Stephen C. Movius - Chief Financial Officer and Sector Vice President of Finance and Business Operations Wesley G. Bush - Chairman, Chief Executive Officer, President and Member of Corporate Policy Council James F. Palmer - Chief Financial Officer, Corporate Vice President and Member of Corporate Policy Council

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division Carter Copeland - Barclays Capital, Research Division Howard A. Rubel - Jefferies & Company, Inc., Research Division Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division Jason M. Gursky - Citigroup Inc, Research Division Cai Von Rumohr - Cowen and Company, LLC, Research Division Joseph Nadol - JP Morgan Chase & Co, Research Division Myles A. Walton - Deutsche Bank AG, Research Division Robert Stallard - RBC Capital Markets, LLC, Research Division Robert Spingarn - Crédit Suisse AG, Research Division George Shapiro David E. Strauss - UBS Investment Bank, Research Division

Good day, ladies and gentlemen, and welcome to the Northrop Grumman second quarter earnings conference call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Steve Movius, Vice President, Investor Relations. Please proceed. Stephen C. Movius: Thanks, Chanel, and welcome to Northrop Grumman’s Second Quarter 2012 Conference Call. We provided supplemental information in the form of a PowerPoint presentation that you can access at www.northropgrumman.com. Before we start, please understand that 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. On the call today are our Chairman and CEO, Wes Bush; and our CFO, Jim Palmer. Please go to Slide 3. At this time, I'd like to turn the call over to Wes. Wesley G. Bush: All right. Thanks, Steve. Good morning, everyone. Thanks for joining us on our second quarter conference call. This was an outstanding quarter in a challenging environment. Segment operating margin rate, EPS, cash from operations and free cash flow all improved over last year. And new business awards totaled $8.8 billion, a book-to-bill of 140% which increased our backlog to $41.5 billion. Our focus on superior program performance, cost reductions and customer affordability, in combination with effective cash deployment, continues to generate solid financial results and create shareholder value. All 4 of our businesses performed well. Together, they generated segment operating income roughly equal to last year's second quarter despite lower sales. And segment operating margin rate increased 50 basis points to 12.5%. Earnings per share increased 4% to $1.88, and on a pension-adjusted basis, earnings per share increased 13%. Cash was also a highlight for the quarter. Cash from operations totaled $876 million, and after capital expenditures of $51 million, we generated free cash flow of $825 million. During the quarter, we continued to execute our balanced cash deployment strategy. In the second quarter, we repurchased 4.9 million shares of common stock for approximately $295 million. Year-to-date repurchases totaled 9.3 million shares for approximately $560 million. We also announced a 10% increase in our quarterly dividend in the second quarter. Maintaining a competitive dividend payout ratio on a pension-adjusted basis continues to be a priority in our cash deployment strategy. Year-to-date, we've returned $820 million to our shareholders through share repurchases and dividends, which is consistent with our pattern of returning more than 100% of free cash flow to our shareholders over the last several years. Turning to guidance. Based on our year-to-date results, we're increasing 2012 earnings per share guidance to a range of $7.05 to $7.25 from the prior range of $6.70 to $6.95. Our sales guidance for the year is unchanged. 2012 guidance assumes a continuing resolution in the fourth quarter, but our guidance does not contemplate extraordinary customer actions in anticipation of a potential sequestration at the beginning of 2013. We continue to see modest organic sales growth in key domain areas, which is being offset by our portfolio-shaping actions and lower volume for other programs due to ramp downs and cancellations. We continue to capture new business in our key focus areas of C4ISR; Unmanned; Cyber; and Logistics and Modernization based on our competitive discriminators in these areas. Our $8.8 billion in new awards included several large awards in our strategic focus areas. These include: $1.6 billion for NATO AGS; as well as multimillion dollar contracts for the next-generation Fire Scout unmanned helicopters; F-16 airport fire control radars for Thailand, Iraq and Oman; Cybersecurity projects; and a contract to upgrade the U.S. Air Force's electronic attack pods. We also recorded $1.4 billion in awards for the James Webb Space Telescope. This quarter's awards resulted in a 6% increase in our total backlog. So overall, it was a very good quarter. But as we look ahead, we see an increasing risk profile due to budget uncertainty. This uncertainty becomes more critical as we progress through the year, and we recognize that it's also a major area of concern for all of our stakeholders. As the government formulates future Defense budgets, we are preparing for various potential scenarios, including sequestration. Like others in our industry, we are very concerned about sequestration's serious negative consequences for national security and the Defense Industrial Base, and the shareholders, customers, employees, suppliers and all the communities that rely on the Defense Industrial Base. While we've not received planning guidance from the government on how sequestration would be implemented, we are developing contingency plans. There are many variables in how the law could be implemented that will determine the specific impacts. However, we expect that as currently provided for under the Budget Control Act, sequestration would result in lower revenues, profits and cash flows for our company. We appreciate the work that some in Congress are undertaking to ensure the capability and readiness of our nation's military under the specter of a potential sequestration. We believe that a solution that avoids sequestration and its destructive impacts is in our best national interest. In addition to sequestration, we're also planning for various other budget scenarios, all of which call for a heightened focus on innovation, cost reductions and customer affordability initiatives. Over the last several years, we've improved our performance for shareholders and customers by driving program performance, reducing costs and enhancing our portfolio alignment. Our year-to-date results demonstrate the positive impact these actions are having on our existing portfolio of contracts. They also position us to compete in a more challenging environment. We believe that we're taking the right steps in the current environment and that we can continue to create value for our shareholders by remaining focused on our key priorities: performance; effective cash deployment; and portfolio optimization. Now before I turn the call over to Jim, I want to provide some perspective on Monday's leadership succession announcement. These organizational changes take effect in 2013 and are the result of thoughtful and thorough succession planning as well as extensive internal leadership development. We decided to announce these changes now in order to enable a seamless leadership transition over the next 5 months. At Aerospace and Electronics, Gary Ervin and Jim Pitts each informed me of their intention to retire, Jim at the end of this year and Gary in the first quarter of next year. Both Gary and Jim are outstanding leaders whose contributions to Northrop Grumman, our industry and our nation's security are too numerous to name here. I want to personally thank Gary and Jim for their support and their leadership over these past several years. They have been instrumental in achieving the superior program performance and affordability improvements demonstrated in our financial results. Linda Mills, the President of Information Systems, will join the corporate office as Corporate Vice President for operations. Linda has done an outstanding job at Information Systems, both in shaping our portfolio and improving financial performance. In her new role, she will have a focus on our operational efforts that we have underway across the company to support our drive for sustained performance, even as our environment becomes more challenging. Gary, Jim and Linda will continue to lead their organizations through the end of the year, which will support a smooth transition for our incoming sector leadership, all of whom are current Northrop Grumman leaders. Tom Vice, the current President of Technical Services, will become President of Aerospace Systems. Tom joined what is now Northrop Grumman's Aerospace sector in 1986 as an engineer on the B-2 program. He's held a variety of AS leadership positions of increasing responsibility in operations and program management as well as business development. Before assuming the TS Presidency, Tom led the Aerospace Systems Battle Management and Engagement Systems Division, which encompass the E-2, LEMV and BAMS programs. And he also served as Vice President for Navy Airborne Early Warning and Battle Management Command and Control programs. Gloria Flach, current President of Enterprise Shared Services, will become President of Electronic Systems. Gloria joined our Electronics business in 1981 and held numerous positions of increasing technical and management responsibility before leading our Shared Services organization. Just before assuming her current role at ESS, Gloria was Vice President and General Manager of the ES Targeting Systems Division and she also served as the Vice President and General Manager of Engineering and Logistics for Electronic Systems, which included executive responsibility for engineering and manufacturing operations and logistics services across the ES sector. Linda, Tom and Gloria are current members of Northrop Grumman's Corporate Policy Council, which is our senior leadership team, and as such, they will provide additional continuity to the management of the company in their new roles. Kathy Warden will become President of Information Systems. Kathy currently leads Information Systems Cyber Intelligence Division, which provides cyber capabilities to national and military intelligence programs. Kathy joined Northrop Grumman in 2008 as Vice President, Strategic Initiatives, where she was responsible for ISR market strategies, including key growth campaigns in cyber and intelligence information sharing. Kathy joined Northrop Grumman after having worked at another defense company as well as having worked in the commercial sector. Her breadth of experience is well aligned with the breadth of market focus at IS. With the transition of Tom Vice to Aerospace Systems, Chris Jones will lead Technical Services. Chris currently leads the Integrated Logistics and Modernization Division at ES. Chris joined Northrop Grumman in 2004 as the Director of product support and international programs for the Airborne Early Warning Program at AS. He managed personnel located in several U.S. states and countries and was responsible for all domestic E-2 Hawkeye support and international E-2 programs. In addition to his program execution responsibility, he also was a key member of the business strategy development and capture teams. In addition to these changes in our sector leadership, Mark Caylor, our Treasurer, will assume the presidency of Enterprise Shared Services. And Prabu Natarajan, Vice President of Tax, will continue with those responsibilities and also take on treasury responsibilities. Dave Perry, whose appointment is effective immediately, will become Corporate Vice President and Chief Global Business Development Officer. Dave previously served as Vice President and General Manager of the Naval and Marine Systems division and Electronic Systems. Each of the individuals chosen to lead our businesses has broad and deep industry experience and superior expertise and domain knowledge in their business areas. One of Northrop Grumman's strengths is our leadership bench and we are fortunate to have such talented leaders within Northrop Grumman to take on these roles. All of these individuals have been important contributors to the operational performance improvement we've achieved over the last several years and I'm looking forward to accomplishing even more as we move ahead next year. So now I'll turn the call over to Jim for a more detailed discussion of results and guidance. Jim? James F. Palmer: Thanks, Wes, and good morning, ladies and gentlemen. The highlights for the quarter were the strong new business awards and our 12.5% segment operating margin rate, which combined with share repurchases, generated a 13% increase in pension-adjusted earnings per share. On a pension-adjusted basis, operating income was comparable to last year's second quarter and pension-adjusted operating margin rate increased 50 basis points to 11.8%. Operating income for the quarter included a $64-million reduction in the net FAS/CAS pension adjustment. Our improved results reflect, in part, the aggressive cost reductions we've taken to improve our affordability in anticipation of likely budget declines. We are realizing the benefit of those cost reductions on our existing backlog of contracts. Based on our year-to-date performance, we now expect a 2012 segment operating margin rate in the high 11% range with a total operating margin rate in the mid 11% range. Our effective tax rate for the quarter was equal to last year's at 34% and we continue to expect an effective tax rate of 33.75% for the year. We do not assume an extension of the R&D tax credit in that guidance for tax rate. As Wes mentioned, cash results for the quarter were outstanding and reflect lower retirement benefit funding, as well as lower working capital requirements than in the prior year period. Our team's efforts to accelerate cash flow within the year are yielding benefits. However, we still expect cash flow to be weighted towards the second half of the year, as is our typical pattern. Guidance for cash from operations is unchanged at $2.3 billion to $2.6 billion and we continue to expect free cash flow to range from $1.8 billion to $2.1 billion. Turning to the sectors. Sales in Aerospace Systems declined by $69 million or 3%. Adoption of the units of delivery revenue recognition method for the F-35 LRIP 5 contract impacted sales by approximately $30 million this quarter. The loss of the DWSS sales due to its cancellation last year also impacted year-over-year sales by about $56 million. F-18 volume was lower due to 2 fewer deliveries this year and B-2 volume declined, reflecting reduced modernization efforts on that platform. Lower volumes for each of these programs more than offset the higher sales in the E-2D program and our Unmanned programs. Aerospace operating income declined by 9% and resulted in an operating margin rate of 12.1%, compared with 12.9% last year. The 2 major drivers of these changes are the transition to the lower margin multi-year 3 contract for the F/A-18 and the absence of last year's favorable imposed performance adjustments. For the year, we continue to expect AS sales to range between $9.7 billion and $10 billion, with a mid 11% margin rate for the year. AS awards totaled $5.1 billion this quarter, which brings our total backlog up to nearly $21 billion. In Electronic Systems, sales declined by $47 million or 3%, reflecting the de-emphasis of our domestic Postal Automation business, which had reduced sales by $34 million. We also experienced lower volume for international Postal Automation, laser systems and infrared countermeasures. Declines in these areas were partially offset by higher volume in our Space business programs. ES operating income declined by 3%, consistent with sales, and the margin rate for the quarter was comparable to last year at 15.8%. For the year, we continue to expect ES revenues of $6.9 billion to $7.2 billion, but we are increasing our ES margin rate guidance from mid 14% to low-to-mid 15%. This guidance reflects a margin rate of approximately 14% for the second half of the year, roughly in line with our original ES guidance for the year. At Information Systems, sales declined by $175 million or approximately 9% on a year-over-year basis. The cancellation of the JTRS AMF program as well as the wind-down of the F-22 and last year's sale of the County of San Diego IT outsourcing contract altogether impacted sales by approximately $75 million. The balance of the sales decline reflects the general market softening due to the uncertainty of the budget environment and the shorter cycle nature of our IS business. Despite the lower sales, Information Systems' operating income increased by 7% and operating margin rate expanded 160 basis points to 10.9%. Favorable performance on civil systems programs more than offset the impact of the lower volume. For the year, we continue to expect IS sales of $7.4 billion to $7.6 billion. Although based on year-to-date results, I think 2012 sales will likely trend towards the lower end of that range. And we now expect 2012 operating margin rate at IS of approximately 10%, which is an increase from our prior guidance of mid 9%. Turning to Technical Services. Second quarter sales increased slightly during the quarter due to higher volume for Integrated Logistics and Modernization programs. This more than offset the impact of portfolio-shaping actions and lower ICBM volume. Operating margin rate expanded 150 basis points to 9.5%, principally due to a favorable performance adjustment for risk mitigation on a Department of Homeland Security contract. For the year, we now expect TS sales of approximately $2.8 billion to $2.9 billion with a mid 8% operating margin rate. So on a consolidated basis, our 2012 sales guidance remains unchanged at $24.7 billion to $25.4 billion. But based on the first half results, we are increasing our guidance for segment operating margin rate to high 11% from mid 11%, and total operating margin rate is increased to mid 11% from low 11%. We now expect our share repurchases to reduce our annual weighted average share count by approximately 10% versus the prior assumption of 9%. And as well we disclosed in our 10-Q filing, second quarter net cume catch-up adjustments were $222 million, which is an increase of $21 million from the prior year. The improvement reflects a slightly higher level of positive adjustments as well as a slightly lower level of negative adjustments than in the prior year. The improvement is the result of our risk management process and affordability initiatives. Individually, none of the contract adjustments were material. Before we begin the Q&A session, I just thought I'd take a few moments and talk about the impact of the pension relief legislation that was recently passed in the highway bill. As many of you may know, the legislation impacts the timing of mandatory pension contributions. Our analysis indicates that our mandatory contributions will decrease over the next 3 years and then those deferred contributions are paid back over the following 5 to 6 years. We estimate that the law reduces our otherwise required cumulative contributions for the years 2013 through 2016 by approximately $1.5 billion on a pretax basis or about $900 million on an after-tax basis. The change in law does not impact 2012 required contributions of $65 million. Now we want to maintain the financial health of our benefit plans. We view it as a competitive advantage for us. So depending upon investment performance or tax planning strategies, we may elect to use some of this additional future cash flow provided by the legislation to voluntary fund our plans. So in closing, our second quarter results demonstrate just outstanding operational performance. We remain focused on generating shareholder value through performance improvement, effective cash deployment and portfolio optimization. So Steve, I think with that introduction, we're ready for some Q&A. Stephen C. Movius: Thanks, Jim. Chanel, we are ready to begin the Q&A process.

[Operator Instructions] Your first question comes from the line of Sam Pearlstein of Wells Fargo. Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division: In the past, you had said there would be about a $500 million impact this year from the combined impact of the change on the F-35, LRIP 5 and portfolio shaping. Can you just talk a little bit about that? I'm trying to just understand at what point do I look at your revenue year-over-year and say, "This is what the organic trend is versus the portfolio shaping." When do we anniversary all of that? And do you still feel comfortable at $500 million is the right number for this year? James F. Palmer: Yes, I'm trying to remember. I don't think the F-35 alone, the transition to units of delivery accounting was $500 million. I think it's more like a couple hundred million. And essentially, the revenue will start reversing here in the -- in second half of the year as we begin deliveries on LRIP 5. The balance was portfolio shaping and other actions, but the F-35 itself units of delivery was a couple hundred million dollar impact on 2012.

Our next question comes from Mr. Carter Copeland, Barclays. Carter Copeland - Barclays Capital, Research Division: I just -- Wes, I'm interested in your comments around sequestration and the various scenarios you're planning for. I wondered if you might speak to some of the differences in those scenarios, what some of the key factors are and that you are looking at and judging the potential severity of some of these impacts. Any color would be helpful. Wesley G. Bush: Yes, we're in a just a fascinating situation here today. We have this law on the books that mandates that sequestration will occur on January 2, so that's the law. And I want to be clear that we will be ready to address that environment should that occur, but as I said in my remarks, that environment would represent lower revenues, profits and cash flows for our company. That said, we also know that the President and the Secretary of Defense, and to a very large extent, the leaders of both parties in Congress have said they do not want sequestration to occur. So exactly how this is going to play out is anybody's guess right now. And there are a lot of different scenarios floating around and everybody has their own view as to what might happen and when such things might happen. What we're doing is making sure that we're ready, and that means both planning for a variety of scenarios, both the sequestration scenario itself as well as other scenarios that might involve potential compromise positions on the part of the different parties that are taking part in this debate. We're doing that so that we're ready for a variety of outcomes. And we're doing it mindful that as we are making those plans and actually taking steps today to make sure that we're ready, we're doing that while ensuring that we're continuing to meet our customers' needs. And keeping all of that balanced as we go through here is going to be very, very important. The other part of this that's also very, very important is making sure that we're doing the right things to have a very talented and capable workforce for the future. And we're mindful of all of those dynamics as we are planning our actions as well as taking some actions today to preserve our flexibility and to make sure we're ready to really take this on however it goes. One thing I would point out that we see some constants in here and I think those constants, while we're all concerned about the coming months this year, looking past that at the longer term is really important. And one of the big constants that we see goes to the way that we've aligned our portfolio. We believe in just about any scenario, there's going to be a continuing priority for Unmanned capability, Cyber capability, C4ISR and this whole arena of modernization and its focus through Logistics and I see that, too, as being an important part of our portfolio for the future. So when we think about what's going on in the world, when we think about the environment that our national security customers are having to deal with, that part, I think, is a very important perspective as well. Trying to determine which exact path we're going to take to get to that longer-term just takes [ph] a little bit of a challenge, but we're going to be ready for it.

Our next question comes from Mr. Howard Rubel, Jefferies. Howard A. Rubel - Jefferies & Company, Inc., Research Division: You have pretty darn good Information Systems margins. And Wes, I know you’ve worked very hard to have that portfolio, I'll call it, realigned, changed and you’ve sort of solved a number of problems there. Can we -- can you say that you’ve fundamentally changed it in a way that maybe your profit expectations for the business unit are higher? Wesley G. Bush: Well, I would say that what we've done is we've changed it in a way to support the profit expectations we've put out there. If you turn the clock back a number of years ago, we had a fairly large fraction of that portfolio that was in what I would describe as more commodity services business. And today, if you look at the portfolio, and I have to give Linda Mills and her team the credit for this. They've just done an extraordinary job of managing their way through portfolio alignment here that it has a very large part of the content that is C4ISR and Cyber, and if you look at the parts of the portfolio that are more service-oriented, those typically have significant engineering content so we're bringing value-added and it's not a competition that's solely on the last penny. It really is around bringing the value of the engineering content. So those actions have given us the confidence to talk about margin rates that we put out there for this business as being the appropriate margin rates for the longer term, just given the broader character of how we've repositioned this business Howard A. Rubel - Jefferies & Company, Inc., Research Division: You mean -- it just seems to me that when we think about a government services business, this is really not that; it's something different and it fundamentally offers different value. Wesley G. Bush: I agree, Howard, very much so. This does not any longer fit that model of a traditional government services business. And as you know very well, we actually spun out or sold off, I should say, the primary part of that business that we used to have, the task organization, and that was a big part of this portfolio realignment, was to take that out and put it into a different construct. So it's no longer a part of our portfolio.

Our next question comes from Doug Harned, Sanford Bernstein. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: I was interested in -- Jim and Wes, you've talked about the cost-reduction efforts you've had and how that's contributed positively to margins. Could you -- when you look forward, I mean, the margins have been very, very strong in the first 2 quarters this year, particularly in Electronics. Now as you look forward, is there -- not just necessarily the normal margins, but is there more to come in terms of ability to get margin expansion through these initiatives or is this all, I would say, managing to a point where you're expecting some weakness later and we'll see margins revert back to a lower level? James F. Palmer: Doug, as I think about it, we clearly have gotten some benefit from the actions that we've taken over the last few years, not just last year, but over the last few years. It's really been a concentrated effort, beginning going back to 2009 when we combined what was, at that time, 6 different businesses down to the 4 businesses. And in that process, we made some really significant improvements in our basic infrastructure cost. For example, I use 2008 as a benchmark. 2011 revenues were up 1% over 2008. Square footage, on the other hand, was down 6% and the infrastructure that goes with the business, largely people-related, was down 11%. So in a continual process to think about the business, the organization that supports it, the infrastructure that's required and you get the benefits of that on your current backlog of contracts, but it's very important that you do those things because it goes to the affordability of your products and then a down -- likely down scenario on a budget affordability is a key driver on being able to compete and effectively win. So we've gotten a benefit, at the same time, we have really emphasized the management of our individual contracts, identifying risk and opportunities. And our program management organization, I think, has done a really good job over that period of time, in a better position today than they have been in the past. So it's a combination of all those factors that I think lead to the improved performance that we've seen. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: And when you look forward, do you continue to see some ability to improve on the margin side? James F. Palmer: Clearly, that's what we incentivize our people to do and so we are driving towards that. I -- you may be asking about the long-term objectives, margin rates for the businesses. I continue to believe in those, that those are long-term margin rates that are sustainable through the cycle. Clearly, we want to do better than that kind of peer-average type margin rates and we're working very hard to do that. It's interesting they -- we normally get a lot of questions around cume catch-up adjustments and having spent a lot of time with us over the last 5 or 6 quarters and many times those items relate to either contractual issues or maybe some testing issues associated with individual contracts that largely are not resolved until the contracts are fairly well complete. So -- and at that point in time, you feel comfortable in making those adjustments and recognizing them. But that having completed or largely completed, these contracts does not necessarily imply that those will be the margin rates on a go-forward basis. So I guess a long way -- winded way of saying I feel comfortable about our guidance for the year, obviously, as well as our long-term margin objectives for the company and we will clearly work to do better than that.

Our next question comes from Jason Gursky with Citi. Jason M. Gursky - Citigroup Inc, Research Division: Jim, I've got just a quick question, following up on a statement that you made earlier about the competitive positioning of Northrop relative to competitors, given your pension position. The question is, I guess, twofold. One, I know that starting on February 27 of this year, yourselves as well as some of your competitors were able to begin booking higher rates -- higher billable rates into the government. So I just want to get a sense of what type of activity you're seeing on that front from success or lack of success in being able to do that? And then the second part of the question is where do you think this is going to have the most impact as you look at your various businesses? Does it weight toward services, where you get the competitive advantage, or is it Electronic Systems? If you could just give us a sense of where you think this competitive advantage is going to have the biggest impact, I'd appreciate that. James F. Palmer: Yes. You're referring to CAS harmonization, Jason, just to make sure everyone is up-to-date on it; and CAS harmonization actually serves to increase everyone's CAS cost, everyone in the industry's CAS cost in relation to what they had previously. So it is a factor that allows us to recover those increased costs but it does also drive to the competitive nature of the affordability of our cost. So it's great that we're able to recover those increased CAS costs, but it is an affordability negative and so we are working real hard to offset that. In terms of the competitive nature, obviously to the extent that your plans are better funded than industry as a whole, your costs are less on a go-forward basis and so that is something that, as I've said, we've worked really hard to address over the past years, either through our investment performance, which has been positive. I think our investment management organization has done a really good job in relationship to the uncertain investment environment that we've had over the last 3 or 4 years. It's certainly been a difficult environment, but they've done very well in terms of performance versus the major indices, all of which, again, go to reducing our costs on a go-forward basis. So it's a combination of all of those factors, Jason, that I think is a competitive advantage for us on a go-forward basis. Although, as I said, it's great to recover that increased CAS cost, but it does become a negative that we're working hard at try and offset. Jason M. Gursky - Citigroup Inc, Research Division: Which business do you think it's going to have the most impact on for you? James F. Palmer: It's really going to depend on individual plans. We talk as if this is a huge one plan, when in reality we have about 20 different plans. So it depends on the funded status of each plan, but the area that we're most focused on has been the Aerospace segment, largely because the plans that support that have historically been very well funded and for many years did not have any CAS cost at all so we're dealing with that in our Aerospace segment, largely. But it does affect some of the other segments as well, both ES and IS.

Our next question comes from Cai Von Rumohr, Cowen and Company. Cai Von Rumohr - Cowen and Company, LLC, Research Division: So Jim, could you update us a little bit thinking about pension for next year. First, how was -- just 2 general questions. What's your investment performance year-to-date? And secondly, given that discount rates are down today from where they were at year end, and I know it only depends on where you close out the year, what sort of leverage does that have? And I know you have kind of your own indices; how should we think about the change in discount rate and what that might mean for next year's FAS cost? James F. Palmer: Yes, so Cai, the investment performance through June is, in round numbers let's call it 5.75%. So again, the organization has done a good job relative to the indices. They always tell me I can't annualize that number so I won't do that but reasonable performance on a year-to-date basis. And as you know, I think everyone knows, interest rates are down from where they were at the beginning of the year. We're probably looking at, if we were setting interest rates today, anywhere from maybe 75 to 100 basis points of decline. And just a reminder that, that sensitivity around that change in discount rate is that every 25 basis points change in the discount rate is, let's call it, $75 million to $80 million of a change in FAS cost. So if we were setting it today, we would be looking at a decline in interest rates, let's call it, 75 to 100 basis points. And that equates at this point to, if I can do my math here real quick, $300-plus million. But again, it's kind of meaningless to talk about this at a point in time that is...

Our next question comes from the line of Joe Nadol, JPMorgan. Joseph Nadol - JP Morgan Chase & Co, Research Division: I was hoping to drill down just a little bit into ES. Margin performance, of course, of the company has been great. It's been, I think, particularly strong here, though. You have the 5 business areas you've laid out within ES and I was hoping maybe, either Wes or Jim, you wouldn't mind walking through the business a little bit and telling us where the margins, relative to the segment average, are above or below in each of those 5 units. And just maybe helping us understand a little bit the complexion, the profile of the segment. James F. Palmer: Yes, Joe, I'm not going to do that because I don't want to get into competitive -- I don't want to give out competitive information here. The performance in ES has been strong in a couple of areas, in particular, but that -- having said that, that doesn't mean that the performance in the other areas are weak, if you will, as expected, but the performance in a couple of areas had been particularly strong. Joseph Nadol - JP Morgan Chase & Co, Research Division: Well, let me rephrase -- well, I was going to say maybe what we -- what I could ask then on that, if it's been a couple of areas in particular, you must have visibility on how much of that is sustainable. So as we look forward and we think about -- and we know your long-term margin target for the segment, but how much more opportunity is there to -- for performance adjustments in those couple of areas that have been really strong? James F. Palmer: As I said in my prepared comments, Joe, the guidance for the year for ES essentially assumes a second half margin rate in the, let's call it, 14% range consistent -- actually a little bit better than what our guidance initially was for all of the year for ES. So we have brought it up a little bit but again, the performance adjustments, as I said, in many cases, tend to be towards the end of that contract life, reflecting the resolution of contractual issues or other kind of testing or acceptance types of issues, and if they occur towards the end of a contract life, do not have much of an impact on a go-forward basis. Joseph Nadol - JP Morgan Chase & Co, Research Division: So the implication is that you think you've kind of reached the end with the first half. James F. Palmer: The implication is, I think, 14% margins for the second half of the year is great.

Our next question comes from Myles Walton, Deutsche Bank. Myles A. Walton - Deutsche Bank AG, Research Division: I was hoping to focus on a separate segment, Aerospace, for a minute. The segment’s had great bookings over the last several quarters, really the last 4 or 5; maybe even gets a boost on bookings from the Space area in the near term. So I'm just trying to understand, it sounds like a lot of the 2012 issues were anniversary-ing some things, whether that was ICBM or the change in accounting for F-35 deliveries or lower F-18s. Are those or other areas kind of headwinds to '13 or have we anniversary-ed those, and this kind of increase in backlog that was seen is putting in a pretty good posture for actual growth in a tough environment in '13 in that unit? James F. Palmer: Myles, we're -- for example, on F-35, we're kind of in this sine wave, where we essentially had no sales or very little sales on the current production contract, the LRIP 5 contract, but we will have sales and margins as we go forward into the second half and '13 as deliveries on that contract occur. As I look at that business, I think that, that business is reflective of the long-term margin objectives that we've seen, that I've talked about for Aerospace. Clearly, they've had some benefits on their existing backlog of contracts from the actions that they have taken to streamline the organization at AS. That's had a benefit on this year's margins to the extent that -- and it's true the Aerospace segment has longer-cycle contracts than probably most of the other business segments, so we're going to see some of that benefit continue as that existing backlog of contracts is worked off. So again, I feel good about where the Aerospace sector is in terms of their margin objectives. Myles A. Walton - Deutsche Bank AG, Research Division: Yes, I guess -- maybe I'm misusing words. I was actually looking to backlog and the bookings from a standpoint of actual orders. The backlog’s risen 23% in the last 6 months and 25 in the last 12 months. And a lot of this -- and just focusing on top line, the sales headwinds you face this year, you have illustrated pretty well. So I'm just curious, I mean, '13 if I'm just looking at those 2 metrics, would seem to be pretty well positioned for top line growth and just wondering is there any pushback outside of the obvious sequestration? James F. Palmer: Besides that, I would say no. Wesley G. Bush: I'd say there's a good balance perspective here. Clearly, Unmanned continues to be a very, very important part of the portfolio. The manned parts of it, as Jim indicated, on F-35, we have to kind of see what the program outlook appears to be. We're going to have to watch how, even if we're not in sequestration, how some of the other budget decisions continue to get made as they affect other programs, both in Unmanned and Space side. So we're delighted with the robust growth in the backlog. I think that positions us very, very well for the future here. I just would not want to get ahead of potential budget decisions that may ripple through the process here.

Our next question comes from Robert Stallard, Royal Bank of Canada. Robert Stallard - RBC Capital Markets, LLC, Research Division: Wes, I have a broader question for you. As highlighted on this call, your margins are actually very strong. You've also brought down your headcount in recent years, and now the customer is paying a higher CAS rate for you. Do you think that there's the potential for political pushback as you and your peers try to avert the sequester as politicians point out that the Defense industry is actually doing quite well at the moment? Wesley G. Bush: There's always a potential for people to misuse facts, I would say. If you look at our Defense industry, we only do well when we're performing well. And our customers have been very clear and I think we've all seen that in our contract negotiations over the last several years that we only have the contractual opportunity to do well when we perform well. And a lot of that's baked into the FAR. So when we think about our industry relative to other industries, we're not talking about extraordinary margin rates in the Defense industry. We're talking about margin rates that -- well, you can see what they are when you look across our industry compared with others. So I think if there are those who forget that connection between performance on programs and profitability, then you could say well, perhaps we're making too much somehow. But the facts are, as I've said, we only show good numbers when we actually perform well. And as Jim has been indicating in much of his discussion around our margin rates, a lot of this comes down to our ability to not only execute, but to look at things in advance and take the actions we need to be taking to manage risk on behalf of our customers. So I'm not overly concerned about that. I -- in interacting with the seniors in the Department of Defense, they are very clear across the breadth of seniors on the acquisition side and I would say on the policy side, that if we're performing, we ought to be able to make money. And clearly, if we're not performing, we ought to be penalized, and that's kind of where I see that discussion sitting today. Now clearly, when we get down to the contract terms and conditions, there's a lot of pushing back and forth on the specific terms around profitability and cash flow and many of the other terms. But all that being said, from a kind of the 50,000-foot view and a policy view, I think we're in a very reasonably place here, where that connection between contract performance and financial performance is a pretty straight connection. Jim, any other perspective? James F. Palmer: Yes, I just want to clarify the -- Rob's CAS comment because essentially, because of the transition rules, higher CAS cost begin in 2014, not before. Wesley G. Bush: Right.

Our next question comes from Robert Spingarn, Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: A couple of questions there, guys. Wes, you've had some of the best bookings so far this year and you talked earlier about abetting CR into your guidance but because of that and the difference in your service business, which you highlighted earlier, are you less exposed to the CR than some of your peers? Wesley G. Bush: We have difficulty telling the degree of exposure of all of our peers, so I'd be reluctant to make a comparative comment in that regard. Clearly, our Information Systems business, and to some extent, our Technical Services business is a higher turnover business in terms of the rate of -- at which contracts come onboard and get executed and closed out. And so that higher rate on a relative basis between those businesses and our AS and ES businesses cause us a little bit more concern as we look at the CR environment. But we've actually gotten pretty good at navigating the CR environment and I'd say most of us around our industry have been dealing with this now for a while. And our ability to plan and forecast the CR aspects of the environment, I think, is pretty good. So I'm having difficulty answering your question with regard to others in our industry, but I feel pretty good about our own outlook and forecast in that regard. The challenge, I think, here isn't so much around the management of a short-term CR. I think the challenge is how does the framework of a CR play into the concerns around sequestration, particularly as we head into the fourth quarter. And part of the struggle that we're seeing in our customer community is that the political system, as I indicated earlier, is very focused around is there an approach that avoids sequestration? Is there a broader perspective that can be taken looking together at the tax law changes or the current law coming to effect at the end of the year, the issues around the debt ceiling and everything the country went through last year and struggling to deal with the debt ceiling? Is there a mechanism where all this can be brought together or not before the end of the year? And the customer community is trying to figure out how they do the right thing to navigate through all of this, so I'm not as focused on the CR in terms of its variability as I am on the potential variability of customer actions in anticipation of a potential sequestration and... Robert Spingarn - Crédit Suisse AG, Research Division: So at the very least, I think one of the things you're perhaps suggesting is we may see Q4 looking a lot different than Q3. Wesley G. Bush: It's hard to tell. I wouldn't want to speculate on that. I would simply observe that there are environmental conditions that could potentially cause that to happen. Robert Spingarn - Crédit Suisse AG, Research Division: And then just a final question on this for both of you. For Wes, are you seeing any difference in the way the services are obligating funds these days? And then Jim, do you think that cash collections could become a problem as we get to the end of the year? Wesley G. Bush: Let me just say on the obligations part of it, our understanding is that the guidance to contracting officers is for them to continue forward now and we see them working hard to get things under contract. Clearly, there are some areas that are under more pressure than others, from a total budget perspective, and so they're struggling with this a little bit more than others. And so I'd say it varies a little bit across the portfolio, but in general, we see our customers working hard to hold everything together here. James F. Palmer: On the cash collection question, I think probably the best way to put it with, whether it's debt ceiling, all these different things that we potentially could be dealing with in the fourth quarter, we have really emphasized, as I said in my comments to our team, the importance of aggressively working our cash collections, billing and cash collections on a timely basis so that we can accelerate all the cash, as much as cash is possible into the earlier parts of the year than when it traditionally has occurred. Again, since there's a lot of uncertainty around exactly what's going to happen and how it's going to happen, it's hard to tell whether or not cash collections are going to be affected in the fourth quarter, but the best medicine is essentially move everything up if you can. Robert Spingarn - Crédit Suisse AG, Research Division: So it doesn't really impact your buyback plans. James F. Palmer: No, I wouldn't think so.

Our next question comes from George Shapiro, Shapiro Research.

I wanted to try and get at this margin question maybe a little bit differently. You had in your release that you got a lower margin on the F-18 multi-year as it transitions. Now it could just be for the transition, but I'm assuming also that the overall realizable margin is probably less on the multi-year 3 than it was on multi-year 2. If you could go through, is there a number that you could provide in terms of how much lower the margin potential might be on some of the new contracts that you're winning versus the current ones that you have in backlog? James F. Palmer: George, the -- you're looking at a situation where multi-year 2 at completion, you obviously know what you ended up doing. You had a multi-year contract; you have the benefit of the multi-year and taking cost-reduction actions and affordability initiatives to improve the overall performance. Multi-year 3, we’re at the very front end, and so it's not unusual to have a much lower earnings rate on the very front end of a contract, particularly a multi-year contract before you've had the opportunity to implement a number of the performance improvements and affordability initiatives. So I think we're at a point in time where we're comparing something that is known to something that has been negotiated that is a good contract. But we have in front of us all those other opportunities that we can take to improve the profitability, and it's too early to call whether all of them are going to be successful.

No, I recognize all that. My question really was you've seen what you did from multi-year 1 to multi-year 2, and my question really is, is the potential on multi-year 3 in that regard less? And also if I could generalize to all of your other new contracts whether the potential is less in terms of margin and what you've made or can make on the existing backlog, just to get a sense of the pressures you're feeling from -- if any, from the contracting people. James F. Palmer: Clearly, the environment is a little bit more difficult today than it was a couple years ago and we're responding in terms of our cost affordability initiatives, and so it's hard to say whether each of those are going to balance each other out over the longer term. Wesley G. Bush: But it really comes down to us to continue to execute on the contracts, to drive affordability just as we've been doing over the years. Each time we take on a contract, it's -- as Jim indicated, there's uncertainty as to how far we'll be able to go in performance improvement and affordability improvement over time. And what we're seeing is our team across the company working really hard on this and it shows in our results, and we're really proud of that.

No, you've done a great job in showing. I'm just trying to get at how much steeper the hill may be going forward here. Wesley G. Bush: It always looks steep when you stand at the bottom.

Our final question comes from David Strauss, UBS. David E. Strauss - UBS Investment Bank, Research Division: Back to margins, I don't think you've addressed this. You've gotten about 30% to 35% of your segment profit from cume adjustments in the first half. What does the guidance assume specifically in -- by the way, in terms of cume adjustments in the second half of the year? Wesley G. Bush: A more normal level, if you want to call it that. Actually, if you look at the quarter, the second quarter, and you compare the cume adjustments to the segment operating margin rate, it's 28% this year, 26% last year. So there really isn't that big a change in terms of the cume catch-up adjustments as a percent of the overall segment margin rate. So overall margins in the second half, in terms of my guidance, is a little lower. That's true, which essentially implies a little less of those potential favorable adjustments. But we'll go through a process every quarter of looking at our estimates at completion and making the adjustments, if necessary, up or down to reflect the actual -- what we see is actual performance and resolution of any risk and opportunities at that point in time. David E. Strauss - UBS Investment Bank, Research Division: And then one on the revenue side. I think when you started the year, you talked about having about $700 million in contingency or cushion in your revenue guidance. Does that still exist or do you aim into that and does that specifically relate to assuming a continuing resolution in the fourth quarter? James F. Palmer: I don't recall any conversation around $700 million of contingency. There is $700 million of variance in the range, if you will, $24.7 billion to $25.4 billion. But essentially, that range reflects the possibilities for each of the 4 sectors and where we think they may end the year. Stephen C. Movius: This concludes our Q&A session, and I'd like to turn the call over to Wes for closing comments. Wesley G. Bush: Okay. Thanks, Steve. Let me just summarize by saying we had an outstanding quarter, reflecting our continued focus on performance. We face a challenging environment and we're certainly concerned about sequestration and the broader budget environment. That said, we have a team that is focused on creating value for our shareholders, our customers and all of our stakeholders, and we are prepared to deal with this environment. Thanks for your continuing interest in our company.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.