Lockheed Martin Corporation
Q4 2020 Earnings Call Transcript

Published: 26 Jan 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Lockheed Martin Fourth Quarter and Full Year 2020 Earnings Results Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference is being recorded.

[Greg Gardner:]

[Jim Taiclet:]

Thanks, Greg. And good morning, everyone. I hope you've all had a great start to the New Year and at this call, I find you and your family safe and healthy. Welcome to our fourth quarter 2020 earnings call. As we review our results, strategic new business activities, key accomplishments and our outlook for 2021. Before I begin, I'd like to take a moment to reflect on the loss of Michele Evans, our aeronautics business area leader, who passed away earlier this month. Michele dedicated 34 years of service to our company and touched the lives of countless people both inside and outside the corporation. I knew Michele for years and I can say that she was the life of strength and grace. And while we mourn our loss, we also are thankful to had her as part of our Lockheed Martin family, we’ll miss Michele. As we look back to the year from a broader perspective, 2020 introduced personal and professional challenges to each and every one of us. I'll begin my summary of Lockheed Martin's results today by thanking the men and women of our company and their families, for stepping up to deliver outstanding performance during extremely difficult time. It was through their dedication and commitment that we were able to drive operational and financial results, which not only exceeded many of our expectations, but also set records in several areas. The coronavirus outbreak remains an ongoing pandemic and we're continuing to take actions to mitigate its impacts. Vaccines are also becoming available to help combat this disease and we're hopeful for a return to a more normal business environment, as we progress throughout the year. Our dedicated workforce and our resilient supply chain continue to perform with excellence during these demanding times, supporting our global customers and their important missions and I'm very proud of their accomplishments. Moving to our results, we delivered another year of outstanding performance in 2020, strategically, operationally and financially. Ken will discuss our financial results in more detail and provide our full-year 2021 financial outlook. But I'd like to provide a few highlights from the past year. A period in which we set high watermarks in sales, earnings and cash from operations. First, sales and segment profit each grew 9% over 2019 and our 2020 earnings per share increased by 11%. We had a strong year of cash generation, achieving $8.2 billion of cash from operations, even after a $1 billion voluntary pension contribution and after accelerating payments to our supply chain to help mitigate COVID impacts. We are continuing this practice, prioritizing our vulnerable and small business partners. We recorded over $68 billion in orders in 2020, growing our backlog by $3 billion, resulting in a robust $147 billion year-end total backlog. These results reflect a high level of execution being achieved across the company, providing critical security and deterrence solutions for our customers.

[Ken Possenriede:]

Thanks, Jim and good morning, everyone. As I highlight our key financial accomplishments, please follow along with the web charts that we've included with our earnings release today. So let's begin with Chart 3 and an overview of our results for the year. Sales, segment operating profit, cash from operations and earnings per share from continuing operations close with a record annual highs. We generated $8.2 billion of cash from operations after a $1 billion discretionary contribution to our pension trust this quarter and we continued our cash deployment actions, returning $3.9 billion of cash to our shareholders for a combination of dividend and share repurchases. While continuing to invest in the strategic growth of the business, including acquiring i3 and record investments in IRAD and capital expenditures. We also entered into a definitive agreement to acquire Aerojet Rocketdyne in the fourth quarter with the close expected in the second half of 2021. I will note that our 2021 outlook include -- excludes all results associated with this transaction. While backlog declined approximately $3 billion in the quarter due primarily to the timing of the F-35 lot 15 production order, 2020 represented the sixth consecutive annual increase in year-end backlog for the corporation. In summary, it was an outstanding year for the business and Lockheed Martin is well positioned for continued success in 2021. Turning to Chart 4, we compare our sales and segment operating profit this year with last year's results. Sales grew 9% in 2020 compared with last year to $65.4 billion, continuing the strong performance over the first three quarters, while segment operating profit also increased 9% over last year to nearly $7.2 billion. On Chart 5, we compare sales by business area with last year's results. As Jim mentioned, all four of our business areas experienced strong sales growth in 2020 led by aeronautics and missiles and fire control at 11%. Aeronautics growth was driven by development and sustainment increases on F-35 and F-16 as well as growth in advanced development programs. Missiles and fire controls growth was primarily from production volume in Tactical Strike Missiles and air and missile defense lines of business. I will note that all four of our business areas achieved record highs for sales in 2020. Chart 6 shows our earnings per share for 2020. Our EPS from continuing operations of $24.50 was up $2.55 or 12% higher than our results from last year, driven primarily by increased volume and sustained performance.

[Operator:]

And our first question today comes from the line of Ron Epstein with Bank of America. Please go ahead.

[Ron Epstein:]

Thank you for the question. Jim, could you speak to your broader space strategy? And I appreciate your comments on Aerojet in your prepared remarks. But can you be more specific on how it creates value, particularly in the absence of -- maybe a broader strategy or is it actually part of a broader rollout strategy? I mean, are you guys thinking about doing more strategic actions in space and how are you thinking about space for Lockheed Martin?

[Jim Taiclet:]

Ron, I came into this role with Lockheed Martin being the leader in National Security Space, as it is. And the benefit of the position of the company is that we have a strong position in the -- I would say, classic large bus military defense satellites and intelligent community satellites. So we also have the ability to go down range into medium and lower, but as well as geosynchronous or and so. The whole playing field in national defense space is open to Lockheed Martin and what we're doing in the business is, we're introducing these 21st century technologies and taking advantage of that space platform. And so you see us winning recently a low orbit transport layer contract, which is a pioneering initiative of the Department of Defense to start introducing 5G and other modern networking technologies into the space domain, we're part of that. And what we've been able to do is to connect our space assets already using some of those newer technologies and AI and also distributed compute into our Aerospace, land and sea forces, as well the platforms that we deploy there. So we have a broad space strategy which is to take 21st century networking, storage and compute technologies into our space domain as really a competitive advantage versus other defense contractors that don't have that asset available to them. The second part of your question is, well how does Aerojet Rocketdyne create value in doing this? And it really goes hand-in-hand with our hypersonic strategy, which is part of our 21st century war fighting initiative. I view Lockheed Martin's benefit or role in defense enterprise is adding velocity to it. The world is moving faster, both kinetically if you will and in the networking and AI perspective as well and we need to speed up. And just taking one dimension of that hypersonic missiles and countering a hypersonic missiles requires a much better tighter integration of the propulsion system into the body of the missile. The heat generated by these hypersonic missiles is incredible and just managing that heat and thermal issue, is one of the reasons we invested in i3 as well. So, we are selecting what we think are the most important defense platforms and connectivity capacities for the future of warfare and we're investing in those. And Aerojet Rocketdyne is part and parcel of that investment strategy. Propulsion integration into hypersonic missile, glide bodies is essential. The other benefit of us working more -- in a more integrated fashion with Aerojet Rocketdyne is, we'll be able to bring our broad engineering expertise, our capital and our operational experience into Aerojet Rocketdyne and bring the best of Lockheed Martin to the propulsion side of missiles and space. So there are incredible synergies here, I know Ken can speak to a little bit more of on those later both revenue and costs, but given my long answer I'll stop there.

[Operator:]

And we do have a question from the line of Pete Skibitski with Alembic Global. Please go ahead.

[Pete Skibitski:]

Hey, good morning guys. Jim, can you talk about kind of your updated mid-term view of the DoD budget now that we have obviously new and administration, but maybe even more importantly a change of control to Senate. I'm just wondering what you're kind of seeing and hearing tea-leave wise in terms of the budget outlook? Thanks.

[Jim Taiclet:]

Sure, Pete. The administration hasn't unveiled its actual plan or trajectory for defense budgets. But I take solace in a couple of things. One is that the national security and intelligence and international affairs team, President Biden is proposing has brought on is experienced, they are professionals in that realm of -- many of them having decades of senior government experience dealing with these issues and so you're going to have -- we believe a lot of continuity in policy and also in focus on how important strong defense is for this country. So I think the proposed team is a plus. And unfortunately, frankly the threat outside against potentially United States is growing. It's accelerating too by the way and when we look at the national defense strategy, it reorients itself and reorients our defense enterprise towards great power competition. And it's something you cannot just sit still and watch go by, because we will be overtaken because of the aggressiveness of our potential peers. So, I'm taking solace in these trends as far as the defense budget goes. That you have professional experienced people leading it for the administration and that threat environment is greater versus lesser, we feel that supports a stable defense budget going forward.

[Operator:]

And we do have a question from the line of Joseph DeNardi with Stifel. Please go ahead.

[Joseph DeNardi:]

Hi, thanks. Good morning. Ken, can you talk a little bit about the R&D tax impact. And I guess relative to the political backdrop, do you now see that playing out as more likely or is there still an outcome or that's less onerous. I mean, are you now planning differently than you were a few months ago in terms of the potential cash flow impact from that? Thank you.

[Ken Possenriede:]

You bet. So yes, Joe, I have socialized with you guys as much as we could, once we concluded our view of what the tax law, the interpretation that was and as I stated a few times now it looks like it's about $2.1 billion in 2022, $1.8 billion in 2023 and it will continue trending down. One of the reasons we are extremely focused on cash, you heard in my prepared comments, the amount of cash that we're generating in '22 and '23. I've stated we've taken -- we took a pause for that roughly the second half of last year, before we started talking to the key constituents about that impact. It is still our belief that we think there is some likelihood it will either be repealed or altered, so it just doesn't include entire research expenses, which would include our cost-plus contracts. But would be just our research in our IRAD, our research and development costs, which would not be a material impact to our -- to the outlooks I gave you. We still think there is a good likelihood that's going to happen. Because if you think about it, if -- in 2022, we have $2.1 billion less of cash this is just Lockheed Martin and as you know Joe, this is not just Lockheed Martin and not just A&D, this is all of industry. So this is going to hit pharma hard, it's going to hit high-tech hard. These are dollars that we're not going to have the ability to plow back and invest into our portfolio and into our technologies. And I think that is a compelling story and I think at the end of the day, that's going to rule the day. Now having said that, we are still generating large amounts of cash. In fact, as you know, we ended the year in excess of $3 billion cash on hand. Right now assuming our dividend assumptions and our share repurchase assumptions for 2021, we're going to end 2021 with over $5 billion of cash. That number is going to continue to grow. And that frankly, that's a good opportunity for us to do the things Jim described from an investment standpoint and then to continue our robust cash deployment strategy that we have historically had with our shareholders.

[Operator:]

And we do have a question from the line of Hunter Keay with Wolfe Research. Please go ahead.

[Unidentified Analyst:]

Hi, good morning. It's actually Mike Mogeri on for Hunter.

[Jim Taiclet:]

Hi, Mike.

[Unidentified Analyst:]

Hi, so according to your filings from 2009 to 2017, square footage in your spaces that you lease or own fell 8.5 million square feet or 15% while you are still growing revenue. So I know that you have an investment in Palmdale coming up. But in the next budget down cycle, flattening whenever it should come facility consolidation. Is that a lever you'd be willing to pull or able to pull again?

[Ken Possenriede:]

Yes, thanks for the question, Mike. It's Ken. So I think this year or 2020, we're going to end with roughly 72 million square feet and there's four pieces to that. One is, the space we actually own and a large share of that is going to be manufacturing space and that's about half of our real estate. And then the other half is a combination of leased space. GOCO, which is government owned contract or operated much like our Fort Worth facility and then GOGO, which is government owned government operated, which is AWE. And so there is a couple of just short term, there's a couple of puts it takes. Assuming the UK government does take over the management of AWE, we lose about 4.5 million square feet out of that 72 million squares. When we're successful with the Aerojet Rocketdyne acquisition, I believe they have about 3 million square feet that we would add back. You mentioned Mike, the Palmdale building that we're building, we also have a little bit of real estate that we're expanding in space and in RMS and in missiles and fire control and that nets about 1 million square feet. So at the end of the day, we're going to be down about a 0.5 million squares. But now the opportunity comes, right now we have roughly half of our employees working remotely. Some of them are periodically coming in, but we have over the last couple of months have rolled out a plan. Frankly looking at Lockheed Martin forward is what we call-in and it's frankly the future of work. And we are going to start looking at, getting out of some of that leased space as our leases expire, you can expect us to reduce our foot print by at least a couple of million square feet in the next couple of years, if not more. We will go to more hoteling, we will allow people that where it makes sense for them to work from home and we'll make sure this is a competitive and strategic advantage for us.

[Operator:]

And we do have a question from the line of Kristine Liwag from Morgan Stanley. Please go ahead.

[Kristine Liwag:]

Good morning, guys. Jim, maybe I'm following on the question on the new administration, but in a slightly different way. How do you think about opportunities and challenges regarding foreign military sales. With the new administration, do you see more headwind or more tailwind than before?

[Jim Taiclet:]

Good morning, Kristine. As far as international business, including foreign military sales. The Tennessee -- the people in the Biden administration and the President's sound statements reiterate his view that alliances are important that they need to be cultivated and that they have real value and deterrence in National Defense. And so I do think that will have a more open environment for FMS and indirect commercial sales to our international partners. The other benefit you've seen it recently in the press is that, we have some fantastic an unmatched products that are in great demand and highly desired by many countries. So you've seen F16 sales coming back, F35 was a pivotal element of the Abraham Accords we believe. And that system is so highly desired by our allies in the United Arab Emirates and elsewhere that it actually helped putting a modicum of piece to the Middle East. And so our prop between our products and the Biden administrations stated proclivity to enhance our alliances, I think we're in a better position going forward.

[Operator:]

And we do have a question from the line of Carter Copeland with Melius Research. Please go ahead.

[Carter Copeland:]

Good morning, gentlemen. A big figure, Q4 is probably the best time to ask a question like this, just to get some color on it. But classified has obviously been a big component of bookings and growth in your focus. I wondered, if you might can give us some more color, if you can around how much classified grew in 2020 or some more color on bookings growth or if you can do that even relative growth versus the rest of the business. Just any kind of sense you can give us on the sort of seed corn projects that will fill out the revenue outlook in the next 3 to 5 years and beyond.

[Jim Taiclet:]

You bet. Hi, Carter and unfortunately, I do have to be a little cryptic and I apologize for that, but I'll try to give you color to the best of my abilities. We have seen our classified business from an order book standpoint and from a sales standpoint growing faster than the corporation. If you go around the horn, I've mentioned in the past, we won a strategic program in Palmdale, where we're starting to see the benefits of multiple customers starting to -- want that system. In fact, we're also in conversation with international partner of the United States of their interest in that system and back to Mike's question, that's the reason for the capital growth out in Palmdale. There is some other things going on out there that unfortunately we can't talk about that. I think we'll reap the benefits of some of them are hypersonics, some of them are other platforms. And missiles and fire control, we've talked about the large development program that we won. It is progressing well, it's going to continue to grow in the future. Probably as fast, if not faster than the rest of missiles and fire control. And then, probably the other big place to talk is space. We won a couple rather large strategic programs in 2020, we're also pursuing a few in 2021. And also the -- from a sales standpoint, as I mentioned it for across the corporation growing faster than top line than our business in the aggregate it is. From a margin standpoint, margins in aeronautics for Palmdale the classified work right now is dilutive just by the nature of the contract types. Same with missiles and fire control, these programs are going to be dilutive -- growing faster than the rest of the portfolio, but from a margin standpoint, going to be dilutive. The good news also is, but from a contract type standpoint, they're not an impact to working capital. So there'll be a reasonably good cash flow. In the space business, some of these programs are fixed price. But most of them are going to be cost plus as well, so just slightly took dilutive to the overall portfolio. But again, I apologize that's about as much as I could say about the portfolio.

[Operator:]

And we do have a question from the line of Robert Stallard with Vertical Research. Please go ahead.

[Robert Stallard:]

Thanks so much. Good morning. Jim, a question for you. Given the recent share price performance and the valuation on the stock. And of course, a very low interest rates here. Do you think is the best use of the balance sheet to continue to pile up more cash and perhaps you should be more aggressive on the share buyback here?

[Jim Taiclet:]

Well, we are balanced in our cash application and always have been as a company and it's my legacy back at my prior company as well. And there are many competing parts, right? So we have an opportunity to say and a desire to grow and we're pursuing that growth strategy while carrying for cash deployment to shareholders. So again to be a little cryptic, we've got all the keys on the piano at our disposal. And we're going to work our way through some decisions and opportunities here in the near future. But yes, I may accolade of the notion that when share prices below intrinsic value that you aggressively to the extent that you can, buy it back based on regulatory and other matters that go on. And so -- and opportunities that maybe being looked at or not and so, we'll work our way through all of those issues. But I can assure you that, if we're in the clear and intrinsic value is greater than the share price. You'll see Ken and I diving back in the market.

[Operator:]

And we do have a question from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

[Sheila Kahyaoglu:]

Hi. Good morning, Jim and Ken. Just give 3% to 4% EBIT growth this year versus 9% in 2020. How do you think about some of those drivers as it relates to your $9 billion OCF target in 2023? Is it sort of steady as it goes in terms of your earnings outlook? And then I guess the age old question of, is there an opportunity where earnings growth exceeds revenue growth going forward, given decelerating budget environment?

[Jim Taiclet:]

Hi, good morning. I hope you're doing well, you and your family.

[Sheila Kahyaoglu:]

Thank you very much.

[Jim Taiclet:]

So yes, we see -- if you look at our cash and as you noted, we see 8.3 cash from ops in 2,187 before the tax impact due to R&D of -- in '22 and then $9 billion in '23. We see -- right now, we see margins pretty steady at 11%. So most of that is -- I've talked to Wall Street about our focus on cash, what we've called it is a culture of cash, where generally over the last couple of years, it's not just frankly a balance sheet, issue is not the finance community just to solve, it's the entire corporation. Where say production operations understands the consequences of making or missing deliveries and how that impacts cash. So we see more opportunities going forward, managing the balance sheet, specifically contract assets and inventory and ensuring that if they're going to grow, they're growing at the most efficient way possible. And then also, as Jim mentioned, we see opportunities. I'm not going to talk about specifically FMS, we're probably more direct government sales, where there is an opportunity for us to get cash advances. To answer your second part of your question. We do see some opportunity though to be better than 11% and that specifically our programs that will start to mature. Pick F-16, we're generally in the beginning of the production cycle again, we're going to deliver 8 airplanes in 2022 and then we will get up to significant double-digit deliveries in '23 and beyond. There is an opportunity for us to have margin improvement there. F-35, everybody wants to talk about F-35. We do still think there's opportunities there from a margin standpoint to production. We've talked to you about the PBLs concept to the performance-based logistics concept that we've had that we do think there's some margin opportunity there for industry. Assuming we perform, assuming we hit the critical service level agreements that we want. Hypersonics, we'll soon get out of development and hopefully go into limited rate production and production that will help us. All the helicopter programs that we've talked about, you'll start to see CH-53K moving at a development into production. Presidential helicopter of course is moving into production. You have combat search and rescue that are moving to production. There is just a couple of examples, Sheila, I think that will give us an opportunity to enhance our margin overtime.

[Operator:]

And we do have a question from the line of Doug Harned with Bernstein. Please go ahead.

[Doug Harned:]

Thank you. Good morning. Jim, earlier, you said that the goal would be to enrich your platforms with Mission Systems content. And I have to say, this to me sounded like something I could have heard back in the Vance Coffman Norm Augustine days, something that didn't really work out well, because of DoJ concerns, DoD concerns. So now with the -- you're trying to do that. And then also you talked about the advantages you could get from the Aerojet Rocketdyne acquisition. And then Raytheon with the acquisition of Blue Canyon and that's -- they make buses that do work for you guys or else for here us for Northrop Grumman. I mean, are we seeing -- do you think we're seeing a different structure to this industry going forward with much more vertical integration? Can you comment on this from sort of a philosophical standpoint?

[Jim Taiclet:]

Sure, Doug. I mean, if you go all the way back to the primary notion that we're back into a world of great power competition. It's important to look, I think beyond our own defense industrial base structure, but outward to those of the competitors, which are China, Russia, Iran and North Korea for example. And compare our capabilities in the -- if I mean, government -- comparing our defense industrial base capabilities to those of the peer group. How is China operate its defense industrial base, how does it organize it and what are the capabilities and velocity again that comes from that? And from that perspective, my view would be that vertical integration concerns from a classic antitrust perspective, are dwarfed by the lack of velocity and inability to integrate and added cost frankly that comes from the existing defense industrial based structure that stratified with the supply chain that's quite fragmented. I think it's better for the country and for the defense enterprise to enable industry to make logical proposals for bringing in Mission Systems, if you will, the supply chain that goes into major platforms, into a more integrated organization. So, I think that's the philosophical basis. On the other hand, we cannot predict the decisions of individual regulators and those coming into office. But I do think that it's critical that those decisions look through the lens of great power competition and how we compare to the defense industrial base certainly with China.

[Operator:]

And we do have a question from the line of Noah Poponak with Goldman Sachs. Please go ahead.

[Noah Poponak:]

Hi, good morning everyone. How much revenue is your hypersonics franchise generating in the 2021 outlook? And then how much revenue could your hypersonics franchise be generating closer to the middle of the decade?

[Jim Taiclet:]

Okay Noah, I'll take that. You do like these long haul answer. So I'll do the best of my abilities on the second part. But if you look at our hypersonics portfolio through 2020, our total order book was north of $3 billion. We generated about $1.2 billion in hypersonics sales in 2020 and think of that is mostly development in cost plus programs. And actually we had a couple -- risk retirements at the end of the year, so our programs are performing. For 2021, Noah, the best of our abilities, right now we see hypersonics sales being about $1.5 billion and still dilutive margins just based on contract type and the type of work that's being done. We're going to have a handful of these programs will have first launch continued demonstration of capabilities this year and next year. And then, as I've stated in the past, you will start seeing some of these programs neck-down as you saw last year where we had one program terminated, but we actually saw the funding start to go to some of our other platforms. So for us really not a harm and intuitively made sense. So by the middle of the decade, it's conceivable that, that number could be closer to $3 billion. You'll start to see some of these limited rate production programs happening. Some of these programs will actually start going into full-scale production. So it's conceivable that our sales were more than double by the middle of this decade and also the contract type will start changing and they will either be fixed price incentive or fixed price contracts.

[Operator:]

And we do have a question from the line of Richard Safran with Seaport Global. Please go ahead.

[Richard Safran:]

Jim, Ken, Greg, good morning. So, I want to ask you about the international. We've known the Trump administration went to extensive measures to promote US Defense exports. I'm just wondering, maybe could dovetail off to the comments you've made, coming from your government affairs people about the new administration. Do you see any changes with how the new administration is looking at exports. Do you think there's going to be continued growth there? And do you think this could be a benefit to you or to the international sales of air defense equipment?

[Jim Taiclet:]

Richard, it's Jim. Again it's too soon to tell what individual policy makers are going to do since they haven't been named or confirmed in large part yet. But if you go back to first principles of the administration based on -- can they our President Biden's campaign, jobs and economic recovery incredibly important to him and to his administration. And there are no better source of jobs and international military sales for this country and in large part, because these are tend to be engineering stem, high salary and the manufacturing jobs also high wage, reliable, dependable jobs with companies that have strong benefits, etcetera. So, if jobs in the economy are important, the promotion of international defense sales one would -- surmise, it would also be important. So from that perspective, I expect that we're going to get strong support, let alone from as I mentioned earlier, the interest and desire to have increased collaboration and cooperation with our allies. And as the next pilot myself, I can tell you that there is no better way to get a tighter bond with an ally and then sell them jet aircraft, fighter aircraft, because all the way back in the mid '80s, when I was in pilot training, we had Saudis in our class for example. And then, when I was at Pratt & Whitney, we build in F-100 engine overhaul repair shop in Saudi Arabia that further cemented our collaboration with that country, is just two tiny examples. And then you've got again the training, collaboration, you've got industrial collaboration, you're doing exercises together, you're using the same cockpit avionics. Just goes on-and-on, how you can increase your alliance stickiness if you will with major defense sales. So, I think on those two dimensions at least that we would expect some positive momentum.

[Operator:]

And we do have a question from the line of Myles Walton with UBS. Please go ahead.

[Myles Walton:]

Thanks, good morning. Just a quick one on space. It looked like there was some implied margin erosion or compression sequentially into 2021. But I would have thought that AWE would have helped that. Is there something else that moved around in the mix that you point us to?

[Ken Possenriede:]

Sure. Hey Myles, it's Ken. Yes, the big driver is; if you look at United Launch Alliance. Due to the mix of launches, we're going to see less profit next year, a ULA then we had in 2020. But you're right, unfortunately that more than offsets the ULA. I'm sorry the AWE dilution.

[Operator:]

And we do have a question from the line of George Shapiro with Shapiro Research. Please go ahead.

[George Shapiro:]

Yes. I wanted to go through some of the margins aeronautics. I mean you had to increase in C-130 profits and in look like revenues change much otherwise you would have spelled it out. And then you had a reduction in the F-16 margins and it looked like you had to have an increase in the production margin on the F-35 to get these big and increases you had. So I just wonder, if you could clarify that a little bit more?

[Jim Taiclet:]

Hey George, I got a clarifying question for you. Talking about fourth quarter of '20 or you want to talk about '21?

[George Shapiro:]

Talk about the full year 2020.

[Jim Taiclet:]

Full year 2020. Well, it's probably just make sense than to talk about the fourth quarter, because that's the most current information. So just in aggregate, I'll talk top line and bottom line for aeronautics. So we saw a development top line increases. Generally, they were mid-single digit increases and that was driven by a follow on modernization. I mean, we're still seeing a lot of success there, a lot of demand by our customer set for increased technology on the platform. Production was down in the quarter, year-over-year in the fourth quarter, George and that was mid-single digit as well that was probably more of a timing issue than anything else. Sustainment, we saw a strong growth and we're going to see strong growth into 2021 that will be the fastest growing piece of F-35 in 2021. We saw strong increases at -- on F-16, you're starting to see production kick in and you also had strong sustainment. C-130 sales were up 3%. So think of that is low single digits. ADP, the skunk-works is strong double-digit increases there as well. And I'll go to profit for you, so for the quarter, we were up 7%, roughly 10.8 margins versus 10.6. But F-35 to your point was down. That was driven by production, so we had high-single digit margins. I mean it was almost 10%, but down a little bit versus last year, which were stronger double-digit margins and that was just frankly driven by a less risk retirements in the fourth quarter of 2020 than 2019. Sustainment was up a little bit, F-16 margins for the quarter George were up. Both were double-digit margins, but fourth quarter this year we are almost 20% margins on F-16. That's because we had a risk retirement on an international sustainment program, C-130 margins were up in the fourth quarter as well and that's because we had risk retirements in our FIAC programs. And ADP was up and most of that was volume, but we actually good news had some risk retirements there as well. So hopefully that help to give you some color.

[Greg Gardner:]

Hey Brett, it's Greg. Before I hand it off the Jim, I've been informed that some listeners might not have heard the forward-looking statement at the beginning, so Joe, let me just reiterate for a minute that statements made in today's call that are not historical fact, are considered forward-looking statements and made pursuant to the Safe Harbor provisions. So, please check our SEC filings for more discussion on these risks and historical facts. And with that, I'll turn it over to Jim for closing comments.

[Jim Taiclet:]

Okay, great. Thanks. Look our business performed exceptionally well in 2020 under extremely difficult circumstances. And again, I want to thank the men and women of Lockheed Martin for stepping up to that. We delivered outstanding program execution and operational performance for our customers and strong financial performance for you the stockholders. So our robust backlog, our broad portfolio and our long-term strategic focus, have us well positioned for continued growth we think. So we thank you again for joining us on the call today. And we look forward to speaking with you on our next earnings call in April. And that concludes our call today, Brad. Thank you.

[Operator:]

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.