Marc Kaplan - Vice President Investor Relations William H. Swanson - Chairman and Chief Executive Officer David C. Wajsgras - Senior Vice President and Chief Financial Officer

Robert Spingarn - Credit Suisse First Boston LLC Ronald Epstein - Bank of America-Merrill Lynch Troy Lahr - Stifel Nicolaus & Co. Cai von Rumohr - SG Cowen Securities Inc. Heidi Wood - Morgan Stanley Doug Harned - Bernstein & Co. Inc. Noah Poponak - Goldman Sachs David Strauss - UBS Robert Stallard - Macquarie Group Sam Pearlstein - Wachovia Myles Walton - Oppenheimer & Co Brian Ruttenbur - Morgan Keegan Howard Rubel - Jefferies & Co.

Good day ladies and gentlemen, and welcome to the Raytheon First Quarter 2009 Earnings Conference Call. My name is Lauren and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Marc Kaplan, the Vice President of Investor Relations.

Thank you, Lauren. Good morning everyone. And thank you for joining us today on our first 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 website 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 move on to questions. 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 our 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 statements 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: Thank you Mark. Good morning everyone. I am pleased to report another strong quarter for Raytheon. Sales were up 10%, compared with Q1 last year. EPS was up 21% and we continued to have good cash flow. We also had solid bookings, ending the quarter with $38 billion in backlog, which was up compared to last year at this time. 26% of our bookings came from international customers, including some notable awards from the UAE and Taiwan for Patriot and from Japan for our advanced airborne radars and support equipment. And as announced in our press release this morning we increased our guidance for full year 2009 sales, EPS and ROIC. All of our businesses performed well for the quarter. We delivered consistent and strong financial results. Our strategies are working and are aligned with the needs of our global customers. Raytheon's diverse portfolio of more than 8,000 programs bring unique capabilities, both domestically and internationally that support and meet our customer's needs for today and tomorrow. With respect to our U.S. customers let me take a minute to discuss Secretary Gates' budget recommendations from earlier this month. Those recommendations are an important first step in the formal budget process that will continue for many months with Congressional Committees and conference and executive branch review and discussions. That being said, we were encouraged by much of what we heard from the Secretary, especially as focus on ISR unmanned systems, training, cyber security, Standard Missile-3, Patriot and THAAD. And we are pleased that the DoD confirmed their intent to fully fund the Zumwalt. Dave is going to take you through the details of our financial performance in the quarter and our full year outlook. The company performed well. There were a lot of positives and we want to leave plenty of time for questions. So let me wrap-up by saying that we're off to a very good start for 2009. We fully understand the challenges we face, but we also see many opportunities. We prepared ourselves well. We're positioned to capture them and we have a strong balance sheet. Our strong results during the quarter, our increased dividend, our improved outlook for the year and the positive feedback from our customers give us the confidence about out future, both near and long-term. With that let me turn it over to Dave. David C. Wajsgras: Thanks, Bill. I have a few opening remarks, starting with the first quarter highlights. And then we will move onto questions. During my remarks, I will be referring to the web slide that we issued earlier this morning. Okay, if everyone would please turn to page three. As Bill noted, we performed very well, in the first quarter. Sales of 5.9 billion were up 10% from Q1 of last year and EPS from continuing operations of $1.11 was up 21%. With solid bookings of 5.2 billion, we ended the quarter with a $37.9 billion backlog. The company repurchased 6.8 million shares of common stock for $300 million and we announced an 11% dividend increase. We generated strong operating cash flow from continuing operations of $411 million and as Bill noted, we have increased our full year guidance for sales, EPS and ROIC, which I will discuss in more detail in a few minutes. Turning now to page four, let me start by the providing some detail on our first quarter results. Our total company bookings for the quarter were 5.2 billion. IDS received 741 million in new international and domestic Patriot awards, including a 185 million for the UAE, a 139 million for Taiwan, a 115 million for the U.S. Army's Pure Fleet program and a 159 million to provide Patriot engineering services. Other notable awards during the quarter, included 422 million of SAS to supply APG-63 Radars and support equipment to Japan for their F-15 program. In addition, SAS also booked a 130 million for the B-2 Radar program. TS booked a 178 million for work on the Warfighter FOCUS contract for the U.S. Army. NS booked a 119 million for continued development and production work on EKV (Exoatmospheric Kill Vehicle) and 85 million for the production of JSOW (Joint Standoff Weapon) for the U.S. Navy. NCS booked 98 million for the SMART-T program and 95 million for Thermal Weapon Sight II for the U.S. Army. IIS booked 236 million on a number of classified contracts. Backlog at the end of the first quarter was 37.9 billion, compared to 37.7 billion at the end of the first quarter of 2008. If you now move to page five, you can see that our overall sales increased by 10% in the first quarter of 2009 with solid growth across all of our businesses. IDS net sales of approximately 1.3 billion were up 6% compared to the same period last year. This was primarily due to growth on domestic and international Patriot programs. Intelligence and Information Systems (IIS) had net sales of 784 million, up 13% primarily due to higher volume on classified contracts. Missile systems' net sales of approximately 1.4 billion were up 4% driven by higher volume on the Standard Missile. AMRAAM and Evolved Sea Sparrow Missile (ESSM). Network Centric Systems net sales of about 1.2 billion were up 8%. The most significant driver here was increased volume on U.S. Army programs, including Improved ITAS, Firefinder, LRAS, and HTI. Space and Airborne Systems had net sales of approximately $1 billion, up 7% versus the first quarter of 2008, primarily due to growth on an international tactical radar program and a classified product line. You should note that during the quarter we realigned one of our small manufacturing plants that previously reported to SAS, that and now reports to missiles. And we had mentioned this on our January earnings call. Technical Services had net sales of 696 million, up 34%, the result of higher volume on the training programs, primarily Warfighter FOCUS and ad costs. If you'd move to page six. Firstly, we adopted a new accounting standard related to participating shares, which had a minor impact on the way we now report earnings per share. This standard decreased EPS a penny in Q1 2008. As I mentioned earlier first quarter EPS from continuing operations was a $1.11, up 21% from $0.92 in the prior year. Operational improvements contributed to the increase, some of which was timing. Moving to page seven. Operating margin before the FAS/CAS adjustment was about equal to last year. I'll talk more about margin by business in just a moment. Our overall operating margin, which includes the FAS/CAS adjustment for the quarter was 12.1%, which was an increase of 70 basis points from the first quarter of 2008. Let me now provide you with a few highlights by business. First, as we discussed during the January call we expected IBS to have lower margins than the first quarter of last year. This is primarily the result of the change in contract mix driven by the completion of certain programs in 2008. The results for Q1 last year were also favorably impacted by the sale of license to software. Missiles and NCS and SAS posted strong results during the quarter due to improved program performance. SAS' margins also benefited from favorable contract settlements. We had previously expected these to close later in the year and they were included in our prior guidance. Overall margins for the total company and at each of individual businesses were strong. I'd also like to briefly address operating cash flow. We had positive cash flow of 411 million for the quarter. The increase compared to last year was largely attributable to our expected $337 million tax refund received in the first quarter of 2009. Before moving on, let me briefly comment on our pension plan. As most of you know we have an annual measurement day of December 31. So it's premature to make conclusions about the return on plant assets and the discount rate environment at year-end. With that said our pension assets had a slightly negative return of approximately 1.5% during the quarter beating the overall equity markets. If you would please turn to page eight, I would like to comment about out updated outlook for the year. We expect sales to be in the range of between 24.4 and 24.9 billion, an increase of $100 million. We now expected diluted share count to be in a range of between 398 and 401 million shares. We have raised our EPS guidance by $0.10 for a new full year range of between $4.55 and $4.70. I would like to point out that about half of the increase is due to operational improvements driven by both growth and performance. For ROIC, our prior guidance now reflects the impact of the new accounting standard, related to non-controlling interest or FAS 160. More specifically this new standard affects how we recognize the performance of the non-controlling interests in Thales-Raytheon Systems LLC, an entity that is part of our joint venture with Thales. So on an apples-to-apples basis, we've increased our guidance for ROIC by 10 basis points to reflect the improvement in operational performance. The updated range is now between 11.1 and 11.6%. As you know ROIC is one of the primary metrics that we use to manage our business and we're pleased with the progress that we're making in this area. Turning now to page nine, we've provided a little color on our full year guidance for 2009 by business. As I mentioned in a moment ago we increased our guidance for full year total company sales by $100 million. This is primarily due to the strong growth in training programs and our technical services business. We have also increased the range of our full year operating margin guidance for our Missile's and NCS businesses and for the total company. Please keep in mind that for NCS we've adjusted our prior operating margin guidance to reflect the impact to 160, or FAS 160. We described the impact of this new accounting standard as well as the preannouncement on participating shares in the attachments to the press release. The attachments also include the realignment between SAS and Missiles that I spoke to you earlier. In the appendix to our websites we presented some additional information. On page 13, we provided our economic EPS for the quarter and for the year. For us economic EPS is defined as earnings per share, excluding the FAS/CAS pension adjustment. We recognized that many analysts and investors look at economic EPS as another important financial measure. Let me conclude here by saying that the company had a very strong first quarter. We delivered double digit growth in sales and earnings per share. We had solid cash flow generation and we increased our guidance for 2009. Finally we maintained our balanced and prudent approach to capital allocation. We continue to invest in ourselves and we also returned cash to our shareholders this quarter by increasing our dividend and through additional stock repurchases. And like Bill said earlier we're off to a very good start for the year. With that we'll open it up for questions.

Thank you. (Operator Instructions). Your first question comes from the line of Robert Spingarn with Credit Suisse. Robert Spingarn - Credit Suisse First Boston LLC: Good morning Bill, Dave.

Good morning, Rob. Robert Spingarn - Credit Suisse First Boston LLC: Perhaps my two questions are, one on Zumwalt, Bill. Now that we have some clarity from the Secretary on what's going forward, and we think we have an agreement between GD and Northrop can you walk us through the timing on the three ships and how that looks for Raytheon? And then my second quarter perhaps this is for Dave, is on appendix slide number 11, you've given us some quarterly flow guidance. If you could walk us through the assumptions for the year and the thinking, particularly the strong contributions in Q4. Thank you.

Yeah the -- let me go first here, Rob. I'll take on the Zumwalt. From our standpoint I think we had stated last time we expected the Navy or DoD to go with the three ships. So that's consistent with what we have seen all along. We expect that to take place and funding to be turned on this year. So from our standpoint, at least the next three to five years we've got our work cut out for us as we go forward. But as I think I had mentioned before, for us it's not the ship. I mean, it is in the sense that all the equipment is going on it and it will be the most advanced ship of its kind anywhere in the world, both from a stealth point of view and capability point of view. But what's there are ten technologies and for us, our dual-band radar is probably the most capable radars sweep in the world. And I am biased but I will say it anyway. It's --- there is nothing like it and we got a total ship computing effort there underwater or undersea warfare system. I could go on from launchers. But there is ten technologies that from our standpoint is really key and this gives us the platform to develop that in both forward and backward fit, as we try and make our navy the most capable in the world. With I'll turn... Robert Spingarn - Credit Suisse First Boston LLC: Yeah. Before you go on, Bill.

Yeah. Robert Spingarn - Credit Suisse First Boston LLC: From a revenue perspective how should we think about this program going forward? Is there, does it build for a while and then drop off over the three to five year period?

It stays about the same, plus or minus 100 million for at least the next three years as I see it. Robert Spingarn - Credit Suisse First Boston LLC: And it's running at about 4% of sales.

Yeah, about that. Robert Spingarn - Credit Suisse First Boston LLC: Okay. Thanks.

Yeah. It's our biggest. You didn't ask this question, but if you look at our bookings it's -- we're an interesting company in the sense that if you take out our top eight bookings which were about 1.4 billion for the year, I mean for the quarter, that leaves us about 3.8 for the quarter that's left. And what's there they average, 5 million. So we have hundreds if not thousands of contracts that are in the $10 million range, and if somebody asks me later I can give you a rather, I got to give David a chance to talk here on the second. But our tech wins are unbelievable that we have quarter-over-quarter in the company and that's really our engine that keeps the place going. With that I'll turn it over to Dave.

Yeah. Rob, just to follow-up on your question relative to the sales and earnings cadence for the year. From a sales standpoint it's not too dissimilar from last year. If you look at quarters two three and four. I think it's important to remember that we ended 2008 with a record backlog and a number of those programs begin to ramp-up in the back half of the year. From an earnings standpoint, we have improvement quarter-over-quarter as we did in Q1, for Q2, three and four. From a cash flow standpoint, we've continue to improve the cash cadence. And even if you remove the tax refund in Q1, from a cash flow perspective we were positive and inline with last year. And the cash flow for two -- for quarters two through four are driven more so than anything else by the timing of performance based payments. Robert Spingarn - Credit Suisse First Boston LLC: I see. I see. Thank you very much.

Okay. Rob.

Thanks Rob.

And your next question comes from the line of Ron Epstein with Merrill Lynch. Ronald Epstein - Bank of America-Merrill Lynch: Hey, good morning guys.

Good morning, Ron. Ronald Epstein - Bank of America-Merrill Lynch: Bill, can you give us maybe some color. There has been a lot of press on cyber securities, cyber security breaches, like there was a big headline in the Wall Street Journal the other day with the 35, and what rate is on (ph) skewing and what the opportunity is?

Yeah, I think you have to look at it in three different parts. You've all heard me talking about one part as the sword part that look at it from information ops point of view, that's classified in nature but that's the sword first portion. But then you look at the shield portion. And you got to look at it two ways. One; you got to make sure that all your offerings that you proposed or your systems, you make them as hardened as you possibly can. That's our first priority. Our customers expect that of us. And we want to make sure we do that, whether it's systems that we do for e-borders in the UK to command and control what we have in theater. The other part is that you want to make sure your system is internally protected. So, we have to operate a business and we have to make sure our layers have defense within Raytheon to protect not only our own IP but our customer's IP is there. So, we attack it from internal point of view and when you consider we're probably not unique. We get 800 million spam messages a day into this company. So, that's our outer lines of defense. So, that's where we are, so we have to be prepared. Then the other is that we have customers, both from a government point of view, and a commercial point view that want to protect themselves in a number of ways. So, one; you have what I call forensic engineering, which gives you the ability to passively look at your network to say, are there things happening that shouldn't be happening and if they are, how do you understand them. So, that's the forensic part. The other part is they want to be protected. So, they want to understand vulnerability analysis and we've got a couple of businesses there that do that in a world class method, probably for everybody. And then, that it's just basically hardened. So, it's a -- we think of it in a booking kind of way, that how you do it from beginning to end. And it is complicated but that's kind of how we look at it. We make sure that our capabilities that we bring to our customers can handle the full spectrum. And that's where we made some of our acquisitions and from the standpoint, we will continue to look at our capabilities and develop them as we go forward. Long answer, but it's a complicated topic and some of which I can't even talk about, but I think you get the idea of what you are trying to do. I mean when you consider what's out there and how I call the Internet, it's the wild, wild world west. It was developed in the sense that none of this was ever thought of to have happened and now people are trying to protect themselves, not only at work but at home. Ronald Epstein - Bank of America-Merrill Lynch: Sure, sure.

And what you have got to think about it is every new piece of software on the web probably contains some code that you don't want on your machine. So, if you don't have protection on your own machine, my first advice is get it real quick. Ronald Epstein - Bank of America-Merrill Lynch: Sure. And then one quick question for Dave, Network Centric had year-over-year -- I mean, it was a huge improvement in margins. How sustainable is that and was there some sort of one-time thing that happened during the quarter?

Yes, it's a good question, Ron. There were no one-time events in the quarter, notable events in the quarter from an NCS perspective. That business did an excellent job with respect to overall cost efficiencies and bringing those by and large forward in to the first quarter, some of which was planned later in the year. You'll note that we did increase the margin guidance for the year. So, some of the improvement in the first quarter, we expect to flow through in the balance of 2009. But you are right, it's worth noting, the margins were over 14% and we feel very good about the performance in that business. Ronald Epstein - Bank of America-Merrill Lynch: Great. Thank you.

And your next question comes from the line of Troy Lahr from Stifel, Nicolaus. Troy Lahr - Stifel Nicolaus & Co.: Thanks. Just wondering if I can get a little color on IIS, very strong growth this quarter but it looks like your full year guidance almost kind of implies no growth in the remaining three quarters. I don't know if that's just conservative or if there something going on there. Could you help me understand that?

Sure. With respect to IIS, they did posed a very strong top-line growth at 13%, which, by and large was driven by the classified programs. Now you'll recall that e-Borders sales ramped up in Q2 through Q4 of last year. And so the -- from a comparison standpoint that would imply a much more a difficult nine month growth rate this year over last year. So, with that's being said, the classified business still continues to grow for the balance of the year but just not as strong as in Q1. Troy Lahr - Stifel Nicolaus & Co.: Could you give us a sense on how big e-Borders is?

Yeah. e-Borders is -- will run about 250 million in sales this year. Troy Lahr - Stifel Nicolaus & Co.: Okay, thanks. And Bill, just one question on international orders (ph) again pretty good bookings, I guess you said it's 26%. How is the economic environment out there for international orders, I mean is the strengthening dollar hurting at all and lower oil revenues are just you are kind of plugging away and opportunities are there?

The opportunities are there. They're not any easier from a dollar standpoint. Oil in some parts of the world is still the main driver. As long as it's in the -- to me the 40 to $45 range, that's kind of where people have done their planning. And as you can see we are getting our orders from the Mid-East. So to me, I think that's probably some we watch is what's the price of oil is to keep up there and given all the pressure it stayed up. You think in this kind of an economy it would take a lower dive, but it's hanging in there. So from my standpoint that's probably the one thing we watch. And we're making sure we stay on top of things. Now is not the time to get complacent. Troy Lahr - Stifel Nicolaus & Co.: Okay. Thank you

Yeah. And we -- I should point out, we expect international sales this year to be around 22-24%. So, the domestic keeps doing well but we've got some acceleration going on the international sales which is good. And I should had add, it wasn't your question but when Dave was asked about classified, we're probably going to grow classified this year between 7 and 9% year-over-year, just to add some color to that. Troy Lahr - Stifel Nicolaus & Co.: Great. Thanks guys.

Okay.

And your next question comes from the line of Cai von Rumohr with Cowen & Company. Cai von Rumohr - SG Cowen Securities Inc.: Yes. Thanks a lot and good quarter.

Thanks, Cai. Cai von Rumohr - SG Cowen Securities Inc.: Could we follow-up on Troy's question a little bit? Can you give us a little more color on kind of -- you've mentioned a couple of specific, the four potentials in the foreign market. Give us the status of those. And give us any early reading, if you can, if the switch to the Obama administration has made this move quickly, more slowly or what impact if any has that had?

I think to answer your question we still see international activity in the UAE this year. We expected to definitize that contract up, that's started in December of last year. So we'll wrap that up. We'll also are doing some more work with them on air defense. So there might be some surface launch activity (ph). Saudi Arabia is due to upgrade their systems. So we are waiting for final closure in that part of the world. Taiwan will be upgrading some new units, and we'll look at that, maybe in later part of this year, first part in next year. Israel will upgrade and probably maybe even add a Fire Unit, depending on FMF funding. Kuwait is buying spares and getting ready to upgrade maybe add a system or two. And then recently it's been in the news that Turkey has made a request for up to 13 systems setup too. So it will depend on what they buy. But that letter of request will be followed up with a letter of acceptance, probably this fall from the U.S. government and if things go right there, that would be early next year for that country. We also have a pretty good sized, maybe around 4 to 500 million classified international order that we are working on for this year. So, that's a little bit of the flavor. It's all over the globe for us and those are big ones in the sense that usually have a 100 million or something more plus. We expect about 25% of our bookings this year to be international. If all of those things started to happen the end factor it could be a little bit bigger but that's the way we're looking at it. As far as administration, we are still moving. There have been meetings to look at release ability of advanced capability, rather than technology, which I think is the right way to look at release ability. I'm somewhat biased in this regard, in the sense that we try and control technology. We really should be trying to control capabilities and this administration is looking at that. And I think that's the right thing to go to. Cai von Rumohr - SG Cowen Securities Inc.: Terrific. Thank you.

Okay.

Lauren, do we have the next caller.

Yes. Your next question comes from the line of Heidi Wood with Morgan Stanley. Heidi Wood - Morgan Stanley: Good morning, guys. Nice quarter.

Thanks Heidi. Heidi Wood - Morgan Stanley: I want to dig a little bit deeper into IDS and understand the moving parts there better. Dave, you explained that you had a change in contract mix and completion of programs in 2008, but you had growth you said your growth in domestic and international Patriot, which by my understanding is pretty good margin stuff. So can you help just explicate a little bit of the difference year-over-year and how you can have a ramp-up in Patriot and a decline in margins?

Sure. Heidi, let me just put the IDS business and the margins in perspective. When you compare quarter-to-quarter, this year's first quarter to last year's first quarter, last year included the sale of software license for about 14 million or about a 100 basis points. The rest of the difference from last year, like you just mentioned is mix. We've talked little bit about this on the last few calls. Now, we've seen this mix shift before in IDS several years ago, when we were in the development stages at Zumwalt. This was impacting margins. Then we increased margin performance with higher international sales ramping up. Some of those programs completed last year and like you just mentioned, we have some new international programs starting up or ramping up this year. And so, we're seeing a change in mix again. It's the normal cyclical nature of the impact of mix in the business. Heidi Wood - Morgan Stanley: All right. So, to better understand if we think of sort of the bell shaped curves of the international Patriot, so you are on the right hand side of the bell shaped curve on some of it and then you'll be ramping up later in the next couple of years on others that you've won. Is that the right way to think of it. You've got a divot in the near-term?

I always have divot, Heidi. Heidi Wood - Morgan Stanley: We all have them.

Even on the putting green, okay.

I can vouch for that. I've seen it. Heidi Wood - Morgan Stanley: I hope you understand.

I like the way you just articulated the bell shaped curve. But I think that's exactly the way to think about it. Heidi Wood - Morgan Stanley: And then Bill, Japan has this intention to build up their missile defense capabilities and that started about five years ago. Are you -- can you give us color as to kind of where you stand in terms of Japanese activity. Is that going to be winding down over the next several years or you've been or are have you been selling additional work that kind of is going to keep it flat for the next two years?

It may even increase a little bit because of Standard Missile-3 and their commitment to the Aegis and the work that's done there. Clearly for them, I won't get in to a missile defense lesson here, but when you defend an island, it's different than defending, say a larger land mass. And so, for them forward projection is really important, so Standard Missile-3 is the key there. The other thing is long range radars are important to them because they want to able to determine their trajectory. Is there a possibility that either debris or a weapon will hit them, because you don't want have the Chicken Little Syndrome, these guys fall in and nothing ever happens. So, they have to be able to detect and predict. So they'll have a combination of sea based and land based. And so to me I think of it as that Patriot, integrated with Aegis with Standard Missile-3. And they have a real threat. I mean we saw that and they went to General Coders (ph). And as long as somebody else keeps threatening to shoot something, people are going to worry about it. Heidi Wood - Morgan Stanley: Great that's very helpful. Thanks a lot.

Okay.

And your next question comes from the line of Doug Harned with Sanford Bernstein. Doug Harned - Bernstein & Co. Inc.: Good morning.

Good morning, Doug. Doug Harned - Bernstein & Co. Inc.: On NCS and the Missiles, if you look at the last three years you've had very good growth there, near or above 10% in each. And if you look forward the next three to five years, I mean these have benefited from current operations and so forth. How do you look at those businesses? Can you continue to get these kind of strong growth rates? And what are the areas where you would expect to see good growth in the future?

NCS has a broad portfolio. So from our standpoint they're probably listening on the call, we're going to hold them to very high standards of growth and capabilities we go do that. Missiles on the other hand has developed their systems in a sense that you don't need as many sorties, you don't need as much of anything anymore. But they found a way to adapt to programs that have already got some cost. SeaLINKS (ph), for example most people would have written that system off years ago. But the Missile team has found a way to adapt that to handle it the 155 rounds coming in. Now it's probably the most in demand system that we have from all over the world. Because people are worried about that from just about every place they go. So here we have got a system that's has got all the non-recurring, got everything done. We just adapted for land use and now it's one of our top 10 programs. And who whatever think, I guess is the way you look at it. And so Missiles has taken a hard look at their portfolio and developing things now. When you look at what they do, they're also in programs like Mold where we can take a loitering vehicle and have it do EW and other missions. So from our standpoint, Missiles are shifting and doing things different, active denial or non-lethal devices is something that they very big in and that they do. And so even though their market might be a little more difficult they've got real opportunities out there as we shift. And I am biased, but they understand control loops better than anybody else in the world. And that's one of their strengths and we apply it to all things that we're doing. Doug Harned - Bernstein & Co. Inc.: But when you think of what these businesses will look in 3 to 5 years, will the mix be significantly different today?

In the next three years, I don't see it, the next five years that's gets a little bit harder because our technology turns quite a bit. But I think our strategy is well focused. You gave me an opportunity here. If you look at our tech wins that we get on a quarterly basis, they go from help -- self healing circuits that's where we sense and correct undesired behaviors in electronics. Now I have challenged our engineers to do that for management or people, but they haven't found a way to do that one yet. But we've got prototype radiological threat detectors that we can go to. We've got non-lethal device development, thermal devices both on quarter which is a key 3rd Gen IR devices that are up and beyond what we're doing today, electronic work there to improve the battlefield conditions. Large IR windows that help us do things that no one else can do, persistent surveillance, and I can't even talk about classified from command and control to affects. That's our future. And we bring in these orders that are in the 500 K to $10 million range and that's what we work on in that. And then if you'll think about it we then apply that to the systems we have to make them better. And that what's happened to SeaLINKS as an example to tie it together. Doug Harned - Bernstein & Co. Inc.: So, I guess what you are describing is that you should be able to by doing more with the technologies you are developing by potentially some new areas here that you can keep the same kind of growth rates that we've seen or I am trying to get an idea if we should be...

Yeah. It's hard for us to talk about 2010 right now. But the thing to think about our company, I keep saying that over and over again, it's a different kind of portfolio. And we are technology company that takes that technology and innovates it into our existing systems and future systems. And, given this kind of an economy, it's going to be hard for huge brand new starts. So, people are going try and keep going what they've have got and how do you improve it to make it better. And that's where we think we apply our technology to existing systems and new systems to make them state-of-the-art and give our customers an unfair advantage. That's what they are looking for. Doug Harned - Bernstein & Co. Inc.: Okay. Thanks.

Hopes that helps.

Your next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak - Goldman Sachs: Hi, good morning.

Good morning. Noah Poponak - Goldman Sachs: Let me try to ask you about beyond '09 in a different way. You mentioned that you're seeing, you had this big book to bill on '08 and you mentioned that, a lot of that ramps in the second half of this year. What's the tale into 2010 and should we see the rate of growth actually maybe even accelerating in 2010 versus what it is in '09 as you have those nice bookings sort of ramp-up?

Yeah. I would say the way you have to look at that is you have to model the program in the sense that most of our programs are three year programs. You can almost divide them a third, a third and a third. They mix a little bit, but that's close enough. Some of the bigger programs go for five years and then you model those for that period and that wouldn't be 20%, 20% and 20%. They probably start out a little slower, peak in about year two, three, a little bit of four than they tail off. And that's how you have to look at those. And with all our programs, they all have different gestation periods. But that's how you should look at, when we get orders and model those. And so some of the big programs like UAE Patriot, that will be spread over a five year period. But the bulk will be in the beginning as we look at it. So I have been -- I am giving a generic answer, but you almost have to take it program-by-program, the way we look at it. Noah Poponak - Goldman Sachs: That makes sense. As a follow-up on cash flow, you had discussed how you were fast approaching your goal of 750 million of working capital improvements. Where are we in that number? How much more is that -- is there beyond than you originally thought? Then can you give us a little bit more color, your cash flow is always back-end loaded but the numbers in the back of your exhibits today have a huge number in the fourth quarter relative

Yeah. Noah Poponak - Goldman Sachs: To the rest of the year. Can you just give us a little color there?

Sure, with respect to the working capital improvements over the last few years. I think just a quick perspective is in order. If you look at our operational working capital turns, in '06 we were -- we had about 9.6 turns on an annual basis, '07 that moved to 13 turns, '08, 14.7 turns and in the first quarter of '09 we were at 15.1 turns. That's important because that's the math, that basically reflects the improvement in overall performance from a working capital standpoint. With respect to the $750 million goal that we spoke to in mid '07, we're -- we've improved from an absolute standpoint, slightly better than 600 million. So, we are continuing to make good progress in that area and we're confident that we will at least achieve that goal in the relative near-term. With respect to the cash flow cadence, the biggest driver in that area is the performance based payments and they have typically traditionally been most impactful in the fourth quarter of the year and that's certainly the case this year. Noah Poponak - Goldman Sachs: Thanks a lot. Great quarter.

Sure.

Thank you.

Your next question comes from the line of David Strauss with UBS. David Strauss - UBS: Good morning.

Good morning David. David Strauss - UBS: Bill, I think Secretary Gates, one of the programs he did call out was MKV. Could you talk about your involvement there, the size of the program and kind of what you are thinking?

Yes, it wasn't that big for us because we were working -- we were starting a different kind of approach to that program both, us and Lockheed were involved in it. So, mentioning that won't have a big effect on us. Clearly, I think we somebody asked me back in about the third or fourth quarter of last year what I saw happening. I think I had predicted that systems that were going to be out there state-of-the-art that had to be proved would be under scrutiny. And so, we see some of that and I think MKV fit in that category. That's why the attention goes to systems like Patriots, Standard Missile-3, MK, CEDS (ph), those are proven and so the attention will be on there. David Strauss - UBS: Okay. Thanks.

But little impact was on that portion. David Strauss - UBS: Okay. And Dave, on...

I should have mentioned KEI, I think that's going to get more attention because people are going to worry about boost phase and that's going to be important here as you try to shoot it down early, probably over the other person's territory rather than your territory. David Strauss - UBS: Dave, on cash flow, I guess obviously now I know the tax refund you got in the quarter was included in your operating cash flow guidance for the year. What are you looking at for net tax payments for the year and was this something that you had originally contemplated you would be gaining in the third quarter because your cash flow guidance for the third quarter came down a fair amount?

Sure. From a cash tax standpoint, in 2008 as you know we paid about 450 million, this year it will be just over 200 million, which is baked into our latest guidance. In the first quarter, I believe we had talked about the expected tax refund on the fourth quarter call and it was assumed in our in our prior guidance. From a cadence standpoint there is always some moving pieces with respect to performance based milestones and there is really nothing notable with respect to how this plays out for the balance of the year, other than the strong impact in the fourth quarter. David Strauss - UBS: Okay. And just one follow-up, pension did you make any contribution in the quarter and what is the timing you're looking that for the potential contribution this year?

Yeah, as you know, from a pension standpoint, we will contribute on a gross basis, $1.1 billion and from that perspective those payments are basically made between the early part of the year and late in the third or mid third quarter, late in the third quarter. We did make payments in the first quarter. The timing for this year is more heavily impacted in Q2 and Q3. David Strauss - UBS: Okay. Great. Thanks.

Okay.

And your next question comes from the line of Rob Stallard with Macquarie. Robert Stallard - Macquarie Group: Good morning.

Good morning. Robert Stallard - Macquarie Group: First question on bookings. You saw the backlog bend slightly from the year-end and looking year-on-year, your bookings were also down. Is it just the normal sort of quarterly lumpiness in orders or was this a little bit weaker than you're expecting?

If we look quarter-to-quarter, this quarter-to-quarter of last year, we were up slightly and when you think about it we had a good growth in sales this quarter. And if you look at from a standpoint what our sales cadence has been over the last 12 months, the fact that our bookings quarter-to-quarter are slightly up, we feel pretty good about it given the strength of our sales.

Let me just add one thing to that. Bookings are driven by timing. So it's a very difficult just to look at one quarter in isolation. In Q4 of 2008 our book-to-bill ratio was 1.4 and that resulted in a record backlog for the year. If you take the last six months first quarter this year and fourth quarter of last year on a cumulative basis the book-to-bill is 1.2. We did have some orders that came in Q4 that were originally expected in Q1. So I think that probably helps put things in prospective.

And that's, great. And we try and look at it more than just one quarter because we don't have our engineers draw a conclusion from one point of data. So I am looking at one of our engineers across the table. So I am making another point here so.

I think you understand. Robert Stallard - Macquarie Group: Okay. And second on the cash deployment. You spend a lot of money on share buyback in the quarter and dividend. Did you find anything on the M&A front that was of interest, or were the prices just not reasonable for you?

Nothing's changed on M&A for us. We constantly look at what capabilities we have, where our gaps are and what we need to go to. I would probably sense that there is more activity going on now. And I would expect at some point here in the future prices to be a little bit better. But right now that I would say the vector is still somewhat flat with the tendency to go down if that helps? Robert Stallard - Macquarie Group: Yeah. That's fine. Thank you.

Your next question comes from the line of Sam Pearlstein with Wachovia. Sam Pearlstein - Wachovia: Hi, good morning.

Good morning. Sam Pearlstein - Wachovia: Bill, just a follow-up on that. I mean you had virtually no net debt for quite a while now. And I guess just as you think about the balance sheet, what do you think the right mix in your capital structures should be and should you be more opportunistic and aggressive with the buyback when we had kind of the pressure we did this first quarter? And just how do you think about the balance sheet?

The way I think about the balance sheet is we are one of the few companies in this country today that have a strong balance sheet and who would have ever thought that about six or seven years ago when we were 13 billion in debt to be debt free today. It gives us company, strong fire power to be able to invest in itself and our technologies and to do things as we go forward. And I wish, I could have said we had a crystal ball way back when to try and get our debt down. But it positions us well we think through things entirely differently. We can look at programs. We can bid on things today that we've got resources to put the teams and investments to go do, so that we can try and maintain the growth that we've been on. Having said that, it does give us the flexibility to do things when prices are in a better shape. And I think it would have been wrong to buy things -- to buy them for buyings sake, when prices where away too high. So, from a standpoint, I think we've been disciplined in our capable employment from a standpoint of either share repurchase or dividends or investing in ourselves and doing those core niche built-ons that we needed to provide in additional capability. So, from our standpoint we're going to continue to look. We'll do things but we're going to do them in a prudent way. Sam Pearlstein - Wachovia: Okay. Thank you. And then just...

Does that help? Sam Pearlstein - Wachovia: For Dave, couple of other things. Can you just talk about what the size of the favorable contract settlement was in FAS? And then also on the tax rate, is this 32.7 kind of where we should be thinking about the full year?

Yeah. With respect to FAS it is actually two settlements. The total amount was about $12 million. So, that's the first part, one for 7 million and one for 5 million. With respect to the tax rate that's -- you're thinking about it the right way. If you think about in the 33% range in 32.5 or 33% that's the way to think about this. Sam Pearlstein - Wachovia: Okay. Thank you.

All right.

Your next question comes from the line of Myles Walton with Oppenheimer & Co. Myles Walton - Oppenheimer & Co: Yes, good morning. Good quarter.

Thank you. Myles Walton - Oppenheimer & Co: Question for you, again following up on some Secretary Gates' comments, one of the comments he made this with respect to in-sourcing and the potential movement in that direction of currently outsourced work to contractors. Can you give us some flavor as to what that might mean to your business and where if any you might have exposure to that trend?

Yeah, we really don't have much exposure to that trend from a standpoint. I think I have been fairly consistent in my discussions of that in IT and areas that I call discretionary spending and I've stated in a way that DoD is no different then aerospace in the sense that when budgets gets tight, you look at what areas you can cut and those fall in discretionary spending and that's not something that we went and chased from our standpoint. Myles Walton - Oppenheimer & Co: Okay. The other question I have for you, Bill is on the supply chain and one of the programs, Patriot I think you're kind of going into a stage where you are moving a warm line to a hot line, and just curious from your perspective with respect to the supply chain, both in that product as well as across your products as maybe they confront some more challenging situations than you are confronting. Have you had to reach out or do you see any risk in the supply chain?

No, in fact -- I should say, I shouldn't say no risk. There is always a risk when you take on complicated systems. But I can say recently, I attended a startup review. So for me I said goodbye to a 140 systems when I was a plant manager and it was nice to watch all the planning and thought process that went in. The other thing, you can see is that when you start a new hotline, you can go in and use newer technologies to do similar functions, which means the reliability can go up, the costs can down, the performance will be better, especially if you've got a great plan to do your first articles and transition those in to production. Now is a nice time to be buying things. I can tell you, everybody wants to listen to you, if you're out there with orders. So, from our standpoint, we've got a good partnership with our suppliers and I feel pretty good about our startup in that regard. Now, it means we've got to go in and help because if they are starting up new, they've got to understand the intricacies of Patriot and any system. But we have a very active program here in Raytheon to make sure we know about the heath and welfare of our suppliers and if they need help how do we help them. We'll actually go in and do Six Sigma training, we'll help them with mission assurance and quality systems and that's all about being a partner with us. Myles Walton - Oppenheimer & Co: Okay. Thanks.

Okay.

Lauren, we have time for two more questions please.

Terrific. Your next question comes from the line of Brian Ruttenbur with Morgan Keegan. Brian Ruttenbur - Morgan Keegan: Thank you very much. Great quarter. I -- first question is major catalyst coming up, you've got the international awards, obviously that's getting a lot of traction. I want to know what's going on that we should watch for on the domestic front. Obviously, the DGE 1000 or Zumwalt, but is there going to be anything going on with the DDG-51 that you're going to be going bidding on?

Yeah, we -- in fact I actually started on the Aegis system way back when there was a system called Slick 32 on there, that's back in the 70s. That will show you some of the technology that's on Zumwalt, and so the EW systems are there that we make. We make some of the illuminators that go on there, the underwater systems that go on there. Of course the missiles that go in the whole are there. We actually do a lot of the driver, pre-driver, final power amplifiers. I can go on forever and tell you what we do on the 51. So, Raytheon has a lot of content. They are going to be starting those lines up. I can tell you some of the equipment that's on there is going to need to re-done. And I would like the thing some of our Zumwalt equipment would be absolutely perfect for that ship if we're going continue to restart those lines. Now one of the things that's going to happen is we're going to start to put estimates together to start the 51 and we will have to see what that build is when we go do it. But clearly it's a way to upgrade an existing platform. And we are already there and we look forward to doing some more. Regarding domestically for us, we've got a few that we're watching. There is a GPS OCX award that will come mid-to-late year, along with the GOZAR development. Both of those look like, they're still there for the air force. And then there is a small diameter bomb competition that will be the later part of this year, that we're competing on. That will be a head-to-head competition. So those are the three big domestic ones we have. Other than that, everything is small. Brian Ruttenbur - Morgan Keegan: Okay. What was your content on the 51 before?

We -- I'd have to get to that number I don't remember it off the top of my head, because it comes in so many pieces. We didn't total it up by a ship to tell you the truth. Brian Ruttenbur - Morgan Keegan: Thank you, very much.

Yeah. And we're not sure of what they're really going to start up again either. So the 51 start-up isn't defined yet and that's going to take some effort. Brian Ruttenbur - Morgan Keegan: Okay.

And your last question comes from the line of Howard Rubel with Jefferies. Howard Rubel - Jefferies & Co.: Thank you, very much. Two things, Bill.

Yeah. Howard Rubel - Jefferies & Co.: Or may be Dave. First on SG&A again, continues to trend lower. Could you talk about whether it's -- some of the things you've done in terms of productivity or whether you are seeing some general economic trends that are also helping you in this environment?

Okay. Yeah, Howard. We continue to focus on cost efficiencies throughout the company from an operational perspective as well as from a general administrative standpoint. And you're right we did benefit somewhat in the fist quarter, relative to last year's first quarter. The driver there though was our own actions and our focus on our overall cost reduction. Howard Rubel - Jefferies & Co.: And then so, I mean whether it was that some of the other contractors there were seeing the same cost coming in under plan? And I think that leaves you with some additional opportunity for improved profitability as the year unfolds. I mean are you looking at some of these trends and saying we are really significantly ahead of where we thought we were going to be?

Howard its Bill. One thing I would remind you about is when RAC was part of Raytheon and we had an SG&A structure, RAC was sold and that has SG&A structure actually went down to match what was left? So we work really hard here on controlling what I had call our corporate costs that are controllable in the sense that what you're try and do when you're running your business is keep growing, but not add everything on that goes with it. And it's kind of hard to add here, if you know what I mean. Howard Rubel - Jefferies & Co.: Yeah. I get the message loud and clear.

Okay. Howard Rubel - Jefferies & Co.: Thank you. I'll let it go at that. Appreciate it.

Okay. I'd like to close by thanking everyone for joining us this morning. We appreciate your interest in learning more about our company, our recent performance and our outlook. And we look forward to speaking with you again in our second quarter conference call in July. Lauren?

And thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect. Good day.