James Palmer - Chief Financial Officer and Corporate Vice President Wesley Bush - Chief Executive Officer, President, Member of Corporate Policy Council and Director Paul Gregory - Vice President of Investor Relations

Cai Von Rumohr - Cowen and Company, LLC Jason Gursky - Citigroup Douglas Harned - Bernstein Research Howard Rubel - Jefferies & Company, Inc. Joseph Nadol - JP Morgan Chase & Co Heidi Wood - Morgan Stanley Samuel Pearlstein - Wells Fargo Securities, LLC Myles Walton - Deutsche Bank AG Troy Lahr - Stifel, Nicolaus & Co., Inc. David Strauss - UBS Investment Bank

Good day, ladies and gentlemen, and welcome to the Northrop Grumman Third Quarter 2010 Earnings Conference Call. My name is Jennifer, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Paul Gregory, Vice President of Investor Relations. Please proceed.

Great. Thank you very much, Jennifer, and good morning, everyone, and welcome to Northrop Grumman's Third Quarter 2010 Conference Call. We provided supplemental information in the form of a PowerPoint presentation that you can access at www.northropgrumman.com. Before we start, please understand that matters discussed on today's call constitute forward-looking statements pursuant to the Safe Harbor provisions of Federal Security laws. Forward-looking statements involve risks and uncertainties, which are detailed in today's press release and our SEC filings and may cause actual company results to differ materially. During today's call, we'll discuss third quarter results and our guidance for 2010. We'll refer to non-GAAP measures, which are defined and reconciled in our earnings release and the supporting materials posted on our website. On the call today are our CEO and President, Wes Bush; and our Chief Financial Officer, Jim Palmer. And with that, we're ready to start. Wes?

Thank you, Paul. Good morning, everyone, and thank you for joining us. This morning, I'll discuss our third quarter results, operational highlights and our outlook for the remainder of 2010. We are very pleased with our third quarter results. They demonstrate that across the entire enterprise, our team is focused on driving sustainable performance improvement. Our efforts are generating positive results across our business, which is reflected in this quarter's double-digit EPS growth. Financial highlights for the quarter include 4% sales growth and a 14% increase in segment operating income. Third quarter segment operating margin rate improved 80 basis points to 9.8%, which is the primary indicator of performance improvement at the sectors. Operating income also increased substantially reflecting the operational improvements and lower pension expense. In addition to operational improvements, during the quarter, we repurchased approximately 3 million shares of our common stock, bringing this year's repurchases to 17.8 million shares or approximately $1.1 billion. Based on our performance for the first nine months of the year, we now expect 2010 earnings to range between $6.85 and $7 per share. We also have a strong quarter for cash. Cash from operations before discretionary pension contributions totaled more than $1 billion, and free cash flow, also before discretionary pension contributions, totaled approximately $850 million. Based on year-to-date results and again, before discretionary pension contributions, we continue to expect cash from operations of $2.3 billion to $2.8 billion and free cash flow of $1.5 billion to $2 billion. Through the first nine months, our pension contributions totaled $390 million. Jim will provide more detail on cash and pension trends later in the call. At the end of the third quarter, total backlog was $64.6 billion, which reflects new awards of $7.4 billion in the quarter. The decline in backlog through the end of the third quarter is principally driven by Aerospace and Shipbuilding, our two large primarily platform businesses, where awards are typically large and occur periodically. In Electronics, Information Systems and Technical Services, our shorter-cycle businesses, the backlog trends are generally positive. Several major Aerospace and Shipbuilding awards are pending. And as these awards are finalized in the coming months, we expect an improvement in our book-to-bill rate. A prolonged period of continuing resolution could delay some awards, however. Turning to sector highlights. Aerospace sales increased 7%. Operating income increased more than 14%, and margin rate improved 70 basis points to 11.2%. Sales trends in Aerospace continue to reflect higher volume for manned and unmanned aircraft platforms, which was partially offset by lower sales for missile defense and civil space programs. We achieved several milestones in the Global Hawk program this quarter. In addition to supporting in-theater operations 24 hours a day, seven days a week, Global Hawk recently achieved 35,000 combat hours and two Global Hawks were deployed to new overseas locations. One to Sigonella Naval Air Station in Italy and the other to the Pacific Command at Andersen Air Force Base in Guam. Overall, the system continues to perform very well, and the program is on track for achieving its critical initial operational test and evaluation milestone, which we expect will lead a full rate production decision next spring. Global Hawk affordability continues to be a key priority that we are working jointly with our customer. The air vehicle production costs has continued to decline across each production line. And for the payloads, we are utilizing combined buys and an economic order quantity approach to reduce cost. As platform configurations continue to mature and affordability initiatives are implemented, we expect air vehicle and sensor costs will continue to decline. Driving production efficiencies is an ongoing focus for Aerospace Systems, not only for Global Hawk but for all of our key programs, including the F-35 and the F/A-18. In Electronic Systems, sales rose about 2% for the quarter. Operating income increased 21%, and margin rate expanded more than 200 basis points to 13.9%. During the quarter, Electronic Systems received one of the three contracts for the technology development phase of the Navy's AMDR program, the next-generation radar capability from Maritime Integrated Air and Missile Defense. We also won a very important role on the Air Force's $2.3 billion ID/IQ program to provide new advanced targeting pods along with associated support equipment, spares and product support. Under the Air Force's new two-pod strategy, Northrop Grumman was awarded a 40% share of the program. This award was a tremendous win for the sector. Information Systems sales were comparable to last year. IS operating income increased 13%, and as a percent of sales, improved 100 basis points to 8.9%. IS had some very important competitive wins in the quarter, including a role on the Social Security Administration's $2.8 billion ID/IQ contract for updated IT solutions. And shortly after the end of the quarter, IS was selected by the Centers for Disease Control to compete for task orders to provide information management and technology services under a $5 billion ID/IQ contract. These programs have multibillion-dollar potential over their respective performance periods but as ID/IQ contracts, they are not reflected in backlog until task orders are awarded. I would also note that IS won a $2.6 billion task order for the installation of a campus-wide information technology infrastructure for secure communications and operations at Saint Elizabeths, the Department of Homeland Security's new headquarters. This award has been protested, so there is a stay of performance in effect. Sales at Shipbuilding increased 1%, and operating income totaled 6% of sales. Most of you are aware that we recently filed a Form 10 with the SEC for a potential Shipbuilding spin-off. We continue to weigh a potential separation of Shipbuilding, and as part of that evaluation, we continue to explore a potential sale or spin-off. The Form 10 filing was an initial step toward a potential spin-off of Shipbuilding, but a final decision regarding a separation has not been made. In the meantime, our Shipbuilding team is keenly focused on performance and quality. We continue to work closely with the Navy and the Coast Guard to ensure we are delivering quality ships. In the Technical Services, sales rose 26% during the third quarter. Operating income increased 37%, and margin rate expanded to 6.4%. The substantial sales growth in TS is being paced by the continued ramp up on new logistics programs like KC-10 and the C-20. Before I turn the call over to Jim, I'd like to touch briefly on our customer's affordability initiatives and other changes that we're seeing in the marketplace. Under Secretary, Dr. Ash Carter, has cleared articulated the DoD's plans to drive efficiency and increase affordability with guidelines that include 23 principal actions. The objective is consistent with what the department's leadership has been saying for some time. We don't believe these initiatives are intended to drive down industry profit margins or weaken the industrial base. Of course, the challenge in achieving the department's objectives will be in how the initiatives are implemented. It's clear that future success in our industry will require the ability to demonstrate sustained productivity, efficiency and performance improvement. We also have to keep in mind that we continue to face an unparalleled dynamic range of national security threats. We in industry need to do all that we can to provide the most cost-effective systems and capabilities to our customers. At Northrop Grumman, we are focused on reducing overhead, managing our supply chain, streamlining organizations and processes and increasing productivity so that we can provide our customer with the best value possible. As we've demonstrated with our recent actions, we fully understand the challenges, and we'll continue to make the difficult decisions and take the actions necessary to position our company to create value for all of our stakeholders. As we look ahead to next year, we would expect U.S. defense spending to be flat to low-single digit growth. However, there is more revenue uncertainty today than we've had in the recent past, given the budget pressures the U.S. government faces. And as we've said before, we believe that our greatest value creation opportunity lies in driving sustainable performance improvement, generating cash, deploying it effectively, optimizing our portfolio and effectively managing our balance sheet. We're making progress closing the performance gap with our peers, and we have opportunities for further improvement, especially as we reduce risk on some of our underperforming programs. We are also focused on future execution of a balanced cash deployment strategy that includes returning cash to shareholders through dividends and share repurchases. So now I'll turn the call over to Jim for a more detailed discussion of the financials and a bit more color on our outlook for the remainder of the year. Jim?

Thanks, Wes, and good morning, ladies and gentlemen. Let me just reiterate Wes' comments, which was a really, really good quarter, double-digit earnings per share growth and solid cash generation. Earnings per share from continuing operations grew 13%, even with the headwind of last year's $0.23 tax benefit. So adjusting for last year's tax settlement, earnings per share growth was 34%, with segment operating income, lower net pension expense and share buybacks being the principal earnings per share growth drivers. Looking at the sectors through nine months, Aerospace System sales were up about 8%. Their year-to-date sales performance continues to reflect the overall strength of our unmanned and manned aircraft programs like Global Hawk, BAMS, F-35, B-2, EA-18G and Advanced Hawkeye. The positive trends for these programs were partially offset by declines in civil space and missile programs like the James Webb Space Telescope, NPOESS, KEI and ICBM. While we continue to work under the existing NPOESS contract, the DoD and the Department of Commerce will have separate roles going forward. On the DoD side, we expect to be the prime integrating contract for the Defense Weather Satellite System or DWSS. We've been working closely with the Air Force to transition elements of NPOESS to DWSS. And we are beginning to see a decline in year-over-year NPOESS volume as we enter this transition phase. Staffing has recently been scaled back, and the government's plans and funding levels and schedules are still evolving, so we really can't fully quantify future impacts. But we do expect that sales for the balance of the year will reflect a lower spend profile. We believe we have developed a compelling path forward for this effort, but the realization of that path will depend on the release of sufficient fiscal 2011 funding for the program. Aerospace third quarter sales, again, were accompanied by strong operating income. For the quarter, the margin rate expanded to 11.2% and through the nine months, our margin rate has expanded about 110 basis points to 11.3%. Third quarter improvement was primarily driven by improved performance in our manned programs. As a result of the strong performance through nine months, we now expect the margin rate in Aerospace a slightly more than 11% for the year, with sales of about $11 billion. Electronic Systems sales rose approximately 2% for the quarter and through nine months, sales are in line with our guidance of 2% to 4% growth for the year. ES generated a 13.9% margin rate for the quarter, which reflects improved performance in the period for postal automation and self protection systems. The Flats Sequencing System or FSS is the major driver of the postal automation results. FSS performance was stable this quarter, and last year's quarter included some negative team catch-up adjustments on that program. We now have received unconditional acceptance of the first article test for the U.S. Postal Service, with subsequent system acceptances underway. Through the nine months, ES has generated a margin rate of 13.1%, and we expect the 2010 margin rate to be in the high 12% to 13% range. For Information Systems, third quarter sales reflect lower civil volume, consistent with our focus on higher quality opportunities in this marketplace and lower volume for intelligence program, which was more than offset by higher volume in defense programs. Through nine months, Information Systems are essentially flat, and based on year-to-date results, we now expect IS sales to range between $8.5 billion to $8.6 billion for the year. The IS team continues to do a good job in winning new quality business and retiring risk. This is reflected in their improvement in margin rate. Last quarter, we raised IS margin guidance to mid to high 8%. And based on this quarter, it's likely that they will hit 9% for the year. Shipbuilding sales were up slightly this quarter and up nearly 10% through nine months. Growth for the quarter and for the year reflect higher volume for Expeditionary Warfare programs and aircraft carriers. Operating margin rate for the quarter was 6%, which reflects overall lower performance on Expeditionary Warfare programs, which included negotiation and recognition of milestone incentives on the LPD program. I should also point out that the lower performance on expeditionary warfare also includes a reduction on LPD's 23% and 25% margin rate related to our previously announced decision to consolidate our Gulf Coast shipyards. In addition, we also had a negative performance adjustment on the postdelivery work on LHD 8 that impacted this quarter. Based on year-to-date results, we now expect Shipbuilding sales of about $6.5 billion for the year, and our margin rate guidance is unchanged at 4% to 4.5%, reflecting the impact of last year's quarter's decision to consolidate our Gulf Coast facilities. Turning to Technical Services, reported a 26% sales growth, operating income increased 37%, and margin rate expanded 50 basis points to 6.4%. Through nine months, sales were up 20%. Operating income is up 30%. Higher operating income and the rate reflect volume increases as well as a more favorable business mix with logistics representing an increasing share of sales. While we continue to expect a low- to mid-6% range for margin, we expect sales to approach $3.2 billion for the year. The biggest variable in annual sales will be ID/IQ task order levels over the balance of the year. As expected, cash generation accelerated substantially during the quarter. Cash from operations before discretionary pension contributions totaled slightly over $1 billion for the quarter, with free cash flow of approximately $850 million. Through nine months, before discretionary pension contributions, cash from operations totaled $1.4 billion, and free cash flow was just over $1 billion. We plan to accelerate a total of about $500 million of pension contributions into the second half of 2010, including the $60 million that was made in the third quarter. Timing on that $60 million third quarter contribution was driven by the opportunity to reduce PBGC premiums. And for all of 2010, we now expect discretionary contributions of about $830 million for the year. We are also considering the possibility of another sizable discretionary pension contribution in the first part of 2011. The decision to accelerate pension funding reflects the compelling economics of low interest rates, improving investment returns, tax benefits associated with contributions and the opportunity to further reduce funding in our FAS expense obligations going forward. I should remind you that for 2011 FAS pension expense, a 25 basis points change in our discount rate generates about a $75 million change in FAS pension expense, and that a 100 basis point change in our plan investment returns generate a $40 million change in FAS pension expense. Through the end of the third quarter, we estimate that the return on our plan assets was in the range of 9% to 9.5% compared with our 8.5% expected annual rate of return. Regarding the discount rate, the current yield curve in our analysis of our appliance, to just 2011 discount rate in the range of 5% to 5.25% based on September 30 data compared with the 6% that we used for this year. I would also note that while today's historically low interest rates have a negative impact on our future FAS pension expense, they also create a very attractive borrowing opportunity or environment for public companies. And we're currently looking at how we might take advantage of this lower rate environment. So in conclusion, I would, again, add it was a very good, strong quarter. We modestly increased our sales guidance to $34.9 billion, and our new guidance for earnings from continuing operations is $6.85 to $7 per share. Our guidance contemplates a fourth quarter impact of about $0.11 per share for deferred state taxes associated with our planned fourth quarter discretionary pension contributions, as well as higher unallowable costs associated with the exploration of strategic alternatives for the Shipbuilding business. We are comfortable with our outlook for cash from operations and free cash flow guidance, both of which are before discretionary pension contributions. Paul, with that, I think we're ready to turn it over for Q&A.

Outstanding. Thank you, Jim. Jennifer, I think we're ready to go to Q&A, and I would remind everyone that if you could limit your questions to one question and a follow on so that we can get to all the questions, that would be much appreciated. So, Jennifer, we're ready to go to Q&A.

[Operator Instructions] Your first question comes from the line of Sam Pearlstein. [Wells Fargo Securities] Samuel Pearlstein - Wells Fargo Securities, LLC: I was wondering if you could talk a little bit more about margins in terms of, I guess, one-time effects in the improper rate adjustments that might have helped, and really the sustainability, because where I was trying to go with it is that a couple of years ago, you talked about long-term targets for each of the sectors. And it certainly looks like you're approaching, if not at all of those, except for ships. And so from where we are now, where can the margins go in the different sectors?

Sam, we've made good progress towards our margin targets. As you know we, a number of years ago, put out some long-term target objectives. And as you pointed out, we're at or exceeding some of those margin targets. Our emphasis is around sustainability. I do think that there is an opportunity after having demonstrated sustainability to potentially move up. But right now, our focus is on sustainability. In terms of any unusual items in the quarter, I would just simply point out that every quarter, there are earnings adjustments on contracts, both positive and negative. I can't, as I look at the quarter though, I can't really see any major unusual positive adjustments that were included to drive the results one way or another.

And, Sam, I would say that, from my perspective, and as Jim indicated, we are very pleased to see the progress that we've been able to make over these last few quarters in improving our margin rates. We're not going to be satisfied until we see this really be demonstrated as sustainable performance improvement quarter-after-quarter, and that's what we're really driving on across the corporation. Samuel Pearlstein - Wells Fargo Securities, LLC: And at the top wherein we're to slow, are there any areas where we might see the margins start to trend the other direction?

We don't see it as particularly connected to the top line. Obviously, we've had to take and are continuing to take a lot of actions around affordability so that we are managing our total cost structure into an environment that we see, as I indicated in my remarks, as flat to very, very low growth. And we continue to press on that overall perspective of affordability and competitiveness. But I don't have any near-term concerns about those translating into pressures on our bottom line.

Your next question comes from the line of Heidi Wood. [Morgan Stanley] Heidi Wood - Morgan Stanley: Wes, you've had a number of good wins as you mentioned in civil recently, disease and health and home and security. Can you talk about how you're allocating your discretionary resources now in terms of targeting other areas of Federal government spending? And can you also touch on also with these increased wins in civil, what does this mean for margins going forward?

Heidi, in civil, we had been clear for some time that we were reshaping our focus on that part of the portfolio, away from the stable local IT outsourcing environment to be more heavily focused in the civilian agencies area. And then in particular, in the civilian agencies area, in places where we thought we could really bring something that was differentiating for the long term. So the wins that we've announced are reflections of that strategy of being more focused on civilian agencies and then being, I would say, quite selective within the civilian agencies range of opportunities for those areas where we can bring things such as our Cyber Security capabilities to many other solutions or other substantial engineering content that reflects the type of value that we can deliver to customers. So we see that marketplace as an attractive marketplace. Again, we are selective in what we're pursuing. And part of that selection process goes to the second part of your question, which is the margin rate. We are pursuing those opportunities that we believe are consistent with our margin rate objectives that we've laid out for Information Systems in total. And so that typically reflects a little bit of more of the higher end, if you're okay with that description, of the civilian agencies marketplace than the parts of the marketplace that have been more commoditized. Heidi Wood - Morgan Stanley: And, Jim, a question for you. Can you give some color on stock buyback? What are your thoughts there? And would you issue debt to buy back more stock?

Heidi, let's see. Looking back for the year, we've had share repurchases in all three quarters. The rate at the first part of the year was heavier and we tried to deploy the proceeds from the TASC divestiture. And in terms of the market opportunities, the capital markets, we're looking at a range of alternatives, I think it's fair to say at this point. And I don't think I would take anything off the table as far as potential but at this point, it's really looking at what we might be able to do and what is the most attractive to us. Heidi Wood - Morgan Stanley: I didn't catch what you did in the third quarter, Jim, for amount and shares.

We did about 3 million shares, a little bit less than $170 million.

Your next question comes from the line of Troy Lahr. [Stifel, Nicolaus] Troy Lahr - Stifel, Nicolaus & Co., Inc.: Wes, I'm wondering if you can talk a little bit about your thoughts a little longer term once you get through your plan with Shipbuilding. Do you see any more material changes to the portfolio?

Well, the way I would frame that, Troy, is that we have a continuing process in our company to actively manage our portfolio. We continuously look at what we need to add and what we need to subtract to be best to support our customers for the long term and to generate value for our shareholders. So as we look forward, there's a -- and I would just say that there's that sort of continued process that's underway. On the addition side, I've said frequently and we just reinforce that we feel very good about the set of capabilities that we have and their match to where we see our customers going, whether that's in C4ISR or Cyber or unmanned or the logistics part of the business, we do look at opportunities that come up in the marketplace to add to the portfolio. But so far, and I think you've seen in our actions over the last couple of years, we really haven't seen anything that's just been a must have it all. And so we can afford to be very, very disciplined in the way that we assess those market opportunities. But I would just say that we do have a continued proactive process in our company to manage our portfolio. Troy Lahr - Stifel, Nicolaus & Co., Inc.: And is the plant still to resize your executive workforce as you transition headquarters to D.C. or might you to accelerate that? And kind of are you looking at head count reductions at the segment levels with budgets slowing down kind of what Lockheed and Boeing have been doing?

We have very proactively addressed the head count question, both at the executive level and the levels below. We have, as you would recall over the last couple of years, taken our sectors from eight down to the five that we have today. And as we have taken each of those moves, we have used those as opportunities to take out substantial cost, which primarily has been focused around head count reduction to get to more optimized and streamlined organizational approaches. We have been a bit of that already at the corporate staff level. And as we relocate, we are shrinking the size of the corporate office as a part of that relocation. But I would say more broadly in the things that perhaps connect even more directly in terms of the affordability initiatives, we've also taken on, enterprise-wide, a variety of activities around Shared Services that are really paying dividends for our company. And we we're going to continue to push on those. But the day-to-day cost leverage, the things that really are driving the outcomes the department is looking for, are really happening at the program level. Program by programs, is where we have to take on the cost affordability challenges and demonstrate that we can, if necessary, re-architect how those programs are being done and in all cases, go and find the cost opportunities that will continue to bring down the cost curve. So I know there's a lot of play, a lot of focus that happens around head count reduction. But I would just point out that it is I think even more important the work is being done at the program levels to drive affordability.

Your next question comes from the line of Cai Von Rumohr from Cowen and Company. Cai Von Rumohr - Cowen and Company, LLC: Wes, a follow up on the portfolio question. Clearly, you did some portfolio shaping in IS. But your enterprise value, the EBITDA, is a little under 6 and we just saw people paid well north of 10 per properties. Would you consider selling pieces or maybe an entire sector if it didn't do anything to improve your business, but basically would boost your share price?

Look, I wouldn't want to get ahead of any key decisions that we might make in the future. All I would say is that as we look at the businesses, there are several tests that we apply in thinking about fit for the long term. One, of course, is the value proposition. As you mentioned, whether or not we are the best owners of the business and whether or not it makes the most sense to have that business in our portfolio versus leveraging an opportunity that might exist in the marketplace, we also look at it in the terms of synergy, how well the business is connected into the rest of the operations of our corporation, how well we're able to bring the pieces together to create more by virtue of the elements working together. And as I think we've been pretty explicit about, our exploration of alternatives around Shipbuilding, that's a case where we see a very good quality business with great opportunities for continued margin rate expansion, but a business where we've not been able to demonstrate very substantial synergies to the operations of Shipbuilding with other parts of our company. And that has led us down this path of exploring alternatives to see if there might be a way of enhancing overall value, both for our shareholders and for our customers and employees by having Shipbuilding operate as a separate entity. I think it is indicative of our thought process, and just would illuminate the way that we're looking at our company. But I do get the question sometimes, should the marketplace the actions we've taken on TASC and Shipbuilding as some sort of a signal that we're looking to figure out how to dismantle the company and sell the pieces for more than the whole? No, that is not what we're doing. We're not dismantling the company, but we are intent on being very active managers of our portfolio going forward. Cai Von Rumohr - Cowen and Company, LLC: And then a follow up for Jim on the pension question. Jim, could you give us a little more color on the discount rate won't impact CAS? Where might CAS go or what's going to influence it next year? Secondly, for every $100 million you put discretionary into the pension fund, should we assume you get an $8.5 million benefit or is that different because you're outside the corridor?

Let me take that second piece first. The additional contributions into the plan would earn for financial accounting purposes, the 8.5% going forward into next year for 2011 pension expense. Though, and Cai, in my prepared comments, I talked about the two big variables to FAS or financial accounting expense being the discount rate and the long term rate of return versus the assumed rate of return. The other variable is, as you pointed out, essentially what's going to happen with your CAS cost. In our view of CAS cost for 2011 essentially reflects an increase in those costs of about $250 million to $300 million, consistent with what we thought would happen at the beginning of the year. I really don't see much of a change occurring from that view of increased CAS cost that we had at the beginning of the year as we approach towards the end of 2010 here. I'm looking for about a $250 million to $350 million in CAS cost that will serve to offset some of those potential increases in FAS cost that we referred to.

Your next question comes from the line of Howard Rubel from Jefferies. Howard Rubel - Jefferies & Company, Inc.: Wes, you paint such a rosy picture of the environment, and yet the facts would sort of say otherwise. I mean, while you won 40% of the targeting pods and I know that at one point you weren't even in the hunt there. Or the contract example for the new radar, that is a fixed price development contract. And the final point is on ships, the new naval DDG 51 still hasn't been signed and we're already in the fiscal '11. So to me, I'm not sure I can totally square the box as to your rosy view of the environment and some of the challenges that, in fact, are making it difficult to earn reasonable returns.

Howard, I appreciate being described as having a rosy outlook. I don't know anyone that's described me that way of late. And so perhaps let me give you my kind of a broader view. I know I touched a little bit of this on my commentary, but just a broader view of where we see things going. It is clear to all of us that the budget pressures will certainly be a big factor in setting the top line environment for the DoD and the intelligence community, which represent the vast preponderance of our customer base. I don't think there's any debate out there. It's also clear that affordability and variety of initiatives that are connected to the affordability thrust are going to have some implications for the defense industry. We are very pleased by the engagement that the DoD has had with industry in reaching out and setting a course on affordability. But as I said in my remarks, the key to that is going to be in implementation and how all of that rolls out. I do look forward to that continued engagement with the department to shape it as we go forward, and I would say that we have a team at DoD today that has demonstrated a real connection to the importance of industrial base, both the strength of the industrial base and the future of the industrial base that I personally haven't seen for some time. And I really like that. And so perhaps that comes across as a little bit of a rosy outlook, but it's more intended to reflect my view of the interaction that we have with the department, very positive nature of that interaction. They are tough taskmasters. You've seen them hold us publicly accountable when they don't like the outcomes that they're seeing, but I think it's fair. And I think the message is that we need to be doing what the we need to do. And on the programs like Global Hawk, when we've gone and see them to talk about affordability, we've been able to have the two-way conversation about the things the department needs to do. And they've taken that on board. So I like that part of our environment today. I think it will be healthy for our industry over time to be aligned and supportive of that. But just let me be very clear about how I see all that adding up. We do not expect, and I would say nor are we dependent on significant top line growth to create value. And so many of the changes that we've been driving in the company over the course of this year had been focusing on the areas where we see those value creation opportunities, and that goes to program performance, and we've talked a lot about mitigating risk in the programs where we've had some challenges in the past, driving that risk out, generating a margin rates that we know we can demonstrate by focusing on core program performance and then being very good stewards of the cash that we generate. And our value equation is based largely around that improvement in margin rates, that intelligent deployment of cash and being proactive with our portfolio to make sure that we stay lined up actually a little bit ahead if we can with where our customers is going, and we feel good about how that looks in terms of portfolio. So I can't agree with you more. There are a lot of negative, if you will, issues out there surrounding the outlook of the top line, concerns about how the customers will react to that over time. But I would also tell you that, and you have as much or more experience than I do in this, Howard, that over time, we see our nation respond to the external threat profile. And I don't see that diminishing. In fact, I am increasingly concerned about some of the new aspects of the threat profile that we've all seen emerging over these last couple of years. And I do have confidence that our nation stands up and addresses those, and that doesn't translate to earnings or sales in any particular quarter. But it does drive the way we think about positioning this business for the long term, to be good stewards for both our shareholders and our customers and of course, our employees as well. Probably said a little more than you're asking for there, but I appreciated the opportunity to reflect on the environment.

Your next question comes from the line of David Strauss from UBS. David Strauss - UBS Investment Bank: Wes, I'm sure you don't want to go into this too much but could you just give us an update of where you are in terms of evaluating the different strategic alternatives you're looking at in Shipbuilding, when you might come to a conclusion there?

Yes, let me say what I can in that regard. As I said in my remarks earlier, we are continuing to explore a whole range of alternatives to sort out first, whether a separation from Northrop Grumman of our Shipbuilding business would actually be beneficial. And then secondly, if that is the case, whether it would be most advantageous to go down the path of a sale or a spin-off. I can't say much about sale process. We manage all of that under tight boundaries of confidentiality and it's just a matter of policy we don't comment on that aspect of our M&A. You did see, I think, hopefully everyone noticed that on October 15, we submitted a Form 10 registration statement to the Securities and Exchange Commission. And that was an important filing because that really gets the process started to provide us an alternative should we elect to go down the path of a spin-off. There's a fair amount of information about our Shipbuilding business in that Form 10 and I would say we were quite proud of being able to pull that together and represent what we see to be a very high quality business in the filing of that Form 10. You asked about timing. When we first started talking about this in July, we indicated at that time we thought the process would take several quarters to come to completion, and we're essentially still on the time line that we talked about back in July. David Strauss - UBS Investment Bank: And as a follow-up, back on the margin question, I guess following up on what Sam asked, you continued on the call, several times you touched about the opportunities for margin expansion not being dependent on revenue growth. If I look at margins x ships, you're approaching 11% today. Could you kind of frame what kind of upside there might be beyond 11%?

David, it's Jim. I'd essentially go back to our prior comments on our long-term earnings objectives for the different segments. I do, as we said at the second quarter call, if we make the decision to separate the Shipbuilding business, there'll be some stranded cost that we'll have to deal with in the near term that will obviously be somewhat of a margin pressure for a period of time until we are able to implement the actions to take out those costs. But x ships, our view of the individual opportunities within the four remaining businesses is unchanged.

Your next question comes from the line of Myles Walton from Deutsche Bank. Myles Walton - Deutsche Bank AG: A few quick questions. First one on F-35, like you signing up to the fixed-price incentive contract to the details they disclosed, the 50-50 share and the 120% ceiling. I'm curious where you are in your respective contracts on that and how we should think about what risk you're willing to take, particularly in ES?

Yes, just at a top level, we, obviously, don't get into the details of ongoing negotiations. But we are a good partner, I believe, with Lockheed. You'd have to ask them, and their perspective of that. But I believe we've been a very good partner with Lockheed on this program. I would say they've been a good prime on this program, and part of being a partner is being supportive of the affordability initiatives that are underway. We have to look at each of the three pieces of F-35, sometimes, a little bit differently because there are different risk return characteristics. By the three pieces, I mean, we do work on this program as a subcontractor, Lockheed, in Aerospace Systems, Information Systems and Electronic Systems. And so the approach that we might take while similar in most respects, might be tuned slightly differently given the individual characteristics of those areas. The one thing I would say about FPI and it always goes, of course, to the actual structure of airline geometry and target cost. But in general FPI can be a very good contract if you're in the LRIP phase, particularly after you get past the first view of the LRIPs where you have a very good cost base line, where you have a very comprehensive risk management approach and where you know what you're really producing and how the production lines are supposed to operate. And that's where we are in F-35. We've made tremendous progress on this program. I feel good about the products that we're delivering on F-35. And then, there's always elements of the program that require continued tuning and at the prime level, Lockheed continues to go through their overall test program. And so there is the SDD overlay to this and any of their recurring or the new issues that might occur get addressed through that concurrent SDD approach. But given all of that, I think that there's a reasonable contractual approach to be taken here to support what Lockheed's customer is asking of them. And as a partner, we are focused on supporting that. Myles Walton - Deutsche Bank AG: When do you think you'd conclude those contracts for LOT 4?

I hate to project the conclusion of contract negotiations, because someone might take that as a deadline.

Good result.

Better to get the better result, than to meet some deadline. And I think that serves both us and Lockheed well, to let the teams work their way through that. Myles Walton - Deutsche Bank AG: The comment on taking advantage of the low rate environment. I'm just curious how aggressive would you be at this Raytheon's kind of implementation. Is that more along the lines of what you're thinking drive down payout partials, the notes coming due in 2011 and use the remainder for share repo and potentially pension contributions and is that size roughly right $2 billion or so?

Myles, we're looking at a range of alternatives. It'd be premature for me to announce anything at this point. So let us finalize our thinking on what we might want to do, whether we want to go to the market and how we go to the market, et cetera. But rest assured, that we are looking at what the opportunities are.

Your next question comes from the line of Doug Harned from Sanford Bernstein. Douglas Harned - Bernstein Research: Going back onto affordability and specifically as it relates to Aero, if you look at we're now going to assess the contracts on LRIP 4 for F-35. Boeing's agreed to multi-year on F-18 that they've described as I think fairly as a little bit more challenging on cost. And then you've got Global Hawk that you've got initiatives underway on costs. If you look down the next two or three years, how do you see the trajectory of margins in Aero? Are you able to come in under these new contracts? Do you expect with cost structures that will allow you to keep the same margins you have today or maybe even improve them?

Let me give sort of a top level view, and then ask Jim to provide his perspective as well on this. But what's interesting about our business in Aero is we've worked so hard over these last few years on development programs to get those development programs transitioned into production so that we can do exactly what our customer is asking us to do today, which is manage the cost down over the course of production. And so I would say we've been getting ready for this. We've been preparing to be in an environment where we're focused probably a little bit more in production than development, although we, of course, are going to be out looking to win new development opportunities. But on those particular programs, we are driving on cost as we go through these earlier stages of production so that we can hit the lower targets that's should come with learning curve, both in the work we do and in what we expect of our supply base in going through this. And we are not at all interested in taking profitability down as we go through this. We've been working hard to get to the point in production where we're reducing cost and realizing the profitable returns that should come from the big investments we've made to get us here. So there is a big discussion around costs very appropriately. That's what we expected. That's what we've been working to get to. But we believe we should have good profitability opportunities in the production phase. Production is the lifeblood of our industry. That's where the industry gets its returns, and we're going to be pretty tough about holding to getting those returns because we've made the investment. Jim, anything to add on that?

I guess the only thing I would add, Wes, is just reiterate the lifeblood of the industry is production margins. We do a good job there as others do. Frankly, we've been very successful winning new development as well. And so I think as important as production margins are going forward, Doug, the other variable is going to be the mix of development in production as we continue to look forward. If we continue the trend that we've had of being very successful on new development programs, that could be a little bit of pressure on margins. But it really sets us up for long-term opportunities going forward. So frankly, on a near-term basis, I'd take that drag. Douglas Harned - Bernstein Research: And related to that, in Aero and in Electronics, can you comment on the percent of production versus development, and where that trend is going? Are we seeing a shift towards production in either of those units?

I think in Aero we haven't seen that shift yet. On one hand, we have a number of programs that are making the transition: E-2D for example, Global Hawk. But on the other hand, we have other programs: BAMs, UCAS that are still in that ramping up stage on development as well as others. I don't think we made the transition yet on Aero. On Electronic Systems, probably more production than development there. Douglas Harned - Bernstein Research: And in the trend though, the trend is...

Yes.

Yes, clearly, towards production.

Your next question comes from the line of Jason Gursky from Citi. Jason Gursky - Citigroup: Just a quick question for Jim. On the idea that debt is cheap and you could potentially raise some to pre-fund the pension and you mentioned that you may make a big contribution in the first quarter. Clearly, we're trying to model out what pension might be next year. The goal here will be to try to offset any headwinds that you might see on the FAS side?

Not necessarily, Jason. It's much more of taking advantage of our cash flow, continuing our balanced cash deployment strategy that we've articulated and had in place for the last number of years. We do look for, as I said, a balance towards returning cash to shareholders through dividends and repurchases. We've had strong share repurchases this year. We've added to pension funding, and we're looking at how we can manage the balance sheet, as Wes said in his comments, more effectively, as well. And then finally we're looking at any of the opportunities that come along in terms of acquisitions, particularly if they were in areas that meet our areas of emphasis the C4ISR, Cyber, unmanned, logistics areas of emphasis. But I wouldn't signal that we're trying to accomplish anything in particular with the level of pension contributions other than taking advantage of the possibility of increasing pension earnings going forward, the low interest rate environment, clearly, a tax advantage in making contributions today. And so essentially exhilarating future obligations into a period of time when cash is favorable. Jason Gursky - Citigroup: And this is a follow-up question on the statement that you made earlier about some stranded costs post the Shipbuilding getting spun or sold, how much of a margin pressure do think that is? Like what kind of cost levels are we talking about, and second, how long will they stick around?

I'd say we're probably in the $0.10 at $0.20 range in terms of stranded cost, and my experience just tells us it's probably a year to 18 months to deal with them.

Your next question comes from the line of Joe Nadol from JPMorgan. Joseph Nadol - JP Morgan Chase & Co: Wes, you mentioned delayed awards and particularly in Aerospace and in Shipbuilding, and I'm wondering A, if you could comment on specifically what are the top two or three that are causing pressure in the backlog? And then secondly on that same topic, what's going on? Is this slower reaction time in the part of the government because of staffing, is this tough negotiations, et cetera?

If you have my comment around delayed awards and maybe I wasn't precise enough in making it, related more to the continuing resolution environment that we're in. And it really does impact all of the businesses. The continuing resolution is kind of a tough thing for customers because they have to go through a rather difficult process of figuring out is something really a new award or not a new award? How was it funded or budgeted in prior years? And how does the specific language that was reflected in the CR relate to their individual programs? And so thinking your way all the way through that, even and getting the right approvals within the customer organizations, even if it turns out that you're okay to go out and grant the award, it simply causes delay. And we're kind of seeing it across the board. There's just a whole variety of things where we can see that the customer really, really wants to just get on with it, but they're having to work through those kind of processes. So that was more the intention of my statement. It is related to the continuing resolution environment. And we do have some concerns that, that could be an environment that sticks with us for a while depending on how things go in the election and the Congress' perspectives when it comes back from the election. Not clear when that resolves. So that's a concern. Joseph Nadol - JP Morgan Chase & Co: That's more of an October issue because the CRs is just the new fiscal year. So I guess this is getting more specifically to the backlog in your two platform segments, Shipbuilding and Aerospace, are they platform-type of awards or specific ship contracts or aircraft projects that have been pushed out --

yes, there are some big awards that we are in active negotiations with our customers. Some examples, the F-18 multi-year, we are continuing negotiations with Boeing. We talked earlier about Joint Strike Fighter sort of around the company, three other sectors. And in Shipbuilding, both the Destroyer program and the LPD program, we are in active negotiations, as well. And so those certainly translate into meaningful metrics for driving the overall backlog. But I'd put those more in the category of working our way through them as opposed to substantial externalities like SCR. But we'd love to think it was only on October issue. But I'm worried it is going to be a multi-month problem that is more of an overlay to the overall contracting environment. Joseph Nadol - JP Morgan Chase & Co: What I'm trying to get at is I know it's four or five you mentioned, are these Ts and Cs tougher pricing negotiations that are holding things up? Boeing took a haircut. Are they trying to pass the haircut along and you're pushing back? Or is this just bureaucratic delays that we've been seeing? Between those two ends of the spectrum, how do you sort of qualify what's going on?

I really see it being more in the middle of the spectrum as it is. This is just how we do negotiations. And some are longer and more drawn out than others for a variety of different reasons. But I'm not -- when we're talking about Boeing or Lockheed, you've got two very experienced negotiating teams there that are just going to take a lot to get their way work through it. And as I've said earlier, I'm not about to say anything that would suggest that we're putting a deadline on them because we want to get the right outcomes on negotiations. What I'm seeing at Shipbuilding, Shipbuilding restarting the DDG production line. That's a big deal and getting that right is really important. We're determined to get it right in contract negotiations and we've got an excellent team on the Navy side of this that's determined to get it right for the customer community, and so we're all just going to take the time it needs to get it right. Joseph Nadol - JP Morgan Chase & Co: And then just as a follow-up, Jim, just to be specific on the fourth quarter impact of some of these items. You mentioned the state taxes and the Shipbuilding alternatives. Where do these show up precisely in your expanded P&L, your Table 5 business results just so we have our numbers with you on an apples-to-apples basis?

It's down in the unallocated corporate stuff. Joseph Nadol - JP Morgan Chase & Co: And so what's the number?

It's at $0.11. Joseph Nadol - JP Morgan Chase & Co: $0.11 cents in total?

Yes.

We are out of time here, and I know that there are other companies that are going to have their calls pending this morning. So out of respect for them, I think we'll try to end as close to our time as we can here. So I apologize to those left in the queue. I appreciate your interest. Feel free to call and contact me if you have some follow-on questions. And with that, I'd like to pass it over to Wes for some closing remarks.

Thank you, Paul. I guess in summary, I would just say, reiterate what I said at the beginning. This was a very strong quarter for our company. We're very pleased to be demonstrating the performance improvements that we do continue to proactively manage our business to make sure that we're creating value for our shareholders, our customers and our employees and as I've said on our prior earnings calls, our number one priority across the entire company will continue to be achieving demonstrating sustainable performance improvement. So thanks again, everyone, really appreciate you joining our call this morning.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.