Good day ladies and gentlemen, and welcome to the Raytheon Third Quarter 2016 Earnings Conference Call. My name is Tracy, and I will be your operator for today. I would now like to turn the conference over to your host for today, Mr. Todd Ernst, Vice President of Investor Relations.

Thank you, Tracy. Good morning everyone. Thank you for joining us today on our third quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'll reference are available on our website at raytheon.com. Following 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. And with that, I'll turn the call over to Tom. Tom?

Thank you, Todd. Good morning, everyone. I'm pleased to report that the company has strong operating performance in the third quarter, and our growth strategy remains on track. Revenue increased by over 4% and our operational execution was solid across the businesses with overall operating margins above our expectations. As a result, our earnings per share was well ahead of our prior guidance for the quarter. Based on the company's performance, we have updated our guidance for the year, Toby will provide more color on this as well as high level outlook for 2017 in a few moments. We continue to see strong demand from our global customers for our advanced technologies. This demand drove a third quarter book-to-bill ratio of 1.15 and our year-to-date book-to-bill ratio currently stands at a healthy 1.14. I would note that our year-to-date classified bookings have already surpassed our record annual level. Given our booking strength and our expectations for a solid fourth quarter, we have raised our bookings outlook range again for the year by another $500 million to a range of $26 billion to $27 billion. As you know, bookings ultimately drive revenue, so this positions us well for continued solid top-line growth in 2017. I'd like to point out that our domestic bookings were particularly strong in the third quarter, driven by classified, training, the Joint Precision Approach and Landing System, Standard Missile-3, Phalanx, and several additional missile programs. Classified bookings were very strong, representing 22% of total company bookings in the quarter. For our overall domestic business, it is worth noting that bookings have exceeded revenue in each quarter this year. One key area of focus for our team is capturing and renewing franchise programs. These are large, long duration programs that last decades and have both domestic and international…

Okay. Thanks, Tom. I have a few opening remarks, starting with the third quarter highlights and then we'll move on to questions. During my remarks, I'll be referring to the web slides that we issued earlier this morning. If everyone would please turn to page 3. We are pleased with the strong performance the team delivered in the third quarter, with bookings, sales and EPS all at or better than our expectations. We had strong bookings in the third quarter of $6.9 billion resulting in a book-to-bill ratio of 1.15. Sales were $6 billion in the quarter, up 4%, led by missiles, SAS and Forcepoint. Our EPS from continuing operations was $1.79, which I'll give a little more color on in a few minutes. We generated solid operating cash flow of $640 million in the third quarter. Third quarter 2016 operating cash flow was lower than last year's third quarter as expected, primarily due to the timing of collections and payments. And on a year-to-date basis, operating cash flow of $1.7 billion was ahead of last year's year-to-date operating cash flow by approximately $200 million. During the quarter, the company repurchased 1.4 million shares of common stock for $198 million, bringing the year-to-date share repurchase to 6.2 million shares for $801 million. I also want to point out that we're raising the EPS guidance that we provided in July, reflecting our strong performance to-date. I'll discuss guidance further in just a few minutes. Turning now to page 4. Let me start by providing some detail on our third quarter results. Company bookings continue to be strong. For the third quarter, bookings were $6.9 billion and on a year-to-date basis were $20.3 billion, an increase of approximately $2.9 billion over the same period last year. It's worth noting that on a…

Thank you. Your first question comes from the line of Carter Copeland with Barclays. Please proceed.

Hey, good morning, gentlemen.

Good morning, Carter.

Good morning.

Tom, I was thinking – or hoping you could kind of decompose the Forcepoint results and outlook, and kind of help us here since it's a bit different from what we're normally looking at. I noted in Toby's comments that the strength ex-Stonesoft was federal products and services. And you noted in the strategic review the emphasis on very large enterprises; assuming those are commercial. I know the web filtering business is now down to a pretty low level. But I'm just wondering if you could kind of explain to us the sub-components there in terms of what's growing in sales and how that fits in with the strategy. And then clearly the implied guidance for Q4 suggests a pretty big margin step up back up there for the unit. So just wondered if you could give us some color on the moving pieces and help us with...

Yes, Carter, let me do that. And actually we're very excited about Forcepoint because we are starting to see some significant moves in the marketplace. I mean yeah, the solid foundation they have, you mentioned it already. They probably have one of the largest federal groups of any of the competitors out there. In fact, I think a lot of the competitors I wish they had as much federal access as we do into the cybersecurity market. And we sell in that federal group as a commercial company. That's one. We also did mention the next generation firewall that they have that is off and running, getting a lot of traction on that. And you can see the sales on that is up. And then also in the core business, the TRITON Cloud work is – we're also starting to see significant movement in that. The area that I was trying to point out in my discussion is one of the other areas where we've taken – I would call it our defense grade capabilities into the commercial cybersecurity marketplace and that's really on the insider threat. And so we took essentially our product which was, we call it the SureView product. We're tying that together, integrating that with the data loss prevention capability that Websense brought along, and some analytics on top of that and providing an unbelievable capability to the marketplace relative to the advanced insider threat. And as you've probably been reading in the press, there is quite a bit of insider threat issues that are going on across the commercial industry and along different verticals. So we're extremely happy with the performance. And Toby is here, he's got the details and he can just run you through what we saw here in the third quarter and what we're seeing in the future.

Yeah, Carter, so on the numbers side for Q3 and Q4, even though I did mention the federal and some of the services, when you peel this back and decompose it, the legacy TRITON business also saw significant growth of about 18% in the quarter as well. So we really saw growth across the entire portfolio, with the exception as we expected, we've been talking about the legacy web filtering business, which did continue to decline. Along those lines, I do want to take a second, and as Tom talked about, and as we are evolving our strategic position to align with the cybersecurity market where we see the greatest opportunities, the legacy delineation, when we've talked in the past about TRITON and the web filtering, even though I just kind of gave you some color on it, it is becoming less meaningful to us given our changes in the organization and our go-to-market approach around that. But again, growth across the entire portfolio where we're focused strategically. If you roll that forward to Q4, from a top-line perspective, we'd expect growth rates similar to Q3 on a year-over-year basis and margin that is higher. To your question, we'd be looking at margins in the 16%-plus range for the fourth quarter. Obviously, we didn't change the outlook for the year, so we feel good that the team has a path forward there.

Great. Thanks for the color, guys.

Thank you.

Okay.

Your next question comes from the line of George Shapiro with Shapiro Research. Please proceed.

Yeah. Good morning.

Good morning, George.

Hi.

Question I got is really an explanation. Is it, if I look at the book-to-bill at like you said, it was 1.15, but bookings were $900 million above sales. But if I look sequentially, funded backlog was actually down by around $400 million and total backlog was only up by $500 million. So a big discrepancy. I mean I imagine some of it reflects the mark-to-market from the weaker currencies, but is there anything else going on? Or just kind of explain how they all went together.

Yeah. I mean on the funded backlog, that can obviously be lumpy quarter-to-quarter, right, depending upon what's happening there. So, I don't think there's anything different than we may see in any given quarter. From an overall backlog point of view though, you are right, we do have every quarter backlog adjustments for various reasons, including the currency. In the third quarter of this year it was about $400 million that we had as backlog adjustments.

Okay. And if I just follow up, IDS sales were much less than I was looking for and I know probably less than you, because you lowered the top end of the guidance by $100 million. Is that reflecting slower startup of the new programs and the high margin reflecting margin pickup because some of the older ones are ending?

Yeah. So you kind of have it right there, George. As I said in my comments, we knew about some certain radar programs and one international communications program that was winding down. So that was what we'd assume going back to the beginning of the year, but we are seeing a little bit of timing impact on a couple international programs. We now expect either late Q4 or early Q1. So that's what's driving primarily the change, what happened in the quarter relative to the revenue, the sales and then also for the total year. From a margin point of view, I think what you're seeing is consistent with what we've been saying, that IDS towards the back half of the year has some of the – and I wouldn't say they are completing. I would say some of the major production programs that we've booked over the last couple years are from an execution point of view moving through their life cycles. They're at points where we obviously feel comfortable in increasing the booking rates there. You saw a strong margins from IDS back in Q2, excluding the TRS gain. We see it again here in Q3. So I think things from our perspective, things are playing out on the margin line at IDS pretty much as we would have expected and if anything a little bit more favorable timing. I think some of the improvements we saw in Q2 and 3, if we go back three or six months, we would have said, would have been in Q4 and 3. So things have maybe even accelerated within the year by about 90 days. But all good news from our perspective.

Okay. Thanks very much, Toby.

All right. Thanks.

Thanks, George.

Your next question comes from the line of Jason Gursky with Citi.

Hey, good morning everyone.

Good morning, Jason.

Hi.

Toby, just a quick clarification question for you, Toby. Can you talk a little bit about the cash flow dynamics in the fourth quarter, and what allows you to have that steep ramp? And then Tom for you, can you just talk a little bit about the contracting environment, generally speaking? And kind of the puts and takes you're seeing there from a pricing perspective, contract terms, anything that's changing either here domestically or on the international front that we should be aware of that would impact how the business is going to perform a few years down the road. Thanks.

Yeah, Jason, I'll hit the cash flow real quick here in the fourth quarter. For us nothing's really changed there. If anything we're a little bit ahead from a cadence point of view on a cumulative basis on the overall cash flow compared to when we started the year. So if anything, that ramp up in Q4 is a little less than it was going back to January. I think you all know, we traditionally have a cash profile that's more back-end weighted. There is nothing different this year. And the underlying driver is not one individual thing, but it's primarily some significant milestone collections, really across pretty much the entire portfolio of programs. So nothing unusual from our perspective.

Yeah. And Jason, I'll break it in, your question into two parts. I'll take the domestic. In terms of terms and conditions, we're really not seeing any changes in our contracting with the department or with the U.S. government. The department, as you know, is pushing more towards a fixed price incentive fee construct on I would call production type programs than they have in the past, something we were used to many years back. It's kind of rotated back in. So I think going through the initial iterations and making sure everybody understands that kind of a construct and sets it up in a way that provides the contractors an incentive to do well. I think we're going through a little bit of transient on that but it seems like it's settling out pretty quick. On the international side, we again on the FMS contracts, we're not seeing much difference there relative to terms and conditions. Again, there is some issues relative to fixed price incentive fee on production contracts that's actually being debated in the halls of Congress. And right now, the NDAA has some language in it about the international production type contracts at being firm fixed price versus fixed price incentive fee. And that's the only area that I see that's different. And our direct commercial sales, no difference there than we've had in the past.

Okay great. Thanks guys.

Your next question comes from the line of Doug Harned with Bernstein & Company. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Good morning.

Good morning.

Good morning, Doug. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: I wanted to see if you could give us a perspective on the discussions you're having and I would say internationally and that's in the Middle East, Eastern Europe, Asia. When you look at priorities in those areas and you try and parse out say long-term priorities. For instance, we saw Saudi earlier this year back away from littoral combat ship. It's expensive and longer term. And you look at the near-term things, which certainly precision guide and munitions would fall into that category. Can you talk a little bit about how you see these customers making trade-offs, when they sometimes have fairly constrained budget these days?

Yeah. Let me attack that, Doug. And I think what I want to do is go back to this concept of buckets, and we're seeing these three demand areas. One is counter-terrorism, counter insurgency. The other bucket is deterrence, deterring a threat from taking action. And then there's a third bucket out there, which I'm going to say it's third offset strategy type stuff, worrying about near-peer nation threats with advanced technologies. In Europe, I think the big one there is deterrence. We're seeing Eastern Europe very concerned in that area, and so they're looking for systems that will provide in that kind of a deterrence capability. And so we're seeing a lot of action on things like the Patriot System and then also our NASAMS system that we have at the nation's capital and we had a sale in Oman and several other countries out there. So we're seeing significant pull for those deterrence type systems in Europe. As we move to the Middle East, you're correct. I would say it's a little different in Middle East. It's demand from both the counter insurgency, counter terrorism bucket, and then also the deterrence bucket. And on the counter insurgency, I think you can understand that. That's some of the demand, OPTEMPO pull here, for precision weapons and some other ground systems that we have. On the deterrence side, I mean there is a concern, there is neighbor of the GCC that the GCC is concerned about and so you're getting into deterrence there and therefore you see the demand for systems like Patriot across the whole region, and so that's the deterrence bucket. And if we go over to the Asia-Pacific region, it's clear that it's most of the effort there, demands signals is again coming from this deterrence bucket, looking for solutions like Patriot advanced weapons, radars to be able to see things, ballistic missiles before they hit them and so the Asia-Pacific region is in big demand on the deterrence. The third bucket is really coming directly from the Department of Defense, obviously for all regions in the global area to be able to essentially come up from 20 years of fighting wars of insurgency to now dealing with near-peer threats that potentially have capabilities that are at or potentially in some cases maybe better or perceived to be better than what the U.S. has, and so it's a big catch up area there. I mentioned, we did mention on the call about a significant increase in classified work. I think that's really addressing that bucket and to help the Department of Defense regain in some cases its superior capabilities over near-peer threats. And that's it. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: So when you look at, when you look at -

Does that help? Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Yeah, that's a lot obviously, so.

Well I'm thinking about it every day, so. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Yeah, I know, I know. But what I am getting at is, when you look at certain things that may have greater urgency, if you turn this all into what does it mean for your outlook, are you seeing over the next few years a greater urgency in some of the areas you just said and perhaps less in some long-term programs? Has it changed the way you've looked at these markets?

I think what's different here in my entire career is each of those buckets is overflowing, and so the demand signals have never been as strong in each of the three buckets and across those three regions. And you're seeing that in our book-to-bill, the 1.15 for the third quarter, 1.14 year-to-date and then over the trailing four quarters, 1.16. We wouldn't be having those book-to-bills if the demand signals isn't as high as it is and across three regions and across three buckets. So, I have a very favorable outlook in terms of where we're going. We did mention on the call, we believe in 2017, just based on the book-to-bills we have, we'll clearly be in the 3% to 5% sales growth in 2017. And you can look to the future, but what I always go back is I look at our book-to-bills and our backlog and base our future outlook on that plus the demand signals we're getting. And I'm personally getting demand signals to go visit those regions from leaders in those countries. So this is real and so we're very, very bullish and positive in the future. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Okay. Great. Thank you.

Your next question comes from the line of Cai von Rumohr with Cowen & Company. Your line is now open. Cai von Rumohr - Cowen & Co. LLC: Yes. Thank you very much. So, the midpoint of your new bookings target would imply fourth quarter book-to-bill a little bit under 1. That would be the first time in about seven years. And you've just talked about how terrific the demand signals are. Is that a conservative number? And maybe give us some color on, could we have any surprises so we go above the upper end of your guide? Thanks.

Look, let me start, and maybe more with the numbers part of it and everything. And obviously we give a range, right, as you know of sales and bookings, right. So if you look and if you go to the high end of that range, the book-to-bill would be over 1. It would be about 1.05 give or take. To you point, the midpoint of the range is a little bit under 1. It's not a signal one way or the other from my perspective. We're very pleased. The fact that we've been able to for two quarters in a row effectively cumulatively add $1 billion to the outlook for the year further strengthens the bookings and the demand that Tom was talking about. And I think as we all know the bookings – in any given quarter, we can have some ups and downs or, not my favorite word, but some lumpiness there. So we're very pleased with what we've seen through the first nine months and the outlook for the total year and how it positions us going forward.

Your next question comes from the line of Howard Rubel with Jefferies. Please proceed.

Thank you very much. I'm not a fan of talking about pension, but Toby, you sort of set us up a little bit here. If we go through the math, from a cash flow perspective, it would appear year-on-year you're going to do just fine in 2017 and beyond. But from a reported EPS basis, based on sort of where we were a year ago and now, where we look at sort of the midpoint in the chart, it looks like you have a little bit of headwind to earnings. Can you elaborate on that? And is there anything that you can do to address that?

Yeah, no, so again, I'll repeat a little bit here, Howard. The estimates that we gave you were to try to provide sensitivity around the variables that affect both the P&L side and the cash flow side of the equation. As a reminder, we will update all of this at year end based upon how the year plays out, and things could be different compared to what we outlined today. But we did want to be transparent and let everybody know what we were seeing, both between the discount rate, where the current year return is and based upon forward looking, relative to capital markets, where the longer-term ROA would be. And I don't know that I can really add anything beyond the sensitivity that I gave in my prepared comments. You're right. The cash flow is going to continue to be positive from pension. There were a lot of questions earlier this year and concerns about overall cash flow, because of the higher required contributions in 2017. That's gotten better based upon our current estimates by close to $200 million. Our overall cash flow for the company next year, as I mentioned earlier, may be slightly lower than where we're looking at for this year, but still very, very strong. And I think if you look out over time, while near term we may have some headwind on pensions from a P&L point of view, for an EPS point of view in 2017, we'd expect that over time even under those lower rates that I talked about, that we would see improvement in that profile, a pattern that would be similar to what we were seeing in the past, where year-over-year the EPS would improve all else equal based upon even revised assumptions in 2017, 2018 – beyond 2017 into 2018 and 2019. So I think I'll leave it at that and we'll move forward here.

Your next question comes from the line of Seth Seifman with JPMorgan. Your line is now open.

Thanks very much and good morning.

Good morning, Seth.

I wonder – good morning – if we could talk a little bit about IDS, and in the fourth quarter, we've got some elevated sales implied by the guidance and we saw somewhat higher sales last year as well. But can you talk about sort of how much that reflects timing versus how much that reflects sort of a new run rate? And then similarly, it looks like the guidance implies for the fourth quarter sort of a lower margin. But if we just look back over the past couple years, seasonally the fourth quarter seems to be fairly strong, so maybe some of the dynamics around sales and profitability in IDS in Q4.

Yeah sure, Seth. So when George asked, I told him what kind of happened in Q3 and why we lowered a little bit the range of sales for the year, driven by the timing of some new awards that now we're expecting later in Q4 or early next year. But for Q4 from a sales point of view, even with that narrow guidance, we do expect solid growth in Q4. We have some other awards that we are anticipating we'll be starting up, which are contributing to that growth, as well as some continued ramp on some international Patriot programs that are already in our backlog as they move through their life cycle there. So we have a path forward relative to the growth in IDS on the top line. From a margin perspective, I'll reiterate, we are really pleased with the margin at IDS both in Q2 and in Q3 here. As we had talked about before, we were expecting an improvement in the margin at IDS more in the back half of the year. We've accelerated some of that into Q2 and here again in Q3, we did raise our margin guidance by 20 basis points on the high end at IDS to reflect our solid performance to date. And we continue to expect solid operational performance in Q4, about in line where we are year-to-date, okay. If you want to think of it this way, when you adjust for the TRS transaction, the improvements we're seeing, they can be lumpy as well, right, because they're specifically tied to programs, the execution of those programs, and the timing of those events which in some cases, if not a lot of cases aren't – out of our control. And what we feel that we've done is, we've d-risked that fourth quarter in the ramp that if you go back 90 days, 180 days, the ramp that we would have had in the fourth quarter.

Your next question comes from the line of Sam Pearlstein. Your line is now open.

Good morning.

Good morning, Sam.

Good morning.

I want to ask you a little bit about the capital deployment. I know you talk about having a balanced deployment out there, but you've also in the past talked about not necessarily wanting to chase the stock. And I don't expect you to talk about individual M&A, but certainly you've been talked about out there with regards to something in the order of $1 billion size in the Forcepoint area. And so just want to know how you're thinking about deploying capital in today's world.

Yeah, Sam, from my perspective, nothing around our thought process here has really changed. As we've talked about in the past, a balanced approach has worked well for us. We're continuing to use that here today and going forward. The underpinning to being able to do that is obviously strong cash flow generation and a strong balance sheet, both of which we have and we're focused on. And then, so specifically from a kind of a priority perspective, we're always looking to invest in ourselves, in the business to drive growth where it make sense. That's not going to change. We'll pursue targeted acquisitions. I think Tom mentioned in his opening comments, ones that fill technology, market access, market channel type of gaps. I won't comment on rumors out there in the marketplace. But what I will say generically, we don't have as part of our plan to go after big deals, okay, that would be something strategic and opportunistic. We want to provide the right level of return to our shareholders, somewhere as we target 80% to 90% of current year cash flow that includes a competitive and sustainable dividend and a buyback, obviously to continue to reduce the diluted share count over time, and we do as you know make from time to time discretionary pension contributions. That said, let me reiterate, because it has come up in the past relative to the thought about any large acquisitions, whether it be on the defense side, and/or the commercial cyber side, that is not in our plan. So rumors are rumors that are out there and I'll leave that at that.

Your next question comes from the line of Hunter Keay with Wolfe Research. Please proceed.

Hey, thank you, good morning.

Good morning.

Good morning, Hunter.

Tom, you highlighted obviously you've strengthened your classified bookings of late and then obviously separately strengthened Forcepoint. But I'm wondering if you can talk about maybe the dynamic as much as you can about how Forcepoint might be able to play in classified. And specifically I'm wondering what the mix is now of classified if any, and if that's a growth market. Do your people out there have TS/SCI level clearances for example, or does the commercial nature of this business really preclude you from sort of marrying those two together, sort of like a super engine of growth? Thanks a lot.

I'll hit it in two ways. One is I'll talk about Forcepoint and then I'll talk about the rest of the company. So on Forcepoint, it does have a federal group or a federal division. So the folks in the federal division do have the clearances so that they can go work with the different departments in the government and agencies and they can actually go into their facilities and help install the capabilities. And so that's I would call it a very special capability that Raytheon has relative to taking I would call it these commercial products into the U.S. government. On the Raytheon side, we do a significant amount of I would call it government related cybersecurity work with the different departments in the Department of Defense and then also with the different three-letter agencies. And so we essentially handle the highly classified work through the Raytheon Company, the taking off commercial products into the government through the Forcepoint.

Your next question comes from the line Richard Safran with Buckingham Research.

Hi, good morning.

Good morning, Richard.

Good morning.

Tom, Toby, I had a bit of the strategic question for you here. In addition to the bomber program, there is a lot of new starts out there like the trainer. We talked about J-STARS recap before. There were also though a number of new sensors like Air Missile Defense Radar, Next Generation Jammer, et cetera. I wanted to get your perspectives on this. Number one, from where you sit right now, do you see the Pentagon getting sufficient funding so that we can actually have a major recapitalization of military platforms and sensors? And also as with the trainer, should we be expecting Raytheon to becoming more of a platform prime, or is that more of an exception and you're thinking about being a major system prime on sensors and weapons? If we're on a long-term trend towards increased defense spending, I'm just trying to get a sense of how you guys are thinking about positioning Raytheon in that area.

So let me hit the first question and that is does the government have enough money for all these things. I think that was the first question. And a lot of this hinges on the election and what's going to move forward. And right off the bat, both candidates, both parties are pushing for a strong defense. So that's obviously a good sign, both parties and positions are that they want to remove the Budget Control Act caps and so which will be required to be able to fund this, you called it a recapitalization. But it's also some new capability needs as part of this third offset strategy. We are seeing funding going into that area, We did see in 2016 the BCA was lifted and also in 2017 is looking good in terms of its budget moving forward. The question was what will happen in 2018, 2019 and beyond, and if that's really going to be the output of this election, again both parties are significantly supporting a strong defense moving forward. So as long as the funds are there and we have the Congress supporting it, I see that we'll be able to support most of this recapitalization. It will have to be timed out, so that they have enough money to cover it over the multiple years that these new systems take to come on board.

Tracy, we have time for one more question please.

Your last question comes from the line of Myles Walton with Deutsche Bank.

Thanks for squeezing me in. Hey Toby, I was hoping you could add a little bit more color to the margin commentary for 2017. You said I think adjusted for the 70 basis point one-time gain, margins would be up, but maybe you can give us a little bit more clarity on an unadjusted basis, how much would they be down. Or if you don't want to go that far, is the run rate of IDS you're seeing here ex the charge in the first quarter and ex the gain a good run rate to be using for next year? Forcepoint's got some structural benefits in the next year. Just more color because that 70 basis points, just squaring it out to expectations might help.

Yeah, Myles. I'll address margin, but let me maybe give you and everybody a few comments on 2017 a little bit beyond what I mentioned earlier. And if I start at the front end of the business, we do continue to expect to see a solid book-to-bill ratio next year over 1, even on the higher sales volume as I mentioned, which we see growing in the 3% to 5% range. I will say that this growth is more heavily weighted towards our missiles and SAS business, then followed by IDS and IIS, and we also see growth again both domestically and internationally next year. On the margin comment, I'm kind of going to stick to where I mentioned earlier that in 2017, when you adjust for the TRS transaction this year at the segment level, we see segment level margins improving. That said, obviously we're not giving details by business at this point, but since you asked about IDS and historically, there has been a lot of focus there. What I will tell you is, we do see meaningful improvement in the IDS margin next year, again excluding the 2016 impact of TRS. Although I will say that for IDS, if you're thinking of 16% or above next year, that's probably too aggressive and I'll just kind of leave it at that. I mentioned cash flow is going to continue to be strong. We do expect higher cash from the businesses partially offsetting pension and higher cash taxes. On our tax rate, if you recall in 2016, our effective tax rate is impacted by the TRS transaction, and the gain on that of just under $160 million was tax free. So when I look at the tax rate for 2017 right now, think of it around 30%, which is more in line where 2016 would be excluding TRS. And then you mentioned Forcepoint. I think what I'll say on Forcepoint, we still expect double digit growth and double digit margins from them next year. Obviously, our goal today relative to 2017, we'll just give you a high level look where we're headed, we're still working through our process internally to finalize our views on 2017 and in January we'll update you on that including details by our businesses.

All right. We'll have to leave it there. Thank you everyone for joining us this morning and we look forward to speaking with you again on our fourth quarter conference call in January. Tracy?

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