洛克希德·馬丁 (LMT) 2005 Q1 法說會逐字稿

Good day and welcome to the Lockheed Martin first quarter 2005 earnings results conference call.

Today's call is being recorded.

With us today, is Mr. Christopher E. Kubasik, Senior Vice President and Chief Financial Officer, and Mr. Jim Ryan, Vice President of Investor Relations.

At this time I would like to turn the call over to Mr. Jim Ryan.

Please go ahead sir.

Thanks and welcome to the call.

We have posted charts on our Webpage which supplement our comments.

Also please refer to the Safe Harbor on chart two.

Statements in today's call that are not historical facts are forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law.

Actual results may differ.

See today's press release and our SEC filings including our 2004 Form 10-K for a description of some of the factors that may cause actual results to vary materially from anticipated results.

I'll now turn the call over to Chris.

Thanks, Jim, and I'd like to welcome everybody to our earnings call.

We had a solid first quarter and we're off to an excellent start for 2005.

As you saw in this morning's press release our earnings per share were up 28%.

This was driven mainly by operational improvement across all of our business areas.

We experienced a 100-basis-point improvement in our operating margins.

This also included $0.03 per share net gain from two discreet items.

The largest being the gain on our Intelsat sale.

Cash is strong and reinforces our focus on operational excellence.

And we were also pleased to increase our guidance for the remainder of 2005.

Let me start with strategic comments and observations.

Throughout 2004 we talked about the momentum that Corporation was experiencing and I'm pleased to report that that momentum continues in 2005 with some significant competitive wins.

We've talked previously about expanding into adjacent markets and in January we were awarded the Presidential helicopter.

The following month we received the largest ever public-private job competition for the Federal Aviation Administration.

We've also talked about pursuing international opportunities.

And in the quarter we received our initial orders for the PAC-3 Patriot Missile with Japan and the Netherlands.

There are additional international opportunities that exist for the remainder of this year and next.

Specifically, in the combat aircraft arena and in the air and missile defense.

Most recently the German Parliament approved funding for the MEADS program.

And we're well positioned to continue to grow that line of business.

The third part of the strategy focuses on growing our IT capabilities and we're continuing to do so with the award of several IDIQ contracts.

Let me take a moment and talk a little more about these vehicles.

IDIQ is indefinite delivery, indefinite quantity.

And these represent contractual vehicles that allow customers to execute task orders in a timely fashion, as their needs are identified.

Therefore, initially there is minimum backlog upon the award but over time there are substantial opportunities as the task orders are executed.

In fact, we estimate that there is over $5 billion of opportunities over the next three years looking at our existing IDIQ vehicles that are not currently in our backlog number.

We've talked about growing the Corporation through selected acquisition.

In the first quarter of 2005 we closed on two such acquisition.

Both in our systems and information technology group.

These are closely related businesses with good returns and we believe that they're easy to integrate.

In fact, over the last several years we've now completed seven acquisitions.

Each and every one is meeting or exceeding our expectations.

I would expect more of the same as you look forward.

And my final comment on strategy deals with the completion of our telecom exit strategy.

In the first quarter of two thou five we received $750 million for our ownership -- sale of our 25% ownership in Intelsat. we have approximately $200 million of value over a couple assets that are currently being monitored and marketed.

Let me now shift and talk about operations and programs overall, outstanding performance for the quarter.

We completed our 76th consecutive Atlas launch, our 110th consecutive successful Trident Missile launch.

And there were several tactical missile tests, all successful in the quarter, including the ballistic missile intercepts used in the Aegis system.

The F/A-22 was also approved for full rate production.

Let me wrap up with a few comments about our financials.

I'll start with sales.

Sales were as expected for the first quarter.

Overall we've increased our outlook to mid single-digit top-line growth for 2005. let me comment object each of continues areas and groups.

The systems and IT group grew 4% in the quarter and we are now forecasting a midpoint of approximately 7% growth for the year.

As we've talked about previously, systems and IT represents more than half of the Company.

And we believe that it has a track record looking back and looking forward of continued and sustained growth.

Our customers are looking for solutions that are IT-based that require integration skills.

And we believe we are well positioned to serve not only the Department of Defense but the intelligence agencies, the Homeland Security Department, and various Federal Government agencies.

Within systems and IT our information and technology services group was flat for the quarter.

That was as expected as our NASA, our low-margin NASA work, declined as a result of the completion of the Seasock and the [SET] contracts.

We look for I&TS to grow the next three quarters.

Turning to space.

Space grew 5% mainly driven by government satellites.

This tends to be one of our more volatile business areas relative to sales but we're confident in our 5% growth outlook for the full year.

And aeronautics, as planned was down in the quarter.

We expect this growth in the second half of the year and the full-year aeronautics revenue should be consistent with our '04 results.

So overall, we see sales increasing each and every quarter sequentially with a majority of the growth occurring in the second half of 2005.

Let me comment on earnings per share.

We increased our range by $0.25 to $0.30.

The three contributors were: number one, we included the results in the forecast of our two accretive acquisitions.

Secondly, we've had improved performance in the space business area.

And finally, the SEC delayed the implementation date for FAS 123R dealing with stock option expense.

As we've previously disclosed we'll adopt the FASB when required, which is now January 1, 2006.

You will recall that our forecast included $0.08 to $0.10 a share hit in the second half of '05, which has been removed.

Let me now talk about cash flow.

This has been and continues to be a focus of the Corporation.

And I believe it distinguishes us in the marketplace with over $1.5 billion of cash from operations in the quarter.

This is our ninth consecutive quarter that we've been cash flow positive.

And we looked at the first quarter as really the barometer to make sure that these improvements are, in fact, sustainable and systemic.

And we've been positive in the first quarter of each year since 2000.

We've talked a lot the last couple years on return on investment capital.

The management team remains committed to drive ROIC improvements.

The two key drivers, of course, are earnings and invested capital.

On the earnings perspective, as I mentioned earlier, we did improve our margins 100 basis points.

We are on track for 2005 to be the fifth consecutive year that our margins have improved on a consolidated basis.

And in the first quarter, all five business areas, earnings were up as compared to the prior year.

I think on the invested capital perspective we've done an outstanding job managing and focusing on working capital.

And I will be happy to elaborate on that on the Q&A if you're interested.

So overall, relative to ROIC we're on track for 100-basis-point improvement '05 compared to '04..

Our goal is continuous improvement.

And we are driving to be the best in the industry.

So in summary, when I look at our strategic performance;

I look at our operational execution and I look at our financial results: I believe we are well positioned to add value for our customers and our shareholders.

With that, Phillip, we're ready for any questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] We go first to Joe Nadol with J.P. Morgan.

Thanks.

Good morning.

Chris, just a question on the space systems margins.

You were at 9.2% in the quarter.

I think the midpoint of your guidance for the year is 8.5 and you had no commercial satellite deliveries this quarter.

So I think you have to carry that overhead which actually hurt you.

I'm just wondering why you expect the back part of the year to be lower?

Yes, Joe, good morning.

You're absolutely right in that all of our earnings increase in the quarter was a result of our government satellite performance, which includes both classified and unclassified satellites.

The two key drivers there were the increased sales from government satellites, which brought along extra earnings, and some performance improvements as we met some milestones and delivered some products that allowed the earnings to increase.

So going forward, for the full year, we expect that steady return on the government satellites.

Commercial sat is basically a - - not a significant driver in the quarter.

And given the lumpiness, probably caused more by launch vehicles on a going forward basis, is going to drive the variation in the EBIT.

You're right, the midpoint is 8.5.

You know, clearly, we've given a wide range and we're going to strive to do better.

We go next to Heidi Wood with Morgan Stanley.

Ms. Wood, your line is open.

Sorry.

I had it on mute.

Thanks very much.

There's 1.5 billion in cash flow that you did in operations this quarter.

Chris, can you walk us through what happens in the remaining three quarters that would account for only the $3 billion in guidance for the year?

Yes, absolutely, Heidi.

Actually, just to clarify, our guidance is at least greater than or equal to $3 billion.

So there is some potential possibly to do better than that.

The main drivers relate, as always, interest and tax catch-up.

Those tend to occur mainly in the second and the fourth quarter.

We have some advances that we forecast to burn off and the other components of working capital receivable inventories and payables we would hope to be flat.

In fact, when we look at the working capital this is the second of three quarters that we've actually operated the Company on a negative working capital basis.

So that is clearly our goal and something that we're striving to continue.

And as you know we do try to reconcile our free cash flow to the underlying adjusted earnings and that is always our goal and we would expect to achieve that this year.

As a followup, the working capital improvement Chris as you point out really was remarkable.

How much of that was reflected as a drawdown on inventories on the F-16 since you're delivering fewer this year, versus real improvement?

And can you make more progress from here?

And also is the burn-off of customer advances around 300 to 500 million this year?

Yes, we think - - well, first of all, to answer the specific question on F-16, that is relatively immaterial and was not a key driver in the inventory.

Advances are probably in the 200 to 250 million for the full year.

Of course, we don't forecast advances relative to any new orders.

So to the extent that we were able to get those we would obviously adjust accordingly.

We really focus on the entire working capital.

And even though we've had growth in the last several years and are projecting top-line growth again this year in the 3% to 7% range; we are basically keeping the working capital flat or negative.

So we are absorbing the growth without corresponding growth in working capital.

And that's clearly our goal and our focus.

We go next to Steve Binder with Bear Stearns.

Just a follow-up.

Just a couple with respect to cash taxes are you still expecting 5 to 600 million of cash taxes this year?

And CapEx also, you came in light in the quarter.

You were looking for an increase, this year, at least in the budge to 900 million.

I'm just wondering if that gets revised as well?

Thanks, Steve.

No, you're absolutely right.

No change in the tax payments, 5 to 600 million.

CapEx, like we do each and every year, we manage, I think it's somewhat attributed to our ROIC focus.

And we try to hold that as long as possible.

But with the competitive wins last year, the wins this year, I would expect the capital to ramp up.

And we will stay with our original estimate of about 900 million for the year.

And we will let you know if there's any changes but nothing at this time.

And also, infotech margins were fairly strong in the quarter.

Is that really just mix?

You mentioned the Seasock contract winding down.

Was that just, or was there any other items there?

No, it's absolutely mix.

The two major drivers there are our IT business, which is growing double digit and traditionally has upper single-digit margins and the NASA business has been going down with much lower margins.

In fact, you know, just to put it in perspective on the NASA work, back in '03 we probably had $0.75 billion of revenue and this year we'll be lucky to do $0.25 billion.

So that gives you kind of the order of magnitude of the impact of those two contracts I mentioned.

Again, historically those were low single-digit margins.

So we're pleased that we're growing the higher margin higher return business and the lower margins are, in fact, coming down.

If you look at all of systems and IT, we're at 9.5% for the quarter.

And again we're projecting, you know, 18 to 19 billion of revenue for the full year in this business area so we're pretty excited about that.

And share buyback was light in the quarter?

Just wondering, any reason for that?

And do you still -- you're still committed to returning the majority of the cash flow through share repurchase dividends?

Absolutely committed.

And oftentimes we find ourselves in possession of material nonpublic data, which was most of the case in the first quarter.

And that obvious relates to such items as the transactions that we negotiated and closed.

So we always obviously comply with the rules and regulations.

And there really just wasn't a whole lot of windows of opportunity.

But there's absolutely no stepping back from our prior commitments.

We go next to Doug Harnet with Sanford Bernstein.

I'm interested in the electronic systems.

Could you talk about which programs led to the increases in margin and revenue there?

Yes.

Good morning, Doug.

Let me have Jim give you some of the programs.

I'll just talk directionally by - - at the LOB, at the line of business level, we really see three lines of business, MS2, missiles and fire control and then our platform businesses, which include the [Ouido], the training and the air traffic.

So, Jim, you want to give a little more color as to the changes?

Doug, in surface systems deep water was increase in sales, international frigate work, Littoral combat ship.

Radar was up.

In our marine business, vertical launch system was up.

And fire control TADS [penvis] was one of the programs up.

And then our PTTS line of business, platform integration, was up.

That's when the U.S. 101 got started.

Simulation and training was up for the combat trainers.

And on the margin side, margins were up in maritime systems and missiles and fire control.

And that's over a broad area, surface systems, radar systems, tactical systems and MS2.

And our missiles and fire control, both fire control and air defense margins were up.

And I know it's hard to go through all these, but are there some when you look at this that are particularly important for the year?

In other words, that some may be a quarter over quarter issue, but are there some that would you point to as the really interesting ones for the whole year?

Doug, there really isn't anything that comes out to that level.

We probably have a couple thousand different contracts just within the electronic system business area.

So the MS2 and the missiles and fire control are double-digit margins for the quarter as is the entire business area for I think at least the second consecutive quarter.

And we've talked in the past about trying to get to 10% in electronics.

We've now done it and we continue with that as our outlook.

So, we're very pleased with the progress we've made on that front.

And within the platform training and transportation solutions line of business that tends to be upper single digits.

But no one program at that level is going to make a significant difference to a business area of that size.

So nothing unusual.

We go next to Joseph Campbell with Lehman Brothers.

Thanks for all the numbers.

Two things, really.

Quickly, one is is there some special benefit that you would expect to get from the American Jobs Creation Act that lowers the taxes for American factories?

And then just, Chris, stepping back from the revenues, I was wondering - - I mean, it's the lowest revenue growth we've seen in 12 or 13 quarters.

We kind of looked at the government numbers and thought it might be low, but 1.7.

We're kind of surprised to hear you say it's right on target.

And then you're kind of raising the revenue numbers a little bit.

And we wondered what did you see in the 1.7% that caused you raise the revenue numbers for the year?

I think relative to the tax question this goes back to the - - I think, back to the fifth ETI, and there have been some changes dealing with manufacturing.

And then we kind of expect those to effectively wash out each other.

So while the industry and the country lost its tax credit for foreign sales corporations, and extra territorial incentives the amendment and change to the manufacturing is, in our opinion, an offset.

So, we're still kind of looking at an effective tax rate in the 31.5% to 32%.

And that's already factored, so that will be a push.

Relative to revenue growth; we have pretty good projections.

And as you know probably a third of our revenue is based on delivery, and two-thirds is based on percentage of completion.

We have it by business area, by company, by contract.

And we came in at about $8.5 billion for the quarter, which is exactly what we had forecasted internally.

And the confidence I have as I look at the outlook, systems and IT is growing sequentially each and every quarter ultimately getting to that $18 to $19 billion range for the full year.

Aeronautics, is planning to grow sequentially each and every year as we look at the outlook and the major programs and their forecasts.

And the space business is a little lumpy but at the end of the day we'll definitely do at least 5%.

So, I have higher confidence as a result of the wins that we had just here in the first quarter.

Those IDIQ contracts that I've talked about.

I think you've hit it right on the head for the full year, we're going to be in the 3% to 7% top-line growth.

We also factored in the impact of the acquisitions, which is a couple million hundred dollars, obviously.

So, thank you.

We go next to George Shapiro with Citigroup.

Yes, good morning.

Chris, if you look at the technology service business, how much was the NASA business down in this quarter?

And I assume that subsequent quarters it's going to be flatter.

So you'll get the growth from the underlying business to show through better?

Absolutely, George.

Good morning.

It's $50 million for NASA decline first quarter '05 to first quarter '04.

And as I said, for a full year sequentially $0.75 billion in '03, $0.5 billion in '04, and a $0.25 billion this year is how I see it playing out.

And it is being offset by the IT growth, which using that same three-year period will grow over a $1 billion.

Okay.

And if you looked at aeronautics, the - - was the mix of the deliveries unfavorable?

Because aeronautics was the biggest surprise to me in terms of revenues being somewhat lower than what I thought they would be.

Okay.

Well, I think underlying your question is really trying to understand the revenue piece.

And I will be happy to shed some light on that.

I'll assure you from my perspective that it was not a surprise, as we had forecasted 4% to 5% down for the quarter.

Combat air was down quarter over quarter about 10%.

And F/A-22 and F-35 were essentially flat and most of it was driven by the F-16 and other combat aircraft programs.

So, we would continue to see that trend for the entire year.

Basically there's a mix of different customers and different configurations within F-16.

But I think the punch line, when you think about aeronautics, is F-35 is growing, F/A-22 is flat and F-16 is going down.

That's been the story for a couple year.

That's the story going forward.

But on an overall basis; combat air is, in fact - - is growing '04 over '03 and will be relatively flat '05 to '04.

Air mobility, on the other hand is experiencing slight growth but compared to the combat air, it's almost a complete offset.

So hopefully that helps.

Again, the second, third, and fourth quarter in aeronautics will show sequential growth and some of this is timing and some of is it cost.

We go next to Cai Von Rumohr with SG Cowen.

Yes.

Share buyback, you only did the 600,000.

And Chris, you mentioned to Steve that you were in possession of material information.

What portion of the quarter did you feel you were in material - - in possession of material information?

Because presumably you had enough open windows that you normally would have done more than the 600,000?

I'm probably not going to go week by week.

But there's at least one-third of each quarter that we are prohibited from buying back our stock.

Which is is January, April, July and October because of the earnings release.

And clearly you saw the acquisitions that were negotiated, announced, and closed.

In fact, SYTEX closed March 31.

So, there really aren't as much opportunities as you would think.

We look at this over a multiyear basis.

I think our track record, is that we've purchased over 27 million shares in the last couple of years.

I would say a significant portion of the quarter we were prohibited.

Now, when we file our 10-Q last this week you'll see that we continue to execute a few of the transactions that we refer to as discs transactions, structured repurchase transactions.

And we had $120 million, you know, basically, I won't say at risk, but outstanding that would either be returned in the form of cash or share repurchases.

And given the stock and its upward movement we basically had the cash returned to us with about a 20% return.

So when there were small windows of opportunities we used those to execute these disk transactions.

And the good news is the stock continued to increase throughout the quarter, I think up almost 10%.

The bad news is that triggers a return on the cash of a 20% return.

So, that's how we tried to opportunistically take advantage of it and, Jim, do you want to further supplement that?

Well, as Chris has said many times, we're opportunistic and the amount of buyback is not the same each quarter.

And historically we have bought back - - or returned cash to shareholders in total well in excess of the 50% commitment of free cash flow.

Okay great.

Follow-up.

Systems and IT group, if I kind of, as Joe did, take the midpoint of kind of your estimate of profits and sales; looks like you're forecasting a 9.5% margin.

Pretty much what did you in the first quarter.

And yet if we go back historically the electronics systems seem to do better later in the year and has higher margins and presumably will have a sales ramp.

So that's a mix plus.

And in tech services you don't have below NASA margin business or less of it, and you have the high-margin SYTEX business.

So is that a conservative number or is there something adverse happening that's not apparent?

Yes, I would say there's nothing adverse that's happening.

And, in fact, all of our businesses have, over time, really been levelizing and getting more of their revenue and orders and earnings earlier in the year.

We did a rather wide range.

We have 1 billion - - 725 to 1.8 billion of EBIT and 18 to 19 billion of revenue.

So that creates a little bit of range.

But again on an entity that size, you know, 9.5 billion - - I'm sorry, 9.5% return is pretty good.

Electronics will be over 10%.

IS&S is kind of steady upper middle, single digits 8.5% to 9% range.

And I&TS is, in fact, experiencing growth.

So we will be in the - - as I look back, I think in '03 we were at 8.8% added systems and IT group.

In '04 we went to 9.1.

We're projecting 9.5.

So, kind of a constant 40-basis-point improvement.

Again, on $17 or $18 billion of business I think is pretty impressive.

So hopefully that helps.

We go next to David Gremmels with Thomas Weisel Partners.

You wrote down the value of a satellite.

Can you provide any additional color on why you did that?

And is there any additional exposure in that area?

Yes, good morning, David.

Yes, the color is basically this is one of a couple of minor assets that we have remaining from our global telecom business from a few years back.

Basically over capacity.

We're out marketing the satellite.

And the estimates that we've been receiving were below book value.

And we thought it was prudent to take the adjustment.

There will be no further exposure and this thing is in the - - in for negotiations - - this is a minor item.

We'll probably never talk about telecom again.

Okay.

And as a follow-up, the MEADS program you mentioned in your prepared remarks, it sounds like they're getting the approvals that we needed to see out of Europe?

Can you just talk about the outlook there and specifically what's in the backlog for MEADS?

Well, as of today there's absolutely nothing in the backlog.

MEADS is a combination between the U.S., Italy, and Germany.

The last piece was to get the German Parliament to approve the funding.

We're looking at this as being probably a $3.5 billion opportunity for the team.

Our share of that could approach $2 billion.

And we're hoping to get the contract signed here in the second quarter of '05.

And hopefully in July I can give you the exact numbers and you will see it reflected at that time.

But it's basically, continuing to grow the missile defense opportunities throughout the globe.

And proves that the strategy is working, good returns, and good use of our technology.

We go next to Nick Fothergill with Banc of America.

Good morning, Chris and Jim.

Two quick questions.

The first is, with your top-line guidance of 3% to 7% for the year with a bias, now obviously towards the second half.

And further, to Joe's question, can you expand on the IDIQ contracts that could help you in the second half?

And also do you have anything in the plan from supplementals or from any international business for '05 or could they add some additional upside?

That's the first question.

You want to ask the second one or want me to take that one first?

I'll put the second one in there too Chris, if that's okay.

It's sample one.

Could you run through a number of the competitions that you're still looking at that are on your radar and just give us an idea of timing and magnitude?

Absolutely.

Let me take the first one, and I'll ask Jim to go through the all new business opportunities.

The top-line growth, you're right to, 3% to 7%.

Relative to the supplemental up side I would say it's negligible.

As we've looked at the prior ones, it may be 0.5% to 1% opportunity that we get.

And we tend to see that as more of an acceleration than an actual additive over the long term.

With IDIQ, contract vehicles, just looking that it the other day, part of the mechanism is that they have a ceiling for each and every vehicle in our current portfolio.

The ceiling is a mind boggling $97 billion.

Now, that's not only for us but often these awards are made to multiple contractors.

I think a good example of one that we had recently was UCC, which was for the United States postal service dealing with their communications.

Some of the other vehicles, I'll give you the names.

I don't know if they help, have Rapid Response, which is I think is with the Army.

FAST, Falcon 2020.

And again, hopefully that's helpful.

But it's something we want to talk more about in the future and give you a little more insight.

But the key point is we do not include those in our backlog consistent with our policy.

And they tend to be smaller, tens of millions of dollars, of task orders with a relatively quick turnaround period.

So that's it on the sales front.

Jim, do you want to talk about some of our opportunities?

Well, the i-Win networking job coming up in the near term.

Advanced targeting POD opportunities.

Transportation Security Administration, Homeland Security, additional opportunities there.

The next census contract, PAC-3 international, there's definitely more opportunities there.

We have several IT opportunities including the FBI and IRS.

And then a little bit further down the pike, Army Corps of Engineers and General Services Administration.

And in space, of course, the EELV, [NEXT5] and the CEV crew vehicle.

There's also international F-16's, and also some F-16 upgrades internationally as well.

We go next to Byron Callan with Merrill Lynch.

Two things.

Chris, first, in the cash flow for the quarter, one of the big surprises for me at least was the other quarter, is was $677 million.

What is in that?

Okay. 677, three major drivers.

As always in the first quarter it's the tax and interest that we expense versus what we actually paid.

So if I take those separately, taxes tend to be paid for the most part in the second quarter.

But, of course, we provide a provision in this case 31.7%.

So the expense is on the books but the cash did not go out the door.

And the same thing with all of our interest.

I think we had about $90 million of interest expense in the quarter.

And just based on the terms and conditions that are available publicly, we basically pay our interest in May and November, just based on the instruments we have.

So that will start to come down in the second quarter.

The FAS/CAS pension adjustment $155 million, as you know a noncash item.

And that's just one quarter of our estimate for the full year.

And the final item couple hundred million is the result of the pension pre-fund.

We, of course, pre-funded our '05 pension cash contribution in late '04.

And this is really the offset coming the other way.

We did provide on the Webcharts that are on our Website, on chart 5, kind of give basically the same breakdown I just articulated if you would like to look at that.

Was there a second question, Byron?

We go next to Howard Rubel with Jefferies & Company.

Thank you very much.

Couple of things.

First, I like the presentation you've done here, Chris.

It's a little more crisp than you've done in the past, and I think it's very helpful.

Well, thank you.

The second thing though, is in a couple of cases there could be a little bit more detail.

In the past you provided very nice indication of your progress on the C-130 and how that had contributed and the success there.

You've left that out this time.

How are you doing on that?

Doing very well.

It is a tough balance between being crisp and detailed.

So first quarter, there isn't a whole lot to say.

It's only a quarter of a year.

So, I'll try to balance that.

Air mobility is doing well.

C-130s are the biggest contributor.

We delivered four T-130-J's in the quarter, just like we did first quarter of '04.

We're booking double-digit profit as we said we would.

We made our last deliver of the 119th chip set.

And now we're in our multiyear.

So all in all programs performing well.

And then you've structured the Company in presentation a little bit differently so we have sort of what I'll call the soft businesses grouped in one case.

And then the more program driver, larger categories separately.

Is this a harbinger of what we might see in terms of further organizational structuring going forward?

Absolutely not.

We were just always looking for ways to best communicate with our stakeholders.

And we thought that trying to put the soft businesses, although we like to call it our high-growth high-tech IT group, in one bucket.

When we file our 10Q you will continue to see the five business areas results, just like we did in the attachment to the press release and the verbiage will match.

So, with literally thousands of contracts and more than half the revenue and more than half the profit; we thought it was a better way to try to crisply communicate our story here and you will get the Q and not see anything different.

And in fact, we think this is consistent with the feedback we've received from those that want us to talk more about our IT story, which we're very excited about.

We go next to David Strauss with UBS.

Chris, could you talk about the outlook for the booking rate on T-130-J with the changes in the contract structure going forward?

Yes, I'm really at this time not in a position to give any insight.

We're working with the Air Force.

Discussions have just started.

So our outlook assumes double-digit margins.

And as the contract is converted or restructured, we'll keep you informed.

But at this time I don't have any details to provide you.

Could you talk about progress on JSF, not so much on the weight side but specifically on the electronics and the avionics side?

Absolutely.

Relative to JFS we're seeing very strong performance, not only by ourselves but all of our teammates.

And in fact next month there will be a DAB a defense acquisition board meeting.

The major focus there is checking the re-plan and status of the program.

And we're making great progress on the baseline and the three variants in the underlying common system.

So I think the open architecture approach that the Corporation is adopting here is going to pay off in the long run.

We go next to Miles Walton with CIBC World Markets.

Just a couple of follow-ups.

One to George, is a question about aero.

Again, there was I guess 14 F-16 deliveries versus 15 last year.

What was the mix of POC's versus units delivered?

I think last year four out of the 15 were POC's.

Yes, Miles, relative to the aero sales, we're really just going to focus on the revenue line and then talk about the revenue being down in the quarter and for the whole year.

And the contributors are obviously the deliveries of the aircraft, the spares, and other supplemental aspects of that.

So that's the detail we're providing at this time.

Okay.

That's fine.

And in terms of space if you can just give me a quick run-through of the lines of business in terms of your outlook for profitability in '05.

Do you see each of them in the black, including commercial launch?

Sure, I would be glad to do that.

For '05 we talk about launch vehicles.

Really three lines of business, launch vehicles, satellites and strategic and defensive missiles.

So, on the launch vehicle line of business we're probably looking at basically flat on the revenue side.

Kind of in the 1.5 billion give or take a few hundred million.

And we are looking in fact to be profitable.

Commercial launch will be profitable and of course, government launch with the USA venture and the Titan program and the shuttle will obviously be profitable.

On the satellites we're seeing about 10% growth on satellites on the revenue side.

And government satellites, of course, driving a majority of it.

And commercial sats always $10 or $20 million give or take, relative to breakeven.

And strategic missiles is pretty consistent at 1 billion to 1.3 billion of revenue and solid upper single-digit margin.

So, I guess based on that we would see everything being at least break even or profitable and the trend line is clearly improving.

Look back to 2003 and we barely had just over 6.5% margin.

Last year we improved at 100 basis points.

And this year our guidance would suggest that at least 80 basis points and maybe a stretch of 100 is a possibility.

So, we're very pleased with the progress we're making in all of our lines of business within space systems.

Jim, do you want to add something?

I was trying to say we have time for one more question.

Sorry.

We have time for one more question.

We go next to Jared Muroff with Prudential Equity Group.

Thank you very much.

Most of my questions have been answered.

I guess I just have two.

The first is I was hoping you could give a little bit more color on what the improvement sequentially in aeronautics in terms of revenues is going to be?

That would be my first question.

My second question just would be to ask if could you give some more color on the $110 million in additional payments expected in 2006 on the acquisitions?

Which acquisition it is and whether that number is a fixed number or is based on performance?

Sure, absolutely.

Relative to aeronautics sequentially, I think it's about 100 million each and every quarter successively.

And of course that will be contingent on the actual deliveries and the throughput.

We did 2.8 billion here in the first quarter.

And we're kind of outlooking for the total revenue for aero $11.5 to $12 billion.

So think of about 100 million more each and every quarter sequentially to get to that number.

And relative to '06, the primary contributor is SYTEX.

And as we negotiate these acquisitions and is available in the SEC filings you'll see that we continue to focus on return on invested capital.

And one such mechanism is to have the payments occur as late as possible.

So as we structure these transactions, it's really almost all entirely related to SYTEX and we'll have our traditional working capital balance sheet adjustments.

Don't expect anything there than just mechanical exercises.

And we'll make the final payment in '06.

So, we can spread it out over two years I think it's ultimately in our best interest.

And that's what we negotiated and that's what we're going to do.

So I guess with that does it wrap up today's call.

I appreciate everybody taking the time and asking the questions.

I want to assure you that the management team is focused on delivering value to the customers and shareholders.

We'll keep you apprised of the progress we make.

And we continue to stay focused on our balanced cash deployment strategy and look forward to talking to everybody in July.

Thank you very much.

That concludes today's conference call.

Thank you for your participation.

You may now disconnect.