Marc Kaplan - VP, Investor Relations Bill Swanson - Chairman and CEO Dave Wajsgras - SVP and CFO

Robert Spingarn - Credit Suisse Troy Lahr - Stifel Nicolaus Peter Arment - Broadpoint Gleacher Carter Copeland - Barclays Capital Sam Pearlstein - Well Fargo securities Doug Harned - Sanford Bernstein David Strauss - UBS Securities Joe Nadol - JPMorgan Howard Rubel - Jefferies Ron Epstein - Merrill Lynch George Shapiro - Access 342 Michael French -Morgan Joseph

Good day ladies and gentlemen and welcome to the Raytheon's first quarter 2010 conference call. My name is Michael and I'll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (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's Mr. 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 first 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'll are going to start with some brief remarks by Bill and Dave and then we'll move on to questions. Please limit your questions to one per caller to allow for broader participation. Before I turn the call over to Bill, I'd 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 in a wide range of assumption 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 discussed in detail in our SEC filings. Bill?

Thank you, Marc. Good morning everyone. We had a strong quarter and we're off to a good start for the year. The company had bookings of $6.5 billion and sales of $6.1 billion, a book-to-bill greater than 1. Our operating profit margins were solid, driven by strong program performance. Our FAS/CAS adjusted EPS was up 17% and we delivered good cash flow, clearly another solid quarter of performance for the company. As we mentioned in January we expected to deliver continued growth for the year. Our results in the first quarter and our positive outlook are a result of our successful execution of our customer-focused strategy. There are lots of exciting things going on in the company, so I wanted to do something a little bit different this morning and take a few minutes on this call to highlight some of them for you. Let me start with IIS. We booked over $1.7 billion in new business ending the quarter with a book-to-bill ration close to 2.5 times. IIS booked $886 million on a compatibly awarded contract for the US Air Force to develop the next-generation ground control stations for GPS. We called the program GPS OCX. The program will provide anti-jam capabilities to our warfighters, ensure future air traffic control systems and facilitate the advancement of commercial GPS applications. I am very proud of our innovative solution and the team is off to a great start. IIS also booked $624 million on a number of classified contracts during the quarter, including $340 million on a major classified program. As many of you are aware we can’t say much about these programs. So it is clear that customers value the unique capabilities that we offer. The order book at IIS is very solid and the business is well positioned for future growth. At our integrated defense systems business we delivered good growth and strong margins. Importantly, during the quarter the navy awarded initial funding for the third Zumwalt ship, a meaningful step toward addressing any questions about the outlook for this successful program. Its performing well and the advance technologies that we are developing will support the US Navy and other Navies for decades to come. At Missile systems we booked $535 million on a major classified program in the quarter. We also had a number of significant bookings for the Missile Defense Agency, the US Navy, the US Army and intentional customers, Missile systems continues to be well positioned for future growth. At Raytheon we differentiate ourselves in the market, based on our technologies and are focused on continuous innovation. I want to take a few minutes on the recent key technology wins across the company. There is a lot of exciting work that we are doing to support our customers, which will drive future growth. For example, during the quarter we won a contract with the Office of Naval Research to continue our cutting-edge work on the Compound Semiconductor Materials On Silicon or the COSMOS program as we call it. The potential future value of this disrupted technology that we are developing is significant both to our customers and to Raytheon. We will be able to deliver even more affordable sensors while continually deliver world class performance. In the cyber area we want to contract to provide critical experimentation and test for the Government Cyber security capabilities. This win is a good example of our domain knowledge and our strengthening competitive position in this growing area. We were also awarded the final phase of the DARPA contract called [AGILE] to develop speech, and language processing technologies to recognize, analyze and translate speech and text into readable English in real time on the slide. On the International, Cyber sales were up 20% during the quarter and the percentage of our total sales from International continued to expand, it reached 23% in Q1. For the full year, we are forecasting double-digit growth in our international sales. We expect roughly 22% to 24% of our total sales in 2010 will come from international. There is strong, broad based international demand for each of our businesses, innovative solutions and technologies. For example during the quarter, SAS, booked $90 million for the production at advanced counter majors electronics systems for the Egyptian Air forces, F16's. It's an other example of our focus on increasing both the breadth and total value of Raytheon on technologies on the worldwide fleet of F16's . In summary, we feel good about our accomplishments, our strategy of focusing on the customer and exceeding expectations. Working in today’s competitive landscape, we believe that our focus on performance, relationships and solutions, will continue to translate into even more opportunities in the future. With that, I will now turn it over to Dave.

Thanks Bill and Good morning Everyone, I have a few opening remarks, starting with the first quarter highlights and then we will move on to questions. During my remark, I will be referring to the web slides that we issued earlier this morning. If everyone could please move to page three. As Bill noted, we performed well in the first quarter. We had a strong bookings of $6.5 billion and sales of $6.1 billion and we ended the quarter with $37 billion backlog. EPS from continuing operations was up 6% in the quarter. Importantly, when you consider the timing related to pension accounting, our FAS/CAS adjusted EPS of $1.27 was up 17% driven by strong operational performance and capital deployment actions and we generated solid operating cash flow from continuing operations of $257 million, which included federal and foreign tax payments of $59 million. Operating cash flow from continuing operations in the first quarter of 2009 was $411 million, which included a net tax refund of $323 million. Excluding these tax items, operating cash flow from continuing operations in the first quarter 2010, increased by $228 million, driven by business performance, our working capital focus, as well as timing. The company repurchased 5.5 million shares of common stock for $300 million in the quarter and as we announced last month, the company's Board of Directors authorized the repurchase of up to an additional $2 billion of the company's outstanding common stock. At the end of the first quarter, total $2.6 billion remained available under the company’s share repurchase programs. In addition, the Board increased the company's annual dividend rate by 21%. We've now increased our dividend for six consecutive years. For the balance of 2010, we expect continued solid sales growth and strong operational performance and we’re reaffirming the positive guidance that we provided in January. I'll discuss our guidance further in just a few minutes. Turning now to page four, let me start by providing some detail on our first quarter results. Our total company bookings for the quarter were $6.5 billion resulting in a book-to-bill ratio greater than one, a key indicator of our future growth outlook. Bill already mentioned a couple our larger bookings during the quarter including GPS-OCX, Zumwalt the major classified awards at IIS and Missile Systems and ACES at our SAS business. In addition, IDS booked $162 million to provide engineering services support for a Patriot Air and Missile Defense program for US and international customers. MS booked $212 million for the development of SM-3 and $111 million for the development work on the EKV program for the Missile Defense Agency. MS also booked $207 million for the production of SM-2 for an international customer and the US Navy, $203 million for the production of Tomahawk cruise missiles for the US Navy, a $102 million for the production of the JSOW for the US Navy and $95 million for the production of TOW missiles for international customers and the US Army. Our NCS business booked $138 million to supply Long Range Advanced Scout Surveillance Systems for the US Army, and TS booked $155 million on domestic training programs and $25 million on foreign training programs in support of the Warfighter FOCUS activities. TS also booked $88 million on the Security Equipment Integration Services contract for the TSA and $78 million to provide operational and logistics support to the National Science Foundation Office of Polar Programs. Backlog at the end of the first quarter was $37 billion compared to $36.9 billion at the end of 2009. If you now move to page five, we continue to deliver good sales growth. You should that the first quarter 2010 had one less work day than the same period last year. Normalized for the one day, I'd estimate our 3% sales growth in Q1 to be closer to the 5% range. Looking at sales by business, IDF had first quarter 2010 net sales of $1.3 billion up 6% for the quarter, primarily due to growth on international Patriot programs. IIS had first quarter 2010 net sales of $730 million. As we expected, the change in IIS sales was driven by volume on both the classified program and in international advanced border and security programs. Missile systems at MCF net sales were inline with the same period last year. Space and airborne systems had net sales of $1.1 billion in the quarter up 5% driven primarily by growth in classified business. Technical services had first Quarter 2010 net sales of $801 million, up 15%, driven by strength in domestic and foreign training programs supporting the US Army. Our diverse portfolio of businesses all focused on customers priority areas is clearly driving our continued, steady, growth profile. Moving ahead to page six, we delivered strong operational performance in the quarter. Our margin before the FAS/CAS pension adjustment, was up 70 basis points. Looking at business margins IDS had solid result in the quarter. The increase in margin was primarily due to higher volume on international Patriot programs. At IIS, the change in margins was primarily due to an international program. Both MS and NCS margin in the quarter were in line with the same period in 2009. SAS margin in the quarter was up a 120 basis points, primarily due to improved program performance and a change in contract mix. Finally TS margin in the quarter was up 210 basis points, primarily due to improved performance, mainly on programs nearing completion, as well as the timing and recognition of award fees on the fixed price service contract. Overall, total company margins continue to be strong. Turning now to page seven, first quarter EPS from continuing operations, which includes the FAS/CAS pension adjustment was $1.18 versus $1.11 in 2009. The increase in EPS was primarily driven by operational improvements and reduced share counts partially offset by higher FAS/CAS pension expense. 2010 FAS/CAS adjusted EPS was $1.27, up 17%. If you move to page eight, we are reaffirming the financial outlook for 2010 that we provided in January. We expect continued growth in sales in the range of between $25.9 and $26.4 billion, up 4% to 6% and FAS/CAS adjusted EPS to be in the range of $5.13 to $5.28 per share, representing growth between 6% and 9%. You should note that our outlook now reflects the impact of some warrants being exercised earlier than we had anticipated. More specifically, we've had about 6.5 million warrants exercised to date. The expiration of these warrants was June 20011. The full year 2010 EPS impact is approximately $0.05, which we expect to offset through improved performance. Moving on to page nine, we’ve provided additional color on our outlook for the year by business. The key takeaways that are strong in diverse portfolio was driving continued sales growth and solid margins. On page 10, we provided some directional guidance on how we currently see sales, EPS, operating cash flow from continuing operations by quarter. We saw a good performance in the first quarter compared to both Q1 2009 and also the initial outlook for Q1 2010 that we provided in January. Some of this improvement was driven by timing. Okay, so let me summarize our first quarter performance. We delivered another strong quarter with solid bookings, sale, EPS, and cash flow. Our balance sheet remains very strong and we are confident as we look ahead. Our share holder focus was again highlighted by increasing the dividend by 21%, repurchasing 300 million shares of the common stock and adding an additional $2 billion of share repurchase availability going forward. We expect our strong results both from a program performance and the financial perspective to continue to drive value for our customers and our shareholders. We are of toward excellent start for 2010. So with that Dave and I will open up the call for questions. Question-and-Answer Session

(Operator Instructions) Your first question comes from the line of Robert Spingarn of Credit Suisse. You may proceed. Robert Spingarn - Credit Suisse: Just quickly Dave on the warrants and so had that not slipped in to the year you would have had $0.05 increasing guidance?

Basically, the way to think about it is, there is a lot of variables that we considered obviously, when we were giving guidance on average diluted share count. This was initially considered, but given some of the long, short strategies that are out there today and the fact that the shorts apparently don’t see it as economically attractive to be in that position anymore. They have used their warrants to cover their short positions and that happened a little bit earlier than we had anticipated. So to cut through all of this, the answer is yes, and we are offsetting it through improved performance. Robert Spingarn - Credit Suisse: Okay. My real question goes to slide 9, and I just wanted to ask you, there is really some difference in the Q1 margin results, relative to the full year guidance, by segment and if you could you know speak a little bit more specifically. For example, what gets better at IIS as we go through the year, and perhaps, where does the pressure come from at NCS and the TS, I don’t know if the later is volumes or what, but If you could walk through that a little bit, that would be great?

Sure, IIS, as you know, we had some very important, significant wins in the first quarter, that ramp up in the balance of the year. We are expecting that in combination with productivity initiative to move that business squarely in line with the guidance that we put out this morning, which is in line with what we had talked about in January. With respect to NCS, Q1 did include some performance improvements on, specifically on some US Army programs that we had expected later in the year, that's the reason why it’s a little bit high, than we had expected in Q1 but it will moderate and again we are comfortable with the guidance on a full year basis. With respect to SAS and I think that was the last one you would ask. Robert Spingarn - Credit Suisse: I said TS but all of them were important.

Okay well since I started down on the SAS path, SAS was impacted by some customer requirements relative to deliveries in Q1 from an international program. Those we have expected later in the year and those did favorably impact Q1, but again we expect it to moderate somewhat as we go through the balance of the year. Notwithstanding that business continues to perform well. Overall there were significant operational and performance improvements that were also pulled ahead into Q1 for SAS. Now with respect to Technical Services, they have continued to perform well over the past few years, The results in Q1 are a further attribution to that. Q1 was significantly impacted by an award fee from a fixed price service program, which we booked in Q1. It was worth a little over $5 million. If you take that out, the margins were just under 8%, still very, very healthy. That business continues to benefit from focusing on cost efficiencies and volume improvements. Robert Spingarn - Credit Suisse: So is there upside there?

No, I would say if you look at the balance of the year, I would be biased toward the higher end of the range. It's probably the best way to articulate it at this stage of the year.

Your next question comes from the line of Troy Lahr of Stifel Nicolaus. Troy Lahr - Stifel Nicolaus: I am wondering if you can just touch on your view of margins kind of long-term. Do you still think that you can gradually kind of raise those margins? Can you just help us walk through some of the puts and the takes and maybe just address if there is kind of 13% as peak and maybe how that factors in with the competitive landscape and if they are using pricing out there?

Yes Troy, it's Bill. My perspective, the philosophy here is to keep driving our results through our Six Sigma processes to find ways to lean things out, do things quicker. If you can speed up your deliveries or your programs, even in essence reduce your costs and get your margins up higher. The other part is we continue work on the left hand side of the margin curve. We keep narrowing it and as we continue to narrow it, it makes our margins go up. Clearly, for us, I think its safe to say as long as you are performing and you negotiate the fee rate should do up at the beginning and our customers don’t have any problem paying for those fee rates as long as you are performing. Our philosophy on execution and making execution of the program should qualify that to get it done right. So they are recognized. So from our standpoint we are continuing to push to expand the margins and have done that at least seven years in a row and intend to keep it going. Troy Lahr - Stifel Nicolaus: Does the international mix, is that going to help you also?

It always it does, the international clearly as of the business that we do well on. We have double-digit growth in that area. The margin should continue to do well as long as we continue to deliver and get our promises and our international business is one that I feel very comfortable with, because all six businesses in the company know how to do it and know how to do it well.

Your next question comes of the line of Peter Arment of Broadpoint Gleacher. Peter Arment - Broadpoint Gleacher: Can you talk a little bit about of classified and what you can say at least about from the growth perspective. I think, Bill you have indicated that you thought that you would be able grow classified this year between 7% and 9% year-over-year, but could you give a us a color on that now you are 3 months into the year? Are you seeing any changes in the landscape? Then just Dave, if you have just on housekeeping, could you give us what the percent of booking was from international in the quarter. I think you are on target for 25% for the year ending. I think that was the target?

Okay. if we look at classified, its hard to slice it in one quarter, and we don’t do it that way, but let me put a perspective. One, we feel good about it. We had some nice awards, this quarter, some are what I call hallmark kind of awards, they give us a great basis, to expand on and that also develops some stuff that is cutting edge that bodes well for our future and the next generation to come. For the total year, we expect classified bookings to be and above the 12% range of total bookings, which is in line with what we expect but probably the most important part is we expect classified sales to be about 14% of our total sales. That’s up from 2009, and we expect a growth rate of classified sales to be in that 10% to 15% range, to kind of help you on the volume point of view. Clearly for us, this is something we expected and it bodes well for the home team. Peter Arment - Broadpoint Gleacher: That is great, Thank you.

Then I will turn it over to Dave.

Yes relative to the international bookings these can be lumpy. We're looking from a full year basis to be somewhere in the 28% to 30% range. The first quarter we were just around 13%. Again these tend to be lumpy and we're very confident with respect to the high 20s, 30% range on a full year basis. Peter Arment - Broadpoint Gleacher: Okay. So there was no slip in terms of the international. I know it's very lumpy, but you mentioned the UAE and Saudi Arabian and number of other opportunities, but you are not seeing anything slipping?

At this point, the answer is we don’t. We do not see anything slipping and the 28% to 30% is the way we're seeing things for the year.

Your next question comes from the line Joseph Campbell of Barclays Capital. Carter Copeland - Barclays Capital: It's actually Carter Copeland for Joe. I wondered Bill, if you could talk a little bit about TS and in more detail about the FOCUS contract and the anatomy if that program and where it's headed. You seem to really be bucking the trend in TS based on the strength that you are seeing there. How will that evolve as we go forward and is there more growth in this type of opportunity? How you are you thinking about it, because it certainly seems to driving a lot of growth in TS?

The team there is doing a great job. One other thing that I think we clearly understand is that training or educational training is a real niche for us. It's something we do well. We do it on the commercial side for a lot of automotive companies and other Fortune 100 companies and what we seem to understand better than anybody is how you do compression and training so that if you can deliver 40 hours of training in 30 hours that’s a benefit to a commercial company and guess what it's also a benefit to our military customers. When you couple that with our virtual live and constructive training, knowledge of systems in the army, it’s a home run and for us where we see the expansion is international, especially in places like the UK, the Mid East and other places. So when we offer our products we can offer the services and the training to go with them and so we just see it as a natural extension. The other part, it’s a nice business, the ROIC is good, the guys are taking good cost out of the business, it doesn’t require any capital, which is nice if you are CEO, you like that kind of business and since they execute so well, we know the margins are in the same category as SAS or IDS or MCS but when you can have those kinds of margins without capital, it’s a good thing and it provides us a holistic approach to our customers. So when you come to us we kind of think of it as one stop shopping. Joseph Campbell - Barclays Capital: Then a couple of quick ones just housekeeping for Dave, the commentary around the SAS changing contract mix, any color there would be helpful?

They are continuing to expand on the international front, in particular with the tactical radars and from a customer perspective there are requirements that front loaded some of the deliverables in to the first part of this year that we had expected later in the year. I hope that helps. I think its simple is that, but more importantly the way they are operating their business with a focus on continuing productivity improvements and cost efficiencies and the way they are approaching the entire capture process today is quite a bit different than it was a few years ago. Short version is, the business is continuing to perform well, you saw what they did last year and they are continuing that performance in to 2010.

Your next question comes from the line of Sam Pearlstein of Well Fargo securities. Sam Pearlstein - Well Fargo securities: I just had question on your cash flow because you mentioned some early work, I guess in MCS and SAS. Then just looking at it overall, looks like its $100-$150 million more than what you had at the start of the year, you're saying, you might see in the first quarter or so. Can you just talk a little bit about, what is timing versus, through improvement, and then related to that, can you just address the contracts and process that grew almost $400 million sequentially?

Yes, with respect to timing, I would say, relatively to Q1 versus the balance of the year $75 million, it may be a $100 million, a purely operational, it will take you. To say in rough order a $150 million range in operational improvement. That again is driven by our very intense focus on all aspects of working capital management. As you kind to go forward in the year we are continuing to gauge where we see our cash flow but similar to what I said earlier on earnings per share. We are biased towards the higher end of the cash flow guidance that we provided on a full year basis. Relative to CIP, there is nothing remarkable going on there. Its still running about 19% of sales on a trailing 12-month basis, which is in line with where we were at yearend and last year's first quarter. Working capital churns taking as a whole continue to be very strong. We talked about this in the fourth quarter call. We generated close to $800 million in working capital improvements over the last four years. Let me go back to just mention one other thing on the CIT. We sort of look at it I think more on a net basis where your net CIT against advances and from that perspective, we are still running at about 10% of sales and we have been for quite a while. So this is more just a first quarter area to look at and again not in line with where we were last year. Sam Pearlstein - Well Fargo securities: Then if I can just follow-up for Bill, I know that you just raised the dividend pretty substantially and I look at the size of the authorization on the buyback $2.6 million remaining, but yet you continue to buy stock pretty consistently at about $300 million a quarter. So just as you think about it philosophically, do you approach the buyback any differently or should we think about it differently going forward?

I think our actions speak lauder than anything else and what we try to do is make sure that we don’t have a dividend policy but overtime we've tried to stay within a range to make sure our shareholders know what we are doing with the cash. Clearly, that's one component of it. The other component is, how we invest in ourselves to make sure that we can keep performing and hitting the kinds of numbers that we've been hitting. So I wouldn’t think of anything different. The bottom-line is our Board and the management feels comfortable about the company's outlook on the future and I think the dividend reflects that.

Then let me just add from a repurchase standpoint. Clearly, we continue to see a value in our shares and that’s evidenced by our last year, year and a half, two years of our fairly active share repurchase program. We did provide guidance on a average diluted share count for 2010. That implies some level of continued share buyback. So standing back I think, if you just take our guidance we are comfortable with what’s out there today.

Your next question comes from the line of Doug Harned of Sanford Bernstein. You may proceed. Doug Harned - Sanford Bernstein: First question Bill, you mentioned the importance of technology of Raytheon earlier and when you look at the last four quarters your R&D spending, its been up about 20% of what it had been in prior periods. I’m wondering if there is a renewed effort there to do more internally on technology and if so, what’s the focus?

I wouldn’t say there is a renewed focus here. I mean clearly when the company had debt many years ago, 13 billion, a number I’ll never forget, we clearly were still doing R&D. I think from a company’s point of view, given our balance sheet and our strength, we have the ability to look at different things. Of course for us, getting funding from our government customers or international customers is still the best way to do it, when you do some research. So I'd probably say there is good attention in that, but as far as we are concerned we still have our own R&D funding, we still have our own enterprise campaigns and we are continuing to look for disruptive technology. As I mentioned the COSMOS, I mean if you are a RF engineer and realize you can put a system on a chip and you can start to reduce your radar cost and power consumption cost then you start to realize you got some real game changers. So we've got a number of things and I could go all day, talking about technology and the engineers would love it but you all wouldn't. So, from my standpoint there is some exciting things going around the company in all areas, whether it'd be sensors our Fx business our command and control or how we look at it, even mission support. We were using a 3D analysis, a virtual, with the war fighter in the middle of a virtual reality situation, where they can experience what its like in Iraq or Afghanistan, in real time. So that they got a feel for it before they get over there. Those are some of the exciting things that we are doing and I could just go on and on about the technology, but no change in focus, just probably more of us trying to highlight it, because people are curious at times of where we are going and what we are trying to do. That’s why I just mentioned a few of them on the call. Doug Harned - Sanford Bernstein: Then I was just interested in understanding if you are looking at a little bit higher level of internal investment going forward, because it seems to have been that way recently?

Yes, if we see good opportunities, one of the things we have, here in the Company, if our engineers have the game change, or I mean, we are doing something called Tempwave. For example, it turns out California, Florida, Canada and other parts of the country have troubled with frost. Well, it’s a huge market if we can pull off, how we [hick] in California where we have a experimental 1 acre parcel of an Orange grove, where we can actually raise the temperature in a clean way, no smudge parts, no environmental, its green and Canada wanted to look at that. So we are doing it up in some other venues because they have a problem in the fall and so our engineers that understand system architecture, understand system engineering, I think they have a clever way of doing it. It's just like how we can get away a lot of shale and we licensed that. So we're a company of 50,000 engineers that are very, very creative., So there is an attention and if they got a good idea and we can see the market for it, we'll fund it. Doug Harned - Sanford Bernstein: If I can one more, international growth is obviously a really important part of the Raytheon outlook. When you look at margins, if you were to pullback and think about putting international aside, how are you seeing trends on margins for the DoD customer?

We continue to see those improve because of our performance. It is all about and I would say this over and over again, I would be a broken record. Customers will pay for performance. When you are not performing, you now run out of money and you run out of time and even good program managers make bad decisions when you have no money and no time. Doug Harned - Sanford Bernstein: So you are seeing margin improvement even independent of improving mix in the sense the sense of more international work?

We continue to work as long as we can narrow our performance curve. In other words we can take that left hand side of the bell-shaped curve and continue to shrink it by having better program performance our margins will go up. It's just math. If you can get rid of the stuff that’s not average on the left hand side, the average will go up. Our technical service business is a good example. If you look at them three or four years ago and where they are at today, we even improved their performance and a lot of there stuff is domestic and so let that be an example I'd use. MCS would be another business, un-insatiable; I believe that all our programs 8000 and 15000 contracts if we continue to do better, perform better, do it faster then we’ll continue with the increase. That’s our story and we are sticking to it.

Your next question comes from the line of David Strauss of UBS Securities LLC.. David Strauss - UBS Securities: Your GPS-OCX win, Bill can you talk about how that will ramp up from here?

Basically what happened is, there was a competitive down select, there were two of us, they picked the winning team and the government wants to make sure that from a point of view that it starts off properly. We got a well defined baseline and that everything is in order and once we give that, then we throw the switch and then we start moving and that’s why Dave’s comment was that he expects that to build up as we get in to the later part of the year and we expect that out of our IIS business. We are proud of them. They've they put together a real winning proposal and these things aren’t easy. We'd probably review them 15 or 20 times here over the course of the two years that we were competing and it is nice to see it come to fruition. Now we've got to get up everyday and go perform on the program and I have utmost confidence in their ability to do that. That part of the business really does well. Our ground station business is viewed as being world class. David Strauss - UBS Securities: So it should be a meaningful contributor in 2011.

Yes.

In 2010, and 2011.

Yes, it's expected to pick up. David Strauss - UBS Securities: Dave, I cannot let you off the hook, without a question on pension?

Is it another, housekeeping question Dave? David Strauss - UBS Securities: No, not housekeeping, it's on pension, CAS harmonization, what are you hearing there, what is the latest?

The CAS board is expected to publish a proposal on CAS harmonization fairly soon, I don't want to put a time bucket on it or a time stays on it, but I think soon as, I would say within the next couple of months and until we can evaluate the proposal, we obviously can't be specific on the impacts. If you are interested I can take you through what we are seeing for Raytheon. David Strauss - UBS Securities: Yeah sure.

Okay. I have gone through this before but I think this is probably where you are driving. If you are holding all of our assumptions, the variables that they're working to the pension accounting, constant without considering cash harmonization the 2011 FAS/CAS could increase by about $18 million compared to 2010. If the cash harmonization rules favorably impact the adjustment as we would expect they would in 2011, I might say, it could be as much as a $100 million favorable versus 2010, but again we don’t know for sure the actual magnitude until the rules are released. If you go beyond 2011 we see notable improvement in the FAS/CAS adjustment. Finally, turning to income, it is roughly breakeven in 2012 and it turns income in 2013 under the current assumptions without considering any impact from CAS harmonization.

Your next question comes from the line of Joe Nadol of JPMorgan. Joe Nadol - JPMorgan: Bill, you had some terrible news in terms of your leadership this quarter and you made some changes and moved some people around. There are quite of number of appointments. So I was wondering if you could comment on that and sort of the decisions you made and since we don’t really meet these people who run these businesses very often. Maybe just from a bigger picture standpoint bring us up to speed on how you are thinking about the leadership probably to the businesses?

Thank you for bringing it up. I was trying to figure out how to make a comment. Jon Jones was a dear friend, somebody I had worked with for many years and he is truly missed. He had all the core values of the company. Clearly Raytheon is a company that works hard on succession planning. It's recognized. Fortune ranked us in the top 25 in nation as far as the development of leaders. Clearly for us, unfortunately for Jon it happened on a Saturday night, was notified first thing Sunday morning, because there was a time change between California and here and clearly we had a team ready to go in place within a few days and it could have been immediately but it was out of respect and we’ve got Rick Yuse who has got a perfect background for SAS. He is radar guru, technical individual, ran major programs in the Missile Defense Agency and what I call our dinosaur radar is also the big three story [jabbers] that you can see for a long way, just when we put it that way. So, Rick has managed big programs, he managed technology and we’ll have a study hand on the tiller. John Harris, who ran our contract supply chain, has ran operations for me. John has been a director before one way or another for about 15 years, very capable individual, understands that part of the business, knows every contract in the company and a long time Raytheon employee. So he’ll do well with some real passion, and David Wilkins who came out of NCS and contracts will come right in and for us its same old, same old, it's we’re often running and there is a deep loss while at the same time we are a company of 75,000 people and a lot of talent and we can react quickly and keep going. Beneath him is another group of individuals that we continue to push to develop, so that the company is ready for anything that’s handed to it at any point in time and the CEO succession planning is the most important thing that I do and we are serious about it here. Thank you for asking. It was really, really tough, Jon was a terrific individual, not forgotten and Rick would be the first to tell that his intent is to keep doing what Jon was doing out there because SAS was on a good path.

Mark, if people want to meet our leadership, we find ways to make that happen. We are very proud of them and would love for people to get the norm because you’d see the kind of talent that’s in this company real quick. Joe Nadol - JPMorgan: Yeah. I will say actually a number of folks in the [by-side] have expressed over last several years, get to know some of the segment level management better. So, that actually I would be appreciated. Just on the IIS segment, just to follow-up there. I don’t know if you guys mentioned specifically on the contract, the international contract that cause the lower margins, but was that the same one that impacted sales or is that a different one? Can you give us any color on it?

I can give you some color. What we decided to do is make an investment in that program because we think it’s the right thing to do for the long-term growth of the business and the company. It's something we think by doing, it clearly will lead the more opportunities for us in the future and those are the kinds of decisions we know how to make. As far as programs specific, that’s not something we get into because of customer reasons and other reasons. Joe Nadol - JPMorgan: So you think about it as a one timer?

Yeah, and I think of it as an investment.

Your next question comes from the line of Howard Rubel of Jefferies. Howard Rubel - Jefferies: Bill, you stressed the growth in the international and it's very impressive, but if we back that out, it appears that if the domestic volumes are relatively flat, OCX clearly offsets that. Are you seeing additional opportunities to sort of improve the domestic growth rate from here? I know this was a big win and you got to make sure you execute properly on it.

I would tell you, I am not concerned about the domestic growth rate. What happens is when you look at it; it gets lumpy in different categories. For us, we've got all kinds of different areas from air traffic control to open-road tolling to things that we're going to do in port security and so forth. I mean for us, our homeland security bookings will be up about 25% this year. We expect to do about a $1.4 billion in bookings. We expect sales to be up about 36%. Sales should be about $1.2 billon to $1.3 billion compared to about $900 million last year, so you maybe parsing it different that I do, but I can tell you that I am not concerned with it. I'd love the international to be growing at double-digit, so from our standpoint, we're going to keep the accelerator on both parts.

This is Dave. Let me just add one thing to that. The one less work down the quarter did disproportionately impact the domestic program. So when you take that into consideration, the growth was more in line with expectations and if you extrapolate and look at it from a full year basis, we continue to see ourselves outpacing the broader market, both on the domestic and international basis. Howard Rubel - Jefferies: I would gather that's driven a lot by your productivity initiatives. It sounds like you are making real progress and taking some additional cost out and widening the ability to deliver very good returns and what appears to be a little more challenging market with this implementation of the Weapons Procurement Act of '09, is that pretty fair Bill?

Yeah, I think so. The way I would say it is from our standpoint, the corporate team here has been the same size for at least the last six, seven years and from our standpoint as we expand our business, we keep the oversight at the same size, so that proportionally help to lift all our business plus every business has a plan to continue to take cost out of it. This is some we’ve learned long time ago that in good times you better have your foot on the accelerators hard as you can and we continue to do that, but the weapons act and procurement reform and all of that, we welcome it. We really do from the standpoint that that provides us an opportunity, and I think companies that are performing well, have a good outlook as we go forward, but you’re right.

Your next question comes from the line of Ron Epstein of Merrill Lynch. Ron Epstein - Merrill Lynch: I’m just wondering if you give a little color on what’s going on in your cyber security business. I realized that was an area that you guys made some meaningful investment over the last couple of years?

As I mentioned in my opening remarks, we are starting to see some small contracts been awarded. The bulk of the activity is really setup for 2011 as the government customers gets more interested and trying to do that. Clearly for us, the color I can tell you is that given our own internal systems, some of the systems that we develop, clearly from a company point of view, we find more zero day intrusions than any other company in the business right now, and we look at it both from an IO and a IA point of view. We see the market starting to gel a little bit, and we see some of the smaller programs that you all wouldn’t take interest in, but we do, starting to paying out for us and we look at it differently from a standpoint that we defend ourselves. So if we have something we are developing, we used it in our own systems and scale at that way, so if you take 50,000 or 75,000 users on a system which is us, we can demonstrate that it can be scaled and that is something in cyber that is really important. People can demonstrate small systems, but when you start multiple users, thousands of user’s then it gets more complicated. Ron Epstein - Merrill Lynch: In the M&A field, are there still interesting targets to look at in that space?

Clearly for us, part of our strategic look ahead, sometimes get asked, what do I think about. Speed and agility are still very important for us to take advantage of our portfolio. I think we demonstrate that way with thousands of programs we have and the broad based nature of them, but we are continuing to work our GAAP analysis. I talked about investing internally, but we also look at teaming and the last part is acquisitions. If we can find acquisitions that help us narrow the gap quicker and they make sense and they have a good return on investment, then we are going to do them, but they are niche. They are like what we have been doing nothing out of the ordinary. Then internationally, looking ahead strategically, is staying very close to our customers and providing them solutions that they need. The other thing I should mention that wasn’t asked is that we are really thrilled to see Secretary Gates is and the President's new export control reform initiative. The plan relies on four key reforms. There is the single export control list, the single licensing agency and the single enforcement coordination agency and then what I call it single IT system. Controlling these critical technologies and the crown jewels are important. Clearly, those of us in the business and our international customers believe the US has one of the most stringent export regimes in the world, but stringent doesn’t mean that it's effective and efficient and we're really welcoming what the President and Secretary Gates is doing to revamp the system. I would have liked to seen it all done at once, but that's just me as an engineer, but there are three-phased approach is very constructive way looking at that and I think that will help our industry and given that we sell in 80 countries around the world, we are looking forward to it helping us.

Your next question comes from the line of George Shapiro of Access 342. George Shapiro - Access 342: Bill, the big increase you are expecting in international orders for the year, is that primarily signing the Turkey Patriot program and how big will that be?

No, it's not based on Turkey even though we think Turkey will be in the latter part of the year if something happens there. For us, we've got some Japan activity coming that we expect in maybe next quarter fall timeframe. It really depends on international timing, so let me just say in the next quarter or two. Saudi Arabia, Config-3 has completed all its technical discussions. We’ve scope that out the offers moving through the Saudi procurement process, great support with the US government, their ground systems which they got a number of them will be upgraded to phase 3 configuration and the missile inventories included in that. For us, that’s something that we’re expecting this year and we are working hard to get over the goal line. We’ve got activity going in Israel, Kuwait and Turkey as you mentioned. UAE has still some stuff going; Australia, probably an award there sometime latter part of the year Q3-Q4. So you name a country, we got something going in right now. That’s why we have a positive outlook on international. Clearly for us, as Dave, talked about our bookings are doing well and we expect to do well there this year. George Shapiro - Access 342: Dave, you didn’t change the diluted shares expected for the year. You said you are somewhat surprised by the early exercise of these warrant, so I conclude that that's just means you are going to be that much more aggressive in buying back stock?

Well, George that might be one conclusion, but we did initially go out with the range and had considered a number of different variables, timings, stock price, warrant exercises, option exercises. So that's just one element. I would suggest from a diluted share count standpoint looking at the range, you’re probably now thinking mid to higher end, but again it's early and we’ll see how things play out for the balance of the year. George Shapiro -- Access 342: The TS margin, I know you had commented to a question earlier, but to be able to get in the, even to the high end of the range you suggested you got to have one in a quarter really pretty abnormally low, is there anything that's going to be unique to cause that one in a quarter or just is it just a question of conservatism because its early in the year?

Well, George I don’t like that word conservatism, but I appreciate where you are coming from. If you look at the margins for Q2 through the end of the year, basically I wouldn’t say there would be one quarter where there would be a hick-up. What I would say is that they wouldn’t be a strong overall as was in Q1. I did mentioned earlier that we are now biased obviously towards the high end of their margin range and we'll be looking at that closely and if there is an update needed, we will talk about it on the second quarter call.

Your next question comes from the line of Michael French of Morgan Joseph. Michael French -Morgan Joseph: I have question about the bookings, company-wide basis it was very strong. I was wondering if we could go through on the segment level, obviously IIIS was very, very strong because of GPS OCX contract, and you mentioned earlier procurement reforms. Other companies have reported some congestion in a procurement offices as a result of that and some other issues, so I am wondering were there contracts that you might have expected during the period that seem to have slipped or is it just kind of the normal lumpiness that we see here?

I would say its normal lumpiness and for us, we had an outlook of about $26 billion, I think at the beginning of the year. I'd probably say now we're at the $26.5 billion. We've taken it up about $0.5 billion internally, I don’t mind telling you. So if you look at it from our standpoint, we feel good about bookings for the year, a way to say it is that we're up about $500 million here. So with bookings and so many different moving pieces here, they tend to be lumpy. The congestion problem, we see thing moving. Clearly, the decision process takes a little bit longer now. People are little bit more cautious, there are protests out there and so I can see where people might say something in that regard. We see one or two small dynamite bomb probably should have been awarded this month or probably will be awarded next month. So I mean 30 days is not something I jump off a roof on, nonetheless it was something I really, really wanted, but 30 days is reasonable.

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'll look forward to speaking with you again in our second quarter conference call in July.

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