. That will be the triggering mechanism, if you will, for the risk retirements that we plan.

And next on the line, we have Myles Walton with Deutsche Bank.

Just going back to the cash flow outlook for next year at $2.8 billion on the op cash line. Bruce, a couple of things. One, the pension expense after-tax looks like it's a $750 million tailwind or so, maybe a little bit less than that. And then is there anything outside of maybe advances or cash taxes, are those the 2 major downers to the cash in 2012? It just seems like even your usual 10%, 15% conservatism, this would be a bit lighter than you might otherwise have given the tailwind on lower pension contributions?

Yes, hey Myles, let me -- just to clarify what I think I heard. I think you said $2.8 billion in operating cash in 2012, it's $3.8 billion for the year. And if your questions, again, when there was -- again there were a lot of receipts that got pulled into 2011 from 2012, including some fairly good-sized international receipts. And that's one of the things that enabled us to do the $1 billion acceleration of the pension plan. So we're actually ahead of the game. In fact, for the first time in the corporation's history, at least as I look back in the records, we actually have negative working capital at the working -- at the corporation level. So that's hard to replicate, and one of the reasons that you'll see are -- that your calculation from balance sheet perspective, that's the heart of your question. It's because you're seeing some of the work-off, if you will, that negative working capital coming back next year. I'd like to think even having said that, there are still opportunities. I can tell you, if you talk to any of my folks in the finance organization working in the 4 business areas, they will tell you that I am pushing hard to do better on cash flow than what we've committed to here. And I think there are opportunities to do that, but we're just not there at this point in time to change the guidance accordingly. We'll, obviously, give you updates throughout the year as we progress, and we'll come back to you and tell you how we're doing on that challenge.

Our next question comes from Howard Rubel with Jefferies & Company. Howard A. Rubel - Jefferies & Company, Inc., Research Division: Bob, you were very successful in placing THAAD in UAE. Are there a couple more opportunities for this? And might you also address some international potential?

Yes, thanks, Howard. I'll tell you that relative to the THAAD in the UAE program, you know that Chris Kubasik hadn't been on the calls because he went out and got a real job as our Chief Operating Officer. And he'd been doing an excellent job in focusing on the execution of programs like THAAD, as well as assuring that we're listening carefully to the needs of customers. When we look at the Middle East and you start with an assessment of the security climate there, I think many people look at the Iranians with respect to their actions and their intentions even in the most recent discussions about prospect of closing the Straits of Hormuz, and it creates a very high level of tension. And people recognize that they have invested in the kind of technologies that include ballistic missile threats, and therefore, many in the region who have population centers, who have oil production centers, who have strategic areas of interest view missile defense as a very critical system. So that as we look at the National Security Strategy that was outlined by the President -- the Secretary when they talked about increasing security cooperation partnerships movement as you highlighted by United Arab Emirates here with THAAD, I think if you look across the -- generally, the Gulf Coordinating Council regions, you would see I think a similar level of threat and risk and a similar desire on the part of our administration to lean forward. Now you know we follow a very discreet process here that starts with government-to-government discussions. First, and nothing that we would say or do would subvert that process. But in the longer term, I suspect there'll be heightened and continued interest. I think that those interests will be viewed favorably by our…

Our next question comes from David Strauss with UBS Securities.

Just a couple of little things. Bruce, I don't think you specifically said the tax rate you're looking for, for 2012. And then back on F-35 in terms of the mix, could you maybe breakout percentage-wise on the production side how much of the revenue base you think in 2012 will be LRIP 2 aircraft versus 3 versus 4?

I'll answer the easy one first, David. Tax rate for 2012 is -- right now, we're looking at about 30%. That excludes, obviously, the effects of the R&D tax credit. But for planning purposes, think about 30%. Relative to your question on the split of the LRIPs, I'll remind you this is a contract that we’re -- the LRIP contracts themselves are contracts that were booking on a percentage-of-completion basis. So there's very little cost, I'll say, for the LRIP 2 aircraft relative to -- it is not proportional to taking simply LRIP 2 aircraft divide it by the total, because those -- the cost to build those aircraft similar to what I was describing on the F-22 program are kind of behind us. They're out of the factory. They're going through flight testing and the like, and so it's difficult to parse that out. Off the top of my head, I'll say for the total LRIP activity, that's heavily, heavily dominated by LRIP 3 and LRIP 4 activity, which you would probably expect in 2011, and that will shift over in 2012 to the LRIP 4 and LRIP 5 and a similar pattern all the way through future years.

Jovan, let me say thank you for your help today. We're going to take our increasingly mature portfolio of relevant global systems, focus on the needs of our customers in addressing global challenges, and we look forward to updating you with our progress next quarter. Thank you, all, very much for tuning in on the call today. Again, Jovan, thank you.

Thank you. Ladies and gentlemen, this does conclude the conference today. Please have a great evening.