Marc Kaplan - VP, IR William Swanson - Chairman & CEO David Wajsgras - SVP & CFO

Robert Spingarn - Credit Suisse First Boston LLC Ronald Epstein - Merrill Lynch Myles Walton - Oppenheimer Howard Rubel - Jefferies & Company George Shapiro - Access 342 Troy Lahr - Stifel Nicolaus Joseph Campbell - Barclays Capital Sam Pearlstein - Wells Fargo Securities Douglas Harned - Sanford C. Bernstein Joe Nadal - JPMorgan Robert Stallard - Macquarie Group Michael French - Morgan Joseph Brian Ruttenbur - Morgan Keegan Peter Arment - Broadpoint

Good day, ladies and gentlemen. And welcome to the Raytheon fourth quarter 2009 earnings conference call. My name is Michael and I will be your operator for today. At this time, all participants are in listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Marc Kaplan, Vice President of Investor Relations. You may proceed.

Thank you, Michael. Good morning, everyone. And thank you for joining us today on our fourth quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'll 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 in 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?

Thank you, Mark. Good morning, everyone. 2009 was another good year for the company and we remain confident about our future. Clearly there were significant and varied challenges to many business around the world this past year. Yet within this environment we stayed true to the strategic direction we set several years ago. We have right strategy the right processes and the right talent in place to meet our customers' needs and to deliver strong financial results. We believe our performance reflects the strength of our strategic planning and execution and our company's alignment with customer priorities. We are well positioned to take advantage of the changes taking place in the world to build on our record of performance and to create value for our customers and our shareholders. Looking at 2009, we have a book-to-bill ratio greater than one and we ended the year with a backlog of $37 billion including the highest year-end funded backlog in the company's history. Our full year sales were up 7% our EPS was up 24% we generated strong cash flow and we continued to improve our return on invested capital. As we mentioned at October, we expect to deliver solid growth in 2010. Dave will provide you with more color on our financial performance both for the quarter and for the year in a few minutes and our outlook for 2010. But I wanted to first hit a couple of the highlights. We continue to see good performance across our portfolio, which is recognized by our customers, it's clearly a major contributing factor to our growth both in the U.S. and international markets. Within these markets we're seeing strong demand in important areas to Raytheon. Good example is missile defense, the administration has identified our Standard Missile-3 and extend radars as critical elements in the missile defense systems for the U.S. and our outliers around the world. Other countries like the UAE, Taiwan and Japan have confirmed their need for world-class capabilities. We're seeing strong support domestically and internationally for our Intelligence, Surveillance & Reconnaissance work particularly in the classified area. There is also increasing demand for our homeland security solutions, which were highlighted by $446 million international classified award in the fourth quarter. Our bookings in homeland security doubled in 2009 and our sales growth over the past two years have averaged just under 20%. Training also continues to be a strong area. We booked $1.3 billion of domestic in foreign operational training programs during 2009. As you would expect there is also increasing demand our world-class cyber solutions, which as setting new standards in the emerging markets space. And our core business continues to do well in missiles for example we're seeing strong demand for AMRAAM, Evolved SeaSparrow, Standard Missile-2, TOW and Phalanx just to mentioned a few. In addition to focusing our customers' immediate priorities, as a technology company we're able to both forward fit and backward fit our solutions to enhance our customers. capabilities. As a result we're able react quickly to meet our customers' machine critical needs at an affordable cost. Our broad range of customer spend, the major U.S. defense and security agencies and we do business in 80 countries around the world. 30% of our total bookings and 21% of our total sales during year worked from international customers. Going forward, we believe that our international business will continue to be a key driver in Raytheon's growth. In summary, our businesses are performing well with over 8000 programs and 15,000 contracts. We have a diverse portfolio we are well positioned and we will continue to be a predictable performer. Our portfolio is built on capabilities that support and meet the global needs of our customers both today and tomorrow. With that I'd like to recognize the entire Raytheon team for successfully executing our strategy and supporting our customer focus mission, which is to ensure customer success. We started in 2009 with 73,000 employees and we began the New Year with 75,000 strong. All of us are committed to our customers and our shareholders and we're excited to about the future. With that I'll now turn it over to Dave.

Okay, thanks Bill and good morning everyone. I have a few opening remarks starting with fourth quarter and full year results. Then I'll discuss our outlook for 2010 and after that Bill and I will open up the call for question. During my remarks I'll be referring to the web slides that we issued earlier this morning which are posted on our website. Okay so if everyone would please move to page three, we delivered strong results in both the quarter and the full year. We book $25.1 billion in new business ending the year with a $36.9 billion backlog. Our 10% sales growth during the quarter and 7% sales growth for the year highlight the continued demand for our solutions and the strength of our business. Fourth quarter EPS from continuing operations was the $1.30 up 29% and for the full year $4.89 up 24%. We also generated strong operating cash flow of $2.7 billion during the year. For 2010 we expect another year of solid sales growth and strong operational performance and reaffirming the guidance that we've provided you in October. I'll discuss our guidance further in just a few minutes. If you'd now turn to page four, I'll go through some of the details of our fourth quarter and full year results. Again, strong bookings of $7.1 billion in the quarter and $25.1 billion for the full year resulted in a backlog of $36.9 billion. 39% of our total bookings during the quarter and 30% of our total bookings for the year were from international customers. As a remainder, in Q4 of 2008 we had a especially strong bookings primarily related to the $2.5 billion UAE Patriot contract. Our book-to-bill ratio for both the fourth quarter and the full year of 2009 was greater than one, which bodes well for our future. Here are some of the highlights during the quarter. IDS booked $990 million to provide advanced Patriot Air and Missile Defense capability for Taiwan and $160 related for the renewal of an international Patriot technical support contract. IDS also booked $315 for systems design work for the Zumwalt-class destroyer for the U.S. Navy. IIS booked a $153 million on a contract to provide ISR support to the U.S. Air Force and $519 million on the number of classified contracts. Missile systems booked $223 million for the production and two for international customers in the U.S. Navy and a little over $100 million for the development of SM-3 for the Missile Defense Agency. MS also booked $201 million for the production of the Evolved SeaSparrow Missile for international customers in the U.S. Navy, $170 million for the production of Maverick missiles for an international customer and $111 million for the production TOW Missiles for international customers and the US Army. NCS booked $446 million on an international classified program. NCS also booked an additional $127 million for a total system replacement program. SAS booked $122 million for the B2 radar program and $131 million on a number of classified contracts. Technical services booked $67 million for work on domestic operational training programs for the US Army. If you'd move the page five, we continued to deliver strong sales growth, 10% on the quarter to 7% on the full year. IDS at fourth quarter 2009 net sales was $1.5 billion, up 8% for the quarter and 7% for the full year, primarily due to growth on international Patriot programs. IIS at fourth quarter 2009 net sales of $803 million. For the year IIS net sales were up 2% primarily the result of growth on various classified programs partially offset as expected by lower sales on the International e-Borders Program. As we said in the past, the initial development phase of this program was completed in the early part of 2009. Missile Systems net sales of $1.4 billion up 3% for both the quarter and for the year. Missile's net sales in 2009 were driven by higher volume on the SM-3 and Maverick programs. NCS had fourth quarter 2009 net sales of $1.3 billion, for the quarter sales were up 12% and for the year sales were up 7% primarily due to higher volume on various production programs mainly for the U.S. Army. Space and Airborne Systems had nets of $1.3 billion in the quarter up 9% and for the year net sales of $4.6 billion or up 7% driven by growth on their classified business. Technical Services had fourth quarter 2009 net sales of $888 million up 19%. Full year sales of $3.2 billion were up 22%, the sales growth at TS during both periods was due to strong growth in domestic and foreign operational training programs supporting the U.S. Army, as well on ATCOTS program for the Federal Aviation Administration. Moving to page six, we delivered strong operation performance in both the quarter and the full year. Our total operating margin was up 130 basis points for the quarter and up 90 basis points for the year. As a remainder, our fourth quarter and full year 2008 operating margin included a $45 million after-tax unfavorable CAS pension adjustment. This was due to impact of pension asset returns on existing contracts during 2008. Looking at the business margins, IDS had solid results in both the quarter and the year, the change from 2008 was primarily driven by the change in contact mix that we discussed on prior calls. At IIS missiles and TS margins for the year remained consists or slightly improved compared with 2008. NCS margin in the quarter was inline with the same period in 2008, and up a 130 basis points for the year primarily due to improve performance on a broad range of programs. And finally, SAS margin in the quarter was down 60 basis points primarily due to the timing of performance improvements in 2008 versus 2009. On a full year basis SAS margin was up 80 basis points primarily due to favorable mix as well as contractual settlements. Turning now to page seven. Fourth quarter EPS from continuing operations was a $1.30 versus the $1.01 in 2008, the 29% increase was driven by operational improvements, reduced share count, the 2008 CAS pension adjustments and lower FAS/CAS pension expense. We've also provided you with a summary of our earnings per share result excluding the impact of the FAS/CAS pension adjustment. We recognized that many analysts and investors look at FAS/CAS adjusted EPS as another important financial measure, because it adjusts for the non-cash and temporary differences between FAS and CAS pension accounting. Fourth quarter 2009, FAS/CAS adjusted EPS was up 22%, we've provided a reconciliation of this non-GAAP measure on Page sixteen in the appendix. Tuning now to page eight, on a full year EPS from continuing operations was $4.89 versus $3.93 in 2008 an increase of 24% primarily due to operational improvements and reduced share count. Full year 2009 FAS/CAS adjusted EPS was up 18%. Before moving to our 2010 outlook, let me briefly comment on cash flow and summarize 2009. The company generated strong operating cash flow of $2.7 billion in 2009 compared to $2 billion in 2008. Improved performance and on a net basis lower cash tax payments were the primary drivers. Summarizing 2009 was another very strong year for company. As we have already mentioned, our book-to-bill ratio exceeded one, this is especially notable in light of strong 7% sales growth. We continue to deliver solid margins and earnings per share, we generated $2.7 billion of operating cash flow, we repurchased $1.2 billion of stock and we acquired BBN Technology, the world leader in research and development and provider of critical solutions for national defense and security missions. A track record of delivering strong operational and financial performance and/or solid balance sheet give us confidence as we focus on the future and flexibility as we continue to grow the business. Turing now to page nine, we are reaffirming the financial outlook for 2010 that we provided in October. We expect continued growth in sales in the range of between $25.9 billion and $26.4 billion. As for pension, we now see FAS/CAS pension expense of $220 million versus $228 that we projected in October. The change is primarily driven by our assets returns in 2009, which were up over 17% for the full year. Our end of year discount rate was 6.25% quarter consistent with what we had assumed in October. We expect net interest expense to be between $95 million and a $110 million, a slight change from our prior guidance but inline with 2009. We see average diluted shares outstanding to be between $337 million and $382 million on a full year basis. As far effective tax rate, we want to be clear that for planning purpose then consistent with our prior practice, we are assuming that the R&D credit extension gets passed in 2010 retroactive for the full year and accordingly we have included it in our 2010 guidance. It favorably impacts the effective tax rate by 90 basis points and has worked about $0.07 in EPS. I'd also like to remind everyone that effective January 1, of 2009, we will require to adopt the new accounting standard for non-controlling interests for Raytheon this relates primarily to Thales-Raytheon Systems Company LLC, which is included in NCS financial results. EPS and EPS from continuing operations are calculated based on net income attributable to Raytheon Company and income from continuing operations attributable to Raytheon Company, both of which we report separately on our income statement. In 2010 we expect EPS to be in the range of $4.75 to $4.90 we see our FAS/CAS adjusted EPS to be in the range of $5.13 to $5.28. You'll notice a slight change from our prior guidance of the FAS/CAS adjusted EPS line, this is nearly due to change in the tax rate used in calculating the FAS/CAS impact. We believe using the statutory tax rate more precisely represents the tax impact of the adjustment. Our operating cash flow guidance is unchanged from our prior guidance at $2 billion to $2.2 billion. A key driver of the difference in cash flow from 2009 is higher cash tax payments in 2010. And finally, we expect our turn on invested capital to be between 12.2% and 12.6%. You should also be aware that we've update or definition of ROIC, which is included on page 15 to now exclude the FAS/CAS pension adjustment, it better reflects how we measure the company's financial and operational performance. Continuing on the page 10, I'll briefly comment on our outlook by business. First, we expect all of our business to grow and perform well in 2010. On a FAS/CAS adjusted basis we expect to deliver solid margins by focusing on sales growth and operational performance across the company. If you'd move to page 11, we provided you with our 2010 outlook by quarter. You should note that in the first we are impacted by both workdays and the timing of sales between Q4, 2009 and Q1 of this year. Finally on page 12, we provided you with the summary of the financial impact of pensions in 2009, as well as our assumptions for 2010. In 2010 we expect to make total cash contributions of approximately 1.1 billion inline with what we contributed in 2009. So, let me conclude by saying that we delivered strong results in 2009, we have a strong balance sheet, a diverse portfolio of innovative technologies, strong demand for our solutions both domestically and internationally. And we are confident in our ability to continue to deliver profitable growth in 2010. With that, [Dona], I'll open up the call to questions.

(Operator Instructions). And your first question comes from the line of Robert Spingarn of Credit Suisse. You may proceed. Robert Spingarn - Credit Suisse First Boston LLC: Two quick questions, could you, Bill, walk us through the 2010 guidance and the major assumptions in each of the segments and then provide if you would in specifics an update on SeaPower? William Swanson : Let me take them in kind of reverse order on SeaPower clearly we've see the Navy sorting out their ship building program as they go through that, that's the challenge and that will be coming out in the budget here in the next week or two, and for us we clearly see the Navy trying to take a bigger interest in what I'll call missile defense. So, we see a role there where they start electronics and the gear we build will have a major impact on how the Navy does that mission. At the same time I believe we are going to have the keep some ships floating longer than people anticipated and so some back fit of our electronics there to keep these platforms state of the art will probably play into that and clearly it would be me speculating, but I think the navy is going to look at more network centric capabilities of how they provide more data and sensor capability into the shooter as I would call it. So that's kind of how I see the Navy going forward, as far as our business Robert Spingarn - Credit Suisse First Boston LLC: Before you jump into that, just a quick question, if CGX were to go away is there any impact at this point or does it change anything from the long term view?

No, I don't think so. I think from our standpoint we kind of look at it simply in our terms you always have to see something. So you need a radar and we believe our dual band radars of X and S band are kind of premier in the world and so for us if it's going to flow you need to see something on it you've also need sonar systems to make sure under water you know what's going on and there again that's our will house. You've always got to have missile on a ship whatever ship it is and that's part our strength. Then you need EW, we are closing weapon support capability and that's another area for us. So that's why I'm always so positive about our portfolio that if you think about it in mission terms that's what we've got portfolios for to be able to adopt and change whichever way our customers are going. And then we've developed I think some speed of execution here that allows us to be flexible to meet those needs. So I don't lose any sleep over that there's always activity in the press on that, but we come out at a different way if that helps. Robert Spingarn - Credit Suisse First Boston LLC: On the major assumptions, thanks Bill.

Your next question comes from the line of Ron Epstein of Merrill Lynch. Ronald Epstein - Merrill Lynch: I was wondering if you could give us maybe little more color on each of the segments as we go on to 2010 maybe some of the key assumptions that got you through where your are thinking is on sales and margins?

Okay, Ron that's the fair question. Since the last, (inaudible) before you ask the same question, so let me try to put just the little bit of color on that. First of all, all of our businesses are growing and margins are up in each of our businesses from and operational perspective you'll recall that SAS had a claims in 2009 which amounted to about 40 basis points of improvement so again on an operational basis we're seeing improvement year-over-year. And NCS is impacted by BBN and the related acquisition cost. If you stand back from all of this, growth of 4% to 6% is driven by both domestic and international sales. As for IDS the implied growth of 3% to 7% driven by our International Patriot Programs and that business benefits from a production efficiencies as of the volume ramps up in these programs. IIS we see growth there coming primarily in the classified area and we see performance improvement basically across the board in that business you'll recall that's where the main focus of our cyber efforts are managed. For Missile Systems we're seeing strength in Phalanx and AMRAAM as we look to '10 and just general program efficiencies across the board. NCS I've already addressed the impact of BBN, but they also as Bill mentioned earlier, one and important classified program in international classified program in the fourth quarter that would be ramping up as well. From the technical services standpoint they have performed exceedingly well from a sales standpoint driven by the domestic and international training programs. We see growth on our war fighter focused efforts from roughly $1 billion in '09 to about $1.2 in '09. Again, just general program efficiencies across the board in that business. SAS, I spoke a little bit about SAS their increase is driven primarily by volume on classified business, which we spoke to and some continuing growth in international Airborne tactical radars. Overall performance is strong, operationally we've talked about SAS throughout the year, so we are confident in that business being able to deliver. I hope that gives you some color as to what …

Your next question comes from the line of Myles Walton of Oppenheimer and Company. You may proceed. Myles Walton - Oppenheimer: A question for you on IDS margin this is kind of first year I think in last few that you're guiding up relative to where you finished the prior year and I'm just curious are we at the bottom looking backup the curve or at this as the international pipeline works its way through the system, or do you think kind of where we are is where we are going today, obviously you had margins in '06 through '08 time period a couple of 300 points above here at times and just curious if we are backup on a trajectory towards those levels?

Well, that business continues to perform very well, has the overall highest margin profile in the company and I'd say industry wide. We are ramping up on the newer word at Taiwan pay three at air missiles defense system that we announced about a month ago and we are continuing to ramp up on UAE from the margin standpoint there production efficiencies continue to help improve the bottom line as the volume does ramp up. We are comfortable with the guidance that we provided for this year and I'd rather not speculate on the out years at this point.

Michael, I think you are ready for the next question.

Your next question comes from the line of Howard Rubel of Jefferies. You may proceed. Howard Rubel - Jefferies & Company: Maybe I'm allowed to do one for Dave and one for Bill. For you now, I mean I could have talked about the [red sox], I don't think you would have liked that so… William Swanson : You don't get any questions and next question… Howard Rubel - Jefferies & Company: No, no don't. You know the 1.1 billion or so that you are funding in pension Dave, as you sort of look out, is there a point where you'll be able to take that to maybe half of what it is now given the performance and sort of the ability that narrow the gap on liabilities and assets?

Yeah I'm actually glad you asked that. If you look at 2010, we talked about it just a few minutes ago, we are looking at gross funding of about $1.1 billion on a net basis, after adjusted for the CAS side of the equation, it's on a net basis about $500 million. Looking at '11 again all other things being equal we are looking at gross contributions of about $900 million and on a net basis some where in the $300 million range and that importantly assumes no harmonization. Howard Rubel - Jefferies & Company: Okay and then for Bill, IIS I was think of is being a very above average sort of organization, but when I look at the numbers for that DNI published for growth in the Intel budget, it was up about 5% not too different from what IISs revenue growth was. And then when I look at the backlog year-on-year or the awards you were down several $100 million for the full year in that business unit, could you to the degree possible sort of, you know is there a loss there of some business is it a mix and could you help us a little bit?

Yeah, I can, Howard, I don't mean to make you feel good, but it's a real good question. From the standpoint of what happened in our classified business, our customers in that arena face tough budget for share, they have gone through and revamped the number of their programs, we had let me say a few at least that should have been awarded mid year, one came out near the end of the year and we have some, this year in fact one major classified competitor got awarded last night. I can't tell you that amount or who it is, but clearly it was one we were accounting on last year, so that affected the number. If you look overall at our classified bookings they were about 18% the total last quarter. For '09 our classified bookings in total were up they were 14% of our total bookings that was up a little bit over '08, our classified sales for last year were about 13% for growth rate of about 15% over 2008 and we expect classified sales to be about 14% roughly of our total this year and a growth rate of 10% to 15%. So in engineering terms I'd call it an RC time constant that kind of got delayed a little bit and not that things didn't happen, they got pushed a little bit to the right and we expect ISS to be okay this year if that helps.

Your next question comes from the line of George Shapiro of Access 342. George Shapiro - Access 342: Bill, can you just run through potential Patriot and other international orders that are out there for this year and next year?

I'd be happy to, clearly Patriots getting a lot of attention, we are sitting down talking to Saudi Arabia for them they need to research their missiles and they need to go through on upgrade to PAC3. Taiwan actually had their first order placed last year, they need additional fire units so we expect a few more for them. Israel will be having and I should put in timetable that sorry, if we'd like to see something this year, but that depends on the timing of our customers. Taiwan would probably be in late this year or '11 timeframe. Israel upgrading their fire units there and that little bit in '10, some in '11 and '12. Kuwait, we expect them to upgrade and get additional, that's probably early '11 and less something make that go to left. Turkey there is a potential for that late this year they are going through their competitive assessment and then [gutter] looks like early '11 kind of timeframe. So for us lot of activity there is other countries, but that's kind of where the focus of our effort is there, plus ongoing tech support engineering services and logistics on Patriot worldwide. Japan is also going through their analysts we will see their budget coming out here shortly and I expect more activity in Japan. George Shapiro - Access 342: And if you would roughly just give the ballpark dollar figures that might be involved in this William Swanson : It is kind of hard to say, I mean if you look at on the Patriot is usually in the $1 billion range to $2 billion range, most countries except Israel, Israel we have to remember our foreign military funds an so Israel would be smaller, let me just say, that might be in the $100 million range spread over a couple of years kind of thing, but the rest of them are at least $1 billion bucks. I get more specific. George. but it is hard, they can change quantities and time face and everything so we are kind of affluent on it, but they are big numbers.

Your next question comes from the line of Troy Lahr of Stifel Nicolaus. Troy Lahr - Stifel Nicolaus : Thanks. Bill, can you may be about the competitive landscape where you guys have been doing pretty well with market share, but also where you are seeing some competitive pressures especially as budgets maybe look to slow down here and people are talking some adjacent markets.

Yeah I'd probably say from a point of view if you take our businesses in the missile world we've got a great portfolio. I think our missile operations are national asset and are world class and what they do. If you look at our SAS business, clearly Airborne radars are always a competitive world and for us with our rates for radar and we're trying to get into other markets on platforms that we haven't been on and so there is competition there. The ISR world has been great growth for us. We have some of the best sensors in the world that are built out at SAS, but there is completion that we welcome it from a standpoint given how we compete. Command and controls are always competitive field, there is a lot of players there that to be in our NCS business. But internationally, we continue to do very well there as we go about the intelligence and information business when Howard's question when you look at that, that's a competitive world type budgets. So we see completions in that business. In the missile defense arena and radars, clearly having radars that are affordable that can see things that no one else can see differentiates us, so our standpoint we work hard on our technology to make sure we've got something that's better than what someone else is doing in that affordable price and the ability to turn that around quickly. Technical services the training and support businesses always competitive. People who are there margins are in the 7% range kind of plus or minus and so you see that. But we feel pretty good about what we're doing. We have some innovative training we've learned from our commercial side of the business. We do a lot of that automotive training for each of that automotive companies and they made us figure out how to do compression and training. So we think it makes us competitive there. Troy Lahr - Stifel Nicolaus: But have you seen any changes over last say six months?

No. And I see a well-disciplined process there, I don't see anybody acting crazy in the market place, did that help you.

Your next question comes from the line of Joseph Campbell of Barclays Capital. Joseph Campbell - Barclays Capital: Now the President said last night, he is going to continue to grow defense while freezing most of the parts of the other Federal budget things, he has reaffirmed his commitments to Afghanistan and that would seem to bode well. On the other hand it might bring more scrutiny since the DoD and only a few other that continue to get more money. And I wondered if you thought that there were some risk that the government might increase I mean no scrutiny, there has been some big programs with some visible, disappointments, I'm sure relative to what both the contactor and the government hoped. Whether you are seeing any rumblings of changes in the business relationship, it seem that Bob and Bill and Ashton Carter and Shay said some things need to change, I know you saw them all at AIA, is there anything that you are seeing or the Raytheon is seeing that sort of affecting the way the business is going and is there anything you can do to protect against what they might do to inflate yourself? William Swanson : Yes, the way you protect yourself as you do better than what they expect on the contract. From our standpoint, performance has always been something that we've tried to drive into our D&A culture here in the company and part of it is that how do we do better than what we sign up or how does our performance exceed expectation and I think Raytheon's margins are a reflection of our performance that customers and you've hear DoD talk about this is they are willing to pay for performance, but if you are not performing, they are not going to pay for it. And I've always had the same when things went funny, the sharks come out and eat it. And you don't want programs swimming funny and so we worked very hard here to make sure our programs are green or blue and performing well and I would have plot DoD that opened up communication, they talk about the issues that bother them, but there is an obligation to us as a contractor to perform. And I think that's how companies can and should insulate themselves and scrutiny you always have, where these are taxpayer dollars and we're supposed to do our job. So that's kind of how I look at it. Joseph Campbell - Barclays Capital: Do you see some stepping up, I can't tell whether this is talked or whether there really is some change in the work. Yes, I think you are right, I mean if you do great, you will be fine.

Yes, and they have said. If you expect, if your program is not running right, then you are to expect some bad things to happen to it and I believe there is action taking place. The scrutiny is starting to take place and from that standpoint the government has an obligation and we'll put added pressure. It's normal in Washington that eight people are getting money and two people are, the two that are going to get a lot of visibility, because of the other eight are going to be complaining, that's just human nature. But you can rush the short from our standpoint that we're not wavering in the way we do business and we are a company that does the open (inaudible) here that we want to make sure that we're transparent not only to our customers, but to investors and shareholders. Joseph Campbell - Barclays Capital: It doesn't help, but here to have 50,000 instead of half a dozen. Terrific, thanks very much, Bill.

: Sam Pearlstein - Wells Fargo Securities: Bill, you went through I guess with George earlier about some of the international Patriots or it sounded like a lot of them are some late '10 maybe even into '11, can you just talk more generally about the company in terms of what you assume you'll see in order to this year domestically versus internationally, because I remember last year, I think the 25 billion you threw out relatively early in the year as to what you expect in 2009, I don't know if you had something like that for 2010?

Yes. As you know the bookings are always lumpy, but they help you guys. I'll give you another number of about 26 billion plus or minus 500 million kind of to get in the range we feel good about that. Our international business from a standpoint just to add a little more color, they were 39% of our bookings in the fourth quarter, sales were about 23% in the fourth quarter. For the year, our bookings were about 30% of the total versus 28% in '08. International sales were about 21% of the total in '09 with a growth rate of about 15% over '08, so that was pretty good. International bookings, we expect to be in the 28% or 30% range for 2010. And if I remember right, sales for 2010 are to be in that 22% to 24% range. So that's kind of how the mix goes if we'd look at 2010 and classified, we expect those to be 12% plus or minus a little and we expect our sales next year to be about 14% of total sales for growth rate of about 10% to 15%. So pretty much same kind of year, this year international doing what we said it would do couple years ago when we kind of took a look five years out kind of see growth going and us getting to 25%, 75% mix, but I don't get hang up on the mix, what I get hang up on is having the double digit growth rate on the volume and sales, because that's what really drives the business. So we got a couple of strategic pursuits this year to competitive. We've got GPS OCX and IIS. And we got small diameter bomb where we came into that one late in the game or trying to put a good effort for to see what we can do on that. So that's kind of the color the year that I seen and we need to do what we've been doing and try and short the timelines, because both domestically and internationally the awards taken a little bit longer and so our job is to do everything again and try and move into left. Sam Pearlstein - Wells Fargo Securities: Okay, thank you very much.

Your next question comes from the line of Doug Harned, Sanford Bernstein. Douglas Harned - Sanford C. Bernstein: Good morning. Now, as we're seeing the operations tempo when Afghanistan ramp up, I was interest in understanding what you see the impact of that as being particularly on MCS and Missile System?

Yeah, I think I'd said last time around our last public thing that I didn't see that much lift from Afghanistan, we view that really as a troop issue, but clearly some of the equipments getting tired and so there could be some out of that, but for us it's minimal in our planning as we look at it for 2010. Douglas Harned - Sanford C. Bernstein: So there's not San Diego precision weapons that sort of thing, you are not seeing anything as an additional lift there?

No. Things change then Excalibur, which we just finish testing on, I think we did 65 flights, I think of it more as a small missile, but it comes out of a gun. We did 65 of those unbelievable success rate and that's been approved for theatre. So somebody could call up and want to add and clearly it's a game changer, you can put that project dial any place you want to the right post office boxes as I call it.

Your next question comes from the line of Joe Nadal, JPMorgan. Joe Nadal - JPMorgan: Thanks, good morning. Just a couple of quick numbers here. On the segment margins, are you guys are guiding down just here from 10 to 30 basis points somewhere you where in 2009 for 2010 and given all the great international numbers that you deciding Bill, just wondering if there is some conservatism backed in there, this is symptomatic of tougher environment overall, how are you thinking about the margin profile. The second, this little net is on IDS you came in towards the low end of your range for the year and I was just wondering if something moved from Q4 into Q1 or something along those lines.

Joe, this is Dave. From a full year margin standpoint on a company level if you were to adjust that for the SAS contractual claims that I spoke to earlier and the acquisition cost associated with the BBN, the margins are actually inline to what slightly improved versus '09. So if these kind of stand back we're continuing to make progress in that area. Relative to IDS that we set up the range and we're comfortable with where they ended in Q4 there was nothing remarkable with the place and you can see that year-over-year we're suggesting margin improvement in that business. Joe Nadal - JPMorgan: I was talking about sales not margins for IDS.

I'll jump in here that on the sales side, the international came in at the later part of the year, we expect that those are little sooner. And if something comes in late in the fourth quarter it's pretty hard to get in, not hard it's impossible to keep sales on it. So we just, as I mentioned earlier that's really a timing thing to get it through. Joe Nadal - JPMorgan: Okay. There's nothing going on with DDG 1000 and volume in 2010 similar to 2009 on that program?

Yes, exactly. In fact, that was in order that we expected to come in December and it should be first quarter this year.

Your next question comes from the line of Robert Stallard, Macquarie. Robert Stallard - Macquarie Group: Good morning. Dave, just a couple of quick numbers questions for you. Why did you adjust your interest forecast for the full year?

Well in December of 2009, we retired our 4.85% notes that were due in 2011. Also in '09 we terminated some interest rates swaps that were in a favorable position. So portion of the gain from those swaps were related to the retied notes and this was the gain portion was accelerated into '09. So there is a net pick up on that line in '09 that won't replicate itself in '10. Robert Stallard - Macquarie Group: Okay. And then secondly I thought to give it a crack, could you give us any idea of your preliminary thoughts on where the pension expense may go in the next couple of years?

We've talked about '10 with respect to '11 I did suggest on the last call that if the harmonization rules came out, I'd be able to add some more clarity, but let me just give you the short version. We had returns that approached 17.5% on our pension assets in 2009. So that did favorably impact '11 from what we were thinking just a few months ago. Cutting through all that we see sort of the FAS/CAS pension adjustment in '11 and this is important holding all the variable constant discount rate assumed long rate of return and the other actuarial assumptions. If you hold all those constant, if would approach about $300 million, so it could be up about $80 million and we were thinking a little bit more that just a few months ago. I want to repeat, it doesn't include the potential favorable impact of cash harmonization. If that were to happen, it would move in the other direction maybe to the benefit of $100 plus or minus. Let me just finish, because so many people ask me this, as you go to '12, it actually approaches breakeven if some more to in the neighborhood of about a negative $50 million and then if you go to 2013, you actually term positive on the FAS/CAS adjusted basis.

Your next question comes from the line of Michael French - Morgan Joseph. Michael French - Morgan Joseph: Good morning, gentlemen. Question on the uses of cash, should we expect any changes in your priorities this year and how do you view the acquisition pipeline statement out?

I wouldn't expect any changes and what we've done we've been pretty transparent and talked about being balanced and how we do it. And regarding the acquisitions, I think it looks about the same as I did last year, at least going into this year. Clearly, some companies don't have a balance sheet like ours, so that puts a different kind of pressure on them and each company has to decide what they're going to do. But for me, I don't see much change in that regard.

Now, clearly we have a very strong balance sheet. We're exiting 2009 in a net cash position. Specifically, we have more cash on hand than we do debt. So looking ahead and generating next year between $2 and $2.2 billion in operating cash flow does give us a lot of flexibility, which both Bill and I spoke to a little bit earlier. We've talked about the pension funding being on a gross level about $1.1 billion. We'll continue, which is in prior to guidance at some level with repurchase plan. I'll obviously be looking at the dividend program and as Bill just mentioned, we're looking more closely at strategically important acquisitions. As Bill mentioned earlier, we're thinking in terms of maybe upwards to $500 million plus or minus. These are more longer-term strategic investments that fit from a technological standpoint into the portfolio and help us grow longer term. Michael French - Morgan Joseph: Okay, very good. And If I can ask a quick follow up on the M&A, you did mentioned that BBN, one of the classified contract in the fourth quarter. How is the integration going in BBN?

It's going great. BBN is one of those companies when you look inside. People look at www think worldwide web. We think of it is where visitors work and BBN has got some great technology, they interface well with what we do if you think about somebody developing things and then you think about have an 8000 programs and have an international arm that allows you to deploy things, it's a great mirage. And I'll speak for them, I think they're happy with the way the integration is going and we're happy with the integration is going. And it's a nice alignment and as people look at it, they give us great marks on that acquisition and that's kind of stuff that the company likes where you can take one and one and get four out of it.

Your next question comes from the line of Brian Ruttenbur of Morgan Keegan. Brian Ruttenbur - Morgan Keegan: Thank you very much. First of all, the guidance that you have put out there, does that include the Afghan Surge and the troop withdraw in Iraq. And then secondly, number of Patriot systems that you've deployed and the number that need to be upgraded in the next three to five years?

Yes, that includes what we know about the budget process in Afghanistan, that's included in it. Regarding Patriot, I don't have of the top of my head how many systems that we got, but I'd have to go through every country from memory that we've got about 11, 12 countries that got Patriot. Smallest number could be three fire units to one that up in the 20s. So that's kind of the range, but you can think of Patriot is, there is always sustaining effort, we're always do an engineering because there is obviously lessons in parts that go out that you go to have a redesign effort to replenish. If you look at UAE, there is a good redesign effort going on there with color displays, new come on, and kind of mass groups and forth. Once we finished that development, then those will be offered to other countries. So Patriot is one of the most unique systems in the world in the sense that it went through development, deployment, sustainment and now it's starting all over again, which means everybody that's got Patriot always looks to upgrade it. So it's one of those nice hallmark systems if that helps.

Michael, we have time for one more question, please.

Your next question comes from the line of Peter Arment - Broadpoint. Peter Arment - Broadpoint: Yes, thanks very much. Good morning Bill, Dave and Mark. Congratulations on the results. Bill, just maybe a big picture just last one, post this QDR coming out in the shift kind of the focusing on the asymmetric warfare. I mean does that change anything for Raytheon capture any additional growth opportunities going forward or is that just kind of conformation and sink up where Raytheon is kind of been focused all along, it seems very well positioned?

I'd just start with your one and I think we're very well positioned. I talked earlier in my remarks that if you look up where the building is going clearly, they need to be able to handle both types of contingencies and the one that demands more ISR, persistent ISR, I think the bigger operated word, how do you have it 27/7 or as my wife says 25/8 in our household. And so from that standpoint, that's where we excel. How do you net that information and provide it others, if you look at our DCGS system 10.2, I call it Google with a clearance. You can pass a data amongst your sensors and systems to anyone at various classified levels. If you look at missile defense clearly, what we're trying to do in that arena with proven systems SM3 as the best in the world there and has one of the best test records. And our radars, as I mentioned our X-band ground based radars are there is nothing like them in the world and while we feel comfortable with that, so that's getting some attention. I think the QDR will address cyber, we've lived with, .mail, .com, .gov. and .com. I think there maybe a fourth domain here that people got to start thinking about and we'll see what happens, but I suspect that's going to get some attention. So you look at all of that. That's what we've been talking about the last few years of where we wanted to be and I think given our broad based portfolio, it's helped us to anticipate the future. So we look to work with optimism not concern.

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 recently performance and our outlook. And we look forward to speaking with you again in our first quarter conference call in April. Michael?

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