Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Harris Earnings Conference Call. My name is Alicia, and I will be your coordinator today. [Operator Instructions] I would now like to turn the call over to Ms. Pamela Padgett, Vice President of Investor Relations. Please proceed.

Hello, everyone. Good afternoon. Welcome to Harris Corp. first quarter fiscal 2011 conference call. I'm Pamela Padgett, and on the call with me today is Howard Lance, Chairman, President and CEO; Gary McArthur, Senior Vice President and Chief Financial Officer. Before we get started 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 measure 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. And with that, Howard, I'll turn it over to you.

Thanks, Pam, and welcome everyone to our first quarter fiscal 2011 earnings call. Harris first quarter results were very strong with revenue and income significantly higher than the prior year. Excellent financial performance was driven by continuing strong demand, and favorable product mix in our Tactical Radio business. Results in the Public Safety and Professional Communications business were solid. And following the end of the quarter, Harris was selected to negotiate a potential contract with the government of Alberta, Canada with their new province-wide radio communication system. This represents a significant multi-year program opportunity for us. In our Government Communication Systems segment, new program wins as well as additional program scope and follow-on business for existing programs are building a healthy backlog even as the government spending environment has become more challenging. And sequential improvement was seen in our Broadcast Communication segment, which has been negatively impacted by the global recession. Consolidated revenue in the first quarter was $1.41 billion, 17% higher than the prior year. On an organic basis, excluding the impact of acquisitions, revenue increased 10%. Non-GAAP income, which excludes acquisition-related costs was $165 million in the first quarter or $1.28 per diluted share. An increase of 56% compared with the prior-year quarter. Non-GAAP EBITDA in the first quarter was $318 million, compared with the prior year of $228 million. Consolidated orders in the first quarter were very strong at $1.30 billion. While somewhat lower than the $1.50 billion in the prior quarter, but it also sequentially followed a very large fourth quarter of $1.70 billion in orders. Our recent wins and strong opportunity pipeline have certainly increased our confidence for another strong performance in fiscal 2011, and we expect good momentum when we enter fiscal 2012. First quarter revenue for the RF Communication segment was $567 million,…

Thank you, Howard. The first quarter was an outstanding balance sheet and cash flow quarter for the company. Cash on hand at the end of the quarter was $341 million, strong collections in the quarter drove down days-sales-outstanding from 54 days to 48, debt-to-total-capital remained about the same at 39% and return on invested capital as a result of the very strong operating performance increased from 18% to 22%, all as compared to the first quarter of fiscal 2010. During the quarter, we established a $300 million 364 day revolving credit facility to replace the capacity used for the purchase of CapRock Communications, which closed on July 30. Cash flow in the quarter was excellent. Cash flow generated from operating activities was $295 million, as compared to $135 million in the first quarter of fiscal 2010. All three operating segments generated positive cash flow. Free cash flow for the first quarter was $254 million as compared to $114 million. Our increased guidance for cash flow from operations for fiscal 2011 is now a range of $775 million to $825 million, up from our previous guidance of $750 million to $800 million. During the quarter, we repurchased $50 million of our outstanding common stock at an average purchase price of $42.59 per share. As of quarter end, we have $400 million remaining authorization under our stock repurchase program. Depreciation and amortization for the first quarter was $47 million as compared to $42 million in the first quarter of the prior year. Our expectations for depreciation and amortization for fiscal year 2011 are unchanged at $205 million to $215 million. Capital expenditures were $41 million for the first quarter, as compared to $21 million in the first quarter of fiscal 2010. Our current guidance for fiscal year 2011 CapEx is unchanged at between $250 million and $275 million. Our effective tax rate in the first quarter was 34.8%, our outlook for the full year tax rate for fiscal 2011 assuming the R&D tax credit is passed is now 33.5%, down from our previous guidance of 34%. Again noting, however, that the tax rate for any given quarter could vary up or down as a result of discrete tax events. In summary, we are off to a very good start and continue to operate from a very strong financial foundation. Back to you, Howard.

Thanks, Gary. We have increased our financial guidance for fiscal year 2011 due to our strong first quarter operating performance, and improving second quarter outlook. Consolidated revenue for fiscal 2011 is now expected to be towards the higher end of our previous range of $5.9 billion to $6 billion, about 15% above fiscal 2010. Non-GAAP EBITDA for fiscal 2011, which excludes acquisition-related costs is expected to be in a range of $1.21 billion to $1.23 billion, representing an increase of 10% to 12% above our fiscal 2010 EBITDA of $1.10 billion. Non-GAAP income, excluding acquisition-related costs, is now expected to be in the range from $4.80 to $4.90 per diluted share. That's a year-over-year increase of 8% to 11%. Our previous guidance if you recall was $4.60 to $4.70 per share. On our last call, we provided quarterly guidance for the first and second quarters of fiscal 2011 because of the atypical seasonality caused by the MRAP and M-ATV program shipments being concentrated mostly in the first quarter. Earnings in the second quarter are now expected to be in the range of $1.08 to $1.12 per share. Slightly above last year and much higher than our previous guidance and we expect sequential EPS growth in the back half of fiscal 2011. For the RF Communication segment, fiscal 2011 revenue is now expected to be 10% to 11% higher than fiscal 2010, and 16% to 17% higher in the second quarter. Segment operating margin for the year is expected to be 33% to 34%. For the Government Communications Systems segment, guidance is unchanged. 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 we add 11 months of contribution of CapRock Communications acquisition revenue in the range of $380 million to $390 million. Total segment operating margin is expected to be approximately 11% for the fiscal year. And for the Broadcast Communication segment, we continue to expect revenue in the range of $490 million to $510 million with break-even operating results. We still expect operating losses in the first half, but they will be followed, we believe by improving profitability in the second half. At this time, I'll ask the operator to open the line and we'll be pleased to take your questions.

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

Just wanted to start with a question if I could on RF Comm and I guess assuming you guys are still targeting a 1.0 book-to-bill for the full year. Should we expect that you'll be back above those levels starting in the second quarter? Obviously, we're a little bit below in the first quarter but that probably wasn't too surprising just based on how the MRAP and the M-ATV business was expected to layer in from a revenue perspective. And in that context, just talk about your visibility on converting some of the near-term RF Comm pipeline orders especially on the Tactical Radio side?

Jason, the business is kind of lumpy. We still expect to be able to achieve our target of 1 book-to-bill for the year for the Tactical business, as well as to meet or exceed that for the public safety part of the segment. As you say, we came very close to that at about 0.9 in the first quarter. I think what's most important is that we see the pipeline really filling up nicely as we look out at both the domestic U.S. as well as the international business. In terms of specifically guiding to a specific book-to-bill by quarter, I'm not going to go there but overall, we're still feeling good for the year. It doesn't mean it's a slam dunk but what it does mean is that we have the opportunities in sight and are pursuing them. And as long as we get a little good fortune in timing in Q4 this year versus Q1 next year, I think we've got a very good shot at getting there. Even if we just came close, though, we're talking about still a sizable backlog exiting this year into fiscal '12. So I think the good news of the first quarter and our higher guidance in the second quarter is all about the firming up of the order pipeline at RF this year and our confidence in delivering on that.

And maybe if you can just talk a little bit more about the Alberta contract now so I can grasp on that. Maybe some comments on the potential timing, actually complete your due diligence and sign the contract, and then anything you can tell us in terms of potential size from an order perspective. That would be great.

The customer at this point has not publicly disclosed the size of the opportunity so I'm not in a position to comment on that. And in due diligence, part of the discussion, will I'm sure be around budget availability. So there's not a specific size, but I think you can draw a conclusion that this is a multi-year, very large program given the amount of real estate that is covered by the province of Alberta, over 250,000 square miles. So this is certainly a significant project. Competition was certainly Motorola, the market leader. We're very pleased our team put together a very, very good proposal and we are looking forward to completing these negotiations. How long that will take? I'm not sure but it's not uncommon for that to run on for a quarter or two. So we could be talking about not finalizing this until the new calendar year. But it certainly should be, we hope in this fiscal year, and help to bolster our orders and backlog and then provide a multi-year stream of revenue and profitability as we execute the program. So certainly it's a major win and we're very proud of our team for delivering that.

If I could just squeeze one more quick one in on the Cyber business. Anything you can tell us these days in terms of the size of the Cyber business, how fast it's growing? Maybe do you see is there much significant competitors in that space? Obviously, there seems to be a lot more budgetary attention being paid to that area and did they notify position there not too long ago?

Well, I certainly think that it still represents a large opportunity. Our focus is going to be on developing what we think is unique, secure cloud hosting for government and select commercial customers that will attribute a high value to the security of our particular solution. We will be able to talk, I think, in a lot more detail on the next quarterly call as we really launch that business in our fiscal third quarter following the fit-out of the facility that we acquired in Harrisonburg, Virginia a few months back.

And the next question comes from the line of Joe Nadol with JP Morgan.

Howard, on the 117G, you mentioned that we should expect or that you're expecting it to be deployed across all the brigade combat units in Afghanistan by the end of the calendar year. Wondering if there's, I guess, if that's all in backlog already and what you're expecting going forward in Afghanistan for the 117G? If it's more beyond end of the calendar year deadline?

Well, on the second part of your question, we certainly hope that there is more. Certainly the opportunity for continued adoption of the 117G, we think is truly enabled by this major milestone that we've broken through, which is the approval to deploy what's called capabilities set nine and 10 by the Army to deploy that capability to all of the BCTs in theater. That's a major achievement. We have received also, as I mentioned, a contract to put a number of our team members in country helping to deploy and set up these networks. And we're convinced, like many major new innovations, as our customers start to use the radios it's going to have a follow-on compounding effect in terms of broader adoption, not just in Afghanistan but over the long-term. So from our perspective, we think it's a major milestone and we're in the process, I don't know probably, 30%, 40% of the way through getting these systems up and running. Orders for those are all in house already and we're already included in previous contracts that we've announced.

Is there a way of thinking about penetration? I mean is the opportunity more penetration for the BCTs that are in Afghanistan just like they get the radios, they love them, they want more? Or is it more, just not Afghanistan?

Well, I think in the long run, there are probably opportunities in both, but this remains to be seen in terms of how the Army sees opportunities to utilize the technology. Again, I think what's encouraging to us is the support that we're getting on the ground because of what the 117G allows our customers to do, that couldn't be done before using the traditional radio systems. And the continued lagging of the JTRS programs. The record again gives us a major window of opportunity to illustrate the capabilities of utilizing our commercially developed technology, getting to market faster. So we're very encouraged. Certainly opportunity for 117G, alongside the opportunities for a number of our other new products, are what is helping to give us more confidence that we can continue to grow orders this year and maintain that very high mark of 1:1 book-to-bill.

And in the tactical radio business, probably the $446 million this quarter. Would you mind sharing or can you share how much of that was the MRAP-ATV?

I think our shipments were $240 million, $250 million round numbers associated with that program and about another $80 million, as I indicated to go in the second quarter.

And then just finally, Howard, anything you can share on -- you did CapRock, you talked about some of the things going on there. Anything you can share on how you're thinking about M&A these days given valuations, where the company is, cash balance, et cetera?

We continue to see strategic acquisitions as a way to augment the work that we're doing organically. We think in terms of three buckets of growth, we've got our core businesses that we expect to grow with their customers, gaining market share and coming up with solutions for follow-on applications. Then we're moving into adjacent markets, which for us have included healthcare, cyber, public safety. And now, the satellite-managed services capabilities. And certainly we continue, like other companies, to look at additional acquisitions. There's a lot out there but we continue to also put a pretty fine screen on those with regard to being a fit, strategically in our business and also being at a value level that allows us through synergies, create returns above our cost of capital. So I think you'll continue to see us look. We continue as Gary indicated have a very strong balance sheet. We have well over $700 million in debt capacity available right now, just on our revolvers. So we're in a very strong position. We continue to look, but I certainly won't speculate on timing of any specific events.

And the next question comes from the line of Chris Quilty with Raymond James.

Howard, just a clarification. That $240 million to $250 million contribution from ATVs was that in last fiscal year or was that cumulative?

That's the Q1 revenue numbers associated with all the MRAP programs, and to be precise it's $235 million.

And there's been some discussion about them upsizing that program by several thousand more vehicles. Have you seen any indications of where those discussions are going?

So I'm aware that there has been an authorization of 1,000 vehicles. And that I think leaves about another 1,000 to the ceiling of 10,000 that was originally established.

So we're likely to see orders coming and then presumably you're including some percentage hit in your guidance for the business?

Yes. We're trying to take into consideration all of those factors, as well as inventory they have, reuse of existing radios. As well as exactly what configuration they will put into which vehicles because as I understand it, the latest 1,000 unit order, some of those are from Oshkosh, some are from Navistar some are ATVs some are original MRAPs. And it's just hard to always be precise about how they're going to be configured. But certainly, we're feeling like we will likely hit some uplift in this fiscal year further related to those additional orders. But hard to quantify today exactly the dollar amount, Chris.

And switching over to the public radio, that Alberta order, was that purely traditional public communications equipment you are selling in there? Or were you able to layer in any of your, either other RF communications products like the 7800 non line-of-sight radio or some of your capabilities in network management from the other business units? What was the key to winning that, do you think?

Well, I certainly think that the Harris partnership with the former M/A-COM business is what won the business. I don't believe, just my opinion, that the acquired company on its own previously would have had a big enough footprint in communications and network technology to be able to compete on such a large order against Motorola and General Dynamics of Canada, who were partnered on the competitive side. So I certainly think that we brought what I like to call, the big H. solutions to this particular pursuit. And it certainly included a broader capability than just the public safety radios and base stations.

And final question, if I may, the Broadcast business update on the Valiant Angel program?

Nothing specific, we continue to ship systems related to our full-motion video asset management engine or FAME solution. But we also are developing and starting to ship lower-cost solutions in that space. So we're not totally dependent just on the Valiant Angel program. There's a lot of development going on in general, around providing enhanced ISR database access and retrieval, and both Broadcast, in partnership with our Government Systems division, are pursuing those opportunities.

And the next question comes from the line of Mark Jordan with Noble Financial.

First of all, relative to the guidance, what assumptions do you have with regards to buy-back through the balance of the year? Are you assuming some rate or it's just on a static account that you have out there today?

This is Gary MacArthur. We have typically been doing around $50 million of share buy-back a quarter. We currently anticipate doing that throughout this fiscal year.

And that's embedded in your estimates?

Yes, I think it is included in our guidance.

Secondly, Howard, could you break down what the Tactical Radio backlog of, I believe, $1.19 billion whether its domestic versus international? And is the domestic piece primarily 12 months delivery cycle and is international multi-year?

I don't have a specific breakdown, Mark, for that. But it certainly has -- it's not 80%-20%. It certainly has a significant component of both. And yes, generally, you should think about orders that we get from U.S. Government would be shipped within 12 months and some portion of the international orders would go out beyond 12 months because they might be a multi-year program. The same is true in the Public Safety business when we talk about backlog. Some of that is shipping directly in the current fiscal year against the program. Some of it is going out into a multiple year program such as we've been discussing with the opportunity in Alberta.

Just relative to the JTRS program, could you update us as to when you think the participants of the program will be shipping radios? And do you have any sense as to their pricing and sort of capabilities, ranking versus your offerings at that time?

I certainly don't have any specific information. I’m not aware that they have published any new schedules. But it is our sense that the programs are slipping and likely to announce delays. But I don't have anything specific off of any published document that I can reference. Nor do I have anything regarding pricing. The only thing we've ever seen on pricing are target prices at very high volumes. Those are certainly not likely to be achieved during the first limited-rate initial production of any program. So I'm presuming that prices will be higher than whatever the prices in the long run that were quoted. So those are just our assumptions. I don't have any specific document to point to, Mark.

And the final question comes from the line of Carter Copeland with Barclays Capital.

This is Meyer [ph] on behalf of Carter. Just had two questions. The first one, when asked about the slowdown in spending and contractions at gate that have been talked about. Have you seen any impact on the spending at Multimax?

The answer is no, not specifically in our IT Services business. We have more broadly in the Government Systems segment, seen some program awards get delayed as a result of the continuing resolution. So we have seen a little bit of that but it hasn't had a major impact on our view of the year as you heard me indicate, we continue to think 6% to 8% year-over-year revenue growth organically is achievable. And we think that will be largely ahead of our peer group. So we're still feeling pretty positive. We've had a number of program wins in the first quarter as I rattle off that list of different programs. So we're feeling pretty positive but we've certainly have seen a few program awards slip to the right.

You actually started answering the second I had, which is asking about the timing of awards. Have you seen any changes so far into this quarter?

Again, for us not of material impact. But we have seen a few of the programs that we were expecting to be awarded by this date, move out one to three months. And again, I think it's mainly associated with the continuing resolution, which we expect to be in place for several more months and we've baked those assumptions into our guidance. So the bottom line is, yes, some of the new awards are slipping out but it is not having a material effect on our revenue outlook for the year.

Well, thank you everyone for joining us. Appreciate it.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.