Lockheed Martin F/A-22 launching a Raytheon AIM-9L missile

1. Lockheed Martin F/A-22 launching a Raytheon AIM-9L missile An example of outstanding cooperation between the “evil” contractors, Lockheed Martin and Raytheon, to provide DoD a capability like never before

2. Here’s another example …Joint Presentation ofIndustry Perspective

3. Topics • Industry Imperatives • Financial / Shareholder Expectations • Market Position / Longevity • Industrial Base • DoD/Industry Relationship • Contract Execution • “What if” Exercises • Problem Solving (Problem? Who’s got a problem?) • Personnel Stability/Movement • How Industry Managers/Personnel are Rated/Assessed • Program performance • Personal performance • Protection of Proprietary Data • Why are we concerned? • What are our expectations from DoD?

4. Industry Imperatives

5. Financial / Shareholder Expectations • Majority of large DoD contractors are publicly traded corporations • Managed by Boards of Directors elected by stock holders • Boards chartered to maximize shareholder value (e.g. stock price) • Stock price heavily influenced by stock analysts • Stock analysts watch many factors, including • Sales, sales trend (e.g. growth/market loss) • Debt, sales vs. debt • Earnings, earnings per share, earnings from continuing operations, etc • Margin • Cash, Capital turns • Backlog • Etc • Poor results in any of these areas can result in “sell” recommendations and depress stock values • Credit rating analysts also watch these metrics • Reduction in credit ratings increases borrowing costs, which compounds problems

6. Financial / Shareholder Expectations (continued) • Cold War generated significant DoD industrial capacity • “Peace Dividend” created a shrinking DoD budget • Reduced budgets and demand resulted in significant DoD industry excess capacity • These events left DoD contractors in one of two positions • Buy/Merge with others • Be bought by others • Consolidations were frequent • Surviving companies saddled with substantial debt, excess capacity • Mergers resulted in substantial corporate cultural issues hampering timely identification of clear financial results of merger. Several corporations had major restatements of prior results, resulting in loss of analyst confidence. • Results on stock prices were substantial across much of industry.

7. Top 5 DoD contractor Stock History

8. Market Position / Longevity • Analysts are very focused on growth • Growth in an increasing market requires at least constant market share • Growth in a flat or declining market requires increasing market share • More contracts are being “bundled” into larger valued awards • Major platforms moving more towards “winner takes all” • With reduced number of different platforms, new opportunities will be few and follow on production sole source • These pressures increase the criticality of winning competitive awards • Platform providers are particularly vulnerable

9. Industrial Base • Shrinking budgets and the mergers of the 1990s resulted in significant excess capacity • Industry corrections have eliminated much of the excess capacity, however there are some major industrial capacities which may be lost permanently if not sustained • Shipbuilding • Truncation of Seawolf SSNs, reduced Virginia SSN qtys • Cancellation of DD21 will gap yards after LPD/AEGIS until DD(x) • Aircraft • Cancellations • Quantity fluctuations make it difficult if not impossible to level load workforce

10. DoD/Industry Relationship

11. Executing a Contract • FIRST RULE: “Execute contract within resources” • Management accountability • Intensive peer and mgt reviews (Don’t make me come down there!) • Emphasis on managing workforce • What we need from DoD PM • Clear, consistent direction and expectations • Control scope creep • Rapid decisions and resolutions • Willingness to let us do our jobs without undue oversight • Strong program sponsor and champion • What we try to provide to DoD PM • Everything expected within contract scope • Clear status of where we are • A good enough product at a profitable price - on schedule • A little bit more than what was asked for This is all well and good until …

12. The *&#! Hits the Fan • “What if” Exercises • We understand you need quick input • Hesitant to provide $$$ estimates unless given adequate time to assess and gather data • Better answer if we know how info will be used • Provides valuable opportunity to build relationship • Problem Solving (Problem? Who’s got a problem?) • Please ask us to help, even if DoD problem • Be willing to fix DoD problems as much as you expect us to fix KTR problems • Realize that your problems are our problems and vice versa • Joint solutions! Not finger pointing. • Don’t let problems linger – don’t let us get away with it either • Will either build or deteriorate relationship

13. Personnel • Management Stability/Movement • New DoD PM every 2-3 years • Disruptive to program – good or bad • Often no transition overlap to next PM • Sometimes a perception of unequal accountability • Move on to next assignment versus • Getting demoted or fired • Workforce Management • Set performance objectives • Provide for training • Assess job performance • Set pay raises • Manage time charging • Hiring/Firing – for real!

14. How Industry Managers/Personnel are Rated/Assessed

15. Industry PM’s Performance • Industry moved to pay for performance • Objectives flow from top of Corporation down to lowest levels • Performance ratings & compensation adjustments are objective – no guarantees • Program Performance & Customer Satisfaction • CPI / SPI • CPAR • AF Scores

16. Industry PM’s Performance • Financial • Sales (Revenue) • Orders (Contact Awards /ECPs) • Profit & Profit Margin • Cashflow / average collection period • Other • Diversity • Process Improvement Gross Benefits • Safety • Communications • Overhead Budget Adherence

17. Industry PM’s Performance • Objectives established and measured over contractor fiscal year • 360 Evaluation • Inputs from Senior Management, Leader, Peers, Team, Customer, other • Scores and comments aggregated • Action plans put in place and tracked for areas scoring lowest

18. Protection of Proprietary Data

19. Industry Perspective • Protection of Proprietary Data • Why are we concerned? • What are our expectations from DoD? • History • Companies use Intellectual Property to compete ie Patents, Source Code etc. • Company funding is pored into development of Intellectual Property because we see profit in it. Historical Examples: • Sony – Beta • Quicken – You bought it. Does that mean you own it? • Microsoft - On Monday April 5th, Microsoft released some of its code under an open-source license, and posted it on SourceForge, the open-source code repository.

20. Industry Perspective Bottom Line: • Data Rights • Unlimited – Industry will fight till the death or charge you as much as humanly possible because to them there is no future profit. • Limited – Lets make a deal. If we don’t make a profit, we won’t be here when you really need us.