Mark Kaplan - VP, IR William H. Swanson - Chairman and CEO David C. Wajsgras - Sr. VP and CFO

Troy Lahr - Stifel, Nicolaus & Co., Inc. Joseph Nadol - JPMorgan Robert Spingarn - Credit Suisse First Boston LLC Robert Stallard - Macquarie Research Equities Howard Rubel - Jefferies & Company David Strauss - UBS Myles Walton - Oppenheimer & Co. Douglas Harned - Sanford C. Bernstein & Company Ronald Epstein - Merrill Lynch Cai von Rumohr - Cowen & Company Heidi Wood - Morgan Stanley

Good day, ladies and gentlemen and welcome to the Q3 2008 earnings conference call. My name is Melanie and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session at the end of this conference. [Operator Instructions]. As a reminder, today’s call is being recorded. I would now like to turn the call over to Mr. Mark Kaplan, Vice President of Investor Relations. Please proceed. Mark Kaplan - Vice President, Investor Relations: Thanks you, Melanie. Good morning everyone and thank you for joining us today on our third quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we will reference are available on our web site at raytheon.com. Following the live call, an archive of both the audio replay and a printable version of the slides will be available on the Investor Relations section of our website. With me today are Bill Swanson, our Chairman and Chief Executive Officer; and Dave Wajsgras, our Chief Financial Officer. We will start with some brief remarks by Bill and Dave and then we’ll leave plenty of time for questions. We ask that you please limit your questions to two per caller to allow for broader participation. Before I turn the call over to Bill, I would like to caution you regarding your forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company’s future plans, objectives and expected performance constitute forward-looking statements. These assumptions are based on a wide range of assumptions that the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and that we discuss in detail in our SEC filings. Bill? William H. Swanson - Chairman and Chief Executive Officer: Thank you, Mark. Good morning, everybody. First, let me welcome Mark who joined us on September 8th, and we are glad to have him on the team. The company had a strong third quarter and I’m pleased with our performance across the board. We are successfully executing our strategy and continue to see positive results. Strong bookings, 12% sales growth and a 17% increase in earnings per share. We remain very well positioned strategically, operationally, and financially. Yesterday, our Board of Directors authorized the repurchase of an additional $2 billion of company’s outstanding common stock. This new authorization demonstrates our confidence in our future. Based on our continued strong performance, we are increasing our 2008 guidance for sales, EPS and ROIC. We are also providing our initial guidance for 2009, which shows good growth. We expect to grow sales in 2009, between 5% and 8%, and to increase earnings per share between 10% and 15%. Dave will provide you with additional details in a couple of minutes. In the meantime, I want to talk briefly about where we have been as a company and where we are today, especially within the context of the recent financial market and broader economic news. Over the past five years, we’ve transformed our company into a consistent, predictable performer with a strong and focused portfolio of programs and our businesses are well managed. It’s a portfolio built on our core capabilities and on the opportunities to apply these capabilities to meet customer needs in the United States and around the world. Next, and importantly, we continue to have a successful track record of operational performance. We are focused on meeting our commitments to customers, to employees and to our shareholders. No company is completely immuned from volatility in the financial markets or the weakening global economy; however, what Raytheon can do, what we have been doing and what we will continue to do is focus on the things we do best, the activities that drive long-term value. In other words, this is all about performance, relationships, and solutions. Our vision, strategy, goals and values are clear. They are understood throughout the company. They have served us well, and they will continue to guide us in the future. Demand in our industry is primarily driven by the threat environment, and most people would agree that the world remains an unpredictable place. The range of threats to our country and our allies has expanded, and those threats don’t appear to be going away any time soon. Within the domestic and international government and defense industry, we are focused on our core and adjacent markets. We see increasing customer needs in these markets, and therefore, we are confident in our outlook for future growth. In summary, our future is bright, our strategy is working, we are an innovative company, we are performing well and we continue to have significant opportunities to further enhance our customers’ capabilities and to create long-term shareholder value. With that, I will turn it over to Dave. David C. Wajsgras - Senior Vice President and Chief Financial Officer: Okay, thanks, Bill. I have a few opening remarks starting with the third quarter results, then I will briefly discuss our increased guidance for 2008 and our initial outlook for 2009. After that, we will open up this call for some questions. During my remarks, I will be referring to the web slides that we issued earlier this morning. Okay. If everyone would please move to page three. As Bill noted, we performed well in the third quarter. Sales of $5.9 billion were up 12% from Q3 of last year. Operating income of $680 million was up 19% and EPS from continuing operations of $1.01 was up 17%. We also had strong bookings and ended the quarter with a solid backlog. Operating cash flow from continuing operations was $758 million, and we repurchased six million shares of common stock for $340 million, bringing the total amount we have repurchased for the year to 16.7 million shares. We increased our 2008 guidance. Our Board authorized repurchase of an additional $2 billion of the company’s outstanding common stock, and both Standard & Poor’s and Fitch upgraded our long-term senior unsecured credit rating to A minus. These upgrades are important to us, and they are a recognition of our progress to date, as well as our financial outlook. Taken all together, our recent performance, our increased guidance, the authorization to repurchase additional shares and the upgrades reflect our solid financial metrics, balanced approach to capital deployment and strong financial position. Turning now to page four. I would like to go through some of the details of our third quarter results. Our total company bookings for the quarter were $5.8 billion. Notable awards included $200 million of missiles for the production of Phalanx for the US Navy, $125 million for the competitive development of the US Army led Joint Air-to-Ground Missile program or JAGM and $114 million for the production of the Rolling Air Frame Missile for an international customer. TS booked $437 million for ATCOTS to provide training for the Federal Aviation Administration. TS also booked an additional $409 million for work on the Warfighter FOCUS contract for the US Army, bringing the year-to-date bookings on that program to $827 million. NCS booked $233 million for the design and development phase of the Joint Precision Approach and Landing System for the US Navy. IIS booked $119 million on the Consolidated Field Services contract to provide support for the US Air Force. In addition, IIS and SAS booked $728 million on a number of classified contracts. Backlog at the end of the third quarter was $37 billion, up from $33.9 billion at the end of the third quarter of 2007. Our backlog has increased by approximately $400 million since the end of last year. Turning now to page five. As I noted earlier, third quarter EPS from continuing operations was $1.01 versus $0.86 in the prior year. The increase was driven by operational improvements and lower pension expense. I would also like to briefly comment on our operating cash flow during the quarter, which was significantly higher than the guidance we provided in July. It was up by approximately $300 million. About two-thirds of the increase was due to timing and the balance was the result of performance improvements. If you now turn to page six, you can see that total company sales grew by 12% in the third quarter. All of our businesses performed well, and each contributed to our strong growth. IDS net sales of $1.3 billion were up 11%, compared to the same period last year. This is primarily due to growth on US Army programs and the US Navy program. Intelligence and Information Systems had third-quarter net sales of $801 million, up 18%, driven by the eBorders contract. Missile systems net sales of $1.4 billion were up 8% in the quarter, driven by higher volume from AMRAAM and Phalanx. Network Centric Systems had third quarter 2008 net sales of $1.1 billion, up 11% when compared to the third quarter of 2007. The most significant driver here was the US Army Communication and EO/IR programs. Space and Airborne Systems had third quarter 2008 net sales of $1.1 billion, up 7% versus the third quarter of 2007, driven by higher volume on several domestic sensor programs. And Technical Services had third quarter 2008 net sales of $689 million, up 24%, the result of higher volume on training programs. We are pleased with the program execution at Technical Services, as well as our expanding participation in mission support and training. Turning now to page seven. As we guided on our prior calls, IDS margin was lower than last year, primarily due to a change in program mix and the sale of certain software licenses in the prior year. IIS during the quarter reflects the impact of acquisition costs and other investments in cyber operations and information security capabilities. Also during the quarter, we completed the previously announced acquisition of Telemus Solutions, a provider of information security, intelligence and related technical services. Telemus advances our efforts to establish an end-to-end capability in this emerging growth area. Missiles continue to deliver solid margin in the quarter, both NCS and SAS had higher margins than last year, primarily driven by improved operational performance, and Technical Services margin was down lightly from the same period last year, primarily due to changes in program mix. Our overall operating margin for the quarter was 11.6%, which was an increase of 60 basis points from the third quarter of 2007. This increase in margin was the result of lower pension expense. Before I discuss our guidance for the balance of 2008 and our initial outlook for 2009, I want to briefly comment on our strong financial position. At the end of the third quarter, we had approximately $2.8 billion in cash, the majority of which was in US treasuries. We have no outstanding commercial paper and we have no debt maturities until 2011 and no borrowings on our revolvers. In summary, we have the financial stability and flexibility to focus our efforts on continuing to grow our business. Moving now to page eight, I would like to talk about our updated outlook for the year. We expect sales to be in the range of between $22.9 billion and $23.2 billion, an increase of $100 million on the high end. We expect FAS/CAS pension expense to be $125 million, and we’re now planning for net interest expense to be between $50 million and $55 million, which is at the high end of our prior range. By shifting the majority of our cash into US treasuries, we are earning less interest income and so our net interest expense is increasingly accordingly. Next, we’ve increased the high end of our full year 2008 EPS guidance by $0.05, and we’ve also updated the range to between $3.95 and $4.00. You should note that as we’ve discussed on previous calls, our full year 2008 EPS guidance already included the R&D tax credit extension, which was recently passed by Congress. And finally, we have increased the high end of our guidance for ROIC by 10 basis points and updated the range to between 10.3% and 10.5%. ROIC is one of the primary metrics that we use to manage our business and we are pleased with the progress that we are making in this area. On page nine, we provide a little more color on our 2008 performance. Our sales outlook for each of our businesses has improved. We have increased the high end of our guidance for full year total company sales by about $100 million, and we have updated the range for each business. We also increased the high end and narrowed the range of our guidance for full year total company operating margin. Moving on to page 10, I would like to now discuss the initial outlook for 2009. We expect next year’s sales to grow by approximately 5% to 8%, ending the year between $24.3 billion and $24.8 billion. We expect earnings per share to be between $4.45 and $4.60, which would represent growth of approximately 10% to 15% over 2008. And, we are forecasting operating cash flow to be between $2.2 billion and $2.4 billion. As you compare our expected cash flow performance in ‘09 to ‘08, you should note that in ‘09, we expect an additional $300 million of net cash tax payments. Before we move on, let me add some additional color on our pension plan. Let me start by saying that the security of the company’s pension plan assets remain solid. The plan is well diversified, and although we invest in equities and other securities, it’s highly liquid with significant cash in treasuries on hand to meet all obligations for the foreseeable future. We have assumed that the net impact on our income statement for 2009, FAS/CAS pension adjustment would be a positive $77 million. If you please move to page 11, I will take you through some of the details. As we have highlighted with a shaded box, our guidance for our FAS/CAS pension adjustment in 2009 assumes a negative 15% asset return for 2008 and a 7.5% discount rate. These assumptions reflect our best estimates at the end of the third quarter. You should know that through the end of the third quarter, our planned performance approximated a negative 15%. We’ve provided this sensitivity analysis to help you better understand the impact that the market environment could have on our FAS/CAS pension adjustment in 2009. As you can see, the adjustment changes depending on the combination of our actual asset return for 2008 and the discount rate. And just to be clear, these will be known and determined as we close out 2008 and will be discussed during our conference call in January. Turning now to page 12, here we provide you with a little more detail on our assumed FAS/CAS and cash funding requirements for 2009. Let me make a brief comment on CAS, our recoverable pension expense. CAS would increase due to lower than expected performance on our pension plan assets, however, unlike CAS, it’s not impacted by changes in discount rates. What’s important for you to keep in mind is that some portion of any increase in CAS would negatively impact our business unit margins in the near term. Finally, we expect our cash funding requirements in ‘09 to increase by about $100 million over 2008. We hope that this provides you with some additional clarity on our assumed pension impact for 2009, and, again we’ll provide you with a detailed update in January. Let me conclude by saying that the company had a great third quarter. We delivered double-digit growth in organic sales and earnings per share. We had excellent cash flow generation and we continued to improve our return on invested capital. Based on this performance and our near term expectations, we have increased our guidance for 2008, and we have provided initial guidance for 2009 that reflects our confidence in our continued profitable growth. With that, Bill and I will open the call up for questions. Question and Answer

[Operator Instructions] Our first question comes from the line of Troy Lahr with Stifel Nicolaus. Go ahead. Troy Lahr - Stifel, Nicolaus & Co., Inc.: Thanks. Based on the $2 billion share repurchase that you guys announced, I think that this is essentially almost all of you free cash for next year. Does this mean that there’s a change in the direction at the company on the capital deployment plan as you are moving away more from a balanced deployment strategy? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Troy, it’s a good question. What we have put in place now was an authorization, approved by the Board yesterday for $2 billion, you correctly stated that. It’s not time phased. So we don’t want to imply that this is going to be used for share repurchase over any specific period or any specific quarter. You are right. I mean it equates to our... roughly to our cash flow expectations for next year, but, again it’s not time phased and we don’t want to imply that it is. Troy Lahr - Stifel, Nicolaus & Co., Inc.: Okay. But then, are you still saying that you have a balanced cash deployment strategy? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Those are the exact words that I would have used and I’m glad you asked the question that way. We’ve had a very cash... we’ve had a very balanced cash deployment philosophy and strategy historically and that will certainly be the case going forward.

And our next question comes from the line of Joe Nadol with JPMorgan. Go ahead. Joseph Nadol - JPMorgan: Thanks. Good morning. William H. Swanson - Chairman and Chief Executive Officer: Good morning. Joseph Nadol - JPMorgan: First question, Bill, is on SAS. It looks like you had a... the best growth rate you’ve had there in some time and you raised sales and earnings guidance there. I’m just wondering what’s changed there. Do you think the businesses turned the corner? William H. Swanson - Chairman and Chief Executive Officer: Yeah, remember... I’m trying to remember now. It’s almost been about two years, we had talked about space and the impact and the shifting of those programs. I think that’s behind us. I think SAS has got a great portfolio of programs. They really see it in some of their EO/IR, of course, the AESA radar is the hottest thing on the market right now. So we feel good about SAS and their forecast they have given us. So they have got a bright future. Joseph Nadol - JPMorgan: Any implications, we are seeing some turmoil right now, again in the industry, in the space industry, just with programs stretch outs and cancellations, etcetera. Do you think this business can continue to perform, despite what’s going on there or are you cautious? William H. Swanson - Chairman and Chief Executive Officer: The business can perform. If you look at, it when you stretch out programs and the funding gets tight, that really puts pressure on the system. I think about a year ago, we had always said that we didn’t expect ‘08 and ‘09 to be good space years. It would probably take ‘10 before everything straightened out. Clearly, there’s some pressure that we have assets that we have got to make sure keep flying and we do things. So the people looking at this from a customer viewpoint really understand the issues and I think they’ve got a good plan going forward. It’s just that we’ve got to put stability back in our space programs. They are difficult programs. They are always pushing the envelope in technology and what they are trying to do, and, oh, by the way, we don’t have as many anymore, so that means you o really have got to get each one right. So, it will take a while, but I’m optimistic it will get straightened out. And the hard part is we are going through a change in administrations. So it will take sometime for the new team to get their priorities right. Joseph Nadol - JPMorgan: Okay. And then second question, what are you seeing and hearing from international customers, particularly given the big move down in oil. Any inclination things might be sliding or what are the expectations there? William H. Swanson - Chairman and Chief Executive Officer: I haven’t heard that yet. ‘I’ve made a couple of trips, and I have got another international trip next week. Clearly, actions in the world have made it unpredictable and countries have lined up what they want to go do and from my standpoint, internationally I think there’s more sensitivity today than there was a few months ago. So that’s kind of my read.

Our next question comes from the line of Rob Spingarn with Credit Suisse. Go ahead. Robert Spingarn - Credit Suisse First Boston LLC: Good morning. William H. Swanson - Chairman and Chief Executive Officer: Good morning. Dave, just a clarification or really another question on pension. You talked about a 15% asset decline through the end of September. David C. Wajsgras - Senior Vice President and Chief Financial Officer: At the end of the third quarter, that’s about where we were. Robert Spingarn - Credit Suisse First Boston LLC: Where would you be today? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Today, if you rolled the reel forward, rough estimate would be around 20%. Robert Spingarn - Credit Suisse First Boston LLC: Okay. David C. Wajsgras - Senior Vice President and Chief Financial Officer: It’s important, though, we provided a lot of information on page 11. We provided the grid of different combinations of potential asset return outcomes for 2008 and varying discount rates as we look forward into 2009. So I think from your standpoint, you can garner most of the information you would like probably from that page. Robert Spingarn - Credit Suisse First Boston LLC: Yes, we can. I just wanted to sort of market-to-market, because we obviously had several conversations with folks this week, and the significant difference in performance between September and October just comes to mind. Okay. On that, switching back to the business, Bill, could you talk a little bit about... looks like you’ve got some upward pressure on revenue with missiles. Could you talk a little bit about that? William H. Swanson - Chairman and Chief Executive Officer: Yes. If you look at missiles, clearly, they have more than just missiles. Everybody tends to look at them in that world, which is good because they are a national asset and they are the largest in the world. But they have other products that they work on, our active denial technology we see taking hold, some of our small UAV activities. So they’ve got a bright future in that regard, and one of the things we try and do is be cautious as we look at that market and we’ve kind of forecasted where we see missiles, but we’re making sure that we’re going to grow in the other areas to be kind of a safety valve for us if that helps.

Our next question comes from the line of Robert Stallard with Macquarie. Go ahead. Robert Stallard - Macquarie Research Equities: Good morning. I would like to tackle the pension thing again. Dave, I was wondering if you could sort of go maybe through some of the basics of how you managed to project a pension income number for next year, and yet so many of your peers are actually reporting an increased expense? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Sure. It’s a fair question. Let me just... I will go through this briefly, but slowly. Okay. The FAS/CAS adjustment is impacted by changes in both methodologies. Now, while the variables... if you look at the grid on page 11, it’s probably the best reference point. The variables on the grid, the discount rate and the asset returns are linear, and the FAS/CAS pension calculations themselves are not, and so the results aren’t necessarily intuitive. If you look at the actual asset values, and you assume them to be declining, which is a fair assumption at this point, both the FAS and CAS expense will increase, but at different rates and the difference in their rates is largely due to different asset smoothing methodologies as well as actuarial factors and these actuarial factors importantly look at historical as well as prospective information. So in our case, things may not necessarily line up with what you are seeing at other large... certainly other large industrial companies or other large defense contractors. Robert Stallard - Macquarie Research Equities: And just looking at this, I may be comparing it back to what Raytheon saw in the past in 2002 and 2003, when poor returns in the market led to an increased expense. What is different this time around? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Well, you are probably aware of this, but I think it’s worth noting, our pension plan returns have historically been in the first quartile of performance on a very broad basis of comparison and certainly, we’ve outperformed in a significant way all major market... all major equity market indices. Those very strong positive returns historically continue to benefit the pension plan as we look forward.

Our next question comes from the line of Howard Rubel with Jefferies. Go ahead. Howard Rubel - Jefferies & Company: Thank you. Just two things. First, since we are still on the pension grid, Dave, and you are absolutely right when you say it’s counterintuitive. I mean the greater the loss, the more income you have if you stick with that 7.5% rate. I would like to... if you would help us a little bit more with that, and… David C. Wajsgras - Senior Vice President and Chief Financial Officer: Sure. Howard Rubel - Jefferies & Company: At some point you have to pay the piper, don’t you? So is it in year two or three, or just kind of help me? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Howard, those are very fair questions and let me address those directly. First of all, let’s just briefly touch on, the term would be asset smoothing. Both FAS and CAS smooth pension asset gains and losses when calculating the related expenses. The smoothing of asset performance for FAS purposes is over a three-year period. It’s followed by an amortization period for Raytheon of approximately 11 years, which represents the average future working lifetime of the Raytheon population. The smoothing of the asset population for CAS purposes is over a five-year period, which is also followed by an amortization timeline or amortization period after that. And as I noted earlier, there’s other actuarial factors that impact the expense calculations that create differences, both between FAS and CAS as well as cash funding. Now, as far as the funding profile is concerned, again keeping in mind that you have the FAS expense, and you also have the CAS allocation. So if you look at just... let me just kind of give you what the numbers were at least for 2008 and what we’re seeing going forward. If you look at the net cash impact of the company, 2008 will be slightly under $120 million. At 2009 we’re estimating it around $80 million, and then as the pension protection act starts to impact defense... large defense contractors, that goes up to about $350 million in ‘10 and about $500 million in ‘11. This assumes that there’s harmonization between CAS and the pension protection act, which is being worked right now in Washington.

Our next question comes from the line of David Strauss with UBS. Go ahead. David Strauss - UBS: Hey, guys. I will give you a break on pension for a minute. William H. Swanson - Chairman and Chief Executive Officer: Dave just smiled. You can’t see him. David Strauss - UBS: Looking at 2009, Bill or Dave, could you give us some color on what you are expecting on the international side in terms of both sales growth and bookings, and maybe just some color on what you think the bookings environment will look like in ‘09 as well. David C. Wajsgras - Senior Vice President and Chief Financial Officer: Yes, I think first of all, since nobody has asked yet, our booking guidance this year is a little bit stronger. I think we told you in July we’d be around $23 billion plus or minus $500 million. We see it right now at about $24 billion, plus or minus $500 million. We expect international sales to grow double-digit next year. Right now, we’re running right on forecast. We’re about 20% of sales this year. Bookings are running around 21, 22. We expect them to be in the 25% range by the end of the year and, of course, one big international order between now and the end of the year an it changes all the numbers, but that’s kind of how we look at it. So internationally, we’re feeling pretty good about it. We’ve seen no changes and we’ve got a good backlog in that area. If that gets to your question. David Strauss - UBS: Yes, that’s great. And then, Bill, how... the 2009 budget has now been passed. How did your important programs fare in that? William H. Swanson - Chairman and Chief Executive Officer: Yes, we felt we fared pretty good. I think people were predicting doom and gloom for [inaudible] back in the summer and I kind of reminded everybody how many years I have been around here and this was an unusual year. It really was, with elections going on and everything. And I think the real good news for investors here is that we have an approved budget and we’re not going to have a continuing resolution, which always adds turmoil and something. So we’ve got ‘09. We understand it. Our programs fared well, and one thing I probably should have mentioned on your international question, as we looked to next year, we added in about $500 million for Patriot that should be kind of coming in here between now and, say, the first part of the... the first quarter of next year in both Patriot and air defense programs. We wanted to make sure that we took that into account in some of the international activity we are seeing. At least give you some added guidance there.

Our next question comes from the line of Myles Walton with Oppenheimer. Go ahead. Myles Walton - Oppenheimer & Co.: Thanks. Good morning. William H. Swanson - Chairman and Chief Executive Officer: Good morning. Myles Walton - Oppenheimer & Co.: Bill maybe you could talk about the ISR surge that appears to be gaining momentum within the DoD and in summary programming, FY ‘08 funds actually putting in ‘09 funds and maybe where you see that today, where you see that gaining momentum and how Raytheon is going to play in that? William H. Swanson - Chairman and Chief Executive Officer: Yes, it’s a great question. It’s part of our core. I think we have said on a call when asked... in uncertain times, you always want to know what your neighbor is doing. Maybe in your own neighborhood too, but as countries, they want to know what’s going on borders and activity. And you also want, I will call it TiVo [ph] capability for everybody to understand. Can you backtrack it to find out if you had an event? Can you put the pieces together to find out what caused that event to happen? And the ISR world lets you do that. I will go back to our SAS business, and our missile business. In fact, even IDS with RAID, we have ISR capability where we provide that coverage and that intelligence to find out what goes on as I call it, left of the boom, because when something goes boom you want to know what led to it and find the pieces and basically go take action. So I think ISR has really proved its weight in gold. We have seen it in theater. As many of you know, we have a lot of systems there. And they have really proved their weight over there. The other thing is back to SAS, they delivered their first EO/IR integrated sensor to an airborne rotary wing platform and the results on it have been just eye watering, which for a techie like me, is what you want to see. Myles Walton - Oppenheimer & Co.: And another detailed question on the backlog. It looks like IDS dropped sequentially and year-over-year is down. Can you point to what might be driving that and if you expect 4Q to have that uptick. I assume that’s where the international is going to be. William H. Swanson - Chairman and Chief Executive Officer: Let me talk to backlog in general. We had a good sales month. We had a little bit difference in the backlog, but our book-to-bill is still running better one, and when you look at the end of the year, we expect our backlog to be up year-over-year, and we expect IDS to be in that same category. So, we feel okay with it. Those are always lumpy things and quarter sensitivity, and that one order changes that in a heart beat. So its not something I’m concerned with.

Our next question comes from the line of Doug Harned with Bernstein. Go ahead. Douglas Harned - Sanford C. Bernstein & Company: Good morning. David C. Wajsgras - Senior Vice President and Chief Financial Officer: Good morning. Douglas Harned - Sanford C. Bernstein & Company: On IIS, your margins have been kind of in the 8% range for the last four quarters, and as you are looking as you are guiding to 8.6% to 8.7%, that really says that you are going to have a pretty significant step up in Q4. So could you talk about... I the sense what has changed or has something changed in the business over the last four quarters that’s led to lower margins relative to what you have seen before? And then, what are you expecting in Q4? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Sure. Excellent question. IIS is taking the lead with respect to our thrust into the IO/IA emerging market. We’ve acquired a few different companies over the past year, and we have consolidated the product group under Mike Keebaugh. With that said, as you acquire... as we acquire these companies, we are continuing to invest in our cyber operations capabilities... cyber operations and security capabilities, and much of that expense is impacting the margin profile in IIS and has over the last three or four quarters. Frankly, if you were to just take that out of the equation from an IIS standpoint, margins would be up in the mid 9% range in line with last year. Looking to the fourth quarter, it’s a fair observation, the margins are expected to improve. A number of productivity initiatives that the business has taken are expected to positively impact the bottom line, but you are correct. It is a... it’s a higher margin than they have seen in the past, but we are completely comfortable with the company guidance that we have out there today. Douglas Harned - Sanford C. Bernstein & Company: And then as a second question, you were down selected for JAGM and when you look at that, this is a fixed price development contract. I’m interested, Bill, to see how you are thinking about performing on this particular program, and others like it, if we end up seeing more here. How are you going to approach those? William H. Swanson - Chairman and Chief Executive Officer: Yes, you used the term fixed price development. Not every fixed price development contract is a fixed price development contract. And I don’t want to get into the particulars, but I would classify that as a best efforts fixed price contract, which means when you take it on for $125 million, you are going to try and deliver the best you can for $125 million. And so don’t think of it as... that you’ve got to design a television set everything has got to work to what it’s supposed to and got to be delivered on that certain date. That’s not the way the contract is structured. And so I think I have said before, fixed price contracts have a place. They have a place where the TRO levels on your design are such that you can go and bid hardware in the future, and we are okay with that and not a problem. But when you look at JAGM, it’s a different kind of fixed price contract. Having said all of that, there are some that will remember the JCM contract and predicted a demise of some missile businesses, and that program is no longer there. We are involved with JAGM, we intend to do the best we can, and that’s why we are a big missile house and we look forward to competition.

Our next question comes from the line of Ronald Epstein with Merrill Lynch. Go ahead. Ronald Epstein - Merrill Lynch: Yes, good morning, guys. William H. Swanson - Chairman and Chief Executive Officer: Good morning. Ronald Epstein - Merrill Lynch: Just a couple of questions for you. Bill, big picture question. From looking at the industry as long as you have, what’s your expectation with regard to what the federal government’s intervention and the financial markets, and what that could mean for any [inaudible] out of defense spending. Do you think that’s a possibility, or how do you think about it? William H. Swanson - Chairman and Chief Executive Officer: I think about it, and I might be a little bit of a contrarian here, because I have been around and seen it. The thing I feel good about, and it got reaffirmed yesterday. If you didn’t pick it up, Secretary Gates was fairly upbeat on the long-term U.S. defense budget. And I believe he’s really looking at it the right way. He said what we’re trying to protect real growth and technology and research and development, so that we don’t fall hind in those areas. That’s what it’s about. This nation is a strong nation. We are going through a tough time in the economy, but I’m one of these that, I don’t view the glass as half empty. It’s half full. Now as an engineer, it might be over designed, but it’s half full and we should be optimistic in the fact that we are strong. We are strong because even in tough times, our country and our leaders support our defense. And I don’t see that changing. It is an uncertain world and in certain times, you got to make sure that you make the tough calls, and I see people doing that. So, I look at it. I think the Secretary got it right. That doesn’t mean it’s going to be easy. We are all going to have to do tough things. As a company, we are doing things different. We are making sure our productivity measures are as good as we can make them, we are watching our expenses like anybody else. But it’s a nice financial position that we are in, and we want to make sure we take full advantage of that. So that’s kind of the way I look at it. A lot of people want to predict doom and gloom. I don’t see it from that standpoint. Ronald Epstein - Merrill Lynch: Okay, great. And Dave, maybe just two details for you. If you look at the ‘09 outlook, does that contemplate the margins being up? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Let me try to frame ‘09. We will get into the details, Ron on the January call. The way I would characterize it is from an operating income growth standpoint. If you exclude the impact that CAS will have on the business margins, the growth is essentially in line. And the balance of the improvement from the roughly $4 to the range that we’ve provided for ‘09, it’s a balance of… of the pension adjustment that we would be anticipating for next year, as well as our cash deployment actions that we’ve have taken and contemplate taking.

Our next question comes from the line of Cai von Rumohr with Cowen & Company. Go ahead. Cai von Rumohr - Cowen & Company: Yes, I’d like to follow up on that. If you just kind of take your guidance, it looks like Op margins will be down some 60 or 70 basis points. Dave, you alluded to kind of the higher CAS would have an adverse impact on operating results. Could you explain to us how and why that happens and how we should consider that in trying to model your business? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Sure. And this is… I’m glad you asked that, because this is, obviously it impacts Raytheon, but I would suggest that any company that is under CAS guidelines will be impacted as well. And essentially the way to think about it is the CAS allocation works its way into the overall wrap [ph] rates for the company or the fringe rates for the company, and works its way, obviously into pricing. And when you think through the… the contract makeup of any company, that will impact primarily the fixed price programs in backlog. So that’s kind of the summary answer of the way to think about the CAS impact. And what we’re suggesting, which I think is a fair assumption certainly given the market dynamics at this point is that, there will be an impact next year. It’s also early. It’s the third quarter call. We are still going through the planning process. Again, there is… just like this year, we continue to look at the mix of the programs and the stage of development the programs are in. We expect some large new bookings next year that… or in the relative near term that Bill spoke to earlier, and we take all that into account when we are giving the range for margins next year. Cai von Rumohr - Cowen & Company: Okay. And then you indicated on a cash basis the required funding, and yet it looks like to me if in fact, we market 20% negative ROI this year, that you will enter next year being under funded by over 30%, the highest… a record level of under funding. How should we think about that required funding? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Cai, I’m sorry, I missed the first part. I’m sorry to have you repeat it. Repeat the question. Cai von Rumohr - Cowen & Company: Yes. The question is that if you… if your performance this year is minus 20%, it looks like next… you will enter next year being under funded in your plan by approximately 30% or more, which would be a record level of percentage under funding. You indicated to us the required funding contribution for this year and next year. How do you think about the reality? What do you actually want to put in, and could that number go up substantially? And if not, why not? David C. Wajsgras - Senior Vice President and Chief Financial Officer: Cai, that’s also an excellent question. I’m glad someone asked that. If you take it to, say the 20% level, what we are seeing is not the under funded position that you just articulated. It’s more in the 75 plus range from a PBO standpoint. As you know, that is… from an ABO standpoint, we would obviously be in excess of the 75% funding obligation that we have. So let’s put that as point number one. With respect to point number two… what was the second part of your question? Repeat it, Cai, I’m sorry. Did you go away Cai?

Cai, please press star one again. David C. Wajsgras - Senior Vice President and Chief Financial Officer: Okay. You know what? Let me just finish. I was going to clarify where Cai was going with respect to, it sounds like to discretionary pension funding, as we look to next year and the out years. We have, like I said before, a balanced approach to overall capital deployment. We continue to fund our pension. This year, we will put in approximately $550 million. As we look forward, with respect to the pension protection act, there’s a… basically a timeline that suggests the pension requirement to be fully funded in a seven year period on an ABO basis, and we will be fully funded well in excess of those requirements. Cai von Rumohr - Cowen & Company: Do you have…

Our next question comes from the line of Heidi Wood with Morgan Stanley. Go ahead. Heidi Wood - Morgan Stanley: All right. Sorry to have Cai cut off. William H. Swanson - Chairman and Chief Executive Officer: Yes, we are not doing it, Heidi. Heidi Wood - Morgan Stanley: I have to somewhat give you a hard time, because it seems like the longer you put together quarterly track record, the shorter the sentence is on the individual divisions in terms of describing what happened. David C. Wajsgras - Senior Vice President and Chief Financial Officer: Isn’t that good news? Heidi Wood - Morgan Stanley: I’ve noticed that. Yes, that’s right. So can you talk a little bit about… I wanted to talk about the top line in IIS, because that just continues work quarter-after-quarter. If we take a look at the guidance you’re giving for the year; that implied a cliff drop in growth in the fourth quarter. Can you talk in the near term about why that would be the case? And also, I know this is going to be touchy, but at least can you give us a flavor as to what’s driving this growth here, and how should we think about the sustainable growth rate in this division going forward? Next couple of years? William H. Swanson - Chairman and Chief Executive Officer: Yes, I think if you look at it, they benefited from e-Borders. I think. I’m trying to go from memory, somebody will help me here if I get it wrong. We were about $80 million in ‘07, and I think this year we will be about $300 million. So when you look at it, great growth. So when we start to look at the fourth quarter, that’s when e-Borders started to kick in last year. So that kind of explains the Delta. IIS has got a great portfolio. It’s starting to expand internationally as you can imagine. So we feel pretty good about where we see immigration or border control going, and they should benefit from that, given their capability and domain knowledge and taking unbelievable databases and managing those and providing high fidelity decisions from that data and doing it in a way that’s extremely secure. And so that’s their strength, and we feel good about it. Heidi Wood - Morgan Stanley: And who are your major competitors in that arena, Bill? William H. Swanson - Chairman and Chief Executive Officer: Right now, we are kind of alone in the…what I will call count them in, count them out immigration. We will probably start to see others, but from our standpoint, it always helps having a Marquee program and doing good on that Marquee program to help you. There’s nothing better than your customers helping you with your marketing. Heidi Wood - Morgan Stanley: Okay. And Dave, a question for you on the overall guidance on the year. You’ve done $17 billion in sales year-to-date. You are guiding 23. Again, that implies, after having done kind of very solid growth year-to-date that we are talking about 1% growth in the fourth quarter. Can you - we’ve gotten into IIS a bit, but can you give us color on the overall businesses or are you just being conservative. David C. Wajsgras - Senior Vice President and Chief Financial Officer: Sure. I like how you frame the question, Heidi. You will recall that in the first quarter, we had a few extra work days to the comparable first quarter of last year, and so that carried through on a year-to-date basis. And if you look at the fourth quarter, we have less work days than last year’s fourth quarter. If you take that impact out of the equation, we are expecting growth in the fourth quarter, again, on a comparable basis of about 5% to 6%, but, again, you have to keep in mind that there’s less work days.

And our last question is a follow-up from Howard Rubel with Jefferies. Go ahead. Howard Rubel - Jefferies & Company: Thank you very much. A couple, just cleanup items Dave. William H. Swanson - Chairman and Chief Executive Officer: Howard, how did you get back on the call? Howard Rubel - Jefferies & Company: Well, because I got cut off before. And you know I figured out how to gain the system, Bill. You’re not the only one who can do that. William H. Swanson - Chairman and Chief Executive Officer: No, no. Howard, Howard, Howard. We’re in the Intel business. Howard Rubel - Jefferies & Company: I’m afraid to know what that means next. William H. Swanson - Chairman and Chief Executive Officer: Okay. Howard Rubel - Jefferies & Company: All right, but I will be very brief here. You talk… to follow up on Heidi’s point, you really had some spectacular numbers in MCS in terms of Army programs and some other things. Could you elaborate on more of what it is? In some ways, it’s the failings going into a market of who to thank [ph]? William H. Swanson - Chairman and Chief Executive Officer: Yeah. Howard Rubel - Jefferies & Company: But could you be a little bit more specific there? William H. Swanson - Chairman and Chief Executive Officer: Yes, if you look at MCS, they’ve go a broad product base. You did ask about MCS, because we were on IIS. Howard Rubel - Jefferies & Company: Yes, correct. William H. Swanson - Chairman and Chief Executive Officer: Okay. So MCS has had good growth in our Army programs. We also see them starting on the… what I will call a border command and control security end of it for them. So I just look at all of their product lines and they are all doing well, as we look at it. So, whether you look at our air traffic management, whether you look at our toll road activity, and so forth, they’ve got a good broad base of programs that continue to do well. It’s kind of a general answer, but there’s nothing specifically driving it, except good programs and good performance. Howard Rubel - Jefferies & Company: Thank you very much. William H. Swanson - Chairman and Chief Executive Officer: Okay.

And that is our final question today. Mark Kaplan - Vice President, Investor Relations: Thank you very much for joining us. We’d like to close by thanking everyone. We appreciate your interest in learning more about our company, our recent performance, our outlook and we’ll look forward to speaking with you again in the fourth quarter conference call in January. Good-bye.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day. .