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Lockheed Martin (NYSE:LMT)

2012 Annual Meeting

April 26, 2012 11:30 am ET

Executives

Maryanne R. Lavan - Senior Vice President, Corporate Secretary and General Counsel

Robert J. Stevens - Chairman, Chief Executive Officer and Chairman of Executive Committee

Maryanne R. Lavan

Good morning, ladies and gentlemen, and welcome to Lockheed Martin's 2012 Annual Meeting. And welcome to those participating by webcast. My name is Maryanne Lavan. I'm the General Counsel and Corporate Secretary for Lockheed Martin and I'd like to introduce to you the executives who will be on stage today. Bob Stevens, our Chairman and Chief Executive Officer; Chris Kubasik, our President and Chief Operating Officer; and Bruce Tanner, Executive Vice President and Chief Financial Officer.

Let me advise everyone that during our discussion today, our speakers may make forward-looking statements which project future events. Please be aware that corporation's actual results may differ from what we believe or anticipate. You may wish to see our SEC filings that describe the risks of these forward-looking statements.

The notice of this meeting, the proxy statement and the annual report were duly and properly mailed, and the affidavits to that effect will be filed with the records of this meeting. Inspectors of election from Computershare Trust Company have been appointed to act at this meeting. Their initial report shows that more than 300 million shares or approximately 92% of the shares outstanding entitled to vote, are represented here today. This meets the quorum requirement of our bylaws and we may proceed with today's meeting.

Stockholders who wish to vote in person by ballot may do so at this time. If you have already voted by proxy, there is no need to vote by ballot, unless you wish to change your vote. Is there anyone here to wishes to vote by ballot?

Mr. Stevens will serve as the Chairman of the meeting. I will now turn it over to Mr. Stevens.

Robert J. Stevens

Well, thank you, Maryanne. It's a pleasure to be here and on behalf of the Board of Directors, let me welcome you all to our 2012 annual meeting. This meeting gives us a chance to reflect upon what we've accomplished in the past year, take pride in what we've achieved but also plan for the unprecedented opportunities and challenges that we see ahead.

Let me first introduce our directors who are present for today's meeting. Our Board of Directors is instrumental in setting our company strategy, advising our senior leadership, and most significantly, keeping us on track as a company that is distinguished by a sound corporate governance practice and a commitment to the very highest in ethical standards. I would ask each director to stand, please and be recognized when I call your name.

Nolan Archibald, Executive Chairman of the Board of Stanley Black & Decker Incorporated; Rosalind Brewer, President, Chief Executive Officer of Sam's Club; David Burritt, former Vice President and Chief Financial Officer of Caterpillar Inc.; Jim Ellis, President and Chief Executive Officer of the Institute of Nuclear Power Operations and the retired Commander of the United States Strategic Command; Thomas Falk, Chairman of the Board and Chief Executive Officer of the Kimberly-Clark Corporation; Gwen King, President of Podium Prose, a Washington, D.C.-based speakers bureau; Jim Loy, retired Deputy Secretary of the Department of Homeland Security, retired Commandant in the United States Coast Guard and Senior Counselor at The Cohen Group; Doug McCorkindale, retired Chairman and Chief Executive Officer of the Gannett Company; Joe Ralston, retired Commander, United States European Command and Supreme Allied Commander Europe and Vice Chairman of The Cohen Group; and Anne Stevens, Chairman, President and Chief Executive Officer of SA IT Services.

Let me also take a moment to introduce some senior executives who are here with us today. Please stand when I call your name. Executive Vice President of Aeronautics, Larry Lawson; Executive Vice President of Electronics Systems, Marillyn Hewson; Executive Vice President of Information Systems and Global Solutions, Linda Gooden; Executive Vice President of Space Systems, Joanne Maguire.

We also have a number of other corporate officers and senior leaders in attendance today. Would you all please stand and be recognized?

As is customary, our independent accountants, Ernst & Young are represented here today by the account partners, Tim Mesick and Jill Weeter. Tim and Jill, will you please stand?

Let me say thank you, all, for joining us today. We're very pleased to be meeting here at the Lockheed Martin Space Systems Company in Huntsville, Alabama. As you saw walking into the auditorium and in the video, this year, we mark a significant milestone for Lockheed Martin, our 100th anniversary. A century ago, this August, an innovator named Glenn L. Martin founded the Martin company in Los Angeles, California. 4 months later, in December of 1912 and 400 miles away in Santa Barbara, 2 talented engineers named Allan and Malcolm Lockheed established the Alco Hydro-Aeroplane Company that went on to be known as the Lockheed Aircraft Company. If Glenn and Allan and Malcolm could see the facilities and the products and the people in their company today, they would be speechless. In 1912, the Lockheed brothers operated out of a garage, building seaplanes nights and weekends while fixing cars during the day.

With the encouragement of Orville Wright, Glenn L. Martin took a chance on an innovative biplane design, assembled in a rented church, his first factory. When you're reaching for the stars, we know that the technology is critical. But apparently, a little faith never hurts.

Conditions then weren't easy, but the dream of creating something that didn't exist before, something that would change the world, drove them forward. It fueled their inspiration and sustained them through demanding days and it inspires and sustained us still. It is fitting that we meet here in Huntsville this year, for Huntsville has been the center of our nation's space program since President Eisenhower created the George C. Marshall Space Flight Center in 1960. Nearby, the Saturn V Rocket, the one that you cannot mistake on the horizon, which lifted our first astronauts to the moon was developed. This facility is home to our missile defense systems operation. More than 1,000 employees work here every day to protect our national security and keep Americans safe. We are also proud to be part of a joint venture in the United Space Alliance, which has launched vehicle manufacturing and assembly facilities in there by Decatur. Since its formation in 2006, ULA has compiled an extraordinary record of 59 consecutive successful launches with the Atlas and Delta family of vehicles.

Our Alabama employees are impressive in many ways, not only by the excellent work that they do but also, by their commitment to their communities. The people of Lockheed Martin make it their mission to invest back into the communities in which we live and work. They donate to charity. They volunteer their time and effort to help those in need. They participate in the very core of the community. And for that, they have earned our enduring respect and admiration.

Over the last year, through our charitable giving campaigns, our employees collectively donated more than $21 million of their own money to worthy organizations that support everything from science education to disaster relief, to programs that help our wounded veterans.

And for the seventh consecutive year, our employees contributed more than 1 million hours of their own time volunteering in the towns and neighborhoods where they live. Community organizations in this region alone have benefited from more than 6,800 volunteer hours logged by our local employees during 2011. We also support our communities and our customers through direct company contributions.

Last year, Lockheed Martin provided about $25 million in philanthropic funding, mainly in the areas of science, technology, engineering and mathematics education and support for wounded warriors. As part of this initiative, we contributed nearly $0.25 million to community programs here in Alabama, including a partnership with the United Way of Madison County and Harvest Youth Club to help families rebuild in the wake of devastating tornadoes.

We also maintained a commitment to the responsible stewardship of the environment. Just 2 weeks ago, we announced that we met our aggressive global environmental goals of reducing carbon emissions, waste for landfill and water usage by at least 25% and we achieved those goals a full year ahead of plan.

And just last Friday, we released our inaugural corporate sustainability report with results of our 2011 performance in ethics, diversity and inclusion, global community outreach, environmental stewardship and occupational health and safety.

Turning now to our business performance last year. In 2011, we set record financial performance levels in 7 of the 9 significant parameters that we measure. We grew sales 2% to $46.5 billion. We increased earnings per share to $7.85 from continuing operations on a diluted basis, and we increased backlog to a record $80.7 billion. Significantly in 2011, we generated $4.3 billion in cash from operations after making $2.3 billion in contributions to our pension plans. We returned value to shareholders through dividends of $1.1 billion and share repurchases of $2.4 billion. Our total shareholder return for the year was 21%, 16% from share price appreciation and 5% from dividends.

Today, our company is strong due, in no small part, to our employees' steadfast focus on meeting commitments. We have extraordinary talent an inexhaustible innovative spirit and an enduring ethical core. Together, we've built financial flexibility, refined core competencies and assembled a portfolio I wouldn't trade for anyone's. We have an outstanding Board of Directors who care deeply about our company and a strategy that is focused and flexible and we have the next-generation of proven and tested leaders in place with customers who depend on us to never forget who we're working for.

In part, based on this strength, at this board meeting, I advised our Board of Directors of my intention to retire from the company. The board approved the leadership transition plan that unfolds over the next 20 months and elected Chris Kubasik as our next Chief Executive Officer and Marillyn Hewson as our next President and Chief Operating Officer, both appointments effective January 1, 2013.

With the support of our shareholders and our Board of Directors, I will remain as Chairman of the Board an additional year until January 2014. We are announcing our succession plan now to ensure a smooth and seamless transition. Chris and Marillyn are exceptional leaders, who keenly appreciate our customers' needs and understand the complex dynamics of the many stakeholders whose decisions affect our industry. I've worked closely with them for many years now, and I can assure you that there's no one more qualified to be your next corporate leadership team.

Congratulations to you, Chris on your promotion to Chief Executive Officer and to our very proud alumnus of the University of Alabama, congratulations, Marillyn. Roll Tide!

In August, I will have served as our company's Chief Executive Officer for 8 years, following almost 4 years as President and Chief Operating Officer. I'm very grateful to our board, to our leaders and to our employees and to you, our shareholders for affording me the extraordinary privilege of serving this great company in the important work that we all do. Thank you, all.

I'd like now to turn the floor back to Maryanne, who will review the procedures for the business portion of today's meeting. Maryanne?

Maryanne R. Lavan

Thank you, Bob. And thank you, Bob for your extraordinary leadership. Before proceeding to the official business of the meeting, please review the agenda and meeting rules and procedures for today's meeting, which you received at the registration desk. And I will just go over some of these rules. To speak at the meeting, you must either be a stock record as of March 1, 2012, a person named in the proxy given by a stockholder or otherwise, a representative of the stockholder.

During the discussion period, for each proposal, if you wish to address the meeting, please proceed to the microphone at the back of the room, please state your name, city of residence, whether or not you're an individual stockholder, proxy holder or representative of an organization holding shares. Discussions and questions should pertain to the relevant agenda item. A general discussion period will be held at the end of the meeting. At which time, stockholders are welcome to ask questions.

Please keep your remarks brief in order to provide all stockholders who wish to speak an opportunity to do so, and we ask that you not return to the microphone a second time. If you have a matter of personal concerns, such as stock transfer matters, please defer your questions to the end of the meeting. Today's meeting will focus on 4 specific proposals described in the proxy statement. The proposals are: the election of 11 directors, ratification of the appointment of Ernst & Young as the independent auditors, approval on an advisory basis of the compensation of our named executive officers in the proxy statement and one stockholder proposal. While we're discussing each of these proposals, no other business may be brought before the meeting.

Nolan Archibald, David Burritt and Doug McCorkindale have been appointed proxies by holders of at least 299 million shares and have voted these shares in accordance with the instructions of the stockholders.

Now let me turn the podium back to our Chairman, Mr. Stevens who will chair the remainder of the meeting. Thank you.

Robert J. Stevens

Thank you, again, Maryanne. Let's turn to the official business now before our meeting. Proposal one, the nomination of 11 directors to serve on the Board of Directors is now before the meeting. Is there any discussion on Proposal number 1? Hearing none, that concludes our discussion on the election of the Board of Directors.

Proposal number 2, the ratification of the appointment of Ernst & Young as independent auditors is now before the meeting. Is there any discussion on proposal number 2? Hearing none, that concludes our discussion on the ratification of the appointment of the independent auditors.

Proposal number 3, the approval on an advisory basis of the compensation of our named executive officers is now before the meeting. Is there any discussion on Proposal number 3? There being none, let me move to Proposal number 4, which is a stockholder proposal offered by the American Federation of State, County and Municipal Employees Pension Plan. The proposal requests that the Corporation adopts a policy that requires the Board Chairman to be an independent director. The proposal and the board's response are presented on Pages 79 and 80 of the proxy statement. Miss Vasudha Desikan [ph] is here today to present the pension plan's proposal. Miss Desikan [ph], welcome. Would you present your proposal please?

Unknown Attendee

Good morning. My name is Vasudha Desikan [ph] and I'm representing the AFSCME Employees Pension Plan. I hereby move stockholder proposal for asking our company to adopt the policy that the Chairman of the Board be an independent director. I would like to acknowledge that we appreciated the discussion with our company over the proposal. We believe an independent board chair provides a better balance of power between the CEO and the board and supports strong independent board leadership and functioning. The proposal boils down to preventing an inherent conflict of interest. It's the board job to monitor the Chief Executive and the Chairman's job to run the board. If the CEO is also the Chairman, then he or she is effectively in charge of monitoring his or her own performance. I believe that an independent board leadership would be constructive here at Lockheed Martin where, for the second year in a row, Chairman and CEO, Robert Stevens has been named to Glass Lewis' list of 25 most overpaid CEOs. A second reason why an independent chair would help is pay disparity. Last year, Mr. Stevens received $25.3 million in reported compensation while the next highest-paid named executive officer received $9.4 million. Such a disparity is associated with poor succession planning and can create morale issues amongst other employees. A Harvard study shows that greater executive pay inequity is associated with lower firm value and greater CEO entrenchment. Our board argues that a combined Chairman and CEO offers a unified and informed front for the Corporation. The board also believes that this corporate governance structure, including a lead director already establishes substantial oversight of management. We do not agree and believe these are hollow arguments that do not weigh the needs to have clearly defined independent board leadership. We recognize that an independent board chair presents a culture shift to the U.S. imperial CEO model but this goes to the heart of corporate governance. Who runs the board and what's the board's role? Is it to work on behalf of stockholders or work on behalf of the CEO? We maintain that it should be to work on behalf of stockholders and it's the CEO's job to do the same. Having an independent chair prevents any blurring of these lines. This is about maintaining a proper system of checks and balances. Proxy advisors ISS and Glass Lewis each support this proposal. ISS notes that the lead director duties are not sufficiently robust as evidenced by the authority not including approving information sent to the board, approving meeting schedules or authority to call meetings of independent directors. Additionally, there exists problematic compensation pay practices involving excessive perquisite and a misalignment of CEO pay for performance. As such, independent board oversight is warranted and Glass Lewis states that the separation of these 2 key roles eliminates the conflict of interest that inevitably occurs when a CEO is responsible for self oversight. We believe that independent board leadership would be in the stockholders' best interest and urge stockholders to vote for this proposal. Thank you.

Robert J. Stevens

Thank you for being here. Thank you for your proposal, Ms. Desikan. Is there any discussion on this proposal?

Okay. Hearing none, that concludes any discussion on Proposal number 4. Our polls are now closed. Anyone present who has voted by ballot, please raise your hand. I think there was no one, but let me check. If you voted by ballot, we'd like to collect that ballot at this time.

Okay. At this -- yes? Anyone else? Great. Thank you. At this time, I'd like to recognize Mr. Kevin Loreda [ph] , one of the inspectors of election to announce the preliminary voting results on the 4 proposals presented here today. Mr. Loreda [ph] ?

Unknown Attendee

Mr. Chairman, in accordance with the corporation's charter and bylaws, the affirmative vote of a majority of votes cast is required for the passage of the 4 proposals. With the return of 92% of the shares outstanding and entitled to vote, proposal number one, all 11 directors received at least 91% of shares voting in favor and have been elected to the board. Proposal number 2, the ratification of the appointment of Ernst & Young LLP as independent auditors received more than 98% of shares voting in favor and has been approved. Proposal number 3, the compensation of our named executive officers received more than 68% of shares voting in favor and has been approved on an advisory basis.

Stockholder proposal 4, a request that the Corporation adopt the policy that requires the Board Chairman to be an independent director received more than 63% of the shares voting against and was rejected. Thank you and I turn the podium back to you, Mr. Stevens.

Robert J. Stevens

Thank you, Mr. Loreda [ph] . At this time, I want to thank everyone who has participated in our webcast for your continued interest in Lockheed Martin. This concludes the official business portion and the webcast portion of our meeting today. But it does introduce the floor to the open and general discussion and we have microphone in the back.

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Source: Lockheed Martin's CEO Hosts 2012 Annual Meeting (Transcript)

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