Good day, ladies and gentlemen, and welcome to the Harris Corporation's Fourth Quarter 2013 Earnings Call. My name is Sue, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded. 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. Welcome to our fourth quarter fiscal 2013 earnings call. I'm Pamela Padgett, and on the call today is Bill Brown, President and CEO; and Gary McArthur, Senior Vice President and Chief Financial Officer. And 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 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 fourth quarter earnings call. Fiscal '13 was a challenging year but we accomplished a lot. When we started the year, we promised to take out costs to match the tough government spending environment, and we did just that. We said we would maximize free cash flow by doing things like ratcheting down capital spending, which we reduced by 24%, contributing to record free cash flow in the year. And we committed to deploy capital more effectively like returning more cash to shareholders, which we did by using $400 million in cash to repurchase shares, and by increasing the quarterly dividend 12% in fiscal '13 on top of a 32% increase in fiscal '12. These efforts are reflected in the solid results we're reporting today, and illustrated on pages 3 and 4. In the fourth quarter, revenue was down as expected by about 5% to $1.36 billion, with non-GAAP EPS of $1.41, about flat with the prior year. Fourth quarter earnings were a bit stronger than expected as a result of ongoing cost reduction efforts, including fourth quarter restructuring actions and favorable product mix in RF Communications where we also had a $0.04 onetime benefit from the cumulative effect of an accounting correction in the timing of cost recognition. By executing the restructuring actions announced in April faster than expected and expanding their scope somewhat, we generated additional savings in the quarter amounting to $0.07 pickup versus the guidance we provided back in April. For the quarter, restructuring, asset impairment and debt prepayment costs were $127 million and, with the exception of facility consolidations, are largely completed. These actions are now expected to generate annualized cost savings of $60 million versus the $40 million to $50 million originally…

Thank you, Bill, and good morning. Moving to segment results on Slide 5. Revenue for RF Communications was $501 million and declined 14% compared to $584 million in the prior year. Orders for this segment totaled $646 million and were up 22%. Book-to-bill was 1.29. In Tactical Communications, revenues was $336 million, declining 18%. Tactical Communications orders were $498 million and were up 40%. Book-to-bill was 1.49, and backlog increased significantly to $743 million. Book-to-bill was greater than 1 in both international and U.S. markets. International tactical radio orders included $79 million from a country in the Middle East, $61 million from Poland, $55 million from a country in Africa, $23 million from another country in the Middle East and $39 million from several customers in Brazil; exceptional order performance in International. DoD orders for Falcon III wideband radios included $38 million from the Air Force, $36 million from Special Operations Command and $20 million from the Marine Corps. The 12- to 18-month International opportunity pipeline is $2.2 billion, with over $800 million in the proposal or closure phases. This compares to 3Q's $2.4 billion, with over $1 billion in the proposal or closure phases. The U.S. pipeline is about $1 billion, with $400 million in the proposal or closure phases. This compares to 3Q's $1 billion, with $500 million in the proposal or closure phases. While there have been delays in the awarding of the JTRS manpack, Rifleman Radio and MNVR modernization opportunities, we believe our proven track record with the most widely deployed family of wideband networking radios, our recent successes demonstrating the JTRS wideband networking waveform and our new 2-channel manpack radio solutions bolster our competitive position on these procurements. In Public Safety and Professional Communications, project delays and unexpected lower terminal sales resulted in revenue declining…

Okay. Well, thank you, Gary. Our guidance reflects the environment as we see it today. We're planning cautiously and conservatively, and we continue to focus on the things we control, satisfying customers, driving operational excellence and maximizing free cash flow which can be returned to shareholders. And we're committed to investing in the future in R&D and strategic growth initiatives. We have strong leadership in place and a talented workforce who are committed to delivering against customer expectations and creating shareholder value. And I'd now like to ask the operator to open the line for questions.

[Operator Instructions] The first question comes from the line of Noah Poponak of Goldman Sachs.

Just from a high level, when I look at the initial look at 2014, calling for RF to be flat, why would this be the year that RF was flat following a couple of years of reasonably sharp topline declines if we're just now moving into the environment where in the U.S., sequestration is actually going to impact the P&L? I know you've had some order delays and you've talked about feeling like sequestration had already happened, and I know you're citing international picking up here, but I just wonder how much conservatism you feel is in that topline outlook for RF given the environment that sounds like you think we're going to stay in for a little while?

Well, thank you very much for the question. I think given the fact that we don't yet have a U.S. government budget nor a DoD budget nor how that kind of gets down to the line item details for -- that affect the tactical radios, I think what we've done is taking the most prudent assumption we have. Our assumption right now going into next year is that the DoD tactical radio business is going to be down even further, probably in the mid-teens range, offset by the international business, which we see being up mid to high single-digit. So overall, Tactical going into next year, we're seeing to be sort of down low single-digits. And we think that's given the environment that we're in right now today, given what we see in the budgets, we think that that's a prudent and a cautious approach.

Okay, that's helpful on the breakdown there. And then just one other, I guess also sort of big picture question on the segments. When I look at the individual segment outlooks, all of them really not calling for margin expansion. I just wonder if you could elaborate on why you would not expect to see some margin expansion given all the cost takeout in restructuring you've done coming into the year.

Well, you go across the segments, in GCS, I think we've performed very, very well. And we're sort of at the level of margin that, in fact, above the expectation we had set back in June of last year, so long term margin in GCS in the 13% to 14% range. And we feel the guidance that we have given reflects the programs that we see there and the performance that we've seen in GCS. In RF, what's happening here is, clearly, as we go into next year, we're seeing more international business in DoD. And while we've said in the past international and DoD tend to have somewhat similar ROS trends, we are seeing more systems business coming in fiscal '14 than we've seen in the past, and that's going to dilute the margins a little bit. We [indiscernible] the shift towards the PSPC business and that's going to bring the overall segment margins at least constrained them a little bit going into next year. In INS, what we've done is, I think, we've reflected the fact, that NGEN -- NMCI comes out of the process. We've lost on NGEN, it's under protest at the moment. That was a very, very good margin business in NMCI, so we're reflecting that -- the HITS business, the IT Services business, with the volume decline in NMCI going away, it's going to see pretty substantial margin erosion, something on the order of about 300 basis points in the IT Services business, offset by pretty strong margin growth in both CapRock as well as in Healthcare.

Your next question comes from the line of Yair Reiner of Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: In terms of the restructuring, is this it for now or is there more work to be done that you can kind of foresee at this stage in -- for 2014?

Well, Yair, thank you very much for the question. I think what we've done in the fourth quarter is some pretty substantial restructuring. If you recall, back in April, we estimated restructuring would be $65 million to $150 million. We came in above the higher end as we found additional opportunities. But I think what we've seen over the course of fiscal '12 and fiscal '13 is we continue to take out costs as the market environment changes and we'll continue to do that going forward into fiscal '14. We have no further plans on the table at the moment, but we continue to look for opportunity to take costs out again to match the revenue environment. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Got it. And then in terms of the guidance, you said that it contemplates continued resolution also sequestration. Can you just give us a sense of, systematically, how you went through and tried to bake those impacts into your forecast? Was it done on a program-by-program basis or do you just look at across your government contracts and assume that you'll be getting a 10% to 15% cut below what you'd otherwise expect?

No. In fact, we've got people who have been in the business a long time and know the customers very, very well. And a lot of this is through conversations with the end customer. And we do it program-by-program, line-by-line, as best as we know it, and we put some judgment on that based on what we see in the political environment and what we see happening in Congress, and we make the best estimate we can. But it really is, on a bottoms up, program-by-program basis, opportunity-by-opportunity. So that's really across both the government business as well as what we do internationally in tactical, as well as what we do with CapRock and Healthcare business. It's really from a bottoms-up perspective. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Got it. And then just one last quick one. For 2013, what was the mix of international within Tactical? And then what do you expect it to be next year?

Well, this year, international was substantially higher than DoD in that mix in Tactical, and we see that shifting even further going into next year. We saw orders and revenue this year being 7, 8 points higher. Backlog is a bit higher in international ending the year, so we expect the mix to shift even further towards international, modestly into the fiscal '14.

Your next question comes from the line of Joe Nadol of JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Bill, just on the restructuring, you come from a UTC culture where this was sort of -- this is a way of doing business year in, year out. And then I think coming into Harris, there were definitely some low hanging fruits, some opportunities for you, but you've obviously done a lot. And so as we go forward, are you thinking about this as a journey where every year, like at UTC, there's always going to be something that gets done or is this, what we saw on this last quarter, the culmination of what you think is sort of a big onetime restructuring of the company after becoming CEO?

Well, there's 2 parts to that. And one is the pretty substantial restructuring we did in the fourth quarter, which I think was pretty broad and pretty deep, and they don't tend to repeat very often. And as I mentioned before, we don't have plans on the table to do any further restructuring at this point. Of course, we continue to look for opportunities but there's nothing that's pressing. What I'm spending more of my time on, frankly, is building a culture of operational excellence throughout Harris Corporation. That is a multiyear journey. That's not multi-quarter, it's multiyear. I think we've had a really, really good start in the last 18 months, and we're getting the engine moving well, looking at things we can do on the factory floor, things we could do doing on our field service organization, things we can do in supply chain management, frankly, things we can do in our admin function to make ourselves leaner. Sometimes those activities do lead over time to restructure and many times they don't. And that's really what I'm spending a lot of my time on and where I'm focusing the organization. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then just over on the margins in Tactical or, I guess, in RF but really specifically in Tactical, a couple of things. It seems like you're expecting some, basically some mix pressure. I understand the Public Safety, but really within Tactical, it's the systems. How do we -- how can we think about the profitability of systems? Is that a certain percentage of them we should think about as Falcon radios with Falcon-type margins, and then other components of the system are lower margin? And is there kind of a generic pro rata or a generic percentage that we can think about in terms of hardware versus, I guess, the other component to that mix? Just trying to get a gauge a little bit how, as your mix becomes more and more systems-oriented, how that -- what that might do to your margins?

Sure, Joe. Let me take a little bit of that. I don't want to get into the specific percents, but it's clear that the systems business is at a lower margin. And looking at our business outlook for next year, we do see that Systems business almost doubling in the international marketplace. So that will bring down margins overall on those -- as a result of those system sales. That's really the biggest component of the mix that we see within the Tactical Communications business. And you mentioned on the Public Safety side, obviously, as that grows with its lower margin, it will impact the RF margins as well. But we're -- as we said in the past, we're really targeting in at that 30% margin. We're running the business in that kind of range, and we think that's sustainable. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: It's probably should be fair to expect that the margin profile will be higher in the first part of the year because you just had that, I think, that 1 systems order that you announced anyway. And then you noted in your prepared remarks that you're expecting more of that, so is it fair to say that we should have a downwards sloping margin starting up much higher to begin the year?

I don't think, Joe, we're going to give guidance across the quarters in terms of margins in a segment -- subsegment of a segment. I think I'm going to stay away from that. But what I would say is we did have unusually strong margins in Tactical in the fourth quarter. It did come from the fact that we had more international sales but, more importantly, it was a lot of product part of international that came with some very full feature products and software upgrades. That drove the margin to be very strong in the fourth quarter. That won't continue into next year. We will see, as you see in the guidance, over the course of the year, margins coming back down to sort of a more normal level for the segment, around 30%, which we laid out last year. And in Tactical, it has a lot to do with the fact that we've just had more systems business coming into next year in international. We get this, but today that's about all we're going to say. But to the balance across the quarters, going into next year, we will see a little lighter first half than second half and probably a lighter Q1 than Q2, only because of just what's happening in our order pattern but also what's happening in Washington. So I think that's all I would say in terms of calendarization, if you will, of our guidance for next year.

Your next question comes from the line of Bill Loomis of Stifel. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: On tactical radio, so we've seen some press about the Army considering going to 1 winner on Rifleman and, possibly, manpack as well. What -- could you help us understand, I know you're looking for kind of mid-teens decline, but what happens if they do go to 1 winner and, let's say, Harris is not it? Does this completely block you out on Falcon sales to U.S. military or are there other routes here?

Bill, that's a great question, thank you. First of all, it's still not clear what path the Army and, more importantly, the DoD as a whole, is going to take on the manpack and the Rifleman Radio. We think a multi-vendor award is in the best interest of the government and the war fighter. It drives up competition throughout an IDIQ contract. It incentivizes product innovation, drives performance, drives cost down, and then it get -- not just us but other parties in the industry have that same view. We've seen on similar awarded programs, where if it's a multi-award it tends to drive down costs and drive up innovation and performance over time. So we think it's in the best interest all around to go with a multi-vendor solution. That being said, we don't know what the government is going to do. We expect the RFP to come out over the next couple of months, but that has been moving to the right, so right now, we're still thinking it's in the next 1 or 2 months. Going into fiscal '14, we have very little actual revenue associated with winning or losing either of those 2 products. It's in the tens of millions, it's not very big. But over time, we're going to just keep our head down, keep doing the things that we do to drive innovation. And eventually, if we do not get a position on the first award, make sure that we find a way on to the program over time. I would say outside of the Army, we're very, very strong, as we've always been with SOCOM, Marine Corps, Air Force, Navy, and we do very, very well there. So our business is not just Army and it's not just manpack and Rifleman. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Got it. And then just staying on RF but on Public Safety, can you just expand a bit more on delays in the lower bookings? I mean we're starting to see, I think, at the fact it was -- today's Wall Street Journal, I think, had an article about how cities are now, once again, net hiring on police and fire and other infrastructures, so I assume that's good news for you down the road. But what's happening there in the quarter? And how do you see that changing over the next year?

It's a good question. And we are encouraged by the improving finances generally not -- there's some, obviously, some specific exceptions to that. But generally, improving finances in the state and local area and they're hiring back firefighters and police force, other first responders. For the year in Public Safety, we're up 3.5%. We are very strong in the first half, up 10% to 12%, so a pretty good double-digit revenue growth in the first half. In the back half, we were flat to down. And then fourth quarter, we're down about 5%, 5.5%, 6%, in that range. And as Gary said in his prepared remarks, it does have to do with project delays. It's a sort of a lumpy business at times, and yes, we did see that the orders coming in earlier in the year and revenues are a bit soft. And we did have some slower terminal sales in the fourth quarter. And that's a watch item for us frankly, we got to keep an eye on that, it's an important growth initiative for us going into fiscal '14. But we saw in our largest competitor a fairly similar pattern over the course of the year. If you exclude the benefit they saw from narrowbanding, which we don't participate in because we don't participate in some of the lower end of the market, we saw about 3.5% growth for the full year. So I think we're holding our own, not gaining share, not losing but holding our own. Over time and going into the next year, we expect our business to rebound. We're pushing our team very hard to do that. We expect stronger book-to-bill, stronger growth, stronger orders momentum going into next year, and better margin performance.

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

And I just wanted to ask if you could elaborate on kind of order of timing. As we move to the year, you've had a lot of international stuff coming through of late. Should we expect that momentum to continue in the first and second quarters, or any commentary on the cadence for orders for the year?

Gautam, this is Gary. I don't think we're going to get specific as to timing on these orders. We did point out that we have a large amount of orders in that kind of final stages of the process. But as we've said in the past, a timing prediction on these things is very difficult. A lot of things come into play with governments and their funding, and really going to stay away, other than to say what -- echo what Bill said, I think first half, a little lighter probably than the second half on the sell side and, right now, probably Q1 a little lighter than Q2.

But maybe if I can just offer just a little bit more, as we go into next year, Gautam, I know that our business, our Tactical business hinges more on international. It has been lumpy. Our pipeline, as Gary pointed out, is pretty strong. It's $2.2 billion. We've got $800 million in proposals, in closure, which looks pretty good and still pretty healthy. And the names of the countries that we've described in the past that are in that pipeline remains the same ones. More than half is Middle East and Asia where we know security is an issue, we know that U.S. is pulling back a little bit. We see Iraq in there. We see more opportunities in Saudi Arabia. We see opportunities in Jordan, the U.A.E., Afghanistan, et cetera. And I think we're well positioned in each of those. We see 15%, 20% of that pipeline to be coalition countries that are deploying wideband, Australia, it's Norway, U.K., Canada. We see good opportunities emerging in those markets as they upgrade to wideband radios. And Latin America looks pretty good at this point as well. We're well positioned in Brazil. We've got a great position on this front partnered with Embraer. We see other opportunities in Brazil. We see Mexico getting a bit stronger. And we see other countries, smaller ones, that will start to materialize over the course of fiscal '14. So I'm pretty encouraged by the strength, the -- so where the pipeline happens to be at this point. But as you know, Gautam, the timing of the orders over the course of the year is really, really difficult.

Is there anything you can say with respect to that $800 million proposals and the $400 million, U.S. side, about lumpiness, is there anything where you have 1 or 2 that are north of $100 million that are near-term, anything that could really move the needle any given quarter?

No. I think we're going to stay away from that. The -- the biggest -- orders tend to be in the tens of millions. Now, we don't see a big Australia coming in. Obviously, the one we took a couple of weeks ago with Saudi Arabia is unusually big. We don't see many more that are of that size. Surprises do happen, but we don't see any of that size on a near-term horizon.

Okay. And last one on just the cash redeployment for fiscal '14, what are you assuming in terms of buybacks and what have you?

Yes. Going into next year, we're still looking at about $200 million of share buyback. Our dividend payout ratio, we've been targeting about 30%. And the balance, we will tend to use for paying down debt or returning another way to shareholders, so that's our plan right now.

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

Just to beat a dead horse a little bit. On the Tactical projections next year for international, how was -- what's your sense of how heavily you factored the revenue flow for international delays? It sounds like with no huge chunks that maybe the opportunity for timing issues to crop up may be less. But I'd like to hear you give your thoughts as to how heavily factored you think the projections are for timing issues.

It's -- I wouldn't call it a dead horse. It's a very important discussion. But we've got a really, really strong international dealer channel and a really strong international sales force in Tactical, and they know their customers really well. They know the process. They know what it takes to get things approved. They know our competitive landscape. We've gone through the FMS process within the U.S. for international opportunities dozens and dozens and dozens of times. So we understand it very, very well. But that being said, it's just hard to predict the timing of particular orders in a quarter. We feel good about the outlook for the year. We feel good about our 12- to 18-month pipeline. But it's -- we're not going to get pushed into trying to call the ball on a particular quarter with a particular order. It's just going to set us up for failure and we're going to avoid doing that, Pete.

Okay. So you feel good about the year, it's just quarter-to-quarter it could be up and down?

Yes.

Okay. And then last one. I'm just trying to get a sense on INS, sort of how conservative you're being on the topline for INS because you talked about HITS being down, and it sounds like you think maybe NMCI is the biggest issue there. But with the protest, I mean how likely is it you're going to be able to book an NMCI revenue for the full year in fiscal '14 do you think?

Well, a couple of things, maybe just a little more color on the INS growth. We're expecting the IT Services business to be down about 10% next year, and that does include the loss of NGEN. So even though we protested, and we feel we've got strong grounds for the protest, I think we thought it was prudent just pull out of our numbers, but that means that some NMCI does continue into fiscal '14, not for the full year effect, but some part of the year, we will continue to see NMCI sales. As we -- at 10% down in IT Services, if I pull out the NMCI piece, the other parts of IT Services will be down about 6%, which is sort of consistent with what we see the budgets being in IT Services for the course of next year. But we're seeing on the NMCI revenue down about 33%, about 1/3 down into next year because it's going to start to wind down and transition to NGEN over the course of the year. On the other 2 parts of INS, CapRock and Healthcare, we see both businesses to be pretty strong next year, both up high single-digits or slightly better. But in total, we see revenue to be flat at the INS segment level.

Your next question comes from the line of Chris Quilty of Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: I guess recently, you picked up a certification on PRC-152 handheld, but we haven't heard any announcements regarding your efforts to get that the 2-channel radio certified, which I believe is a prerequisite for the manpack competition. Can you give us an update on where you feel you stand in that certification?

I'll have to check with the team, Chris, and get back to you with that. I don't have any real update to share on the certification. I know that we've made major progress as we talked about with WNW, and our maneuver radio, and that's working effectively. But I haven't heard anything specifically about certification from the team that's an issue or a concern with regards to the timing of the awards. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And regarding your ANW2 certification, I know you were looking to get that, put in the repository and potentially deployed across even competitor radios. Is that still something that you are focusing on?

It is actually, and we're making good progress there. And in fact, we would expect that, that would happen in the first half of our fiscal year, maybe even in the first quarter.

Although we've worked on that all throughout the fourth -- fiscal '13 as well, and so we opened the dialogue with the DoD customer. And we expect it's going to occur in the course of next year, but timing on that -- even calling a timing on that is a bit uncertain. Chris Quilty - Raymond James & Associates, Inc., Research Division: And just to clarify, that proprietary ANW2 waveform. I think, originally, you had to get a waiver for that to be deployed in Afghanistan, but is it now being widely used throughout your product platform?

Absolutely. Yes, absolutely, across the 117G family, it's very much a part of that. It's done very, very well in these NIE testings, it's played a very important role in that as well. And I think the customers are seeing that it is very beneficial to the solution going forward.

Okay. I think that wraps us up for today. Thank you, everyone, for joining us, and see you next quarter.

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