Lockheed Martin Corp. Q2 2008 Earnings Call Transcript

Jul.22.08 | About: Lockheed Martin (LMT)

Lockheed Martin Corporation (NYSE:LMT)

Q2 FY08 Earnings Call

July 22, 2008, 11:00 AM ET

Executives

Jerry F. Kircher, III - VP, IR

Bruce L. Tanner - EVP and CFO

Analysts

George D. Shapiro - Citi Investment Research (US)

Robert Spingarn - Credit Suisse Securities

Troy J. Lahr - Stifel, Nicolaus

David E. Strauss - UBS Securities

Richard Safran - Goldman Sachs

Joseph B. Nadol III - JP Morgan Securities

Myles Walton - Oppenheimer

Robert Stallard - Macquarie Research

Douglas S. Harned - Sanford C. Bernstein

Cai von Rumohr - Cowen and Company

Ronald J. Epstein - Merrill Lynch

Howard A. Rubel - Jefferies and Company

Harry Nourse - Banc of America Securities

Carter Copeland - Lehman Brothers

Operator

Good day everyone and welcome to the Lockheed Martin Corporation Second Quarter 2008 Earnings Conference Call. Today's call is being recorded. During the question-and-answer session, we ask that you limit yourself to one question and one follow-up question, so that everyone will have the opportunity to ask a question. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Jerry Kircher. Mr. Kircher, please go ahead sir.

Jerry F. Kircher, III - Vice President, Investor Relations

Thank you Rufus and good morning everyone. I'd like to welcome you to our second quarter 2008 earnings conference call. Joining me today on the call is Bruce Tanner, our Executive Vice President and Chief Financial Officer.

Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law, actual results may differ. Please see today's press release and our SEC filings for description of some of the factors that may cause actual results to vary materially from anticipated results. We have posted charts on our website, which supplement our comments today. And with that, I would like to turn the call over to Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thanks Jerry. Good morning everyone and welcome to the call. Consistent with our expectations, we had a strong second quarter. Our results reflect the operational, strategic, and financial progress we are making across the corporation. This progress is enabling us to build upon our continuing momentum in delivering value to shareholders and customers.

As our press release outlined, second quarter results across the corporation were strong, highlighted by an 18% increase in reported earnings per share. We also achieved a 50 basis point increase in segment operating margins that help generate our earnings growth. This margin expansion is a result of improved performance and successful risk reduction activities across multiple programs. Electronic Systems continue to generate operating margin in excess of 13% and our other three business segments all expanded margins this quarter.

In the area of cash flows, we generated $1.5 billion in cash from operations in the quarter, bringing our year-to-date total to $2.4 billion. Our cash performance as is well positioned to achieve full-year cash flow and generate free cash in excess of the earnings for the 11th consecutive year. This long-term performance is a direct demonstration of our strong focus on management of working capital and cash optimization. With this established expense in cash generation, we remain focused on optimal utilization of our cash to enhance shareholder value. As a part of that focus, we are continuing to implement our long stated practice of making opportunistic share purchases.

During the second quarter, we repurchased over 7.3 million shares of our stock for $770 million. This activity brings our year-to-date share repurchases to 18.6 million shares for $2 billion. Our repurchase actions had enabled us to continued to reduce our weighted average diluted share count to approximately 410 million shares for the second quarter, the lowest quarterly average diluted share count level since the third quarter of 2000.

In addition to share repurchases, we also paid a second quarter dividend to shareholders of $168 million. With our year-to-date dividend payments and share repurchases, we have already exceeded our commitment to return at least half of our annual free cash flow to shareholders for the sixth constitutive year. Based on our solid first half performance, we are increasing our 2008 full-year financial guidance, reflecting an improved outlook for additional growth in sales, earnings, cash flow and return on invested capital.

Today's press release and our supporting webcast charts outline the details of our new increased guidance. These strong financial results and improved guidance are direct reflections of our focus on program execution. Delivery of critical products and services to our customers consistent with their needs and expectations is a conventional goal of all of our 140,000 employees. Each of our business areas successfully made noteworthy accomplishments this quarter in support of their customers requirements.

In Aeronautics, on our Joint Strike Fighter Program, the F-35B Lightning II short take-off/vertical landing aircraft conducted its non-Euro [ph] flight with successful accomplishment of all flight objectives. The STOVL aircraft returned Code One without any flight anomalies and was immediately ready to re-fly. The superb performance of this inaugural flight is a testament to the quality of the aircraft being produced by our worldwide design and manufacturing team. The F-35B flight marks the first flight of an aircraft with a combination of supersonic speed, stealth and STOVL capability and will provide unmatched capabilities for the U.S. Marine Corps and the Royal... and the UK Royal Air Force and Royal Navy.

Aeronautics also continue their outstanding quality and manufacturing performance across other aircraft production lines with the F-22, F-16 and C-130J programs delivering increasing numbers of zero defect aircrafts to customers this quarter. This outstanding performance is a direct salvation of our world-class factory efficiency and ongoing pursuit of flawless program execution as we strive to provide customers the highest quality products at the best value.

Tuning to Electronic Systems. Our team continued to demonstrate their technological expertise in the increasingly important area of missile defense. The Terminal High Altitude Area Defense Weapon System or THAAD successfully detected, tracked and intercepted a separating target. This challenging fits with a strong verification of the target tracking and discrimination capability of the THAAD system.

In other missile defense activities, the Aegis Ballistic Missile Defense Weapon System successfully intercepted short-range unitary ballistic missile target in the terminal phase of its trajectory, further validating the expanding capabilities of the Aegis system. Recent test firings of offensive missiles by international countries illustrate the growing risk of missile proliferation around the world and are creating a significant increase and interest in missile defense systems. This interest is resulting in international customers examining our proven systems for potential deployment to protect their national interests.

Space Systems continued to achieve significant accomplishments, both on Earth and beyond. The Phoenix Mars Lander spacecraft successfully landed on Mars and began its science mission research regarding environment suitable for life and the history of water on the planet. Experiments completed to date have confirmed the existence of frozen water and the spacecraft continues to conduct other scientific analysis.

Closer to home, but also in space, the first telecommunication satellite for the nation of Vietnam was successfully launched this quarter. This satellite enables state-of-the-art communications to all corners of the country and expand the international use of our proven A2100 satellite platform. Finally, the Trident II D5 Fleet Ballistic Missile for the U.S. Navy achieved its 122nd consecutive successful test launch, a record extending back to 1989.

Turning to IS&GS, several key milestones were achieved this quarter and this portion of our portfolio continues to build momentum. Our support of the National Air Traffic System continued with delivery of the newest version of the En Route Automation Modernization Software to five government sites. This software is used to manage the nation's air traffic and build upon our legacy systems on which 60% for the world air traffic flights. IS&GS also achieved initial operating capability of a key data storage module for the National Archives and Records Administration. This module will be used by the executive office to electronically process and store key data in the National Archives.

This major initiative enables the move to government-wide electronic records preservation. The system will capture electronic information regardless of format, save it permanently and make it accessible on future generations of hardware and software. This is a direct application of our diverse information technologies and systems integration capabilities.

In addition to program execution, another essential component in our drive for expansion of shareholder value is our success in winning new business. Significant new business awards were achieved this quarter and I will highlight a few of the most noteworthy new contract wins.

In Space Systems, new awards include their successful receipt of a $1.4 billion contract from the U.S. Air Force to build the next-generation global positioning system called GPS III. This award builds upon our demonstrative legacy of the success on prior GPS systems. This program will improve position, navigation and timing services for war fighters and civilian users worldwide and provide advanced anti-jam capabilities, superior system security, accuracy and reliability.

We are honored to have been selected to construct these critical national assets with delivery scheduled over the next decade. Aeronautics new business wins continued from both domestic and international customers. On the Joint Strike Fighter Program, we received the authorization of $2.2 billion for six conventional takeoff and landing aircraft for U.S. Air Force under the Low-Rate Initial Production Lot 2 contract.

Based on the recent successful STOVL flight, we expect a near-term award under LRIP 2 for six STOVL aircraft for the U.S. Marine Corps. Additionally, over $200 million were received for long lead funding for 19 additional F-35 aircrafts under LRIP 3. These awards enable us to move forward and continue our production ramp up on the F-35 program.

Aeronautics also received a work in the U.S. Air Force for six C-130J aircraft for special operation forces. This award demonstrates the strong user community support and validation of the proven capabilities of this aircraft and began the critical recapitalization of the Air Force's 18 fleet of CTOL [ph] and special operation forces C-130s. The high operational tempo and ageing of existing airlift assets make it increasingly important to expand our national airlift fleet. The FY08 GWOT supplemental budget recently approved $2.9 billion to purchase up to 34 new C-130J aircraft to help address this critical airlift shortage.

Internationally, Aeronautics successfully secured an award from Morocco for the purchase of 24 F-16 aircrafts. This marks the first sale of F-16 aircraft to Morocco and expands the global footprint of this multi-role fighter to 25 countries around the world.

This award is expected to enable extension of the F-16 production line to at least 2013 and demonstrates the continuing viability and ongoing new business opportunities for this aircraft. The F-16 program continues to generate new order interest from current and new international customers as they take proven cost effective solutions for their fighter aircraft requirements.

The Electronic Systems segment, expanded their international presence with the award of a contract to provide turnkey military flight training to the U.K. Royal Air Force, Navy and Army Air Force. This 25 year effort will be performed in our joint-venture between Lockheed Martin and VT Group and has a potential order value in excess of $1 billion.

Electronic Systems also received a $107 million contract in U.S Air Force and Australian Air Force for a seventh production lot of the JASSM cruise missile. This award serves as a validation of the re-certification of the program after recent successful flight tests prove the reliability and capability of the missile across a wide variety of targets. The JASSM program has potential production quantities in excess of 4,000 missiles and should provide significant long-term sales opportunities from U.S and international defense customers.

Finally, our IS&GS segment continued to develop momentum in key areas. In early July, we received an award worth $1.2 billion for the integrated hiring operations and personnel program from the Transportation Security Administration. The work to be performed will include recruitment, hiring, payroll and benefit administration for TSA personnel previously performed by three separate companies.

Our effort will include streamlining and integrating these previously separate activities. This builds upon our prior strength in providing integrated human resource administration systems to other government agencies. Also in the quarter, the protest for the FBI's Next-Generation Identification System contract was resolved and work resumed on the program.

This 10-year $1 billion contract had been awarded in the first-quarter of this year. This resumption of work enabled us to move forward in providing state-of-the-art, multi-modal biometric systems needed by local, state and federal authorities.

Finally, IS&GS was awarded a contract to support the U.S. Navy's Joint Medical Information System. This system will provide key information assurance capabilities, including network operations, security and identity management. These awards demonstrate how IS&GS continues to broaden its customer footprint by offering cost effective and innovative solutions.

These wins across all of our business segments show the broad customer support of our products and have us well positioned and on track for increased revenue growth in 2009 and beyond. Beyond our success in new business awards this quarter, we also continue to execute our strategy of making acquisitions that provide us with new technology, capabilities or customer access.

During the second quarter, we completed the acquisition of Eagle Group International. Eagle is a proven provider of integrated logistics, information technology, healthcare services and base operations support to the U.S. Department of Defense. Their work is primarily in support of the U.S. Army activities here in the United States and will be managed by our IS&GS segment.

These highlights demonstrate our strong program and operational execution, solid win rate and financial performance. This results in the positive business outlook have us solidly position to continue our momentum as we deliver increased value to shareholders and customers.

Finally, we are proud to be recognized by Aviation Week and Space Technology magazine as the Best-Performing Large-Cap Aerospace Company in their recently released top-performing companies study. Our high scorers in all four measurement categories of financial health, return on invested capital, earnings momentum and asset management underscore our daily focus and commitment to provide value to shareholders is a direct reflection of our talented work force.

Now, we'd like to open up the lines for your questions. Rufus, if you would, please open the lines.

Question and Answer

Operator

Thank you sir. [Operator Instructions]. And for our first question, we go to George Shapiro with Citi.

George D. Shapiro - Citi Investment Research (US)

Hi good morning Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Good morning George.

George D. Shapiro - Citi Investment Research (US)

If you could go through a little bit in the Aero business, I mean obviously F-16 sales were down based on the deliveries and they will probably go down similar. But where did JSF stand in F-22 and C-130 was up despite same amount of deliveries. So, can you just provide a little more color there and then also the performance issue that was mentioned on the C-5?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Sure. Yes, you are right George. As I look at the Aeronautics business area, let's start-off with the F-16 program first. We were down quarter-over-quarter compared to 2007 five aircrafts. I think, I teed [ph] on previous calls that we had 41deliveries last year and we are moving to... around 28 this year. Five of that reduction was in the first quarter and the other eight are pretty evenly split between the third and fourth quarter, so that really drove the reduction there.

F-35 was actually fairly close, fairly flat to where we were in the prior quarters. So, I don't see a lot of change there. F-22 slight downer, but not much there, pretty flat as well. We actually had some good growth in our other sustainment business, which also contributed to the margin growth there, and obviously the performance on our legacy production programs, C-130J, F-16 and F-22 was strong, and significant and that led to the improvement in the margins there on those three programs.

The C-5 issue that you brought up, we did talk about that. I would characterize this as dealing with an early transition from a development program to production program. I should add that we have had a multi-year very successful development program on the C-5 program for both the RERP, which is the replacement of the engines and the reliability enhancement part of the program as well as the Avionics Modernization Program, those are concluding very well.

We have three aircraft and test program, they are all coming out very well. This issue is on the very first lot , the production contract. There is only one aircraft in this lot. And again I would kind of characterize this as an early production issues primarily associated with the amount and timing of expenditures on our tooling required to perform the contract as well as just achieving our basic learning curve expectations on the first lot of the production build cycle. Look at the... at the end of day, this is... production programs are what we do well, especially in the Aeronautics business, and I think we are going to get this right coming out of here.

George D. Shapiro - Citi Investment Research (US)

And a follow-up Bruce, why wouldn't you sit there and if you had to take the issue with only one plane and Lot 1 on the C-5, I mean, why won't you spread that over bigger lots... other lots?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

We are into contract for the first lot right now George and that's as per contract accounting that's the way we reflect it in accordance with accounting works..

George D. Shapiro - Citi Investment Research (US)

Okay. Thanks very much.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes. Thank you George.

Operator

And we go next to Robert Spingarn with Credit Suisse.

Robert Spingarn - Credit Suisse Securities

Good morning Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi Rob. How are you?

Robert Spingarn - Credit Suisse Securities

Yes thanks. Just on the F-22, this is sort of follow-up to that. What point is the commitment date on future aircraft beyond the contract, don't you nearing that point?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Let me talk just kind of broader terms first. We are still in the middle of the multi-year contract and that multi-year contract runs with deliveries through the end of 2011 and think of it taking about three years from contract award to delivery of aircraft. So towards the end of 2008 is the timeframe. The end of this year is the timeframe, and we will need to have a decision as far as whether or not we are going to get advance by money or lot of lead funds to procure lots beyond the current multi-year time frame.

Robert Spingarn - Credit Suisse Securities

So something like October?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

We actually go little later than that, but yes I think it is within fiscal year '09 budget time frame.

Robert Spingarn - Credit Suisse Securities

Okay. And then just on Space, it looks like the second half of the year, we have a sequential sales decline from the first half kind of flattish I guess with last year, can you talk a little bit about that?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah. Space was up to your point. In the first half of the year, we actually had some... additional satellite launches in the first half of the year. We actually have zero deliverable items in the second half of the year of '08 whereas we had three in the second half of 2007. So that's... I think there is... I know it's tracking pretty much according to plan, but for those delivery events, two satellites in this third quarter, and one in the fourth quarter of last year, zero in the third quarter of this year and zero in the fourth quarter of this year.

Robert Spingarn - Credit Suisse Securities

Thanks very much for the help Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

You bet Rob.

Operator

We'll go next to Troy Lahr with Stifel Nicolaus.

Troy J. Lahr - Stifel, Nicolaus

Thanks. Just another follow-up on this last Space question there. I mean, how quickly is GPS III going to start ramping up and are you going to start seeing growth this year out of that program?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

GPS III is, I think, starting off very well. We're having... had our meetings with the customers to get our strategies together and to get our plans in place, baselines in place and the like and get our customer buying to those approaches. I don't see huge levels of growth in 2008 associated with that bid, but I would expect that to be more significant in 2009 and beyond.

Troy J. Lahr - Stifel, Nicolaus

Okay. And then why the margin fall off in the back half at Space also, I didn't... I wasn't quite following that. Is that just kind of volumes or is that the mix ramping up on GPS III some lower margin contracts?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

No. We had... we have one item in the first quarter where we had a contract, we had a successful negotiation on a permitting contract. We don't expect that to replicate in the second half and pretty much anything else is fairly constant, maybe a little bit of balancing around with the... our cost plus contracts performance there, but I don't see that as any kind of issue from first quarter to second quarter... from first half to second half there. We should also add... I should add... Troy, we also add in the first half, we did have the one commercial satellite, which had quite a bit of improvement over the commercial satellite in the second quarter of last year quarter-over-quarter.

Troy J. Lahr - Stifel, Nicolaus

Okay. But at Space, I mean, should we be thinking Orion CEV is kind of flat now or are you still seeing growth out of that program?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

We are still seeing growth out of Orion going forward.

Troy J. Lahr - Stifel, Nicolaus

Okay. Thank you guys.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thank you, Troy.

Operator

For our next question, we go to David Strauss with UBS.

David E. Strauss - UBS Securities

Good morning, Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi, Dave.

David E. Strauss - UBS Securities

The growth you're seeing out of your sustainment business there are not, is that C-130, F-16, what else is in there? You gain any benefit from some of these performance-based logistics contracts you have recently signed up?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah, we are seeing pretty much broad brushed growth in our sustainment business scenario, not extent of that is we continue to... as we field more and more F-22 units, we continue to see the F-22 sustainment business growing. We are still seeing growth in the C-130 business, you might recall the discussion we had earlier, in the first quarter I believe, about the Canadian deal, where we got a 20-year sustainment contract to keep the Canadian C-130Js flying up there.

We are also seeing, which may not be on your radar, we are also seeing growth, we've got some activity, we just recently started putting additional wings on the P-3 aircraft and we are seeing some international activity there both in Norway as well as with the U.S. government with some of their customs and border patrol aircraft. So pretty much again broad brushed support for sustainment, and now they are going in the right direction for us.

David E. Strauss - UBS Securities

And your margins in the sustainment business, are they meaningfully better than kind of the 12% average margin, so far or not?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

I always like to characterize the margin that levels, it's been fairly consistent with the overall margin within the business area.

David E. Strauss - UBS Securities

Okay, fair enough. And your pension plan performance in the first of the year, what is that roughly?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Well, as you might expect, if you like at your own portfolio, [inaudible] it hasn't been as high, if we like it to have been, are not yet on track for 8.5% after return that we'd hope for the year, but it's too yearly to tell. We will make the decision as far as what the expectations are after the end of the year. Performances has actually been a little better than the market in general, but not up to the 8.5%.

David E. Strauss - UBS Securities

Okay. Well, congratulations for that.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes, thank you David.

David E. Strauss - UBS Securities

Thanks.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes.

Operator

We will go next to Richard Safran with Goldman Sachs.

Richard Safran - Goldman Sachs

Good Morning.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Good morning, Rich.

Richard Safran - Goldman Sachs

Just first thing and I fully recognize now you don't give quarterly guidance, but if we take a look at 3Q, it looks like you finished delivering commercial satellites just about. F-16s as you mentioned before are down and you had an extra week in 1Q, which will be offset by one less week in the third quarter. So, my question is how much pressure, is there being... pressure being put on your third quarter results?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Well, two comments, Rich. So, one I guess, you are right. We don't give quarterly guidance, but you're pretty accurate in your assessment of what we think is coming up in the third quarter. I'll try to give kind of a high-level view of where I see the third quarter, maybe a couple of items thrown in at the end as well. We talked about F-16. I think I was pretty clear on that.

We are going to be down some eight F-16s in the second half of the year and again, think of that is pretty evenly split between third and fourth quarter. What's probably not apparent is, we still expect to have obviously six C-130J deliveries, but just because of the phasing, the planned phasing of those aircraft deliveries, we expect to see more in the fourth quarter than the third quarter, and I think that's going to have some headwind effect on the third quarter and some [inaudible] in the fourth quarter.

You also mentioned the fact that we had zero commercial sats in the third quarter whereas we had two of those in the same time frame in 2007. You mentioned the one less week in 2007, one other item I mentioned is, in Electronic Systems, we actually did have a higher-level deliveries on our kind of delivery recorded sales for things like the MPA aircraft for the U.S Coast Guard, PAC-3 Missiles, fire control systems, et cetera. So, that'll be a little lower in the second half.

And just overarching, I would look at third quarter is probably being closer or probably lower than the 2007 level. I'm thinking somewhere in the 10.5, 10.6 level. On the flip side may be of the discussion, I'd like to see if I guess that there is the... potential as we see yesterday, we'd look at the manifesto out there to have two unusual events in the second-half of the year, neither associated with the Proton launches, probably one in the third quarter, and one in the fourth quarter as we said here today and this is not premise to our numbers because they are unusual events. But these are the last two events that allow us to recognize the deferred gains that we talked about before we recognized, we had a little bit of that deferred gain in the first-quarter. This would retire that risk and recognize that deferred gain, probably equally split between third and fourth quarter.

Richard Safran - Goldman Sachs

Thanks. And just last thing is... and just simply. So you raised your ROIC forecast by 1% to 20% ?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Right.

Richard Safran - Goldman Sachs

I just wanted to know on the invested... if there was anything there that was benefiting on the invested capital side?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes, couple of things. Obviously, the numerator went up because we increased profit on the up side. On the denominator side, we increased cash flow to 100 million bucks and we actually have a little pool to the left on the timing of our cash flow. So, we are seeing a little bit lower invested capital over the time frame there, that's the biggest driver.

Richard Safran - Goldman Sachs

Thanks a lot.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

All right, thank you.

Operator

We'll go next to Joe Nadol with JP Morgan.

Joseph B. Nadol III - JP Morgan Securities

Thanks Bruce, good morning.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi Joe. how are you?

Joseph B. Nadol III - JP Morgan Securities

Good. My first question is on the F-35. I heard your comments in your introductory remarks, but... so, lot of conversations you know in the press and such this quarter about schedule, timing of the I guess the next 17 development aircrafts, and international partner competitions. I was just wondering if I guess on those two items, the international competitions and the development schedule of those next bunch of aircrafts, if you could kind of give your latest views.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Sure. Maybe I'll start with just kind of an overarching view of the F-35 program in general. I think, hopefully you are aware... I'm sure you are that we just provide the STOVL early in the second quarter, essentially on schedule from a schedule we've put together 18 months, two years ago. So that was gratifying to us. We've now got both the AA-1 version, as we call it and the STOVL aircraft flying that the... the STOVL aircraft has had multiple flights since that initial flight. Both are progressing well, and I think, we are very satisfied with where we are performing on that contract.

You talked about the remaining 17 aircrafts in the development contract of the build cycle. I think we are progressing well there as well. I think the next big milestone you will see on the program from a delivery perspective will be the roll out of the first aircraft for the carrier variant aircraft for the U.S. Navy. I believe that is in the latter part of the first quarter or early second quarter of next year. And then we start rolling out aircrafts pretty regularly thereafter in that time frame.

So, I think we are progressing well and I don't see anything that causes any alarm there. As far as the international partner status in competitor aircraft evaluations, I think you can fully understand when you're going to spend the kind of money that these countries are in the percentage of their defense budgets on a buy of aircraft as large as the plans of our division. They want to make sure they are getting the best deal and they are evaluating all the [inaudible] and oftentimes that's literally, laws of that country to have these sorts of competitions amongst multiple contractors.

So, we're not surprised by that and we are not discouraged by that at all. We think the aircraft is prepare very well in those competitions. We are adding ongoing discussions. I think, there were some... at one of the briefings at Farnborough [ph] which talked about some of the consortium buying discussions we are having with international partners. I think, we're getting good momentum on that discussion front right now. And a lot of talk amongst those eight partners who... they will allow us to build or to develop a more predictable build sequence and build schedule that will add some stability to the firm as we go forward.

I'm particularly encouraged quite honestly by the... some of the early indications from some of the non-investment partners, the FMS buyers [ph], and particularly Israel has come forward with an LOR for 25 aircraft and an option for 50 aircrafts. So, I think that's the indication both of the preference for the aircraft and the confidence that the international community is putting in our place to produce these aircrafts on a timely basis.

Joseph B. Nadol III - JP Morgan Securities

Okay. Thanks for that. As a second question, you revealed [ph] up a whole bunch of big wins that you've got in the second quarter. Your backlog though was down in the first six months and it was particularly down, I guess in the Electronic Systems. I'm just wondering if you could kind of put that into context. I know, obviously backlog is lumpy and you only show unfunded or total backlog as opposed to just funded. But any color you give in Electronics in particular will be helpful.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah. Let me try to may be give color on all of the backlog, beyond Electronics. You're right. Electronics was down on the first half basis. I've looked at the profile of the Electronics orders and is this typically the case in Electronic Systems. They are very, very heavily loaded, actually not just in the second half, but actually in the fourth quarter of the year. And an awful lot of those are, I'll say sole source follow-on production contracts like, for instance, the next fiscal-year, award of PAC-3 Missiles, for instance, as one example.

So, I don't know that I'm surprised. I'm not surprised by where we sit today, backlog wise in Electronic Systems. I think we've won the competitions that were scheduled to occur at a cliff that we're very satisfied with in terms of our win rate and we've won the strategic wins that we talked about. I did talk about my prepared remarks such as the GPS III , AMF JTRS and other contracts such as that. As I look forward Joe, I expect the third-quarter as I look at our orders profile, we'll probably actually show a drop, a further drop in our backlog and expect to recover in the fourth quarter, and I still do expect to actually grow backlog for the year, year-over-year versus 2007.

Joseph B. Nadol III - JP Morgan Securities

Okay. That's helpful. Thanks Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

You bet Joe.

Operator

We'll go next to Myles Walton with Oppenheimer.

Myles Walton - Oppenheimer

Thanks. Good morning.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi Myles.

Myles Walton - Oppenheimer

Bruce, I was hoping you can offer some information on '09 in the last few years. On the second quarter call you've been kind enough to provide some pieces on how the next year is shaping up. So, maybe if you are able to do that on top line margin opportunity in EPS growth, I know it's early, but conceptually some of your early thoughts there would be helpful.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

As you will hear in my closing statement, we are obviously going to provide guidance in the third quarter for 2009, but as I have stated today, looking at 2009, I think couple of things, I'll comment on, one is we've looked at Aeronautics and we exceed [ph] for a long time, the drop in the F-16 sales in 2008 and the fact that we believe that will be offset by primarily F-35 growth going forward. We still believe that to be the case, we still believe Aeronautics will come back in 2009 higher than 2008, and probably you know comparable or higher than what we saw in 2007.

I think the other three business areas we are still hopeful and strongly believe that the IS&GS business areas are strongest growing business. I still think that's probably a double-digit year-over-year revenue growing business. Electronic Systems is probably kind of steady area for us, always kind of in the mid-single digits and that's why, what I see in 2009, and I think as I have said up in the past that Space is likely to be flat for a couple of years at least including 2009. So that's cost side Myles and then as far as bottom line, I still think there is margin improvement out there on most of our business areas. I think it is becoming more difficult for us, but we've not given up on that, I still think there is opportunity to exceed in that area.

Myles Walton - Oppenheimer

Okay. That's really helpful. So, the only other one I had for you is on clarification of the PT&E, I guess charge or the adjustment of performance claim that you mentioned in the press release?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

I think that was... it was PT&E, are you sure, you're talking PT&E?

Myles Walton - Oppenheimer

It is declines in operating profit at PT&E is due to mainly performance in the second quarter?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes. We've had a very strong growth in our PT&E business, quarter-over-quarter very strong top level growth, top line growth and margins are down year-over-year within our PAE Group. Think of that is probably down about a 100 basis points or so. This is really a mix issue, not a performance issue and we're expecting higher margins in the second half. This is a... PAE is a... I'm sorry, you've said PT&E, and I'm talking PAE, don't you Myles.

Myles Walton - Oppenheimer

Yeah, that's okay. Within Electronic Systems, there was a commentary in the press release regarding platform training and energy --?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah, my apologies... my apologies. I'm giving you different explanation than you asked for. The platform integration piece, but that's what's on the press release, think of this, this is an international electronic warfare contract and this is a contract that has a very, very complicated environment that it operates in incredibly set of difficult requirements. Both we and our subs for that matter have not performed as well as we would have liked and we did have some issues there. This is a single contract. There is no kind of follow-on business from this contract. We simply have not performed very well. We think we have the separate understood, and we think we have the problems behind us at this point.

Myles Walton - Oppenheimer

Okay, thanks.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thank you. Sorry for the distraction there.

Myles Walton - Oppenheimer

No. I'm not worried.

Operator

We go next to Robert Stallard with Macquarie.

Robert Stallard - Macquarie Research

Good morning.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi, Rob.

Robert Stallard - Macquarie Research

Bruce, first of all, on the C-130J. We talked last week about how the prospects of that are looking good and you intend to ramp up production, how do you think that is going to phase in as we move out into 2009 and 2010?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes, we did talk at Farnborough Rob and I know there was briefing by Ross Reynolds on the program at the Farnborough as well. Now, as we look at the current backlog of the Canadian orders we just recently received, some of the C-130Js I mentioned in the prepared remarks, the GWOT aircraft for instance. We do see a ramp-up taking place on the delivery profiles, the C-130 programs. I have teed up, I think in the past that we think of us as currently delivering about 12 aircraft a year. I do believe that ramp rate will double probably by the end of the decade to the 24 level or even slightly higher than that. And you can... I won't give the... necessarily the ramp rate between those years, but you can imagine that it won't be a fair step... it will be a more leveled progression from where we are now for that doubling of rate.

Robert Stallard - Macquarie Research

And do you think as a result of this that you'll be able to realize higher margins on the program as well?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

I think that certainly sets us up for that Rob and it helps from a... an over rate absorption issue, it's nothing else than that. I think this... this partner is performing exceedingly well. I'd like to see it continue that even with the ramp rate increase we're talking about and that is probably the objective.

Robert Stallard - Macquarie Research

Right. And secondly on the Electronic Systems, your guidance suggest that margins ease off a bit in the second half. What do you think is the fact of that like to cause it?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

I don't know that I'd see margins slackening off in the second quarter or the second half to be honest. I think they're going to be fairly consistent with what we saw in the first half at the end of the day.

Robert Stallard - Macquarie Research

Okay. That's great. Thank you very much.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

You bet.

Operator

[Operator Instructions]. We go next to Doug Harned with Sanford Bernstein.

Douglas S. Harned - Sanford C. Bernstein

Hi, good morning.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi, Doug.

Douglas S. Harned - Sanford C. Bernstein

Hi. If we go back to Sats for a minute, when you look at Orion, Orion being up, military satellites being down. If you take out ULA for a moment, how margins trended there? And ULA was obviously a big contributor in margins.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Well let's see, for our second quarter or first quarter or all the above?

Douglas S. Harned - Sanford C. Bernstein

The second quarter.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Just second quarter. I think our Sats business has actually improved over from... the second quarter of '08 and second quarter of '07. We had some nice... I think I mentioned earlier, nice improvement on our commercial satellite that we launched this quarter, compared to what we did last year. It's actually a very good program for us. That was the biggest driver and everything else I will say on the government business, the Orion contracts and the like... is fairly flat. Profit wise, margin wise and then the ULA contract as you mentioned is actually the other piece that's getting up some margin boosts in the quarter.

Douglas S. Harned - Sanford C. Bernstein

Okay. And then on IS&GS, you mentioned the global services that you've seen some weakness in the margin there and that's a mix issue.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah.

Douglas S. Harned - Sanford C. Bernstein

Could you comment perhaps a little bit more on that on the mix issue and then as well you mentioned a contract restructuring in the information services area as well. What was the impact of that?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Let me start with the PAE first. I apologize, again I started giving this response to Myles. I'll try to give a similar response to you Doug.

Douglas S. Harned - Sanford C. Bernstein

That's okay. That was my question. Where did you got started on it?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes. Getting a good head start here. I think I'll start to say... the margins were down year-over-year. I think somewhere in the neighborhood of about 100 basis points or so. And this really is not a performance matter and there has been no write-offs or those sort of things. It has been a mix issue.

We're having extremely high growth at the top line, but most of the contracts we see happening on PAE are what we call the ID/IQ contracts and definite delivery and definite quantity contracts. Those have a tendency, not a tendency, but those are tend to be recorded from a sales recognition perspective be a service contract accounting. And that tends to create more variability between the quarters especially at the early start of those programs then in the later part. I don't see that being an issue and again I think margins are going to improve in line with our expectations in the second half of the year just as planned. I am sorry your second question, I didn't --?

Douglas S. Harned - Sanford C. Bernstein

On the information services, you referred to a contract restructuring that you benefited from.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah, I think we actually mentioned that in the first quarter. And I think that's probably in the press release talking about the first half of the year.

Douglas S. Harned - Sanford C. Bernstein

So there is nothing new there.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

There is nothing new. We did have a contract restructuring in the first quarter. It was a fairly, had much more impact in the first quarter but it does actually benefit us in second and beyond as well.

Douglas S. Harned - Sanford C. Bernstein

But I take it on margins that's not a material impact on the second quarter in terms of your...

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

No, it's not.

Douglas S. Harned - Sanford C. Bernstein

Okay, great. Thank you.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thank you, Doug.

Operator

We go next to Cai von Rumohr with Cowen & Company.

Cai von Rumohr - Cowen and Company

Yes, you performed very well in the Aeronautical sector.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thank you.

Cai von Rumohr - Cowen and Company

Was sustainment up... given that I guess, sustainment is going to continue to rise and the F-16 down a little, but you know the mix going forward looks about the same. What's the chance that the margin in the second half there could be close to where you were in the second quarter?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Close to what we're in the second quarter you said.

Cai von Rumohr - Cowen and Company

Right, or at least that... your guidance for the year just on paper, it looks like it has some opportunity.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah. As I look forward, Cai, the big drivers that are going to make its margin improvement for the second half for the same things we've been talking about for the last 18 months or so, and that's the big three production programs, the F-16, F-22 and the C-130J. I will tell you those programs are performing superbly, collectively and individually. And assuming that we continue the kind of improvement going forward in the second half of the year, I think we have opportunities to have improvements there. I think your question of, could we get to the second half margins and I think it's possible. But we have to continue that kind of performance levels we've seen in the past to make that happen.

Cai von Rumohr - Cowen and Company

Okay. And then, I guess cash redeployment, you raised your op cash flow target for the year, you had good cash flow. In this quarter, any kind of sense in terms of priorities, are you seeing more in terms of on the M&A front more interested in the tough market buying your stock and how do you look at that?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah, just thinking a while Cai, I would think that we would see some reduced level of share repurchases in the second half. That's obviously dependent upon what the stock does. I mean we're still bullish on our stock or we will be buying at the levels we are. And depending on what happens to the second half that will determine what we do with more or less share repos. We don't intend to have the option exercised in the ESOP contributions for our plan, dilute the share count, so you will see at least purchases for that level in the second half. Again the rest will be probably dependent upon what the share prices do for the rest of the year. Relative to your second question I'm sorry Cai was the...

Cai von Rumohr - Cowen and Company

In terms of... if in fact you're going to decelerate the share repurchase even though you kind of have the debt, but that issue you still have very substantial cash flow. Any...

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah.

Cai von Rumohr - Cowen and Company

Any parts of with greater interest in M&A?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yes. I think we obviously take a look at the fourth quarter at our dividend policy and that's a decision we'll discuss with the Board at that time. But relative to M&A, I do see, as I look at the pipeline of what we have got hopefully on our horizon. I do think we're going to see more opportunities for M&As in the last six months, it wouldn't surprise me if we do two to four kind of with the smallest level of acquisitions that we have done in the past and get those closed in the second half of the year.

Cai von Rumohr - Cowen and Company

Great, thank you very much.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

You bet.

Operator

We will go next to Ronald Epstein with Merrill Lynch.

Ronald J. Epstein - Merrill Lynch

Good day, and good morning Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi, Ron.

Ronald J. Epstein - Merrill Lynch

A question for you with regard to the Aegis System. There has been a lot of talk in the press men on the hill about the kind of the face off between DDT-51and DDT 1000. If we were to see the DDT 1000 go away and see more 51, what's the net opportunity for Lockheed?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Well, the net opportunity in the DD... the Aegis Weapon System which is kind of the backbone of the DDT destroyer. First off, it's performed superbly over the past few years and it's grown, its capabilities have grown immensely from kind of a anti-aircraft tracking... missile tracking system towards now very effective as of that, and I have spent a last few launches we've had with Ballistic Missile Defense.

So, I think that the weapon system has grown capability wise, we've also been able to shrink its footprint to have it to be usable starting with cursors down to destroyers now to frigates, including in the international market place. So it's a very flexible, very capable system first off. Relative to our possibilities going forward, we were looking at doing Aegis sorts of retrofits, find out the right word, but enhancements on the existing fleet of Aegis Systems to begin with. This would be over and above that obviously. My reaction, I guess, is the Navy like every other service had it's one set of budget pressure. I am sure that's why they're exploring this option and quite honestly, we stand ready to support the Navy in its decision.

Ronald J. Epstein - Merrill Lynch

Okay, great. And then if I can just follow-on with another question. Could you just give us some more color on maybe what your launching list of upcoming programs would be and what we can keep an eye on for potential things you are competing for?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Sure. Again, third-quarter, let's just talk that I mentioned in the prepared remarks the IHOP contract that actually is the third quarter event, it was not reflected in the second quarter numbers that it was... we really I think we won that July 3rd. So that's a big big win... continuing the trend of large significant wins within our IS&GS business area. We've a... a fairly large opportunity, I think GSAT, probably three months ago or so, I'm not sure I would have stopped. But, that had quite as much as opportunity to be an award this year . But, I think the current thinking, the current planning on the part of the customer is that as of September, possibly a later fourth quarter award, that's one that you want to be watching there.

From a kind of a strategic perspective, we do expect probably at the end of this summer, the Joint Light Tactical Vehicle down select from six to three players on the tech demo phase to occur and we are going to watch that closely... you want to watch that as well. I'm hopeful , I think I teed up and in terms that I was wrong, but I teed up in the second quarter that is up that we would give hopefully get a C-130 international contracts signed in the second quarter.

I think that's still a possibility in the third quarter without naming... names there for probably think of it up to four C-130s or so. And then we've also get the DOE Hanford contract which is a large another large competition for the IS&GS business area in the third quarter. Fourth quarter, we think there is... the large weather satellite for NOVA, the GOES-R satellite is upcoming. We are hopeful, although it's... I'm a little bit of cusp on whether or not it can happen this year or not, that we will get some positive news on Romania for F-16s. And then maybe finally, I did mention in the third quarter, we're hopeful will there be a down select on the JAGM, the Joint Air-to-Ground Missile competition that we are pretty excited about as well. So that's a handful, that's sort of the larger ones that I see on the horizon and hope those ones you will track with us.

Ronald J. Epstein - Merrill Lynch

Great, super. Thank you.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thank you, Ron.

Operator

We'll go next to Howard Rubel with Jefferies & Company.

Howard A. Rubel - Jefferies and Company

Thank you. Returning to cash flow for a moment Bruce. Your customer advances for the first six months are essentially flat relative to a source of I think $700 million a year ago. How would you see the second half playing out, I mean that clearly will make your already strong numbers look a little better?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Yeah. Thank you Howard. First, let's just talk on working capital in general. I think we talked in the first quarter and there was some concern about the high level of accounts receivable we saw in the first quarter and the high working capital growth. We teed up the notion that we thought... we'd see improvement in both AR and as a result in working capital in the second quarter, that's exactly what happened. As I look at the second half of the year, I actually see some growth, probably to the $0.5 billion level or so in our working capital account. Most of that growth coming as a result of lower advances occurring. So, I think that is probably a delta of about $200 million or $250 million between now and the end of the year.

Howard A. Rubel - Jefferies and Company

And that's not... that's pretty good precision, given the volatility in that business. With respect to international, there are a number of foreign military sales that are outstanding. You know, some that you alluded to and some that are in the pipeline. Do you find that the negotiations are taking a little bit longer, let's say in some of the non-aeronautical areas or is it... is it just, is it just the typical lumpy nature of the business?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

I would, honestly Howard, characterize... I mean, I worked most of my career in parts of the business that had large contents of international business and the one constant is the fact that it is hard to predict when international customers are going to buy their products. I don't see this as the ordinary out of the expected results, and I am not aware of any sort of peculiar stretching out associated with international sales.

Howard A. Rubel - Jefferies and Company

Thank you. And then just... if we were to look at your programs, I mean it was good that you highlighted a couple of challenges. As you look at your entire list of programs, are there still just a handful of red ones or is there anything really changed where red is gone to yellow or green?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

We're talking internally about kind of the headline partners, the ones that kind of catch people's eye or peoples attention and they are the usual suspects, right, I mean, get the VH-71, LCS and lot of programs like that, the Cyprus contract. I can honestly say as I look at those contracts from where we were at the start of the year, I think each and everyone of those contracts is doing better today than it was at the start of this year.

And I am very encouraged by the trend that we see in those high profile contracts. I teed up or we just discussed two programs in the second here. The C-5 and the platform integration electronic warfare program that kind of popped up, those things happen, is a charge off to try to minimize those and stretch those out, so they don't happen as regularly as we prefer it does not happen. But we are talking still just a handful of contracts, I don't think any performance issue besides that.

Howard A. Rubel - Jefferies and Company

Thank you very much Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Thanks Howard.

Operator

We will go next to Harry Nourse with Banc of America Securities

Harry Nourse - Banc of America Securities

Good morning.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi, Harry.

Harry Nourse - Banc of America Securities

Hi. Can you just remind us when how far out your F-16 backlog stretches to?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Sure. With the award of the Moroccan deal... and first up I think we are standing at about a 115 aircraft in backlog and that kind of the current build rate that takes us out somewhere towards the end of 2013, I believe. So, it's a good long time still to go and again I sit back in amazement sometime as I look at the F-16 program. I started my career in that program you know and that production wise that started in production phase in probably 1978. Here we are at 2008, and we just settle to our 25th international customer, when the program is still is vibrant today as it was for a number of years back, I am very exited about the opportunities and prospects going forward.

Harry Nourse - Banc of America Securities

So obviously the time in these things is outside of your hands. But beyond that on the Romanian thing and also the Indian, are there other things out there that we just don't know about the possibilities as well?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Well, I think there's been a lot of news, a lot of press... rather about the potential sale for 66 F-16s in Taiwan. That is clearly been asked for by the new Taiwanese administration. But that's clearly the decision that needs to be embedded [ph] at the government to government level. We are happy to sell the aircraft, but we will only do that obviously if the Department of State feels says that is the right thing to do. But that's that 66 aircraft either would have happened, it would happen at the very late part of this year or sometime early next year and also slightly going to get pushed off or deferred into the next administration.

Harry Nourse - Banc of America Securities

Okay. And on that F-22, obviously the decision has moved off into the next administration, what level of commitment might you have to provide to keep the line going?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Commitment, do you mean financial commitment?

Harry Nourse - Banc of America Securities

Yeah.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Well, we have not committed to do anything financially, to keep the line going quite honestly.

Harry Nourse - Banc of America Securities

Yeah, but would you, in the absence of orders?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

I'd say what, we're not going to make like F-22s, I can tell you that much. And if can figure out a way to minimize the build... sequence of the build timing the schedule, how long it takes to build an F-22, or if there is some low dollar suppliers that would build us some time frame there, we might look at that, but we're not talking anything of any size whatsoever.

Harry Nourse - Banc of America Securities

Okay. Thank you.

Jerry F. Kircher, III - Vice President, Investor Relations

Rufus, this is Jerry. I think we are coming up on the time. Maybe one more question and we wrap up.

Operator

[inaudible] will come from Joe Campbell with Lehman Brothers.

Carter Copeland - Lehman Brothers

Actually, good morning it's Carter Copeland. Good morning, Bruce.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Hi, Carter, how are you?

Carter Copeland - Lehman Brothers

Good. Just pigging back a bit and I've got a question on M&A and you did talked about opportunities for a couple of things in the second half. I wondered if you might characterize as some of the things you're seeing in terms of the attitude of potential sellers, I mean obviously valuations have come in a bit here, are you seeing expectations change given where the budget outlook stands and given where some of the various opportunities within the budget stand. Are people more or less willing to sell or what sort of things are you seeing in general, from sellers?

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Just an overarching view, we have had a tendency to look at a lot of private deals here recently, and I still think we're seeing potential opportunities in the private arena that we are excited about, and I think those deals, we wouldn't be doing it, if we didn't think they are reasonable. I don't know that we saw the huge variation swings in terms of valuation in the private market that maybe we did in some of the public market particularly with some of the international money chasing, some of the public deals. So, we have not seen that, that's not the element that we are targeting in any event and I've not seen that.

Carter Copeland - Lehman Brothers

Great thanks.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

You bet.

Operator

And with that Mr. Tanner, I will turn the conference back over to you for any closing remarks.

Bruce L. Tanner - Executive Vice President and Chief Financial Officer

Okay. Thanks for joining us on the call this morning. I do appreciate the time. I'd like to close by thanking you for your questions and for joining the call. We look forward to talking to you again in October when we discuss our 2009 financial outlook and guidance. Rufus that concludes our call.

Operator

Thank you sir. And again ladies and gentleman this does conclude the Lockheed Martin Corporation second quarter 2008 earnings conference call. We do appreciate your participation and you may disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!