David Wajsgras - Chief Financial Officer and Senior Vice President William Swanson - Chairman, Chief Executive Officer and Chairman of Executive Committee Marc Kaplan - Vice President of Investor Relations

Cai Von Rumohr - Cowen and Company, LLC Douglas Harned - Bernstein Research Robert Stallard - RBC Capital Markets Corporation George Shapiro - Citi Joseph Nadol - JP Morgan Chase & Co Richard Safran - Buckingham Research Group, Inc. Robert Spingarn - Crédit Suisse AG Noah Poponak - Goldman Sachs Group Inc. Samuel Pearlstein - Wells Fargo Securities, LLC Myles Walton - Deutsche Bank AG Troy Lahr - Stifel, Nicolaus & Co., Inc. Peter Arment - Gleacher & Company, Inc. David Strauss - UBS Investment Bank

Good day, ladies and gentlemen, and welcome to the Raytheon Third Quarter 2010 Results Conference Call. My name is John, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Marc Kaplan, Vice President of Investor Relations. Please proceed.

Thank you, John. Good morning, everyone, and thank you for joining us today on our third quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'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 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 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 discussed in detail in our SEC filings. Bill?

Thank you, Marc. Good morning, everyone. We delivered solid results during the quarter, with sales of $6.3 billion, adjusted operating margin at 12.9% and adjusted EPS of $1.36 and operating cash flow of $413 million. Bookings during the quarter were $6 billion and on a year-to-date basis, our book-to-bill ratio was around one. Our Missile business brought in over $2 billion in orders during the quarter driven by broad-based demand from U.S. and the international customers. At our other businesses, the pipeline remains healthy. We continue to see strong demand. We also see a continuation of the congestion that we discussed on our prior conference calls and webcast that impacted timing of awards. I'd like to put it in perspective. We really don't see the if issue, just when, and in this environment, when is a little more difficult to predict. Given that, the onus is on us to further reduce our cycle times. We have an internal push to increase speed, and we applaud the government's efforts to increase efficiency and reform export control. I think that's good for both sides. Within this environment of challenges and opportunities, we continue to execute well. Our strong program performance, coupled with Six Sigma and lean processes to take cost out of our business, is reflected in our results during the quarter. Our updated outlook for the year and our competitive position also reflects this domestically and internationally. Our customers in the U.S. are dealing with challenges. What I'm hearing from the DoD [Department of Defense] leadership is that the Department needs to continue to invest in capabilities to defeat threats to national security. At the same time, economic conditions require an increased focus on controlling costs on both sides. We support the DoD's overall objectives to prioritize spending, improve efficiency, reward contractors that deliver strong program performance, and we stand ready to help. On the International side, our business is strong and continues to grow. International sales from the third quarter are up 11%, reaching 24% of our total sales. Again, the driver is the threat environment which remains high, particularly in the Middle East and parts of Asia. Our customers in these regions have the resources to support the required investments in their security. We have a number of additional important international orders in various stages of the procurement and notification process. If you stand back and look at world events, the threat environment remains high. It hasn't changed. For all of us, this means that we need to get even better at what we do. Raytheon's well positioned for the future. We have outstanding technology, we have a flexible portfolio, and our consistent focus on providing innovative, affordable and proven solutions will ensure that we remain well positioned. To help put that in perspective, we've institutionalized Six Sigma and the philosophy of continuous improvement. We made the tough choices on getting the utilization rates in our factories up. We've invested in common engineering supply chain, financial, IT and HR systems that enable us to design anywhere, manufacturing anywhere and ship from anywhere. And our talent can transfer their knowledge across the company. We have a strong balance sheet for some time now so we have the financial strength to continue to make the right investments in our business and for our shareholders. We are a company that is a consistent performer, with a strong and focused portfolio of programs, and our businesses are well managed. It's a portfolio looked on industry-leading technologies, core capabilities and on opportunities to apply both to meet our customers needs in the U.S. and in the world. Our business model enables us to benefit whether our technologies are used to build new systems or to upgrade existing systems. We support our customers in multiple ways. In closing, we'll continue to work with our customers to deliver products and services they need for mission success. In that regard, the environment today is exactly what it was yesterday. It's all about innovation, performance, affordability and agility, and we strive to be the very best in each of these areas. With that, let me turn it over to Dave.

Okay. Thanks, Bill. I have a few opening comments, and then we'll move on to questions. During my remarks, I'll be referring to the web slide that we issued earlier this morning. If everyone would please turn to Page 3. Strong operational performance across the company drove our margin, EPS and operating cash flow results during the quarter. Sales were $6.3 billion, which I'll discuss further in a few moments. Adjusted operating margin was 12.9%, up 60 basis points. Our adjusted EPS of $1.36 was up 9%, primarily the result of operational improvements and capital deployment actions. Third quarter 2010 adjusted EPS excludes the FAS/CAS pension adjustment and the favorable tax settlement that we received during the quarter related to multiple prior-year's tax filings. We delivered solid operating cash flow from continuing operations of $413 million, driven primarily by the timing of initiatives related to working capital management. We continue to improve our working capital efficiency and by way of example, we've increased our operational working capital terms from 10.4 four years ago to 17.2 in 2010, and this translates into about $800 million in cash flow. During the quarter, the company repurchased 9.5 million shares of common stock for $425 million, bringing the year-to-date repurchases to 23.7 million shares for about $1.2 billion. After the close, we executed a number of capital deployment actions taking advantage of the favorable market environment. First, the company issued three tranches of long-term debt for $2 billion, 5s, 10s, and 30s with a weighted average coupon of 3.35%. We used approximately $750 million of the net proceeds to fund the redemption of the existing notes due in 2012 and 2013. The expected close is November 5. In addition, last week, we made the $750 million discretionary cash contribution to our pension plans. Turning now to Page 4. Let me provide some more detail on our third quarter results. Our total company bookings for the quarter were $6 billion and on a year-to-date basis, were $18.5 billion, resulting in a book-to-bill ratio of about one. Missile Systems was the highlight from a bookings perspective with $2.2 billion of new awards during the quarter, including $545 million for the production of AMRAAM missiles, $451 million for the competitively awarded Small Diameter Bomb II and $237million for SM-3. We also booked significant awards for RAAM missiles, the Javelin program, AIM-9X and EKV in addition to winning the competitively awarded Excalibur 1b program. IDS [Integrated Defense Systems] booked $190 million for a TPY-2 radar for the Missile Defense Agency. IDS also booked $104 million on the Zumwalt-class destroyer program and $103 million for the [indiscernible] weapon systems for the U.S. Navy. IIS [Intelligence and Information Systems] booked $447 million on a number of classified contracts, and our NCS [Network Centric Systems] business booked $84 million for airborne tactical communications systems for multiple customers. SAS [Space and Airborne Systems] booked $265 million on a number of classified contracts. SAS also booked $87 million for their production of AESA radars for the U.S. Air Force and Air National Guard. TS booked $306 million on domestic training programs and $121 million on foreign training programs in support of the Warfighter FOCUS activities, and we ended the quarter with a $35.7 billion backlog. If you'd move to Page 5. Relative to our prior guidance, our third quarter sales were impacted by the timing of awards as well as our cost reduction efforts. Focusing on increasing efficiency and taking costs out of the business is part of Raytheon's culture. We're clearly focused on stepping up our efforts in this area. Let me put some color on this. The reduction in costs on our cost-type contracts results in savings on those programs which we pass along to our customers, but also results in lower sales for the company. Now from a margin perspective, the various cost reductions that impact fixed-price programs on our backlog drive margin improvement, and we saw some of this reflected in our Q3 results. Space and Airborne Systems sales were up 9% in the quarter, strengthening their classified business and growth on an international tactical radar program were key contributors. Technical Services sales were up 10%, driven by both domestic and foreign training programs. IDS, IIS and NCS were the businesses most affected by the timing of contract awards. Now moving ahead to Page 6. We delivered strong operational performance. Continued strong program performance was reflected in our adjusted operating margin, which was up by 60 basis points. All of our businesses delivered solid results during the quarter. Missiles, SAS and TS had significant margin expansion, primarily driven by operational improvements. Turning to Page 7. Adjusted EPS in the third quarter 2010 was $1.36, up 9% and on a year-to-date basis, was up 12%. This improvement speaks directly to our continued focus on productivity and cost-efficiency actions. If you now move to Page 8. I'd like to comment on our guidance for the year. Our sales outlook reflects both the timing of awards and the impact of our cost reduction activities. We reduced the high end by $500 million and the low end by $300 million. As we've done in prior years, during the third quarter, we updated our actuarial estimates related to our pension plans. As a result of the update, FAS/CAS pension expense for the year increased by $9 million from $220 million to $229 million. We updated the range of our interest expense to be between $110 million and $115 million, which now reflects the results of our recent debt offering. We also lowered the range of our diluted share count to be between $377 million and $379 million. We reduced our effective tax rate to 24.3%, driven by the favorable tax settlement in Q3. As a reminder, we're assuming that the R&D tax credit extension gets passed in 2010 to work it out $0.07 in earnings per share. We increased the high end of our adjusted EPS for the year by $0.10 to reflect the increase in our expected margin for the year. We see adjusted EPS to be between $5.28 and $5.38. You should note that we also increased our 2010 guidance for GAAP EPS to be between $4.45 and $4.55, which includes the $0.75 reduction, the full year EPS from the U.K. Border Agency program termination in the second quarter, the tax related benefit of $0.45 recorded in the third quarter, the estimated $0.13 charge we'll book in the fourth quarter associated with the make whole provision of the early debt retirement and the $0.39 in full year FAS/CAS pension expense. Our current operating cash flow outlook for the full year of $1.4 billion to $1.6 billion now includes the $750 million discretionary cash contribution we made to our pension plans in the fourth quarter. And finally, we increased the low end and narrowed the range of our outlook for ROIC to between 12.3% and 12.6% Overall, our updated outlook for 2010 reflects our ability to drive earnings growth through operational improvements and capital deployment actions. Moving on to Page 9, let me give you a little more detail. The two principal drivers for the updated sales and margin guidance are consistent with what I've already said. Compared to our prior guidance, the lower sales that IDS and NCS are the results of the timing of awards, as well as cost reductions, which again are a key driver in the increase in margins. At MS, SAS and TS, we also see an improved margin outlook. Overall, we're pleased with the results of the operational improvements and the margin we've delivered, while at the same time, passing along savings to our customers. Now we plan to provide you with the details for our 2011 outlook on our fourth quarter conference call in January. By that time, we'll have more clarity on the FY '11 budget, the continuing resolution and the timing of some of our U.S. and international awards. Now with that said, we do want to provide you with some sense of what we're seeing at this point in time. If we have to peg next year today, we're looking at a sales range of 2% to 4% over 2010 and for margins on an adjusted basis, we expect to be in line with this year. And from a cash perspective, we fully expect to continue to deliver strong cash flow as we have in the past. We've also provided an update on how we see FAS/CAS pension expense trending for 2011. So if you would please turn Page 10. We've provided a FAS/CAS pension adjustment matrix for 2011. The shaded area on the matrix reflects our range of estimates for the current environment. We are currently at on a year-to-date asset return basis of slightly over 7%, consistent with our return-on-asset assumption of 8.75%. Just to be clear, the discount rate and the actual asset return won't be known until we close out 2010. As a reminder, the FAS/CAS adjustment is non cash and non operational. It simply reflects the temporary difference between FAS and CAS pension accounting. The key point is that pension cost is recoverable overtime through our rates. Before we open it up for Q&A, let me summarize our third quarter performance and our outlook. Continued improvement in operational performance during the quarter drove margin expansion, strong growth in earnings per share and good cash flow generation. Looking ahead, we're well positioned to address the opportunities and also the challenges in our industry. We have the right strategy, the right capabilities and the discipline to capital deployment plans to drive growth and attractive total shareholder returns. With that, we'll open up the call for questions. Over to you, Marc.

Thanks, Dave. John, would you please remind everyone how to enter the queue for questions?

[Operator Instructions] And your first question comes from the line of Rob Spingarn with Credit Suisse. Robert Spingarn - Crédit Suisse AG: On the 2011 guidance, Dave, thanks for the color, could you talk about that within the context of each of the businesses? Where are the growers there, where's the pressure going to be, both on a sales and margin basis?

Rob, it's a fair question. It's a little bit early. We're still going through the planning process and we think, it was appropriate to give you some sense of where we where at this point, but to go through each of the businesses at this stage is just, a term my boss uses, it gets out over our tips a little bit. Robert Spingarn - Crédit Suisse AG: Well then, is there any area that is particularly within the range of what Secretary Gates is trying to focus on here with his austerity measures? Do you have any of these advisory services that he seems focused on in the O&M accounts?

No. It's one of the things you all know my feelings on that IT and consulting and those kinds of areas. It's not something Raytheon has gone into. So we look at it and that's not a concern on our part. And rather than call them austerity, to me, I look at them as efficiency initiatives really designed to help protect or increase the DoD modernization and core structure accounts, which is good news for the DoD and industry. The real key here, for all of us, is going to be the implementation and then the consistency of approach. But to answer your question specifically, that's not in our worry bead bucket. Robert Spingarn - Crédit Suisse AG: And then just Dave, just on Space and TS, really outstanding margins there, you mentioned it. Could you go on to a little more detail?

Sure. SAS' performance was strong as you just noted. It was driven by a combination of things, primarily program performance, and they are the one segment that was also favorably impacted by mix. In particular, some international sales. It's probably notable that the balance of the businesses from a margin perspective was primarily driven by program performance. Technical Services, again they've been performing strong for quite a while now, that continues. It's essentially their focus on overall efficiency within the group. There was also some relatively small, but it was worth probably 20, 30 basis points, some contract modifications that took place during the quarter. But let me reiterate that overall cost efficiency is what's driving their margins.

Your next question comes from the line of Sam Pearlstein with Wells Fargo. Samuel Pearlstein - Wells Fargo Securities, LLC: I just want to follow up on the margin question which is if I just look at what your annual guidance is, there's only one quarter to go, and I look at Missile Systems, NCS and SAS, how does the year come down 40, 60 basis points from where you stand at nine months. Is there something that's going on in those three segments that would put a lot of margin pressure in the fourth quarter?

Sam, let me just frame this. We've had a very focused effort on productivity and cost improvements. We talked a little bit about that a few minutes ago. We saw some of the benefits in Q3. On a year-to-date basis, I hadn't mentioned this earlier, our adjusted operating margins are up 50 basis points. So the timing of how that margin improvement impacts the year is, by and large, behind us. It happened in the first three quarters simply because of when the programs went into play. Now if you go into the fourth quarter, there was a couple of things happening at some level and some of the businesses, mix does work against us a little bit overall. And secondly, we're starting to think, obviously, about next year and starting to put in place programs that will be more beneficial to next year that will be in the fourth quarter. Keep in mind though that we did improve our overall outlook for margins to 12.1% to 12.3%, and that's pretty healthy. So there's nothing, I guess the takeaway is there's nothing remarkable happening in the fourth quarter, a lot of it is just timing. Samuel Pearlstein - Wells Fargo Securities, LLC: The sales reduction, I guess, for the year of $300 million to $500 million, can you, I guess, talk about how I should think about how much of that might be the program delays versus the cost-plus business where you've lowered the cost?

Let me just kind of cut to the chase on this one. If you're looking at say the $300 million that we took the lower end down by, about 2/3 of it relates to program delays and about 1/3 of it relates to cost-improvement activity.

Your next question comes from the line of George Shapiro with Access 342. George Shapiro - Citi: Bill, you mentioned that the international grew 11% in the quarter. So by my quick arithmetic, it implies that the balance of the business, of the domestic business, declined somewhere 2% to 3%. Can you just explain where those declines are occurring, because it seems like the industry is not yet in the mode of declining revenues?

That would be, from my standpoint, it'd be hard to pick any one particular business, but we really see it in program delays. When we put our planning to place, it's hard to figure out all the timing in this environment, as I said in my opening remarks. But if I had to place one place there, I'd probably put it in IDS, and I'd relate that more to the naval area where it's taking a little bit longer to get things done. Plus we went through non bridge [ph] on Zumwalt, which delayed things because when they reduced seven down to three ships, nothing we have done, it changed the whole cost profile. So it's taken us a little while longer to get through that process in my opinion. George Shapiro - Citi: The program delays, now is this just a function of changing policy with the Carter Initiatives and all? Or is this something that we're just in an environment we're going to hear every quarter, we've got program delays?

No. At least, I hope we don't hear it every quarter, George. I think part of it is when you put in some new initiatives and you're trying to have everybody do their capability-based studies and go through it, it adds delay in the process. And as I said earlier, the real question here is what's the implementation going to be like and then the consistency of approach. And sometimes, people wait to see that before they go do things. From my standpoint, I think everyone in the industry, as we sit with DoD, we're trying to work through it. But let me just say that's one aspect of it. I think the onus is on us, and we're taking a look at everything we can do in this company to speed up our processes. I don't accept that things take longer, and if there's anything we can do on our side of the equation, then it's incumbent on us to go do that and that's what we're doing here. But I don't think this is a long-term area that's going to hit us for a long time, at least that's not my view.

George, let me just add one thing, because like always here, you're correct in your analytics there. If we look at the fourth quarter, we are expecting growth both on the domestic and the foreign side. Domestic should be somewhere between, say, 4% and 6% over last year's fourth quarter and double-digit growth again from an international standpoint. And then taking it one more step, I think this is important from a book-to-bill standpoint, we expect to exceed one both domestically and internationally as we close out the year.

Your next question comes from the line of Troy Lahr with Stifel, Nicolaus. Troy Lahr - Stifel, Nicolaus & Co., Inc.: Given the cost-savings initiatives that you guys are implementing, and I would assume more favorable international mix next year towards higher margins, I guess, why are margins just in line? And when you say in line, are you talking about including the FAS/CAS headwinds that you might be facing next year?

No. I was talking operating or adjusted margins, number one. Margins are improved substantially this year as we close out 2010 relative to the what we had expected when we started out 2010. Now what's important is that the cost-reduction programs are basically serving two purposes, and I talked about that a little bit a moment ago so let me repeat it, it's important. One is we passed along a lot of these savings to our customer, that's number one. Number two is you are right, the cost reductions will add to margins over time, because they directly impact our fixed-price backlog programs. But as you know, if you move forward and put new contracts in place, we also pass those savings along to our customers. With all that said, it's early, 12.1% to 12.3% is healthy starting point, and we're, at this stage, comfortable with that range of guidance.

Your next question comes from the line of Richard Safran with Buckingham Research Group. Richard Safran - Buckingham Research Group, Inc.: I've been noticing on the DSCA [Defense Security Cooperation Agency] website a number of proposed sales of Raytheon products, some nearly $1 billion. You've been noting international sales is 24% growing double digit in 4Q. Am I right, one, is that seems a bit better than you expected initially? And I wanted to know, I know you're not providing specific 2011 guidance, but could you comment directionally on foreign sales as a percent in 2011?

Let's put it in perspective right now where we're at. Sales were about 24% of Q3, we've had double-digit growth there. We expect our international bookings this year to be in the 24% to 26%. We expect sales to be in the 22% to 24% range. So it kind of gives you a feel of where that's going. From our standpoint, we see a little bit of the same as we keep going here in the next year. Clearly, for us, we've got some international awards and the timing of those scheduled here in the fourth quarter. Some of those may go into January. It's really hard to peg them right now, but we're pushing hard to go do that. So from my standpoint, internationally, 2011 feels a lot like 2010, and we intend to keep pushing the international because it's one of our strong suits in our company.

Your next question comes from the line of Cai Von Rumohr with Cowen and Company. Cai Von Rumohr - Cowen and Company, LLC: If you could give us a little more detail where international orders were in the third quarter? And if I just do the quick math, if you're going to do at least $6.3 billion, $6.4 billion for the year, it looks like you have a strong foreign book to bill in the final quarter, and if U.S. is also over one, is your full year order bogey still 26.5 or has it moved up?

Cai, we kept the bogey the same. The hard part, you're younger than I am but we've both been around a long time, we know that the international is tough to peg. And for us, we have got Saudi Config-3 out there, we're in the final stages of Ts and Cs there. Turkey Patriot will have an announcement at the end of the year there which way Turkey is going. For us next year, we've also got Taiwan and Kuwait in there. They haven't started their LOA process yet, but we expect those. We also expect the TPY-2 radar to start having international sales mid next year. Those are a couple of hundred million dollars radar packages when you put all the support and services, everything, together. We also have an Australia program, we've won down there, and because of the recent elections, that's delayed the process. We expect the country to still buy. So that the order pipeline is there, we can see them all, we can touch them. Our job is to nudge them over the goal line or kick them over the goal line, one or the other, if that helps. Cai Von Rumohr - Cowen and Company, LLC: Could you maybe comment a little bit more on, there's this proposed F-15 sale to the Saudi's which has a fair amount of your gear, as you know...

It's a good question, Cai, and I should've mentioned it and thanks for bringing it up. That notification is a large number. It contains everything for everybody plus government cost in there, so that's why it's a big number. For us, we probably expect $3 billion plus in that particular release, plus we've got others in the notification cycle and some getting ready to go into the notification cycle. And for somebody like me, you can see them, you want to go grab them and pull them, and that's what were trying to do.

Your next question comes from the line of Robert Stallard with Royal Bank of Canada. Robert Stallard - RBC Capital Markets Corporation: Dave, I'd like to go back to the margin issue and what you're guiding for Q4. You said that mix is going to be negative against you in Q4, and that's why your guidance implies the margin comes down. Going forward though, can we expect the margins to be a little bit more stable or is this sort of volatility quarter-to-quarter? Is that we should expect?

Well, we've had some nice improvement in the first nine months of the year. This year, as I mentioned, we have stepped up the cost-reduction programs and those, depending on timing of implementation, we'll move the margins at a particular point in time. Going forward, I would suggest that it's likely a little more level loaded, quarter-to-quarter, as you're comparing to prior year's same quarter. But again, Bill mentioned it during his commentary earlier, I did as well, there was just a lot of activity. We'll continue that moving forward, but I think today, I would say we're in a good pace and cadence relative to productivity programs and expect sort of continued improvement over the long term. Robert Stallard - RBC Capital Markets Corporation: And just as a follow up on the cost front. Have there been any one off, like redundancy costs or site-closure costs that have occurred in this quarter that won't be there going forward?

I'm glad you asked that. The answer is there's nothing, there's no significant or unique event that moved the margins from an overall company perspective this quarter. It's just a multitude of different cost-reduction activities that we have been working on and will continue to work on.

And I would add, Dave, that when you look at the cost reductions, they're across the board. They're not only in direct and indirect, they're not only in support and touch, they're also in material, they're in scrap, they're in rework, all our businesses are attacking everything they can do because now is the time to have your cost structure in the best possible shape you can have. That's what our customers want, and that's what we're going to go do.

Your next question comes from the line of Joe Nadol with JPMorgan Securities. Joseph Nadol - JP Morgan Chase & Co: Back on the margin topic, maybe let me ask this a slightly different way because it's really is what you've been doing year-to-date and your outlook for the fourth quarter, what you're saying for next year, the numbers do move around quite a bit. If you take 12.9% you did in the quarter and you take out all key adjustments, some of which were performance, good performance, some of which were related to your cost take-out actions that you've been taking. What was that 12.9%? Does that look more like 12.5% or lower 12%? And then, Dave, can you quantify, you talked about some of the cost-savings actions that in Q4 that might be a little bit more material than what you've incurred year-to-date, which hasn't really been material, and that's one of the reasons that you're looking for, by my math, 10.7% adjusted margins? Can you quantify, maybe, how much the Q4 number is below the ongoing run rate?

It might be easier to give you a little bit of detail around this. So I think that is by the what you're getting at. So if you look at IDS, we've increased guidance 20 basis points to reflect improved performance and cost reductions. Again, nothing unique. It's a lot of the programs we've been talking about, Bill just went through that. From an IIS perspective, they've been impacted primarily by the period costs that will incur as a result of the termination, and that's worth about 20 basis points. Q3 and year-to-date from a missile standpoint, higher than guidance, driven by, again, the timing of the productivity improvements, we're increasing the year by 20 basis points. Again, no particular issue, no particular area, it's just overall cost reductions. NCS, again, SAS continues to perform well, there's nothing unique there. I talked about SAS earlier having a little bit of favorable impact as a result of mix. TS, I mentioned the favorable contract modification earlier being worth about 20 basis points. So I think if you're standing back, you're looking for something unique to say, "Well, there was one event that impacted margins 30 or 40 basis points on the quarter and it's normalized at 12.5%," I think that's frankly the wrong way to look at it. I'll go back to what I said before, it's simply the timing of when we put into our EACs, the impact of these cost-reduction actions. Once they're firm and in place, we're able to take that benefit, and it was notable in Q3, again, throughout the year, and it's just a timing between where we are now and where we'll be as we exit the year. Joseph Nadol - JP Morgan Chase & Co: And the 10.7, relative to the run rate, how much do have in there for actual non-recurring costs?

For actual non-recurring costs? Joseph Nadol - JP Morgan Chase & Co: In Q4, yes. You mentioned in your comments that you're preparing for next year. So what's the number in there?

Again, we really don't look at it like that. There is nothing, again, these are just programs we're putting in place. We have 15,000 different contracts, so there's not one area to spike out to say there is a big non-recurring event in Q4.

Let me kind of help with the mix. The way I think about it we have about 23 contracts that make up 25% of our business. The next 25% of our business is represented by 96 contracts. The remaining 50% is driven by 15,000 contracts. So when you look at it, there's a lot there. And so the way we run this place is we drive for efficiency, we drive for productivity and we pass those savings on, we set the baseline lower next time in the cost structure and we challenge ourselves to keep driving the margins up.

And let me just close out the question based on what Bill just said. Joe, your math is right as well, just like one of your colleagues earlier. With that said, we are continuing to push on a margin-improvement program that could impact the fourth quarter. I want to make sure everybody's on the same page. This is what we're seeing today. We have outperformed our own expectations year-to-date. We're continuing to look at various areas of opportunity. And again, closing out the year at 12.1% to 12.3% is pretty healthy. Joseph Nadol - JP Morgan Chase & Co: Bill, maybe just a non numbers one for you. Just on this e-Borders situation from last quarter, three months have gone by now, any update, any debriefing you've gotten out of the U.K. or any additional thoughts on what happened and what might happen?

First, let me say the system we delivered is operational. They're using it, and it's providing actionable data. So it's not a performance issue on my part, the way I look at it. We are in litigation, and we've started that process and I still feel as strong, if not stronger, on Raytheon's position, if that helps.

Your next question comes from the line of Doug Harned with Sanford Bernstein. Douglas Harned - Bernstein Research: On the export control reform initiatives. Could you give us a sense of how material the impact may be, once it goes through Congress? Are we seeing something that would significantly change the way in which you pursue international contracts?

I'll break it up into two categories. The categories that we've determined that there are other sources and that we've tried to protect something that we shouldn't protect, that will expedite the process considerably. I would almost say, by a guess, I could cut it in half. On the stuff that is critical that we want to protect, I think the process will get better but it will not decrease in half, if I had to say, that might be a 10%, 15% improvement. But when we think about all of this, this is from a standpoint of DoD or state, and I believe that commerce will now get involved in a number of the license activities, and that will be more on a commercial basis and that will be for things that DoD does not want to protect us much. And so overall, the stuff that we sell around the world that isn't in the Missile business or Air Defense, I expect those will move a lot quicker. Douglas Harned - Bernstein Research: But if you were to look forward and think how that might impact your revenues on international, are we looking at something that would materially change that above the level of bookings you have now?

No, I don't think I would say materially change it. For us, it's going to allow us to focus even more on the ones we need to and the others will be on a routine kind of process. It's mainly how quick can we get them in here, so it's a timing issue. From our standpoint, you'd see how much we get released. We sell in 80 countries around the world, so we can do business internationally. This is all about can we do it quicker and bring the orders in. And that's what everybody's trying to do because there's a lot of calories spent on this area. Douglas Harned - Bernstein Research: Bill, I've known you a long time and you've never been a big fan of debt. So the decision to issue $2 billion in debt to the make a contribution to the pension, this all, I think, makes great sense. But is there a change in your philosophy in how you look at debt and the capital structure of the company going forward?

I guess the way I look at it, when you can get debt at five years at 1 5/8, even somebody that doesn't like debt has to look at it and sit there and say, can you make your balance sheet and your operations more efficient. And even an engineer like me can understand that one.

Your next question comes from the line of David Strauss with UBS. Steve. David Strauss - UBS Investment Bank: It sounded like you, built to a prior question, you were talking about international growing double digits again next year, which in the context of 2% to 4% total growth for the company for next year, it would seem to imply domestic flat to down, is that right? And if so, can you give a little bit of color around that?

Well, Dave and I were trying to peg it. We've noticed not everybody's looking out and giving some guidance here, and we wanted to give you kind of a feel. And what really determines that, and I hate to say it, is the timing. And when the timing moves to the right, you don't pick up everything you've lost, and that's the hard part here. And so when we look at the timing on the international, we want things that we've got in our forecast to happen. And as Dave pointed out in his remarks, it's where we stand today. We need to see what's going to happen on the fiscal year '11 budget, the continuing resolution. My gut feel says that we're going to operate on that into next year. And so those things have a real effect on your domestic growth and then right on top of that, we're going to be looking at fiscal year '12. So we try to give you a peg at where we think it is and the timing that we see on things. But at this point in time, the end of October, there's a lot influx more so than I can remember in the past, but we still felt confident giving you the numbers we did. David Strauss - UBS Investment Bank: Dave, unfortunately a couple of questions on pension. Just want to be clear that the sensitivity table you gave includes the $750 million contribution. And then what is your total contribution you're expecting for this year? And then any color, you had talked about '12 and '13 coming down a fair amount off of '11. It's now obviously changed a bit, but any kind of thoughts on '12 and '13?

So this year the gross contribution will be about $1.9 billion. On a net basis, about $1.2 billion. As we're looking ahead, if you assume, which is not an unreasonable assumption, that we maintain the long-term asset return assumption at 8.75%, discount rate environment stays, let's just peg the number at 5.25%. Next year, we'd be looking at a gross funding of about $1 billion and on a net basis, about $300 million. And as we go forward, if you're interested in the FAS/CAS accounting difference, we expect '11, again under those same assumptions, to be between $450 million and $500 million for '11. '12 would be say, between $200 million to $250 million. Now importantly and I'm glad you asked this, see, if the interest rate environment were to adjust and the discount rate say, moved to 6.25%, the FAS/CAS differences would improve from a P&L standpoint by about $200 million favorable. David Strauss - UBS Investment Bank: That's in '12 or '11?

That's in '11 and '12.

Your next question comes from the line of Peter Arment with Gleacher & Company. Peter Arment - Gleacher & Company, Inc.: Bill, it's hard to talk about, can you talk about some of the classified perspective from a growth perspective, what you're seeing domestically and in international? I mean you've indicate classified to be up double digits, I think year-over-year this year. I mean are you seeing or hearing any changes in those budgets and I'm just thinking from a growth perspective because it's not something that we have much insight into.

Let me give you some color here. Sales were about 14% of the total this quarter. If we're looking towards the year, we expect bookings this year to be around 14%, and we expect sales for the year to be up above 14%. So we see double-digit growth in that area this year. We see, looking into next year from what we can see right now, classified continuing to grow with some strength for the company, we've had a number of tech wins in that area that we think we're going to continue to do well. Our technology growth has almost been sea red and so forth, almost double digit. It's high single-digit in a budget that's probably around 2%. So we've really been taking market share and the technology and that's why we have so many programs that are under $10 million. But they're the seed corn and they lead to some of our larger programs that we have today, if that helps. Peter Arment - Gleacher & Company, Inc.: And what are you seeing, just regarding, it's kind of related to this though on the M&A front, we're seeing a lot of properties in this area in classified that are going at big multiples. Do you still see like there's opportunities for you to add in capabilities? I'm thinking of the great BBN acquisition which gave you Boomerang which it sounds like the penetration there. Are those systems continue to grow much higher. So can you just talk a little bit about that?

Yes. We're continuing to look. Our M&A strategy hasn't changed. If I could find one, two or three more BBNs, I'd do those in a heartbeat. There's not those falling of a tree everyday. For us, we've closed one, the second one will close. We have technology associates that are leading provider of data extraction and analysis and exploitation. I'll say that much and stop there. The other one is a trusted computer systems. We expect to close that next month. They really provide cybersecurity solutions to our customers. Clearly, what they do is provide domain solutions that allow classified levels to be shared on the same network around computer operating systems, and it gives me an opportunity to highlight one of our teams. The Distributed Common Ground System, DCGS, you've heard me talk about it in the past, but we just completed with the Air Force, the successful evaluation of DCGS at Ramstein Air Force Base in Germany. What DCGS does is it supports multiple ISR platforms, satellites, manned, unmanned systems. To me, I refer to it in the company and outside the company, it's like Google with a clearance. No offense to Google, but DCGS allows you to move data around. And what's important to it for us, as we look to the future, worldwide intelligence is going to even take on a bigger role, if you think about it. And how do you look at that information across the globe and sort it out and share at multiple classified areas and, that's what we're lining ourselves up to be able to do.

Your next question comes from the line of Myles Walton with Deutsche Bank. Myles Walton - Deutsche Bank AG: So I wanted to go a little deeper into the missile defense portfolio in a couple of ways. One is on the potential there for termination under that scenario. What is the incremental opportunity for your portfolio? And then second in a related business, with respect to the MDA's [Missile Defense Agency] decision on SM-3 Block IIB to openly compete that. Can you talk about how we should think about that specifically in your program? And if you're seeing that in other areas that might put kind of minimum margin pressure ?

Yes. I think from our standpoint, as on me, that's something for the government to sort out. They'll be going through that. It's a big program, lots of money. And in this tight budget, the way I look at it, it satisfies three customers, Patriot satisfies the minimum 12 around the world, and people will decide what they want to do in that process. I'm highly biased so you know my answer. But I think from our standpoint, Patriot is the most capable air defense system in the world for both air breathers, ballistic missiles, aircraft and crews and there's nothing else like it, and put Patriot up against anything in the world for that matter. So we expect Patriot to be around a long time, and so from that standpoint, there could be an upside depending on what the decision is there. But I'll let people that have to make that choice make it. Regarding Standard Missile, we have a family of Standard Missile, we have IA, IB, IIA, IIBs. The IIA was just increased in funding about 25%. It's the one that's got a very successful flight-test program. And for us, we're a company that competes every place we go, so competition really doesn't frighten us. People didn't think we were going to win Small Diameter Bomb but low and behold, the company did that. Our customers told us we significantly provide them better mission capability, making our technical approach, we won the strength of our tri-mode seeker, our innovative warhead technology and our aircraft integration and our past performance was rated exceptional. So from my standpoint, competition doesn't bother me. We're prepared to go head to head with anybody especially in the missile business. So I realize what MDA has to do, but when we start talking about something in 2020 and 2025, that's a long ways out, and a lot of things can happen between now and then. Myles Walton - Deutsche Bank AG: Your performance is not an issue so I mean it seems like this is their way of inserting competition into an area where the incumbent is performing well, and so the upside is cost savings. So I'm curious if you're seeing this in other areas of your portfolio and if you think that's a change from the past?

I'd just go back. People that know me, I've been doing this a long time. We competed on AMRAAM, we competed on Maverick, we've competed on Missile Systems. And for Raytheon's history, and every time we've done that, we've found a way to get the cost down, we've found a way to get the reliability up, we've found a way to get the performance even better. And doing all of that, we still delivered consistently high margins, and I don't expect that to change.

The final question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak - Goldman Sachs Group Inc.: I guess I'm confused with the lack of official '11 guidance. You guys have provided the initial look with the third quarter report for several years in a row, and you're talking about a continuing resolution but many of those years in the past, we had a continuing resolution. Are things just very, very dynamic and less visible in this industry right now? It would seem like with industry calling for slow, steady growth, that it would maybe not be as challenging to predict that.

You know what's going to happen here in the elections and on the second? I won't put you on the spot, but I mean there's a confluence of things going on so part of it is that... Noah Poponak - Goldman Sachs Group Inc.: But things like that, we've gone through in the past, I guess...

No, not like this where we've got 23 new initiatives, we've got an economy not, only domestically but internationally, that's equivalent to one of the biggest recessions in history. I don't think I've gone through one of these in my last 39 years like this. And so my point is, this is different, and I think we're somewhat unique in the guidance we're giving you at this point. If I read what others have done, there's not a lot out there. So we try to do as much as we can knowing what's there, but Congress is going to change. And when it changes, it delays things. And so that's the whole issue, it's the timing, really, it's not the if. That's not my concern. My concern is can I predict what's going to happen here, and we've got some unknowns and I'm not concerned about that because I think the company will continue to do well. Noah Poponak - Goldman Sachs Group Inc.: Technical Services continues to really grow rapidly and show very good margin. Similar lines of business that other companies are struggling there with revenue and margin pressure. How are you differentiating there? Is it the Warfighter FOCUS program? Maybe just an update on that segment.

I think the way I would describe it is we found a way to do the training aspect or education aspect of the job, I think better than others. Our commercial experience here, doing it for GM, Chrysler, Opel and others have helped us take and cut down the amount of time that's spent in that area. To give you an example, we call it compression. If you can cut down your training cost by anywhere from 20% to 30% and up the retention factor at the same time, that's what our customers are looking for, and that's something we can offer. We have proven results in that area. And this is in the O&M side where customers really want innovation. We think we have it, and we also see other areas where we can expand it, not necessarily in the DoD arena, and we'll probably hear some more about that in the future.

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

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.