Good afternoon. Welcome to Harris Corporation conference call. This call is being recorded. Beginning today's meeting is Pamela Padgett, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you. Hello, everyone, and welcome to our first quarter fiscal 2009 conference call. I am Pamela Padgett, Vice President of Investor Relations and Corporate Communications. On the call today is Howard Lance, Chairman, President and CEO; Gary McArthur, Senior Vice President and Chief Financial Officer, and before we get started, I'm going to say a few words about forward-looking statements. In the course of this teleconference, Howard or other management may make forward-looking statements. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially for those statements. For more information and 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. The reconciliation to the comparable GAAP measures is included in 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. Howard, with that, I'll turn it over to you.

Thanks, Pam, and welcome to our first quarter earnings call. I'm pleased to report to you that Harris had another quarter with excellent financial results. Revenue in the quarter was $1.4 billion, 11% higher than last year's first quarter. All of this growth was organic, and each of our four business segments had higher revenue. Net income was $119 million or $0.88 per diluted share, representing an increase of 18% compared to the prior year. This was a particularly strong increase in earnings, since our GAAP results included pre-tax charges of $9 million for previously announced cost reduction actions at Broadcast Communications, Government Communication Systems and Harris Stratex Networks. Our continuing focus is on increasing efficiency, lowering our cost and ensuring that our investments are lined with higher growth market opportunities. Our GAAP results also included a pre-tax impairment charge of $8 million related to our authentic stockholdings. Our strong financial position allowed us to continue to invest during the quarter in a number of important growth initiatives, including new products, new capabilities and serving new markets in order to continue to build long-term shareholder value. Let us now move on to the individual segment results. Revenue at RF Communications was $415 million in the first quarter, up 31% compared to last year. Operating income increased 28% to $142 million, and at 34% of revenue, margins were at the high end of our previous range. Revenue increased in both US and international markets. Our strong start to the year was highlighted by international success across a number of different regions and countries. Our international customer base has expanded significantly over the past two years, and we continue to have a robust opportunity pipeline. International revenue in the quarter increased as a percentage of total revenue to over 35%. This compares…

Thank you, Howard. To begin with, I would like to say a few words about our liquidity. As of quarter end, we had $345 million of cash, cash equivalents and short-term investments on hand and $680 million available under our $750 million fully committed revolving credit facility, which does not come up for renewal until 2013. We have no long-term debt maturities coming due until 2016. Though cash flow from operations in the first quarter was weak due to invoicing delays at government systems, w continue to forecast cash flow from operations for the year to be between $650 and $700 million. In early October, we met both with S&P 500 and Moody's confirming that we were solid in our BBB plus, Baa1 credit ratings with significant capacity at the these ratings to raise additional debt. On a separate, but related note, all our domestic retirement plans are defined contribution plans. Worldwide, we have only one defined benefit plan with benefit obligations totaling $68 million, which is funded in accordance with UK law. Moving to the first quarter results, cash flow generated from operating activities was $38 million as compared to $67 million in the first quarter of fiscal 2008. As mentioned during late August, we upgraded our financial systems from PeopleSoft 7.5 to PeopleSoft 9.0 at Government Communications Systems. During the conversion, we incurred some unexpected challenges with the billing module resulting in nearly three weeks of invoicing delays that impacted first quarter cash flow by approximately $70 million. During September, the billing module was successfully converted with expectations that government systems will be fully back on track for operating cash flow by the end of the second quarter. As a reminder, Q1 is not indicative of future quarterly operating cash flows. Similar to past years, approximately $60 million of annual profit sharing and incentive planned payments relating to fiscal year 2008 were paid during the first quarter. Depreciation and amortization for the first quarter was $43 million as compared to $42 million for the first quarter of 2008. Expectations for depreciation and amortization for fiscal year 2009 continued to be in the range of $170 million to $180 million. Capital expenditures were $32 million as compared to $33 million in the first quarter of 2008. Current guidance for fiscal year 2009 for CapEx is $10 million lower and between $160 and $170 million. During the quarter, we repurchased $75 million of outstanding stock at an average price per share of $50.98. As of quarter end, we have $100 million remaining under our $600 million stock repurchase program. The effective tax rate in the quarter was 34%. Our outlook for the full year tax rate for fiscal 2009 remains at 33% noting, however, that the tax rate nor any given quarter could vary up or down as a result of discreet tax events. In summary, we continue to operate from a very solid financial foundation. Back to you, Howard.

Thanks, Gary. I think the recap of our strong balance sheet position is very important right now, given the uncertainty in the financial markets and growing concerns about US and International economies. Harris is well-positioned, with a sizable cash balance, ready access to credit and the ability to generate additional cash from operations. We believe we're in an excellent position to weather the current financial situation and to continue to execute our tactical and strategic plans. In addition, our diversity of businesses, markets, geography and customers will continue to put us in a very competitive position. Let me close with a few comments regarding our financial outlook. Revenue for fiscal 2009 is still expected to increase by 8% to 10% above fiscal 2008, with revenue growth in every segment. In RF Communication, we now expect 13% to 15% growth over last year, a bit higher than previous guidance of 11% to 13%. In Government Communication Systems, we continue to expect 6% to 8% growth for the year, but we expect a substantially higher growth rate in the second quarter. This assumes $60 million to $70 million of computer and communications equipment will be delivered and invoiced under the FDCA contract for the Census Bureau in the second quarter. In Broadcast, we expect solid revenue growth as a result of strong international demand, but at the lower end of our previous guidance of 6% to 8% above last year. We're reconfirming our total year earnings guidance for fiscal 2009 in a range from $4.05 to $4.15 per diluted share, representing a year-over-year increase of 19% to 22%. With the impact of first quarter cost reductions and the write-down in our authentic stock now behind us, second quarter earnings should be significantly higher sequentially. Segment operating margins for fiscal 2009 are expected to be about 34% at RF Communications, at the upper end of the previous guidance range of 33% to 34%, 10.5% to 11.5% at Government Communications Systems, and 7% to 9% in Broadcast Communications. At this point, I'll ask the operator to open the line and we'll take your questions.

(Operator Instructions). We will take our first question from Jason Kupferberg from UBS.

Good afternoon.

Hello. Good afternoon.

Perhaps you can talk a little bit about balance sheet priorities; it will be certainly helpful to understand the liquidity position, where you stand with the rating agencies. So understanding on one hand that more conservatism might be needed in the current environment, but the stock price probably looks pretty attractive, and I think you only have about $100 million left on your current buyback authorization. Can you give us a sense of what management and the Board is thinking in terms of balance sheet deployment over the next couple of quarters here?

Well, we have been repurchasing generally at a rate of about $50 million a quarter since we started this buyback program after we did the initial tranche of 200. We will be watching cash flow for this quarter, as well as other commitments that we have for capital spending and so on to make a decision as to how much, if any, we will buy back in this quarter. Clearly, as you say, we agree that the stock appears to be very cheap at this point. I will say the Board's discussion in our consistent communication has been that we will not go out and incur debt for the purpose of buying back stock. Short of that, we have excess cash available and we have continuing authorization for share buyback. We are going to try to balance that with other obligations, make sure we maintain plenty of liquidity so that we can focus the highest priority on the internal growth opportunities.

Okay. On the cash flow point, appreciate all of the color around the system conversion. So should we assume that the billing issues have now been resolved? In other words, have the invoices actually that were delayed in Q1, have they actually gone out the door or the expectation is that will happen during the course of the second quarter? I am just trying to get a sense if cash flow will snap back in Q2 or is it going to be heavily weighted towards the second half based on the system conversion?

Jason, this is Gary. Yes, the invoices have been mailed out and our expectations are that cash flow will snap back in Q2.

Okay, great. If I can squeeze in one last one, the FDCA contract renegotiations, any update there?

Nothing that I can say definitively, other than we are hoping to reach closure on that contract in our fiscal second quarter with the customer. Things are going well on the program. We continue to execute to their expectations. The next major activity going on is deployment of communications and IT equipment, and then in the spring, the address canvassing activity will be starting up. I am relatively confident at this point that when we do finalize things that its going to be at a total contract value above the approximate $600 million level that the initial contract was awarded at. Where it ends up in terms of the precise amount and the timing remains to be seen. We are very pleased with the cooperative effort that is been going on between Harris and our teammates and Census over the last six months and are very focused on working closely the 12 regional centers that have now been established, as well as an office in Puerto Rico, to get them up and operational and ready for the address canvassing phase.

Excellent. Thank you.

Operator, we can take the next question, please.

Okay. No problem. We will take our next question from Chris Donaghey from SunTrust Robinson.

Hi, good evening, Howard.

Hello, Chris.

I will focus a little bit on the RF business. Can you talk a little bit about what is going on with the GEMS program? Then on the international business, this past quarter, was it seasonably stronger than what you have experienced in the past, how should we think about the international mix going forward for the remainder of the year?

I do not have any update on the GEMS contract other than it is still expected. I am not exactly sure whether we have seen an RFI on that. If we have, we have not certainly seen the RFP yet. We still expect it, but I am not sure whether the timing is this quarter or the next quarter. With regard to international, I feel relatively comfortable that this was not seasonal, and that we are going to see higher percentage from international revenue for the future quarters this year as well. Whether it will be 35%, 30%, 36%, 32%, I do not know what the precise number is, but it will be larger than last year's 27% for the year. I think is indicative of the good momentum that we see coming from international markets. So, we are very pleased not only with the orders we are receiving, but with the magnitude of the pipeline, as I talked about, now opportunities in this down-select in Australia. That is a very large multiyear program that we will be working towards getting our first orders on. Iraq, as US troops withdraw, things are turned over to the defense ministry, the interior, they are going to be significant investments in defense communications systems, border security systems. We are very well positioned to participate in a large majority of that business, so, I am feeling very positive. How we envision this thing moving forward which is becoming more and more Internationally focused and becoming less dependent on the US business, I think it is playing out pretty much as our team in RF had hoped. It is really due to their good execution and the performance of our products.

Okay, great. Just speaking of the domestic business here, there is been a lot of language moving through the defense budgets about, you have to compete the next SINCGARS contract before it gets awarded. Can you characterize domestic activity for us in light of some of the language that is going on in the budget documents? Also, if you have seen anything in terms of how the army is going to compete with Rifleman Radio?

Chris, on both of those, both the Rifleman as well as SINCGARS, we have obviously continued to advocate for fair and open competition. I do not honestly know whether we will get fair and open competition. I think they will try and satisfy their obligation to Congress to have a competition, but whether the specs will be written so narrowly that it is really not open, I think remains to be seen. Certainly, we understand the customer's wish to continue to do what they have done, buy SINCGARS radios. It is a bit frustrating, because of the lack of future compatibility between those radios and JTRS and I think we are talking about $800 million of potential purchases. We would certainly like to see those go to radios that are compatible with JTRS going forward. I do not know whether that will happen. There will be a competition and time remains whether it would be one that we legitimately can compete in for either one of those programs.

Great. Thank you.

Our next question comes from Gautam Khanna from Cowen and Company.

Hi. Thanks for taking my questions. I just wanted to ask again if you could walk through the charges. I thought last quarter we talked about $5 million at broadcast and that was it. Was there an incremental six I heard on the reflector program, is that right?

First of all, what we talked about last quarter was related to restructuring charges for severance, head count reduction, facilities and so on. We talked about $5 million at broadcast. We ended up doing $4 million. We did about $1.5 million at government systems and Harris Stratex, which had not provided any explicit guidance, they did indicate there would be restructuring. They did about $3, $3.5 million. That is what adds up to the $9 million that we included in our results that would be related specifically to restructuring and severance-related costs. We did not provide any specific guidance, of course, related to the impairment of the authentic stock in our balance sheet. We took that because the stock had dropped precipitously and had been at that level for extended period of time. We were able to absorb that in our results because we outperformed in some other areas. Finally, we were able to add about $6 million to the reflector program reserves. These are reserves that are in place, not for costs that have been incurred, but for the potential cost which could be incurred. So, that gives us a bit of a buffer as we move forward into the last stages of the commercial programs.

Okay. If you were to add that back to the government's segments margins, you would have been at close to 12% operating. Was there anything else unusual in the quarter that led to such high margins, act of the charge? I know you are guiding to 10.5 to 11.5.

Yes. We had about $4 million year-over-year improvement that we can tie specifically to the FTI program and our improved profitability in that. So, the way I look at it is round numbers we reported about $66 million in income. If you add it back, the $6 million for the reflectors, took away $4 million for the FTI, you are at about $68 million. That is about 11.2%. Our goal in this business is to try to get up closer to 11.5%, the high end of this range overtime. As we put to bed programs that have required reserves or extra costs, I think over the next year or so we have a good chance of getting up to that a run rate, which we feel is the upper echelon of companies that have the mix of programs that we do in terms of systems and IT services.

I thought you mentioned the Census contract, was that in the second half or in the second quarter that you are going to get a bit of a…

We are expecting to deliver $60 million to $70 million of equipment in the second quarter. So the guidance for the year for revenue growth of 6% to 8%, but we were below that number in the first quarter because of some first quarter last year nonrecurring things. Second quarter, we expect to be above that a year-over-year number because of the FDCA equipment deliveries.

May I ask if the margins on that are higher than the quarterly segment average, what the rate was on FDCA in Q1?

It is a little below the bottom end of the range of the GCSD guidance.

Okay. What was Q1 FDCA sales, roughly? Was it like 20?

No. It was much, much larger than that. I do not remember the specific number. If you were to look at 6% to 7% year-over-year in Q2 and add $60 million, that is directionally where we are suggesting GCSD will probably be in the second quarter.

Okay. Could you also give us the ending share count of the quarter, not the diluted share count, not the average, but ending?

I show $134.4 million approximately.

Thanks a lot. I will get back in the queue.

That is the diluted share count for calculating EPS.

Right. I am wondering post all the repurchases what the actual share count is, if you have it?

Gautam, I will give you the share count and give you a ring.

Thank you. Thanks for the questions.

We will take our next question from Rich Valera -Needham and Company.

Thanks, Howard. Just wanted to follow-up on the international opportunities in RF comm. Is there any more color you could give on the potential timing of actual awards on the Australian opportunity as well as any rough ballpark of how big of an opportunity that might be?

In terms of the ballpark, I have heard of a total program opportunity of potentially $200 million. In terms of the timing, this down select basically says that subject to our now going and doing some field tests and proving that our proposal is accurate in terms of what our radios will do, that we will be the winner. So over the next few quarters, we will be working on doing the field tests with our Falcon III radios. In terms of orders, this is probably a late fiscal '09 or early fiscal '10 timeline for getting orders under that program. I do not know the duration of the program, Rich.

Great.

It is indicative, I think, of what we are continuing to see which is larger international modernization programs following on behind some of what is been done in the US.

Great. On the Broadcast business, you mentioned you were looking for the lower end of the prior range, the 6% to 8% revenue growth range.

Yes.

You did not really say why. Is that just a macro-driven issue with advertising dollars, et cetera, giving broadcasters a tougher time or is there any other specifics that drive that?

It is based on our views over the last three to four months, and we have seen this now for several quarters, a slowing in the US business. So we are expecting to be pretty flattish in the US and to have the international drive the growth. So we have taken down our expectations a percent or so in total as a result. It is a fluid situation. We are going to continue to watch very closely as the financial situation evolves and the impact on the world economies, what impact it ultimately has on our customers in CapEx. we have seen a gradual slowing in the US. We have been talking about for a few quarters. So, we, since the last quarter, took down our expectation by about a percent or so. That would be $6 million, $7 million, $8 million for the year in revenue.

Great. If you would clarify, I missed what was the margin expectation in that segment now?

It is 7% to 9%.

Great. I like the revenue profile; you would expect pretty meaningful improvement in the back half to hit the midpoint of that range, is that fair?

Yes, absolutely. So we have taken down the revenue a bit. We have not changed the return on sales expectations versus our fourth quarter guidance. What we are looking to happen in the second half of the year is we will have our normal seasonal pickup in revenue. We do more revenue typically in second half than first half, but the important change is the change in gross margins. As these cost reductions from a variety of sources, head counts, efficiency, and supply chain and outsourcing, and as we get our operations running more efficiently, we expect to run with the improved gross margins in the second half of the year in broadcast as opposed to the first half. So, that is part of it. If you do not repeat the restructuring costs, were at around $9 million or so in the first quarter. That is a pretty decent run rate. I think we will increase that hopefully up into double-digits in the second half. That is all assuming that our outlook right now for the year in revenue holds as it stands.

Great. That is helpful. Thank you.

You are welcome.

Our next question comes from Myles Walton from Oppenheimer.

Thanks. Good afternoon.

Hi, Myles.

A question for you, Howard maybe on RF. In August, in one of your press release, it said about 40,000 152s had been delivered. I think this morning you put out press release saying 50,000 had been delivered, pretty substantial over the last quarter. Just doing some rough math, it looks like maybe you did 75% of your US sales in Falcon III. Is that a shift that is taken place and is that math really working out correctly?

No, I think it probably relates more to when we actually achieved the 40 and when we actually achieved the 50. I just think we were not being all that precise. It was over 40,000 on our last call. I do not think we were very precise. We hit this 50,000 number and used that as a milestone to have a celebration with our team, with the community and with some of our supporters in Congress. So, you should not draw the conclusion that we are adopted, that Falcon III is adopted at the level that you are talking about. Falcon III is really still just getting started and has an awful lot of runway going forward to drive growth with US customers. So, I do not think we are indicating what the specific percentage of Falcon III is, but it is still a relatively small number when considering total US revenue.

Okay. That is helpful. Thanks for the feedback. Then I have a question for you on moves that are ongoing in the 2010 budgeting process. It sounds like the DoD would like to move some of the supplemental money that is been existing in the supplemental back into the baseline budget. I am just curious if you have been privy to, or aware, or have thoughts on any of your business, which you might be benefiting right now from the supplemental, if any of that is being thought of, has moved back into the baseline budget.

The answer is yes. There is a significant amount in fiscal '09 budget that is going to come out of that core palm. Certainly as they are now working on the fiscal '10 budget, which will be delivered shortly to the new administration, we expect much more of the funding to come out of the core. As we have been saying, supplemental budgets have been a very convenient place to put funding for urgent needs, but that as supplementals become less and more of it folds into the core, you are going to see multiple places in that core budget where tactical radio funding is going to come from. I know it is a source of continuing challenge because for some of the large, defense programs, you can find a line and follow exactly what is budgeting for us. You got to add up a lot of lines and then there is a lot of it that is coming from various places that are not going to be specific. We recently shipped some tactical radios under the Net Sense contract for the Air Force for example,. So there are a lots of contract vehicles out there now, you have got the various IDIQ government-wide contracts. So, bottom line though is demand remains very strong. I had a very detailed half day briefing from our team at the AUSA Meeting in D.C. and I was very pleased at the long list of programs where we are talking with our US customers about. I was also pleased with the significant moves that we have made in deploying not only more customer facing people to our US customers, virtually all of them by the way with significant military experience in communications, so they have got a lot of credibility. We are deploying them increasingly close to the customer. So, they are now out, at the various bases, installations around the continental US. So I was very pleased with the momentum that we have going there and demand is very strong and none of us can predict exactly what budgets are going to be.

Okay. Thanks a lot.

Our next question will come from Jim McIlree from Collins.

Thanks. Good evening.

Hi, Jim.

What is next for the Falcon III product introduction front? What is on the agenda next?

Well, in terms of products or customer milestones?

Products that I am more interested in right now?

Well, I think it is enhancements to the current platforms that we have introduced. As we have discussed, we have started with this platform which is JTRS compliant, JTRS approved, but there is opportunities for lots of additional waveforms and certifications. You saw some of those in the quarter. The DAMA certification was an important step that we made. We demoed at AUSA a two-channel configuration, a four-channel configuration. So, we are very much in discussion with customers about what their demands are going to be. We continue to work on integrating new waveforms such as SRW, the DoDs standard soldier radio waveform. We demonstrated that at AUSA and so we will be moving to that. At some point, there will be availability on the Wideband waveform and we will integrate that in. I think you are going to see continued focus on enhancements and different variability adaptations of the radio. One of the things we also showed customers at AUSA was the benefit of the small form factor that we have on the manpack. With this manpack, you can take two of the Falcon III manpacks and fit it in the same vehicular configuration as either the SINCGARS or the Falcon II radio, such that you get the benefit of a two channel capability if that is something you want without having to devote anymore space. So, I think they will be in those kinds of enhancements.

Okay. Great. Secondly, the authentic write-down is your cost now booked at zero? Does that mean that the other income line for the rest of the year is also expected to be close to zero?

The answer to your second question is yes. We are expecting non-operating income going forward to be relatively around zero each quarter. Gary, what is the current balance?

It shows up on the balance sheet, I think its $3.8 million. Marketable security line is the balance left.

So, it is not zero, but it is very close to it. Obviously, in our initial guidance for the year, we had expected to have a positive non-operating income contribution as we monetized those shares to the tune of about $8 million. We are now looking at about $8 million negative on that line. So the fact that we have been able to shoulder that and maintain our guidance, I think again speaks to the strength of the rest of the business in aggregate.

I very much agree. Thank you.

Operator, we will take one more question. We do not want to run in the Harris Stratex call.

Our next question will come from Larry Harris from C.L. King.

Yes, thank you. I noticed you won several contracts in the government communications systems area, and I was just wondering if you would speak in general terms about the ISR market. Are you seeing that expanding? Is there increased interest in that area? What is happening?

I think in general, ISR is an area of focus, both from the intelligence community, as well as in defense intelligence areas. So, we bring a wide variety of different kinds of solutions to that market. So the national business has been gradually over the last several quarters, rebounding and we are fairly optimistic about the future. There is a lot of work being done in the imagery area with the National Geospatial Intelligence Agency, NGA for short. We talked about a couple of our current contracts and new contracts with them. Also, a lot of activity around that that our IT services business is supporting both in their core contract with the NRO as well as new things that they are bidding and winning.

All right. Thank you.

Thank you, Larry. Thank you, everyone for joining us today.