Todd Ernst - Raytheon Co. Thomas A. Kennedy - Raytheon Co. Anthony F. O'Brien - Raytheon Co.

George D. Shapiro - Shapiro Research LLC Jason Gursky - Citigroup Global Markets, Inc. Cai von Rumohr - Cowen & Co. LLC Seth M. Seifman - JPMorgan Securities LLC Carter Copeland - Barclays Capital, Inc. Robert M. Spingarn - Credit Suisse Securities (USA) LLC Robert Stallard - Vertical Research Partners, LLC Peter J. Arment - Baird Equity Research Samuel J. Pearlstein - Wells Fargo Securities LLC Hunter K. Keay - Wolfe Research LLC Howard Alan Rubel - Jefferies LLC Peter John Skibitski - Drexel Hamilton LLC Ronald Jay Epstein - Bank of America Merrill Lynch

Good day ladies and gentlemen, and welcome to the Raytheon Q4 2016 Earnings Conference Call, hosted by Mr. Todd Ernst, Vice President of Investor Relations. . I'd like to advise all parties, this conference is being recorded for replay purposes. And now I'd like to hand over to Todd. Todd Ernst - Raytheon Co.: Thanks, Steve. Good morning everyone. Thank you for joining us today on our fourth quarter conference call. The results that we announced this morning and 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 Tom Kennedy, our Chairman and Chief Executive Officer and Toby O'Brien, our Chief Financial Officer. We'll start with some brief remarks by Tom and Toby, and then move on to questions. Before I turn the call over to Tom, 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 Tom. Tom? Thomas A. Kennedy - Raytheon Co.: Thank you, Todd. Good morning everyone. We had another great year in 2016, as we continue to execute our growth strategy and delivered solid program performance. Let me start by touching on some of our financial highlights. Our bookings were up over 10% year over year and reached a new company record of $27.8 billion. Our total backlog was up 6%, a key metric to consider as you think about our future growth. Sales increased 3.5% for the year driven by both domestic and international. I would also add that this is the company's best sales growth rate since 2009. EPS exceeded our expectations for the quarter and the year, and cash flow was much better than we had expected. This allowed us to make a significant discretionary pension contribution in the fourth quarter, while retaining continued flexibility for our balanced capital deployment strategy. Toby will review additional details about the quarter and 2017 guidance in a few minutes. In 2016, demand from our global customers was strong throughout the year. The main drivers continue to be the three key areas that we've mentioned on prior calls: number one, counterinsurgency, counterterrorism; number two, deterrence; and number three, the need for our customers to respond to increasingly sophisticated and rapidly evolving threats. Our diversified and resilient portfolio of advanced solutions positions us well to help our global customers address threats in these areas. Further, we continue to invest in developing new and updating existing technologies to ensure we remain well aligned with the future requirements of our domestic and international customers. As I mentioned, our bookings were up 10% during 2016. The key driver behind this was primarily growth within our domestic business. Domestic bookings were broad based and increased 18% over 2015 levels, which drove a domestic book-to-bill ratio of 1.19 for the year. It's worth mentioning two key areas where we saw notable increases: classified and customer funded R&D, also known as CRAD. Our domestic classified bookings in 2016 increased 28% compared to 2015 and reached an all-time company record level. And for the year, domestic classified represented 17% of total company bookings. This was driven in a large part by the need of our domestic customers to address advanced threats. And for CRAD, we saw a nearly 50% increase in bookings in 2016. This is important because CRAD, along with our internal research and development funds technology development that is integral to our long-term growth. To that end, I'd like to point out one of the more significant CRAD bookings we received last year. In the fourth quarter, DARPA awarded us a $170 million contract for Phase 2 of the Hypersonic Air-breathing Weapon Concept, also known as HAWC. This award is for the design, development and flight test of a Mach 5 plus capable system that is affordable and more survivable than existing systems in an increasingly complex threat environment. The HAWC opportunity is a great example of how we leverage our capabilities to compete for early stage development programs that position us well in long-term growth markets. In our international business, bookings were $8.2 billion, resulting in a book-to-bill ratio of 1.08 for the full year. At year end, international backlog was 41% of our total backlog. We continue to see demand signals from customers in the MENA, Asia-Pacific and European regions for a broad range of our capabilities, including missile defense solutions, precision munitions, and sensors. For example, international bookings for our Patriot Integrated Air and Missile Defense solutions reached approximately $1 billion in the fourth quarter alone and approximately $2 billion for the year. This was driven by several of our customers either upgrading their existing capabilities or adding new capabilities to deter threats. Beyond Patriot, we had bookings for precision munitions in missiles such as Paveway, AMRAAM, SM-3 and AIM-9X. And for sensors, bookings for both airborne ISR capabilities and tactical airborne AESA radars were strong in 2016. Our 2016 sales growth of 3.5% was driven by a 2.6% increase in domestic and a 5.6% increase in international. I would also add that this was the 13th consecutive year of international sales growth and reflects the continued successful evolution and execution of our international strategy. For the full year, international reached just over 31% of our total revenue. As we look to the future, we see a number of our key opportunities across the company in both domestic and international markets which should drive another year with a book-to-bill ratio above 1. Some key domestic opportunities include missile defense systems, training, Standard Missile, AMRAAM and TOW, as well as continued strong domestic classified. On the international front, Qatar signed an LOA for a $1 billion early warning radar system in December and we now expect a booking within the next couple of months at IDS. Further, we see additional demand for a range of weapon systems, including AMRAAM, Paveway, and Phalanx, as well as additional opportunities for airborne sensors. We also see a potential booking for Poland Patriot as well as an additional Patriot opportunity for another customer in the European region either late this year or in early 2018. Providing additional longer-term opportunities for our Missile Systems business, you may have seen the announcement earlier this month that the U.S. Department of Defense approved the release of the Standard Missile-6 to several international customers. The SM-6 is an attractive option for many of these customers as it provides over-the-horizon protection against fixed and rotary wing aircraft, UAVs, cruise missiles, as well as ballistic missiles in the terminal phase of flight. Furthermore, last year the missile was also successfully tested for anti-ship capability, demonstrating multifunction capabilities of the missile. The growing domestic base supported by a hot production line and now the opportunity to expand internationally, SM-6 is a great example of one of our many franchise programs at the company. Turning now to our 2017 outlook. We are expecting sales growth of 3% to 5% and solid margin performance. We remain focused on reducing our costs and improving efficiencies so we can provide our global customers with affordable solutions, while at the same time creating value for our shareholders. Further, our cash flow outlook remains strong and this gives us flexibility to continue to support a balanced capital deployment strategy. Within this strategy, our number one priority remains investing in ourselves. Last year our internal investments in capital expenditures increased over 2015 levels in order to support our future growth and productivity initiatives across the company. We expect capital expenditures to also be higher in 2017, as we expand our Arizona operations by adding new high technology production facilities to meet the growth demands and Missile Systems. This expansion will support the addition of nearly 2,000 jobs over a five year period. On this last point, the company plans to hire workers at all skill levels with an emphasis on manufacturing, engineering and other higher wage technical positions. This is just one example where our solid position in growth markets drives local investment and high value job creation. After investing in ourselves, we have been and will continue to return capital to our shareholders through a competitive and sustainable dividend and a reduction in our shares outstanding, market conditions permitting. So in conclusion, we had another great year. Our global team built on Raytheon's return to growth in 2015 by continuing our momentum, which resulted in an even stronger growth year in 2016. I want to thank all of our employees for their commitment, focus and performance. Their outstanding work on behalf of our customers, company and shareholders positions us well for continued growth and the opportunities ahead. With that, I'll turn it over to Toby. Anthony F. O'Brien - Raytheon Co.: Thanks, Tom. I have a few opening remarks, starting with the fourth quarter and full-year results, then I'll discuss our outlook for 2017. After that, we'll 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. Would everyone please moved to page three. We are pleased with the solid performance the team delivered in both the fourth quarter and the full year, with bookings, EPS, and operating cash flow all better than our expectations. We had strong bookings in the fourth quarter at $7.6 billion, resulting in a book-to-bill ratio of 1.21. And for the year, we had record bookings of $27.8 billion, resulting in a 6% growth to our year-end 2016 backlog. This sets the stage for continued growth in 2017, which I'll discuss in more detail in just a few minutes. Sales were $6.2 billion in the quarter, down slightly from last year. As we pointed out on our third quarter conference call, the fourth quarter of 2016 had four fewer workdays than the comparable period in 2015 which had an impact to sales of approximately $100 million per day. For the year, sales were up 3.5%, ending at $24.1 billion. Our EPS from continuing operations was $1.84 for the quarter and $7.44 for the full year, which I will give a little more color on in a few minutes. We also generated strong operating cash flow of $1.1 billion for the quarter and $2.9 billion for the year, which included a $500 million pre-tax discretionary pension contribution that was not in our prior guidance. Additionally, during the quarter the company repurchased 700,000 shares of common stock for $100 million, bringing the full-year 2016 repurchases to 6.9 million shares for about $900 million. We reduced our share count in 2016 by 3%. Would also like to point out that in addition to the $900 million I just mentioned, the company also repurchased an additional $96 million of shares surrendered by employees to satisfy tax withholding obligation in connection with stock awards. The company ended the year with a solid balance sheet and net debt of approximately $1.9 billion. Turning now to page four, let me go through some of the details of our fourth quarter and full-year results. As I mentioned earlier, we had strong bookings of $7.6 billion in the quarter and a record $27.8 billion for the full year, resulting in a year-end backlog of $36.9 billion. This is an increase of $2.2 billion over year-end 2015 and provides us with a solid foundation for 2017. It's worth noting that both Missile Systems and SAS had outstanding bookings performance for the full-year 2016. For the quarter, international orders represented 38% of our total company bookings and for the full year were 29% of total bookings. And as Tom mentioned earlier, at the end of 2016, approximately 41% of our total backlog was international. Turning now to page five, we had fourth quarter sales of $6.2 billion, lower than our prior expectations, primarily due to the timing on some large international awards at IDS. It's worth noting that international sales continue to be strong, representing 31% of our total sales for both the fourth quarter and full year of 2016. So looking at the businesses, IDS had net sales of $1.4 billion in the quarter, down from the same period last year, primarily due to lower net sales on an international communications program and on the Air Warfare Destroyer program. And again, it's important to point out that the timing of some international awards that we had expected in the back end of 2016 unfavorably impacted IDS sales in the quarter. Net sales at both IIS and Missile Systems in the fourth quarter were relatively flat compared with the same period last year. SAS had net sales of $1.6 billion in Q4. The increase was primarily driven by higher net sales on an electronic warfare systems contract and classified programs. And for Forcepoint, the increase was primarily due to the acquisition of Stonesoft, which was completed in the first quarter of 2016. For the full year, the company's sales were $24.1 billion, up approximately 3.5% over full-year 2015. Both our international and domestic businesses contributed to this sales growth. Moving ahead to page six, we delivered solid operational performance in the quarter and for the full year. Looking at business margins in the quarter, IDS had solid margins of 15.6% in the quarter but had a tough comparison. As a reminder, IDS had $53 million of operating income from a favorable contract modification to restructure the Air Warfare Destroyer program in the fourth quarter of 2015. IDS, IIS, Missile Systems, and SAS margins all met or exceeded the guidance that we provided back in October. Turning to page seven. We had solid operating margin performance for the year. Total company segment margins were 12.7%, which was consistent with our expectations. On page eight, you'll see both the fourth quarter and full year EPS. In the fourth quarter 2016 our EPS was $1.84 and for the full year was $7.44. EPS for the quarter was strong and above the guidance we provided you in October. It's worth noting that as a result of the $500 million pre-tax discretionary pension plan contribution that we made in the fourth quarter of 2016, there was an unfavorable tax related impact of $0.04 because the contribution lowered the benefit of our domestic manufacturing tax deduction. This lowered EPS and was not included in our prior guidance. Now turning to page nine. Before moving on to our 2017 guidance, it's important to note as we discussed on our prior earnings conference call, that effective January 1, 2017, we adopted the new revenue recognition standard. And although the impact of adopting the new standard on our 2015 and 2016 net sales and operating income was not material, to assist you with your modelling and for comparison purposes, we provided the recast data in the attachments at the end of the earnings release. And just to be clear, as I discuss our 2017 guidance going forward, I will be comparing to the recast 2016 amounts, which reflect the adoption of the new revenue recognition standard. Now moving to our 2017 guidance. We see sales in the range of between $24.8 billion and $25.3 billion, up 3% to 5% from 2016. The increase is driven by growth in both our domestic and international businesses. Our 2017 outlook for the deferred revenue adjustment is $33 million and for the amortization of acquired intangibles is $127 million. As for pension, we see the 2017 FAS/CAS adjustment at a positive $428 million, which I'll discuss in just a minute. We expect net interest expense to be between $216 million and $221 million. We see our average diluted shares outstanding to be between 291 million and 293 million on a full-year basis, a reduction of approximately 2%, driven by the continuation of our share repurchase program. We expect our effective tax rate to be approximately 31.5%, which I'll cover in a little more detail in just a moment. In 2017, we see our EPS to be in the range of $7.20 to $7.35, which is up when you compare to 2016, excluding the TRS transaction, which added $0.53 to 2016 results. Our operating cash flow from continuing operations for 2017 is expected to be between $2.8 billion and $3.1 billion compared to $2.9 billion in 2016. As we sit here today, we don't anticipate making a discretionary contribution to our pension plans in 2017. As we previously mentioned, we did make a $500 million discretionary contribution in 2016. When you look at our cash flow before this contribution, our overall operating cash flow is about $400 million better than our prior expectations for 2016 and 2017 combined. Before moving on to page 10, I would like to mention that we expect our 2017 bookings to be between $25 billion and $26 million, driven by demand from a broad base of domestic and international customers. And we expect stronger bookings in the second half of the year, similar to prior years. On page 10, I want to spend a minute talking about our 2017 effective tax rate. As I mentioned a few minutes ago, we expect our effective tax rate to be approximately 31.5% in 2017. Our tax rate in 2017 is higher than 2016 primarily due to the tax-free gain on the TRS transaction that we completed in 2016, worth about 180 basis points, and a reduction in the expected excess tax deduction from stock-based compensation, which is worth about 80 basis points. So if you move to page 11, here we have provided our initial 2017 guidance by business. At the midpoint of the sales range, we expect to see growth in our IDS, Missile Systems, SAS, and Forcepoint businesses in 2017. We expect IIS sales to decline slightly in 2017 compared with 2016. As we've discussed before, this is driven by the planned ramp down on the Warfighter FOCUS program. Excluding Warfighter FOCUS, we expect IIS to grow in the low single digit range, driven by domestic cyber security and special mission programs. With respect to segment margins, consistent with our prior comments, we expect 2017 margins to continue to be solid, in the 12.4% to 12.6% range. This is up when you compare to 2016 excluding the TRS transaction, which was worth about 70 basis points. At IDS we see margins in the 15.5% to 15.7% range, which is also up from 2016 excluding the impact of the TRS transaction. This change from 2016 is driven by favorable program mix as we ramp up on some recently awarded programs and increase productivity, driven by efficiencies from our investments in factory automation and equipment upgrades. We expect IIS margins of 7.4% to 7.6%. This is in line year over year. We see missiles margins in the 13.1% to 13.3% range, up slightly compared with 2016. SAS margins are also expected to be in the 13.1% to 13.3% range, consistent with 2016. And at Forcepoint, we expect margins to be in the 10% to 11% range. This is a decrease from 2016 due to an expected $25 million internal investment to support Forcepoint's long-term growth. If you now move to page 12, we've provided you with our outlook for the first quarter of 2017. We expect the cadence for the balance of 2017 to play out similar to 2016 with sales and operating cash flow ramping up in the second half of the year. We expect EPS to follow a similar cadence when you exclude the impact from the tax free gain from the second quarter 2016 TRS transaction. And on page 13, as we have done in the past, we've provided a summary of the financial impact from pensions in 2016 as well as the projected impact for 2017 through 2019, holding all assumptions constant. As I mentioned earlier, we see the 2017 FAS/CAS adjustment at a positive $428 million, which reflects our investment returns in 2016 of 6% on our U.S. pension assets, the December 31 discount rate of 4.4% and the long-term return on asset assumption of 7.5%. As you know, after our third quarter earnings call, market conditions led to a sharp increase to the discount rate, which ended down just 10 basis points from year-end 2015. Looking beyond 2017, keep in mind that each 25 basis points change in the discount rate at December 31, 2017, drives a $70 million to $80 million change in FAS/CAS for 2018. And as we discussed on the call in October, we reduced our long-term return on asset assumption from 8% to 7.5%, driven by recent capital market expectations. And finally on page 14, we have provided an updated three-year outlook of the acquisition accounting adjustments to help you with your long-term modeling. Please note that you will see a significant decline in the deferred revenue adjustment over the period, as expected. Before concluding, as we discussed on past earning calls, with regard to our capital deployment strategy, we expect to continue to generate strong free cash flow and maintain a strong balance sheet at our current credit rating going forward. We remain focused on deploying capital to create value for our shareholders and customers. This includes internal investments to support our growth plans as well as returning capital to shareholders through share buybacks and dividends, making small targeted acquisitions that fit our technology and global growth needs, and from time to time making discretionary contributions to our pension plans. Let me conclude by saying that in 2016 Raytheon again delivered strong operating performance with bookings, earnings and operating cash flow all ahead of expectations. Sales grew 3.5% and our backlog was up significantly. We have a solid balance sheet, which gives us flexibility and options to continue to drive shareholder value, and we are well positioned to grow in 2017 and beyond, both in our international and domestic business. So with that, we'll open the call up for questions.

Thank you. And your first question comes from the line of George Shapiro from Shapiro Research. Please go ahead. George D. Shapiro - Shapiro Research LLC: Yes. Good morning. Thomas A. Kennedy - Raytheon Co.: Good morning, George. George D. Shapiro - Shapiro Research LLC: Toby, I want to pursue a little bit the same thing I had last quarter. If I look at your bookings, they're $3.77 billion above sales. Yet if I look at total backlog, it's only up $2.2 billion. So, why shouldn't I conclude that either some of these bookings haven't made it into backlog or some have been cancelled, which would explain the continued miss in the IDS revenues? Anthony F. O'Brien - Raytheon Co.: Yeah. So first I can tell you anything that we reported as a booking has made it into our backlog, so that's part one. Regarding the rest of the question, as I mentioned in my comments, we're pleased with the backlog growth, up 6% over 2015. We saw a 3% increase at the end of 2015 as well. What is happening or what you're seeing, and we've talked about this before, is the effect of backlog adjustments. We did see $300 million of backlog adjustments in this quarter. The majority of these or most of these are the results of cost underruns on domestic cost type programs. From time to time we also see some smaller impacts related to scope changes and currency fluctuations. And if you look at it from a total year point of view, as you did, that difference or that gap that you're trying to bridge is all related to the backlog adjustments. I can also tell you none of it relates to cancellations including any international orders. So we don't have a concern there. The sales miss, just to kind of play towards the rest of your question, the sales miss at IDS had nothing to do with anything that was canceled. It's purely timing. Nothing went away. Some of the larger orders, like the Qatar EWR that was mentioned earlier, that just moved from the fourth quarter into here over the award expected over the next couple months, and it's nothing more than that. George D. Shapiro - Shapiro Research LLC: Yes, but still, Toby, if I look at IDS revenue guidance for this year, it's actually lower than the revenue guidance you had for IDS in 2016. So it's not like you are making up on these deferrals. There's something that's missing there. Anthony F. O'Brien - Raytheon Co.: So you got to keep in mind, right, when a program moves to the right, the whole program moves, right. And so just use the EWR as an example, right, we'd expected that award here in at the end of, back at the end of 2016. Would have had a few months worth of revenue recorded in 2016. And then in 2017 you would have been into make it up months three through 15 on the program. Now we're only going to be recording months one through 10, let's say, or one through nine. So it's just that everything is shifting to the right. Regarding IDS, we are showing, if you look at the range of the revenue guidance for 2017, somewhere between a 3% to 7% growth or up in the mid to single digits. It is driven by international as we continue to ramp up on some of the larger awards, the international radar awards and Patriot programs, as well as Qatar EWR. And we do have some programs that, as planned, would be ramping down, but we feel good about the mid single digit growth for IDS. And again, nothing has gone away or been lost. It's just a matter of timing.

Your next question is from the line of Jason Gursky from Citigroup. Please go ahead. Jason Gursky - Citigroup Global Markets, Inc.: Yeah, good morning everyone. Thomas A. Kennedy - Raytheon Co.: Good morning, Jason. Anthony F. O'Brien - Raytheon Co.: Good morning. Jason Gursky - Citigroup Global Markets, Inc.: Tom, I was wondering if you could just spend a few minutes talking a little bit about Forcepoint and the dynamics going on there. Looks like sales growth going into 2017 is maybe decelerating a little bit, maybe a bit behind your long-term growth rate for the business. And you just mentioned a $25 million investment that you want to make in the business for long-term growth. So, just some updated thoughts on Forcepoint, both for the near term and the long-term story there. Thanks, guys. Thomas A. Kennedy - Raytheon Co.: Well, let me just start off. I'll start it off and I'll hand it off to Toby for some additional color. Forcepoint in our mind is meeting our expectations. In fact, I was just at their sales kickoff. We have restructured that business after the acquisitions. We have a solid strategy in place for the business. We have brought in a new CEO last year, Matt Moynahan, along with a strong CFO for that business. And so I believe we're off to a great start in 2017. One of the key elements that we were working on in 2016 was the transfer from mostly I would call it a small to medium enterprise type customer base, to a large enterprise, a very large enterprise customer base. And we had some significant uptick in being able to achieve bookings and sales with large enterprises and very large enterprises last year. And that looks like that's continuing into 2017. So it's following our strategy there to essentially take Forcepoint to the next level relative to its market area. The other element is we've also improved several of its products and solution sets in the marketplace. As you probably know, cyber threat is not getting less. It's getting more. And we've developed some new products, especially relative to behavioral analytics, that we believe will be very unique to the marketplace, but also something that can help sustain businesses in terms of their attacks against the whole cyber threat area. I'll -- then I'll turn it over to Toby. We are making investment next year. One of the things, the struggles that we had is the business has gone from – to about $250 million a year revenue, and we ended this 2016 at about close to $600 million in revenue. So we're doing some infrastructure upgrades to be able to support that size of a business. Anthony F. O'Brien - Raytheon Co.: Yeah, so, Jason, and just on the, translate a little bit what Tom said from the results for the year end and looking ahead. So, the sales for the fourth quarter and there for the year, they were a little bit below our expectations. The good news is that the business hit our expectations from a bookings point of view, and they just had some mix issues, right, where it flowed through and resulted in lower profit within the quarter based upon fewer perpetual contracts and more subscription contracts, okay. So it was just a mix issue where the year ended up. Looking forward to 2017, low double digit top-line growth, 10% to 11% margin. The $25 million investment that Tom talked about is about 300, 350 basis points impact on margin. So normalized for that, maybe closer to 14%. That said, looking forward on a longer-term basis, we continue to expect double digit growth going forward. We believe the investment in the business in 2017 sets us up well for continued double digit growth and margins. So, I think we're still on track. Recall we made this investment from the longer-term, right, about looking to the future and a growth perspective. And as Tom mentioned, in a couple years, this is becoming a $600 million plus cyber security business, and we're pleased with the performance and the outlook for the business.

And your next question comes from the line of Cai von Rumohr of Cowen & Company. Please go ahead. Cai von Rumohr - Cowen & Co. LLC: Yes. Thank you very much. So, to get back to George's question, so your booking guidance of $25 billion to $26 billion, if I recall in the third quarter, I think you said you expected bookings in 2017 to at least equal sales, if I'm not mistaken. And now you've had a slip of $1 billion of Qatar in, and it looks like the book-to-bill is slightly positive. And that's before any of these backlog adjustments. So A, is there any slippage of some business you expected in 2017 that's moved out to the right, and B, should we look for the backlog adjustment to be a negative, therefore suggesting that backlog may be relatively stagnant over the year? Anthony F. O'Brien - Raytheon Co.: Yeah, Cai, so keep in mind, notwithstanding the early warning radar that moved into 2017, we did come in nearly $1 billion higher than the high end of our booking outlook for 2016, okay. And that resulted in the strong 1.16 book-to-bill. We said think of 2017 in roughly 1 to 1.05 book-to-bill. When you look at the two years together, obviously the simple average there, about 1.08. Very strong. Will we have some backlog adjustments in 2017? I'm sure we will. We don't anticipate they'd be at the level that they were here that we saw in 2016. And net-net we'd expect to see backlog growth in 2017.

Your next question is from the line of Seth Seifman from JPMorgan. Please go ahead. Seth M. Seifman - JPMorgan Securities LLC: Thanks very much and good morning. Thomas A. Kennedy - Raytheon Co.: Good morning, Seth. Seth M. Seifman - JPMorgan Securities LLC: Morning. I wonder if you guys could talk a little bit and quantify the increase in the CapEx that you are expecting for 2017, and then talk about the trajectory in the out years. Anthony F. O'Brien - Raytheon Co.: Yeah, so we ended 2016 around $625 million in CapEx and software spending. As we talked about, it is going to go up in 2017. I think the way to think of it is in a range of maybe $650 million to $695 million for both capital and software combined. We're increasing our spending as the business grows with investments in our infrastructure and high technology production facilities, as Tom mentioned in his opening remarks. We're also continuing to invest in demonstration capabilities and factory automation, again to position us for both growth and productivity improvements. We are seeing some of the results of that, those improvements from a productivity point of view in our factory automation. And we strongly believe we're making investments in the right places that will yield future benefit. Looking beyond 2017, to the other part of your question, I would expect the expenditure level to be in line with where we are in 2017.

Your next question comes from the line of Carter Copeland from Barclays. Please go ahead. Carter Copeland - Barclays Capital, Inc.: Hey, Good morning gentlemen. Thomas A. Kennedy - Raytheon Co.: Good morning Carter. Anthony F. O'Brien - Raytheon Co.: Morning. Carter Copeland - Barclays Capital, Inc.: And go Falcons, huh? Maybe not. Anthony F. O'Brien - Raytheon Co.: Hey, hey, hey. Thomas A. Kennedy - Raytheon Co.: Hey. Carter Copeland - Barclays Capital, Inc.: I guess we'll see. I had a couple questions. Toby, first on the upside in the cash and where that came from. You highlighted a couple hundred million over the two-year period. I don't know if you could tell us what the elements were there that drove that. And then the second one, there's clearly been some discussion around border adjustment for tax and export sales. And I don't know if you had a view on how that would impact international defense revenues, FMS versus DCS. Any views you have there or color you could share with us would be helpful? Thanks. Anthony F. O'Brien - Raytheon Co.: Yes, so on the cash, what I said is if you take a look at 2016 and 2017 combined, prior to the discretionary, we're about $400 million better than what we had guided for 2016. And then the indications that we gave for 2017 back on the October call, that $400 million is all driven, primarily driven, by the timing of receipts and collections. Relative to 2016, a big chunk of it was related to advances that we received earlier than expected. And in 2017, think of it just as typical receipts on programs. So from us this is a real strong point here. As we closed out 2016 and going to 2017, we were able to beat in 2016, and it wasn't at the expense of 2017. We backfilled that $300 million plus added another $100 million, really driven by the performances of the business. So we're really pleased with that and it helps reinforce our focus on cash flow and the strong balance sheet. Thomas A. Kennedy - Raytheon Co.: So Carter, I'll jump in on the tax. Obviously we've been following this very closely. Unfortunately right now, there's not been a lot of specifics laid out in terms of how the new administration is going to approach the tax reform. I can tell you that 31% of our business is international and therefore export. So the question is how will that be looked at. Because as part of that, approximately 19% of that is direct commercial sale, which is a pure export, but then about 12% of that is FMS. So we're really trying to understand how the new administration is going to look at what the definition of export is. In terms of any imports, that's less than 5% of our total costs. So in any case, if there is some type of tax effort or reform put out that has an advantage relative to exports, we'll more than likely get a significant tailwind from that.

So next question is from the line of Robert Spingarn from Credit Suisse. Please go ahead. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Tom, I wanted to go back to George's question a little bit. The book to bill, I think Toby, you just said 1.16, 1.15. The sales growth is 3% to 5% for this year. We're in an environment where we've got a consumables shortfall overseas. I guess readiness is the theme of the new administration. Is there scope to think of your guidance as somewhat conservative for this year, or do these factors really contribute next year? Could we see an acceleration of growth next year? Thomas A. Kennedy - Raytheon Co.: Yeah Robert, I think it's a great question. And just make sure that you understand that our guidance, essentially assuming what we know about the fiscal year 2017 budget today, we did not put any windage on this relative to anything that the new administration is going to do relative to readiness in 2017. I think the picture right now is a little cloudy relative to how much of changes will occur in the 2017 budget. So what we've done is we've tried to base our guidance on what we know for sure, and that is essentially that a budget that has been worked in Congress to date. And so, if you think that's conservative, then that's conservative. Anthony F. O'Brien - Raytheon Co.: I think, Tom, the other thing I would add just from our, the outlook we gave for the bookings, keep in mind, as we always have, our bookings are factored. Okay, so we try to take that into account when we give the guidance as well. And then regarding going back to George's question and around the backlog adjustments, one thing I will point out, some of those do come back in the form of other new work, maybe not on the same program but other programs as well. So it's not always necessarily a one-for-one decrease to the backlog.

Your next question comes from the line of Robert Stallard from Vertical Research. Please go ahead. Robert Stallard - Vertical Research Partners, LLC: Thanks so much. Good morning. Thomas A. Kennedy - Raytheon Co.: Good morning, Rob. Robert Stallard - Vertical Research Partners, LLC: Tom, I was wondering if you could give us an update on what you are seeing in Europe. It does seem like some of the defense spending trends there are improving, and how long it might take for some of this to flow through to you. Thomas A. Kennedy - Raytheon Co.: Yes, so I think one of them is we are seeing several NATO countries I would say getting closer to the 2% of their GDP in terms of investments in defense. And so that obviously is healthy for us. We are seeing a significant interest in, I call it, the deterrence element of our three buckets sometimes I talk about. And really that is to be able to have systems that can deter a major threat from encroaching their borders. And so we are seeing that in Poland. We are obviously working through a major Patriot effort there. Another European country is moving forward with a Patriot buy, and so we are obviously following that very closely. There is also a replenishment on weapons for the NATO countries. And so we are actively involved in working with several countries in that area. So it's all the way from missile defense all the way into integrated air and missile defense also and then even down to weapons replenishment. So we're seeing it across all those three product areas.

Your next question comes from the line of Peter Arment from Baird. Please go ahead. Peter J. Arment - Baird Equity Research: Yes. Thanks. Good morning, Tom, Toby. Thomas A. Kennedy - Raytheon Co.: Good morning. Anthony F. O'Brien - Raytheon Co.: Morning. Peter J. Arment - Baird Equity Research: Hey, Tom, this one's for you. You mentioned that the approval on the SM-6 for international customers. Have you been able to kind of quantify what the available market or the TAM is for that particular product? Thomas A. Kennedy - Raytheon Co.: I mean, over multiple years, it's in the billions. Peter J. Arment - Baird Equity Research: I mean, is there any expectation that you'd start to see some of that fall into this year or is that too soon? Thomas A. Kennedy - Raytheon Co.: Well, we could potentially see some bookings, but we're not going to see significant revenue in 2017. That's going to start 2018 and out on the international. The domestic, we just received a major $250 million award just here in the last couple weeks from the United States Navy. So we're seeing obviously, the domestic side is significantly picking up. This is a system that just has come out of development here in the last year. It's already gone into production, and we're seeing demand signals in the international marketplace. The good news is we now have approval to sell into the international marketplace. So bottom line is, it's all upside moving forward on SM-6.

Your next question comes from the line of Sam Pearlstein from Wells Fargo. Please go ahead. Samuel J. Pearlstein - Wells Fargo Securities LLC: Good morning. Thomas A. Kennedy - Raytheon Co.: Good morning, Sam. Anthony F. O'Brien - Raytheon Co.: Hi, Sam. Samuel J. Pearlstein - Wells Fargo Securities LLC: Wanted to talk a little bit about your cash flow and just how to think about the capital. And your guidance of 291 million to 293 million shares is certainly not a very big decrease from where you're ending the year. And so I'm trying to just understand: should we expect the pace of buyback to be materially different in 2017? Is it just a factor of the stock price being higher now versus a year ago? Just trying to think about how, if you've changed at all how you're thinking about the balance with your free cash. Anthony F. O'Brien - Raytheon Co.: Yeah so, consistent with what we've talked about in the past, Sam, when we look at how we deploy our capital, we think of it from a balanced approach, and that hasn't changed. Share buyback is still a key component of that. Relative to your question on the cadence, I think the cadence is going to be, sitting here today, similar to what we saw in 2016. That said, the beauty of our balanced approach, it allows us to flex across the different elements of how we deploy capital, and we'll continue to evaluate that. We do see incremental value in our stock for all the reasons we've talked about in the past, relative to our international position where our technology investments are and how aligned they are for the future with the DoD. I mentioned earlier Forcepoint continues to be a long-term growth and value creation play, and that hasn't changed. So we'll continue to evaluate that. We said it before. We're going to be prudent in our allocation of capital. And if we think accelerating from what we did from a cadence point of view on the buyback in 2016 makes sense in 2017, we won't be afraid to make that change.

Your next question is from the line of Hunter Keay from Wolfe Research. Please go ahead. Hunter K. Keay - Wolfe Research LLC: Hey, thank you. Good morning, everybody. Thomas A. Kennedy - Raytheon Co.: Good morning, Hunter. Hunter K. Keay - Wolfe Research LLC: Hi. So the initiative to reduce the footprint by about 10% from a few years ago: I was curious where you are on that. And I'm wondering if it's still needed given the improving outlook on budgets. And can you give us a sense for how many points of margin that was expected to add at sort of a segment margin level, or was it all fully baked? Thank you. Anthony F. O'Brien - Raytheon Co.: Yeah, so when we embarked on the footprint reduction initiative several years ago, our focus was becoming more competitive, more efficient, and we have done that, right, along the way. We have reduced on a gross basis just about 8 million square feet. We reduced about 1.4 million gross in 2016. There are still some elements of that that are ongoing. Think of the reduction we have anticipated here in 2017 related to that of around 700,000 to 800,000 square feet. So we're still focused on that. And again, we're finding ways to do things more efficiently, be more cost competitive, and at the same time continue to work and improve our margins. I'll be honest. I don't remember what the exact bogie was for how the impact of that was going to flow through, but we have seen an improvement. Just as a reminder, we get the instant year improvement that we flow through to the bottom line, but then in subsequent years, we update our rates and we price that into our future contracts. But we're definitely on target with that and seeing the benefits we expected.

Your next question is from the line of Howard Rubel from Jefferies. Please go ahead. Howard Alan Rubel - Jefferies LLC: Thank you very much. I want to go back to some of the accomplishments you have had in capturing some development programs. Tom, could you update us on the status of AMDR and when you expect that to start being inserted into the fleet? And the same applies to Next Gen Jammer and associated opportunities there as well. Thomas A. Kennedy - Raytheon Co.: Okay, so I'll start with AMDR. AMDR is in test at the Pacific Test Range out in Hawaii. It's having great results there. Obviously there is a lot of demand signals from the operational Navy side to get that into use as soon as possible. But initially, it goes onto DDG-51s in line and production, and then it goes into back-fit into the older DDG-51s. So we see a transition into, starting a transition into production in the late 2018. There is also, we've already been turned on to long lead for the AMDR and long lead material. And we see that picking up, essentially the production transition in 2018 and beyond. On Next Generation Jammer, Next Generation Jammer has entered into the main EMD phase of that program. So that will also be transitioning into production in the 2020 type range. One other one you didn't mention, Howard, was we did win the Navy EASR program, which is a smaller radar than AMDR but essentially based on the AMDR architecture. So between AMDR and EASR, we have the majority of the radars that go on surface Navy ships. And as you know, one of the keys of the administration's efforts moving forward is to increase the number of ships, which then will drive the number of EASRs and AMDRs that are going to be required. So we have a lot of expectations for those two franchises to take off here in the next three to five years.

Your next question is from the line of Pete Skibitski from Drexel Hamilton. Please go ahead. Peter John Skibitski - Drexel Hamilton LLC: Yeah, good morning guys. Nice cash flow year. Anthony F. O'Brien - Raytheon Co.: Thanks, Pete. Thomas A. Kennedy - Raytheon Co.: Thanks, Pete. Peter John Skibitski - Drexel Hamilton LLC: Hey Tom, I wanted to talk about missiles for a minute, because every time I turn around it seems like there's a new competitive missile opportunity out there, whether it's PB (54:32) with their lethality or Third Offset type stuff, or I've seen an Australian announcement for a $1 billion AMRAAM order. And now you're talking about this Tucson expansions, I was just trying to put it all together and ask you, is missiles looking like it's going to be ex-Forcepoint, is it going to be your growthiest segment now going out through the midterm, given all that's going on and the fact that you are expanding Tucson? Thomas A. Kennedy - Raytheon Co.: Well, I think there is -- let me talk about the demand signals and how they're coming in. And I'll talk about them in terms of the three buckets again. One is the counterterrorism, counterinsurgency area there. So there is a heavy demand for precision weapons, munitions in that area to minimize collateral damage but yet be able to strike at the terrorists, in this case here, the ISIS. As you know, the new administration has also made I guess a statement here that they are going to go after ISIS. So we see a significant demand pull in terms of these precision munitions, obviously all coming out of missile company. The second bucket is the deterrence, and that gets into missile defense. And again, with the near pure threats, also with some rogue nations, that's driving significant demand signals there, not only in the United States but also with our international coalition partners. So that's where the other strong demand area is. And then in this third bucket is these future Third Offset strategy type systems, and that we're heavily involved in. We mentioned one brand new system called this HAWC, DARPA hypersonic weapons. So we're getting significant demand signals from each of those buckets and we're meeting those demand signals with the technology investments we made. And also now we are making investments in our factory to be able to expand, to be able to support the demand signals and the quantities that we're seeing come down the pike. And obviously you're seeing this in AMRAAMs, which is our air-to-air missiles. You're seeing that in all the precision air-to-ground weapons, and then also in our missile defense, which I mentioned the SM-6. So bottom line is you are absolutely correct. Missiles will be a leader in the business in terms of revenue and also new bookings here over the next several years. Todd Ernst - Raytheon Co.: Steve, we have time for one more question please.

That question comes from the line of Ron Epstein from Bank of America. Please go ahead. Ronald Jay Epstein - Bank of America Merrill Lynch: Yes hey, good morning, guys. Thomas A. Kennedy - Raytheon Co.: Good morning, Ron. Ronald Jay Epstein - Bank of America Merrill Lynch: In your prepared remarks, you mentioned you're going to see a 50% -- you saw a 50% increase in your CRAD spending in 2016. How do we think about that for 2017? And then how do we think about CRAD materializing into a procurement program? Thomas A. Kennedy - Raytheon Co.: Yes, let me take that on. Obviously, CRAD is important to us for several reasons. One obviously is that it develops new technology which makes us more competitive in the marketplace, but also gets us in up front working with customers. Since it is CRAD, since it is contracted, we are not just doing the IRAD on ourselves, building the field of dreams, we are working hand in glove with a customer, making sure that we're meeting their demand signals, we're meeting their needs, their capability needs. So in that case, it's very focused technology development to meet a customer's needs, with the customer involved. So that's why it's really important. And that CRAD technology then rolls to the next part, which will then turn into EMD programs, engineering, manufacturing, development programs, which then will lead into production programs. So that's why the CRAD is so important. It gives us essentially a leg up in terms of new competitions coming online to win those competitions, get into these EMD programs, and then transition them into production, creating new franchises. Todd Ernst - Raytheon Co.: Okay. Thank you for joining us this morning. We look forward to speaking with you again on our first quarter conference call in April. Steve?

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and have a very good day.