Good afternoon, and welcome to the Harris Corporation first quarter fiscal 2010 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.

Hello, everyone, and welcome to Harris Corporation first quarter fiscal 2010 conference call. I'm Pamela Padgett Vice President 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. Before we get 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 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 reconciliation to the comparable GAAP measures have included 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. Howard with that I will turn the call over to you.

Thank you, Pam and welcome everyone to our first quarter fiscal 2010 earnings call. Results in the first quarter were excellent. New orders, revenue and earnings exceeded our expectations driven by strong performance in the order of communications and government communication system segments. The positive order trends and increasing opportunities and in our tactical radio business that began to emerge in our fiscal fourth quarter strengthened considerably in the first quarter. This provides us with renewed confidence in both the near term and longer term earnings outlook for Harris. For fiscal 2010, we have increased our full year non-GAAP earnings guidance by $0.45 per share, a 13% increase, to a new range of $3.85 to $3.95 per share. The new guidance reflects much higher expected tactical radio orders, revenue and income from the U.S. Department of Defense, as well as increased confidence in the underlying growth and strong earnings performance in our government communications business. Revenue was $1.20 billion in the first quarter, 3% higher than the prior year quarter of $1.17 billion. We achieved strong organic growth of 8% in government communications systems. Revenue in the quarter also benefited from several fiscal 2009 acquisitions including Tyco Electronics wireless systems, Crucial Security, and SolaCom ATC. Non GAAP income which excludes acquisition related expenses was $109 million or $0.83 cents per share, compared to $119 million or $0.89 cents per share in the prior year. As expected, lower earnings resulted primarily from lower tactical radio revenue in the first quarter, due to order delays, which occurred during fiscal 2009 at the DoD and the Iraq ministry of defense. Orders for the quarter were very strong, at $1.5 billion; orders were higher than the $1.1 billion in the prior year first quarter and also higher sequentially than the $1.3 billion in the…

Thank you, Howard. To begin with, I would like to say a few words about our liquidity. As of quarter end, we had $231 million of cash and cash equivalents on hand, and $725 million available under our $750 million revolving credit facility, which does not come up for renewal until 2013. We have no long term debt maturities coming due until October of 2015. In August, we met with both S&P and Moody's confirming that we were very solid in our BBB plus BAA 1 credit ratings with capacity at those 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 $54 million, which are funded in accordance with U.K. law. Moving now to Q1 results, cash flow from operations in the first quarter was $135 million, as compared to $38 million in the first quarter of the prior year. Free cash flow was $114 million. Based on our expected stronger operating results at RF Communications and government communication systems, we are increasing our forecast for cash flow from operations for the year from $525 million to $575 million, to between $600 million, and $650 million. Depreciation and amortization for the first quarter was $42 million, essentially flat with the first quarter of 2009. Our expectations for depreciation and amortization for to fiscal year 2010 are unchanged at $160 million to $170 million. Capital expenditures were $21 million for the first quarter, as compared to $32 million in the first quarter of fiscal 2009. Our current guidance for fiscal year 2010 CapEx is unchanged at between $150 million, and $160 million. During the quarter, we repurchased $50 million of our outstanding stock at an average price per share of $34.64. As of quarter end, we have $600 million remaining under our stock repurchase program. Our effective tax rate in the quarter was 35%, Our outlook for the full year tax rate for fiscal 2010 remains at 34%, noting however, that the tax rate for 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. Let me conclude my remarks this afternoon by adding some color around our revised revenue and earnings outlook. As I've already indicated, we significantly increased our guidance for non-GAAP income from continuing operations for fiscal 2010 to a new range of $3.85 to $3.95 per diluted share, compared with our previous range of $3.40 to $3.50 per share. As a reminder non-GAAP guidance only excludes acquisition-related costs the new guidance is $3.74 to $3.84 per share on a GAAP basis, compared with our previous range, $3.25 to $3.40 per share. Revenue in fiscal 2010 is now expected to be in a range of $5.1 to $5.2 billion. For the RF Communications segment, fiscal 2010 revenue is now expected to be in a range of $1.9 to $2.0 billion including revenue of $1.4 billion to $1.5 billion for the tactical radio business. Segment operating margin for the year is now expected to be in a range from 29% to 31%, as a result of the higher volume, favorable tactical radio product mix and lower operating costs. Previously operating margin was expected in a range from 25% to 27%. For government communication systems, revenue for fiscal 2010 is now expected in a range of $2.7 to $2.75 billion or 0% to 2% above the prior year. After adjusting revenue for the impact of our two small acquisitions and the lower revenue from the FDCA program for the U.S. census bureau, which you recall is ramping down this year, year-over-year under lying growth is expected to be a very strong 9%. Operating margin and government communication systems is now expected to be at about 12% of revenue for the year. For broadcast communications we lowered our fiscal 2010 revenue forecast to a range of $525 to $550 million, reflecting a slower expected recovery in orders growth to the continuing global economic recession. Operating margin at broadcast is now expected to be 4% to 5% for the year as a result of the lower volume. At this time, I'll ask the operator to open the line and we'll take your questions.

And operator before we take a question, I just want to encourage everyone to try to keep it at the one question. If you have a follow-up or another question, you can just come back to the queue, and hopefully this way we'll get everyone on the call to be able to have the opportunity to ask at least one question. Okay operator.

Okay. Great, thank you. (Operator Instructions) We'll take the first question from Tim Quillin with Stephens Inc. Please go ahead.

Good afternoon. Nice results. You alluded to, I think, a potential radio order from Iraq, and you talked previously about the Iraq MOD order. Could you just give us an update on where you stand there? Thank you.

Tom, nothing specific, other than we continue to be very bullish in the long run, regarding opportunities in Iraq, both with the ministry of interior, where we have gotten a number of orders in the recent quarters, as well as the Ministry of Defense, where it's been a few quarters since we've received any orders. We now think that these order wills spread out over time, will come in small chunks perhaps $10 million, $20 million, and $30 million. At this point, don't know precisely when we'll get the next order, but they're certainly queuing up in the pipeline. We still think over the long run there are hundreds of millions of dollars of radio opportunities for us in Iraq, as they transition and get on the ground their own com equipment.

And our next question will come from Jim McIlree with Collins Stewart. Please go ahead.

Could you repeat what you said the backlog was on the tactical radios and then of that backlog, how much is Falcon III related?

I'll look it up here. I believe its $760 million, Jim, is the backlog for tactical radios, and I don't know the precise breakout between the two. We talked about our orders of $220 million in the quarter for Falcon III. I suspect very few of those shipped at this point, but don't have any specifics on the split.

And the next question will come from Joe Campbell with Barclays Capital. Please go ahead. Joe Campbell - Barclays Capital Hi, it's actually Carter Copeland. Just wanted to say first off great quarter, guys.

One quick one. With respect to jitters changing, you know, control of the program from to the Army, how, if at all, does that change the nature of your interaction with the customer and, you know, obviously with the new product offerings and the success you're having with the Army, you know, what's changed in your mind and how you go to market and how you interact with that customer base now that the nature of the jitters program has sort of changed, you know, from the Navy to the Army?

Yeah, I don't think that, on the surface, I don't think that the change of reporting is probably the key element. I think the key element has been our strategy over the last two years where we have aligned ourselves up and down the chains of command in the military, especially in the Army and the Marine corporation and not only in the procurement organizations, but in the command organizations. We have a lot more people forward-deployed today with our customers. On military bases here in the U.S, as well as distributed in other parts of the world. I think that that has led us to a closer working relationship with the customer, especially with the Army, and so I think you see that reflected in our success with the Army, are being able to be on target with the performance characteristics of the new Falcon III radios. Our ability to do things like incorporate the Rover wave form immediately, not years down the road so that they can take advantage of UAV feeds directly to the radio for review, and then wideband networking. Our incorporation of the DMA waveform and TACSAT capabilities, I give all of that credit to our people who are working side by side with the customer, going through the needs analysis. So I really think that's what has led to our success and will continue to feed our success more than whether the program reports per say into the Navy, Army, or directly to DoD assistant secretary for procurement.

But given your, all of your success with the Army, you wouldn't see any difference in having Army leadership where you have had a lot of success and a lot of inroads in placing products in the hands of the customer, I suppose to the Navy where that hasn't been the case?

Yeah, I certainly think that it made sense for them to make the change, given that the Army is the premier user of tactical communications and we continue to work at all levels, both with the JTRSPEO. They're very important in terms of approving the radios and managing some of the procurements. We also work directly with other organizations whether its Army communications, electronics command, CCOM or as I indicated today, the contract at the Marine core systems command, which we expect to be utilized to have a follow-on procurement this quarter of radios associated with the MRAP ATV, and they've put that intention out in their website, the public domain, and are in the process of, according to that raising the procurement ceiling for that contract.

Great.

And next question will come from Joe Nadol with J.P. Morgan.

Thanks, good afternoon.

Hi, Joe.

Hi. My question is on the margins in RF. You know, you decided Howard, three drivers of higher margins. Looks like your drop down from the higher sales of a $100 million is a 100% and some I guess, middle of the range from about 482 to 585, so I'm wondering, I guess, if you could break that out into pieces, if possible, or give us a little color. And, also, just let us know what if the margins in the acquired business, the M/A-COM business are substantially higher than what you had guided for last quarter?

I will answer the second part of your question, our guidance on the government and public safety business unit, which includes predominantly the Tyco wireless systems, formerly M/A-COM acquisition, and a little bit of our business that we had in public safety. Our expectations for that have not changed around $500 million or so in revenue, and 8% to 10% operating margins. That's what we indicated last time. So we're holding to that, and are encouraged by the initial few months’ operation of that business. In terms of the details behind the increased margin, so it's all coming from tactical radio revenue, and it really is all of the elements that I indicated; the mix of products, obviously, a higher percentage of HF than we had previously expected, but also a higher percentage of US DoD. When you look across at the mix of what they're buying, it's not just the radio family, but are they buying just radios? Are they buying vehicular adapters, accessories, lots of things come into that mix? Number two, we have exceeded our own expectations in terms of the impact this year of our cost reductions, and not just cost reductions in taking operating expenses out of the business, but in driving down our materials costs, and our efficiencies in the factory. And then third, when you level set your business at a lower level which we did as you know at the beginning of the year, and then your revenue goes up, you produce significant leverage in terms of absorbing factory overhead and other costs. So all of those factors have come together to create the margin improvement that we're indicating, which is around, based on my guidance, about 4 points or so above where we thought it would be in our previous guidance for the segment. It's all driven by tactical radios.

Next question will come from Gautam Khanna with Cowen & Company. Please go ahead.

Good afternoon. Congratulations on great order.

Thank you.

Thank you.

I was going to ask, there was a talk about ANW2 waveform testing to see if it was scalable for deployment, more widespread deployment in Afghanistan. Can you update us on what those tests determined?

The testing is ongoing, and so we won't have any results until those have been completed by the government so I can't comment on how that's going to come out. Obviously, we believe it's going to be very positive. We believe that the DoD will authorize broader fielding of the ANW2 waveform. It is, we think, very robust. And it is already becoming battlefield proven in its capabilities. So we continue to be very positive, and optimistic about broader feeling of the waveform, but in terms of the specifics of the test results, we haven't received those yet.

May I ask a quick follow-up as to how those might be procured if the tests are successful, would it be under the IDIQ Contract you announced recently or would it be another vehicle? And also would you provide…

Well certainly we have a lot of head room left under the blanket purchasing agreement, when we compare the $419 million to the initial order of $165 million. So it certainly can be procured in that way. As we have seen, DoD has many pass to procure our radios, and have taken advantage of probably all of them over the last year or two. But that's certainly one way that they could immediately place additional orders for the Falcon III, including the ANW2.

And the next question will come from Larry Harris with C.L. King. Please go ahead.

With respect to capacity utilization, I think you mentioned earlier on the call that some international sales were deferred because of pressing domestic requirements. So where do we stand in terms of capacity utilization. I know a few years ago there was talk about setting up a second manufacturing facility in the UK. How do you stand? Do you think you'll have to add additional capacity?

I think we have adequate quite capacity if you put in perspective that even with the increased guidance for the tactical radio business; we're still a little bit below last year's level. So we clearly have overall capacity. Some of these orders have come in very quickly, so it's really a question of how quickly can we ramp back up the capacity that we have installed by bringing back workers, and how quickly you can do that without creating any kinds of quality problems, which obviously we don't want to do. In addition, these are relatively quick delivery requirements, because of the urgency of the MRAP program especially. So we're trying to bake all of that in, and at this point we have started to move out some quantities, at least until later in the year, some quantities of international radios, as well as I'll say lower priority U.S. DoD radio shipments. So that we can, especially in the second quarter and the third quarter, get our capacity up and support the MRAP deployments, which are the top priority of DoD.

Next question will come from Mark Jordan with Noble Financial. Pleased go ahead. Mark Jordan - Noble Financial Good afternoon, everyone. Howard, on your the fourth quarter conference call, you gave viewers to what you perceive to be the pipeline of opportunity for the tactical RF business 12 to 18 months. Of about $3.5 billion, $1.5 billion international and $2 billion DoD? Given the $586 million in the Q1 and obviously the positive developments in the marketplace could you update those numbers, update and given what's transpired the last three months?

I don't have anything specific for you, Mark. I don't think that the overall pipeline is all that diminished. We continue to identify major programs and needs in the very long run as we've discussed before. It has more to do with priorities and funding, both U.S. as well as internationally, than it does the needs and demand. We think the demand absolutely will continue to outstrip the, current term funding, because you'll recall there are lots of legacy radios just in the DoD inventory that have been deployed, that ultimately all of these units are going to want the same kind of capabilities of the latest technology. So bottom line, I don't see a major impact, certainly not over the next year or two, as today compared to in the fourth quarter. Mark Jordan - Noble Financial Okay.

The next will come from Myles Walton with Oppenheimer. Myles Walton - Oppenheimer Thanks, good evening, and great quarter. The order outlook at RF, I think you previously said $1.3 billion to $1.4 billion kind of looking at a book to bill one times in the tactical radio business, now that you have got the strong 1Q and NATB in hand for 2Q, what does that number now look like as you see it for the full year?

Myles, in terms of the book to bill? Myles Walton - Oppenheimer The bookings exactly, for tactical.

Certainly above one to one, don't have a lot of precision at this point and exactly what the number is going to be, because the requirements literally continue to evolve on a weekly basis, but I'm certainly confident we're going to be well above one to one, and that we will build backlog at RF tactical radios during the year. We're obviously hopeful and optimistic that we can also build backlog in the public safety part of that business as well as time goes on in the rest of the fiscal year. So we expect to finish the year with more backlog than we began.

Next question will come from Chris Donaghey of SunTrust Robinson Chris Donaghey - SunTrust Robinson Hi, good evening, guys, and again good quarter.

Thank you. Chris Donaghey - SunTrust Robinson Howard, I wonder if you could talk about your guidance philosophy for this particular year. I remember in the past you had kind of set tactical radio guidance based on about six months of visibility. Based on what you're seeing now with some of the planned procurements, plus the orders in hand, and future expectations, can you talk about what you're using to set this new guidance number? You know, how much is till on the coming versus already in backlog, or at least factored into the high probability?

Yes, very good question, Chris. We certainly, where we have really good visibility on backlog and when the deliveries are going to be, you know, all of that is baked in. Everything else is factored based on probability, and, you know, those are judgment calls. We spent a lot of time over the last week trying to assess, with the RF leadership team, where we wanted to establish guidance on today's call. We've established that as indicated, about a $100 million dollars in revenue higher than we had previously. But there still are lots of moving parts in terms of how orders turn into revenue at this fiscal year versus next fiscal year. I think you would find our practice and our track record is to be, well, say, leaning toward the conservative side of guidance, so, overall, I would say I feel like there's more upside than downside. That's one of the reasons that we provide a range. Something could always happen that you're not expecting, but I'm feeling very optimistic with regard to the order rates. This indication about the additional RF orders obviously weighs heavily into our thinking for guidance, but, at the same time, it's not in at a hundred percent. Chris Donaghey - SunTrust Robinson Okay. Great. And then just a quick follow-up on the margins. Obviously with the current margin guidance, you would expect to end the year at a run rate that would be in the low 30s, call it 32% or so. How sustainable do you think those margins are going forward?

I think it's too early for me to really comment on that. I think the message about beyond FY-10, starts with the momentum that we have going on now in terms of acceptance, especially of our Falcon III radios and I would say acceptance and encouragement by the customers and the DoD for the long term role for commercially developed products. In terms of the sustainability of margin, at any given level it has a lot to do with, as I answered earlier, with the mix of all of the business it’s in there in the costs and it's just a little too far out at this point, Chris, for me to indicate whether it will be sustained or not. We clearly are going to continue to invest in this business. So to the extent that we feel we've cut the expenses a little too low and we want to ramp back up some R&D, we're certainly going to do that. Having said that, I think it's fair to assume we will manage that and you shouldn't look for any steep or step-like decline. So we'll manage our way through it. If we feel we need to moderate the margins a bit, as I think you've seen us do in the past where RF margins have 100 or 200 basis points but it's always been over a gradual period of quarters as we kind of manage it. So I'm not suggesting that will happen in this case, I just don't know at this point whether margins are sustainable at that level. I will tell you, our team has done just an outstanding job in taking costs out of these products and given the features that we have in the products that gives us the ability to earn the price that we receive and through the cost reductions to earn higher margins, as well. So I think you know me well enough at this point, and my division leadership does, that I'm not going to give up those margins unless there's some strategic reason for doing it on the investment side. So hopefully that gives some color around it. Chris Donaghey - SunTrust Robinson That's great. Thanks again.

And the next question will come from Michael French with Morgan Joseph.

Congratulations to you and your team for a strong performance.

Thank you.

A question on the public safety business. You're able to produce bookings in excess of revenue for the quarter, and I know its early days, the acquisition, but has your assessment of the market opportunity changed any in that segment?

No I don’t think so. I've been spending a lot of time with our team, with customers over the last three to four months, since we closed on the acquisition. I think that the opportunity pipeline is in fact larger, if anything, because there are so many systems out there with relatively antiquated communications capability. And the needs of the customers in public safety are frankly not all that far behind the needs in the military in terms of assured communications, more interoperability across different organizations and agencies, covering a wider areas geographically. And so it really is more of a question of not if that market is there, but when can it be realized in orders based on funding. Certainly, state and local funding is under some pressure, as a result of overall budgets. And some of the stimulus money is flowing though from the federal level into state and local. That's helping. And other forms of funding are being identified. So, you know, bottom line, I think the market in North America is very large, very robust, and in the long run. And I guess the thing that I would leave you with that's probably been the biggest impact impression on me has been the acceptance and encouragement we're getting from customers and prospects. We felt that the market would welcome and support a stronger player, which we think the combination of Harris and Tyco electronics wireless systems creates. And I've seen nothing but a confirmation of that in my discussions with customers and prospects over the last 90 days.

Next question will come from Tim Quillin with Stephens Inc. Please go ahead.

Thank you for taking my follow up. I just had two quick questions. One is, you mentioned that you had award fees on your FTI contract. I was wondering if you could gives us a sense of the magnitude, because it sounds like you expect margins to be a little bit lower for the remainder of the year in [GCS], and then the second question is, do you have any kind of early insight into the government fiscal '11 budgeting process and how the funding profile for tactical radios might change as we get more granularity in to the next few years, kind of pre-jitters program ramp up. Thanks.

Well, with regard to your first question, without commenting specifically on the FTI award fee, 12.8% represents about $5 million higher than our 12% kind of target now for the year. So, that would kind of give you directionally what some of that might be worth. We transitioned from the program phase, we were in which was largely deployment, and now our transitioning into the ongoing phase, which will run for the next eight years, I think, in the total 15-year program. Overall, though GCS continues to perform at a very high level, we have a minimal number of red programs. And we continue at a 12% kind of target to be in the higher end of integrated systems and services companies. And so we're very proud of that performance. I wish I could have more insight into your question regarding government fiscal year '11 budget. Obviously there's a lot of work underway right now. We certainly know that there is a desire on the part of secretary gates to find room in the budget, because of overall pressure. Our strategy continues to be to try and focus in those areas and programs that we think are going to be highest priority. We think communications, and IT systems, especially mission critical communications and systems will continue to be funded. A lot of our programs are funded through long-term program budgets that do not appear to be under any kind of pressure. Many of our programs, FTI, for example is a cost savings compared to the myriad old networks that it replaced. So, certainly don't see pressure in those areas. We continue to believe that our commercial solutions and JTRS-approved radios offer significant advantages in terms of overall cost, and availability, and feature sets, and continue to tell that story to our customers, and the DoD procurement organization. But in terms of having any particular visibility into what's going to be in the budget, I don't think we have that, and we'll have to stay tuned like everyone else.

Your next question comes from Jim McIlree with Collins Stewart.

Thanks again. Gary, does the expected tax rate for the year include an R&D tax credit?

Right now it does, but there are also some one-time events that could also benefit, so it's a moving target in a way, I should say, but ultimately, we will expect to be around 34% for the year, regardless of what happens with the investment tax credit, but that definitely factors in to our thinking.

Operator, we'll take one more question.

That question will come from Mark Jordan with Noble Financial.

Good afternoon again. Howard, you mentioned that there seems to be a shift in receptivity of DoD for Cox generically on the radio side. Does that have an implication for the JTRS formal program, where there is subsidization of radio development in the industry that could develop into competition? Is there the opportunity for that to be reviewed by gates and truncated given the lack of performance and high cost?

Well, I say again, certainly can't predict what the DoD will do with regard to those programs of record, but we are certainly in a position where we're making a very strong case advocating Harris and other commercially developed products as viable alternatives. We have, through this program, I think it has really shown the value and the place for commercially developed technologies as an adjunct to traditional government programs of record. We've gotten to the market faster, we're able to hit the mark in terms of advanced features. We can add those features very, very rapidly and continue to stay current. We are particularly valuable at times where communications and the urgent need is there, because our ability to respond in advance in anticipation of orders is so different than a traditional program of record which even long lead time items typically aren't ordered until you have some indication from the customer. So I think, it's presented a stark contrast, not that one is better than the other, but that there is clearly a place for both in your thinking when you are trying to manage all of the trade-offs between schedules, budgets, and features, and I think based on the results, I think they speak for themselves in terms of a lot of listening and acknowledgement of our position is going on.

All right everyone. Thank you so much for joining us today.