Good day, ladies and gentlemen, and welcome to the Raytheon Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Todd Ernst, Vice President of Investor Relations. You may begin.

Thank you, Frances. Good morning, everyone. Thank you for joining us today on our second quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'll reference are available on our website at raytheon.com. Following this morning's call, an archive of both the audio replay and a printable version of the slides will be available on 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 questions -- or 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. The company continued to perform well in the second quarter. Sales, margins, EPS and cash flow were all ahead of expectation on strong international sales growth. Our solid execution on productivity initiatives is helping to drive both our financial performance and our ability to provide affordable solutions for our customers. Combining these initiatives with our technology investments and innovation yields a powerful strategy that continues to show positive results. We remain confident in our overall outlook and have raised our EPS guidance for the year. Let me take a minute to update you regarding the progress of our business consolidation efforts. We've successfully consolidated from 6 businesses to 4. Our investments in common systems have enabled us to move swiftly through the consolidation process. We're ahead of plan and are already seeing tangible results. With the new structure in place, the team has been identifying additional opportunities to drive cost savings by streamlining product lines and reducing footprint and fixed costs. Further, we see potential for additional product synergies across the company. We're pleased with the progress we've made, and as always, we're challenging our teams to do more. In the U.S., the debate surrounding near and long-term resource allocation to national security is ongoing. Congress and the administration continue to work toward a compromise on the fiscal '14 budget and are not there yet. Current versions of the budget don't include sequestration, and barring some type of grand bargain, the defense budget ultimately will need to be reconciled with the cap spelled out in the Budget Control Act of 2011, which is about $50 billion lower than the currently proposed levels. The outcome remains unclear, but as we've said all along, we remain focused on executing our strategy and managing the business in…

Okay. Thanks, Bill. Good morning, everyone. I have a few opening remarks starting with the second quarter highlights, and then we'll move on to questions. During my remarks, I will be referring to the Web slides that we issued earlier this morning. So if everyone could please move to Page 3. We performed well in the second quarter. Our adjusted EPS of $1.64 was up 4%, driven by continued operational improvement and capital deployment actions. Adjusted operating margin was 13.7%, up 10 basis points compared to last year's second quarter. On a year-to-date basis, adjusted operating margin was 13.5%, up 20 basis points. Sales of $6.1 billion were up 2% compared with last year's second quarter. We exceeded the high end of our prior guidance, and I'll discuss the reasons in just a minute. Operating cash flow from continuing operations was approximately $200 million better than last year, primarily due to the timing of our required pension contributions. We're increasing our full year EPS guidance, which I'll address further in just a few minutes as well, along with other updates to our 2013 outlook. During the quarter, the company repurchased 3.4 million shares of common stock for $225 million, bringing the year-to-date share repurchase to 7.6 million shares for $450 million. In the quarter, we consolidated from 6 businesses to 4 and are now reporting in the new structure. In the attachment that accompany the press release, we've recast our historical results going back to 2011 to reflect the consolidation. Just as a reminder, we combined 2 of our former businesses, IIS and RTSC, to form the new Intelligence, Information and Services business. We also moved the previous NCS product lines to the remaining Raytheon businesses. Additionally, we realigned some of our smaller product lines across Raytheon to enhance complementary…

[Operator Instructions] Our first question comes from the line of Carter Copeland from Barclays.

Just a few quick ones. First, Dave, on the IDS margin performance, you called out in your prepared remarks both favorable mix and strong performance. I wondered if you might parse that out a bit for us, if you can, to kind of separate the impact of mix versus what may have been some favorable EAC adjustments.

Sure, so the performance is reflected in our EAC adjustments. I appreciate the way you articulated the question. And that's up for IDS, it's up about $24 million in the quarter. And as you just noted that business is also impacted by a change in mix, driven by the strong international sales in the quarter. The weighting of the improvement, I would say, is more towards the performance side than the mix side.

Okay, great. And one for Bill, just wondered if you'd expand a little bit more on Next Gen Jammer. I mean, obviously, it seems like all we ever talked about these days is capital deployment and bookings, but obviously, it's a big competitive win for you guys. And you hinted at how this would enhance your EW offering and future competitions. I wondered if you might expand a little bit on that and how you see this impacting the business over the long term, and in kind of general terms, just interested in any color you can share there.

No, it's a great question. In 2011, we started really putting the focus on EW. I mean, clearly for us, we are an electronics house, AESAs and that type of technology is what we really kind of hug around here, I guess no better way to say it. And our SAS business out in California, teaming up with our Missile business and our IDS business worked very hard on this offering. I can add some color, this Next Generation Jammer replaces the ALQ-99. And for me, it's a little personal. It's the first program I ever worked on in Raytheon, so it will tell you how long ALQ-99 has been around.

Bill, it's not that long.

But it's -- when you think about it, there aren't many opportunities like this. This program is a program, by executing it right, people will be able to start and finish their careers on it. And from that standpoint, it's a hallmark program. They don't come around that long. The competition was conducted by NAVAIR, who is probably one of the best in the business at evaluating technology and what they're looking for. And clearly, for us, our GaN technology allowed us to meet the weight and the power requirements, which were extremely difficult on this. Why it was important, I think is where you're coming from, is back in '11, we saw that things were going to start winding down in Iraq and Afghanistan someday. And when that happens, our forward presence changes. And when your forward presence changes, now you have to think about the world differently, how do you get in, do what you have to do and get out without anyone getting hurt. And electronic warfare is the way that you can do that. You deny your enemy the capabilities that he needs to be able to deny you that access. So for us, we saw this, and we've been working on it here for some time. And I'm really proud of our SAS business because this was one of the toughest competitions around, and everybody knew it was probably the last big one for some time in EW, and it just solidifies us in that marketplace, not only domestically but internationally. And that was what was really key. I hope that color helps.

Your next question will come from the line of Joe Nadol from JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Bill, I was wondering if you could -- I know you mentioned a couple of the international missile defense pursuits in your opening remarks. But if we could just take a step back, maybe if you could characterize the way you're looking at, on a multi-year basis where we are in terms of international missile defense demand. Is there a replacement cycle or an upgrade cycle that's going on here? How much of the strength that you're expecting to see in the second half of the year is really sustainable into 2014 and 2015? Where are we in this whole cycle?

Yes, I think the way I would say is that we are probably in the second or third inning, if I wanted to relate it to a baseball game. And from that standpoint, there are still innings to play. The nice part about Raytheon's portfolio, whether it be the standard missile family, whether it be our radar family in a sense of, I affectionately call our big radars that we do, dinosaurs. They're one of a kind, they are big, and they do hang around for a long time, but they also reflect the latest technology in the world. Our TPY-2s are in demand for anyone that wants to be able to detect something. They are the only radars like it in the world. And the company has the ability now to remote launch, which means if you can detect it someplace, you can launch from another place. And you tie that all together with command and control or your air and missile defense systems. So for me, this is early. We see plenty of opportunities. The Mid East, even parts of Europe, especially Asia, too, all need this capability. So I feel pretty good about the company's ability to go do that. And we've got a lot more innings to go play here. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Yes, that's a lot earlier -- I was going to say a lot earlier in the game than I would've thought you would have said. Is this about existing customers that we've seen the last couple of years coming back and buying more? Is it new technologies they are going to buying? How would you characterize that?

I would characterize it from a standpoint that some have the capability and there's a lot that don't. Some that have the capability, one of the things, if you have the infrastructure in place, you have what we call P3I, preplanned product improvements. And we can help them in discrimination, we can help them tie it in together into their net. So it's -- there's many facets to missile defense. And no one's at the stage of where the United States is. That's why I probably put it in the early innings because you asked me about international. If you had asked me domestically, here, we might provide them our radar, too. And we've got more standard missiles to deliver. But the rest of the world needs to catch up to the U.S., if that helps. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: And then just -- it does. And then just one quick one for Dave. When you announced your restructuring in March, you noted there will be $85 million of cost savings, but it wasn't going to impact financial guidance. I was wondering, now that we see first half results, if you could give us any sense as to where the realignment has impacted numbers, and what we should be thinking about for the second half of the year in that regard as well?

Sure. So Tom Kennedy, our recently appointed Executive Vice President and COO, led the effort on the business consolidation. We have exceeded our scheduled milestone objectives. When I initially looked to 2013, I suggested that from a financial performance perspective, the cost of implementation would essentially offset the financial benefits, the savings. Given what we've been able to accomplish, we're now seeing about a $0.05 impact in a positive way for the year. And that's included in our guidance. There was a couple of cents in the second quarter and about $0.03 in the back half of the year. Also, our overall gross savings from the program, we had initially set up a target of about $85 million, and we are now well in excess of that number from a forecast standpoint. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: And we're seeing that in segment operating income?

That's a good question, Joe. You're seeing it across the board in the 4 segments.

Your next question will come from the line of Doug Harned from Sanford Bernstein. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: I wanted to follow on that, on the organization. So the improvement in margins, Dave, you referred to that as partially due to improved performance and -- this is the guidance, and partially due to the benefits of consolidation. But if we consider that you've got onetime implementation costs associated with that for this year, would we expect that the benefit is actually somewhat more than what we're seeing here and we should see that probably in the next year, in '14?

Well, remember, much of that, and at some point, all of that, goes back to our customers. And that's just the way this business works, it's the way the industry works. It does make us more competitive as we go forward. There will be some benefit in 2014, but again, there is a where away given the contracts expire and the new contracts come online and need to be negotiated with our new cost structure. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: Okay. Understanding that the fixed price component of your business has gone up some over time, that benefit might be greater, I would think, than it would've been in the past in terms of...

That's correct. That's a good way to think about it. That's a fair way to think about it. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: And then also on the organization, I know, Bill, you've said in the past that the new structure gives you some synergies that are beyond costs, basically the ability to do C4ISR better, things like that, that can work for international customers. What I'm interested in here is how much more can that get you? You have a huge presence right now, particularly in missile defense. Where do you see the upside actually coming out by being able to integrate things better in this new organization?

I think I saw -- I was at the Paris Air Show, sat down with one of our customers, I won't say which one or which business. So we were sitting there. And they have an existing contract. They are going to be signing a new contract with us. And we were at the table, and they started to talk about a problem in one service, another through a different service. And all of a sudden, they're sitting there and we have both right at the table and are underneath 1 person, and it's fixed instantaneously. There was no debate, no nothing, surface done, finished. And just -- it would've taken some coordination before to go through it and get the alignment. And for me, it just -- I just sat there and smiled for a minute and watched how nice it worked. And it's not to say it wouldn't have been done in the past, it would have, but it took a little more coordination. And now, it's all integrated in 1 area, in Command and Control, and it's done. And so it's just one example that's real, that's right in my mind that I see. And oh, by the way, domestically, when we deal with the Navy in 1 area, we used to have it in 2 separate businesses. And now, the Navy realizes we can pull it together because the 2 parts of the Navy didn't talk to each other. And now they got us looking at it both ways and we're saving both sides money. So I really do see it, and I have concrete examples of it

Your next question will come from the line of Robert Stallard from Royal Bank of Canada.

Bill, just a quick one for you, hopefully. On the export front, as you grow towards around 30% of revenues and potentially beyond that from export sales, what sort of impact does this have on the structure of the firm and also the way that you manage risk?

It's a great question because I have this theory that back when we were at 18%, we went in and put some things in place to be able to handle 20%. And then we set a goal for ourselves at 25%, and we changed our structure a little bit to be able to do that. And now we're getting to 30%. And at each 5% increment, we've seen a fundamental change in the way we have to do it. And the way I would say is you have to think more globally than you have to think internationally. And for that is, how do we have a bigger presence in country? How do we make sure that our teams are on the ground and that we are integrated into the culture and the business climate that we do. And I can tell you that Raytheon will be making a shift in how we look at our international business because 30% will happen and we'll be prepared for it. And then as we get to that milestone, we'll be thinking about 35% because you got to think in increments to go do it. And there's not 1 cookie cutter approach because we've sold in 120 countries. We have active about 82 now. And that changes, but our presence changes. If you look at Saudi or Japan, we've been there 50 years, and that's a long time. And we want to be there another 50. And so each model is different because Japan, you have trading companies; in the Mid East, you need a presence. So we are thinking of it and you'll probably hear changes about what we're going to go do to be able to handle that, if that helps.

Yes, that's very helpful. And just a quick follow up technical question on the Jammer program. I see one of your competitors has protested the award. Does that mean that you haven't actually started work on it yet?

No, what happens, you're correct, is when there's a protest in the first 10 days, there's a stop work put out in that regard. That's normal. The NAVAIR will now go handle the protest with the GAO and one of the things that we are very comfortable about is NAVAIR is the best at doing this. And they are very thorough. And you have to look at the protest results that people have against them. And this is not a competition that happened overnight. They've seen us perform on kind of proof of principle contracts. So NAVAIR has seen all 4 of us operate. And we feel very comfortable in their selection. Of course, we are biased, but we feel comfortable.

Your next question will come from the line of Robert Spingarn from Credit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: Bill, I was going to ask if you could just give us an update on a couple of different programs. This speaks to some of the things you've already addressed. But Patriot for Turkey, AMDR, and then I was wondering if we should be concerned about Space Fence.

Yes, I would say, one, they had a space command -- I'll start in reverse order. Basically, I've said, they are ready to go. They've made their selection, and they can award. I think part of the internal scanner review that DOD had, they're going to go through and determine what they're going to do in this regard. As an engineer, I look at what Space Fence is trying to do when I think of the debris that's up in space, and I think of all the assets, whether they be commercial satellites, whether they be the space station, whatever is up there for any country, people need to map that debris and be able to move things out of the way, because I got to tell you, losing a satellite or damaging the space station will pay for a Space Fence really quickly. But people have to make the decision. These are tough economic times. And the department will go through that. AMDR is due to be awarded this fall. And from what we gather, it's one of the Navy's top priorities. It's survived all the reviews, and we will see what happens in that regard. I think your other one was Turkey. Of course, you can pick up the papers and see the thing that goes on political. I mean, it's one of the things we've lived with internationally. Kuwait, I'm surprised you didn't ask about it. But Kuwait, for example, we have an LOA sitting on the Minister of Defense's desk. And Parliament was dissolved, and they will be forming a new Parliament, July 27th. And after that, they'll put it together, and then we'll expect the LOA to float forward and we'll get moving that way. Regarding Turkey, they have the same political unrest now. They'll probably make a decision in the third quarter. I think they've asked for proposals to be extended. And then we'll take it from there. But that's the nature of International business. Robert Spingarn - Crédit Suisse AG, Research Division: Dave, just on that, how much of those Patriot orders are in your booking? Or how do you figure those into the $23.5 billion you're talking about? And then the other thing I wanted to ask you is just on cash flow. It looks like you brought forward some cash flow from Q3, just based on the guidance and the numbers you -- the way they adjusted, is that correct?

Yes, that's correct. That's right. So on the first part, it's -- it would be not very traditional for us to give out specifics on what program specifically are valued at in our guidance. I will say that from a booking standpoint, these are all significant awards from a value standpoint. But in our guidance, we factor the overall value quite a bit. So -- and this can be anywhere from the 20% to 50% value of what the potential program might be, depending on a lot of different probability estimates. From a sales standpoint, I would say some of these larger ones are not significant drivers in the back half, from a sales standpoint. So that's kind of the way to think about some of these international Patriot programs that Bill just took us through. Robert Spingarn - Crédit Suisse AG, Research Division: Right. I was asking from the bookings perspective, but you answered it.

Your next question will come from the line of Yair Reiner from Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: I just wanted to ask about the guidance for the back half of the year. It implies a pretty sharp drop off in terms of the revenue momentum across the business. I know you attributed that to sequestration and potentially a CR in the fourth quarter. I'm wondering, to what extent is that reflected in what you're seeing today in -- across your businesses? Or is that just an anticipation of the fact that eventually the budget needs to kick in?

Okay. So again, the way you framed the question is accurate. The second half does reflect our current thinking relative to the impact of sequestration and the continuing resolution in the fourth quarter of the calendar year. So if we see things differently going forward, obviously, we will update the outlook. I mean, what we're seeing today kind of represents the way we see things playing out from a sales cadence standpoint. I do want to mention that I did speak to our bias earlier in the discussion being to the high end of the range. It's probably worth noting -- I'll say it's most definitely worth noting that from an internal perspective, we do have targets for sale that exceed the high end of our guidance. But at this stage, we believe that the guidance we put out is a prudent way to look at it. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Great. And then just a quick one on the tax rate. Is the decline there reflective of the international mix? And if so, should we expect that there's going to be a downward bias on that moving forward?

Sure. We have a number of tax planning initiatives that are taking place. And the tax group has done an excellent job in managing our tax obligations. We did take the rate down about 50 basis points from an ETR standpoint for the balance -- for 2013 versus where we were thinking a few months back. Going forward, I'd suggest that you can think about the tax rate in that general range.

Your next question will come from the line of David Strauss from UBS.

On the -- revisiting the booking side, I just want to make sure I'm doing the math correctly, that you're basically assuming for the full year that domestic bookings are down around 20% and offset by about 20% growth in international. And if so, what does that mean, Dave, for advances in the back half of the year, if some of these international awards that you're anticipating actually come through?

Well, advances have been pretty consistent year in and year out, relative to our direct commercial sales with international customers. Again, when we look at those and we think about how they might impact cash flow for the year, it's also factored. So we're comfortable with the range that we've put out there. From a cash flow standpoint, again, I probably should have mentioned this earlier, we are also biased toward the higher end of the cash flow guidance. One thing I do want to remind everyone of is that this year, there is some ramping down of advances, given some of the strength in 2012, and we'll see how things play out. But again, overall, again, there's a lot of different moving parts here. We factor everything and are quite comfortable with the outlook.

Okay. And was that on domestic bookings? Is that why you were expecting about 20% decline in domestic bookings this year?

Well, let me just -- let me walk through this briefly. So from a -- on a full year basis, with respect to the overall domestic bookings, as a percent of the total, we see it in the 68% to 70% range when we close out the year. And importantly, Bill mentioned this earlier, we see international in the 30% to 32% range.

Okay. And did you give the EAC number for the quarter yet?

The EAC number, no, I haven't. And I knew you were going to ask before you got off this call. The EAC number for the quarter approximates about 2.6% of sales. And the overall number is, I believe, about -- I don't have it in front of me, about $156 million positive.

Your next question will come from the line of Sam Pearlstein from Wells Fargo.

Dave, just related to the comment about sales being towards the high end this year, I guess what got better to get the additional $300 million? And can you talk just in terms of what that implies for U.S. DOD, non-DOD and non-U.S. growth this year?

Sure. Well, it's again the strength of our overall international business. And it's clearly what drove the second quarter results from a sales standpoint. And a good portion of that does flow through to the year. So on an overall basis for the year, from a domestic standpoint, we're seeing the sales profile down about 6% to 7%. And from an international standpoint, we're seeing sales up about 6% to 7%. And I suppose that's the law of large numbers, that they're the exact same percent. But for the company, the guidance for sales is down in the range of the 3% to 4% area.

Okay. And then if I look at your -- the outlook for the margins, certainly it has implied the second half as a big step down and, I guess, mostly in IDS. Can you talk about why that's coming down so much?

Yes. So we did have strong margins in the quarter. And you are correct, specifically at IDS. In the back half, margins still remain strong but lower than the first half, given the cadence of our efficiencies, which are weighted to the first half, as well as some new programs starting up and some of our longer duration production programs ramping down. It's important to point out that we did increase the full year outlook for margins.

And then one last question for Bill, just on that AMDR competition. Does the result of the combat systems engineering decision earlier in the year have any bearing on that? Or is there any way to get insight into how that might play out?

The initial one, I mean, when you look at it, that was for the overall weapons system. And clearly, Lockheed had a nice win there, but they've been doing that since the whole thing started. So to displace somebody that's been doing something for 30 years really gets hard. AMDR, it's hard also, but it's a brand new radar. And there, what the customers are looking for is innovation. They're looking for detection capability, they're looking at discrimination capability. And for that one, it is different, and the playing field is, I'd want to say, a little more level in that regard of being able to compete. But it's an S-band radar, and we're -- we like to win everything in X-band, so this is a new area for us to go off in. And we're trying to take on an incumbent which is always hard.

Your next question will come from the line of Cai Von Rumohr from Cowen and Company.

So Bill, you mentioned Taiwan AESA radar. What's the timing on that? And what's the sequencing that you expect between the U.S. Air Force decision on the F-16 radar and Taiwan's?

I expect that anytime soon, Cai. I mean, it could have happened already but it didn't. It just takes a while to get things through. And of course, the building is trying to balance a bunch of things now. So it could be anytime. I think they have everything in there. I think from the point of view, these South Koreans determined that they were going to do it on their timetable. And they went through one of the toughest competitions that I've seen and they selected us. And now the Air Force will select for Taiwan. They've asked Taiwan to go do that. And it looks like the international world is updating their F-16s before the U.S. will update theirs. It's the way I'd describe the timing.

Okay. But the Air Force will decide. So if the Air Force decides for you or brand X, that's probably what the Air Force ultimately will buy. Is that one way of thinking of it?

Not necessarily. I mean, this is a competitive world. We thrive on competition here, we don't run from it. So I would imagine that if they can compete Taiwan, then they can go compete U.S. radars and we are ready to do that.

Great. And Dave, one for you, a number of your peers have talked about pension, some of them better prospects for next year, some of them maybe not as good because of the impact of the uptick in rates. Could you comment on what you see based on where we are today, and particularly, your -- as I recall, your pension contributions were going to go up next year and the impact on your contributions for next year?

Sure. I'm glad you asked the question. In 2013, the FAS/CAS adjustment is expected to be around $286 million. Looking further out, there's a number of variables that obviously impact the FAS/CAS adjustment and the funding requirements, including the discount rates, the return on assets and other actuarial assumptions, the cash harmonization rules and the pension funding stabilization law as part of PPA. Now if rates remain flat, if we hold all assumptions constant, our FAS/CAS adjustment in 2014 could be $100 million to $150 million less than 2013. So that's a positive pickup from a financial results standpoint. Looking beyond '14, we see the FAS/CAS adjustment. It could become favorable in 2015, possibly as much as $350 million to $400 million positive, again, assuming no change in the discount rates and assuming we meet our expected returns. And when I say no change, I'm taking 2013 as the baseline. Now if we set the discount rate today, sort of as we're sitting here, it would likely be 50 to 75 basis points higher than what we're using in '13, the point at the end of 2012. And again, it's for 2013 results. But if they were to increase about 50 basis points, it would additionally improve our FAS/CAS in 2014 and beyond by maybe upwards of $200 million each year, assuming the discount rate in the environment persists. So let me get a little more specific, and I know I'm being lengthy here, but a number of folks have asked. Our 2014 FAS/CAS, again with a higher interest rate environment, the 2014 FAS/CAS adjustment could be $250 million to $350 million less than what we're seeing in '13. And looking beyond '14, the FAS/CAS adjustment again becomes favorable in '15 and could be as much as $0.5 billion, and that's positive. Again, that's assuming that the interest rate environment persists at about 50 to 75 basis points higher than where we are today. So from a funding standpoint, if interest rates again stay at this level that I just suggested where we are today, the net funding is about breakeven for next year.

When you say net, so basically would you contribute less CAS?

Well, this is what happens. Essentially, we have the gross funding and then you have the CAS reimbursement essentially through the contract actions. And frankly, whether interest rates stay up or interest rates stay where they are in -- where they were in the beginning of '13, the net funding contribution is about breakeven next year. So it doesn't really move it that much.

One quick follow-up, Northrop mentioned that the impact of higher rates had an adverse impact on their return on assets year-to-date. They were only up 50 bps through the end of June. What's your ROA look like year-to-date?

So yes, they may be heavily weighted into fixed income and other interest sensitive investments. I don't know that, but that may be the case. For us, I would say more than on a year-to-date basis, but as of just a couple of days ago, we were just under 8% return on assets.

Frances, we have time for one more question.

And that question will come from the line of Jason Gursky from Citi.

I just wanted to step back and ask a bigger picture question. And Bill and Dave, you can both weigh in or one of you. As we look at the orders that you've taken or the bookings that you've gotten this year, obviously, the revenue streams that we're going to see out in the future. I just wondered if you could just talk a little bit about the margin expectations on those bookings. And maybe you can do that by talking about the contract mix itself and whether it represents a departure from your current revenue streams. Just harkening back to the beginning of the year when you talked a little bit about your margins for 2013 being negative impact -- having a negative impact due to some more development work. And obviously, you've just now signed on some development work. We don't have a good understanding of the rest of the bookings that you just made. If you could just talk a bit about how your contract mix may or may not be changing as we move out over the next several quarters.

Yes, I think what's important is what I tried to talk about a little bit that we look at international being 30% to 32%, I think those are the numbers that Dave gave there. So when you look at international, clearly for us, we understand that marketplace. We understand it because we know the risks that are in there. And part of our responsibility is to be able to mitigate those risks as we go through the program. So on international, we start slower, retire the risks and then build up as we get towards the end. I don't see that changing in the way we do it. We go through every one of the bids here to make sure that they take place in the same manner. But what we also do is -- a key thing for us is affordability. So as we look at a tougher environment, how do we make sure that we are able to deliver at an affordable price but at the same time deliver the kind of margins you all expect from us as investors. So that's absolutely key. Clearly, the development programs that you get into, whether they be Next Generation Jammer, whether they be AMDR or Space Fence, those also start lower, but those turn into much like what Zumwalt was years ago for us. It started low and then turned into the production for the 3 ships there and have the regular margins you expect for us. So there's always an ebb and flow, and Dave takes that into account. He and his team do a great job at modeling not only what we have in the business but what we're looking at in the future of the business so that we can make sure there's no surprises coming because one of the things that we try to be is transparent as we look at that going forward. So there is an ebb and flow there, but I would tell you, we have our foot on the throttle here from a standpoint of what we can do because we know what we're bidding. And the bidding philosophy in this company has not changed.

Okay. And specifically to international and some of these missile defense systems that you've signed here late and you said that you're in the second or third innings, so clearly, there's more to go. Will there be a need for incremental development work to be done on any of those systems to fit international requirements?

Yes, we always do that. And then the other thing is that we as a company are never satisfied. We can find ways to continue -- one of the things that's tough is O&M. And a lot of people don't think about maintenance. And our engineers look at the total life cycle, and they're constantly trying to find ways to reduce the O&M costs or operating costs in our customers. So if we can take devices or technology -- I mean, when you look at Patriot, the Patriot I started on is not the Patriot we're delivering today. 2/3 of it was redesigned for U.A.E. And as we keep delivering Patriot, we keep upgrading it. And oh, by the way, once you upgrade it, you can go back to all your other customers and offer them the upgraded hardware to reduce their costs, reduce the spare content and so forth. So it's a never ending opportunity for us here at Raytheon.

Okay. Thank you for joining us this morning. We look forward to speaking to you again on our third quarter conference call in October. Frances, back to you.

Ladies and gentlemen, this concludes your presentation. You may now disconnect. Enjoy the rest of your day.