Harris Earnings Call INSIGHTS: CR is Certain, Broadcast Divesture

On Tuesday, Harris Corporation (NYSE:HRS) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

CR is Certain

Carter Copeland – Barclays Capital: Just wanted to ask a question about the budget, the backdrop, sequestration, whether or not the guidance contemplates a CR and just in general Bill, how you’re feeling about the relative risks around sequestration in the various business units, areas where you think there could be an impact there based on different contract structures and things that are incrementally funded. Any color you can provide on how you’re planning and thinking about that outcome should we actually see it, would be helpful?

William M. Brown – President and CEO: Well first, as Gary mentioned, we do not contemplate sequestration in the guidance that we’ve given, but I think and we all believe that a CR is a virtual certainty, much like it was last year and that’s going to provide in our fiscal second quarter, some choppiness, I’d say based on where our customers will end up deciding to shift some funding and what happens, as we enter the start of the GFY ’13 under a continuing resolution. We’re looking at a variety of scenarios in our business, much like everybody else is, across the board, 10%, sort of bottoms up, programmatic type reductions, but based on little to know feedback from our customers on what they see happening and guidance from them as to what we should be contemplating, it’s really a little bit premature for us to give any sort of sense or guidance as to the impact of that going into fiscal year ’13 or our fiscal year ’13. That being said, we’re not a big platform player Carter, as you know very, very well. We see, the things that we do, very much aligned with the DoD priorities of special operations, C4ISR solutions. So, we feel versus and relative to other players in the Aero/Defense Industry that we’re going to be less impacted though, certainly not un-impacted by a sequestration.

Broadcast Divesture

Joseph Nadol III – JPMorgan: My question is on INS and sort of on all the things going on there. Could you guys comment on – it looked to me like your charges in there, your non-GAAP adjustments were a lot higher than what you had suggested it would be last quarter for the year. Can you talk about what’s going on in there and what the outlook is there for those adjustments for FY ’13, also any update on the broadcast divestiture?

William M. Brown – President and CEO: Well, first off, you’re exactly right. Last time we spoke – in the last call we gave some guidance around $0.25 a share as the integration expenses for integrating, both Carefx as well as the suite of companies that we now call CapRock’s, CapRock Schlumberger Core180 and in the reported results, it was $0.40, so it was $0.15 more. That’s going from about $42 million to $58 million or $16 million higher in the fourth quarter than we would’ve indicated at the end of the third quarter and that is investment in integration at both the CapRock franchise and Carefx, little more on Carefx than on CapRock. We saw some additional opportunities. We’ve seen our profitability in the Harris healthcare franchise not be what it is what we think it could be or should be and we took some tougher actions in the quarter to drive profitability and achieve our targets longer-term. I’ll recall back in early June, we talked about at our Investor Day, we talked about very significant improvements in FY’13 400 basis points of margin improvement in CapRock driving healthcare from a deep loss to profitability in ‘13 and we think we’ve taken the actions we need to take to position ourselves for success in ‘13 and beyond. As you know any further charges won’t be absorbed below the line, or be directly in our reported GAAP income, but we think a lot of the activities, lot of the costs are now behind us. Going into BCD, we’ve just initiated the process. We’re out in the marketplace with offering materials the response so far has been very, very good. We expect bids in a next few weeks and we’ll expect to conclude a transaction by the end of the year, end of the calendar year as we said last time and we’re on track for that.

Joseph Nadol III – JPMorgan: Are you ready to give any further color on what the proceeds might me or is it still too early?

William M. Brown – President and CEO: It’s still very, very early Joe and I think more than likely we’ll wait until we actually get a deal done in order to give some color to investors around proceeds.