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

Robert Stallard - RBC Capital Markets, LLC Howard Rubel - Jefferies & Company, Inc. George Shapiro - Citi Joseph Nadol - JP Morgan Chase & Co Heidi Wood - Morgan Stanley Douglas Harned - Sanford C. Bernstein & Co., Inc. Joseph Campbell - Barclays Capital Robert Spingarn - Crédit Suisse AG Jason Gursky - Citigroup Inc Samuel Pearlstein - Wells Fargo Securities, LLC Myles Walton - Deutsche Bank AG Troy Lahr - Stifel, Nicolaus & Co., Inc. Peter Arment - Gleacher & Company, Inc.

Good day, ladies and gentlemen, and welcome to the Raytheon First Quarter 2011 Earnings Conference Call. My name is Alicia, and I will be your operator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Todd Ernst, Vice President of Investor Relations. Please proceed.

Thank you, Alicia. Good morning, everyone. Thank you for joining us today on our first quarter conference call. The results that we announced this morning, the audio feed of this call and the slide 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 Investors 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 move on to questions. Before I turn the call over at 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 are discussed in detail in our SEC filings. With that, I'll turn the call over to Bill.

Thank you, Todd. Good morning, everyone. Raytheon delivered solid operating results in the quarter. Bookings, sales, margin and cash flow generation all exceeded our expectations. This is especially notable given the headwind from one of the longest periods under continuing resolution on record which started last October and ended this month. During the quarter, our team worked closely with the customer in order to minimize any impact from funding delays. This effort was mandatory to keep our programs on schedule and cost. Further, our focus on cost efficiencies and execution resulted in solid operational performance in the quarter. Thus we were able to reaffirm our sales, adjusted EPS and cash flow guidance for the year. We continue to focus on International where we see strong demand for our products. For example, our international bookings were 28% for the quarter. Threat levels remain high and our customers continue to turn to Raytheon for cutting edge technologies and innovative solutions to address the rapidly evolving requirements. In the quarter, International accounted for 25% of total sales and grew by 7%. Our international pipeline remains robust for the remainder of the year. The pipeline includes UAE, TPY-2 ground radar, Taiwan Patriot and additional international missile sales including Patriot upgrades to the Kingdom of Saudi Arabia. Our classified business continues to be strong as well, with sales increasing by 26% in the quarter, the vast majority of which was organic. Let me take a minute to talk about some key highlights from the quarter. IDS was awarded $107 million U.S. Air Force design contract for the Space Fence System. Space Fence is the future of space situational awareness and will provide our customer with enhanced capability to track and detect space objects. This program extends our core radar capabilities into an exciting new application. Whether it's ground-based radars like Space Fence or C-Base , like our recent down select on air and missile defense radar, AMDR, or airborne like our upgraded F-15, F-18 and RACR ACE radars, Raytheon's radar franchise continues to generate opportunities for growth and value creation. Earlier this month, the Raytheon SM-3 program had its 19th successful intercept. This operational test demonstrated the key role Raytheon plays in missile defense. During this test, the Raytheon built TPY-2 ground-based radar autonomously detected and tracked the target. This track information was data-linked to a U.S. Navy destroyer that launched the Raytheon SM-3 Block 1A missile which successfully intercepted an intermediate range ballistic missile target. This concept of forward-base sensor-queuing the shooter is called launch on remote. This is important because the concept is a central capability of Phased Adaptive Approach, PAA, for Europe. And it demonstrates how the integration of remotely deployed sensors and shooters greatly expands the battle space and defended area against a broader range of ballistic missile threats. As part of the secondary objectives of this test, a Raytheon built sensor on the space tracking surveillance system and the C-based expand radar participated in the test and successfully tracked the target. Near the end of the first quarter, the Missile Defense Agency awarded Raytheon Missile Systems a $312 million contract for the advanced capabilities for the next iteration of the SM-3 missile, the Block 1B. The continued evolution of Raytheon sensors and interceptors brings innovative missile defense solutions to the U.S. forces and our allies. When you look at Raytheon's capabilities in radars, interceptors and command-and-control, it becomes evident that we're involved in all aspects of missile defense. Our capabilities are truly a national asset and we're proud of the key role we play in defending the U.S. and its allies. Shifting gears, I want to point out that we remain committed to pursuing a balanced and disciplined approach to capital deployment. During the quarter, we raised the dividend for the seventh consecutive year, this year by 15%. We also repurchased 6.1 million shares of stock and completed the acquisition of Applied Signal Technologies. AST brings a rich set of capabilities to the Raytheon family, particularly in the EW and cyber markets where we expect future growth. Integration remains on track, and we welcome the new team members from the AST. We also strive everyday to maximize the value we bring to our customers. This includes being as efficient as possible. Once again, you can see the results in our margin performance and as I've said before, our focus in this area is part of our DNA. To that end, we are pursuing a broad range of initiatives across the enterprise to maximize efficiency, including optimizing supply-chain operations and further leveraging our shared services model. This follows on our drive over the past few years to improve our focus on operational working capital, which has yield significant cash flow improvements. As you can see from the quarter earlier results, Raytheon continues to deliver solid operating performance. The depth and breadth of our portfolio, the agility and dedication of our team and our focus on operational excellence continued to provide the foundation for our continued performance. These advantages also position us well to convert future challenges to opportunities. We have a proven strategy, best-in-class capabilities and outstanding team to meet our customers' needs. And now I'll turn it over to Dave.

Okay, thanks, Bill. So I have a few opening remarks starting with the first quarter highlights 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 move to Page 3. As Bill noted be performed well in the first quarter; bookings, sales margin and cash flow generation all exceeded our expectations. We achieved solid performance in light of the challenging environment posed by the continuing resolution. Additionally, as Bill noted, both international bookings and sales were strong. Our adjusted EPS of $1.38 was up 10%, driven by capital deployment actions and operational improvements. Adjusted operating margin was 12.5%, up 10 basis points. Sales were $6.1 billion which I'll discuss further in just a moment. Operating cash flow from continuing operations of $69 million was better than our previous guidance due to the timing of collections, particularly at our Technical Services Business. You may recall that we implemented that our Apex SAP financial system upgrade at TS in the first quarter. The process was virtually seamless and we were able to realize better than anticipated billings and related collections. During the quarter, the company repurchased 6.1 million shares of common stock for $312 million. In addition, our Board of Directors increased the company's annual dividend rate by 15% to $1.72 per share. We've now increased the dividend for seven consecutive years. Also as we previously announced, in the first quarter 2011 the company completed the acquisition of Applied Signal Technology, which is being integrated into our Space and Airborne Systems business. For the year, we expect solid sales growth and strong operational performance. I'll discuss guidance in a few minutes. Turning now to Page 4, let me start by providing some detail on our first quarter results. Our total company bookings for the quarter were $5.1 billion. We continue to see the order book improving in late Q2 and early Q3. From a cadence standpoint, we expect the book-to-bill to expand as we move through the year, resulting in a full year book-to-bill ratio of 1.06 to 1.08x. Notable bookings in the first quarter included $131 million at IBS to provide engineering services support for Patriot Air Missile Defense Program for U.S. and international customers, and $107 million for the development on the competitively awarded Space Fence program for the U.S. Air Force. IIS booked $347 million for the development of the Joint Polar Satellite System for NASA. Missile System's booked $375 million for the development and production of SM-3 for the Missile Defense Agency and $177 million for the production of Excalibur for the U.S. Army and an international customer. During the quarter, SAS booked $782 million on an international program. Technical Services booked $87 million for domestic training and $63 million for foreign training programs in support of the Warfighter FOCUS program. TS also booked $150 million to provide operational and logistic support to the Polar Mission for the National Science Foundation. Backlog at the end of the first quarter was $33.7 billion compared to the $34.6 billion at the end of 2010. If you now move to Page 5. Sales were ahead of our expectations. Looking at sales by business, IDS had first quarter 2011 net sales of $1.2 billion. As we expected, the change in IDS sales was primarily due to lower sales on the Zumwalt program as a result of the revised funding profile which I spoke about on the last call. This impact is expected to be approximately $300 million to $400 million for the full year. IIS had first quarter 2011 net sales of $750 million. The increase in net sales was essentially driven by the GPS-OCX program. Missile Systems and Technical Services both had sales in line with the same period last year. NCS had net sales of $1.1 billion, the change in net sales was primarily due to the planned decline in production of the U.S. Army Sensor Program. Space and Airborne Systems had net sales of $1.3 billion in the quarter, up 16% driven by growth in classified business and an international airborne tactical radar program. Moving ahead to Page 6, we are pleased by our overall company margin performance, once again, showing year-over-year improvement from an operational perspective. Our adjusted margins of 10 basis points to 12.5%, and if you exclude the AST integration and acquisition-related costs, adjusted company margins would've been 12.7%. So looking at business margins, IBS, Missile Systems, NCS and TS margins were up in the quarter compared with the same period last year, the result of solid operating performance. Technical Services was extremely strong, driven not only by a continued focus on efficiency improvements, but also by a favorable contract modification, a contract extension and a legal settlement which are not expected to recur. And at IIS, year-over-year margins were up 30 basis points over last year's first quarter, excluding the UKBA Letters of Credit adjustment. I'll talk more about this in just a moment. At SAS, the change in margins was primarily due to $13 million of acquisition integration related cost for Applied Signal Technology. This impacted SAS' margins by approximately 100 basis points. Overall, the company continues to perform well. Let me now take a minute to address the unilateral decision to draw down on the letters of credit by the U.K. Border Agency in connection with the filing of their claim as part of the arbitration process. I want to be clear that from our perspective, our assessment of this situation hasn't changed. While we do not believe the LOC draw was appropriate, the arbitration panel's decision effectively deferred a final determination until the end of the arbitration and found that the validity of the draw is now inextricably tied up with all of the issues in the arbitration. Consequently, the accounting rules require that we write-off the full $80 million. The fact is the e-Border system is operating successfully and delivering actionable intelligence. The system now screens more than 120 million passenger journeys per year, representing more than half of the traffic entering and leaving the country. As of April 15, the U.K. Border Agency is now operating the system. With that said, this action shouldn't take away from the underlying strength of our overall performance in the quarter. Turning now to Page 7, first quarter 2011 adjusted EPS of $1.38 was up 10%. The increase was driven by capital deployment actions, specifically share repurchases and operational improvements. On Page 8, you'll see that we are reaffirming the financial outlook for 2011 that we provided in January for net sales, adjusted EPS and cash flow from continuing operations. We have updated the guidance for the full year 2011 EPS from continuing operations to reflect the accounting impact of the UKBA LOC adjustment. We expect growth in sales in the range of $25.5 billion to $26.3 billion and adjusted EPS to be in the range of $5.50 to $5.65. Moving to Page 9, our outlook by business is unchanged from our previous guidance for the year, except for the margins at IIS for the reasons I just discussed. The key take away here is that our strong and diverse portfolio is driving sales growth and solid margin performance. On Page 10, we provided some directional guidance on how we currently see the quarterly cadence for sales, EPS and operating cash flow from continuing operations. We saw good performance in the first quarter compared to both Q1 2010 and also the initial outlook for Q1 2011 that we provided back in January. Some of this improvement was driven by timing. Okay. Now let me summarize the first quarter from an operational perspective. We had solid sales in a challenging environment, strong margins, EPS and cash flow. Our shareholder focus was again highlighted by increasing the dividend by 15% and repurchasing $312 million of common stock. Our balance sheet remains strong. We are confident as we look ahead. We fully expect our solid results, both from a program performance and a financial perspective, to continue. We are well aligned with the priorities of the DoD (Department of Defense). This was again proven out by the signing of the FY '11 and the submission of the FY '12 defense budgets. We fully expect this to be the case longer-term. We continue to expand our international presence and we have a broad range of near and long-term opportunities in the pipeline. The fact is that we continue to improve margins over time which in large part reflects our unrelenting focus on performance and cost efficiencies. We have an exceptionally strong balance sheet that gives us the flexibility to invest in value-creating opportunities in addition to capital deployment priorities that together directly enhance and improve shareholder value. With that, Bill and I will open the call up for questions.

[Operator Instructions] Your first question comes from the line of Rob Spingarn from Credit Suisse. Robert Spingarn - Crédit Suisse AG: Dave, you just talked about the flow of earnings in the quarter. And clearly looks like you pulled some business forward. Could you get into a little bit more detail? You talked about timing. Think if we go back, look at your old guidance and the old percentages is that you gave, on an operating or continuing ops basis, you would've earned a $1.03. You earned $1.22 when you I back out the $0.16. And if you could talk a little bit about that and perhaps why when you -- I think the fewest working days in the fourth quarter, you get the highest earnings there.

Sure. Okay, so we did see good performance in the first quarter, both compared to last year's first quarter and compared to our initial outlook. It's important to note that some of this was due to the timing of improvement that we had expected in the second quarter. That accounts for about $0.05 or $0.06. It was driven, I would say, principally by SAS volume and otherwise spread across the other businesses. It's still early in the year and the outlook for growth in 2011 that we provided again reflects our best estimate of the range of results we expect to deliver. Now we did speak about this back in January. The timing of new awards this year drives the ramp up in the back half of the year. Again, this is consistent with where we were a few months ago and I agree that we've started off very strong. But given the cadence that we expect to see throughout the year, we're quite comfortable with the second through fourth quarters. As far as comps are concerned, I think you always have to look at the starting point relative to what happened in last year second half, particularly the third and fourth quarters. So from a comparison standpoint it's not quite as pronounced as the numbers might otherwise suggest. Robert Spingarn - Crédit Suisse AG: Okay, and then just from a detailed perspective, you got this volume increase at SAS. You've got Applied Signal there. You talked about classified growth, yet the margins came down almost 200 bps, 100 of that is explained by the integration. What else is going on there?

Okay. SAS continues to perform well as it has over the last number of years. You talked about the hundred basis points essentially that impacted the business of through the AST integration. Other than that, there is a timing and mix of programs. We still expect healthy margins for the balance of the year. There's nothing remarkable going on in the first quarter. It's simply just a timing and mix issue.

Your next question comes from the line of Troy Lahr from Stifel, Nicolaus. Troy Lahr - Stifel, Nicolaus & Co., Inc.: I'm wondering if you can talk a little bit about the continuing resolution, and maybe how much that impacted the first quarter from a sales and your booking standpoint?

It's Bill. Let me try and do that. At first, I would say it's not an exact science because we have so many programs, but as near as we can look at it, we figured that the CR had an effect of about $500 million in bookings and probably $200 million in sales. Troy Lahr - Stifel, Nicolaus & Co., Inc.: And then lastly, from an international booking standpoint, are you seeing anything get shifted out to the right or put on long-term hold, I would say?

No. From our standpoint, the pipeline is rich. I can run through them real quick if you want. Troy Lahr - Stifel, Nicolaus & Co., Inc.: Sure, thanks.

From my standpoint, clearly if we go around the globe here and we take a look at the Mid-East increased activity for us. On Saudi Config-3, we're working to upgrade the existing fire units over there. They've got 20. We're currently in final negotiations over there. We should be able to wrap it up shortly and then go for congressional notifications. So from my standpoint, probably in the next few months we see that coming home. We've got TPY-2 radars in UAE from our standpoint there. A couple of radars, we expect that probably in the fall of this year, maybe in the $500 million, $600 million range. Further on Patriot, we've got Taiwan and Kuwait. Both of those are expected in the latter part of the years. They've talked about as we ramp up at the end. We've got Paveways that there's demand maybe $500 million, $600 million that we see in various countries around the world as they use that particular system. Our Air Traffic Control business around the world clearly is getting some attention. People want to make sure that we've got the capability to track all the targets there and we see about $200 million worth of business in that area. Missiles are strong. We expect $400 million to $500 million in sales around the world. Training that continues to be strong international, maybe $200 million to $300 million there. And finally sometime this year as we get through elections and everything in Turkey, we expect an announcement in that area in Turkey Patriots roughly about $2 billion. To take a little time to walk you through some of the opportunities we see internationally. That also discounts the tens of millions of contracts the various small wins that we got in 80 countries around the world. So we have not seen a cancellation. And for us, the back end was really loaded because that's when we expected these international orders to come in.

Your next question comes from the line of Howard Rubel from Jefferies. Howard Rubel - Jefferies & Company, Inc.: Two questions, Bill. I'm going to break the ice on one of them because it's the elephant in the room. Is the guy that signed the U.K. Border contract now in South Pole running the business down there? Could you elaborate a little bit more on what other risks you have left? I know this is a big irritant to you, but it's kind of an unfortunate charge.

Because this is really an accounting event and our assessment of the case hasn't changed. I'll really ask Dave to address that portion and Dave's with me here in Waltham. So that will at least explain that Dave's, okay?

Howard, I think the first part of your question is appropriate, but we can't comment on the movement of personnel around the world. I'm sure you can appreciate that. So as we sit here today, we don't see a basis for any additional positive or negative adjustments until the tribunal's decision which is expected in 2013. I hope that answers your question. Howard Rubel - Jefferies & Company, Inc.: And then a follow up is you had -- you talked about some very good classified business growth and some pretty impressive international growth despite not bringing home any of these big contracts that are in the works. Could you address a little bit the domestic business which obviously was the core domestic business which is down? Is that some of that timing or is it some of that run off of contracts? It's just the nature of the beast?

Howard, it's Bill. I think a lot of it is timing. There was a lot of consternation, I would say, in the building. It was hard for our customers to figure out when the CR was going to end. They were trying to fund at the 80% level. There couldn't be any new starts really during the period. So domestically, as an engineer, put in our see time constant, just delayed things and so from our standpoint, we haven't been troubled by the loss of anything. In fact, the opposite is true. Our win rates are plus 70% or better in both programs in dollars. So to answer your question, it's been more of a delay factor. And we've got one of our programs and EW got booked immediately right after the resolution for about $85 million. So we see some things starting to move and we expect in the missile area, that will continue. And then we've got a couple of new Homeland Security opportunities that should come to fruition here because we're in negotiations as we speak.

Your next question comes from the line of Peter Arment with Gleacher & Company. Peter Arment - Gleacher & Company, Inc.: On TS, Dave, they have very strong margin performance. Any one-time items in there? Is it all operational?

Well, there are some items that will not recur. I think when you stand back, they obviously posted the strongest margins certainly in the last 10 years at over 10%. When you peel back the items that won't occur again for at least for the balance of the year and looking into next year, the margins come down to about the mid high 8% range. That's part one. Part two is we'll also be starting up with some new awards as we go throughout the year and we'll be booking those new awards at rates that are expected to be lower than where we would possibly end up over time. So the business is continuing to perform well. There's a tremendous focus in that area on cost efficiencies and productivity and we're satisfied with that business overall. Peter Arment - Gleacher & Company, Inc.: Bill, thank you for the international bookings kind of run down. Is your target still that you expect roughly at 30% mix for the year?

Yes, we expect international to be about 28% to 30%, sales to be about 23% to 25%. We see that on track. Our bookings for the year at 27.5% plus or minus $500 million is still also on track with the international mix being what I stated earlier. Peter Arment - Gleacher & Company, Inc.: You mentioned a lot of these countries, sounds like that there's going to be some contract awards this year, but there was a proposal out in February that I guess Germany was going to give some surplus CAC2S to Poland. And I guess the numbers that were thrown out there, the modernization would be upwards of $1 billion for Poland. What is -- have you seen any movement further from that, I guess given maybe some further fallout from EMEA's decision here domestically?

We see increased attention to Patriots, given the EMEA's decision and countries realize that Patriot is still the premier system in the world for handling all three kinds of threats. So from our standpoint if you think about it, Korea actually started with the same kind of assets and we've upgraded those. And Korea is now part of the Patriot family here. And Poland, we'd like to see in the same position or any other country. It's got a great heritage and it's now one of the most modern air defense systems in the world given the upgrades that we put in for UAE.

Your next question comes from the line of Sam Pearlstein from Wells Fargo. Samuel Pearlstein - Wells Fargo Securities, LLC: Dave, just want to ask you a question. Around the U.K. Borders, in your filing, I guess, where you talked about the $80 million letter of credit, there was also a $70 million receivable. Is there anything that would trigger a write-down or change in that as you look forward?

No, there's nothing that we are aware of at this time that would trigger a write-down. Samuel Pearlstein - Wells Fargo Securities, LLC: When you calculate or the cash impact of the letter of credit, are you considering that in your cash from operations or are you counting that separately kind of a financing activity?

It's in cash from operations and it was impacted in the second quarter. Samuel Pearlstein - Wells Fargo Securities, LLC: And then just last question is really on some of the international contract awards that, Bill, you just mentioned. A lot of those are going to take some time to actually impact sales. So the ramp up in the second half in terms of sales are probably not those international Patriot awards. So what's really coming in that would help accelerate the sales growth in the second half?

It's a combination. What I would say is some of those will have an effect. They won't have a big affect. Anything to do with patriot or Paveway or any of those programs have an immediate ramp up because we've already built them before we have a supply base. You have to realize that we're in constant contact with our supply chain so that we want to make sure they're ready, we're ready, are the orders all stacked and ready to go when we pride ourselves on getting a quick jump once we start. And that's factored into the contracts. And our customers know it because some of these systems, they want as quick as we can get it to them.

Your next question comes from the line of Robert Stallard from Royal Bank of Canada. Robert Stallard - RBC Capital Markets, LLC: Bill, on the U.K. thing again. In your judgment, has this arbitration process in the letter of credit had any impact on your relationship with the British customer?

We deal primarily with the Ministry of Defense and I can tell you we're in their top 1, 2, 3 or 4 as far as suppliers. And we're proud of our relationship with the Ministry of Defense and it's been a good one, long-term one, and we continue to view them as a great partner. Robert Stallard - RBC Capital Markets, LLC: Dave, on the share buyback, how do you expect the cadence of the buyback to progress through the year? Have you started fairly low and expected to pick up as you go through the year?

It's a fair question, but I can't specifically talk about the cadence. We did provide a full year guidance on, from a diluted share standpoint ending the year somewhere between $353 million and $359 million shares outstanding. That's still holds and I'm comfortable with that. But it will be parsed out obviously. We were a little over $300 million in the first quarter and we still would expect to be in that range as we close out the year.

Your next question comes from the line of Doug Harned from Sanford Bernstein. Douglas Harned - Sanford C. Bernstein & Co., Inc.: You're continuing to deliver very, very good margins here. Could you comment on the contracting environment right now? This has been something obviously you've talked about over the past year. But are you seeing any changes? It seems like you're able to keep pushing this forward. Is there more upside here?

Yes, Doug, what I would say is, the question is really on margins and not only are they sustainable but our customers have repeatedly told us and me, they're willing to pay for performance. In fact, we see more of our contracts incentivizing us to do much more. And for me, that gives us an opportunity to perform even better. Last year, we had about 57% of our contracts for fixed price, 43% were cost type. And so for us, this environment, the fixed price is not something that bothers us. I think for some companies that have been predominantly cost plus, wishing the fixed price probably gives them pause. But what we take on the fact that we understand our manufacturing readiness levels, our technical readiness levels and we major those when we bid and the fact that we've got 8,000 programs or 15,000 contracts gets us very comfortable with this process. And we worked hard for a number of years. I think you know our mantra's performance here. And that's the best possible position you could be in at this point in time. You always worry that there's one program manager that will try and solve the entire defense budget and the nation's economy on one contract. But our job here is to make sure that we're netted together in the company, and we get to that. And I can say those on the acquisition side from Ash Carter down. Their lines and office stores are open and we're able to go in and talk to them if something doesn't seem reasonable. So there's a lot of swirl. But from our standpoint we have processes here and we know how to execute. We've got great program managers and there's always going to be a one-off and that's where management comes in to make sure that both sides understand what needs to be done. Douglas Harned - Sanford C. Bernstein & Co., Inc.: When you look forward over the next 2 to 3 years, How would you describe your mixed changing in terms of development versus production or in terms of fixed price versus cost plus?

We might see more on the fixed price, especially since some of the large international orders would be that way, which is good for the company and good for our customers. And that wouldn't give me any kind of pause because people know how we perform internationally. It's a large community, but I always say it's one of the smallest in the international world. Everybody knows how you're performing. And I'm happy to say there isn't a place in the country or the world that I have a concern where we do business about visiting and talking about Raytheon's performance. Douglas Harned - Sanford C. Bernstein & Co., Inc.: And is there a shift on your domestic work toward fixed price as well?

From our standpoint, preponderance of it really is already fixed price. If you look at some of our Missile business, you look at our radars, you look at our communication or network or training, it's already that way. The cost plus is really in the development area, some of the classified area and clearly, the margins in those areas reflect cost plus. But we're also seeing now, which I'm excited about, some opportunities in cost plus to be incentivized to even do more. And that's exciting to us because as President Kennedy said about 50 years ago, we do things because they're hard, not because they're easy. And when they're hard, they bring together the talents and the resources of this company to knock it out of the park.

And your next question comes from the line of Joseph Campbell from Barclays Capital. Joseph Campbell - Barclays Capital: Bill, a couple of folks have said in the procurement side in the various military departments, that they have some apprehension about being able to get all the RFPs out and all the stuff obligated by the end of the government's fiscal year. And I was wondering how you felt about it, now that they've got their money, they have to basically get a year's worth of work done in a half a year. Where do you see the areas that you're not worried about where you think they were well prepared for this and are there other areas that look like they're more challenged?

I would say the larger programs are probably more challenged because of the visibility. It's hard on the acquisition teams mainly with things that happened in the past. The tendency is to be a lot more cautious. So the bigger programs are getting more visibility. But if you look at our portfolio, I think we only have two programs over $500 million in sales last year. That predominance of our stuff is smaller programs. We see those continuing to move. And right now, clearly, our teams are side-by-side, seeing what we can do to work together since we've been delayed for a few months here, what can we do to expedite everything. And I think if people remember, kind of what I talked about on the calls last year, was how Raytheon could take cycle time out of our processes and we worked hard the last four, five months actually longer than that since last year to streamline both our international and our domestic processes so we could take and shorten our cycles. So if the government increased in any way, the overall cycle would look the same, if you know what I mean. This is something we've actually anticipated. And now that the budget's signed for fiscal year '11, especially in areas of EW, ISR, cyber and missile defense, we're off moving hard to get those moving because that's where the attention is. Joseph Campbell - Barclays Capital: On the same, similar kind of what's going on in the Pentagon line, how do you, what are your insights into what the Pentagon will do with this, Obama directed $400 billion? I mean, will it show up all out in the back year so we won't care or will they actually sort of start all over again and potentially take a fair chunk up front? And I guess, you know we now know it's going to be Panetta and Gates is out. Inevitably, there will be some differences between the SEC dept and how they approach this. Any insights that will help us sort out whether this is the potentially a big thing in the 2013 budget or it's probably not?

Since I'm not in charge, this will make it really hard that we start up... Joseph Campbell - Barclays Capital: Everybody's entitled to an opinion and you're knowledgeable so we'll take it at that.

I'll start off by saying it's great to have someone as Secretary of Defense Gates' stature as being succeeded by someone with a breadth of experience like Leon Panetta. Panetta brings a wealth of experience as the former Chairman of the House Budget Committee, the Director of OMB, Directors of the CIA and the White House Chief of Staff. He has got a broad-based experience to tap into. And if anybody understands the budget process, he sure does. With that in mind, given that the President has asked for $400 billion, if I was in charge, it would be consistent with I think what Secretary Gates has said, that you got to first start off with your roles and missions. What do we need to do, what is expected at DoD and how do they go about doing that? Once you understand it, then you can put a price tag associated with that. And that's the right way to go do it. And if the roles and missions are agreed to and the price tag is higher, then you got to go and cut some things out. And I think it's going to be an interim process. It'll take longer. It will be more in the out period than it would be in the inside period. Because clearly, as a nation, I think it would be hard for the President to ask DoD or the military to do something and somebody say, well, that's not budgeted or that's not what we're expected to do. And Libya is probably a good example of that. So it is a complicated world. We have a great military. They've responded whenever asked and they do it in a decisive manner. So to answer your question specifically, I'd probably say latter rather than sooner because it's complicated. And Gates did the right thing by looking at the budget ahead of time and figuring out how to get money out of it early. And he's made some tough calls. And as someone in this industry, I applaud him because once you understand what the calls are, then you can right-size your work business. You can double check your strategy, you can look at things and take action. It's the unknown that keeps you from making the right decisions.

Your next question comes from the line of George Shapiro from Access 342. George Shapiro - Citi: Dave, I wanted to pursue a little bit more the fourth quarter revenue. Because the way it looks is you're projecting anywhere from 5% to 10% revenue growth despite the fact that you got five less days in the quarter. So maybe we could be a little bit more specific in terms of orders that you expect like Saudi Patriot, how much revenues is assumed in that fourth quarter guidance? How much revenues is assumed from quarters yet to be gotten?

I think the way I can answer that is similar to what Bill addressed earlier. From a booking cadence standpoint, we've addressed that with respect to the way we see some of these international programs as well as domestic programs being layered in. So to say late Q2, early Q3 and then the balance of the year. What's important here to note is that we will effectively ramp very quickly once these orders are placed. I don't think it's probably appropriate to start dissecting on a award by award basis, but at this stage, George, we've looked at it pretty closely and we're comfortable with the third and fourth quarter revenue profile. So that's the comfort we can give you at this point. And frankly, we started off the year stronger than we expected and we're going to continue to push into that direction. George Shapiro - Citi: And then just one other, Dave, if I kind of look at what Bill said about increase in international and the 26% growth in classified sales, it works out that the other domestic sales had to be down around 8% give or take, a little bit. And that would be more than just $100 million decline in Zumwalt. So what other programs domestically are effectively just declining?

Well, the CR was basically domestic for a couple of hundred million dollars. I think maybe that's what's lost in the arithmetic there. So between Zumwalt and the CR, that made up $300 million to $350 million of the decline. George Shapiro - Citi: Let me get one last quick one for you. You had a very low corporate and elim [eliminations] in the first quarter, $37 million but you left the guidance at $260 million to $285 million through the year. So was there some benefit in this quarter or what's going to cause some of these subsequent quarters to increase dramatically from the first quarter level?

Typically, the first quarter is lower than the balance of the year. But as we ramp up on sales, you'll see a fairly significant ramp up in corp and elims.

Your next question comes from the line of Myles Walton from Deutsche Bank. Myles Walton - Deutsche Bank AG: Just wanted to follow up first on George's last question and focus on Turkey in particular. It seems like it'll be this is a couple of designed dollar bookings. It's a big chunk of your international bookings for the year and I think last quarter, you thought it was a near-end decision. I think the elections have pushed that out to later this year and given the way those things go. I just want to kind of belt how much of Turkey is in this year in terms of our revenue exposure?

Almost nothing.

We're looking towards the latter end of the year from a potential award standpoint. So the Turkey Patriot program is not a significant revenue driver this year. Myles Walton - Deutsche Bank AG: And then a follow-up. Bill, you commented on the C-Base missile defense success. I know the DoD is extremely happy with the sensor hand off you helped with in that test. But can you give us some perspective on the ground-based missile defense performance over the last quarter, with the January test failure and kind of some of the reports that were pointing towards the EKV as a contributor?

Yes, there's a component in the EKV that's there that we're going through what they call the FRB, a Failure Review Board. And between MDA, the supplier and us and others, we're going through to make sure that we absolutely understand what happened there. And everything else in that particular program is moving forward. Some of the confusion is that people think it's a death stop. That's really not the case. When you go through something like this in the missile world, which I've spent most of my career in, you take a look at what you think the fault trees are. You go through that and as you eliminate the faults, you start to focus in on the one, two or in our case, we always want to find out what are the three things that could have caused the failure. And you work on all three, but the focus on the primary. And here, that's exactly what we’re doing. We should be wrapping that up shortly. When we do that, we'll put in what we believe is the corrective action and then we'll proceed to test it on the ground, trying to introduce the fault and see what we can do in the new ultimately go to the flight test which is the real environment, where you see vibration, where you see all kinds of things happen with targets that are planned and unplanned. So from our standpoint, we're going through the processors. Not a grave concern of laws of physics or anything like that. It's what I affectionately call the forensic engineering that you go through to analyze the faults that might make a neat television shows, some days at CSI gets so much attention on something else. But, that's what it's all about. Myles Walton - Deutsche Bank AG: Any, negative EAC could be absorbed into the exiting guidance range, if there were any?

Yes. No problem there.

Your next question comes from the line Joe Nadol of JP Morgan. Joseph Nadol - JP Morgan Chase & Co: On the classified side, 26% growth, it's a big, big number. I'm just wondering if you can give us anymore color on segments, with just 1 driver or 5 drivers. You said most of it, the vast majority's organic, so obviously that wasn't from applied signal. But anything else you can give us?

Yes. Let me see what I can do with giving you some color around it. About 11% in bookings came out of it are sales were about 16% for classified, 26% increase as you heard. We expect in the year bookings to be in the high single digit low double digit for us in class of 5. We expect sales to be around 15%. We expect that to be at 10% to 12% growth year-over-year. That is about as far as I can go. It's clear to us. It's a driven in a couple of our businesses when we look at FAS and IIS and part of we felt a little bit of a throttling with the CR, but now that that's behind, we are overseeing the smaller contracts that we get in that area, including cyber doing very well. In fact, Just to some color, we had some great tech wins across-the-board especially in our core areas of radar, C3I, EO/IR and in the classified as I pointed out some good wins, especially in cyber. Joseph Nadol - JP Morgan Chase & Co: So you'd say cyber is maybe the dominant driver there?

I wouldn't say dominant, but it's moving the stronger of anything else. Joseph Nadol - JP Morgan Chase & Co: Bill, just on the state department, can you give us a -- I know you talked a lot about the Pentagon and about the cycle. Can you speak a bit to the State Department and how things are tracking there in terms of notification timing, that sort of thing?

Clearly, what I see taking place there is something a little bit unprecedented. And I give Secretary Gates credit for this because he took it on as they're really trying to expedite the export process and I do see commerce and state and DoD working on this. We are keeping our fingers crossed that they're going to make their timeline of this summer. And basically, what will help is that we can take the preponderance of things and move them over into what I call the fast lane. They don't need a lot of review, we've released them. They're not critical. There are other capabilities in other countries. And so that can kind of go into the fast lane much like you go on a turnpike when you get that card that let you go through quick. But then there'll be stuff that has to go through the reviews between DoD and state. And what I believe is that we have the fast lane and things go through that, it will take some of the burden off the people that have to do the job every day so they can really focus on the complicated and what they should be working on. And so from my standpoint, I'm encouraged about that. Some of the big orders have gotten through state and will be submitting some here shortly. We just, NYMEX, for example, is now in congressional notification. That should go through smoothly and we kind of expect things to go through now that there's a budget there. Not signing that budget really made it complicated for every government agency in Washington, in my opinion. Now it's behind us and let's get on with '12 and get moving.

Your next question comes from the line of Heidi Wood from Morgan Stanley. Heidi Wood - Morgan Stanley: Bill, I'm also going to talk on the classified stuff and also try and tiptoe my way around it. So you had the good classified wins. Can you talk about how much of those wins reflect kind of more of the same that was kind of classic core Raytheon versus things you defined as stretch wins where you see yourself, Raytheon, heading into new businesses and competencies that maybe you didn't have say two or three years ago?

First of all, it's all black. So you make it hard. And it's a gut feel. There's no analysis done on this whatsoever. So it's my gut feel to what I'd know and I probably say 1/3 of what we're doing is new. Heidi Wood - Morgan Stanley: A follow-up. The underlying competitions in IIS, one of the things that you and I have talked many times about is that you wanted, you'd once said that the award rates were too high and you really wanted your team to be reaching higher and taking more risk and having a lower ratio and trying to compete against more. Can you give us an update on how that's looking now?

Actually, IIS has made a nice shift from a lot of their sole sourced business where the work came to them. As the way I would describe it, I believe you need a wolf instinct if I could pick one, and I see IIS developing to that kind of business to where they can go out and we see it in the real small awards that wouldn't hit your radar screen but it hit ours. If you look at jobs that are $1 million, $2 million or $5 million or $10 million and they're doing very good about cultivating that, setting the expectations right, working with their customers. You see it in programs that we have putting apps on the battlefield. You see it in some of the things were doing in secure view of being able to look at passively what's happening on networks. And we also have the ability to look for malware or things that can cause harm to the systems. They have all of these applications that they're working with customers and given the fact that in the 1s and zeros world, everything travels at the speed of a click, and the threat more is so on a daily basis and they're doing very good at being a wolf in that environment. And I'm encouraged, our win rates are still extremely high which means we've got to continue to open the aperture but make sure we stay about one swim lane over so that we understand the risk and we manage the risk and we keep delivering the kinds of margins that you all expect from us. Heidi Wood - Morgan Stanley: Bill, just one last one. As we sort of contemplate this new environment we're in, we've got -- talking about more large weapons cut ahead. Very few in environment or very few new programs starts. Do you see Raytheon's opportunity moving at all from funding and weapons more over towards O&M? If I were to think back in the last down cycle when DoD was lacking funds to buy new kit, there was a focus to changing the need towards refurbing existing systems and is that what you're sort of anticipating ahead and what does that mean for Raytheon?

I think the way we look at it I really do believe we thrive on challenges. I mean you can sit here and say, “Oh woe, it was me.” Or you can look at it and say something got canceled or this happened. There's always an opportunity. You just have to be quick and agile enough and have a portfolio of capabilities and a talented workforce that can adjust. So if something gets canceled, it means you have to keep running or performing with what you have. Otherwise, you have mediocrity. And this country has never been mediocre. So from my standpoint, we've come up with our radars, our EOIR Systems, or command-and-control or something else that can keep that platform or system going because the threat's not going away. And so you want to keep it running until you can put in a new start. So for us, I wouldn't call it O&M work. I really see it much like we can do to F-15s or F-16s, in airborne radars. What we can do on the ground and EO systems to be able to keep the existing system current and actually take care of future threats.

Your next question comes from the line of Jason Gursky from Citigroup. Jason Gursky - Citigroup Inc: Just a quick question, more of a clarification. You said I think that the book to bill that you expected for the year was 1.06 to 1.08, which means that you're expecting total bookings for the year kind of in the $27 billion plus range is that right?

Yes, that's right. Jason Gursky - Citigroup Inc: Can you just help, maybe provide us some comfort on why we're going to see such a big acceleration into the back half of the year. You don't think you've seen bookings at $7-plus billion maybe a handful of times over the last several years on a quarterly basis and I looked back over time, you haven't had bookings of $27 billion in maybe the last five or six years. Could you maybe just cite anecdotally some process things that may have, they kind of lead to this acceleration of bookings as we move through the rest of the year?

This is Bill. In my opening question, when I talked about international, I probably ripped through about $4 billion or $5 billion worth of international there very quickly. And so I think that answers your question. We can see that in the back end. We also see that things started off slower this year. So the number I gave of $27.5 million plus or minus $500 million is still the number. Jason Gursky - Citigroup Inc: Anything specifically at the DoD outside the CR that's going to allow for any acceleration?

Well, if you look at it, we have missile domestic awards coming in. We have operational training, we have some more standard missile development work. We've got AMRAAM. There is some domestic Homeland Security, contracts that we're working on now that are in negotiation. And we have one competitive program JAGM that will go in and probably won't happen on our timeline and we've got that factored in heavily because we factor all of these programs when you put them in. So from our standpoint that's kind of how we see it. Jason Gursky - Citigroup Inc: So those are the program's specific things. But anything from a process prospective that has held things up. Do you think is now loosening up and allowing...

The CR really help things up. People can't start a new program if they don't have the funding. They can't put in options that are in the contract, can't be exercised. So that's why I said earlier, it's not a science to figure out. There's no science here on figuring out the impact of CR. And we try to give you an idea, at least there was $500,000 of bookings that we thought couldn't take credit for. Jason Gursky - Citigroup Inc: Can you provide any type of update on the self-imposed investigation that you're doing on the Foreign Corrupt Business act, when we might see that come to its logical conclusion?

No, we disclosed in our public filings and we will update everyone at the appropriate time.

And that's had no impact on the International business.

Correct.

Okay, thank you for joining us this morning. We look forward to speaking with you again on our second quarter conference call in July. Alicia?

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