L3Harris Technologies, Inc. (LHX) Q4 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Harris Corp. Earnings Conference Call. My name is Kate Lynn, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to your host for today, Ms. Pamela Padgett of Harris Corp. Please proceed.

Thank you, and good afternoon, everyone, and welcome to Harris' Fourth Quarter Fiscal 2010 Conference Call. On the call with me today is Howard Lance, Chairman, President and CEO; Gary McArthur, Senior Vice President and Chief Financial Officer. And a few words about forward-looking statements. In the course of this teleconference, management may make forward-looking statements. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information and a discussion of such assumptions, risks and uncertainties, please see the press release and filings made by Harris with the SEC. In addition in our press release and on this teleconference, we will discuss certain financial measures and information that are non-GAAP financial measures. A reconciliation to the comparable GAAP measures is included in the tables of our press release and on the Investor Relations section of our website, which is www.harris.com. A replay of this call will also be available on the Investor Relations section of our website. With that, Howard, I’ll turn it over to you.

Thank you, Pam, and welcome, everyone, to our fourth quarter fiscal 2010 earnings call. Harris ended fiscal 2010 with a very strong quarter. Orders, revenue and income were significantly higher than the prior-year quarter, and we generated significant operating cash flow. Orders were higher than revenue, further increasing our backlog. Revenue in the fourth quarter was $1.46 billion. That's 13% higher than the prior year. On an organic basis excluding the impact of acquisitions, revenue was 8% higher. Non-GAAP income, which excludes acquisition-related costs, was $161 million in the fourth quarter or $1.24 per diluted share. That's an increase of 38% compared with the prior-year quarter. Orders in the fourth quarter were $1.72 billion, and that's 33% higher than the prior-year quarter. We saw a continued strong performance in the quarter in the RF Communications segment, as well as strong underlying revenue growth and excellent program execution across the Government Communications Systems segment. Our track record of delivering consistent growth in revenue and earnings continued in fiscal 2010, with momentum building as the year progressed. Revenue for the full fiscal year was $5.21 billion, 4% higher than the prior year. Non-GAAP income was $582 million or $4.43 per diluted share, that's an increase of 15% compared with the prior year. Orders for the full year were a record $6.08 billion, 36% higher than fiscal 2009. As a result of the full year book-to-bill of 1.2, we have very strong momentum as we begin fiscal 2011. In RF Communications, fourth quarter revenue for the segment was $630 million, 35% higher compared to $468 million in the prior-year quarter. The results included $486 million in revenue in Tactical Communications, up 17% from $415 million in the prior year and $144 million in revenue in Public Safety and Professional Communications. Non-GAAP segment operating income was $227 million compared with $144 million in the prior year. Operating margin was a very strong 36% reflecting favorable product mix and operating efficiencies. Fourth quarter orders for the RF segment were $890 million. That included $711 million for Tactical Communications and $179 million for Public Safety and Professional Communications. For the full fiscal year, orders for the segment were $2.88 billion yielding a 1.4 book-to-bill. And that included $2.34 billion for Tactical Communications and $541 million for Public Safety and Professional Communications. As a result of the large amount of new orders, backlog increased significantly in the quarter providing the foundation for continued growth in fiscal 2011 in the RF Communications segment. As of year end, segment backlog stood at $1.76 billion, and that included $1.24 billion in Tactical Communications. Backlog is higher than previously expected due primarily to higher international Tactical Communications orders received in the fourth quarter. Tactical Communications orders continue to be driven by multiple factors including increasing customer adoption of our next-generation Falcon III radios, equipping of new MRAP and M-ATV vehicles and new wins on long-term international communications modernization programs. The Harris next-generation Falcon III radios offer both U.S. and international customers unprecedented situational awareness capabilities, including streaming video to the tactical edge of the battlefield for the very first time. Users are reporting that the Falcon III is changing the way they are conducting their missions, and is literally saving lives. Major Falcon III orders during the quarter in the U.S. market included $24 million from the Joint Tactical Radio System Program Executive Office for our Falcon III AN/PRC-152 multiband handheld radios for the U.S. Air Force, $20 million and $11 million of orders from the U.S. Department of Defense for Falcon III AN/PRC-117G multiband manpack radio systems, along with $17 million for Falcon III AN/PRC-152 handheld radios. We also received an $11 million order from the U.S. Marine Corps for the Falcon III AN/VRC-110 multiband vehicular radio systems. And also $13 million order and a $27 million order for the Falcon III AN/PRC-152 multiband handheld radios, as well as vehicular adapters to equip those radios into MRAP vehicles. Other significant U.S. DoD [Department of Defense] orders included $139 million to provide additional Falcon II high-frequency tactical radio systems and $101 million for Falcon II multiband manpack radios for MRAP vehicles. The Harris MRAP and M-ATV program wins resulted in significant orders and revenue in fiscal 2010, and this program will continue to be a revenue contributor in fiscal 2011, albeit at a lower level. What was really unusual about the M-ATV program was the condensed time frame for its deployment. What would normally have been rolled out over several years is being completed in about 12 months. That's allowed the M-ATV program to be a real showcase for Harris. We've demonstrated the advanced capabilities of our Falcon III radios to a large and broad user group across multiple branches of the Services, and we've also demonstrated our ability to respond quickly to the higher demand and also to new user requirements. These abilities are made possible by our unique commercial business model serving this market. Traditional programs of record are not able to respond as we can. Our strategy successfully deploys new technology at the grassroots level, fielding new radios as quick as possible across a broad spectrum of users to encourage further adoption. This strategy continues to be very successful for us. While the M-ATV program was certainly significant to our Tactical Radio business, [in] terms of orders and also as a means of reaching this broad user group quickly with our new Falcon III radios, it's important to note that the business also experienced strong orders growth outside of the M-ATV and MRAP programs in both the U.S. and international markets. When you exclude $35 million in M-ATV and MRAP orders in fiscal 2009, and then $1 billion in orders under these programs in fiscal 2010, the remaining tactical radio orders also grew in fiscal 2010 by 15% over the prior year. That was 10% growth in DoD and 21% growth in international. We believe this illustrates that we've clearly got strong momentum outside of just the MRAP programs alone. Stronger International orders in the quarter, not only reflected a strengthening global market, but also a significant uptick in customer adoption of our new Falcon III radio family. Major International orders in the quarter included $99 million from the government of Pakistan, for the next phase of comprehensive multilevel C4I system utilizing both Falcon II and Falcon III radios. Also our line of secure personal radios, multiband networking radios and high-capacity line-of-sight radios. We also received an $11 million order from another country in Central Asia for both Falcon II and Falcon III radios, orders from two NATO countries totaling $26 million for our Falcon III multiband handheld radios, an $8 million order from a customer in the Middle East to supply Falcon II multiband handheld radios and Falcon III radios, including our secure personal radios and high-capacity line-of-sight systems, and finally, a $33 million order from the government of Iraq for Falcon II HF radios. During the quarter, we also announced our new mission modules for the Falcon III AN/PRC-117G manpack multiband radio. The mission modules will provide mission-specific customization and flexibility by enabling users of the 117G to quickly and easily add advanced capabilities to the radio on an as-needed basis. Mission modules expand functionality such as adding a second wideband radio channel, an HF radio channel or an ISR module. In addition to the benefits already mentioned, the mission modules will also allow industry partners to develop new applications that can ride on the 117G through the use of an open platform standard interface architecture. The Harris Falcon III 117G offers advanced capabilities today to meet the war fighters' urgent needs, and our new mission modules will ensure the continuous integration of new capabilities to address future requirements. In summary, our Tactical Radio business had another very successful year. More importantly, the strong level of new orders that we received did not deplete our future orders opportunity pipeline. It has now been replenished and stands at $2 billion for International and $1.5 billion in the U.S. market. The continued investment of our funds for development of additional new products will allow us to continue to outpace the progress of our competitors who are using only government funds to try and achieve the same results. We're listening to the needs of our customers, and we’re investing to solve their problems in the most efficient way possible. We believe this business model becomes even more valuable as customer budgets come under pressure. In Public Safety and Professional Communications, our one-year anniversary of acquiring this business occurred in May. As already noted, we had a strong finish to the fiscal year. In spite of constrained state and local budgets, we delivered organic revenue growth in fiscal 2010 of about 7%, and we built backlog going into fiscal 2011. During our first year of ownership, we introduced revolutionary new products such as the Unity multiband land mobile radio. We significantly stabilized and improved the operation of a number of networks that are already deployed with our customers, and we had a number of very important long-term large program wins. We also continue to see a robust opportunity pipeline in this business, exceeding $3 billion in North America. Major Public Safety and Professional Communication wins in the fourth quarter included a $30 million order to deploy a P25 Trunked Communication System in Monroe County, New York. This system supports 25,000 public service, public safety users. Ultimately, the program will unite all of Monroe County's public service and public safety agencies under a single modern digital communication system that's built on our VIDA IP-based network. The system will interoperate with the legacy law enforcement system, the legacy fire services system and the legacy public service system. We also received a $23 million order from a major energy company in the Southwest for our Open Sky voice and data communication system, and a $9 million order from Franklin County, North Carolina, for our P25 communication system and then finally a $5 million order from the New York State Police for our Unity XG-100P multiband radios. Revenue in the Government Communications Systems segment was $707 million in the fourth quarter. That compares with $704 million in the prior year. Of course, as expected, revenue from the Field Data Collection Automation program, or FDCA program, for the U.S. Census Bureau's 2010 Census declined about $50 million compared with the prior-year quarter, and it declined about $240 million for the fiscal year in total as the program nears completion. Excluding the FDCA program and also adjusting out for the impact of acquisitions, revenue for fiscal 2010 was 7% higher than the prior year. We think that demonstrates continued strength in the Government Systems and Services businesses. Revenue growth in the quarter benefited from multiple programs included the Geostationary Operational Environmental Satellite Series R ground segment weather program for the National Oceanic and Atmospheric Administration. During the quarter, this program completed the System Definition Review. That's a formal technical review of the ground architecture and how it will operate within the overall GOES-R system architecture, and the program established a firm baseline for advancing to the preliminary design phase of the program. Other programs contributing to revenue growth included the modernization of enterprise terminals, or MET program for the U.S. Army, the Joint Strike Fighter Program for the Department of Defense and the headquarters relocation IT services program for the U.S. Southern Command. Non-GAAP segment operating income in the fourth quarter was $78 million, and that was about flat with the prior-year quarter. Operating margin was a solid 11% for the quarter. We achieved several significant program wins in the fourth quarter, and these included a six-year $97 million contract from the Federal Aviation Administration for its Weather and Radar Maintenance and Sustainment Services II program. The program scope includes software maintenance releases, depot support, on-site field support and engineering services for 22 operational FAA facilities across the U.S. Harris was also awarded a five-year $140 million contract for the Space Network Ground Segment Sustainment Program for NASA. Pending the resolution of an award protest, Harris will lead the effort to replace equipment and software in the space-to-ground link for NASA's Tracking and Data Relay Satellite System, also known as TDRSS. The SGSS program builds on Harris' 30-year incumbency supporting TDRSS. Harris was a primary developer of the original TDRSS ground system for White Sands in Mexico in the early 1980s and also provided the large deployable antennas on the original TDRSS satellites. Harris was also awarded in the quarter a 30-month $25 million IT services contract to modernize and support high-bandwidth networks at 15 Air National Guard sites nationwide. And we also received an award of a $25 million classified program. We continue to see a strong pipeline of opportunities in our new Healthcare Solutions business. During the quarter, Harris was awarded several new contracts by the U.S. Department of Veterans Affairs. These included a proof of concept study to demonstrate anytime Internet access to veterans’ healthcare information using Smart phones, a development contract to create and implement a new IT project requirements process within the VA and a contract extension to evaluate how the use of emerging technologies can positively impact clinical care. These awards are a result of the company's November 2009 acquisition of Patriot Technologies, a leading provider of healthcare IT, imaging and the enterprise software solutions for the VA. And then following the close of the quarter, Harris was awarded a 10-year $130 million contract to supply antennas and control systems for NOAA's GOES-R program. The antennas will provide communications links for command, telemetry and sensor data as well as the communications link to direct data users. So we expect solid revenue growth for Government Systems in fiscal 2011 as we continue to benefit from the recent wins on GOES-R, healthcare, NASA and Classified Cyber. We also expect continued growth in our FAA programs and in IT services broadly. The pipeline of opportunities remains very large. Though like many of our peer companies, we are seeing some award dates slipping out in time. We remain confident that our backlog, along with the opportunities to be awarded in fiscal 2011, support our projected growth. Last Friday, we announced the closing on our acquisition of CapRock Communications. CapRock is a global provider of mission-critical managed satellite communication services for government, energy and maritime markets. Their highly reliable solutions include broadband Internet access, Voice over IP Telephony, wideband networking and real-time video, all delivered to nearly 2,000 customer sites around the world. The combination of CapRock and Harris will give customers access to a greater breadth of a shared communications capabilities, depth of expertise and unparalleled customer support while enabling us to enter new vertical markets and increase our international presence. The Broadcast Communications segment continued to underperform in the fourth quarter. Revenue of $128 million was in line with recent quarters, but fourth quarter orders were sequentially lower at $111 million. Segment operating income was a loss of $21 million in the quarter. This did include $7 million coming from restructuring costs and $6 million coming from inventory write-downs. Fourth quarter results reflected the continued weak U.S. market capital spending trend. For the full fiscal 2010, Broadcast Communications revenue declined almost $100 million or 17% from fiscal 2009. The decline was led by $60 million in lower revenue in our transmission systems product line. Significant cost reductions were implemented in 2010 in response to the lower revenue trends, and further actions will be completed in early fiscal 2011. But we cannot rely entirely on cost-reduction actions to deliver improved financial results. A new leadership team was put in place in this business in the fourth quarter. We believe that continuing to invest in the growth markets of the future is the right strategy. Although we are investing at a time when the legacy market has continued to decline, this is the means to make this business a long-term success and a positive contributor to the company's future financial results. Let me highlight today three growth areas. First, international markets, including the BRIC nations of Brazil, China, India and Russia along with other countries in Latin America, Asia Pacific and Africa, offer us significant growth opportunities. Their transition from analog to digital broadcasting is still just getting started. There's growing demand for both digital transmission systems and the related infrastructure that goes with it. In response, we recently launched transmitter production at new factories in Brazil and China using manufacturing partners. The regional presence will increase our market share and reduce our product cost. The second area is the U.S. government market for full-motion video systems continues to grow. Harris has a strong market position with unique technology capabilities in this area. Our FAME solution, short for Full Motion Video Asset Management Engine, offers unequalled performance and scalability as our government customers cope with increasing amounts of digital intelligence, surveillance and reconnaissance information. Several FAME systems have been deployed, and we’re receiving positive customer feedback. Third, the growth of digital out-of-home advertising continues. Our solutions enable advertisers to reach consumers on the move. New systems will be increasingly deployed to deliver rich media content in live sports and entertainment venues, retail establishments and to mobile handheld devices. At the recent Infocom Trade Show, Harris demonstrated an array of innovative digital audio video solutions which integrate digital signage hardware and software, production play out and scheduling systems, multi-viewers and graphic engines. Harris is uniquely positioned to offer end-to-end solutions and services, which enable customers to implement efficient media workflows and create new revenue streams. These market initiatives, along with the broader end market recovery, will drive improved top line revenue and bottom line results in fiscal 2011 and beyond in this segment. Let me now ask Harris' CFO, Gary McArthur, to comment on the financial results in the fourth quarter.

Thank you, Howard. Fiscal year 2010 was another very solid financial year for Harris. We ended the year with $455 million of cash and cash equivalents on hand. We generated $803 million of operating cash flow, $605 million of free cash flow, repurchased $201 million of our outstanding stock and paid $115 million in dividends. None of our outstanding long-term debt comes due prior to October 2015. And as of year-end, we had $720 million available under our $750 million revolving credit facility. Once again, as of year end, our return on invested capital was more than twice our cost of capital and improved nearly 300 basis points to 22% as compared to 19% as of the end of fiscal 2009. As to the fourth quarter, cash flow generated from operating activities was $167 million as compared to $262 million in the fourth quarter of fiscal 2009, and capital expenditures were $62 million for the fourth quarter as compared to $25 million in the fourth quarter of fiscal 2009. The $37 million higher CapEx resulted primarily from the continuing build out of our newly acquired cyber security solutions facility, and our RF Communications manufacturing facility. Depreciation and amortization was $45 million for the fourth quarter as compared to $55 million for the fourth quarter of the prior year. During the quarter, we repurchased 1.1 million shares of our common stock at an average purchase price per share of $46.53. Total shares repurchased during fiscal 2010 were 4.8 million. And as of year end, we have $450 million remaining availability under our $600 million share repurchase program. Our priorities for excess cash continue to be in the order of priority, internal investments, acquisitions that further our strategic objectives and increase shareholder value, the payment of competitive dividends and share repurchases. Our full year tax rate for fiscal 2010 was 33%, slightly lower than forecasted. As announced last week, we successfully completed the acquisition of CapRock Communications on July 30 which was funded by $185 million of cash on hand and $340 million of commercial paper, backed by our revolving credit facility. Revised guidance for fiscal 2011 including the impacts from the CapRock acquisition is as follows: Cash flow from operations in a range of $750 million to $800 million, depreciation and amortization of $205 million to $215 million and capital expenditures including capitalized software of $250 million to $275 million. The higher planned capital expenditures as compared to the prior year are primarily a result of the build out of our cyber security solutions facility that is planned to open early next calendar year, the new RF manufacturing facility that is planned to be fully operational in early fiscal 2012 and the additional planned CapEx resulting from the CapRock acquisition. Corporate expense is expected to be lower than last year at $86 million, but higher than previously forecasted due to our continued funding of growth initiatives. Interest expense will be $10 million to $15 million higher as a result of the funding for the CapRock acquisition. And finally, our non-GAAP effective tax rate for fiscal year 2011 is expected to be 34%. Back to you, Howard.

Thank you, Gary. As we indicated in our press release this afternoon, we've increased our financial guidance for fiscal 2011 to include the expected contribution from the CapRock Communications acquisition. Consolidated revenue is now expected to be in a range of $5.9 billion to $6 billion, about 13% to 15% higher than fiscal 2010. Non-GAAP income excluding acquisition-related costs is now expected to be in a range of $4.60 to $4.70 per share, representing a year-over-year increase of 4% to 6%. Our previous guidance was $4.55 to $4.65 per share. As a result of recent acquisitions and some of the facility investment Gary discussed, we’re seeing an increase in our non-cash amortization and depreciation expenses. We believe that EBITDA growth, earnings before interest, taxes, depreciation and amortization, has become an important metric to track cash profitability improvement alongside of net income and EPS growth. Non-GAAP EBITDA for fiscal 2011, which excludes acquisition-related costs, is expected to be in a range from $1.18 billion to $1.21 billion, and that represents an increase of 7% to 10% above fiscal 2010 EBITDA of $1.10 billion. For the RF Communications segment, fiscal 2011 revenue is expected to be 7% to 8% higher than fiscal 2010. Segment operating margin for the year is expected to be about 33%. For the Government Communications Systems segment, we expect revenue for fiscal 2011 to be 20% to 22% higher than fiscal 2010. This represents 6% to 8% growth in the existing Government Communications Systems business, and then adds CapRock Communications revenue in a range from $380 million to $390 million for 11 months of fiscal 2011. Segment operating margin is expected to be approximately 11%. For the Broadcast Communications segment, we continue to expect revenue in a range of $490 million to $510 million with break-even operating results. We expect to see continued operating losses in the first half of the year with profitability improving in the second half of the fiscal year. Finally, let me say a few words about the seasonality of expected fiscal 2011 earnings. We don't normally provide quarterly earnings guidance, but fiscal 2011 seasonality appears to be very atypical. The quarterly distribution of revenue in the RF Communications segment is expected to be heavily front-end loaded in the first fiscal quarter with shipments for the MRAP and M-ATV programs. First quarter RF segment revenue is expected to be about 30% higher than fiscal 2010 with first quarter segment margins of about 39% as a result of favorable product mix and operating efficiencies. Second quarter revenue is expected to be sequentially lower with sequential increases in the third and fourth quarter. So the combined impact of the front-end loading of the RF segment revenue and its related margins is significant on Harris' consolidated earnings. We expect earnings in the first fiscal quarter to be in a range from $1.20 to $1.25 per share. We expect earnings in the second fiscal quarter to be in a range of $0.95 to $1 per share. With that, I will ask the operator to open the line, and we'll be pleased to take your questions.

[Operator Instructions] Your first question comes from the line of Jason Kupferberg of UBS.

As far as expectations for fiscal '11 order growth in RF Comm, on the Tactical and Public Safety side, if you could comment there. And then any thoughts on how much EPS accretion is built into fiscal '11 for the Tyco acquisition because I think you had expected that to uptick quite a bit versus how it performed in year one.

Related to orders in the RF segment, Jason, certainly our goal and our internal objectives are to achieve a 1.0 book-to-bill for the year. As I indicated, we have a significant pipeline of opportunities, $2 billion in International for Tactical Comms and $1.5 billion in U.S. DoD for Tactical Comms, and then we talked about a $3 billion opportunity pipeline in Public Safety and Professional Comms. So big pipelines and our internal goal is to maintain and achieve the 1.0 book-to-bill. With regard to any specific accretion on the wireless acquisition, I don't have that number at my fingertips. Certainly, it provided accretion in fiscal '10 as a result of favorable financing rates on the acquisition, and the results we delivered for the acquisition were essentially on target for our expectations that we said at the beginning of the year. We're expecting further growth in fiscal '11, as we had previously indicated about 8% to 10% above fiscal ’10, and we're seeing consistent year-over-year margin expansion, ultimately getting up to the goals that Gary and I have talked about previously in the three- to five-year time frame of 15% kind of operating margins and 20% EBITDA margins for the segments. So bottom line is it'll be more accretive than it was in 2010.

Your next question comes from the line of Michael French of Morgan Joseph. Michael French - Morgan Joseph & Co., Inc.: The question is on the mission modules that you mentioned. Can you give us a sense of the timing of when these will be available and what the pricing will look like?

Certainly I can't comment on pricing per se. In terms of the timing, I don't know that I know the precise date. We have started to show kind of what I would call beta copies of the products and started testing those with customers. I would say in the fiscal year, but I don't know a specific date. We'll try and make sure we communicate that going forward, Michael.

Your next question comes from the line of Joe Nadol of JP Morgan. Joseph Nadol - JP Morgan Chase & Co: Howard, the tactical radio orders have been excellent recently. I'm a little surprised that the guidance both for next year and for the first quarter, I guess in the second quarter, just the profile you laid out, that they aren't higher. I mean your backlog is -- it might be a record, it's close. Is the duration changing? Is there something going on within the mix that's pushing the duration longer than it's been historically?

No, I think, Joe, what’s really skewing the whole mix is the urgency for the radios that are going into the MRAP and M-ATV vehicles. If we look at the seasonality for the rest of the business, it looks a lot more traditional, starting lower and then growing during the year. We had prebuilt a lot of these radios as we have been exiting the fourth quarter of fiscal '10 and so we're seeing this huge uptick in shipments in the first quarter of '11. But I think once you see that pass through as we ship those, we’d expect to get back to more traditional kinds of run rates and so on. So I think it's really a function of that and because it's so atypical, we felt it would be helpful and transparent to give overall EPS guidance for the first and second quarter. We normally would not do that. So that's kind of what's behind that portion of my discussion today.

Your next question comes from the line of Rich Valera of Needham & Company. Richard Valera - Needham & Company, LLC: I was wondering if you could tell us how much of the RF Comm backlog is for M-ATV- or MRAP-related shipments. And just a quick follow-up, I'm wondering if you could give any update on the status of the ANW2 waveform and your efforts to get that incorporated into the JTRS standard.

On the second question, there are ongoing discussions with regard to utilization of the ANW2 standard from Harris. We have certainly offered to make that waveform available under commercial terms, and at this point, I think discussions continue. There's nothing specifically to be announced. To your first question, I'm going to ballpark it, not be precise, but maybe $300 million of shipments under the MRAP and ATV program in our numbers for this fiscal year.

Your next question comes from the line of Gautam Khanna of Cowen and Company.

Just wanted to get your updated thoughts on the M/A-COM margin potential. When you first bought it I think you guided somewhere around 8% to 10%. Where are you in that -- where are you now? Where were you in the quarter roughly? And how do you see that playing out over the next year?

So initially, we provided first-year target of 8% to 10% EBIT margins, and we indicated over three to five years our goal was to get that to around 15%, which we felt was market competitive. When you factor in the amortization of intangibles, you'd really be at about 20% EBITDA margins. So the acquisition achieved its objectives in the first year, and we’re expecting to grow margins this year. We're losing a little bit of precise visibility on the operating income for the business, because we’re leveraging a lot of the back-office and combined systems. So we have good visibility to revenue and gross margin, but beyond that, you start to allocate cost. So that's why we're not providing any specific numbers in terms of the profitability within the segment, because it would be somewhat subject to those allocations. But certainly, our plans at the gross margin level see continued improvement in '11 over '10, and we're not up to our goal yet certainly so we think there's some continued growth beyond '11 as we talk about margins.

With respect to the FY '11 budget, do you anticipate any sort of go-forward, no-go-forward definitive decision on the JTRS HMS or GMR program?

Hard to say. I don't expect any specific decision, but we certainly know that the DoD is working hard to find ways to cut costs. I think every program is up for review, but I'm not aware of any specific milestone that would drive a go or no-go decision. So nothing specific. Certainly, we're very pleased with how we’re continuing progress, and we have made a lot of strides over the last year, most recently in the deployment of the 117G across what's called capability set 9 and 10 into Afghanistan. The performance of the radios really is speaking for itself in terms of the enabling of real-time broadband communications or wideband communications across the comms networks for the first time, allowing you to have streaming video and other bandwidth-intensive data at the tactical edge in the hands of the war fighter. So I think that the radio’s capability is proving itself real-time on the battlefield, and we think, as a result, it's going to continue to get a lot of attention and the demand for the radios, we think, will continue to grow as well as a result of its performance. There's no better way to prove what it can do than in the kind of tactical battlefield operations that are going on right now.

Your next question comes from the line of Larry Harris of CL King. Lawrence Harris - CL King & Associates: Question about the Public Safety business. You recently announced that you're working with Nokia Siemens on an old TV technology or model for public safety, and of course, Motorola recently announced an order in San Francisco. Do you see this as being something that could have a significant impact on 2011 revenues? And do you think the fact that you're working with Nokia Siemens that's won a lot of orders in the LTE area could prove to be an advantage?

Well, Larry, we certainly see it as offering a lot of opportunity. I'm not sure that the adoption rate will be all that material in our fiscal year '11. But I certainly think that we hope to get several important program wins under our belt and start to demonstrate the value of that broadband communications capability in the 700 megahertz area. We also continue to lobby with other companies to get the FCC to designate that Block D of that spectrum for public safety. That's a little bit of a contentious area right now, because as I understand it, to really deploy the most effective LTE 700 megahertz networks, you really need the 20 megahertz band and only half of that has been allocated. The other half they're planning on auctioning, making available to public safety on a so-called emergency basis, which most of us think is a little problematic how you'd actually do that. So we continue to lobby on that basis, but we agree that we think we've got the right partner in Nokia Siemens and are certainly excited. The opportunity to bring the kind of data to the public safety situational awareness field in the way that we have in the military examples could really make a difference in terms of not only officer safety, but effectiveness. So it's an area of real focus especially in the large metropolitan police departments. Lawrence Harris - CL King & Associates: But in terms of revenues, it might be more fiscal 2012?

Yes, I don't recall in our plans that it's a huge year-over-year increase from '10, but I think is important as a foundation for growth over the next two to three years, Larry.

Your next question comes from the line of Ted Wheeler of Buckingham Research.

On the guidance, the MRAP-ATV revenues, will they be predominantly in that first quarter, or will there be revenues from that stream throughout the year?

Yes, predominantly in the first quarter. And again, that's what's causing this huge revenue growth in the segment of 30% in Q1 in terms of our expectation.

And if I just kind of play with the margins, I get a margin fairly below 33% for the back half, by the math, for the rest of the year. Now if we were to think about normalized margins, let's just say it’s 31% average for the back three quarters. Would that be a good base margin to think about going forward? Or do you think the pickup in Public Safety over the next few years would allow you to drift the segment margin up?

Well, you know me, Ted, I would view that as the floor and we certainly would expect to continue to get some contribution as we continue to improve the Public Safety business margins, but also are certainly not of a mind to allow our margins to slip in the core Tactical Communications business any more than they have to because of this product mix. So I think ultimately, that's the floor. Does it come in above that in '11 or '12 or '13? A lot of it has to do with our investment profile. As we've said before, we could meter less investment, deliver more short-term profits but we try and balance that investment relative to the margin and getting the top line growth that we want in terms of continuing to churn out these industry-leading products in the Tactical Comms area and now in the Public Safety area. But bottom line, I would view that as kind of the floor for you to think about going forward, and we certainly are going to work to deliver higher numbers than that.

Your next question comes from the line of Ed Keller of Oppenheimer. Edwin Keller - Oppenheimer & Co. Inc.: Just a quick question on RF for next year. Given the heavy MRAP and M-ATV deliveries in the first quarter, how do you expect International to flow through the year?

Well first of all, in general, kind of around the color of orders, we would expect International orders for the year to probably outpace Domestic orders, but because of the backlog, especially in ATV, we would expect the revenue for Domestic to still outpace International. We feel like we're starting the year strong in terms of backlog, but also in International, I think. Orders probably in the first quarter certainly are going to be very heavy in International, and for the whole year, as I said, I think International orders will probably overcome DoD orders. But we're very encouraged, I must say, that even with all the orders we've gotten on the MRAP, the M-ATV, to have up orders in DoD last year and to have still a very solid pipeline for this year we think is very encouraging. Edwin Keller - Oppenheimer & Co. Inc.: Late last week, there was an announcement on a strategic partnership with Applied Signal, and I was wondering if you could just give any additional color on that. What you're looking for there. What's your thinking and your expectations?

I'm sorry, I'm not in the weeds on that particular announcement other than there’s a lot of continued opportunity for us to serve the intelligence surveillance and reconnaissance market, and Applied Signal has worked with us in the past on several programs. I think this is, to some extent, kind of a codification of what we've already been doing together. But beyond that, I don't really have any details.

And the final question comes from the line of Chris Quilty of Raymond James & Associates. Chris Quilty - Raymond James & Associates: Howard, I think this question may have been asked a couple of times, but I'll ask it a different way. Given the orders, MRAP-related orders you've seen in the last two years and what you sort of characterized as a $300 million lump moving through this year, was it -- knowing that Oshkosh seems to be full on all the orders and unless something new fills in and JLTV is still too far out, that creates a headwind of that $300 million magnitude going into the following fiscal year on that particular program, kind of like FDCA.

Yes, certainly, but it's going to be all about -- as it has been the last couple of years, it's going to be all about orders in aggregate, right, for the year. So we certainly don't expect that we would have, we won't have the same $300 million in revenue in '12 from MRAP and ATV orders, so the question is what's going to fill that hole, and it's going to come from the $3.5 billion pipeline that we have. It's going to be all about winning additional International orders as well as additional DoD orders that are in that pipeline. And that's what's going to maintain, hopefully, the 1.0 book-to-bill that’s our target so that we exit this year with a good strong backlog. What a difference a year makes. Our backlog a year ago compared to our backlog now, it’s quite stronger. We don't need quite this level of backlog to still grow the business but, no question, there is a whole there that has to be filled with other new business. So we certainly agree and understand. Chris Quilty - Raymond James & Associates: Just a question regarding the FCC and broadband stimulus and proposals for building out a nationwide network, can you give us your thoughts on where you think the government driven model may go in the next year or two in terms of major government-funded programs for – federal government-funded versus this continuing to be more of a state-by-state locality-by-locality type of business?

Yes, Chris, I don't have a lot of visibility into that, I don't think any more than what's been publicly written. There is a commitment to this national broadband plan. How that will actually play itself out and what that might drive in new businesses who put in place terrestrial or satellite-based networks to provide some of this additional broadband capability, I think it remains to be seen. So we will stay tuned and will, next quarter, try and address your question in terms of ways that we might see that evolving and how we might participate in it.

Thank you, everyone. Appreciate you joining us tonight.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, and you may all now disconnect. Have a great day.