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

Cai Von Rumohr - Cowen and Company, LLC Carter Copeland - Lehman Brothers Douglas Harned - Bernstein Research George Shapiro - Citi Heidi Wood - Morgan Stanley Robert Spingarn - Crédit Suisse AG Jason Gursky - Citigroup Inc Samuel Pearlstein - Wells Fargo Securities, LLC Troy Lahr - Stifel, Nicolaus & Co., Inc. Peter Arment - Gleacher & Company, Inc.

Good day, ladies and gentlemen, and welcome to the Raytheon Fourth 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. Todd Ernst, Vice President of Investor Relations. Please proceed, sir.

Thank you, John. Good morning, everyone, and thank you for joining us today for our fourth quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'll reference are available on our website at raytheon.com. Following this morning's 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. 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, 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 discussed in our SEC filings in detail. With that, I'll turn the call over to Bill.

Thank you, Todd. Good morning, everyone. I'd like to take a minute before getting the details of the fourth quarter and full year results to welcome Todd Ernst, our new Vice President of Investor Relations. Some of you may already know Todd from his time in the investment community. We look forward to having him here as part of the Raytheon team in Waltham. Welcome, Todd. Now turning to our results. Raytheon delivered strong operating performance in 2010. This is a result of our focus on program execution and productivity initiatives driven by Six Sigma and operational improvements. Adjusted earnings were up 15% for the year and operating cash flow was once again very strong. As you know, 2010 had some headwinds, including program delays, a continuing resolution and a difficult economic environment. Our strategies prepared us well for this, by leveraging our innovative technology, cost competitiveness, solid program execution and strong customer alignment. We had one of the highest competitive win rates in the company's history. Notably, competitive wins included Small Diameter Bomb, GPS-OCX, AMDR, STARS, among others. These wins position us well for future competitions. For example, SDB or Small Diameter Bomb, where our sensor technology was a key discriminator, which positions us well as we compete for next-generation missile programs. On the classified side, our sales increased in 2010 by 13%, driven by NCS and SAS. Our contract research and development or CRAD bookings were also up in 2010 by 28%, while sales on these programs increased by 13%. This provides much of the funding for the next generation of Raytheon technologies and keeps us at the cutting edge of technology development in areas directly aligned with our customers' needs. As always, we remain focused on creating long-term value for our customers and our shareholders. To that end, Raytheon announced at the end of the fourth quarter that the company signed a definitive agreement to acquire Applied Signal Technology. AST brings world-class technologies and their talent complements Raytheon's strong, intelligent surveillance and reconnaissance solutions. This combination of strengths, along with our complementary cultures and innovation will provide capabilities to address our customers' current and future challenges while creating value for our shareholders. In addition to announcing our agreement with AST, we completed three acquisitions in 2010. These acquisitions, coupled with our sixth consecutive year of dividend increases, our share repurchase program and discretionary pension contribution underscore our balanced approach to capital deployment. Three weeks ago, Secretary Gates further outlined his plan to adjust DoD's spending priorities within a challenging fiscal environment. From a Raytheon perspective, there were some puts and takes within his plan. But on balance, our portfolio capabilities align very well with DoD's vision of the future. We remain confident that our strategy is the right one and will yield strong long-term growth opportunities for our core strategic areas. We are also reassured that DoD remains committed to preserving investment and modernization. Let me take a moment to discuss the international environment, which remains a key area of growth for the company. In 2010, 23% of our sales were to international customers and our international's revenues grew by 10%. This growth is driven by the breadth and depth of Raytheon's portfolio of products that align well with our customers' needs to be able to address important threats. These threats have not changed. Many of you heard me discuss the difficulty in pegging the timing of the international and domestic awards. And in 2010, we had a few opportunities move into 2011. But we remain confident that the ultimate awards are not a matter of if, but when. Our strong operating performance stands in contrast to the challenging environment that unfolded in 2010. Congestion in domestic and international acquisition cycle slowed growth and impacted bookings. The continuing resolution was also a factor and could also be the case in 2011. It's too early to tell exactly what the length will be. That said, our organization rose to the challenge. And through strong execution, delivered outstanding bottom line results. In 2011, we will continue to drive operations to greater levels of efficiency. While we expect that there will continue to be delays in the acquisition cycle during the early part of the year, we anticipate this easing as the year progresses. Before I close my remarks, I want to spend a few moments on the company's other accomplishments in 2010. We continue to position ourselves as best-in-class with regard to environmental and safety programs. For example, since 2005, we reduced our absolute energy consumption at the company by 12%. To that end, we received the EPA ENERGY STAR Sustained Excellence Award for the third year in a row. And we continue to make progress on our goal of an injury-free workplace, while achieving the lowest employee injury rate in our industry. Lastly, I'm very proud of our new partnership with the Wounded Warrior Project. Together with Cisco, we're funding the program that helps facilitate the ability of wounded servicemen and women to successfully reenter the workplace with new skills for the IT and cybersecurity markets. We are proud of those who serve every day to protect our way of life and are excited to fund this new effort to support our wounded warriors. When I reflect on these accomplishments, I see a company that excels at everything it sets out to do. That's good for our customers. It's good for our shareholders and it's good for our employees. With that, I'd like to recognize the efforts of the entire Raytheon team for staying focused in delivering value in 2010. I thank them for all their hard work, and we look forward to the future. And with that, I'll turn it over to Dave.

Okay. Thanks, Bill, and good morning, everyone. I have a few opening remarks starting with the fourth quarter and full year results, and then I'll discuss our outlook for 2011. And after that, Bill and I will open up the call for questions. During my remarks, I'll be referring to the web slides that we issued earlier this morning, which are posted on our website. Okay, if everyone would please move to Page 3. Strong operational performance across the company drove our margin, EPS and operating cash flow results during the quarter. We delivered solid results in both the quarter and the full year. Our fourth quarter adjusted EPS of $1.57 was up 20% and for the full year it was $5.58, up 15%, primarily the result of operational improvements and capital deployment actions. We also generated strong operating cash flow of just under $900 million for the quarter and about $1.9 billion for the year, after making a fourth quarter $750 million discretionary contribution to our pension plans. Additionally during the fourth quarter, the company repurchased 5.3 million shares of common stock for $250 million, bringing the year-to-date repurchases to 29 million shares for about $1.5 billion. As we discussed on the last earnings call, during the fourth quarter 2010, the company issued $2 billion in long-term debt and retired $678 million in debt maturing in '12 and '13. As a result of these transactions, the company extended the term of its debt structure at lower interest rates. The company ended the year with a strong balance sheet and net debt of near zero. And finally, in December, we announced an agreement to acquire Applied Signal Technology Inc. This transaction is expected to close in the first quarter of 2011 and will become part of our Space and Airborne Systems business. I'll address 2011 guidance in just a moment. And if you'd move to Page 4. Let me go through some of the details of our fourth quarter and full year results. We had bookings of $6 billion in the quarter and $24.4 billion for the full year resulting in a backlog of $34.6 billion, 27% of our total bookings during the quarter and 18% of our total bookings for the year from international customers. Both bookings and backlog were affected by the timing of domestic and international awards primarily IDS and to a lesser extent at NCS. We now see these awards coming in during the first half of the year. Here are some of the highlights for the fourth quarter. IDS booked $131 million to supply Patriot missiles to Kuwait. $120 million to provide logistics support for the Missile Defense Agency and $112 million on the competitive Air and Missile Defense Radar program for the U.S. Navy. IIS booked $167 million to provide ISR support to the U.S. Air Force and $281 million on a number of classified contracts. Our Missile Systems booked $546 million for the production of Paveway for the Kingdom of Saudi Arabia and $247 million for the production of Tomahawk missiles for the U.S. Navy. NCS booked $180 million on the competitive Standard Terminal Automation Replacement System program for the FAA and DoD, and $190 million on two sight and surveillance system programs for the U.S. Army and an international customer. SAS booked $374 million for the production of AESA radars for the U.S. Navy and an international customer at $192 million on a number of classified contracts. Technical Services booked $91 million on domestic training programs and $47 million on foreign training programs in support of the Warfighter FOCUS activities. Now if you move to Page 5. Fourth quarter sales grew by 3% to $6.9 billion. Comparing to our prior guidance, sales came in slightly below the low end, primarily due to the continuing resolution, the previously discussed award delays and our improved results from the company's ongoing cost-reduction efforts. Looking at the businesses, Integrated Defense Systems net sales were $1.5 billion in the quarter. The change was primarily due to lower sales on Zumwalt and on two joint battlefield sensor programs, primarily offset by higher sales on international Patriot programs. It's probably worth mentioning that the Zumwalt program was recertified and now has a revised funding profile for the three ships committed to by the U.S. Navy. Intelligence and Information Systems net sales were $820 million in the quarter. The increase in sales was driven by higher volume on GPS-OCX, a Command and Control System for GPS satellites. Missile Systems net sales were $1.6 billion, up 11% in the quarter driven by higher volume on the Paveway, SM-3 and AMRAAM programs. And Network Centric Systems net sales were $1.3 billion in the quarter, up 4%. The increase in sales was primarily driven by higher sales on an international classified program. Space and Airborne Systems had net sales of $1.3 billion in the quarter, up 3% driven by growth in their classified business. Technical Services had fourth quarter 2010 net sales of $964 million, up 9%. The sales growth of TS was driven by both domestic and foreign training programs. Moving ahead to Page 6. We delivered strong operational performance in the quarter. Our adjusted operating margin was up 60 basis points in both Q4 and for the full year. As we said in the past, we continually focus on cost control and productivity improvements. The positive swing in adjusted operating margin speaks directly to these efforts. Looking at the business margins, IDS had solid results in the quarter, primarily driven by strong operational performance. IIS margins increased by 40 basis points, largely due to improved program performance. Missiles margin was in line with last year at 10.9%. NCS margin in the quarter was up 170 basis points. This is primarily due to improved performance across a broad range of programs. SAS margin in the quarter was down 100 basis points, driven by the timing of program improvements earlier in the year. For the year, SAS margins were up about 10 basis points. And finally, Technical Services margin was up 210 basis points in the quarter, as a result of operational improvements on programs at or nearing completion. When you compare our fourth quarter results to our prior guidance, five of the six businesses performed better than the high end of the range that we had provided. We saw continued improvements from cost initiatives that I spoke to earlier and on prior earnings calls. That said, it's important to note that these savings get passed back to the customer on our cost-type programs and on new business. We continue to execute on our productivity initiatives and focus on Six Sigma efficiency improvements to further enhance performance. Turning now to Page 7. Adjusted EPS in the fourth quarter 2010 was $1.57, up 20%. The increase was driven by operational improvements and capital deployment actions, specifically share repurchases. Turning to Page 8. Our full year adjusted EPS was $5.58 versus $4.87 in 2009, an increase of 15%. Again, primarily due to operational improvements and capital deployment actions. The company generated strong operating cash flow of $1.9 billion in 2010 after the discretionary $750 million cash contributions to the pension plans. Our focus on working capital management and overall cash conversion efficiency combined with lower cash tax payments were the primary drivers. If you now move to Page 9, let me discuss our 2011 guidance. We see sales in the range of between $25.5 billion and $26.3 billion. As for pension, we now see FAS/CAS pension expense of $367 million. This is an improvement over our earlier projections. The change is primarily driven by the discount rate environment. And importantly, our positive asset returns in 2010, which were up over 11% for the full year. Our end-of-year discount rate was 5 3/4%. Next, we expect net interest expense to be between $155 million and $165 million. Higher than in 2010 due to the new debt that we issued in last year's fourth quarter. We see our average diluted shares outstanding to be between $353 million and $359 million on a full year basis. As for our effective tax rate, we see this coming in at approximately 30.5%. In 2010, our effective tax rate was 24.2%. If you adjust for the Q3 tax-related benefit and the impact of the U.K. Border Agency termination adjustment, it would have been 30.8%. In 2011, we expect EPS to be in the range of $4.83 to $4.98. We see our adjusted EPS to be in the range of $5.50 to $5.65. Our operating cash flow guidance is between $2 billion and $2.2 billion. And finally, with respect to return on invested capital, I do want to point out that we have revised the definition of ROIC to better reflect operational performance. The calculation now fully neutralizes the impact on the invested capital base of the company's pension liability and funding. For 2011, we expect ROIC to be between 13.4% and 13.9%, which reflects the new calculation. Continuing on to Page 10. I'll briefly comment on our outlook by business. From a sales perspective, we see growth in most of our businesses. As we experienced in late 2010, IDS will be impacted by the timing of international awards, as well as the revised funding profile on the Zumwalt program, which I spoke about a moment ago. This impact is expected to be approximately $300 million to $400 million for the full year. We expect to continue to deliver strong margins by our disciplined focus on operational performance and world-class execution across the entire company. If you now move to Page 11, we've provided you with our 2011 outlook by quarter. You'll notice the improvement in sales cadence as we go through the year which reflects program timing, the current environment and importantly, the historical trends of the business. With that said, we see 2011 more back-end loaded than in the past. The growth in the back half is driven by several factors. Specifically, international orders will begin to meaningfully ramp-up later in the year. And from a domestic perspective, we would expect the continuing resolution to be behind us. And with that, we see a marked improvement in the second half compared to both the first half and the prior year. In the first quarter specifically, we see sales in line to slightly down from Q1 2010, despite the four extra workdays. This is primarily due to Zumwalt being down approximately $125 million, the timing of international orders and the impact of the continuing resolution. Finally, on Page 12. As many of you have requested, we have provided a summary of the financial impact of pensions in 2010, as well as our assumptions for 2011 through 2013. We believe this will help you to better model our company over the next few years. I do want to point out that 2011 represents the inflection point holding all assumptions equal after which the FAS/CAS pension adjustment should become a tailwind to earnings. With respect to CAS harmonization, the current expectation is that the rule is likely to be published in 2011 with an effective date of 2012. If this were to be the case, we would expect the new rules to have a favorable impact on our FAS/CAS pension adjustment. So let me conclude by saying that in 2010, Raytheon once again executed well and delivered solid bottom line results despite the challenging environment. We have a strong balance sheet, a diverse portfolio of innovative technologies, strong demand for our solutions, domestically and internationally. And looking ahead, we are confident in our ability to deliver improved customer and shareholder value. With that, Bill and I will open up the call for questions.

[Operator Instructions] And your first question comes from the line of Rob Spingarn with Credit Suisse. Robert Spingarn - Crédit Suisse AG: Bill, we seem to have a trend here over the last several quarters across the industry, with sales coming in a bit light, margins exceeding expectations. How do you see that trend going forward? Bookings would suggest, and Dave you went into a great level of detail that timing in international, et cetera, but it's pretty clear that I think the revenue line's going to be a challenge going forward. How long can you offset with the performance?

From our standpoint, we still see plenty of opportunities in the company. There's a lot of effort going in our supply chain side of the business. As most of you know, that makes up about half of what we do. We're not going to be riding on the backs of our suppliers. I want to point that out. What we're going to be working on more is, given our suppliers better visibility into what we're doing, we're necking down to a small core group where they can align up their investments with our investments to make sure that we continue to deliver the best value to our customers. And as we look at how we're doing that buying across the company and sourcing and development, we think we have some more opportunities for the company in that area. Plus, from our standpoint, we realize that in this environment things do take a little bit longer. And I think I mentioned on the last call that Six Sigma team is looking at our cycles at the beginning of each of the programs as we do things to take out some more time as we go and do that. Clearly, if we can take it out of our cycles, it makes it get a little bit back more to normal. From my perspective, I see a few more months of the congestion that I talked about. But mid to latter part of the year, this might take, at least having been doing it for a number of years, I expect that to change a little bit. And we expect it to be favorable in that regard. Robert Spingarn - Crédit Suisse AG: On that note, and maybe Dave you might have an answer for this as well. But if the CR, which has clearly caused some of this consternation, if the CR is extended through the full fiscal year '11, how sensitive is your guidance to that?

Well, given all the discussions that are taking place around the CR, the full year CR is not considered in the guidance, okay? We don't have an expectation that, that would be the case. And frankly, Rob, it's exceptionally difficult to calculate especially when you're talking about the defense budget. So I wish I could give you a more crisp answer, but there would be too many puts and takes in that situation.

Rob, I would add a little more color. I think the real problem is, when you look at the government side from the program managers or the acquisition cycle, they're trying to figure this out. For those on the call, clearly the last time we went past February 9 was in 1970. So once we get to March 4 and beyond, they'd be a little bit on chartered waters. My take on this is that people understand it and they're going to try and give the department some flexibility so they can operate. We've got a couple of wars going on now and people realize that. And I think people will do the right thing as we go forward.

Your next question comes from the line of Joseph Campbell with Barclays Capital. Carter Copeland - Lehman Brothers: It's actually Carter Copeland for Joe. Bill, on AST, I wonder if you might talk a little bit about the technology, about the value proposition of that transaction. What you think Raytheon may be able to do with that and whether or not we could see more transactions like that, if you see that sort of stuff down there? Any color would be helpful.

Thanks for asking. Because we are in a tender offer process right now, my comments will be somewhat limited. But if you look at the pricing and desirability of AST, we've evaluated the transaction carefully. Applied Signal brings world-class technologies and talents that really complements Raytheon's strong ISR solutions and capabilities. You have to remember or maybe you don't, but 90% of what they do is classified. We believe what we paid for in the business is appropriate. We think we can really create shareholder value. You didn't ask this part, but if you look at Raytheon's classified business, bookings were up 16%. Last year, sales were up 14% and we've had about 13% growth year-over-year. A double-digit in the classified arena. And I think what you got to do is, given our transparency and the way we've driven the company, I think we can create real value with ASP as it gets added to our portfolio. Carter Copeland - Lehman Brothers: For Dave. As you look across 2010, all but one in the businesses has outperformed the high end of the range in terms of margins. When you look at 2012, I know it's early, but are there specific segments where you'd see the opportunity to do that again?

Well, I think you meant -- do you mean 2011? Carter Copeland - Lehman Brothers: Yes, 2011, sorry.

Let me just talk a little bit about some of the businesses. So with respect to IDS, IDS margins as you can see are expected to improve. It's driven by a combination of things. Obviously, continued strong performance and it is helped a little bit by the mix. In looking at IIS, you have to peel this back a little bit. But when you look at it, excluding the e-Borders impact, 2010 approximated about 9% margins, which was very healthy for that business. And importantly, that includes about 50 basis points related to purchase accounting. There's been a number of cyber acquisitions that are now embedded in that business. Year-over-year, we're looking to see that down a little bit because there was some onetime events, some contract restructuring, some productivity that took place in that business that may be difficult to replicate. But we're still moving forward, I think, with a healthy margin profile there. With respect to Missiles, Missiles includes the ramp-up of several development programs. So out of the gate, we're seeing them down maybe 10, 20 basis points, but they'll continue to focus on the things we've been talking about around productivity and cost efficiencies, and we'll monitor that as we go through the year. With respect to NCS, there you sort of have the same scenario. There's a number of production programs that are nearing the end of the cycle while development programs are beginning to ramp up. So we would see sort of the exit margin rate in '11 to be healthy. What you're looking at now is the average of 13.6% to 13.8%. SAS, the lower margin there is driven by the integration in the purchase accounting related to AST. If you exclude that, we're looking at margins 10 to 20 basis points better than where we ended '10. From a Technical Services perspective, we had some favorable contract worth about 30 basis points in 2010 combined with cost savings in '11 that are being passed back on to the customers relative to their training programs. So this is more of a normalized margin profile for TS. Probably a little bit more than you wanted to know, but let me just kind of put the whole company in perspective for you. A couple of things are happening. One is we have the acquisition. Like we said, assuming that it closes in the first quarter, which we currently anticipate, that will, from a company perspective impact us by about 20 basis points. And the performance improvement that we saw in '10 on new contracts, those savings and cost reductions that we've achieved get passed back to the customer. With that, we'll continue to drive from that perspective. But that's kind of what's happening year-over-year.

Your next question comes from the line of Troy Lahr with Stifel Nicolaus. Troy Lahr - Stifel, Nicolaus & Co., Inc.: I was wondering if you can talk about some of the international market opportunities and kind of how you're looking at your sales between Europe, Middle East and Asia and kind of where you see international orders in sales for 2011?

Let me start with a broad perspective. I think from an Asia and a Middle East point of view, we see those as being -- continue to be strong with Raytheon. Put in perspective, last year, if you look our sales represented about 23% international. That was a 10% growth year-over-year, so it's important to us. Those regions are important. If we look at some of the areas that we see activity, Australia continues to be a good market for us. We expect to do some additional work there, especially in Land 17. As we've gone through that, we expect that some time in the first half of the year. Air traffic control radars, which I haven't talked about in a while continue to be strong for us. We're seeing an uptick as more and more people are starting to fly. We're getting interest in our primary and secondary radars, along with our command and controls. So that is a growth for us. Our Missile business continues to see it. Dave mentioned the Paveway orders, we expect that to continue this year. At least in the same kind of range and size. Our TPY-2 radars, those are our long-range radars that we use for missile defense. We see that picking up with international customers. Patriot, clearly for us, Saudi is a customer that we finished technical discussions. Preliminary discussions have taken place. We're informed that it has been budgeted in countries, so we expect to be wrapping that up. We'll hear about Turkey and their decision some time here in the first and second quarter. Other Patriot, I think you've heard in Dave's report, Kuwait has started to buy missiles. We expect them to also expand with new fire units as we do at Taiwan. Israel and other countries are in there, so Patriots got a nice history. We also see some Homeland Security activity taking place in various other parts of the world that orders are close by. But our customers have elected to keep those classified. At least we'll announce the orders but not who they go to. So internationally, I think the order book and activity is about as high as I can remember it. So we're feeling pretty good about it. We just got to work through the issues of the countries deciding in moving forward, but I feel pretty good about the international marketplace right now. Troy Lahr - Stifel, Nicolaus & Co., Inc.: And as a percentage of sales, how do you think that shakes out in a percentage of orders for 2011?

If you look at it from an international point of view, I mentioned last year was 23%. We expect that to grow in the range of 23% to 25%. So we're pretty much on target for hitting our 25% of sales that we announced a few years ago. Troy Lahr - Stifel, Nicolaus & Co., Inc.: And do you have a bookings target out there for 2011?

Yes, we do. About 28% to 30% is what we expect to take place. And overall bookings for the company, we expect to be about $27.5 billion plus or minus $500 million.

Your next question comes from the line of George Shapiro with Access 342. George Shapiro - Citi: Dave, I was wondering if you broke down the quarter where you mentioned that sales were a little bit light. In response to the question I asked you in the third quarter, you said that you were looking for domestic sales to grow 4% to 6%. Was that where the weakness was or it was less international growth but not getting the orders?

Let me just kind of frame up the fourth quarter. We talked about some of this earlier. Bill touched on it, so did I. But let me just repeat that. Firstly, as we take cost out of the business, it does improve the margins as we addressed earlier. But on cost-type programs, it impacts sales. On the quarter, that impacted fourth quarter sales $25 million to $50 million. Secondly, we're in the midst of the CR, which affect the number of programs. We're typically funded for several months on programs, and we're now seeing funding go down even a monthly basis. Overall, the CR impacted us for about $100 million. It's probably worth noting that about half of that was in IIS. And lastly, we did have some timing impact that Bill and I both addressed earlier, both from a domestic and international standpoint, primarily in IDS and NCS. And together, those are about $50 million to $100 million. That's kind of the way to frame up, I think fourth quarter and what's going on from a top line perspective. George Shapiro - Citi: So if I just ask you to summarize then, Dave, how much international grew in the fourth quarter? How much classified grew? And then how much domestic x classified grew?

George, I think I know what you're getting at. So let me put a few numbers around this. Domestic grew around 1% on the quarter. International grew in the double digit range, 11%, 12%.

Your next question comes from the line of Sam Pearlstein with Wells Fargo. Samuel Pearlstein - Wells Fargo Securities, LLC: Dave, back I guess in October, you talked about cash flows from operations is about $1.4 billion to $1.6 billion. It came in $300 million to $500 million more than that. Can you talk about what the moving pieces were that drove that higher?

Yes. Actually it was driven by, and I'll repeat myself, we have a tremendous focus on working capital management and cash conversion. SAS in particular performed extremely well. And they were $200 million, $250 million improved versus what we were seeing. So that's going to be a timing difference between Q4 and Q1. But they were able to move forward on a number of initiatives they had and I think performed exceptionally well. From the balance of the businesses. I think, generally speaking, everybody had a focus and basically outperformed our internal expectation. And that's kind of the short version. Samuel Pearlstein - Wells Fargo Securities, LLC: And then if I look at 2011. If I just look at your slide about the pension contributions it looks like, because of the discretionary and the growth funding that you put in, in 2010, it's down about $900 million from '10 to '11. The operating cash flow number is really not all that different in terms of where your guidance is. And so can you just talk about why that we wouldn't see that go up the full $900 million?

Let me just briefly give you kind of the walk year-over-year. So we ended the year with $1.9 billion, that being the starting point cash flow in 2010. From a pension funding standpoint, we pick up about $800 million, as you just noted. Net cash taxes year-over-year are working against us to the tune of $400 million or $500 million. And then there's really the timing that I spoke about when we were addressing the fourth quarter cash flow.

Your next question comes from the line of Cai Von Rumohr with Cowen and Company. Cai Von Rumohr - Cowen and Company, LLC: Maybe a follow up on the CR. Kind of as I look at your funded backlog, you mentioned the issue of IIS, but it looks really the skinniest at both IIS and NCS. Could you maybe give us some color on if the CR goes longer, which areas get hit the most and which areas are better insulated against the CR?

Cai, let me try and put it in perspective and I'll speak from the wins of a customer as a program manager. If you're a PM in DoD and you're not sure what your budget is going to be, especially if your new program its even worse. But in an existing program, especially on the intelligence side, they basically have gone from the yearly funding to quarterly. And now in some cases, as Dave pointed out, to monthly. And the reason they do that is they want to make sure whenever the decision comes on the funding, they're prepared to execute their programs going forward and not having consumed all the money up front, so there's nothing left for the balance of the year. If that all makes sense. The other thing that's taking place in our backlog that I want to point out is that the company has been extremely successful in converting a number of our programs that used to be funded for longer periods of times into IDIQs, indefinite delivery/indefinite quantity. These don't show up in our backlog, but they give us the ability to spin and react quickly to customers' needs. We've increased that about $600 million last year, so it doesn't show up in the backlog. And those also don't show up kind of in the funding. So between the IDIQs, the change because of the CRs, it affects both the funded backlog and we're sorting it all out. We thought it would be helpful to mention because, at least I believe, that was going to get a question on this that the IDIQs at $600 million, those do have an impact on the numbers and we thought you should know about it. Cai Von Rumohr - Cowen and Company, LLC: And then on the foreign, there's a couple of reasons, Bill, things can move to the right. One is it just only takes longer and second, maybe priorities changed. For example, if Saudi held up by the fact of now we have these big fighters they own, maybe that's kind of moved in front of Patriot or maybe give us some color on the whys of things moving a little bit out to the right?

It's a great question. I spent some time going through all our programs. I wish I could give you an underlining cause for the delays. Each is driven program-by-program or for customer-specific reasons. In Saudi, you're absolutely right. The F-15 was a big win. It was also a big one between DoD and the State Department and the Hill to get approval. That's gone through. You're now starting to see other things moving. Dave talked about the Saudi Patriot order or the Saudi Paveway order for us, which was close to $500 million. That came in right afterwards, so we're starting to see things move. There's a little bit of delay in the beginning of the year because Congress is changing over and we all know that the composition of the House changed. So as soon as they all get their feet on the ground, then we'll start to see some more activity. But it's really case-by-case, country-by-country and Saudi has notified a lot of us of what they intend to buy and we're working with them to get that through. Other parts of the world are changing. I think Asia realizes the threat there. They're starting to adjust their needs and their order books and we're chatting with them. So it's really case-by-case and program-by-program. And what we do see is the new programs are getting -- they're getting through DoD, but they sure take longer. If that helps.

Your next question comes from the line of Heidi Wood. [Morgan Stanley] Heidi Wood - Morgan Stanley: Bill, I want to go back to that question on AST. You are one of the last soldiers left standing with the battle scars to prove it on the 90s consolidation wave. And one of the two lessons learned there was the purchase price of the entity. So can you help us get more comfortable with why AST at these valuations and why now? Was there anything particular that happened that increased in your mind the relative attractiveness over the next five years for AST's profile?

Heidi, I think so. When you look at where the Department of Defense is going and where our customers are going, I'll start with a 60,000-foot look. We will get out of Iraq. We will get out of Afghanistan. There will be troop adjustments at some point that the department will make. The threat environment in the world hasn't changed or at least the threat from terrorism, the threat from nations that want to cause some problems. And so what do you need in that environment? You need SIGINT, ELINT, EW, those are the things that tie in to ISR and the command and control. And for us, the Gretzky quote is probably still the best one that I can think of is, you want to be where the puck is going to be, not where it's at now. And so for us, I think we are wise enough not to get into Fed IT. The market proved that. I think we are smart enough on Cybersecurity three years ago before anybody else talked about it that we set the marketplace there. And we see this as the next one. And from our standpoint, we wanted to make sure that we got a good piece of property. And we thought long and hard. And as I mentioned, they're 90% classified. So we know what they do and we think we can marry that with what else we do and offer our customers some real value and solutions, in some cases that they thought of and even more cases where they haven't thought of. Heidi Wood - Morgan Stanley: There's a domestic angle, but I want to ask a question from the international angle because we have these great zone disputes near Japan that are on the rise. Japan is talking about strengthening both its own command and control, as well as its ability to collect and analyze information. So is this an opportunity for Raytheon? Can you take yours and AST's capabilities to our closest allies?

I believe so where the government will allow us to do. For your benefit and others, we do the badge system in Japan, which is their command and control that we do for them to set that picture up. The radars that exist there TPY-2 on our Patriots and other sensors. So we have the ability to net that all together. And Japan has been a good ally and the United States especially in that region. Our Navies operate together, run exercises together like no other two countries in the world. And so our belief is yes. We see being able to take what they do and we do and put it together and help our allies understand what's going on. Because what we want to know in times of the environment that we're in, what you really want to know is what are your neighbors doing? And we think we have the ability to know what's going on in the world. I guess the best way I could say it. Heidi Wood - Morgan Stanley: You are at 23% of sales internationally. How high can international go when you look at the skyline, Bill, have you peaked?

No. We have not peaked. Heidi Wood - Morgan Stanley: How high can you go?

How high do you want us to go, Heidi? I guess the point is that we thought we could hit 25% within a five-year window, I think that will happen. I'm not so hung up on the absolute number. I'm hung up on the growth and we've had double-digit growth. We look to this year to be in the high-single digits kind of thing. That's coming out of the chute. I'd like to push it harder. We think there are opportunities. And we think given our product mix, I really feel good about Raytheon's depth and breadth of programs, and it gives us a lot of flexibility. And what we're working on internally is our agility. How do we move quicker? How do we do that with existing programs and that ties into our CRAD, which has really grown in the company. And that's our engine here for technology. And so we can offer our customers things that they need. And as Dave said, I didn't talk about it, but they're going to keep existing platforms running. If they do, they need Raytheon inside and so that's what we intend to do.

Your next question comes from the line of Peter Arment with Gleacher & Company. Peter Arment - Gleacher & Company, Inc.: Just a question, Dave, quickly on the IDS guidance. We indicated that you're going to get a little bit of a step down this year. It seems more timing and then also a little bit on the program changes. How do we think about that, not that you want to give us 2012, but do we expect this to kind of come snap back or is this the kind of the new run rate that you see for that segment?

No. I'm glad you asked the question, Peter. 2011 is a bit of an anomaly for IDS, driven by the area that you just mentioned in your question. Looking ahead, we're not to give formal guidance for 2012, but I would say it would be more in line with historical growth rates, if you're looking at say the '08, '09, '10 time frame. Peter Arment - Gleacher & Company, Inc.: And then, Bill, if I could just quickly ask. You mentioned Cyber, and you have some great assets in that area. I mean, is there going to be more external growth opportunities or are you just seeing the money is finally starting to flow and you're going to see some better organic growth opportunities? Any color on the Cyber? What you can tell us would be great.

Let me add one thing because Dave talked about IDS. On the Zumwalt side of, it because of the Nunn-McCurdy breach and the Navy allocating some of the efforts of the ships this year. What that does for us, if you think about it, it really spreads our funding out, which gives us a nice base going forward that we would have peaked and then started to tail off. So now that will help IDS by giving them a nice base. It creates a problem this year. But overall, we think it's pretty good and that should be factored into your numbers. I wanted to mention that. On Cyber, Cyber has been good for us. We've had, if we look at the way we measure it internally, it's had real good double-digit growth. Let me say in the 20% range both in bookings and in sales, and we expect that to continue. Because of some of the stuff you can read in the newspapers, we've actually got some real key technology wins that we are doing for some of the services codename, program's quick stop. But basically, how we deal with insider threats, and that's one of the strengths of the company. So we see the attention and the activity. Plus we start to see programs happening on some pace in cadence, and we expect that to continue and pick up this year after the lag. Because DoD has now got each of the services and the agencies all lined up. So there's an infrastructure there and we're feeling pretty good. We've got a couple of takeaways, so we think we're on track there. Peter Arment - Gleacher & Company, Inc.: I mean, when you're starting it sounds like you get some real critical mass, I mean it begins to start impacting in the top line. Should we think about -- is that the case as we get into the out-years here for Raytheon?

Yes, I think so. The fact that we're coming at it from a full-length point view as the sword and the shield. We see our customers coming to us for solutions in this case. And the fact that, from a company point of view, we use internally what we sell. So when we sell it, we can show our customers that it's scalable because a company of our size and critical nature of what we do. We can show the metrics that are real because it's operating in Raytheon before they use it.

Your next question comes from the line of Jason Gursky with Citigroup. Jason Gursky - Citigroup Inc: Bill, you've mentioned today that program delays have been a source of consternation not only for Raytheon but to the industry over the last year or so. And I think we've talked about this in the past where this is causing not only Raytheon's growth rate to slow but the entire industry as well. My question is, to what extent, with the CR have been put aside, to what extent do you think we have now reached the logical conclusion of these program delays and if we're going to get more into a normalized program award cycle? And as a follow on to that, clearly your guidance suggests that revenue growth is going to pick up into the back half of the year. We may exit the year with growth rate as high as 5% on a year-over-year basis. And you started to talk a little bit about 12% from a segment perspective here. Can you give us a sense of what a more normalized growth rate might look for you as we move out of this acceleration of growth given some of this pent-up demand? And looking out in to '12 and '13 what more normalized growth might look like?

It's a great question. I think the way I look at it is, the frustration that you might hear from someone in our industry is that we can see the order, we can touch the order but getting it booked and signed and everything takes time. And our frustration really sets around being able to peg one that would happen because you all look to us with some specificity in mind. And to me, given the economy, the budget, what DoD has tried to do, the agreements that they've tried to get with the administration. And now we go to the Hill, we're going to have a little bit of this first year of everybody getting their feet on the ground. And I sense that when you look at the committee chairs on defense, they're pretty strong on what they want to go do. Yet in the political environment, the budget is one that has everybody's attention and they'll work through that. Having said that, having been through this somewhat before, not these exact circumstances, our intelligence, our modeling tells us that, that will pick up and get better at year end. I think what we have to really look at and will plug into play is that how Congress will look at the deficit going forward. For Raytheon, we try and shield ourselves in that regard by having our International business being about a quarter of what we do. About 2/3 of what we sell is the DoD. Another third it goes other places and Raytheon's try to broaden our portfolio. If you look at our programs, we don't spin around any one program. I think we only have two programs that are around $500 million in sales, and the rest are more or less than that. So we're really a portfolio of programs that give us the ability to move out and do other things. And that's kind of how we look at it and we'll keep updating you as we see things as we go through the congressional process here because that has a lot in what we do.

Bill, let me just add one thing to that from a cadence standpoint. Because I think it's a fair representation the way you phrased your question. First half of versus second half, we talked a lot about that both in our opening remarks and throughout the Q&A. So in the first half, we're kind of looking at a flattish to may be slightly up period-over-period sales gross standpoint and then sort of mid-single digits in the back half. So if you're trying to think of how to sort of normalize things going forward, I just wanted to reaffirm that the way you're looking at this is right. Again, the back half of '10 going into the first part of '11, we talked a lot about what's going on with the program awards and the timing and the CR. I'm not going to rehash all that. But if you're thinking about how the company's going to look going forward, I just want to put it in perspective and just reaffirm the way you're thinking about it. Peter Arment - Gleacher & Company, Inc.: Just to clarify, 5% probably represents a little bit of out performance given the pent-up demand that we've seen, and that kind of longer-term growth rates will reflect a bit more what the budget itself here in the United States is going to offer, plus a little bit from international?

Well, I don't really want to characterize it one way or the other but I just want to reaffirm the way you're looking at is sort of in the mid-single digit range second half is the appropriate way to look at it.

Your final question comes from the line of Doug Harned with Sanford Bernstein. Douglas Harned - Bernstein Research: I was interested in going back to the e-Borders situation. Because when you look at that, I mean I think of it as you were dealing with a customer in the U.K. home office that was somewhat immature. And I would associate more risk with that. And now when you look at a lot of the international opportunities ahead of you, how do you ensure that you don't run into a similar type of situation?

I guess the best way to look at it is and contractually how you look at it and that contract was a little bit unique. As you point out, I can't say too much about it because we're in arbitration on that. But we've gone through all our contracts to make sure that, that particular situation like that doesn't happen again. Our contracts internationally are usually systems that we've done before whether they be Paveway, whether they be AESA radars or they be missiles. And from that standpoint, this company has a history of doing what it says its going to do. And I think as I said on one of the calls in my 39 years in the business, this has happened once. And I want to point out that the system is operating in country. It is delivering actionable results. It handles 120 million transactions on a yearly basis, and Raytheon delivered. And that's really the point I want to make is this company has a record of standing by what it says it's going to do and it does it. And we'll deal with the rest in arbitration. But I feel comfortable with what we're doing for our other international mature customers. Douglas Harned - Bernstein Research: And does it change the way you look at some new customers that you may be seeing on the international front?

Yes. That's what we get paid to do. We make sure here we have gate reviews on all of these. We get smarter as we do things. Our antennas get better to be able to do this. And we make sure that we reach out to our customers even more so, and it's made us better.

Thank you for joining us this morning. We look forward to speaking with you again on our first quarter conference call in April. John?

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