Lockheed Martin 4Q16 Earnings Call Notes

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Marillyn Hewson

Current status of DOD budget

“I’d like to turn now to the status of DOD budget. Currently, the DOD is operating under a continuing resolution through April 28th for fiscal year 2017 with funding constrained to prior FY16 levels. While this will cause funds to be limited for certain DOD programs and likely delay expansion in others, we do not believe our 2017 sales, earnings or cash flows will be affected by this delay in receiving the full appropriations bill”

Recognition from both parties that global security threats are not decreasing

“Separately, the 2017 National Defense Authorization Act was signed into law last month and reflected bipartisan agreement that defense budgets should not return to amounts defined by the Budget Control Act or sequestration levels. I am personally encouraged by that fact, but there is recognition from both parties that global security threats are not decreasing and that in fact we do need to continue to put resources toward our national security and our interoperability with our allies around the world.”

Not seeing any change in international customers due to new admin

“In terms of other international customers and any reaction to the change administration. I frankly haven’t had any dialogue back from that as well. We — as we bring in — as we have an orderly transition of power in the United States of America, we have new leaders in the administration, they each — they have different policies they might put forward, but it hasn’t impacted our demand for our international products, a lot of our growth on international — in the international marketplaces in the F-35, it’s in missile defense, it’s an opportunity for F-16 and C-130J, opportunities for C4ISR, Space awareness, things of that nature and that continue — there continues to be a demand for those.”

Met with Trump about F-35, welcome the opportunity to speak

“Basically President Trump recognizes that the F-35 is a very large program, its largest program in the Department of Defense. He wants to make sure that that the American taxpayer is getting the lowest possible costs on the program and we share, we understand his concerns about affordability, we certainly share that. The meetings that we’ve had have been very productive, with very good dialogue. He asked excellent questions and he is really focused on making sure that that the cost comes down on the program and it is not about slashing our profit, it’s not about our margins when we have those discussions about how we get the cost of the aircraft down today and in the future. So I have welcome the opportunity to talk to him, because it gives me an opportunity to share with him what we have been doing in terms of bringing the cost down as you saw on the chart that we put in our deck today that we have been driving the cost down on the program that we have invested as ourselves and our industry partners in what’s called blueprint for affordability and we’re moving forward on sustainment cost reduction initiatives”

There appears to be bipartisan support for eliminating sequestration

“My opinion is though that there’s appears to be bipartisan support for eliminating sequestration. As I’ve said in the past, we have a lot of independent dialogues with various members of Congress, every one I’ve ever spoken to [Technical Difficulty] they don’t think it’s good policy and they want to get rid of it. So I think now with the current Congress and the new administration that it probably opens up the opportunity for really getting that done and I’m very encouraged that the dialogue has been around eliminating the defense sequester, just removing it altogether and there’s also a strong discussion around increasing defense spending, because we have for the last few years allowed our — with that budget caps et cetera, we have not been investing like we need to in recapitalization and then and readiness and a lot of things that you hit directly from our customers, our services telling Congress and telling the new administration that they need.”