Good day, ladies and gentlemen, and welcome to the Quarter 1 2014 Harris Earnings Conference Call. My name is Matthew, and I'll be your operator for today. [Operator Instructions] And now, I'd like to turn the call over to Pamela Padgett, Vice President of Investor Relations. Please proceed, ma'am.

Thank you. Good morning, everyone, and welcome to our First Quarter Fiscal 2014 Earnings Call. I'm Pamela Padgett, and on the call with me today is Bill Brown, President and CEO; Gary McArthur, Senior Vice President and Chief Financial Officer. Before we get started, a few words on 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 and the related presentation, we will discuss certain financial measures and information that are non-GAAP financial measures. The 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. And with that, Bill, I'll turn the call over to you.

Okay, well, thank you, Pam, and good morning, everyone, and welcome to our first quarter earnings call. I'm pleased to report a positive start to the fiscal year. Previous restructuring actions and our continuing focus on the things we control in this challenging government environment, such as improving operational excellence, driving free cash flow and returning cash to shareholders led to solid results with higher earnings per share and significantly higher free cash flow. We also had some key wins, which I'll touch on in a minute, and our book-to-bill for the company was slightly higher than 1. Turning to Slides 3 and 4 of the presentation. Earnings per share was $1.18, up 4%; on revenue, down 6%. We generated $139 million of free cash flow compared to $77 million in the prior year with a conversion rate of 109% of income. And we continue to deliver on our commitment to return cash to shareholders during the quarter, increasing our dividend to 13.5%, spending $100 million in cash to repurchase shares and approving a new $1 billion share repurchase authorization. Over the past year, as we restructured and focused on operational excellence to lower cost, we also continued to invest in the future. We increased R&D investment in fiscal '13 by about 5%, and it was up again in the first quarter. And we focused our R&D spend on the most strategic and highest-return projects. This strategy is beginning to bear fruit, and I thought I'd point out a few specific examples that provide some insight into our future competitiveness. By investing R&D resources in a 2-channel tactical radio system, we were successful in winning the Army's highly-contested $141 million Mid-Tier Networking Vehicular Radio Procurement, called MNVR. As you well know, this replaces the canceled JTRS program, ground mobile radio…

Thank you, Bill, and good morning, everyone. Moving to segment results on Slide 5, RF communication orders were $348 million compared to $363 million in the prior year. Revenue was $423 million compared to $445 million. Book-to-bill was 0.8. In Tactical Communications, orders were $225 million, up in the U.S., but down in international due to timing. Tactical revenue was $305 million and declined 1% compared to the prior year. The 12- to 18-month international pipeline grew to $2.4 billion, expanding somewhat from the previous quarter's $2.2 billion. The U.S. pipeline is also a bit higher at $1.1 billion compared to the previous quarter's $1 billion. In Public Safety, revenue was weak at $118 million, declining 14%. Orders were $123 million, up 12%, and book-to-bill was greater than 1. The decline in revenue reflects both the general weakness across system and terminal sales in state and local, and from federal government orders booking too late in the quarter to turn to revenue. Public Safety orders in the quarter included $40 million from Mobile County, Alabama, to deploy a P25 emergency communication system, a good win resulting from a growth initiative to migrate customers from existing legacy systems to the P25 interoperable standard. Operating income from the RF Communications segment was $135 million, with a 32% operating margin in the quarter, driven by lower cost and favorable product mix. Turning now to Slide 6 in Integrated Network Solutions. First quarter revenue decreased 3% to $376 million. In CapRock, growth in energy and maritime was more than offset by lower government revenue. In IT Services, while revenue was down 3%, the decline was less than expected. Segment orders were higher than revenue as a result of record orders in IT Services. The outstanding orders performance at IT Services was driven by several…

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

Just a couple of questions. The weakness you saw in the quarter at PSPC, the -- you quoted the system and terminal sales orders are the orders shifting to the right. Does that weakness abate and we return to growth there? Is that what's implied by that statement later in the year?

Yes. We were a little bit weak on revenue. Part of it was, I think, market-driven. Just weakness in systems and terminals for state and local. We also had some orders that came in pretty late in the quarter on the federal side, which didn't make the quarter and shifted into Q2. So that was a factor as well. But you remember back the last couple of years, our book-to-bill has been less than 1 for about 7 or 8 of the last 9 quarters. Decent bookings in Q1, I would say, were up about 12%, 13% and solid book-to-bill in the quarter. And we do expect that over the balance of year, we'll return to growth. As I mentioned last time, our guidance for the year in the Public Safety was mid to high-single digits, certainly coming out of the gates at down 14% puts a little more stretch into the back half, but we still think that this is a growth business. We think the market's growing in the 3% to 5% range. Our biggest competitor in our space did have some challenges like we did in the most recent quarter and seeing the same sort of market phenomenon that we're seeing. But we're making some changes in the way we organize at Public Safety. I think we've added people into sales and marketing, both on the terminals and systems side to drive growth in that space. We're investing in a product offering, and I think, over time, we're going to start to see ourselves come back to full growth, and we do expect that will be towards the back end of the year, Carter. So, thank you.

Okay, great. And on the CECOM, the IDIQ ceiling increase, were there any associated task orders that came with that? Or it was just a ceiling change for now?

These 2 vehicles have been in place for some time. There was a ceiling increase. So we've been, over time, receiving some task orders against each of them. I think what we saw in -- the one we saw back in Q3 of $500 million in the most recent one, is, again, just a little more encouragement, a little more confidence that orders on the FMS side will start to flow through those vehicles. They are still sourced. They're communications-specific, Harris-specific. So that was a, I think, a big vote of confidence in what we expect to see is better growth in the international side through the balance of the year.

Your next question comes from the line of Yair Reiner of Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: On the margin front, at GCS, you seem to be kind of batting pretty strongly here, kind of opposite story at INS. Maybe you can help us think through how the balance of the year plays out and what was behind the decision not to raise the guidance for GCS margins and not to lower it for INS.

At GCS, we feel really good about the margin progression over the last several years, and we felt great where we ended at fiscal '13 and we feel good about where we came out in the first quarter of fiscal '14 at 15.5%, that's pretty strong. Of course, we're still guiding the 14% for the year. We saw unusually strong product business in the first quarter, and we saw some really good award fees coming through on a number of our programs [ph], particularly on the classified side. Those things you tend not to want to put in the guidance or forecast to repeat through the balance of the year, so we didn't do that. And we do see, over the course of the year, a little less product business, a little more systems and program business, which will be at slightly lower margins. So again, we're 1 quarter into the year. I think we're maintaining a cautious approach for the year and we held our guidance. Yair Reiner - Oppenheimer & Co. Inc., Research Division: In INS?

In INS, I think we came out of the gates. We saw a pretty good orders at the IT Services business. And as Gary mentioned, we did see an extension to the NMCI contract going for the balance of the year. So we will see some improvement in this segment, just simply because we've got a little bit better performance in the IT Services business. In Q1, both IT Services and CapRock were down modestly year-over-year, margins at Q1. Of course, CapRock was improving sequentially. We saw that improving over the balance of the year. Again, it's a little bit early to change our outlook for the year-end margins for INS. I think we had a, I guess, a solid start coming just around -- just below 8%, 7.9% margin for the INS segment. And I think for now 8% to 10% for the year is about the right range given what we see in our business. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Great. And just one more, if I could. Tactical was good this quarter in terms of the top line. It seems to be trending maybe a little bit above the guidance for the year, which is for -- down, I think, low-single digits. Should we think of that as perhaps being ahead of plan and PSS [ph] business, to Carter's point, maybe being a bit behind?

Well, if you try to extrapolate from Q1, one could draw that conclusion. But with still 1 quarter in the year, and we still have a lot left in it. I think we came out of the gates strongly on tactical. We feel good about that. We had good orders in the DoD side. And of course, the MNVR win was a nice wind at our back, and we feel strong about that. I think the backlog remains pretty healthy in the Tactical business. You may recall we had very strong orders in Q4. We ended the year with very, very good backlog. Of course, with orders being down a little bit and the book-to-bill, as Gary mentioned, at Tactical been less than 1, we saw backlog erosion over the course of the quarter. But you can run the math; it dropped about $80 million sequentially through Q1. But where we stand today, in terms of backlog in Tactical versus where we were 1 year ago, about 8% to 9% higher. And that does give us a little bit more encouragement that we'll see pretty good business this year in tactical radios. And we hope that that might offset what could be more of a stretch in Public Safety in the back half.

Your next question comes from the line of Joe Nadol of JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: So Bill, on the pipeline, which went up both in international and domestic, is that due to the changes in the weightings that you guys give them, given I think, Pakistan, you mentioned that. That seems like probably an important change. And also you mentioned the multi-vendor strategy for JTRS. Were those basically incorporated and that's why they went up? Or was there other drivers?

On the DoD side, it came up, I'd say, modestly year-over-year. Last time, it was about $1 billion, now it's about $1.1 billion. There's various parts of the geography that move around, but I wouldn't overread too much into it, it going up by $100 million. It's in that range of accuracy. But we still feel pretty good about the pipeline for DoD. Only about 25% of that pipeline is on modernization. The rest is what we see happening in the Air Force, Marine Corps, SOCOM, all of which is standardized on Falcon III, other Army spares and some other things. So on the DoD side, I would characterize it as remaining pretty solid for us. On the international side, it did come up by a couple of hundred million dollars, and it wasn't weighting. It was very specific opportunities that just have grown in value since we spoke about 3 months ago, and they're very specific ones. It's the shape or the contour of that $2.4 billion pipeline hasn't moved a lot. It's still more than half Middle East and Asia, where we know security's an issue. In the U.S., it's starting to pull back. Iraq is an important market for us, and that's pretty strong. Country in Africa. Obviously, Pakistan has been big, and I mentioned that in the script, and that's guiding -- getting a little bit more solid. A lot of it is -- about 15% of the pipeline is coalition countries that are deploying wideband, and interestingly enough, they're standardizing on our product, moving from 117Fs to 117Gs, and the balance is in Latin America. So it's in various pieces, but the growth is specific opportunities in some of those markets that I just mentioned. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then, just over on the margins. They were pretty strong and tactical kind of looks like a little lower, obviously, than unusual Q4 number, but higher than they were in the first part of last year. Is -- you mentioned on the last call, I believe, that you're looking for mix to be a little bit of a headwind for you as you get to the close of the year. Is that still true? Or are you feeling a little better about the sustainability of the margins here?

No, that is still true. And it's -- my comments there are very consistent with what we talked about last time. We did end the year, fiscal '13, very strong. We had unusually strong international margins based on the mix of what was in international. We did say, over the course of fiscal '14, as we see more international business and more systems business, that we'll see margins trending down over the course of the year. So we're not terribly surprised that we came in a little bit higher in Q1. It feels good. Dana and his team are performing exceptionally well on managing the various mix shifts and driving innovation, driving operational excellence. I think they're executing extremely, extremely well. We still see the full year coming at around 30%. We continued to invest in our business, and I made a specific -- maybe long-winded discussion around our R&D investment over the course of my prepared remarks to really drive home the point that as we do take out cost, we're investing, and we're investing quite a bit in that very, very important franchise we have in Tactical Communications. So we're investing in sales and marketing, in R&D, and we feel good about our ability to continue to take out cost and drive operational excellence in that segment, which remains really, really strong. So we're still at about 30% for the year and we think we've got a pretty good roadmap to achieve that, Joe.

Your next question comes from the line of Bill Loomis of Stifel. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Just looking at the shutdown impact and the sequestration. Ironically, you're talking about your shorter cycle businesses. IT Services had great awards and good performance. And in Tactical, your DoD pipeline looks better and awards have been good there. Can you just talk about how you've seen the shutdown, how that impacted your business going into the December quarter? And then just some thoughts as we're past -- we're already obviously in the fiscal '13 sequestration, '14 coming up. Any new thoughts there on how it could impact some of your shorter cycle U.S. federal business?

Sure. Yes, we saw a little bit disruption in the early part of October in some of our factories, mainly with the DCMA inspectors, when they were on furlough, they came back. Shortly thereafter it, very quickly, we got back in the business. So we didn't see much of a disruption on the product side based on the fact that the DCMA inspectors came back relatively quickly. In some of our IT business, we did see a couple of programs where the pencil is down for a couple of weeks. It was temporary. It was in the tens of people. Small, small numbers. So not a lot of big impact in our quarter. The bigger impact is that we see, and I think others have seen, is just the push out in awards. And that's going to take some time for the government to catch up with that. So overall, that's -- the impact is more push out on awards and less on sort of what would happen day-to-day in the early part of October. In terms of the shutdown and what's happening in DC, the shutdown is over, but here we are again, operating under a continuing resolution. And that's going to go on through mid-January when, obviously, sequestration could, in fact, get triggered again depending upon what happens. And the budget committee, I understand they're starting to meet this week and who's to say what's have going to happen over the 6 weeks. Will they create a budget? Will they do something that's different than what we're all expecting? We don't know. There's a lot of uncertainty in the marketplace. So for now, we're maintaining a pretty cautious view of where we are at on first half of the year, just as we previously expressed. We're not going to get into calling where we at in the first half versus second half. But we did say we'd be a bit more cautious in the first half, and I think that was an important point and it's playing out as we had thought just a couple of months ago. I think we had a good start in Q1. And we saw some encouraging news. We're focused on the actions that drive performance and generate solid free cash in the year. But as I said, there's still quite a bit of uncertainty, and we're managing through it just as best as we can. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just one more in NMCI. Is -- what revenue run rate are you carrying to the year-end? If you could talk about that? And when -- how quickly do you think it will drop off?

On NMCI, it comes in at relatively strong margins, and they're not going to be too terribly different than what we've seen in the past. They're quite a bit above the normal segment margins that we seen in IT Services. I don't think I would want to speculate as to what they happen to be, but that, Bill, does give us, I'd say, a little bit more upside on the IT Services side of INS. And that will offset probably a little bit more pressure in some other parts of INS segment, which is why I was sort of couching my remarks on the 8% to 10% for the year. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Is it running at the full rate going into the end of the year?

I would say it has been running very, very strong, and we don't see that it's going to change much for the balance of the year.

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

Guys, I just want to ask you a couple more questions about the FMS radio contract that had the ceiling increase a few weeks ago. I was just wondering, was that increase kind of in line with what you expected? And then maybe if you could share kind of how much value was left on that contract? And just kind of if that contract vehicle carries kind of the majority of your international orders?

Well, we did expect that those ceiling increases would come. Obviously, we watch, as we draw down some of the existing ceilings and watched carefully as to how much is remaining, we weren't surprised that the increases happened. We can't really get into specifics as to how much is left or where the numbers happen to be. But when you take a $500 million increase a few quarters ago, another $850 million recently, that's some pretty healthy headroom in those 2 contracts just based on the increase that we have seen. So I think that's -- I'm not sure, there was another part to your question, Pete.

Yes, if that contract vehicle, is that kind of the majority of your international RF orders flow to that contract vehicle?

No, no. We've got other things that we do. There's some that go direct. There's some other vehicles. So no, that represents some parts of our international business, but not all of it.

Okay, got it. And just one follow-up. On the $1 billion authorization, I forget how long that lasts for, but are you still expecting to do -- I think it was $200 million in repurchases this year? And I guess, what's the rationale for maybe not doing more, given the size of the authorization?

Yes, Pete, this is Gary. There is no limitation on the time as to the $1 billion authorization. And looking at our capital deployment, at this point, we haven't changed our outlook for the year. We're going to maintain a dividend payout ratio again of at 30% or above. And we're targeting that $200 million in share buyback.

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

Could you help us figure out when the SRW applique, the manpack production awards may actually be awarded? What's your expectation on timing?

Those, both the manpack and Rifleman, have been shifting to the right. Our expectation today, based on what we're hearing, is that the RFP on the Rifleman should come out around the Christmas time. And we think the manpack will follow 45 to 60 days after that possibly. But again, there's a lot of moving parts. And I think the shutdown and the budget debates, I think -- and I think part of it is the rethinking positively for Harris Corporation going from single vendor to multi-vendor is also causing a little bit of a shift in the timing. But that's when we think RFP is going to come out. The award time has not changed from the -- what we're hearing from the DoD, sometime in the summer of next year. But again, as you move the front end, it could move the back end a little bit. My understanding is they want some delivery orders prior to 15.1, so we think that is still the timing that they're shooting for.

And what about the SRW applique in terms of funded orders?

Yes, the applique is, we think, the award is going to come out sometime at the end of the year, around December.

Your next question is from the line of Chris Quilty of Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: Just a follow-up on orders. Can you remind us when does the protest period end for the MNVR contract? And have you seen a protest yet?

We understand, Chris, that the time for the -- a timely protest on MNVR expired yesterday. So we have the debriefings that happened, and we have heard nothing. So we are under the impression that there will be no protest. Chris Quilty - Raymond James & Associates, Inc., Research Division: Congratulations. A follow-up question on the CapRock business. Congratulations on that Carnival win with -- that with the Royal Caribbean, I think, is about 60%, if you can confirm that, of the cruise industry? And can you speak specifically about what factors led to those wins given the fact that MTN had been the incumbent, I think, for the better part of a decade. Was it something specific in the technology implementation, or pricing, or bundling of other services that you think contributed to those wins?

I think there would -- I wouldn't want to try to generalize it to any specific factor because they're very big, complicated awards. And the decision factor by the Royal Caribbean was probably a little bit different than Carnival. When you have thousands of people on your boats, and you have 100 boats in your fleet, and cruises going every year -- every week, rather. And the importance of people bringing devices on the boat is very, very important for the cruise line to pick a very reliable communications partner to handle interactions with their customers and their crew. And I think you were very, very thoughtful on this. This RFP went off for some time. It was price competitive. But they were looking for a solution. They were looking for reliability. They were looking for the ability to bring other communications technologies, not just VSAT, do things differently on the boat. So I think the variety of expertise that Harris Corporation has in the space, plus the financial backing of the corporation and the sort of wherewithal of our entity, I think, was some of the factors that went behind Carnival choosing us. But we feel very good about the award. We feel very good about where we're at with Royal Caribbean, and we see there's more opportunities in the space. In terms of the share, I think you can -- I'm not really sure exactly what the share is. You have 100 boats for Carnival and another 35, 34-ish for Royal Caribbean. So I think you can run the math from that. We're not going to be 60% of this segment at this point, I don't think. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And to what degree are you going to be able to generate operating leverage from the fixed amount of transponders that you're already leasing? Or would something like Caribbean require a large new incremental purchase of transponder capacity?

I don't believe so, Chris. We basically have our global teleports established, and then we have good coverage in that region that their ships would be sailing. So it's not really on the transponder side. With regards to the bandwidth, we definitely have gone out and contracted for the bandwidth. So we're pretty sure that we're going to be able to do those at competitive rates. So we're pretty well-positioned and should be able to leverage the infrastructure that's already in place.

The next question comes from the line of Josh Sullivan of Sterne Agee. Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division: On the Government Communications side, can you talk about the balance between the cost initiatives you've obviously done successful with versus new business and competing for new contracts? And are you [ph] using the operating leverage for growth? You've given this focus on cost going forward. Are you more comfortable enough in your position to just continue in more of a harvesting mode at this point?

We're definitely not in a harvesting mode in GCS. In fact, when I talked a lot about investments in company-funded R&D in Tactical Communications, but we're substantially raising our company-funded R&D within the GCS segment as well. Geared towards, in many ways, a lot of the products that we sell, it's been very successful. We talked about this in an investor meeting 1.5 years ago or so. And we've seen the amount of product business we do at GCS come up. It keeps getting a little bit better. We see opportunities to extend some of that product business around the world into international markets. And we're investing to capture some of that. So it's not harvest. It's actually continuing to grow. I think Sheldon and his team have done an outstanding job in managing their programs and executing on the programs to continue to keep margins on an upward trajectory. And I think there's not much more to say about that. I think they've just done an outstanding job in that segment. Even in the first quarter, while the revenues were -- came in a little bit lighter than maybe people would've expected and sort of what we're guiding to for the year, even the revenue performance, I think, in the first quarter was pretty good. It -- outside of a pretty tough compare, which is really the first quarter only on GOES-R. Outside of that, the revenue would've been about flat. So they're off to a good start in the year as well on the top line, and as we talked before, pretty good on the margins as well. Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division: That's good to hear. And then can you just update us on the healthcare platform roll out? I might have missed this. I came on a little late, just curious.

Yes, we're a little bit late in the release of a critical piece of software for the commercial health care market. We thought it would happen earlier in Q1. But it is launched. It's live in a couple of environments. It hasn't been very long, so the feedback is still very nascent, but no surprises. We keep a watch eye on it. We hope that that's going to be successful. We expect that that's going to be successful, and we'll see better performance at the back end of the year on the commercial side. Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division: And is there any way to kind of size that opportunity maybe longer term?

Well, it's -- look, the healthcare process is a relatively small piece of our portfolio. The business is $200 million and the commercial side is $50 million or less. So it's -- right now, it's small. We're focused on getting the software deployment right, getting it working right in the space. And then once we do that, we'll see the effect it has on the portfolio for time. It's just too soon to say. Right now, it's really not a big part of Harris Corporation.

Operator, is there anyone else in the queue? Josh, do you have another question?

There are no more questions in the queue.

Okay. I think we'll wrap up the call, and thank you, everyone, for joining us today.

Thank you very much for joining today's conference, ladies and gentlemen. This now concludes the presentation. You may now disconnect. Have a very good day.