Good day, ladies and gentlemen. And welcome to the Northrop Grumman's Second Quarter 2016 Conference Call. Today's call is being recorded. My name is Robin and I will be your operator today. At this time, all participants are in a listen-only mode. I would now like to turn the call over to our host, Mr. Steve Movius, Treasurer and Vice President, Investor Relations. Mr. Movius, please proceed.

Thanks, Robin, and welcome to Northrop Grumman's second quarter 2016 conference call. Before we start, please understand the matters discussed on today's call constitute forward-looking statements pursuant to Safe Harbor provisions of Federal Securities laws. Forward-looking statements involve risks and uncertainties, which are detailed in today's press release and our SEC filings. These risk factors may cause actual company results to differ materially. Matters discussed on today's call may also include non-GAAP financial measures that are reconciled in the earnings release. I would also note that after the conclusion of today's call, we will be posting an updated Northrop Grumman overview to the Investor Relations page of our website. The overview includes detailed information on each of our three sectors. On the call today is our Chairman, CEO and President, Wes Bush; and Ken Bedingfield, our CFO. At this time, I'd like to turn the call over to Wes. Wesley G. Bush - Chairman, President & Chief Executive Officer: All right, thanks, Steve. Good afternoon, everyone, and thanks for joining us. We had a very strong second quarter, driven by solid operational execution and effective cash deployment. I want to thank our team for their unwavering focus on performance. Second quarter sales totaled $6 billion, 2% higher than last year's second quarter, driven by growth at both Aerospace Systems and Mission Systems. At Aerospace Systems, we're reaching an inflection point, where new programs and the planned ramp-ups on production programs are beginning to outpace declines on mature legacy programs. While we may see some variability in that trend going forward, the growth in manned and autonomous systems drove a 4% second quarter sales increase. The programs driving sales include our restricted programs, the production ramp-up on F-35 Triton and volume in Global Hawk, as we began production for international customers.…

Thanks, Ken. As we open up the call for Q&A, we ask each participant to ask a single question, and please rejoin the queue if you have a following question. Robin, if you could open up the line?

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

Thanks, good afternoon, guys. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hey, Myles. Wesley G. Bush - Chairman, President & Chief Executive Officer: Myles, how are you?

I was hoping to talk a little bit about cash for a second. Lockheed brought up on their call the F-35 lack of contracts under signature being a headwind to ongoing funding of, obviously, their suppliers and their work to make sure everything stays on schedule. Is there a similar kind of cash drag that you're experiencing now? Can you size it, and is it any risk to full year cash flow? Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hey, Myles, thanks for the question. In terms of our cash on F-35, our profile is a little bit different than Lockheed's, as they're prime and we're sub. We are on progress payments today as we perform on our work that's in the flow today. And as we get on contract on LRIPs 9 and 10, we will move to performance-based payments. That will liquidate some of the withhold that we see, primarily at the AS sector in terms of cash flow, but we fully expect that we'll get that resolved, and should see that sort itself out by the end of the year.

Okay. Thank you.

Your next question is from the line of Richard Safran from Buckingham Research.

Wes, Ken, Steve, good afternoon. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Good afternoon.

So, I just have a quick question here on Technology Services. You say, if I got my math right, you saw a 50 basis points higher margins on slightly lower sales. The only comment you made was improved performance. So, I thought, I wanted to ask if you could discuss the quarter in a bit more detail and maybe longer term expectations. Near-term, are you seeing a better mix of more favorable contracts? Thinking more longer-term, are business conditions improving overall? Are you seeing more favorable contract terms, or is the margin improvement mostly just due to restructuring and taking out cost? Wesley G. Bush - Chairman, President & Chief Executive Officer: So, I'll start on that. This is Wes. And let me then turn to Ken to perhaps give a little bit more color on some of the aspects. Overall, when we say performance is the primary driver, that's actually what we mean. TS has a rather significant mix of different contracts across its portfolio. And credit to the team, they've been doing a really good job on executing on those contracts. So, it's a broad reflection of the work that's being done across the organization, just to continue to drive on program execution, particularly, I would say, in the global logistics and modernization part of the portfolio, where we're seeing some especially good program performance. I mentioned in my earlier remarks that we are working on portfolio in TS. The reorganization that we did at beginning of the year has allowed us to really pull together the broad set of our service and modernization-oriented activities, and kind of step back and look at that market space and ask ourselves how we really want to position to compete over the long-term. And so we're going through some thinking on…

Well, thanks very much. Wesley G. Bush - Chairman, President & Chief Executive Officer: Thanks, Rich.

Your next question is from the line of George Shapiro with Shapiro Research.

Yes. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hey, George.

Good morning. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hi, George.

I was looking at, Ken, your guidance for Aero Systems at low $10 billion range in the context of, Wes, your comment that this quarter is the first quarter you've started to see new programs outpace the legacy programs. So, why wouldn't the subsequent quarters have higher sales and why wouldn't the low $10 billion guidance be somewhat low for the year? Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: George, I would say that halfway through the year, we're a bit shy of $5.2 billion in sales. We've got programs that are ramping in terms of volume and programs that are declining. We mentioned F/A-18, AHF (sic) [AEHF] (22:51), and James Webb on the declining side. So, as we look at the profile, I think we don't generally see significant fluctuations quarter-to-quarter. We don't tend to see a big fourth quarter like some of the other participants in the industry. And, I think the other impact we're looking at is a fewer number of working days in the fourth quarter of 2016, which is driving kind of a fewer number of second half versus first half days in the year based on our quarterly accounting conventions. So, overall, I would say that we see certainly a solid path to the low-$10 billion range and the team will work hard to deliver solid results for the rest of the year. Wesley G. Bush - Chairman, President & Chief Executive Officer: And this is Wes. I'd just add that from quarter-to-quarter, we may see a little bit of variability, but I think the thrust of your question applied to the long-term is exactly right. We see AS on an upward trajectory over the next number of years as we are executing that broad variety of programs that I mentioned in my remarks. So while quarter-to-quarter, we may see some little ups and downs, the trajectory that you mentioned is the right one.

Okay, thanks. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Thank you, George.

Your next question comes from the line of Sam Pearlstein with Wells Fargo.

Good afternoon. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hi, Sam.

Hi. I was wondering if you could talk a little bit philosophically, I guess, about the cash balances. Just looking at you're down to about a $1.1 billion this quarter, it's kind of as low as I can remember. I know the second half cash is always better than the first half, so that will build. But just thinking about what is the right amount of cash to run the business? Does that make you think differently about how you return cash to shareholders? I'm just trying to think about how we see things move from here? Wesley G. Bush - Chairman, President & Chief Executive Officer: Thanks for the question, Sam. I would comment that we are satisfied with the amount of cash we have on the balance sheet and satisfied with our liquidity position. It's a bit lower than where we were the second quarter of last year. I think we were a bit north of $1.25 billion, somewhere shy of $1.3 billion last year at this time. So, we're looking forward to a strong second half in terms of cash generation. I think you'll remember that that's pretty consistent with our normal historical pattern of cash generation, although I'm determined to figure out how to pull some of that forward into the first half of the year as we look forward. But overall, we don't have any concerns about where we ended up the second quarter on cash and look forward to solid second half of the year and then delivering continued solid cash results from there as we move forward. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Sam I'd just add it's always the balance. We want to put our cash to work and making sure that we've got the right balance between putting it to work and having the adequate balance we need just to run the business is somewhat a reflection of the volatility that we see from time-to-time in the market space. During the period of time where we were dealing with shutdowns and some of those other issues, that biased us a little bit more in the direction of a more significant balance. It's hard to tell that we're necessarily in a period of greater stability on funding. We'll see how this whole CR process works out. But it's working to find the right balance in that overall equation with a strong bias towards putting our money to work.

Thank you.

Your next question is from Noah Poponak from Goldman Sachs. Noah Poponak - Goldman Sachs & Co.: Hey, good afternoon, everyone. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hey, Noah. How are you? Noah Poponak - Goldman Sachs & Co.: Pretty good. How are you, Ken? Wesley G. Bush - Chairman, President & Chief Executive Officer: Good. Noah Poponak - Goldman Sachs & Co.: Hey, could you update us on the FASB change and the possible revenue recognition change, where your units of delivery, and I don't know if there could be a change or not on F-35 for you? Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Sure. The rev rec standard, we do expect will result in a change to a number of our programs, F-35 probably being the largest in terms of those programs for which we are on units of delivery. If you think about it, essentially, we will take units of delivery sales in the year of adoption and we'll take those units of delivery out and replace it with cost to cost sales. So, generally, we expect it to have a not too significant impact in terms of any particular year in regards to the P&L, and the sales and earnings to be generated. Certainly, something we're spending a fair amount of time on. Our accounting folks are working hard on that. We do expect to have that fully analyzed and our method of adoption identified by the end of 2016. And I'd say we're well on track to dealing with that issue, and we don't see it as significantly impactful to any particular P&L as we look forward. Noah Poponak - Goldman Sachs & Co.: Okay. It seemed like potentially something like F-35, where the program is…

And your next question is from the line of Doug Harned from Bernstein. Doug Stuart Harned - Sanford C. Bernstein & Co. LLC: Thank you. Good afternoon. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hey, Doug. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hi, Doug. Doug Stuart Harned - Sanford C. Bernstein & Co. LLC: I wanted to talk about Aerospace. And you talked about expectations over the next few years for a ramp there. When you look at across those next few years in terms of margin, you've clearly got the B-21 ramping up in development, I know it's something you probably can't say much about, but when you look at Aerospace as a whole, do you think you can maintain margins at current levels even with the mix shift? And I would imagine the people working there would like that, too, given that incentives are tied to margin levels. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Thanks for the question, Doug. Let me start and maybe Wes will add some comments at the end. But in terms of mix, we do have some additional development coming in. You talked about the B-21 and there's always a mix of development versus production work, as we look. But the other piece of this is that we've also got a fair amount of production. We spent a little bit of time talking about F-35 today, as that production should mature and ramp. E-2D is in mature production. And Wes mentioned we're looking to get to LRIP on Triton. So, we've got a bit working both ways. We do incentivize the team to perform better than the benchmark and its peers. That benchmark continues to be 11% for Aerospace. And I…

Your next question is from the line of Joseph DeNardi from Stifel, Nicolaus. Joseph DeNardi - Stifel, Nicolaus & Co., Inc.: Yeah. Thank you very much. Wes, sorry for another question on Aerospace, but if you look at the three headwinds you've got this year, the James Webb, AHF (sic) [AEHF] (34:13), and F-18, are those more of a headwind next year or does that start to ease a little bit in 2017? Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Joe, I would say that largely those headwinds start to ease a bit in 2017. The F-18 should kind of flatten out and stay at a delivery level of about two a month. The others could see a little bit more decline as they continue to mature, but I don't see it as a particularly significant drop in those programs. Joseph DeNardi - Stifel, Nicolaus & Co., Inc.: Okay. Thanks, Ken.

Your next question is from Jason Gursky with Citi.

Hey, good afternoon, everyone. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hi, Jason. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hey, Jason.

Wes, I was wondering if you could dive a little bit deeper on the TS restructuring. How long is this going to take? When do you think revenue streams could inflect higher there to get some growth out of it? And, just what are you going to be prioritizing there as you work through this process? Wesley G. Bush - Chairman, President & Chief Executive Officer: So, it's a little hard right now to project on the timeline for it, just given the fact that as we make our decisions, we, at the same time, make sure that we continue to support our customers. We're a company that never leaves a customer high and dry simply because we've decided that we're changing a part of the portfolio. And, I'll give you an example on that. Our approach in state and local, where we've been pretty clear that we've been ramping down our business in the state and local marketplace over the last few years. And so, we're not rebidding on a lot of new things. But, in many cases, those customers need us to hang in there a little bit longer to affect a smooth transition. And we're committed to making sure we support them. So, a lot of the variability here is on the nature of the customer needs to ensure that nobody gets left hanging in some manner. We want to make sure we support them well. My experience on these transitions, as we've gone through them over the last few years, suggests that it takes usually, at a minimum, about a year, but sometimes it can be a little bit longer than that to affect the portfolio shaping. Some of that gets assisted by where the new bids are. And we can elect in many cases to…

Okay, great. Thanks, gentlemen.

Your next question is from Carter Copeland with Barclays.

Hey. Good afternoon, Wes and Ken. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hey, Carter. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hi, Carter.

Just to follow up on that, Wes, when you look at TS, I mean, if you have someone else who doesn't have the same return hurdles or the same technology componentry focus that you do, is there a scenario where divesting a business as opposed to non-bids works, I mean there is obviously a lot of movement in that marketplace, a lot of changing business models in that marketplace, could that be part of the consideration as well or any color you can provide? Wesley G. Bush - Chairman, President & Chief Executive Officer: We always look at that full range, Carter, of portfolio options, but I will tell you in this case, what we see is the redeployment of people. We've got a great asset in that business of just extraordinary people, who can provide really good returns and provide really good outcomes for our customers as we better deploy them into these areas where we think there are better opportunities. So, my general bias in looking at a business like TS, where we do have such an amazing group of employees, is to just more effectively leverage that capability that we have into a place that makes a lot more sense for us to be, and, again, being mindful of it and respectful of our customers' needs, so that we are not causing any customers any grief in the process. So, that's generally how I see this going. As always, and you've seen us do this over the last number of years, if it's very, very clear that some part of our business would be better executed in the hands of another party, we're the first to step up and make that happen. But, in general, just giving you my impression of how I see things headed at TS, I have a bias towards redeploying the amazing people that we have in that organization to ensure that we can be on the better trajectory.

Can you quantify how much redeployment that it is as a percentage of the total? Wesley G. Bush - Chairman, President & Chief Executive Officer: Not really, and I want to be careful that this doesn't come across as a huge sort of instantaneous transition of the business. We're just talking about the general vector that we see the business on. Again, I don't see a precipitous drop in any aspect of that business as we move into 2017. But when I compare the three businesses, AS and MS to TS, I would say that we're looking for a more near-term reflection of our growth opportunities at AS and MS and that will lag just a little bit in TS. That's the way I would frame it for you.

Great. Thanks Wes. Wesley G. Bush - Chairman, President & Chief Executive Officer: Thank you, Carter.

And your next question is from the line of Howard Rubel with Jefferies.

Thank you very much. I want to turn the discussion a little bit towards some of these new innovative programs that you're starting to capitalize on. I think there is two and maybe three, one is SEWIP, second is JCREW and then third, it seems to me that you've probably won some space situational programs, and could you address sort of what you see, both with that portfolio and how to build on it, Wes? Wesley G. Bush - Chairman, President & Chief Executive Officer: Yeah, thanks, Howard. I appreciate it. There is, as you point out, so much innovation that's occurring right now and attempting to insert some very new thinking into the way our customers are executing their missions. SEWIP Block III and JCREW are perfect examples of that. And we're really proud of those wins. And I'm especially proud of how the teams approached those areas. Those are reflections of some much of what we do in the company that takes a number of years of investment in advance to really generate the level of technology capability that we can demonstrate to the customers and show them that they can achieve and some of these cases, something that they didn't actually anticipate being able to do when they began thinking about the way they were going to formulate their mission capability. And in all of these areas as we are able to not only advance the technologies themselves, but better integrate these rapidly-moving technology spaces, we're creating these types of outcomes for our customers. And I'm especially excited and proud about that. SEWIP III, you mentioned a really good example of how the Navy is thinking aggressively ahead on electronic warfare. And, it needs to, given the complexity of the threat environment that the Navy is going…

So, if I interpret that, there is some study contracts that have moved forward and you're part of that? Wesley G. Bush - Chairman, President & Chief Executive Officer: There are, sort of across the board on a lot of these things, much of the advanced study work, as you might imagine, is classified, so we're not able to talk very much about that, but I would just say there is quite a bit of effort and energy that our customers are putting into making sure that the application of these advanced technologies really does enable them to differentiate their war-fighting capabilities.

Thank you very much. Wesley G. Bush - Chairman, President & Chief Executive Officer: Thanks, Howard.

Your next question is from Cai von Rumohr with Cowen & Company. Cai von Rumohr - Cowen & Co. LLC: Yes. Thank you very much. So in your first quarter 10-Q, I think you identified $75 million difference between what you were assuming in recovery on equitable adjustment claims versus what your claim was. And I think you alluded to an REA in your current 10-Q. Could you give us the status of those first? Were both of those two REA's from the first quarter settled here in the second quarter? And was the one mentioned in your Q here that you settled in July, is that included in these numbers? And if so, you know, what was the recovery? Thank you. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Cai, thanks for the question. On the REAs, let me kind of cover it broadly. The one REA that we discussed in the 10-Q was resolved in July. It was reflected in the numbers and does not result in a material impact for a disclosure in the financials or the 10-Q. In terms of the remaining REAs, there is a remaining balance that we believe is not material for disclosure, working through that, or those, in due course and don't expect any material issues arising out of that, certainly to the downside. And to the extent there's an immaterial upside, we'll include that in future 10-Qs or 10-Ks, as the timing is right. Cai von Rumohr - Cowen & Co. LLC: And then, you mentioned also in the Q that you have, I guess, another potential $40 million or so tax pickup. Could you basically explain what's that about? And what has to be triggered to allow you to realize that? Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: There is a number of outstanding tax audits, Cai, that continue through the process. And some roll their way out and/or realizes. We saw 2007 through 2011 was this quarter and other audits, be they Federal or state, or other international jurisdictions, sometimes roll their way into what we call the early warning disclosure in terms of what changes we could see in the next 12 months. So, it's just kind of a rolling inventory of a large number of claims and audits that our tax team works very hard to stay on top of and maximize our cash tax benefits, while always making sure we're in strict compliance with the tax laws and regulations. Cai von Rumohr - Cowen & Co. LLC: Thank you very much.

Your next question is from Seth Seifman with JPMorgan.

Thanks very much and good afternoon. In Mission Systems, I think you noted in the 10-Q that the backlog was down slightly year-to-date. I think after the first quarter, it had been up a bit. I wonder if you could talk about the order environment there and the possibility of ending out the year with that backlog higher. Wesley G. Bush - Chairman, President & Chief Executive Officer: Seth, I think that one of the complications of backlog is it's really hard to analyze on a quarterly basis. And we certainly, being kind of a longer cycle businesses at AS and MS, we do see the impact of – I wouldn't call it necessarily seasonal change in the backlog, but kind of fluctuations in terms of increases as large orders come in and decreases as you kind of burn those down. So, I would say it's not unusual, pretty consistent with our historical timing of booking awards and our backlog balances. And that's one of the reasons that we don't guide on book-to-bill is it's just, in a long cycle business, it can be a bit lumpy, and dependent on timing of getting awards in the door and when those contracts are signed and negotiated.

Okay, understood. Thank you.

Your next question is from the line of Hunter Keay with Wolfe Research.

Thank you. Wesley G. Bush - Chairman, President & Chief Executive Officer: Hi, Hunter. Good morning.

Hey. How are you? So, CapEx, the low end came up by about $100 million. Well, not about; it came up by $100 million. And, I think you said the building purchase was about $240 million versus I think the prior placeholder was like $300 million. So, what's driving the increase there? And, as you think about the next couple years, two, three years out, are you finding that there's maybe some unanticipated required investments with some of the ramping development work that maybe means CapEx stays a little more elevated than maybe some people were expecting, or you guys were originally expecting, maybe closer to the $1 billion level going forward for the next few years? Thank you. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: No problem, Hunter. I would say that I don't think that this – the profile of the CapEx for 2016 is surprising to us. We fully expected that we'd have the facilities in the early half of the year. And we've been executing on that, as Wes mentioned. We've got a couple other major projects that are working their way through the system. And we fully expected that some of that would be second half-loaded. So, we see a higher level of CapEx on the non-facilities side of things in the second half of the year. And, we fully expect to be within the range of $800 million to $1 billion. In terms of the future CapEx requirements, I think what we've talked about is, is that we expect to stay elevated from our historical amount, if you look back a number of years, for a few more years. And what we're seeing today, I don't see any significant change in our previous expectation as to where we are today on that outlook. So I think we would continue to say not necessarily the number of facility actions in front of us as we saw the first half of this year, but we do see as we grow the business and we're investing for the future, profitable growth that we see in front of us, we'll see an elevated level for a few more years, but, no change from where we've been in terms of the longer-term outlook.

Okay. Thank you.

Your next question is from the line of Robert Spingarn from Credit Suisse. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Good afternoon. Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Hi, Robert. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): If you'll indulge me, I was going to try and tie two things together here into one question related to LRIP 9 and 10. And, the first component is the F-35 margin, which, Ken, I think last quarter, you mentioned was below where it might be relative to its level of maturity, the program's level of maturity, at this stage. And then, the other part is the logistics side of the equation, which you both talked about a few questions ago. With this LRIP 9, 10 deal, I guess this is to you, Ken. Are you getting where you want to get on margins? And then, how should we think about this Blueprint for Affordability? And then, separately, the sustainment cost reduction initiative. What are the anatomy of these programs? Are they real initiatives that you've cooperative with a customer or are they euphemisms for price decreases? Kenneth L. Bedingfield - Chief Financial Officer & Corporate Vice President: Let me start on the margin side and LRIP 9, 10. And then, I'll turn it over to Wes on the Blueprint for Sustainability. And I can comment briefly on Blueprint for Affordability, as I was a bit involved in that when I was in my previous role at the AS sector. In terms of F-35 margin, I would say that, yes, in fact, the margin rates we're realizing on that program is not what we expect at this level of maturity. We're talking about LRIPs 9 and 10 moving into full rate production,…

Hey, Robert, we're going to cut it off at this point in time. So, I'm going to turn it over to Wes for final comments. Wesley G. Bush - Chairman, President & Chief Executive Officer: All right, well, thanks, Steve. Let me just wrap up by thanking our team again for developing an approach over these last number of years that has allowed us to consistently deliver solid results. I think this quarter was another good demonstration of the team's focus and commitment on performance. But also the team is doing such a great job in positioning us so well for the, not only the remainder of this year, but for the longer-term and for working closely with our customers to satisfy their needs as we go forward. So, thanks, everyone, for joining us on the call today, and also thanks for your continuing interest in our company.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.