Douglas R. Wilburne - Vice President of Investor Relations Scott C. Donnelly - Chairman, Chief Executive Officer, President and Member of Management Committee Frank T. Connor - Chief Financial Officer and Executive Vice President

Peter J. Skibitski - Drexel Hamilton, LLC, Research Division Joseph B. Nadol - JP Morgan Chase & Co, Research Division Julian Mitchell - Crédit Suisse AG, Research Division Noah Poponak - Goldman Sachs Group Inc., Research Division Jeffrey T. Sprague - Vertical Research Partners, LLC Jason M. Gursky - Citigroup Inc, Research Division Robert Stallard - RBC Capital Markets, LLC, Research Division George Shapiro Carter Copeland - Barclays Capital, Research Division Cai Von Rumohr - Cowen and Company, LLC, Research Division Myles A. Walton - Deutsche Bank AG, Research Division Brian Jacoby - Goldman Sachs Group Inc., Research Division Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division Kristine T. Liwag - BofA Merrill Lynch, Research Division

Ladies and gentlemen, we'd like to thank you for standing by, and welcome to the Textron Fourth Quarter Earnings Teleconference Call. [Operator Instructions] As a reminder, today's recording conference call will be recorded. I would now like to turn the conference over to your host and your facilitators, as well as your Vice President of Investor Relations, Mr. Doug Wilburne. Please go ahead, sir.

Thank you, Steven, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Moving now to fourth quarter results, starting with Slide #3. Revenues in the quarter were $3.4 billion, up 3.3% from a year ago. Income from continuing operations was $0.50 per share compared to a loss of $0.06 in last year's fourth quarter, which included net charges of $0.55 per share. This year's EPS included a previously disclosed $0.06 after-tax charge at Cessna related to an unfavorable business arbitration award. Also, this year's fourth quarter per share results are based on an average share count of 291.6 million shares, which reflected the repurchase of 11.1 million shares made over the course of the quarter under our 2007 board authorization. Moving to cash flow. Fourth quarter manufacturing cash flow before pension contributions was $625 million, bringing our full year manufacturing cash flow before pension contributions to $793 million. Full year pension contributions were $405 million, which reflected an additional contribution of $224 million made during the fourth quarter. With that, I'll turn the call over to Scott.

Thanks, Doug, and good morning, everybody. Despite weakness in our automotive and business jet markets, we grew manufacturing revenues in the quarter as a result of strong military and commercial demand at Bell along with increased deliveries at Textron Systems, E-Z-GO and Jacobsen. Operationally, results were excellent at Bell and in line with our expectations elsewhere. Obviously, we had a couple of disappointments in the quarter with respect to the arbitration charge at Cessna and in other issues that emerged at our fee-for-service UAS program at Systems. While we've made good progress with the training and interior operational deficiencies we discussed during our third quarter call, we have experienced some aircraft engine performance issues in the fourth quarter, which resulted in a pretax charge of $19 million. We believe we've identified the underlying causes that are affecting engine performance and have committed the resources necessary to address these issues. Looking forward with these charges we've taken, we now assume both of these programs in ISR Services will generate 0 profit for 2013. Positive news at Systems in the quarter was that we had better overall delivery performance resulting in record quarterly revenues and significant deliveries for Shadow retrofit units and Senzor Fuzed Weapons. Therefore, as we look to 2013, we see a return to top line growth and a significant improvement in margins led by growth in UAS revenues, primarily from delivery of TCDL systems. Switching to Industrial. As expected, we saw volume soften in the fourth quarter at Caltex as a result of both European and Chinese automotive markets. Greenlee was essentially flat while E-Z-GO and Jacobsen both saw good growth, reflecting new product introductions and ongoing efforts to expand our distribution channels for customers. For the year, we posted a 10 basis point improvement in margins at Industrial…

Thank you, Scott, and good morning, everyone. Manufacturing revenue was up $85 million in the quarter, generating an increase in manufacturing segment profit of $11 million. Let's look at how each of the manufacturing segments contributed, starting with Cessna. At Cessna, revenues were $901 million in the fourth quarter, a decrease of $110 million on a year-over-year basis, reflecting a 21% decline in new jet deliveries, which more than offset a 12% increase in aftermarket revenues. We posted an operating profit of $23 million, down $37 million from the fourth quarter of 2011, reflecting the $27.4 million in pretax arbitration charge and lower deliveries. At Bell, revenues were up $139 million, primarily due to higher volumes. Segment profit increased $10 million on a higher volume and mix. At Textron Systems, revenues increased $58 million, primarily due to higher UAS and SFW volumes, partially offset by lower ASV deliveries. Segment profit increased $44 million, reflecting charges of $60 million in last year's fourth quarter and the higher volumes this year, which were partially offset by this year's $19 million charge. Industrial revenues were essentially flat while segment profits decreased $6 million due to cost inflation in excess of price increases. Moving to the Finance segment. Credit quality continued to improve with 60-day delinquencies of $90 million, $24 million lower than at the end of last quarter. Non-accrual accounts were $143 million, down slightly from $145 million at the end of the third quarter. The Finance segment reported a profit of $2 million, which reflects earnings in the captive business and a break-even results in the non-captive portfolio. Moving to corporate items. Corporate expenses were $43 million, up from the $39 million last year, primarily due to the impact that higher share price had on compensation expense. Interest expense was $38 million,…

[Operator Instructions] Our first question will come from the line of Peter Skibitski of Drexel Hamilton.

Two questions, I guess, on Cessna. Scott, are you thinking that for the first half of next year maybe deliveries could be down year-over-year just because of what you mentioned, the lateness of the new model deliveries?

I do. I mean, I think, Peter, if you think about the year as being up slightly and obviously last year the first half of the year was probably stronger than normal, the second half of the year was weaker than normal, I would expect more or less the inverse of that this year, in part driven by the fact that all those new models are second half-loaded.

Got you, got you. Okay. And then can you give us a sense -- I know trade-ins are becoming such a bigger part of the business. Can you give us a sense of the revenue of trade-ins in 2012 and maybe how you see that going forward?

Well, I don't know if I'll do the exact number, but yes, trade-in sales were up on the -- well, particularly, on the quarter. And I think, generally, they will continue to be up. We have seen a fair bit of trade-in activity, Peter. A lot of that is driven by people that are placing orders and buying aircraft on relatively short cycle and they do need to monetize their existing aircraft for those folks that have aircraft. So we have been taking a higher ratio in terms of number of trades than we normally would. I'd say the good news is the aftermarket, used aircraft market, is doing okay. It's moving pretty well. So most aircraft that we're taking in, we're turning them over in sort of that 1- to 6-month time frame and I would expect to continue to see that. So there will be higher churn of used aircraft going through our book, but I think that, again, the market is doing fine and we are able to turn those aircraft around.

Okay, very good, very good. And then in terms of your guidance next year at Cessna, you talked about modest unit delivery increases, but it looks like about a 10% revenue increase. Is that just continued aftermarket strength as well as maybe a little bit of a mix shift to the higher price point models?

It is. I think you're going to see sort of low double digit on the aftermarket side and slight gains in both the new aircraft, as well as probably an increase, sort of reasonably strong increase in the used aircraft market.

Our next question will come from the line of Joe Nadol of JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: First question is on the cash flow outlook. Scott, you noted that the higher cash taxes are taking a big bite. Could you just give it a little bit more context as to is this the year that we get to sort of -- to become a full taxpayer on a cash basis? And any other items that are -- that we should think about in terms of the bridge from 2012 to 2013 cash flow?

Well, that's really the primary driver, so you're right. I mean, I think that we certainly feel we'll be paying our fair share this year in cash taxes. And that's really been just timing associated with other things over the last few years, so we have not paid as much cash tax. That certainly catches up with us this year. We're talking about used aircraft. I do think that we will see some positive cash flow as we work some of the used aircraft balances down. But other than that, it should be relatively straight conversion of NOP [ph] into cash. Obviously, as Frank said, we will have some higher CapEx spending this year. And again, that's primarily driven by a number of new product programs that are going on, particularly at Bell and Cessna, and as a result of some facilities capital that we're spending with Bell as we consolidate what was multiple facilities in the Fort Worth area into principally one location. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. You noted that your new models, your 3 more new models -- or 1 new model with 2 updates are important to your forecast this year. Can you speak to how those -- how they're tracking, particularly the M2? I was thinking that might be delivered in Q3. It sounds like Q4. So is that slipping, or is everything on track there?

Well, first of all, the programs are going extremely well. Flight test activity is underway with all the aircraft. We have not run into any issues, so we're pleased with the performance and how they're doing. Of course, we do have to go through the FAA certification process. That seems to be tracking reasonably well at this point. The M2 is one that we'd like to get some third quarter deliveries, but I think the way the certification date is going to fall, that's going to be difficult to do. So I think that most, if not all, will be in the fourth quarter. But again, the program and the product has been well received and it's not having any impact in terms of our expectations for the number of units that we'll ship in 2013. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then just finally, could you just expound a little bit about upon the Systems and the UAS issue? And I guess, specifically, is this a continuation of what we saw last quarter or are these discrete and new issues that popped up?

No, it's a good question. I mean, the issues that we initially ran into on the Services contract were with respect to our ability to get people trained to the appropriate level to be ready for the increase -- basically, just the ramp of the program in terms of people going in theater and operating the aircraft. We put a very robust training process in place and we have not seen any continuation of that. In fact, the off tempo has gone up significantly both at -- or in the UAS program, as well as our ISR program, so for both customers. And the good news is on the second program, on the ISR Services side, we didn't see any training-related issues because we had learned from the initial launch on the MEUAS program the training programs have been effective and worked, and as a result, we seem to be in good shape even as we added a significant number of resources for ramping those programs up. What's new, unfortunately, is that as we started to fly on the first Services contract, we have run into what I believe is a number of different issues associated with the propulsion system on that aircraft. And so we were losing more aircraft than we had in our plan. We have engaged our folks from Lycoming, obviously, who are experts. They've been doing a lot of testing and evaluation. We believe we understand the critical issues that were resulting in the early failures of these propulsion systems. We have been able to implement a number of fixes already. The good news is that we are seeing improved performance in the field in terms of the MEUAS program. We are not seeing those problems with our second customer, again as a result of things that we have learned on the first program. But at this stage of the game, we don't have enough hours really logged on the second program, so when we think about estimating our cost to complete, we really have to look at the total of the combined programs. So obviously, we're disappointed. We did not anticipate having these kind of problems associated with the engines. We've taken significant charges as a result of that, but I do think we're seeing progress in terms of our ability to understand exactly what were those problems and put fixes in place that appear to be having an impact in the field.

Our next question will come from the line of Julian Mitchell of Crédit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: Just on your Cessna sort of outlook. I mean, your -- if I look at the guidance, I mean, the incremental margins in Cessna have been running at around about 19% to sort of 20% in the last 2 years. I guess, your guidance implies it stays around that level in 2013. I just wondered if you felt there may be some more volume leverage given you're in the fairly early part of the recovery and whether that incremental margin is conservative, or is it the fact that you think that earnings will be extremely weak in the first half and that's why the incremental margins for the year as a whole are only going to be maybe 18%, 19% on your guidance?

Well, I think, Julian, part of what you're seeing is there an increase next year in used aircraft as part of that revenue. And sort of by design, the way we typically bring those aircraft in and how we book them, those are typically sales at 0 margins. So that obviously has a dilutive impact on the overall margin rate. That's principally what guides that number to sort of net out around that 20% -- 19% kind of range. Julian Mitchell - Crédit Suisse AG, Research Division: Okay. And what sort of pricing trend in Cessna does the guidance embed?

Flat. Julian Mitchell - Crédit Suisse AG, Research Division: Okay, great. And then lastly, just on the Systems business. If we think about the guide for '13, you're implying a sort of 30%-or-so incremental margin. How much of that is just coming from normalization following the charges in '12 and how much you're assuming sort of underlying business gets a little bit better on margins?

So I think, Julian, if you -- the way to think about the business is we had guided last year that '12 margins would have been in sort of that 9.5% to 10.5% kind of a range. If you take out these charges, unfortunately, with our Services contract, that's really where we were. And I think if you look at next year, the reason we guide more in that 9% to 10% range is because we have the revenue associated with those programs basically at 0 margins. So I think the margin performance on the balance of the business is where we expect it to be and would have been consistent with this year's guidance. The reason you see a slight decrement to that in terms of our '13 guide is because you do have the revenue associated with those Services contracts and they're 0.

Our next question will come from the line of Noah Poponak of Goldman Sachs.

Scott, the Cessna backlog is down again sequentially. I know you guys have discussed how Cessna has shifted from a backlog business to a shorter-cycle business. But presumably, this backlog can't go to 0 and it become just an inter-quarter sales business. So how much lower can backlog go before you have to lower production? And you sort of alluded to it in your prepared remarks, but what's embedded in your 2013 production in terms of how you think orders will compare to production throughout the year?

Well, I mean, look, Noah, we would certainly like to see some backlog start to build, obviously, as we introduce and get closer to the launches of things like Latitude and Longitude, we would expect to see some build in that area. We announced the new Sovereign relatively late in the year, obviously, and not in a great environment in terms of what was going on in the economy. But I would expect to see a start to build some order book of the new Sovereigns. But the bottom line is, I don't think people should be terribly surprised. I mean, the fourth quarter -- frankly, the second half of the year was not particularly strong in the business jet market. That being said, there's no reason to believe that there's going to be a -- that's not going to normalize and we're going to get back to sort of where we felt in the beginning part of 2012. With respect to production rates, again, we look at this on a very regular basis and anticipate what the order flow is going to look like based on what's going on with customer activity, and that is what is setting our production schedules as opposed to looking at backlog. This is a classic example. If you look into 2013, we're guiding to what we believe will be a modest increase in a number of jets. Obviously, that's based on what we see going on in the market, what our anticipation is in terms of order flow. It takes into consideration, though, as we set production rates, how many aircraft went from '12 to '13. As you know, we've been trying to make sure that we're forecasting this very accurately. There's no question that we would have expected higher sales in both the third and fourth quarter than what we actually saw and we've adjusted our production rates in 2013 accordingly. But we still believe, if you look at the market, you see what's going on with customer activity, where we believe the cycle is, that we still think it's appropriate to build towards a modest increase in deliveries in 2013.

Okay, so that's helpful. And can I interpret that to mean we should expect Cessna backlog to continue to decline in the first half and then potentially start to build in the second half given everything you just said?

No, no. Look, we're guessing it, obviously, right? So, yes, I think as we get closer to making deliveries in having the availability of the new Sovereigns that I would expect to see some order book built for that product. We have a limited number of Sovereigns to sell here in the next few months because we've stopped production of the Sovereigns, right? There's only a few aircraft that are left, frankly. So as we start to talk customers about Sovereigns, they're all going to be moving into aircraft that are not going to be available for delivery until third quarter.

Okay. And if I can ask one more, if I'm looking at your Slide 11, the segment revenue and margin outlook. If you had to identify the one number on here that has the most upside potential and the one number on here you're the most concerned with to the downside, what would those be?

Well, yes, I'm always most concerned about Cessna just because the sensitivity around what's going on in the market. We don't have a whole lot of control over what the market is doing. And as you know, the backlog, it's not something we're -- we can just ride the backlog. It does depend on orders and conversion to sales. So that's, I would say, probably the highest risk item. But as you guys know, we have, over the last year few years, tended to over-perform at Bell. I'm sure people will think that there's over-performance opportunity at Bell. I think we can probably push Bell towards the top of the range. But we are going to have -- we're stopping the ramp here, right? So the ramp on the V-22s and the H-1s is kind of coming to its conclusion, so I don't see a lot of leverage on increased volume and we are seeing continued growth on the commercial side of the business. And how that mix plays out will largely impact, I think, what opportunity we would have to outperform on the Bell side.

Our next question will come from the line of Mr. Jeff Sprague of Vertical Research.

I just wondered if we can just delve a little further into Cessna margins in the quarter. Was there any particular or unusual items with used aircraft gains or other adjustments, or was that a good representation of what was going on just operationally in the business?

I think it's pretty representative of what was going on operationally in the business. There was a little bit higher sales in terms of used aircraft on a year-over-year basis, but not a huge number. And obviously, the thing that really impacted us the most, Jeff, was the arbitration settlement at $27 million. So you put that back in there, I mean, I think what the team has done, frankly, as I said, obviously, we had lower revenue, lower jet -- new jet deliveries than we would have expected. And I think what you're seeing is the team's doing a nice job on costs. They're doing a nice job on efficiencies within the business. And we moved some volume through there. I think the guys are ready to make it a much more profitable business.

Yes, that's certainly my point. I mean, revenues were down $200 million and you got a high mix of Mustangs and basically held margins flat year-over-year, plus or minus a few basis points. Is there something to read into the Mustang strength? If you look at the historical relationship between business jets and profits, it has broken down, where certainly the lead lag is extended relative to prior cycles. Is there something going on to read into Mustangs being actually reasonably decent and maybe strong here in terms of just the lower end of the market actually firming up?

Jeff, it's difficult to say. I mean, I really -- to be honest with you, as we go from quarter-to-quarter, it seems we see moments in time where the lower end of the market, be it Mustangs or CJs, seems like there's more inquiry and more demand. And then we have quarters where it seems to be more on the Sovereigns and the XLS side. So I think the market is still a little bit skittish, so I don't know that I would look at one or the other. It really does seem to swing as we go through the year. It's peculiar that we seem to see spikes in interest in different sizes and different classes of aircraft, but I can't say that I've been able to figure out how to correlate that to anything.

Yes. And then just on kind of the whole production question, back to that. You finished the year strong on cash flow. It does look like inventory did not decline as much sequentially as it typically does. Is there a dozen or so whitetails, or maybe they're greentails, maybe they're in whip or something, but is there a little bit of backup in the system to think about as we move into the first quarter?

Yes, there is. I mean, without a doubt, we would have expected more fourth quarter sales at Cessna and those aircraft, which really are sort of the greentail. I mean, obviously, as we are working around customers, we focus our completion center activity around the demand that is there. But there's no question, there's more inventory tied up in that -- that latter stages of whip and going into the completion center than we would have expected. We always have had these discussions around the fact that we are building to a forecast and that's what we're going to continue to do. We've, generally speaking, been about where we expected. There's no doubt we were light in terms of sales activity in the fourth quarter. But again, it does take a bit of a hit on the inventory side, but these are perfectly good aircraft. And obviously, we're selling them as we speak. So it's more of an issue of looking forward and adjusting what we need to do in terms of 2013 production to accommodate the fact that we did have more whip that rolled from '12 into '13.

And just a quick one, for Frank, if you have the number. What -- where did you end up on just your final pension funded status for the year?

Yes, we're at a deficit of about $1.3 billion. So the obligation is about $7 billion and the assets at $5.7 billion or so.

Our next question will come from the line of Jason Gursky of Citi.

Scott, you mentioned that the pricing assumption for this year at Cessna is flat. Can you let us know whether that represents an improvement relative to what you saw in all of 2012, and particularly, the fourth quarter?

I'd say that price has been relatively flat. We've seen some models better than others. I would say, frankly, in the fourth quarter, we certainly had some opportunities to sell some aircraft that would have reflected some significant downward pricing. I mean, people are trying to play that game. And I think our decision was we're going to walk away from some of that. So part of the behavior here in terms of pricing, I think, does have to get out of trying to move aircraft and that's behavior we're trying to see. So there's no question there were few aircraft that could have resulted in negative pricing in the quarter that we're just not going to do. So but I'd say, generally speaking, it has been flattish. And as we said earlier, that's kind of how we're thinking about it in terms of how we guide into next year.

The map on this is -- Jason, the map on this is a little bit not straightforward because we got the new Sovereign coming in and the M2. So how you kind of look at that versus last year becomes definitional. But we'll expect better pricing on those 2 relative to what's been happening generically otherwise.

Yes, I agree. No, it is helpful to look at it on an apples-to-apples basis, I hear you. And then, Frank, in your prepared remarks, and maybe it was in response to a question, you suggested that there was some cost inflation in the Industrial division that hurt margins on a year-on-year basis. Do you have any numbers to back that up or you could provide to us? And then can you describe the types of things which you're doing to help offset any of those types of headwinds?

Yes. I mean, it was really year-over-year on a quarterly basis. And what -- we typically do see some kind of inflationary headwind relative to price, particularly the Caltex business, and we look to offset that with performance. And so that can kind of jump around quarter-to-quarter. We also, under our Caltex contracts, recover some elements of cost inflation, but there can be a lag to doing that. And so we do get some quarterly fluctuation in that and so we just had some fourth quarter fluctuation. But generally, between kind of performance and price, we're able to offset the inflation and that's what you'd see if you look at the full-year results for Industrial. And then for the quarter, it was between $6 million and $7 million, yes, but it was not a big number.

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

Scott, on the Cessna front, you mentioned that you've been getting things done on the used market. I was wondering if you've been seeing any improvement over the last 3 months in the used pricing or the used fleet that's out there?

Yes, we have seen better deals on pricing in the used market, so -- and I think that, that just in terms of publicly available data that's out there, I think it would corroborate that people are seeing a little bit of an uptick in used aircraft market. It's not overwhelming.

Yes. And what about the fleet for sale, has that changed at all?

It's continuing to marginally drop, not a huge change, though.

It's around 12%. And we're just -- I mean, we continue to see very good turnover.

As I said earlier, most of aircraft that we're bringing in, in a 1- to 6-month cycle, we're moving them back out. So from our perspective, obviously, the rate of turn to move these things is what's most important because we are, basically, providing a service to our customer to modify that aircraft, allow them to get a new aircraft, and then we want to move that aircraft on.

Right. And then at Bell, you mentioned about V-22, you've had some success in signing up further lots. But it looks like the multiyear has slipped out. If the sequester kicks in, does that impact the ability of the Marine Corps to sign up to this multiyear? And at what point would you start to get concerned if it doesn't get signed?

Well, the issue with the multiyear is that as long as we're operating under a CR, they do not have authority to sign multiyear contracts. There was actually an attempt in -- to put that in and make an exemption so that you could do multiyear and that did not go through. So they had no authority to sign any multiyear contracts, be it our programs or any other programs. So it really has to do with getting legislation passed that actually gives them a budget and gives them budget authority to do multiyear contracts.

But in terms of your timing, if we were still here in the middle of the year, would you start to have problems with long lead items?

No. So what they've done is, they've gone ahead and awarded an undefinitized contract for lot 17, which would be the first lot of the next multiyear, as well as the long lead material procurement for lot 18, which would be the second year of the multiyear. So because they do have authority under the CR to award individual contracts on a year-over-year basis, they are continuing to do that. So what you're seeing with the award of lot 17 and the award of long lead material under lot 18 is on schedule and gives us the ability to deliver to what the multiyear plan would be. But just because of their contracting authority, they can only do it on a year-by-year basis.

Right. And are the terms on that comparable to what you've got on your current multiyear?

Well, there was a price negotiation that was undertaken and is concluded with respect to the next multiyear. Certainly, the margins, as part of that negotiation, have been reduced as you would expect normally happens when you've driven a lot of productivity and you end up with another contract. The issue, of course, is with a multiyear deal now, it's incumbent upon us to go try to figure out how you get those margins back to where they were.

Our next question will come from the line of George Shapiro of Shapiro Research.

Scott, I wanted to -- at Bell, the guidance to 13% to 14% margin where you almost did 15% in '12 and you're one year closer to the end of the current multiyear with the V-22, you think you'd get a margin pickup, are you being conservative or is the mix between commercial going to be that much higher that you're figuring there's a lower margin? And if you could just go through what was your commercial book-to-bill in '12 and kind of what are you looking for in '13?

Well, on the military side in terms of delivery, George, it's going to be relatively flat on the V-22 and H-1 front, and it is increasing. Again, we think we'll see another year of solid growth in terms of increases in the number of commercial deliveries. Also, as I said, as we increase our R&D spending and we stop having the leverage on the military side of increasing those numbers, our costs are somewhat higher in terms of what's embedded in overhead rates, and therefore, that is putting some pressure even on the military margin rates on a year-over-year basis.

Okay. And then one on Textron Systems. I mean, where is the growth actually coming from? I mean, it looks your guidance are like a little over 9%, up year-over-year, and in military business that most people will be down 5% on average. And the margin there, it seemed a little aggressive to me given that the growth is probably coming from the TAPV, some of the 0 -- low to 0 margin programs. So just wondering where you're getting the profit guidance there?

Well, we expect to see increased deliveries in a number of areas in our UAV business and our -- I would expect to see some increased revenue in our Sensor Fuzed Weapon business. The TAPV and the Ship-to-Shore which, of course, are still in the early stages and the development phases do not contribute a lot of revenue in terms of deliveries in 2013. So it's really the core parts of SFW and the UAV business that we expect to see driving revenue growth.

And then just one on Cessna. Did you see any difference in the bookings after the election versus prior to the election or in January? Have you seen any difference where they did not change the depreciation rules so there wasn't any adverse impact on general aviation?

Well, George, unfortunately, we were hoping to see a bit of an uptick after the election got behind us. I would say that didn't happen and from -- at least from our perspective, and certainly talking to our customers. All the stuff that was going on with the so-called fiscal cliff, most people chose to sort of wait that out, and so they did. So the normal -- I mean, frankly, the number of customers that we have sort of in the discussion phase all look very normal. The amount of activity going on are all very normal. But the mess that happened as we went through December, I think -- November, December, just led people to say they'd stand back. So we have seen delivery. We have seen orders obviously here as we've gone into the beginning of the year. I'd say we probably have had more order activities than we're used to seeing right at the beginning of January, but I would say that's probably a result of people waiting out to see what was going to happen. Remember, they didn't come to a conclusion and decide at least what they were going -- what little they were going to do on the fiscal cliff until beginning of January. So that, clearly, was a problem.

Okay. But the fact that the tax laws were effectively not changed for general aviation, did that provide a little bit of a trigger here, you think, in terms of your comment that you're seeing a little better order activity here in early part of January?

George, I always think the bonus depreciation is sort of beneficial, but on the fringe, right? It's not going to cause somebody to buy an aircraft or to upgrade their aircraft. I mean, you've always been looking at a 5-year depreciation schedule here. So whether you're doing 20% a year over a 5-year period or whether you get half in year 1, it's not a huge issue. So if people have room in tax, we've seen that drive their behavior. As you know, we always tend to see a stronger fourth quarter because people have always wanted to get that first year depreciation in the current tax year, and so that's always driven some cyclicality into this business. But the difference between 50%, 20%, yes, beneficial, but I still believe sort of on the margins. People don't buy an aircraft because of tax depreciation in terms of bonus.

Our next question will come from the line of Carter Copeland of Barclays.

Quick -- a couple of quick clarifications and then a question. Just briefly on the Cessna margin for next year, if we -- obviously, we add back the arbitration charge from the quarter, you'll be for this year close to the low end of where the guidance is for next year. And as you sort of go through the headwinds and tailwinds for next year, it would seem that used aircraft will be a headwind, R&D is potentially a headwind, mix is potentially a headwind, but volume is your tailwind. Is there any -- are there any other tailwinds there other than just improved performance out of the team that you're looking to, to see the margins come in a little bit better?

No, I think you've capped it pretty well. Mix is relatively neutral. We continue -- I think if we look at our forecast for the year, the mix won't help or hurt a whole lot. Obviously, some new models coming in is beneficial to us, particularly with the Sovereign block point in the latter half of the year. So the headwinds really are increased used, which does not carry much volume or margin with it, a little bit of R&D headwind. But primarily, this is going to be how does the team do operationally. And again, I think our momentum going into the year is good. The activities that Scott and the team have been driving in terms of operational efficiencies are working. And we get some additional volume, obviously, that will be a good leverage.

And presumably, aftermarket is a bit of a mix benefit as well, so...

Yes, it is. And I think we'll see, again, solid growth in the aftermarket.

Great. With respect to Bell and the margin in Q4, was there anything to note in terms of cumulative catch-up that benefited the margin to speak of?

Yes, there's always some cume catch in terms of the program. You see accounting in the quarter. I think in terms of year-over-year, we had a pretty tough comp. We have very good mix of commercial aircraft in the fourth quarter a year ago. We probably did not have as good a mix in terms of the types of commercial aircraft that shipped in the fourth quarter this year. But overall, over the span of the year, obviously it was a very good year on the commercial side, and I think we'll see that momentum continue into '13.

Okay, great. And lastly, on the repurchases and the outlook for that for next year or for 2013. I wondered if you might share some detail on the decision, repurchases versus dividends, and why you chose what you chose in terms of opportunistic capital deployment on repurchases instead of maybe upping the dividend?

Well, I mean, there's a couple of things going on. Obviously, one, which we mentioned, is we feel like it's appropriate to be offsetting the dilution associated with the employee compensation and benefit plans, the 401(k) matching and things of that nature, and so that accounts for us somewhere in the neighborhood of a few million shares a year. And so that's one thing that we want to make sure that we offset. In terms of summer activity this year, we know we have a convertible coming up here in May and we want to try to be offsetting some of the dilution associated with the retirement of that instrument. And in terms of going forward again, we'll continue -- as a minimum on the anti-dilutive offsets and based on our perspective in terms of the company and where stock is, what do we think is in the best interest of the shareholder. And I think at this stage in the game, our conclusion was allocating some of that cash to retiring some of the shares is probably the most share-enhancing strategy in terms of capital deployment right now.

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

Last year, on the fourth quarter call, you projected R&D in 2012 at $590 million. You just reported net R&D of $504 million. So what's the difference between R&D and net R&D? And on a net basis, what did the R&D do in 2012, and where was it up if it was up?

So, Cai, so the R&D was up. It was up principally driven in Bell. At Cessna, we were not up as much as we probably originally thought. That's driven primarily by the fact that if you look at our programs and the fact that we were taking Sovereigns basically out of production to bring in the new one, and a number of other changes we made, and particularly around deciding to do the Longitude program, and therefore not a couple of the things that were more shorter-term upgrade programs, we were able to shift a lot of our engineering resource from what would normally be sustaining minor change things into our primary new product programs. So we were able to staff a lot of those major programs without having to increase a lot of our R&D dollars. We would expect the same to continue to next year. So we'll see modest increases in R&D, and again, principally driven by increases at Bell and some increases at Cessna as we ramp up those programs. In terms of this net R&D, we're trying to show what is the true headwind, if you will, from an EPS perspective as opposed to not sort of all engineering as opposed to necessarily the R&D tax credit-type things that benefit or specifically fit the R&D definition. So it's reflective of all our engineering. Because what basically happened, Cai, is we're letting table a lot of our engineering that really is associated with not historically R&D, but a lot more sustaining engineering and instead move those funds and resources into our new product programs.

Just to be clear, on the net versus what we called R&D before, they're the same. We just put the word net in there to clarify that it does not include those items that are reimbursed by third parties like the government.

Okay, but, so you reported $504 million. The year before, you reported $484 million. You were going to be up $100 million. You were only up $20 million, is that correct?

That's right. And that's principally driven, as I said, by the fact that we've been able to take a lot of our other engineering resource, which was not engaged in R&D programs, it was doing sustaining develop -- sustaining support of our production programs, and moved a lot of that resource into the R&D area.

Okay, great. And then as you look at the mix, then, in 2013, you said it would be neutral. But I mean, should we assume, I mean, that Mustangs might be flat to down in the mix? I would assume that M2s will be up plus in the mix, that Sovereigns and the Tens would be up, or is that incorrect because they go toward the end of the year, is that likely not to benefit 2013 that much?

Well, I think if you look at it, Cai, so absolutely our view would be that Mustangs will be down. M2s obviously will -- are new. So I think if you look at volumes of what was Mustang in that sort of the lighter end of the market will be made up this year of, instead of just Mustangs, it'll be a combination of Mustangs and M2s. So there's a slight mix shift up there, okay, but then you're talking about $3.2 million aircraft versus $4.5 million aircraft, so in the grand scheme of things, it doesn't change the mix shift very much from the perspective of the overall mix of the business. We will have the Sovereign deliveries, but I think if you look at combined Sovereign and Ten sales last year versus this year, they are relatively equivalent. And then you look at the balance of the portfolio through the CJs and the XLSs, again, it's going to be roughly a similar kind of number. So that's why I say, I don't think you're going to see a huge mix shift in terms of the overall average dollar waiting, if you will, per aircraft in 2013.

That's very good. But you did mention that the Sovereign and the Ten happen in the second half. So is the fact that the volume is relatively flat, a function of when the deliveries begin, and that, therefore, the market allowing 2014 should be an up year, or is it just that demand is essentially flat?

Well, so, I mean, we see demand as being relatively flat. Obviously, we'd like to think that 2014 will be an up year, but that's a guidance question for another 364 days from now. But, yes, I mean it really is principally driven by demand at this stage of the game, Cai.

Our next question in queue will come from the line of Myles Walton of Deutsche Bank.

Just a follow-up question on Cessna. Given the back-end load of the deliveries in 2013, I mean, the usual question is will it be profitable in the first quarter. I guess, the question here is, will it be profitable in the first half given 3Q-4Q mix? And then CJ4s, are they a pressure point? Do they come off kind of being a new product? And how much per pressure point, if at all?

Well, I think that we would certainly expect to see profitability in the first half of the year. And CJ4, I don't expect -- in fact, I think if we look at year-over-year volumes, look like they're pretty flat on CJ4s. So it's only an aircraft that's been in the market for a few years. It's still doing very well from a competitive standpoint. It's performing -- the performance is outstanding. Customers are very happy with it. So it continues to be, frankly, probably the most from a volume standpoint, probably the most popular aircraft we have in our portfolio right now.

Great. And then one follow-up. On aftermarket at Cessna, what was the growth in the quarter? And what's the expectation implied for '13?

The Cessna aftermarket was 12% in the quarter, and it's now kind of 10-ish percent for next year.

Our next question will come from the line of Brian Jacoby of Goldman Sachs.

Just a quick one on the upcoming debt maturities at both the parent company and PIMCO, what's your plans there? It looks like you could handle it with cash, but, obviously, the markets are pretty attractive from a debt funding perspective.

Yes, the way we think about the balance sheet is that we will handle those with cash. And kind of with that debt pay down, we will have a total debt level that is a level that we think is the right type of level for the business in its current size. And so the intent would be to pay that down and not refinance it.

Our next question will come from the line of Steve Levenson of Stifel. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: You've answered pretty much all the questions we had. But in terms of the percentage to fleet for sale, can you say about how much is current models and what you don't think is an issue?

I'm sorry, I haven't looked at that data. Just recently, it's been -- things have been fairly stable in terms of available for sale. So I think, as Doug said, with the whole fleets around 12% kind of a number, as we look at that data through the course of the year, the models are still in production, relatively recent aircraft has really been more in the low to mid-single digit in terms of percent per sale. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And with the changes at Hawker Beechcraft, are you seeing any change in the market picking up any business, or are those used jets causing an issue?

I guess, we'll have to wait to see all of the gamma numbers here. But I guess, my sense is, in terms of new aircraft, clearly, we feel we've been picking up some share over the course of the year. Part of that, obviously, is Hawker going out of the market and it was a pretty tough year when you have a competitor that's exiting a business line. But I don't think there's lots of aircraft left, so I would expect that not to be much of an issue on a going-forward basis.

Our last question will come from the line of Ronald Epstein of Bank of America Merrill Lynch.

This is actually Kristine Liwag calling in for Ron Epstein. Our question is how many whitetails or greentails do you have at Cessna?

We don't do the greentail or whitetail number specifically. Just in terms of direction, as I said, we clearly would have expected some additional sales in Q4 that we did not see given everything going on. But as I said in the past, we're trying to build or forecast and estimate it as well as we can. The only downside risk if you're off on that number is you take a little bit of inventory risk, and that's exactly what we did and what happened. And those aircraft will obviously sell off here in the very near future.

Okay, ladies and gentlemen, that concludes our call. Thank you very much.

Ladies and gentlemen, on behalf of today's panel, I'd like to thank you for your participation in today's conference call. Thank you for using AT&T. Have a wonderful day. You may now disconnect.