Good day, ladies and gentlemen, and welcome to the Raytheon Second Quarter 2014 Earnings Conference Call. My name is Glenn, 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 your host for today, Mr. Todd Ernst, Vice President of Investor Relations. Please proceed, sir.

Thank you, Glenn. 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 the call, and the slides that we'll reference are available on our website at raytheon.com. Following this morning's call, an archive of both the audio replay and a printable version of the slides will be available in the Investor Relations section of our website. With me today are Tom Kennedy, our Chief Executive Officer; and Dave Wajsgras, our Chief Financial Officer. We'll start with some brief remarks by Tom and Dave, and then move on to questions. Before I turn the call over to Tom, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance, constitute forward-looking statements. These statements are based on a wide range of assumptions that the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings. With that, I'll turn the call over to Tom. Tom?

Thank you, Todd. Good morning, everyone. Earlier this morning, we reported solid second quarter results, with company sales, margins, EPS and cash flow higher than our expectations. Bookings were strong, driving a book-to-bill ratio of 1.19 in the quarter, with exceptionally strong bookings in the domestic business. Our bookings in the second quarter increased by approximately $1.4 billion over the second quarter 2013. Looking to the balance of the year, we have a significant pipeline of opportunities, including several large international programs. Over the past couple of months, I've traveled to meet a number of our international customers, including 2 trips to the Middle East, as well as to the Farnborough Airshow last week. Overall, at the Farnborough this year, the company hosted delegations from over 30 countries, totaling 700 meetings, with 1,200 customers and partners. Based on these meetings, I can say with confidence that our global customers continue to look to Raytheon to provide advanced solutions to meet their evolving requirements. And demand remains strong, especially in the areas of integrated air and missile defense, C4ISR, cyber, critical infrastructure protection, and training. As always, the timing of international awards can be difficult to predict, but demand is clearly there. In the second quarter, international sales comprised 29% of Raytheon's total sales. International bookings were 24% of total bookings and were up 21% year-over-year. These bookings were primarily driven by the international TOW and the Canadian North Warning System opportunities we mentioned on the last call, as well as other missile and training awards. We continue to make progress on several international air and missile defense opportunities, which we've discussed on prior calls. After the close of the quarter, Qatar signed a letter of agreement with the U.S. government for the Patriot system, and we expect a booking later…

Okay. Thanks, Tom, and 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'll be referring to the web slides that were issued earlier this morning. So if everyone would please turn to Page 3. We're pleased with the solid performance the team delivered in the second quarter, with sales, EPS, margins and operating cash flow all better than our expectations. We had strong bookings in the second quarter at $6.8 billion and sales of $5.7 billion, resulting in a book-to-bill ratio of 1.19. Operating margin was solid at 13.3% and on an adjusted basis was 11.8%. And our EPS from continuing operations was $1.59. On an adjusted basis, EPS was $1.41. Operating cash flow of $153 million was better than our prior guidance, driven by the timing of collections that were previously expected in the third quarter. During the quarter, the company repurchased 2.6 million shares of common stock for $250 million, bringing the year-to-date share repurchase to 4.6 million shares for $450 million. We ended the second quarter with $560 million of net debt. I'd like to point out that on May 12, Standard & Poor's Ratings Service upgraded our long-term senior unsecured credit rating from A- to A, reflecting our strong financial position. If you turn to Page 4, let me start by providing some detail on our second quarter results. Our total company bookings for the quarter were $6.8 billion, an increase of about $1.4 billion compared to the second quarter 2013, and on a year-to-date basis were $11.1 billion, an increase of approximately $2.1 billion over the same period last year. It's worth noting that on a trailing 4-quarter basis, our book-to-bill ratio was 1.06x. For the quarter, international…

[Operator Instructions] And your first question comes from the line of Robert Spingarn with Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: I wanted to ask about margins. Dave, you just talked about this, and you alluded to the orders in the quarter that are going to drive sales, the international orders in the second half. I wanted to ask about pricing on these orders and pricing in general, because we have seen segment margins come down here now. I think it's 3 quarters in a row sequentially. And I'm wondering -- you talked about a couple of the puts and takes at IDS. But I'm wondering if just in general, are we seeing lower pricing come into the backlog?

So it's a fair question, but we have not seen any pressure on fees or margins from a backlog perspective. We still have a healthy book of business with respect to our international profile. We're continuing to perform well for our domestic and international customers. I think it's probably fair to point out that the second half margin profile is higher than the first half margin profile on -- at the company level. And we do see improvement in the overall margin guidance for both IIS and missiles. And SAS continues to perform quite well, frankly, as does IDS. If you were to exclude the AWD situation that I just explained, margins in Q2 for IDS would've been about 16.2%. Robert Spingarn - Crédit Suisse AG, Research Division: So if pricing's locked in for the second half, should we see -- is there any execution risk that might be higher than normal? I just want to get a sense that we don't see a repeat, really, of the first half.

Rob, let me just jump in here. Right now, we do not see any issues relative to execution moving forward. In fact, we've a full-court press on getting more efficiencies out of the business, where you have the second half of the year, significant work in taking out square footage. We're also working our strategic sourcing across the second half of the year as we've done in the first. So we actually see, actually, I would say a stronger foundation relative to margins in the second half with the activities we've put in place. So bottom line is we do not see that pressure that you're talking about. Robert Spingarn - Crédit Suisse AG, Research Division: And just quickly, Tom, your latest view on M&A versus buybacks?

Well, first of all, and we talked about this before, it's -- first priority remains in growing the company organically. And then we, on the domestic side, we're focused on the hot spots, that includes missile defense, C4ISR, also heavy involvement in cyber. And then we're addressing the international markets, as we discussed in both my script and also in Dave's script. So we're seeing a very large pipeline of organic growth opportunities, both on the domestic side and on the international side. At the same time, we do always look continually for value-added investments outside the company. We continue to look at them in the cyber area and several other areas in our business domain. And as we go forward, we are looking at it in a disciplined approach way. And I can tell you that we, as part of that evaluation, we are looking at what adds value to the shareholders. And if it is a good fit, we will move forward. And as time goes on, we'll let you know as we progress.

So let me just add 1 or 2 things to what Tom just went over. I mentioned earlier, and I think everyone's well aware of our strong balance sheet position, especially with respect to cash and liquidity and the strong cash flow performance we've had historically and the strong cash flow performance that we see going forward. So we have, as one of our priorities, returning cash to shareholders, but it's one of multiple priorities. I think we're in such a strong position that one doesn't necessarily preclude the other. We don't see fundamental changes in our capital deployment plans going forward. We do see a continued focus on growing the company, as Tom just mentioned, but that will not preclude us from continuing to have, what I would term, a shareholder-friendly capital deployment plan.

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

Dave, I wonder if you would just walk us through the various opportunities and risks to the guidance for the rest of the year. Where might we see upside if things go well, and where might we see some downside if things don't go well?

Right. So again, it's a good question. On balance, we're very comfortable with the range of guidance that we put out there that incorporates what we would consider all the known risks and opportunities. From an international perspective, these are factored bookings. So I would suggest that if these were to play out as we anticipate, at a full value, we would see some upside from a bookings perspective, which could translate into some other positives from a sales and earnings standpoint. The risk of -- we talked about the CR before. We've built that into our guidance in the fourth quarter. We would expect a short-term CR toward the end of this year. But even if it were to continue into the first part of next year, I wouldn't see that having a major impact on our results. Those are the ones that are sort of top of mind.

Yes, I'll jump in on one, and this is -- there are some potential opportunities in the first quarter of 2015 that could pull into the year. As always, we're always working to pull those opportunities in as soon as possible so we can convert. And I would say that the team is doing a good job on those. And so we look at those as upside potential that we're trying to harvest.

Your next question comes from the line of Cai Von Rumohr with Cowen & Company.

Dave, how much fee is still at risk on AWD, I mean, if it goes to 0?

No, Cai, I'm glad you asked that. So let me just talk about AWD very briefly, okay? So we're a top-tier contractor in Australia to the Australian government. The alliance-based contracting approach for this program was the Commonwealth's preferred method of contracting for the 3-ship AWD program, the Air Warfare Destroyer program. This award provided Raytheon with an opportunity to expand our naval combat system expertise and capabilities to a new customer. So strategically, it's positioned us well for future mission systems work on both surface and subsurface platforms with literarily multi-billions of dollars of opportunity over time. Now first, the customer recognizes Raytheon's good performance on our portion of the work. The Australian government's committed to working collaboratively and constructively with Raytheon and other stakeholders to implement a reform strategy to stop the program's growing cost and schedule overruns, again, from the shipbuilder. And while it's difficult to predict the exact timing of when this ultimately plays out, we don't expect the process to conclude until sometime in 2015. Now with all of that said, inception to date, we've recorded incentive fee of about $80 million. We wrote off about $38 million in the second quarter. So the exposure, the upside, the -- kind of the worst-case exposure at this stage would be about $40 million.

Cai, let me jump in on that to kind of explain that contract versus one of our DoD contracts. It's essentially, it's a cost-plus-fixed-fee contract with an incentive fee on top. So as Dave was saying, our maximum exposure is just the incentive fee. I don't know if that helps or not, but that's...

Yes, no, no, no. That's very clear. That was terrific. Your bookings plan is unchanged and you said 35% to 40% international, and you're clearly under-running that. So even to get to the lower end, it looks like you need like $5.2 billion close to what, $5.8 billion, something like that, in international bookings in the second half. How do you expect that to kind of phase between Q3 and Q4? Because you got a lot of Mid-East customers. And usually, with Ramadan, they don't get around to doing things toward the end of the year.

So, Cai, the quarterly cadence, as you know, is very difficult to predict. We are very confident with our back-half outlook relative to international bookings. We can't get specific as to exactly where we are in the various stages of completion. Qatar, for example, that was -- recently, the LOA was executed, could be the end of Q3, maybe early Q4. I don't want to get into much more detail on the other large Patriot program that we've been talking about, because it's the customer's request that we don't get into much detail at this point. There's other opportunities as well out of our missiles business and out of our SAS business. But in total, we're looking at about 40% to 50% of our bookings in the second half from international. And I'll repeat it again, we're quite comfortable in our outlook.

And so, Cai, let me just jump in there. Let me add on the Qatar. When you add in the Patriot and the A dock, that covers over half, half of that value you discussed. And there's several other opportunities that will fill in the rest. They're factored. So we feel very confident that we'll be able to achieve that number of about $5.5 billion of the international in the second half.

Terrific. And the last one, your pattern of the Q3 and Q4 is really something of a hockey stick. As you pointed out, low 12s margins and then a strong ramp in the fourth quarter. Could you give us some color on like what -- why is it that low? Why does it move up in the fourth quarter, just in a general sense? Is it sort of overhead pressure from bidding this stuff, not getting the contracts? What are the key issues?

Yes, so, Cai, a lot of it has to do with the cadence of the bookings. We had a very strong quarter in missiles, like we said before. We have strong bookings in the back half of the year, particularly international. There's really nothing too remarkable relative to the margin cadence. It's, frankly, not very different than what we were anticipating when we gave guidance on the January call. The performance improvements that were pulled from Q3 into Q2 probably -- are probably worth noting. But again, there's nothing too remarkable with respect to the cadence. The fourth quarter is going to be strong, similar to what we've seen in prior years, and that's just the nature of the business.

Your next question comes from the line of Joe Nadol with JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Dave, could you give the positives and negatives EAC adjustments gross?

Yes, sure. You mean for the second quarter? Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Yes, please.

Yes. The -- well, the net change was $88 million favorable, and that was about 1.5%. But if you exclude the AWD situation, it was about 2.2% overall. So -- and again, we provide some of the details much... I'm sorry? Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Yes, just in -- I'm sorry, just in dollars, the positives as you give them in every 10-Q.

The gross favorable was in line with -- actually, it was a little bit better with respect to comparing to the first quarter. It was about $20 million better, just under $270 million. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. I'm just -- what I'm trying to get at is you've called out the Australian radar last quarter. You called out a little bit this Patriot item, the refurb, I guess. I'm just trying to get a sense as to whether these truly are, particularly this quarter, one-offs that stand out. Or every quarter, you guys have positives and negatives, just like every other defense company. And how much of this is really unusual versus you're calling it out because it's the biggest negative you have?

Well, I would say the -- clearly, the AWD Destroyer situation is unique. There's no other contract like that within the company. But again, it's worth reiterating. It's a tremendous growth opportunity and something that plays to our strengths. So I would say that is unique, a unique situation. We talked a little bit on the first quarter call about an international Patriot program. It was a refurbishment program. I think we are continuing to see meaningful improvement in that program. And we believe, going to the back half of the year, that the major issues are behind us. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay, and then just over on the Patriot program, could you describe a little bit what you're doing from an industrial standpoint? My sense is that you've had some international programs that are kind of completing and running off, and you were expecting to get some of these 2 big orders that you're just obtaining in the second half earlier. So is there a line break? Are there people that are -- are there layoffs there or people being moved to other areas temporarily? What are you doing? And how much work are you doing in anticipation of these 2 contracts that you're inventorying right now?

Let me take that, Joe. Number one, as you can remember, in the first half -- early first half of the year, we did book a Kuwait deal. So the Kuwait deal is our bridge into the Qatar and then this other opportunity, international opportunity that we talked about. So I think we -- right now, we have the factory level loaded. We continue to perform well. And it is a strong, I would say, producer and supporter of our margins moving forward on the Patriot line, especially on the production aspects of Patriot.

. Your next question comes from the line of Doug Harned with Sanford Bernstein. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: Your Missile Systems backlog was very strong. And if you look over the last 3 years, we've seen very strong missile demand for Raytheon, for Lockheed, for MBDA. What do you see driving this high level of demand, and where do you see it heading from here?

Well, Doug, I mentioned that I just got back after 2 trips to the Middle East and spending some time at the Farnborough Airshow talking to quite a few of not only our international customers, but also our domestic customers. One of the themes that we -- I heard consistently from leaders of countries across the Middle East, Europe and the Asia-Pacific region was the following, and it's because of all the uncertainty that is out there. They used the same words, slightly differently, but it was the same across. And that was a strong defense is a strong deterrence. So what we're seeing is across all these nations is that they're looking to build up their defenses. They're looking at the weapons they need. And they're making sure they have the right stockpiles to support this deterrence capability so that they can defend their nations. And it's -- so the uncertainty in the world is driving that demand cycle. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: But -- do you see this focused perhaps more on missile demand than maybe in other areas? Because it really does stand out, I think, in terms of growth.

Yes, missile demand, and it's also the overall Patriot systems and the air defense systems. If you remember last year, we booked a system, our NASAM system, in Oman. That, again, is a defensive-type system and, by the way, also happens to use AMRAAMs. But that's the end game here, is that these countries are strengthening their defenses to provide a deterrence against the situations they're seeing in the regions they're located. And that's where the uptick's coming from.

And I think what you're seeing is a strong pull demand for both the tactical missiles as well as our strategic programs. And when those come together, it bodes quite well for our Tucson operation, which, as you well know, we are the largest missile maker in the world and there is a lot of demand, both domestically and internationally, for the full spectrum of products that we're offering out there.

And we're seeing strong demand for air-to-air. We're seeing strong demand for air-to-surface. And strong demand for surface-to-surface and surface-to-air across the board. But when you roll it all up, it's all about these nations wanting to provide strong defense for their country. And the reason they want that strong defense is they want to make anyone out there think twice before they do anything. And that's driving the demand, and it's just based on personal contact with the heads of the militaries of these countries. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then before, you talked a little bit about the importance of organic investment. And if I have this right, I mean, your intent is to increase that investment, as many of your peers are, in, presumably, both R&D and CapEx. But can you talk a little bit about the scale of organic investment you're looking at and the time frame over which you determine the business case when you make these investment decisions?

So let me just start out briefly and then we'll add some -- Tom will add some color. But I do want to remind everyone that back in January when we gave our initial guidance, we talked about strategic investments that we were going to embark on for the company both in 2014 and beyond. I think we talked at that point about 20 basis points' worth of investment to strategically and organically grow the company. We're continuing down that path and have been. We see that as a critical tool to grow the company organically. And again, it's part of our overall thinking on the best way to deploy our capital.

So I'll jump in on that. A key element to our win on FAB-T and, last year, on Next Generation Jammer and AMDR, was our investments in technology to bring the best possible capabilities to our customers. So we continue to invest to achieve a competitive advantage in the marketplace, both on the domestic side and also on the international marketplace. Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division: And is there any time frame that you tend to focus on when you make these decisions in terms of when the returns would likely come?

We break it up into almost 3 areas. I mean, there is -- we look as far out as 10 years out in terms of where we think technology is moving. We want to make sure that we're in the right spot at that time. And I'll -- then my example to that is the GaN technology we have talked about in the past. It was about a 10-year investment process in that to set us up to win some major programs like AMDR and also Next Generation Jammer. We also look out about the 5-year period in terms of what's changed and making sure that we're focused in that area in terms of what investments we need to make to be prepared to win business in that area, or keep our products relevant. For example, on Patriot, we continue to invest in Patriot to make it relevant in the latest technologies so that we're competitive in the global marketplace. And then we also look in the near term, the 1 to 2 years, to see what tweaks we need to make in terms of our technology investments to ensure that we're competitive on, I guess, the relevant competitions that are going on in that time period. Hopefully, that helps. But it's not just tomorrow. It really is kind of broken down into these 3 major time chunks.

Your next question comes from the line of John Godyn with Morgan Stanley.

Guys, Raytheon has done a great job positioning itself for a lot of these international opportunities, and we can see that in international sales as a percentage of revenue and what you said about bookings. I'm just curious, what inning do you think we're in, in terms of this pretty significant international growth cycle?

I really appreciate the question. So let me tell you why. We reset the game. So we're back -- we've reset it back to the first inning, and let me explain that. We've recently made some major changes in our international structure and focusing on a set of countries and looking at countries in a different way, international countries. And the way we're looking at them is each country as a market and understanding what elements of that country need solutions that Raytheon can provide and can provide in a better way than our competitors. And that's starting to pay off and it's filling the pipeline for the future. And I would say we have a lot of upside potential in the international marketplace because of this focus and this strategy we have. We've been, for example, in the Middle East for 48 years, I may have talked about this on a phone call before, but we give out something called a service award pin. And a couple of years back, I was in Saudi and gave out the 2 40-year service pins to 2 Saudi nationals. So we're heavily engaged in the Middle East. We've been in Japan, for example, for over 50 years. And we have a very strong brand internationally. And I think that all together our time in these places, the fact that we have operated successfully on programs -- in many cases, you can check our records on some of these international programs we have. We've taken over from our competitors who have not been able to complete the programs. So we have the solid reputation and brand. We are leveraging that into essentially set the clock back to the first inning and putting more folks on the ground. We're also doing much more work in localization. And we've significantly increased our global supply chain here over the last several years. The bottom line is we're essentially repositioning the company to move beyond our 30% revenue for this year in terms of international. I don't know if that helps, but you -- we just can't let -- keep going inning -- inning to inning. You got to reset the game every now and then. And this is -- in the last 6 months, we've been off resetting the game.

That's very helpful. And when we think about the company big picture, could we get to 40% international sales as a percentage of revenue? Are those types of targets realistic long term?

Yes. I would say that they're absolutely realistic long term. I'd rather not give a specific time frame. But if you just simply look at where we will likely end up from a backlog perspective at the end of this year, we will be in the 40% range plus or minus, depending on how exactly things play out. But I would say longer term, you should be thinking about the company as a 40-plus percent international company and view us more from a global perspective than just a domestic exporter.

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

Dave, I was wondering if you could help me with this. And I know somebody asked somewhat earlier. But if I look at the first quarter, which was higher, the second quarter was comfortably ahead of the 21.5% of the year's earnings that you projected. You're buying back at a higher rate year-to-date than you had been running. I guess, why aren't you in a position to be talking about a higher guidance? What's the risks in the second half that maybe I'm not seeing?

Okay. So we are tracking to the guidance that we provided back in January. There's strong program performance at both missiles and IIS, and that offsets the shift in the cadence at IDS for some of the international awards that we addressed earlier. These moved from sort of first half to second half, is the best way to think about it. And we also had, again, the AWD impact. We're continuing to see strength in the second half at SAS, particularly from a sales standpoint. Now I think I understand what you're getting at. We had a strong earnings quarter in the second quarter. We exceeded the high end of our adjusted EPS guidance by about $0.11. But the improvement is driven by volume and performance improvements that were largely expected in the third quarter. So again, we do feel good about the year. In particular, we see strong second half bookings. And sequentially, sequentially now, we see low single-digit sales growth from the first half to the second half. I think when you stand back and you go through the numbers flow that is associated with what I just described, I think you would reach the same conclusion. I'll point this out for probably the fourth or fifth time: We do see a strong second half of this year.

Okay. And then just looking on the P&L, why was G&A up in dollars as a percentage of sales in the second quarter? Is there something unusual, or is this the right level to be thinking about?

Well, there's a couple of things going on, and we had some public disclosure on this. There's a new stock compensation program. And the accounting was such that we recorded that in the second quarter, and that's in G&A. The CAS harmonization that we've been talking about for a while is also part of the G&A line. We are awaiting -- there's a timing, with respect to an insurance recovery for some property damage that we had that shifted into the fourth quarter and came out of the second quarter. So by and large, I would say, again, there's nothing too remarkable. But with the CAS harmonization and some of the other things that we've talked about, G&A will likely be higher than what it's been in the past. But I do want to point out that when you stand back and look at the overall cost structure of the company, that is continuing to improve. It's just where these expenses and expense reductions are taking place.

Okay, and last question for Tom is just, I don't know if you addressed Turkey in terms of the Patriot, but it's been quite a turnaround for that opportunity. And recently, I get there was a down select. How should we size that opportunity to think about where that goes from here?

On Turkey or Poland? Which one do you want?

Turkey was what I was thinking, because you talked about Poland.

So on Turkey, I mean, there's -- they're in discussions with the Chinese. There was lot of press out there. They have not concluded the negotiations. They have asked us to extend the validity of our proposal, which we have done. As you may know, the U.S. government and NATO have significant concerns relative to a Chinese solution for Turkey and being able to tie that Chinese solution into the NATO system. So they've -- both the U.S. government and NATO, have raised this issue to the highest levels of Turkey's government, and that is being worked in the background. But we continue to stand ready with our Patriot offering. We believe we have a solid offering that includes coproduction and some co-development in Turkey to enable the Turkish government to essentially increase their integrated air and missile defense capabilities for their nation. So we stand ready for the next steps.

Your next question comes from the line of Pete Skibitski with Drexel Hamilton.

Maybe one for Dave. I just wanted to kind of get a little more color on CapEx. Last year, you were about $330 million in CapEx spend, which was below guidance. This year, I think between PP&E and software, your guidance is about $450 million according to the last Q. I was just wondering, are you still tracking to that number? And then directionally, as you think about footprint reductions, should we think CapEx is headed up, down, flat as we go forward? Just some color on that area, please?

Sure. So we've talked about investing in ourselves, and we're continuing to do that. Tom spoke before about strategic and technology investments. Some of that is part of what you're seeing in our increasing capital this year. We are continuing to make good progress on utilization improvements. We're tracking to about a 2% reduction this year. We talked about a goal of a 10% utilization improvement over the next 3 to 5 years, and we have plans in place and are moving towards those objectives. So I would say from a -- if you stand back and look at what's going on from a capital spend perspective, I think we are driving value the right way through those type of investments.

Okay. So, Dave, is this kind of like new tooling to [indiscernible] system?

I'm sorry. This is like new -- say it again?

So these type of investments is an example of sort of new tooling for [ph] better utilization? I'm just trying to understand why -- what was really driving the need for the investment.

Okay. So we talked about the R&D-type investments, right? The technology and strategic investments. Some of these may be building prototypes and things like that going forward. With respect to real estate, when we're consolidating facilities, we have to build out new space with skips and additional sort of special things that we use at our business. So some of that is built into the capital. But again, I would say that these are all things that we're doing today to improve the business going forward.

Okay. I understand much better. And are you approaching peak, or is there still more to go?

I would -- I'll talk a little more about that probably on the third quarter call. At this stage, you probably want to think about it as flattish as we go into 2015. This isn't formal guidance, but kind of an early perspective is we're going to continue to do the type of things that we've embarked on in '14. So I would say to think about it as flattish, that's probably the best path forward here.

. Your last question comes from the line of David Strauss with UBS.

International versus domestic sales growth that you've got baked in for the second half of the year, how does that break out?

Okay. So in the second half of this year, we're seeing domestic sales growth probably down maybe 1% to 5% or 6%. From an international perspective, we're seeing sales growth of maybe 2% to 5-plus percent on the back half of the year. And then if you take in combination, we're essentially in line with where we were in 2013.

Okay. And then, Dave, I have to ask you on pension.

No pension questions today. It's a sensitive subject [ph].

Yes. I know you have your annual update in Q3. The last couple of years that's been a positive upper for you. Can you talk about that? And then everything else pension-related, CAS and mortality and all of that, what's kind of changed relative to 3 months ago?

So you're right, we'll talk about it in a little more detail in the third quarter. And it's very difficult to forecast how that's going to play out with respect to truing up actuarial assumptions. With respect to the new mortality tables that are going to be used in the future, I mentioned on the last call that we have already taken that into account in our earlier assumptions and started to do that next year. So we don't see a -- any kind of significant impact from a pension standpoint on that or from that. We mentioned a little earlier about the legislation with respect to pension interest rate stabilization. It was first enacted in 2012. And there's a bill that's, right now, in the Senate, not enacted yet, but it could be going forward. Now there's a lot of moving parts here with respect to stabilization. Initially, it affects funding, CAS expense and taxes, and then going forward also impacts that FAS expense. So we're evaluating our funding strategy under the legislation. And we also have to take into account the discount rate environment, demographics, return on assets. I did mention in my earlier remarks that if the House bill were enacted in its current form, it could impact us by about $0.10. But we see that being offset by the R&D tax credit, which is also worth about $0.10 assuming that's enacted. Again, we'll provide further guidance on the Q3 call and give a little more detail then.

Okay. And last one on the international side, the bookings strength that you're talking about in the second half of the year, you're anticipating in the second half of the year, what would that do from the perspective of bringing in advances in the back half of the year?

It would be a plus from an advance standpoint.

Any sort of quantification?

No. I'd not rather not get too specific on that at this point. I appreciate the question, but we can't get too specific. Again, these are factored, and the advances are also factored.

All right. Thank you all for joining us this morning. We look forward to speaking with you again on our third quarter conference call in October. Glenn?

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