Good day ladies and gentlemen and welcome to the Harris Corporation Fourth Quarter 2014 Earnings Call. (Operator Instructions). I would now like to turn the conference over to Pamela Padgett, Vice President of Investor Relations. Ma'am, you may begin.

Thank you. Good morning, everyone, and welcome to our fourth quarter fiscal 2014 earnings call. I'm Pamela Padgett. And on the call today is Bill Brown, Chairman and CEO; and Mick Lopez, Senior Vice President and Chief Financial Officer. And before we get started, a few words on 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. A 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. Bill with that I'll turn it over to you.

Thank you Pam and good morning everybody. Fourth quarter revenue and earnings were solid and we generated significant free cash flow. For the full fiscal year revenue and earnings per share came in at the high-end of our guidance range and free cash flow is excellent and exceeded our goal for the year. Our strategy to lower cost, invest in R&D to drive growth, maximize free cash flow and return cash to shareholders is servicing as well as we operate within what is still a constrained a U.S. government spending environment. Turning to slide 3 and 4 of the presentation, revenue was down 2% in the fourth quarter and the fiscal year and although the government market is having an effect particularly in our U.S. tactical and IT services businesses. Several growth areas with good momentum are minimizing the impact. International growth continues to be strong and was up 8% in the quarter and 13% for the year driven largely by the tactical radio business although our CapRock business is also contributing. CapRock which participates in the global maritime and energy markets had revenue growth in all four quarters, excellent second half orders and a full year book to bill greater than one. As a percentage of total revenue international increased from 26% in the prior year to now 30%. Our government communications business is bucking the trend with modest growth in both the quarter and full year showing great resiliency. While the specific revenue drivers vary quarter-to-quarter for the segment, our strategy to grow the core by leveraging strong franchises to create new opportunities in the areas of space and intelligence, air traffic management, geospatial imaginary, avionics and weather is working well and is gaining momentum. Turning to earnings, EPS was a $1.28 in the fourth quarter and $5…

Thank you Bill. Good morning to everyone. Moving to segment results on slide 5, RF Communications revenue was $493 million down 1% compared to prior year. Segment orders were $361 million compared to $646 million last year. In tactical communications revenue was $348 million up 4% over the prior year with strong international revenue growth of 11% more than offsetting lower revenue in the U.S. A soft U.S. market also dampened orders which were 232 million in the quarter. This compares to prior year orders of 498 million which benefited from strong international bookings. In public safety, revenue was a 145 million down 12% compared to a 165 million in the prior year. Continuing weakness in the state and local market also impacted orders which were 129 million compared to 148 million in the prior year. Operating income for the RF Communication segment was a 141 million and operating margin was 28.5% reflecting the planned increase in R&D spending. For the full year operating margin was 30.7%. Now turning to integrated network solution segment on slide 6. Fourth quarter revenue was 373 million down 9% compared to the prior year. Revenue growth in commercial CapRock and commercial healthcare was more than offset by continued U.S. government market weakness. Segment operating income was 33 million compared to non-GAAP operating income of 36 million in the prior year primarily as a result of lower revenue volume. Operating margin was 8.7% slightly higher than non-GAAP operating margin of 8.6% in the prior year with improved operating performance in CapRock and healthcare offset by lower operating margin in IT services. We were encouraged by the progress made during the quarter in healthcare. With the roll out of our new vendor neutral suite of interoperability solutions called Fusion FX. The number of live deployments grew…

Thank you Mick. As our fiscal ’15 guidance reflects we’re anticipating a similar constrain budget environment to what we experienced in our fiscal ’14 with the government operating in the first part of GFY ’15 under a continuing resolution. Under a CR, our experience is that spending is generally slow with new starts on hold as customers either don’t spend or spend reluctantly until they have clarity for each specific budget line. So for Harris we will continue to make sure our cost structure reflects the current environment and our organizational structure is optimized for success. And we will stay the course with what’s working in this environment lowering cost, investing in technology and innovation to drive growth, maximizing free cash flow and returning excess cash to our shareholders. I’m really proud of what our teams have accomplished this past year and we’re committed to driving value for shareholders while meeting the needs of our customers for high quality, innovative and affordable solutions and with that I would like to the ask operator to open the line for questions.

Our first question is from (indiscernible) of Goldman Sachs. You may begin.

This is Omer filling in for Nova. Just wanted to get your latest thoughts on capital deployment options here and also in particular how are you guys thinking about the portfolio after the initial actions that you took and are you going to consider any potential M&A whether it be major even or a tug here or there?

I’m not going to comment today on any potential portfolio actions or M&A but I would say that there is no recent event that’s changing our strategy from the past on capital allocation. We remain committed to returning cash to shareholders and what we have always been doing is a smart and in an efficient way. If you look back over the last 3 years we have returned close to 90% of our free cash to shareholders in the form of repurchases of dividends. Our number one priority has been and will remain funding internal requirements and I think we have proven ourselves to be able to do that through capital spending and R&D investment. We continue to pay an attractive dividend, we have got a strong track record of double digit growth and I talked a bit about that in my remarks, 19% compounded over the last three years. As we move back this past year we started out the year at $200 million target for share buyback and we ended up $300 million. If you look at the last three years it's $1.2 billion in share buyback so it's been a pretty healthy amount of shares repurchased in the marketplace reducing our share count by about 15% and again we’re guiding it at $200 million of shares as you know from our balance sheet we don’t have any debt due until the end of 2017 and we continue to focus on generating strong free cash flow. I think our fiscal ’14 results point to that. We’re targeting next year 100% of that income again certainly our executive team is now incentivized on free cash flow and that’s been a change in the last couple of years and I think the results are showing through on our numbers and we will continue to reevaluate overtime how we deploy our capital. So thank you very much Omer.

Just another quick follow-up, you did discuss the international and tactical radio trends for the quarter and the year there. What was international book to bill both for the quarter and the year and is there any timing profile that you can give us an update on as to how we think about these awards for that ex-fiscal year?

We don’t talk about the individual components within tact between U.S. and international in terms of bookings or book to bill or things of that nature. I think as you’ve seen in the report the tactical book to bill in the quarter was about 0.67 for the year and it ended up about 0.86. The international business as I mentioned in my remarks was very, very strong, it was up 25% and it ended the year very strong in Q4, with up 11. And as I did mention the pipeline is strong at about $2.5 billion up a bit from the last time. So we remain encouraged by the trends that we’re seeing on the international side.

Thank you. Our next question is from Joe Nadol of JPMorgan. You may begin.

On the ’15 outlook what is your plan for domestic versus international tactical radio growth if you are willing to share that?

At RF, overall it's flat to down 3 and we see tactical down low single-digits. We see the international side up low single digits and on the DoD side down low double digits so read that 10% - 12% in that range. So that’s a complete -- I mean PSPC is about flat just sort of complete the circle on the RF Com segment.

And then just on the international front, you upped -- you did some commentary certainly already and you upped your pipeline and you said I think it was early stage opportunities. I was wondering if maybe you could help us think through that 2.5 billion from a timing standpoint, are there near term bulky or good size orders out there that you think you can pull in before the end of the calendar year and then maybe a little more color on what the early stage opportunities look like?

Yes the pipeline came up a little bit and it was as I did mention some earlier stage opportunities but we still feel very confident about the size of the pipeline. As I mentioned coming off the year where we booked a lot of good orders and grew our business by 25% which I think is astounding to see the pipeline replenish itself and actually grow a little bit. I think it's very, very significant to us. We see about 750 million of that 2.5 billion that are in the proposal closure finalization stage so the probability is very high. The timing Joe, as you know is always a bit difficult to predict. The shape of the pipeline looks pretty much in-line with what I mentioned last time, it's slightly more than half the Middle-East and Central Asia where we know that our number of security concerns you can pick up a paper and read about that quite a bit and U.S. is pulling back. Iraq is significant, I mentioned that last time and it remains a significant component of our pipeline today. It's both the Ministry of Interior as well as the Ministry of Defense we booked an order very recently in Q4, it's little small but I think it was significant. It has gotten through the vast majority of the licensing from the U.S. government. So it feels very, very good. We see opportunities in the country in Northern Africa that remained very robust, it's a Phase IV of what has been a long term multi-phased program for us where we have actually if constructed in-country assembly facility so we know we have got a lot of staying power with that particular country and then within the Middle-East the UAE looked strong, Jordon looked strong, Oman is strong, Saudi has gotten a little bit bigger over the last couple of months to quarter and we feel fairly good about those opportunities. The balance, the other half or little less than half are just as we have mentioned before collision countries, it's countries in APAC like Australia, Philippines and others, and in Latin America, Brazil looks pretty good, Mexico looks pretty good. As you know Brazil we were chosen for the early part of the (indiscernible) program, we see that accelerating through fiscal ’15. Long list of other opportunities but in general Joe, that is sort of shape of the pipeline.

And then just one more, R&D you mentioned I think was 5.3% in terms of IRAD. What’s your plan for FY ’15?

Well when you look back since I came here 2.5 years ago we were about 4% of our revenue being spent in IRAD, Internal R&D and now IRAD is 5.3% so it has come up quite a bit in the last 2.5 - 3 years and we tried to point it towards those businesses where we have strong returns and strong growth opportunities based on technology and innovation so we pointed it directly at our tactical business and we have stepped up quite a bit as well in our government communications business. So it's 5.3%, it's a pretty healthy amount of spend. We believe we’re fully funding the best opportunities. We’re looking across the company now as a portfolio, as opposed to looking at the individual businesses on a (indiscernible) basis. We have a significant amount of engagement by our Board in R&D since it's such a significant investment and strategic to the company but as I go forward into ’15 we may see a slight tick-up but not to the magnitude we have seen in the last two to three years Joe.

Thank you. Our next question is from Carter Copeland of Barclays. You may begin.

Just quickly on INS. It looks like with the growing pieces that IT services, it looks like it's probably down in the kind of mid-teens range in the guidance for next year, is that right? And can you comment at all on what the sort of underlying trends in the business are at NMCI.

Yes let me sort of start and maybe Mick can jump in here a little bit. Clearly we still are in a relatively constrained government market, the procurements are slow, there has been a lot of competition on the IT services business and the government side of CapRock. Some of it's offset with some improvements on commercial CapRock as well as the commercial healthcare business. As we look out into fiscal ’15 total INS is down 7% - 8%. We see continued growth on the commercial side of CapRock which we see up high single digits as well as the commercial side of the healthcare business which will be up I guess a small piece up around 20% or so. And that’s going to be offset by a weak U.S. government IT services market, that will be down high-teens so your mid-teens is in the ball-park with more like high-teens. In the U.S. CapRock side of the government side, it will also be down a little bit sort of mid to high single digits but that’s coming off a very, very weak FY ’14 where our government side of CapRock was down in the mid-20s, say 24% - 25%. I think what’s significant here Carter is that we are seeing two things happening in the IT services businesses, one is the roll-off of the NMCI contract Mick, mentioned that, that’s where the $90 million of revenue and about 40 million of profit roll off between ’14 and ’15 and then the other part is we have decided to not sell in the net sense products IDIQ because it's simply passed through, business is coming through a zero gross margin and it is adding nothing to our shareholders. Those two pieces, those two decisions together are a $160 million worth of revenue. So you pull that out and it would make the hits business to be roughly flat year-over-year outside of those two moving parts and hopefully it gives you a little bit of color within INS and I answered your question but let me if there is anything else you want to know about INS?

No that’s exactly it, I wanted to get to what the business looked like ex those movements so that color is really helpful. Just secondly if you could give us a little bit more color on PSPC for next year and the flat guidance there. I wondered if you might just talk about the environment there bookings trend, any challenges on state and local side, just anything to help us understand the directionality of that business next year and then beyond and if your views there have changed at all?

It hasn’t changed a lot in the last three months since the last quarter, the issues we have in PSPC remain two fold, one is both the market itself and the market appears to be getting a little bit weaker than where we were just a couple of months ago and there is execution. I don’t want to pile on the execution issues. They are going to take a number of quarters to fix. We have seen some delays in the roll out of some systems due to some customer issues. I think we’re responding, as I mentioned last time we’re adding on the sales and marketing side. We’re investing in a product offering, we’re investing heavily to improve the quality of our software architecture and our product we’re selling into the field all of which I think are positive things, it will help us overtime but what I have seen is I really spend a little more time on this business. There is no silver bullet here. On the market side it is a bit weaker than where we thought just a few months ago, we now see the market to be down maybe flat to down mid-single digits as supposed to being more flattish and what I think is happening here we’re sort of caught between two pieces one is the rebanning that that happened and ended around January ’13 that had a positive effect and maybe pull forward some sales. And then on the right hand side or the later side is the investments that are coming down the path on LTE and when I think is we’re sort of stuck in the middle we’re winding down from the rebanning and state and local customers are waiting for the uptick on LTE and I think that’s what’s compressing the market that we’re in today. So, I think the state and local finances are a little bit better but we don’t see that reading through right now in opportunities for public safety. I think when you setup and you look at it longer term we do know that those analog systems that are out there and there is quite a few will shift to digital. LMR will move to LTE overtime. I think we’ve taken all the right steps to take out cost, to position our product to be successful, to upgrade our management team and I know we have got margin expansion opportunity so I think for Harris public safety will be a long term growth story. It is just going to take a little time for that to figure itself out.

Thank you. Our next question is from Yair Reiner of Oppenheimer. You may begin.

Start with a couple of questions on RF. I think backlog total between tactical and public safety is down about 15% exciting 2014 relative to 2013 but your guidance for 2015 revenue is pretty close to flat. So I’m wondering what is it about either the backlog or the pipeline that gives you confidence that the turns business will be better than it typically is in 2015.

Well I think on public safety we’re coming off of a fairly weak 2014, fiscal ’14 and in a market that’s softened down a little bit. I think we just hold share, we will see our business stabilize and we feel reasonably confident that we will see better performance in public safety in fiscal ’15 than ’14. It may not be up, but we’re guided to be about flat right now. I think on the tactical side look we do know that we’re ending the year with our backlog down a little bit it's about 24% year-over-year it declined sequentially by about 70%. We anticipated some decline or coming off of a pretty strong Q2 and Q3. So we thought that was going to end up happening. Typically what we see in the year is about 60% of our backlog converting to revenue in the subsequent year. We have some multi-year orders in our backlog today. Last year we converted about 60% of our backlog and 40% in the year before it was just over that around 61% - 62% so that’s not unusual. Then we’re also seeing in the 65% to 75% range of new orders converting within the year that’s what we have seen over last couple of years and we expect to see a same trend going into fiscal ’15. So when you put those two pieces together I think we’re pretty confident about the guidance and the outlook we have for both tactical and public safety. As we come back and look at just where we’re in the pipeline, the DoD pipeline down a little bit sort of the $900 million to $1 billion range so it's holding in there even without any HMS opportunities in there and with the international side remaining relatively healthy at 2.5 billion we do know that some of those opportunities will come to bear in fiscal ’15 and all that taken together is what gives us confidence on the guidance for next year.

And then in your prepared remarks you referenced I think 200 million to 300 million in unspent JTRS funding. I just want to make sure I understood you correctly, is your belief that will be repurposed in order to fill the fielding gap which will potentially be used for your products and if so over what time span do you expect that $200 million to $300 million to be spent?

The $200 million to $300 million at the end of GFY ’15 was on the HMS line, on the MNVR we think it's sort of $60 million to $65 million in that range, so just to distinguish that. And yes there are, the army can buy SRW appliques against that funding and they can buy those appliques to plug some of the fielding gap. So that is our hope and expectation that some of that will happen over the course of the fiscal year.

Thank you. Our next question is from (indiscernible) of Cowen. You may begin.

So a couple of questions, given that JTRS delays that you’ve outlined presumably the overall RF Tactical market opportunity has declined in fiscal ’16 even though I understand your reported pipeline had already excluded a lot of that JTRS opportunity out. Is that a fair assessment and if in fact the overall market opportunity is going to stretch that a bit. What do you think that should pertain for pricing even in the international market for tactical product?

I think the market itself is going to be flattish in the next couple of years to be honest with you. I think the international side because we’re a big player on the international front. I think the international could be up modestly I think we did capture a little bit of share in our fiscal ’14 but it could be up modestly in our fiscal ’15. The fact that the pipeline, that’s over 12 to 18 months sort of hangs in there for U.S. DoD at the $900 million to a $1 billion range is an indication for the size of the market that happens to be out there in U.S. DoD. Just because of the HMS moving out and the funding is not in that pipeline we took that out last time. So that really doesn’t affect the way we see the marketplace. There are number of opportunities that we see coming on resets, modernization and other parts of the military services more than 60% of our U.S. DoD pipeline is outside of the U.S. Army, it's the airforce, it's SOCOM, it's the Marine Corp that are modernizing and standardizing on Harris technology and that still appears reasonably robust. When you talk about pricing we compete every day on pricing both in the U.S. DoD and outside of that and in every discussion we have and every contract we sign there is significant pressure on the pricing side. I think the fact that we bring significant technology to bear, you know product that delivers in the field with very, very, very good quality. I think it allows the hold on our pricing and our margins in the tactical radio business.

Don’t want to delever [ph] the point but you understand my question is not how you define the market it's how -- it's sort of how all players that the supply products that compete with RF tactical define the market and imagine on a net basis even though your pipeline is flat to up sequentially maybe the rest of the world wouldn’t see it that way and presumably drive some pricing pressure but I guess you just don’t see it that way, is that fair?

We see pricing pressure in the markets that we happen to be but keep in mind when you’re deep with a particular service in a country those opportunities do tend to come back to you. We have incumbency in some markets. So when opportunities arise we tend to be at the front of the line for those kind of opportunities. We do have difficult pricing conversations with every one of our customers but I don’t see it increasing measurably next year from where we were at this past year on the international side.

And can you remind us of the 260 - 270 of R&D spend that you actually spent how much of that is directed at RF tactical in ’14 and then how are you adjusting that specific spend in RF tactical in fiscal ’15?

There is a fair amount of the -- about 260 to 265, you’re very insightful on that number, it's in that range on internal R&D is spent at the RF Com business and the largest piece of that is within the tactical business. I think it's safe to say it's in the $100 million range but I don’t think I want to get much more specific than that, it's a substantial amount of money. As we go into next year there maybe a slight increase in that and may come from other parts of the company as we see good returns and good investment opportunities in tactical radio. We may see some shift, some of the increase that we saw in Q4 comes with adding of people and those people carry into next year so there will be a natural increase next year just because of the annulization of some of the investment we made in Q4, not a 100% of it but some piece of it. So a very good chunk of our investment is being spent in the tactical business. I would also say you can see the resilience we have in the GCS business 0 to up 2% next year relatively strong this past year, we have stepped up our internal R&D spend at GCS as well and I think that’s paying dividends as well.

Just one last one, if you can just comment RF tactical assumptions for your foreign sales mix for fiscal ’15 maybe between systems -- I think you’ve given some flavor on the mix is the mix more beneficial in that side of the business in fiscal ’15 than it was in ’14? Thank you.

Yes we saw at the beginning of last year, we talked about this quite a bit because we expected it will provide a little bit of margin pressure that we would see substantial growth in the amount of systems we’re selling into international market. We expected at that time that the systems business would roughly double year-over-year. It increased quite a bit, it didn’t quite double it was up about 50%. And we see another increase going into next year of a substantial amount of the orders seemed relative a market magnitude of 40% more or less. This year, this past fiscal ’14 it was around a $180 million to $200 million worth of systems business on the international side and it will go up in the 35% - 40% range next year.

Our next question is from Chris Quilty with Raymond James. You may begin.

Just want to follow-up on that FGCM Award, I know it's IDIQ but can you give us a sense of scale of the opportunity relative to your legacy program just order of magnitude how much big of an opportunity you see this has?

It's going to be substantial. We have done in the range of $30 million to $50 million a year with the NGA and my comments and I will just repeat them here that that business should double over the course of the next year or two. I think it remains the same Chris, so I think that’s sort of shapes and sizes the opportunity at a pretty high level.

And just talking about the HMS program when you look at the upcoming NIEs, how well do you feel your positioned in terms of having hardware in the field and the testing environment at any new requirements that have been placed on you?

Frankly there has been a whole lot that’s been happening on the -- in that particular area. We just came off a 14.2, I think our performance on 14.2 was quite good. We felt very, very good about it and I think we’re well positioned in the upcoming NIEs. I think if you read and I’m sure you’ve Chris, a lot of what’s written in the press and memos by very senior people in the military about the performance of Program of Record in other parts. I think we feel very, very well positioned with our HMS offerings both the manpack and the Rifleman. We talked to you before about the advantages of our own manpack product. It weighs less, it's smaller, has all the waveforms, doesn’t need all the expensive appliques, it boots up quicker all those various things and we feel very, very good about that and I think when I look at some of the comments coming out of the military based on 14.2 about weight, size, battery life, heat dissipation. I feel very good about where our product is going to stack-up based on our long legacy of developing products in this area. We developed our manpack product with an eye towards keeping the weight low, with an eye towards making it heat and thermally efficient. So we think that that is going to be a performance differentiator for us overtime. So I feel very good about our product offering both in what we did in 14.2 as well as what’s coming up in fiscal ’15 and I hope that answered your question Chris.

It does and an update on the Rifleman?

The Rifleman is very -- we have got a great offering in the Rifleman radio, for us it's the U.S. equivalent to our international soldier radio. We sold 44,000 of those radios around the world and I like where we stack up there as well. We have got a product with a longer battery life in excess of 12 hours, shorter connect time to network and I think as you might have seen in the demo it has a unique dashboard display at the top providing operational network status. So battery life remaining, numbers of users on the net et cetera, it's NSA certified. So we feel very good about our Rifleman Radio product as well and I think over the last year-and-half you’ve been asking us quite frequently about NSA sort on the manpack and I did mention in my prepared remarks we got that in June. So both the manpack and the Rifleman are bought NSA certified at this point.

And final question the announcement you had on the hosted payload on Next I think 63 million, if I remember your contract with Iridium was for something like 45 million so was there upside to the program in terms of the number or amount of hosted payload activity?

Yes substantially. It's Aireon is a program. It's a joint venture between NAV Canada and Iridium and our contract is really with Aireon and it's to put payloads on to this constellation and the total amount of payload I think it's 66 satellites on orbit with -- on orbit spares and on ground spares. So I think it's total of 81 and there is 81 payloads just for Aireon and on top of that there have been other payloads booked with other customers for that constellation and hopefully that answers your question Chris.

So this is upside on the -- I think it was 15% of the payload that you had reserved for classified customer activity and the upside is on that portion of it.

I would just say that it is upside to what we anticipate it when we signed Aireon in terms of the payloads riding on that constellation. I think it's all that we can say.

All right. Thank you everyone for joining us today.

Ladies and gentlemen this concludes today’s conference. Thanks for your participation and have a wonderful day.