I would now like to turn the call over to Mike Strianese. Mike, please go ahead.Michael T. Strianese Thank you, Eric, and good morning, everyone. Thanks for joining us. As you've seen in the release, we had a good second quarter, which was led by strong orders that were up 4% from last year's second quarter. We wish to thank our dedicated employees and management team across the companies for really a good job. As you know, the environment continues to challenge our industry. We are responding to those challenges by creating new ways of improving operational efficiencies and tightening our focus on products and services that directly address customer priorities. We ended the quarter with a solid funded backlog of $11.7 billion. We had net sales of $3.6 billion, which was a 6% decrease from last year's second quarter with most of that decrease coming from Government Services. Diluted earnings per share were $2.08, which was an 8% decrease compared again with the second quarter of '11, which was $2.26, but excluding certain items, notably a tax gain last year and some of the spin-off expenses for Engility this year, the EPS declined about $0.02 or 1% versus last year second quarter. Free cash flow was $223 million for the quarter and our book-to-bill ratio is 1.10. We completed the previously announced spin-off of Engility, which positions both Engility and L-3 to better focus on their respective core competencies and pursue business opportunities that play to their strengths as well. Along with continuing to focus on program performance and follow-through, we continued to invest in R&D that's aimed at creating reliable and affordable solutions targeted at specific customer needs. In our business segments, C^3ISR continued its strong performance despite a slow contracting environment. We saw 4% increase quarter-over-quarter and net sales to $862 million. This was part -- due mainly to stronger demand from the DoD for airborne ISR, logistics support and fleet management services, as well as higher demand from foreign military customers for airborne ISR systems. Net sales in the Electronic Systems segment decreased by 3% compared to last year's second quarter, due in part to reduced army requirements for certain products and to contracts that are nearing completion. This decrease was partially offset by growth in our sensor systems business related to the Kollmorgen acquisition and in our microwave business, which had increased deliveries of SATCOM systems, which included the power devices as well.
Net sales in the AM&M segment were down about 3% compared to last year's second quarter, and that was primarily due to lower volume on the Joint Cargo Aircraft program. In terms of services, net sales declined by 20%, mostly reflecting lower demand for services due to the Iraq drawdown and U.S. Government budget reductions, which partially offset a competitive U.S. army training contract win.In terms of M&A, we continue to closely monitor the landscape for opportunities that may present themselves, both as a result of pressures throughout the industry and sell us that just want to cash out, brought about by the prolonged and challenging economic environment we find ourselves in. I'd like to reiterate that the strategy in pursuing these opportunities remains unchanged. We continue to be thoughtful and disciplined in our approach, targeting companies that will help us grow our market positions or add new customers, strengthen our competitive profile while providing a good return for shareholders. In terms of the Engility spin-off, as I mentioned, it was completed on July 17, and Engility is now an independent publicly traded company on the New York Stock Exchange with the ticker symbol of EGL. The spin-off demonstrates our execution strategy that is built on situational awareness and a strong sense of customer priorities. This spin-off opens up exciting opportunities for Engility as it will not be subject to the OCI issues we have and we'll be able to pursue business that is outside of our areas of strategic focus. Read the rest of this transcript for free on seekingalpha.com