RTX Corporation (RTX) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Raytheon Fourth Quarter 2012 Earnings Conference Call. My name is Chanel, and I will 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. Todd Ernst, Vice President of Investor Relations. Please proceed.

All right. Thank you, Chanel. Good morning, everyone. Thank you for joining us today for our fourth quarter conference call. The results 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 Bill Swanson, our Chairman and Chief Executive Officer; and Dave Wajsgras, our Chief Financial Officer. We'll start with some brief remarks by Bill and Dave, and then move on to questions. Before I turn the call over to Bill, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance, constitute forward-looking statements. These statements are based on a wide range of assumptions that the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings. With that, I'll turn the call over to Bill. Bill?

Thank you, Todd. Good morning, everyone. Raytheon delivered solid operating results in 2012. Our focus on lowering costs and program execution drove higher than expected earnings and cash flow for the year. Demand for our broad portfolio of cutting-edge technologies and innovative solutions resulted in bookings well in excess of expectation, and we ended 2012 with a record funded backlog. Fourth quarter bookings were strong at $7.9 billion, resulting in a book-to-bill of 1.23. International comprised a robust 40% of fourth quarter bookings. When looking at the full year, our book-to-bill was 1.09 and was driven by strong domestic orders for missiles, radars, training, communication and classified programs, as well as international orders for command and control systems, precision munitions and sensors among a multitude of other awards. We also exceeded our initial bookings expectation by about 6%, ending the year with $26.5 billion of total bookings, with domestic demand a little higher and international also strong. In the fourth quarter, international revenue increased 8% over last year and represents 27% of the quarter's total revenue. For all of 2012, international revenue was 26% of our total revenue, setting the standard for our industry and continuing to validate our international strategy. As a technology and innovation leader, we continued our investment strategy to strengthen our capabilities, grow our market position and better meet customer needs. During the fourth quarter, we completed 2 acquisitions. SafeNet Government Solutions is a world-class provider of encryption technology that aligns well with Raytheon's advanced strategic and tactical communications capabilities and enhances our position in these markets. Teligy specializes in wireless RF communication, vulnerability analysis, reverse engineering and rapid prototyping. These acquisitions ensure that we are well positioned in communications and cyber markets for the future. Looking at the defense environment, the U.S. government averted the…

Okay. Thanks, Bill. I have a few opening remarks, starting with the fourth quarter and full year results, then I'll discuss our outlook for 2013. And after that, Bill and I will open up the call for questions. During my remarks, I'll be referring to the web slides that we issued earlier this morning, which are posted on our website. So if everyone could please move to Page 3. We delivered solid results in both the quarter and the full year. We booked $26.5 billion in new business, ending the year with a $36.2 billion backlog. Our sales were up slightly compared with last year's fourth quarter and down 1.5% for the full year. Fourth quarter adjusted EPS was $1.60. For the full year, adjusted EPS of $6.21 was up 6%. For the quarter, our adjusted EPS came in higher than the guidance we provided you in October, but below last year's fourth quarter. On a full year basis, operational improvements were relatively consistent in 2012 compared with 2011. However, you'll recall that in 2011, operational improvements were heavily weighted toward the fourth quarter. We also generated strong operating cash flow of $1 billion for the quarter and $2 billion for the year. We were able to achieve very strong cash collections across all of our businesses. This strong performance allowed us to make a discretionary pension contribution of $500 million in the fourth quarter of 2012. Additionally, during the fourth quarter, the company repurchased 1.8 million shares of common stock for $100 million, bringing the full year 2012 repurchases to 15.9 million shares for about $825 million. As we've previously disclosed, in the fourth quarter 2012, the company issued $1.1 billion of 10-year debt at 2.5% using the proceeds primarily to retire our 2014 and '15 maturities. We have…

[Operator Instructions] And our first question comes from the line of Joe Nadol, JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Bill, could we go to the NCS segments? It looks like your guidance there is for margins coming down a bit, and I know this is where a lot of the operational activity or operational tempo type of activity in your business has been located. But you've been restructuring that business to some degree. Can you just give us an update on what's happening there?

Yes, sure, Joe. We feel confident that, that business is stabilized, I guess, a good way to say it. As you know, part of the focus there has been to concentrate on the network part of the business and show why our customers need to be presented with accurate, actionable data on the move. And so for us, when we look at their full year sales and margin, they were consistent with the guidance we gave back in Q3. And in Q4, NCS had bookings of about $1.5 billion, including a key international C4I win, which drove their full year book-to-bill about 1.13, in line with guidance. And bookings increased about $500 million over 2011, positioning them well for 2013. So taken together, I feel pretty good about where we're going and where we're headed in that regard.

Joe, let me just add one thing. The 2013 guidance also includes about 50 basis points related to the encryption acquisition that we made. So if you adjust for that, it's basically in line with '12. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Got it. Okay. And then, Dave, just on the cash flow and the pension. It looks like you guys anticipate a positive variance in your cash flow of $600 million, I think, from pension from '12 to 13, just looking at the CAS going up and your contributions going down, and your guidance calls for cash flow that's flat to slightly up. What are the opportunities there or are there other headwinds that you're dealing with that -- such that your cash flow wouldn't be a little higher?

No, your math is right. There is a swing in the pension. There's a couple of things. We had a very strong performance from a cash perspective in Q4, both on the collections side and with respect to performance-based payments and advances. So as you look at 2013, there is about a $300 million swing relative to timing between Q4 and Q1 from a cash standpoint, and we are continuing to post very strong cash performance of between $2 billion and $2.2 billion as we go into '13. So there's nothing remarkable going on there. We continue to perform well from that perspective. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then just finally, could you quantify -- when you get the question, if sequestration as currently -- as it currently looks -- or is scheduled right now kicks in, what's the impact to sales in 2013, what's your answer?

Joe, let me take a minute and say that we need to get focused on getting sequestration fixed. It's the elephant in the room, it sucks all the air out of every conversation. And by postponing the debt ceiling, we averted a government shutdown, which means federal checking or checks not going out to servicemen or people operating in our government. It would have been a horrible outcome. Sequestration cuts deeply into areas that Dems favor and cuts in areas that Republicans favor. And for me, I think sequestration sets the baseline upon which both sides will do the budget. It puts the budget where it belongs. It's about making hard decisions that need to be made, and we need to make them strategically and not across the board in a peanut butter fashion. So having said all of that, I'm not sure what the outcome of sequestration is since OMB and DOD have really not passed any guidance down. But if I had to look into a crystal ball and use all the intelligence that I can think of and kind of throw a dart at the wall, I would tell you it probably means an additional point or 2 to us as we look at the balance. And you have to remember, we have our strongest funded backlog in our history.

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

Dave, you mentioned that there's a 20 basis point headwinds in the year from a marketing perspective driven by some of these cost initiatives that you're engaging in. I was wondering if you might perhaps describe to us what the eventual benefit you think will come out of those from a margin perspective and when you think we might see those benefits.

So let me start by saying we are continuing to take a lot of productivity actions, and we're accelerating these in a number of areas. Obviously, there are some implementation costs, which you're addressing, specifically with the utilization actions. And we expect more of these due to acceleration than in the prior years. I think, going forward, these actions position us more competitively. And with the environment that we expect to be seeing over the next few years, it positions us well amongst the peer group.

Okay. And then on the CAS harmonization, earlier in the 2012 year, you were able to begin increasing your billing rates. And I just want to get an update on how successful those increased billing rates have gone. Have those stuck? And are we actually going to see the full benefits that you might have or you might be able to see in the 2014 and '15 time frame from the harmonization efforts.

Yes. The -- that is playing out as we had anticipated about a year ago, and there's nothing new to report from that perspective. We expect the cash benefit to start being realized as we move into '14 and continue to progress each year thereafter for about a 3- or 4-year time frame. So there's nothing new there and that's going well on all fronts.

Our next question comes from Yair Reiner of Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Given the strong bookings you've had in each of the last 2 years, is it reasonable to expect that maybe next year bookings are going to be more on the order of 1:1? Or do you still expect to come in above 1:1?

We expect bookings around 1.0 as you point out. We had a good year this year. We -- when we look at the bookings for 2013, we expect those to be around $24 billion, plus or minus $500 million. We expect about 28% to 30% of those to be international, which is strong for us, and 1:1 or a little over 1:1. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Great. And then just a follow-up question on the operating margins. Even if I take account of the 20 bps of costs associated with the streamlining of the business, it looks like you're modeling quite a contraction in profitability in the next year. Is there anything fundamental going on? Or is this kind of the standard conservatism that you have at this point of the cycle?

Right. I wouldn't characterize it as conservatism. There is some mix and timing impacts as we go into 2013. There are some long-duration production programs that are ramping down. We have a number of development programs ramping up, as well as some international production programs ramping up. So there is a mix impact. And again, if you add back the 20 basis points for the cost efficiency programs that we are implementing and roughly 10 basis points at the company level for the encryption acquisition, we believe that the margin profile is resulting in very strong margin performance. So there's nothing, again, that's different there. We think, as we move ahead, we'll continue to post very strong margins and solid earnings.

Our next question comes from Carter Copeland of Barclays.

A couple of bigger picture questions. This one for Dave. I know you guys have been pretty consistent and balanced in your cash deployment efforts and in your strategy and both in your communications. But as you think conceptually about this year, and as I look at where the balance sheet is now with the debt termed out, you'll be in a kind of net cash position by, looks like Q3. The balance sheet looks the best it has in a long time. To Joe's point, you're going to be generating a lot of cash this year. Presumably, at this point later in the year, we'll have a lot more visibility about where the budget is. Is there any potential that you give stronger consideration to returning more cash to shareholders? Or how does that thought process go given the progress you've made on the balance sheet and given the cash generation you expect?

We do not contemplate any wholesale changes with respect to our capital deployment priorities. You're correct when you point out the health of the balance sheet and the strength of our cash flow. It does give us an opportunity to be flexible with respect to, importantly, investing in ourselves, returning cash to shareholders, investing in the pension, looking at niche acquisitions. But from an overall standpoint, I wouldn't suggest any significant changes in the way we think about capital deployment.

Okay. And one for Bill. Just bigger picture, we now have the election behind us. We're contemplating changes around the department. We obviously had some congressional changes. But given its importance to your international business, I wondered if you might speak to any potential changes you see for the FMS process as we move into a second-term administration, some congressional changes, some changes at the department. Is there scope to sell more goods internationally? Is there pressure in any way? How are you thinking about that given its importance to your business?

You hit the nail on the head. One of the things that -- having -- going into -- in my 40th or 41st year here at the company, I've seen a lot. And one of the things that I'm really encouraged about is that the department and others see the importance of the FMS process. For us, we've got a robust pipeline here of activity that we're working on, especially either here in the first quarter or throughout the year. And I would say that the department, State Department and the administration, understands that foreign military sales help us bridge the gap as we go through these headwinds in the sense that, if we have these programs in our factories, they help keep our overheads in control. They help, in some cases, to lower them, which allows the U.S. to make the decisions that need to be made. And we're working with the department, and I can say personally, I'm doing it, in the sense of how we look at the timing of U.S. orders versus FMS orders and how do we balance our factories that way. I'm encouraged. The environment really forces this. But people are listening and they're trying to help in the process, and we've had a number of CNs go through the building. And I expect -- the nice thing, if Senator Kerry is confirmed, when he's confirmed as Secretary of State, he really understands this because he headed up Foreign Relations on the Senate side. So I'd say it's bright and not dim.

Our next question comes from Sam Pearlstein, Wells Fargo.

Just one question. I just wanted to follow up on where, I guess, Carter started, which is, if I think about 2012 across the industry and, to some extent, Raytheon as well, there was a slowdown in the pace of using cash. I want to say hoarding some cash in advance of sequestration and continuing resolution. That situation hasn't really changed, so I guess I'm trying to think about, does that mean the pace of buybacks as we go forward in 2013 should also be relatively slow until we get some resolution?

Sam, the guidance that we provided with respect to the average outstanding diluted share count of 324 million to 327 million suggests a repurchase plan directionally in line with 2012. And that's what I was suggesting when I answered the earlier question with respect to cash being returned to shareholders. We'll also be addressing any change to the dividend as we move forward in the year. We're following the same cadence that we have in prior years, and we'll be discussing this with the board, as we do throughout the year, and talking with the shareholders as we likely close out the first quarter.

And then just, if I look at the segment guidance for 2013, why, on a year-over-year basis, do you seem to have more of a decline in NCS and SAS than the other segments? Are there certain programs ending? Is it an OCO assumption? Really, what's behind those 2 segments?

So with respect to NCS, the lower margin is driven by mix, primarily U.S. Army sensor programs nearing completion. It's partially offset by a ramp-up on new international programs. And again, we do have about 50 basis points of impact related to acquisition accounting for the fourth quarter acquisition in that group. With respect to SAS, the operating income declines over '12 due to, again, a change in mix. Here, it's primarily due to international sales moderating slightly, specifically on long-duration production programs, combined with higher sales on new development programs. So again, there's nothing too unusual happening from an SAS perspective.

Our next question comes from Robert Spingarn, Credit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: You said, Bill, or maybe Dave, you said this, that there's no sequester in the guidance. But what level of cuts are contemplated in the guidance? And if we -- you also mentioned that if we do get a full sequester, it's 1 point or 2, how much worse is it in '14, just given that it's going to be back-end-of-the-year timing?

Yes, as you know, we don't give any guidance in '14. And that one's really hard to figure out, Rob, because, from a point of view of how are the cuts going to be made, I know there are many on the Hill that are trying to give the Secretary and the department the ability to line up their priorities with their strategies and make the cuts. If they're forced into a peanut butter approach where everything gets spread the same, then different outcomes happen. For us, I always think of Raytheon being different. When you look at 26% of our sales being international and having a strong funded backlog, not being -- or agnostic, the platforms, I like to think we're going to fare better than anybody else going into these headwinds. So I would tell you in '14, I look for us to be better than others. Robert Spingarn - Crédit Suisse AG, Research Division: Okay. And then just to follow up on that. Dave, in your revenue guidance, how should we think about organic growth domestically versus international in '13?

So the range of international growth is 3% to 5%. And from a domestic standpoint, we look to be down about 3% to 5%. So net-net, that's, if you stand back, that's about 1% to 3% down overall from a company perspective. Robert Spingarn - Crédit Suisse AG, Research Division: Okay. And then just last thing, a clarification. What was the underlying margin at NCS when you adjust for the supplier agreement?

The supplier agreement cost us about $17 million to end that agreement. There's another point I'd like to make here. We also had an inventory write-down in that group worth about $14 million. So combined, it's about $30 million.

Our next question comes from Robert Stallard, Royal Bank of Canada.

Bill, a couple of quarters ago, you commented that some of the acquisition targets that were pensioned out that were too expensive. You've made a couple of small deals this quarter. Does that mean these prices started to come down into your comfort level?

No, the small deals, we look at each one of them on an independent basis. The wireless RF is a key capability and, especially for vulnerability, I think people have heard me say anything that has an aperture, meaning an antenna or something that takes in signal, is just a door we can knock on to open. And so we wanted to have these capabilities even more so for our customers because we think that's something our customers are going to face as they go forward here. Right now, I can tell you I've not seen a reduction in market prices. Everybody still thinks they're beachfront properties. And so for us, we're pretty disciplined here about how we go and do that. But as you look to the future here, people are going to have to evaluate what they have and maybe the prices will get better. But right now, for us, they're really based on the capabilities we need as a company, and then we draw a line in the sand of what we're willing to pay for something.

Okay. And on the export front, you've clearly had several years now of good growth in export bookings. How long do you think this trend is going to last? Do you think it's going to be strong enough to sustain you over, say, a 3 or 4-year period, if the DOD budget is heading down?

Yes, I feel pretty good about the international. It's still a complicated world out there. Everybody faces threats, whether you're in the Mideast or whether you're in Asia or other parts of the world. People still want to know what's going on, on their borders, so the surveillance or the ISR capability. And once they know that, they need to tie it into the command and control. And people are worried about missiles now, so missile defense is key in that regard. And then cyber, being able to protect your assets and your communication and your nodes in country are important. So I could go on and on. And I just -- I'm encouraged, as we go forward here, that the international marketplace is one that, from a strategy point of view, we saw it a number of years ago and you see us constantly getting our booking and our sales up on a year-over-year basis. So to answer your question, I feel pretty good about it.

Our next question comes from Doug Harned, Sanford Bernstein. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: I'm interested in -- when you talk about bookings, very good year this past year. Backlogs are up, funded backlogs are up in every unit except for Technical Services, yet you're guiding to lower revenues in '13. Is this conservatism? Do you expect something different in terms of timing with respect to converting these backlogs? What's happening there?

So let me start by saying our international sales for 2013 are projected to be up 3% to 5%, and domestically, down about 3% to 5%. You do need to consider program duration on our new awards and the general headwinds in the environment. So you are right. We did see strong orders in 2012. We had a book-to-bill of 1.09, some of which was accelerated from 2013. We had a couple of multi-year awards in 2012, specifically at Missile Systems, that are longer in duration and normally would have been funded in annual increments. We also received some longer duration awards at SAS. Our bookings in 2013 are down slightly, with a book-to-bill of just around 1 or maybe 1-plus a little bit. And the strength in international doesn't quite offset what's happening domestically.

And Doug, I would add to what Dave said, that one of the things that we're seeing and I'll have better color on by midyear, some of our international customers are seeing what we can do to accelerate, which could have an effect, but it's a little early right now. But a couple of initial discussions are, can we pull some stuff to the left here. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: Well, and on that, could you talk about your expectations for some of these awards? In particular, I know we've seen Turkey and Kuwait kind of slip. And then out there is this -- the DFCA notification on Cutter [ph], which is quite large. Can you talk a little bit about the specific things you're looking at for the year?

Sure, I'd be happy to do it. It's -- the nice part is, I want to put in perspective that we did increase our bookings above our expectation. So even with the movement, we met what we said we were going to do, plus a little something extra. And I really want to say that because you know us long enough that, many years ago, if something slipped, that'd be a huge disaster, and that's not the case because we have a super strong portfolio today. So if you look at it, Kuwait, we might have expected that in the fourth quarter. We expect it this quarter. It's in country, just waiting for the signatures, and they have a process there. So we're forecasting that for this quarter. We expected a $750 million, plus or minus. The award will be larger than that, but that will be the initial award because services and spares come a little bit later. We've got Oman in the GBADs, which is a ground-based air defense system. We expect that decision in the first half of this year, probably around the July time frame. That's about $1.5 billion, could be $0.5 billion larger. Turkey Patriot, clearly, there, everyone knows, it's no secret, that they have Patriots on the line now that they've gotten from NATO. We expect a decision here on that in March. They were going to make it in January, but they went back to get some more data. That is competitive there, but from our standpoint, we're doing everything to make sure it's in our wheelhouse. That's a couple billion. Cutter [ph], as you mentioned, there's a CN approved in December. That's for 11 fire units and missiles. We expect an award in late '13, later in the year here, that's a couple billion. Then you throw in $100 million here or there for Paveway's, another $750 million or so for missiles internationally. Our ATM business is about $200 million this year for radars and systems. And then, we've got some Airborne sensing programs we're working on for about $1 billion. So that's just a few of the international things that are going on in the company, to give you an idea. I hope that helps.

Our next question comes from Cai Von Rumohr, Cowen and Company.

So I guess, a follow-on to Doug. What about -- I've been hearing about Saudi. Are they potentially in the market to buy anything from you?

Yes, they're one of our great customers. We've been there for 50-plus years. And I would say Raytheon's reputation there is about as good as it's ever been, Cai, and we feel good about it. They're going to -- they're looking at additional missile defense capabilities. They're doing an analysis of SNAP, which is the Navy end of the business. So we feel very good about what we're doing there and the kind of work we're doing for them.

And could that result in any meaningful business awards in 2013?

Maybe at the end of the year, but definitely '14.

Got it. And then you've been sort of complaining about mix going the wrong way. If I look at IDS and add back the 20 bps, the margins are essentially flat with an admittedly good 2012. But isn't your mix maturing there, more Patriots, and then we have Zumwalt work that you've doing for a while moves back up. So is there opportunity for the margins to be better at IDS?

Cai, I think Dave did a good job -- not because he's sitting next to me here, but I thought he did a good job explaining the mix issue. And you know, as well as I do, that when we start our international jobs, we start them lower because there is risk associated with it till we're able to get through the milestones, get our suppliers going and everything. So part of that is the timing and, as Dave would say, the mix. Zumwalt, we feel good about. The third ship is nailed down here. We got some of that awarded in December. But there's also some awards there that are tied up in the continuing resolution because, as you know and I know, the CR won't let you release any funds higher than what was obligated before. So as soon as the CR gets through, then some funds will be released and we'll be off and running. We expect Zumwalt to be probably in about the $300 million range on sales consistent year-over-year.

And last one. As you look at your margin guidance, could you comment which areas do you think maybe have the most opportunity to do better than you projected? And which are the ones where maybe you're nervous, you might have trouble hitting the numbers?

So Cai, that's an excellent question, and that's why we provide ranges for each one of the businesses. We are, obviously, targeting internally for strength in every one of our businesses across the board. But at this stage, late January, I think it's fair to say that we've provided the bookends, and we see every one of our businesses working through that within those bookends throughout the year.

Our next question comes from George Shapiro, Shapiro Research.

Dave, this is the first quarter you've had year-over-year decline in margin, as well as sequential in, I mean, an awful long time. Why shouldn't I conclude that, effectively, the margins peaked in '12 and your guidance, even though usually conservative for '13, has been down a little bit more?

George, I joined the company about 7 years ago and people were suggesting our margins peaked 7 years ago and...

And every year since.

And I believe I've been asked that question about 111 times since then, and every year, we've continued to show improvement. It doesn't mean that, that happens each and every quarter or each and every year, but over time, we believe we'll continue to improve margins and returns. Now 2012, the cadence, with respect to our operational improvements, were weighted in the first 9 months of the year. And comparing the fourth quarter 2012 to 2011, the operational improvements or what some term the EAC adjustments, were weighted in the fourth quarter of '11 as opposed to the fourth quarter of '12. Moving forward, we're continuing to take a lot of actions relative to cost and productivity improvements. We've talked to some of those today. Our guidance includes about 20 basis points relative to implementing some of those actions. I'd say, over the longer term, 3, 4, 5 years out, we would continue to see some upward movement from a margin and return perspective.

But Dave, if I look at like EACs on average, say, I don't know what the fourth quarter was yet, but have been incremental to the tone of 2 to 3 percentage points of margin. And if you go back several years ago, that was more like 1%, 1.5%. With some of these production programs ending, I mean, why wouldn't those EAC levels go back to where they were there several years ago?

So they do run, on average, in the mid-2% range. They are weighted toward fixed-price programs, obviously, as well as our production programs, both domestically and internationally. As we continue to expand our international footprint, we continue to see opportunities to drive productivity in those areas. So I would suggest, taken as a whole, the makeup of the backlog and the makeup of the pipeline from a growth perspective suggest that we ought to be able to and that we're confident in continuing to drive productivity improvements.

Okay. And then I'll go back to my simple one that you probably have at your fingertips anyway. Of the 3% to 5% domestic decline in '13, what's the classified component of that?

Well, for '13, what we're seeing is classified bookings and sales to be in the range of 14% to 16% of the total.

Which would imply what kind of percentage increase over '12?

Well, right now, you'd have to back into the range. But again, I think, at this stage, the 14% to 16% of the total is the best way to provide that information.

And that was the same in 2012?

Well, in 2012, our classified sales grew 1 point -- well, let me step back for a minute. Classified bookings for the year were 16% of total bookings and up 30% over 2011. Classified sales for the year were 16% of our total sales and in line with 2011, actually up a little bit.

Chanel, we have time for one more question, please.

Sure. And the final question comes from the line of David Strauss, UBS.

Bill, I know you talked about the guidance not reflecting sequestration, but are you assuming we actually get a budget this year? Or are you assuming we have a full year of continuing resolution?

For us, right now, it looks like the CR is scheduled at the end of March. My gut tells me it's more like the end of May with everything lining up. And if I had to guess on sequestration, and this is a guess, I'll qualify it, that we'll probably end up touching the stove and feeling the heat, which means it'll happen and then people are going to work to put it back in the box. Hope that helps.

Okay. But -- so you expect, ultimately, we get a budget but it's pretty late in the year?

Yes, yes. That's the way I'd say it. We need to do it and it -- to me, the tone and tenor in Washington is people are starting to think about how serious this is. And as I mentioned, both sides want some things, and when you do that, you sit down at the table and you work it out in a bipartisan way and that's what we need to do as a country.

Okay. Dave, a couple of questions. EACs in the quarter and what is your assumption for cash taxes in '13?

Okay. EAC's in the quarter were about 2.2% of revenue. And again, that's because they were weighted to the first 9 months of the year. With respect to cash taxes, in 2013, we expect that to be about $650 million.

And what was the number in '12?

A little over -- about $840 million.

Okay. And then on the bookings versus sales question that's been asked a couple times. I guess, specifically looking at missiles and SAS where bookings were up year-over-year, yet you're forecasting sales flat to down there, is there anything -- any specific reason as to why those businesses wouldn't be up given the bookings trend?

No, again, there's nothing remarkable going on there. Sales are in line from a Missile Systems perspective, 2013 with 2012. There's increased production rates on Tomahawk, SM-6, AMRAAM and some other core programs, which are offsetting lower production rates across various Army programs. Again, this is the area where we did have multi-year bookings, and those are clearly longer in duration than you might otherwise expect.

And I would add in there, we expect Missiles to probably have about 25% of their business is international and about 1/3 of SAS's bookings are international.

Okay. Thank you for joining us this morning. We look forward to speaking with you again on our first quarter conference call in April. Chanel?

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