Jerry Kircher - VP of IR Bruce Tanner - CFO and EVP

Peter Arment - Broadpoint.AmTech Itay Michaeli - Citi Brian Ruttenbur - Morgan Keegan George Shapiro - Access 342 Troy Lahr - Stifel Nicolaus Noah Poponak - Goldman Sachs Rob Spingarn - Credit Suisse Joseph Nadol - JPMorgan Doug Harned - Sanford Bernstein Sam Pearlstein - Wells Fargo Securities Heidi Wood - Morgan Stanley

Good day and welcome everyone to the Lockheed Martin Corporation Second Quarter 2009 Earnings 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.

I would like to welcome you to our second quarter 2009 earnings conference call. Joining me on the call today is Bruce Tanner, our Chief Financial Officer and Executive Vice President. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of Federal Securities Law. Actual results may differ. Please see today's press release and our SEC filings for description of some of the factors that may cause actual results to vary materially from anticipated results. Please also note that we have posted charts on our website, which supplement our comments today. With that, I'll turn the call over to Bruce.

I would like to begin by stating that overall the corporation had a quarter of numerous operational and financial highlights, but also contained some areas that fell short of our expectations. Financial highlights included our Aeronautics business achieving strong revenue, operating profit and margin growth, Electronic Systems continuing its exceptional margin generation above 13% and the corporation generating cash from operations in excess of $1.1 billion. Financial and operational performance in IS&GS fell short of our expectations this quarter and caused us to reduce its full year financial outlook. Improvements from our other business segments and the benefit of our cash deployment actions enabled us to maintain and reaffirm our full year financial guidance for the corporation. Before I move into the specific elements of our second quarter performance, I want to provide an update on the budget deliberations on the core defense authorization bill, as well as actions taken this quarter by the Department of Defense to realign its program priorities. Congressional budget committees continued to propose revisions to the administration's $534 billion FY 2010 core defense budget target. Consistent with the revised program priorities outlined by the Department of Defense, the budget committees have shown strong endorsement of our F-35 Joint Strike Fighter program. The proposed 2010 budget contains over $10 billion in funding for continued development and low rate production activities, including funds for 30 new aircraft for the LRIP 2 Contract. Increased support of the Littoral Combat Ship was also evidenced with the budget containing funds to procure up to three ships. Other programs identified for potential budget increases included Aegis, THAAD, Advanced EHF satellites with a balance of our program portfolio remaining well supported. These program recommendations will be reviewed by the full Congress in the coming months as the budget deliberations are concluded later this year. In addition to the ongoing congressional budget discussions, the Department of Defense began implementation of its revised program priorities outlined earlier this year by Secretary Gates. DoD contractual actions taken on our programs this quarter included the termination of the VH-71 presidential helicopter program. This termination for convenience resulted in our stopping work on the program and reducing our backlog by approximately $1 billion. The DoD also announced its intention to not proceed with the next-generation Transformational Satellite or TSAT program. With the cancellation of the future TSAT satellite constellation, the TMOS ground segment contract work that we started performing in 2006 supporting the TSAT program was also terminated for convenience. This termination action resulted in an additional reduction in our backlog of $1.6 billion. The combined backlog reduction for VH-71 and TMOS terminations was $2.6 billion and was reflected in our second quarter backlog value. Solid new award bookings in excess of $12 billion in the quarter helped mitigate the impact of the program termination and limited the net backlog reduction to $1.5 billion. Our overall backlog at the end of the quarter remained strong at nearly $80 billion. Turning to our second quarter results, overall the corporation achieved solid financial performance, won key new business awards and completed significant operational milestones. Financial achievements on the quarter included sales growth consistent with our expectations and strong cash generation. With second quarter activities generating over $1.1 billion in cash from operations, we were able to continue to make opportunistic share repurchases. During the quarter, we repurchased 5.6 million shares of our stock for $453 million. This brings our year-to-date share repurchase total to 13.7 million shares at a cost of $1 billion. Our ongoing share repurchase actions have enabled us to reduce our fully diluted share count to approximately 391 million shares, achieving the lowest share level, since the year 2000. Let me now turn to review of our business area performance. Starting with our Information Systems & Global Services business, as I noted earlier, sales growth, operating profit and margin levels in the quarter, fell short of our expectations. Despite IS&GS's record of new business wins, protest by loosing competitors on programs are preventing IS&GS from ramping up sales levels as quickly as projected. We've also seen additional constraints on sales growth due to funding delays in other areas. These pressures have caused us to slightly reduce the IS&GS sales outlook for 2009. Operating profits were also significantly below our expectations. Key drivers for the shortfall were work [fee] lower than anticipated, program performance levels that were not sufficient to enable plan profit booking rate increases and start-up issues on several new awards. These items resulted in a reevaluation of full-year projections and caused us to reduce its operating profit for 2009. We are applying additional resources to improving execution in this important business area and remain committed to setting and achieving high standards of operational excellence. Looking at the new business performance of IS&GS. Key awards this quarter included a five-year contract from the Department of Energy to manage and operate the new Mission Support Contract at its Hanford, Washington site. The initial $1.5 billion contract has the potential value of over $3 billion, if the additional five-year option is exercised. This contract was originally awarded in the fourth quarter of 2008, but was placed under protest by a losing competitor. With successful resolution of the protest this quarter, we look forward to expanding our portfolio of work and partnership with the DOE. IS&GS was also selected by the General Services Administration to compete for a future information technology task orders under its next-generation Alliance contract. Alliance is a government wide acquisition contract to provide IT services, products and solutions to worldwide [client] agencies. Finally, IS&GS was selected by the US Army to compete for future task orders on the Army Battle Command System Management Contract. The five-year IDIQ contract has a potential value of nearly $800 million. Contract task orders will be used to migrate existing Army Command Systems, to a net-centric service-oriented architecture that will enable interoperability with other Army Systems. In our Electronics Systems business, we won a $100 million international contract from Saudi Arabia to deliver Sniper Advanced Targeting Pods, F-11 Fighters. This multi-year modernization program will be provide the Royal Saudi Air Force, Advanced Targeting Pods technology that includes enhanced image clarity, long-range target detection and real-time targeting for weapons. Domestically the US Air Force selected Electronics Systems to reform on the IDIQ lifecycle program support contract for the HN Thunderbird Aircraft. This contract has a potential value of $1.6 billion. Our activities will simply center on providing systems engineering and programming configuration management to modernize and sustain the aircrafts. These modernization actions will ensure the long-term readiness and sustainment of the aircrafts to the war fighter. Electronics Systems also had key operational accomplishment this quarter, in the increasingly important of area of Theater Missile Defense. We achieved successful rollout of the first production at weapon system. This further positions our proven missile defense system for expanded availability to domestic and international customers. The THAAD System is expected to provide a pivotal role in the ballistic missile defense of our nation and allies. THAAD was highlighted by the DoD as an area of the expansion in the revised defense priorities outlined earlier this year and also has received strong expression of interest by multiple international countries, including Japan and the United Arab Emirates. Turning to our Space Systems business. Our team also continued to win significant domestic and international contracts. The US Air Force awarded a $1.5 billion contract for additional assets on the SBIRS program. The new contract procures a third highly elliptical orbit payload, a third geosynchronous orbit satellite and associated ground modifications. These additional assets will further expand the capabilities of this vitally important national program in providing early warning of missile launches -- excuse me while simultaneously supporting missile defense, technical intelligence and battle space awareness missions. International new business awards, include award of a contract from JCSAT, Corporation of Japan to build its next commercial jail stationary communication satellite. The new space craft will utilize the proven design of our A2100 satellite bus and is scheduled for launch in 2013. Before leaving space, we should not let a significant moment like the 40th Anniversary of the first man landing on the moon, pass without saying congratulations again to the NASA team. Lockheed Martin and our heritage companies have been proud to provide their contribution to that momentous lunar landing. And we look forward to helping NASA with their future successes through their development or deployment of our next-generation Orion crew exploration vehicle. Moving to the Aeronautic business. Our team delivered another quarter of strong performance as they continue to win international and domestic new business awards, while achieving operational milestones across our portfolio of programs. The C-130J aircraft continues to be recognized by domestic and international customers as the most cost effective and proven airlifter of choice. New aircraft awards for the C-130J included an order from Oman for one aircraft and an [FMS] authorization to buy four aircraft to Iraq. These international orders expand the number of nations that have acquired C-130Js to 11. In addition to the new aircraft orders, the US Marine Corps issued a sole-source award to Aeronautics to modify three KC-130J aircraft under the Harvest Hawk program. This aircraft modification contract and new C-130J aircraft awards demonstrate the unique qualifications and flexibility of our team in responding to a wide spectrum of customer requirements. This flexibility in our proven product had the program solely position to continue its growth and annual production rate to at least 24 aircraft in 2010. Moving to operational performance. The F-35 Joint Strike Fighter team continued to expand their low rate initial production work and retire development risks on the program. Key milestone events accomplished this quarter include successful completion of hover-pit tests on the BF-1 STOVL aircraft. The test also confirmed that the engine generated more vertical for us than DoD performance requirements. These successful tests clear the aircraft to proceed with expanded flight test followed by vertical landings and hover flights later this year. Another critical success this quarter was completion of the static test program on the STOVL aircraft. The static test required the aircraft to be tested to 150% of its designed limit load and resulted in no structural failures. This test confirmed the strength of not only the STOVL test article, but the validity of the design models used on all three variants. We also took the structural test article to the point of failure at over 220% of the design load limits to validate the additional structural margin of the design. Achievement of this structural test helps clear the full flight envelope and removes restrictions from the STOVL flight test program. : Parallel testing of the avionics systems using the CATBird is a key component of the ongoing risk mitigation activities on the F-35 program and applies to lessons learned on prior Legacy aircraft. In the area of program funding, Congressional support for the program remain strong as evidenced by the Department of Defense award of $2.1 billion on the LRIP Lot 3 contract this quarter. This contract provides funding for 14 US aircraft, plus two aircraft to United Nation and one aircraft for Netherlands and brings our LRIP backlog to 31 aircraft plus long-lead for an additional 30 LRIP 4 aircraft. International support for the program continues to build with announcements this quarter from two additional partner countries reaffirming their intention to purchase the F-35. The Norwegian Parliament approved the F-35 is their next-generation fighter and Australia released their defense white paper outlining their intention to purchase F-35 fighters. With these announcements, three of the eight partners have reaffirmed their intention to purchase future production F-35 aircraft. With steady progress and risk retirement, strong funding support and growing international customer commitment, the F-35 program remains on track to ramp up production. Lastly, we did close on an acquisition in the quarter with our purchase of Imes Strategic Support Limited. Based on Scotland Imes provides engineering, maintenance, repair and support on the UK Royal Navy's Trident Strategic Weapons System program. This acquisition expands our Fleet Ballistic Missile franchise into the UK and will enable us to offer a broader set of solutions to both our US and UK customers. This acquisition would be managed within our Space Systems business area. These highlights demonstrate our strong win rate and continued program operational execution as we work to continue delivered it, increased value to shareholders and customers. Finally, we were proud to be recognized by Aviation Week and Space Technology magazine for the second consecutive year has the best performing large cap aerospace company in its recently released top performing company study. This award underscores our daily focus and commitments to provide value to shareholders, as a direct reflection of our talented workforce. I’d now like to open up the line for your questions.

(Operator Instructions). We will take our first question from Peter Arment with Broadpoint AmTech. Peter Arment – Broadpoint AmTech: Could you talk a little bit about IS&G, just the been growth going forward, I think you’re looking for 10% growth for the year at least sequentially in the back half of the year. Can you just maybe give us a little more color there?

Yes. Like as we said here today, maybe what ought to do, I’m sure this going to be several questions on IS&GS, so just kind of give a rundown on a number of point, I want to make there. I’m going to start if you will, with the second quarter sales price in GS, which were up a $160 million over a last year about 6%. Most of that growth occurred in our defense line of business, within IS&GS as you recall, we operate in the civil, defense and intelligence LOBs in that business area. The other two LOBs besides defense were fairly flat. And really what's driving that flatness, especially in the civil side is protest and to a lesser extent some customer funding delays. I'll just give you an interesting stat out, looking at as I was getting ready for this call. We've had 88 awards within IS&GS this year, five of those 88 awards were protested and of those five, three of those would have been on the outlook at the start of the year, within our top 10 contracts for sales in 2009. So, although five out of 88 might not sound like a big number, they were three of the larger programs we're expecting to generate sales for the whole year. I'll talk to a couple of specifics ones there. DOE Hanford contract, I mentioned on the prepared remarks; we won in December of 2008, it's really just now starting up. Similarly the [FASTer] contract which we reported last quarter as a win, that's likely going to be a new competition. And expectation at this point that competition won't be solved or settled until the 2010 timeframe, which essentially says zero sales for that contract in 2009. Now on top of that, we've had some activities within our Department of State work that have been slowed to get funded, primarily because of staffing by the customer in this area. EBIT, it was down for the quarter, about $25 million, about 9% from the last year, the ROIC is down a 130 basis points. Now couple of things driving that in the quarter, mostly again within civil we had a performance adjustment that we took in 2008, I think of this in $10 million to $15 million range. We had no such adjustment in 2009, although we had been hoping to have some more adjustments occur in 2009, they did not occur. We've also had some start-up issues on a couple of our new contracts as I mentioned in our prepared remarks in civil. And lastly, I talked also that we've had less low performance in our intelligence business that we are probably working to correct. So, probably more specifically to your direct question, Peter, the sales in the second half of the year particularly given the protest impact that we already see, we're probably expecting more like 8% growth year-over-year, second half of '09, compared to second half of 2008. And what that really indicates is we don't expect to make the volume loss due to delays or protest. I think it's also important to say that we're expecting the fourth quarter to be a much higher quarter sales wise than the third quarter. If you look back at the history of IS&GS you will note that the fourth quarter tends to be a higher, this is more the seasonal nature of the IS&GS business. Fourth quarter of calendar year is the first quarter of the fiscal year and we tend to get a lot of contracts, especially the product contracts for short-term sales opportunities in the fourth quarter. You didn't ask about margins in the second half, but I'll go and address that as well. I think margins in the second half are look to be probably similar to those in the first half. And really what that entails is we are expecting some of the second quarter issues that led to the second quarter downer that I talked about previously, to also dampen the last two quarters of the year. We'd also hope when we started the year, there were a couple of contractual matters that we had hoped would be settled in the second half of this year. As we sit here today, both of those are likely to be pushed out and both worth less than we'd expected at the start of the year. So, probably a broader response to the question you asked, Peter. But I want to give you the full color there. Peter Arment – Broadpoint AmTech: No, I appreciate that. Thanks, Bruce. And just so either way I understand is for reaching your upper end of your guidance range, is the margin trend I guess going forward is going to have to still ramp somewhat also on terms of, for the run rate that we're at this quarter?

Within IS&GS? Peter Arment – Broadpoint AmTech: Yes.

Actually, I think we'll be fairly consistent with the first half of the year for IS&GS. Is my expected outlook, Peter?

And we will go next to Itay Michaeli with Citi. Itay Michaeli - Citi: Just going back to second half margin particularly for Aeronautics and Electronics, you talked about the Canadian solution you're expecting there, I mean it looks like revenue should be accelerating in the second half and just how you feel about potential upside there in the second half of the year?

For Electronics and Aeronautics you said? Itay Michaeli - Citi: Yes, Bruce.

Let's start with the Electronics came in with a fairly flat to down quarter in the second quarter of this year, compared to the second quarter of last year. Last year, second quarter was a bit of tough compared with this one, because it was the largest quarter of the year for Electronic Systems and there were a number of timing deliveries particularly in missiles and fire controls. They happened in the second quarter of last year that we don't expect to be replicated in this year second quarter. Although, the Electronic Systems is down just a THAAD from second half last year, other than the missile and fire control being down, the other two lines of business within Electronic Systems, the MH2 and PMT, LOBs are both up in the second quarter. As I look towards to the second half of the year, I honestly think the third quarter is probably going to look very similarly to the second quarter. And then, we are expecting to have very strong growth in the fourth quarter, and a couple of things are driving that. One is, we do expect to have a much higher level, just as we did second quarter of 2008, a much higher level deliveries in the fourth quarter of 2009 compared to third quarter. Think of this is PAC-3 Missiles, HELLFIRE missiles and [the alike]. We also have and I know you guys have read about this. We also have had delays in getting the JASSM missiles accepted because we haven't completed the acceptance testing on that. We hope to have that complete later in the third quarter or fourth quarter and when that is complete, that will free up a lot of the JASSM backlog has been waiting to be booked from a revenue perspective if you will. I should also point out that with the T for C, the Termination for Convenience on the VH-71 program. That program probably had about $300 million of sales in the second half of the year outlook prior to the termination. So, my guess is that, our Electronic Systems will probably come in closer to the lower end of the range as we currently have it than even in the middle part of that range. Itay Michaeli - Citi: A quick follow-up on Space, in the past you've talked about a flattish top-line growth outlook beyond '09. Was that the backlog is coming in? It's growing pretty nicely. Do you think there might be some upside to that or you still looking more of a flattish top-line outlook?

I didn't answer to your aerial question, so I'll come back to that in a second. I think there is probably some nominal upside, particularly on the classified areas, where we have some potential for growth there. In the second half of the year for Space compared to the second half last year is actually going to have very strong growth probably about 8% range, we're just looking from a guidance perspective. Most of that because we have two satellite and a launch vehicle in the second half we had none in the first half of the year. I’d also think margins are likely going to be a little bit up in the second half for our Space as well. I’d like to go back if I could, Aeronautics US about the question on Space, just what the outlook is for the second half, is that right? Itay Michaeli - Citi: Correct.

Second half of the year in Aeronautics, is going to look very strong, we believe. Now, I think the total for the second half is probably going to be at the 10% sales growth or so over the second half of 2008 and what I’d expect to see is that we’ll have sequential growth quarter-to-quarter. So, the fourth quarter will be obviously, above 10% and the third quarter maybe little below or probably little bit below 10% in the third quarter. What’s driving that? We have three additional F-16 and four additional C-130s in the second of the year as compared to the first half of the year. So, I think we’re going to see some growth there along with the continued uptick in the growth on the F-35 programs in the second half of the year.

We’ll go next to Brian Ruttenbur with Morgan Keegan. Brian Ruttenbur - Morgan Keegan: I have some housekeeping questions. So, I going to ask two at once, I think is the plan. First of all, on the repurchase of stocks, if you could tell us what you base your estimates on along with the tax rate on the year? So, those are both my question and my follow-up is about the stock share count that you plan to have at yearend and the tax rate you have to have in the second half of the year to be in guidance?

Yes, our guidance on the share count is essentially flat from where we are now about $391 million and tax rate probably within again somewhere about a little than lower 31, 31 to 31.5 for the entire year what we are looking right now. Brian Ruttenbur - Morgan Keegan: Right, so you don’t plan to purchase anymore stock in these numbers, right?

On the guidance that's right.

We will go next to George Shapiro with Access 342. George Shapiro - Access 342: I want to go back to IS&GS, I mean it looks to me like you released some high expectation about $50 million short in profit and you took down an effectively the second half of the year by $80 million. So, most of what you saw in the second quarter you’re expecting to recur in the third and fourth quarter. So, if you could just go through a little bit more rationale than you did is to why that occurred?

Look here very perceptive. If we just had the 10% growth in sales in the second quarter that we were hoping for and maintain the margin that about the level of last year, you are spot on it about $50 million miss from what our expectations would have been in the second quarter. And you are also right that says about $85 million is what left for the second half of the year. I think hopefully I explained the first half well enough to kindly understandable. The second half again is, this is kind of get a little bit of accounting stuff, but this is on our service contract accountings what which this business area has probably 55% of its total sales is in service contract accounting. When we record an issue on a contract it’s not like your standard accounting, on say last 16 contracts where we take a provision for today and you take a provision for future issues as well. This has to play out overtime. And so we expect the impact that we're seeing in the second quarter to also occur through the rest of the second half of the year, just because of that accounting nature. And as I said in the response to the earlier call, we had two contractual items planned in the second half that we really thought we were going to get some fairly sizeable improvements on. Neither one of those now looks like, it's going to happen in the year. So, we pushed those out. Both of them, as I said earlier are a little less in value than we'd expected them to be, at the time we set our guidance up in the first place. George Shapiro - Access 342: And Bruce, just in general sense, it seems like most of the issues they are more in the civil side versus the defense side. I mean obviously, some of the delays are on the defense side. Does it make you think a question, the kind of the strategy of growing in some of the civil areas, and I guess is anything changing as a result of that?

No. Look, I still think civil is where we're going to see some of our strongest growth within this business area. And I think, I don't want to loose track of that fact. I mean if I look back to the 2006 timeframe with this business area, we've grown this business area by $3.5 billion in sales since that time and over $300 million in EBIT. I mean it was an important part of Lockheed Martin then, it's become an even more important part now and I suspect that will be the case in the future as well. So, no, I don't regret that we're in the civil business. I think again that's going to be a big part of our business going forward. George Shapiro - Access 342: And then just one quick one if I might. On the first quarter call you actually said that you saw some margin in IS&GS would be a little higher than average this quarter to make up for the relatively weak first quarter. So, given as that call occurred three weeks into the second quarter. I mean is this an area then that you don't have the same degree of predictability, as you would like or is it just unusual that something happened to occur from when you made those comments in Q1?

It's probably the most heavily dependent on award fee, within many of the four business areas. Most of those award fees tend to happen in the second and fourth quarter in this business area. When I made that comment in the first quarter, I had expected us to kind of have the normal award fee scoring that we would expect to have in the second quarter, as we did last year for instance. And it was until late in the quarter, and those things typically come in the May, June timeframe. It wasn't until late in the quarter that we saw those materializing at the lower levels there. So, that was probably the surprise from my perspective, George.

And we'll go next to Troy Lahr with Stifel Nicolaus. Troy Lahr - Stifel Nicolaus: On the lower award fees, is this you just kind of missing some milestones, or do you think the customers getting a little tougher in paying out some of those award fees?

I want to be real clear on this. This has nothing to do with the tougher scorecard. This has nothing to do with acquisition reforms, some one, challenging the high level of award fee. We didn't perform as well we are capable of. The customer reflected that in there scoring through us. And we've got to fix that on our side. There is nothing else than that. Troy Lahr - Stifel Nicolaus: And then, so you had some executions issues. You have the startup issues there also. I mean, what changes are you implementing and how much confidence do you have that these are just kind of some near-term issues that you can't get your hands around, so that they don't become this problem quarter after quarter after quarter?

Yes, no it's fair question. Let's see, we've really kind of brought in, I can speak for my own organization, specifically our finance organization. We've kind of thrown subject matter experts from the other three lines of business, along with some corporate staff and kind of descended upon IS&GS to take a look at some of the practices there to make sure, yes the business that, as I said earlier has grown up very quickly in the last few years. We want to make sure all our process are very sound, so this doesn't happen going forward. This is an interesting business and that if you take a look at the backlog for IS&GS, it's just a little more than the sales for IS&GS. So literally this business kind of reinvents itself practically on a quarterly basis, definitely on an annual basis. So, one of the good thing or bad things given that scenario is, we'll get a chance as these contracts kind of play out very quickly to bid new contracts, and see if we can start off on a better foot with those new contracts. I mean I'm looking for more sizable orders in the second half of the year than the first half of the year. And given the rapid turnover of these contracts that's where we are going to see if this performance items are fixed or not. Troy Lahr - Stifel Nicolaus: So the added resource you're talking about, that's just putting more people on the program?

It's putting people and I'll say much more focus at a fairly senior level including Bob Stevens.

And we'll go next to Noah Poponak with Goldman Sachs. Noah Poponak - Goldman Sachs: Last quarter, you were asked about where you see red programs. I realized you guys have thousands of programs. But your answer to that question alluded to some things in space and to some things in ES and you didn't even touch on IS&GS. So how was it that this was kind of not on the radar screen and really snuck up on you?

Yes. I think we have a pretty thorough process by which we evaluate. We literally categorize all of our programs, we kind of put them into piles based on similar sized programs and we grade them, green, yellow, red, just like the stoplight chart, as you would expect us to do. IS&GS, I don't believe since IS&GS has been created that we've had a red program within IS&GS. In the second quarter, we had two of them pop up very surprisingly. One was in the classified area in the Intelligence business, as we’ve talked about previously and the other one was a fairly large contract within our civil business. So, while we had yellow indications on a number of programs, none of them turn red until the second quarter, whereas the others as I alluded to in the previous call, I’d say we already characterized in the red category. Noah Poponak - Goldman Sachs: You guys obviously had this very differentiated Aeronautic story, when we look at what's going on in the budget environment, what kind of two to three year growth rate can the non-Aeronautics part of the business see, particularly as we re-calibrate for this pressure on IS&GS, which you guys had been previously highlighted as the next best segment after Aeronautics?

For the next how long did you say Noah? Noah Poponak - Goldman Sachs: Next two to three years, as the administrations priorities really start to flow through the budget.

I think I have said on many occasions, you excluded Aeronautics, but I'll hit that in anyway. The Aeronautics we expect to be driving the growth of the corporation of the next year driven predominantly by the F-35 program in that period of time. IS&GS, even at the outlook we are looking at now is 8% growth and that is good growth I think by anyone's measure and we still think that is sustainable. Again, for a top-line perspective, the reason we had came up that is not because we are losing contracts, because contracts got protested. I think that environment will improve going forward. I still think as I look at the marketplace that IS&GS participates in, we still think that marketplace is expanding. Because if you remember that marketplace goes well beyond the DoD marketplace. So, those two business areas of the four, I still think it grow at fairly rapid clips, much faster than the DoD budget. I would think Electronics is still probably mid-single digit growth for the foreseeable future and one of the reasons it will potentially go higher than that because of the international growth primarily on air missile defense. Space, as I said earlier, I think we are going to have some nominal growth there. The wild card there could be some classified growth, but I'm not sure, I know enough at this point to tell you how much more that could be. Total Corporation, we still think it's somewhere in the mid-single digit, maybe a little higher than that for that period of time you’re talking about. I’ll also say, it's probably a little premature as you might expect, we are going to provide the 2010 guidance in October, I’ll give you hopefully a whole lot more detail picture at that timeframe. Noah Poponak - Goldman Sachs: When we look at what F-35 is doing, does that imply a very close to flat total growth for the non-Aeronautics part of the business?

Noah, I'm actually expecting some fairly significant growth in the C-130 program during that period of time as well. So, you've got some mitigating, probably two programs. One is the C-5 program with the re-engineering on that strategic airlifter and the C-130 program, both going to grow. Noah Poponak - Goldman Sachs: Yes, so I'm asking for the three segments that are not Aeronautics.

I'm sorry. I missed out your question. Noah Poponak - Goldman Sachs: So, does what are you saying imply that the non-Aeronautics part of the business, the other three segments in aggregate are kind of a flattish business over the next two to three years?

No, not at all. That’s not, what I'm saying at all. I said IS&GS is going to go faster than probably the corporation in total. I think Electronic Systems will probably go pretty close to the corporation's average and I think Space will grow little bit lower than the other three business areas, but any of that I still expect to see some nominal growth.

We will go next to Rob Spingarn with Credit Suisse. Rob Spingarn - Credit Suisse: Question on F-22, with the seven aircraft up for vote, is there anything significant about that number, clearly $2 billion is a sizable number, but is this a figure that allows you to bridge to and export program perhaps to Japan and where do you see that standing at this time?

I think the short answer to your first question is no. It would not allow us to bridge to a Japanese sale or any other international sale at this time. I’m not sure we’ve got a good answer for you as to why seven aircraft be reportedly (inaudible) and I’m sorry the latter part of your question was again? Rob Spingarn - Credit Suisse: Well, the latter part was about the export opportunity and where you think that’s stand on a hill at this point.

We still say precluded from being able to sell because of a Congressional amendment. So, until the amendment is rescinded, if it's rescinded there is no likelihood of international sale, but another has been discussion on that, but it will literally take the active Congress to repeal that law before we could sale them internationally. I’m not particularly positive on the ability for us to make that happen in the next few years. Rob Spingarn - Credit Suisse: And Bruce, where does production on long lead product standard at this point, the very early stuff and then is my follow-up, if you could just refresh us on the top competitive opportunities for Lockheed; let's say over the next couple of quarters.

When you say the production, Rob, I guess you're talking about F-35? Rob Spingarn - Credit Suisse: Well, I'm talking about F-22, but in terms of the real early smaller components on that program, have they ceased production at this point?

From a supply base perspective? Rob Spingarn - Credit Suisse: Yes.

It's getting real close. Think of this is kind of three-year cycles from contract award to aircraft delivery and our piece of that is probably in the last 12 months or so of that three-year cycle. So, suppliers tend to be the much longer legged portion of that effort. Think of it, the early part of that, mostly with metals, think as specialty titaniums and the like. So, those folks are literally probably at the end of this year will start seeing some impact if this nothings turned on. Rob Spingarn - Credit Suisse: Then the other part was just on competitive programs?

Competitive programs, honestly third quarter is probably going to look a little light. We are heavily weighted in fourth quarter. There is a number of competitions happening then. I would like to think we'd see an F-16 Egyptian order by that point in time. I'm also optimistic about a couple of C-130J international opportunities happening in the fourth quarter. I think this could be a big year. My question is whether it happens before the end of the calendar year or not, but we're expecting some big things happening on the C-130J international front as well as domestic front and not to distant future. Other big programs, competitions, it's not competitions. I guess it's actually a sole-source at this point, but we expect a large order within Electronic Systems on PAC-3 for Taiwan. We have previously done in both Singapore and the UK kind of a turnkey training activity. We expect sort of the next follow-on of that within Singapore, called the Singapore Fighter Wings course to occur in the fourth quarter. And then, on top of that there is probably, as I look at just see other data is probably close to $3 billion of follow-on business, not competitive, but follow-on business within Electronics Systems and we expect to materialize in the fourth quarter. Rob Spingarn - Credit Suisse: Did you mentioned at all before, when you talking about opportunities with F-35 partners, the timing on some of those orders?

Timing of the orders, no, I don’t know that I have a real good answer for you there, as far as my expectations. I would think, we start seeing those orders probably next year or 2011, early 2011, one or the other, Rob.

We’ll go next to Joseph Nadol with JPMorgan Joseph Nadol - JPMorgan: Bruce, just back on IS&GS just for a moment. What I hear you saying is that, we had some protest and then couple of performance flip ups during the quarter, that are going to impact us not only in the quarter, but the rest of the year. But at the same time, several of your competitors out there, large and small have had some issues year-to-date in services, and of course, we all hear some of the things coming out of the government on in-sourcing and there has been more pricing competition etcetera. I mean, how much of this do you really think is just a couple of flip ups and how much of it is, is just a structural change it’s happening in the services business, big picture?

Well, I don’t think any of the sales impact that we’re seeing has anything to do with this. Yes, as you described the in-sourcing or even the competitive, more price competitive, I think we have a very competitive offering across the Board within our IS&GS business area. And again I don’t think the in-sourcing impact the sales at all. If you look at the EBIT side of the earning side, I’d characterize those as our issue, not driven by any other externalities. We didn’t perform as well as we are capable of and that's ours to fix. Joseph Nadol - JPMorgan: So, it's really in your view nothing that can prevent that will prevent you, assuming you get back to your performance last year or in 2007 nothing to prevent your margin from getting it back up to the mid nine?

Yes. There is nothing kind of structurally as I look it now, it says that can't be done. We’ve got a correct the things that we slipped on and continue to win new cons. Again as I said earlier, this is the business that turns over practically every year, continue to win new contracts at the kind of margins that will allows us to do that. I think that simple. Joseph Nadol - JPMorgan: Have you examined the OCI language that's out there and determine whether this is going to be any conflict of interest issue to your business, where you might have to divest any businesses, any lines of business etcetera?

We wouldn’t get into either acquisition or divestitures, but we have examined the OCI language. We don’t think we have a lot of exposure there. Less I’d say probably than a lot of our competitors, but it is something we are watching closely. We will continue to watch going forward. Joseph Nadol - JPMorgan: Then just for one quick follow-up and F-35 just given all the budget, I think going on right now in Congress, now the moving part. Can you just give what level of sales you expect from that program next year versus this year even so its round number?

I hate to even hasten, I guess Joe. It is going to be significant growth in the F-35 part of next year. I talked to some of you folks at the Paris Air Show in the couple of sessions over there, I talked about the longstanding commitment that says, we would probably could have a $20 billion Aeronautics business within the year 2015. If you just put and say that probably 75 plus percent of that $20 billion, we expect to be the F-35 program in 2015 and if you kind of play annual compound, annual growth rates on those numbers, and it's going to grow in excess of 20% a year to get to that level and we still feel confident about that number in 2015. Hopefully that helps.

We will go next to Doug Harned with Sanford Bernstein. Doug Harned - Sanford Bernstein: I wanted to stay on in IS&GS. The thing that I find difficult is that we've got multiple issues here at one-time in a unit that's really performed very well over recent years. And from what you're saying I understand that we’ve got two red programs, one in civil, one in intel. There's a slow start with some state department work, which I assume is in global services?

Correct. Doug Harned - Sanford Bernstein: And then you have five protested programs and those are mixed, civil and defense. Is that correct? And those are the ones that those are delayed and slowing revenue growth. Is that correct?

Correct. Doug Harned - Sanford Bernstein: Then what I'm trying to understand is, is it a coincidence of these things have happened or is there something overall in IS&GS since there across multiple units that you feel needs to be addressed here?

That's an interesting question, Doug. I don't think that I see anything that is kind of like the common denominator across all the things that you mentioned there. I think the funding delays have more to do with the administration, not necessarily having the right people in place in the areas, where we had some growth last year that we seen from slackening off this year. I ultimately think that’s going to get fixed with the right people in place and we’ll get back on board there. The protest, the only comment I think we’ve been hit harder within IS&GS probably, simply because they compete for more quantities of contracts than any other business area in the corporation. We’ve been able to, with a higher percentage of those protest maybe than we have previously and they have all kind of come in fairly short order. As I said earlier, the big thing is they hit some of our more sizable contracts as well. We protested all the time in this business area, but often times they are on contracts that you don’t necessarily watch or follow or that don’t make that big they hit to us. Doug Harned - Sanford Bernstein: It sounds like the execution issues are two pretty separate ones, I mean those are pretty different businesses. And from what you’re saying in the State Department work, I'm assuming, when you say the administration, you getting people in, this is not an issue with this administration, it’s an issue of the transition to a new administration that slows that down. Is that?

You said it well. Doug Harned - Sanford Bernstein: Then the one other aspects of this is that you said how the business does tend to turn over even more quickly. And I know it’s also the backlog has come down. So, as you look forward here, you are constantly tending to deal with some new customers sets within the Federal Government, say maybe new types of projects. Is this in anyway contributing to more risk, you are in some different areas, is that a possible?

Some of those that we talked about in the intelligence is absolutely in our core has been in our core for a long, long time. So, I don’t. I’d hate to characterize it is because we are casting too wide a net if you will. There was some basic blocking intact and they got, got away from us on a couple of these things that we got to fixed. I don’t think it limits or shattering. I think it's all fixed. We dedicate ourselves and take the actions necessary to fix it. I think that's simple. Doug Harned - Sanford Bernstein: So, when Linda Gooden talks about the double-digit growth that she expect, I think on more of a multiyear basis. I mean this is still in your view very much intact.

I still think IS&GS will be amongst our highest growth business area going forward. I literally said through a briefing here not a few weeks ago, there we do see opportunities outside of the current marketplace that are growing very significantly. That we think we have a very good opportunity to plan and I think we have demonstrated just by the success of the past and we can play the market we are currently in and grow very considerably as well. Again most of that has come by outstripping the growth in the market at this point, we really kind of done that through taking market share from competitors. We still think that's possible because this business area operates in a markets place that is incredibly disaggregated. It's a very farflung area. The basic activities that we do though in those different marketplaces are not all that different between them and among themselves if that make sense.

We will go next to Sam Pearlstein with Wells Fargo Securities. Sam Pearlstein - Wells Fargo Securities: Bruce, you mentioned in the backlog changed with some of the termination like VH-71 and TSAT. What should we think about in terms of the second half in terms of any P&L impact from those in terms of contract close outs and termination fees etcetera?

You TSAT, it was related TSAT, but it was actually on the TMOS, it’s on the ground segment portion of TSAT and I wouldn't expect to see any earnings impact from those going forward. Sam Pearlstein - Wells Fargo Securities: Did the new AEHF is supposed to go in? Have you seen that order yet in terms of moving into backlog?

Yes. I think that it has. I believe it has. Sam Pearlstein - Wells Fargo Securities: And then just a follow-up, really separately; as given the market recovery we've seen in the second quarter, can you talk a little bit about the pension performance in the second quarter and where you stand year-to-date versus we assumed return on asset?

You've seen the marketplace just like we have, and I’d say that we are ahead of where we would be on a normal trend to get to the 8.5% level that we premised for the annual return on our pension plan. So, as we sit here today, what is it July 21st? I think we are ahead of schedule on that. Sam Pearlstein - Wells Fargo Securities: Can you quantify what that return is?

No, because it's going to bounce around between them. We will obviously tell you by the end of the year, we will give you an outlook in October for the 2010 timeframe, but obviously we're at this point ahead of where we would otherwise be if we were just tracking to the 8.5%.

We will take our next question from Heidi Wood with Morgan Stanley Heidi Wood - Morgan Stanley: I got to believe, where the IS&GS question one in a slightly different way. It seems that IS&GS is one of your shorter cycle businesses. So, withstand to reason that would be more susceptible to the after effects of both the change in the administration and tighter budgets. And you've taken great efforts to stress that its internal performance, but just to be devil’s advocate was read just a moment, if we look at tighter budget conditions ahead, when we'd be expecting tougher grading from customers, more protest and still a ramp up on programs and slower awards versus what you encountered in the last eight years in the Bush administration?

I’d like to think that as we go forward with the new administration and a new outlook and a new expectation of what is right in the acquisition process. I’d like to think the number of protest would diminish as opposed to increase or even stay constant. And that maybe overly optimistic on my part, but I still think that’s good for the industry, if we in fact can’t get the protest kind of back, so they are not as those probably one when they are today. The other part of your question relatively to the scoring and so forth, it hasn’t happened at this point, Heidi. Again I have try to make this characterize this as these are our issues to fix. There has been a lot’s of talk and discussion about that relative to the acquisition reform, but nothing that has come up that I have seen. They talks about different levels that would cause a concern of what's been written at this point. I guess is the best way to say it. Heidi Wood - Morgan Stanley: All right, but then, because the thing many of us are concerned as we look at, as this business has grown I don’t think we challenge the growth. I think it’s more whether the growth can be company with 9% margins or whether future ahead is sort of 8ish. But maybe you could give us color on, whether civil margins, because that’s an area of focus. Does that have a structural ability to go higher than overall segment margins?

Overall segment margin for IS&GS in total.

Yes.

I’ll honestly, I’d think the answer is, no. We probably frank with you and look at, what I said today, we’ve had these items that kind of popped up in the second quarter. We’ve taken, I think the right action to try to fix them. What I think I need to do is, to see if these actions do in fact kind of stem the performance issues that we saw in the second quarter, see if we can mitigate them somewhat going forward and then by the third quarter I have a whole lot better feel for what new business we have want at that point in time and I’ll be able to give you much better outlook in 2010.

Okay. With that I’d like to close by thanking you for joined the call today and for your questions and we look forward to talking to you again in October.

Once again that does conclude today's conference. We thank you for your participation.