Strong New Orders Momentum Entering Fiscal Year 2009

MELBOURNE, Fla., Aug. 5 /PRNewswire-FirstCall/ -- Harris Corporation (NYSE: HRS) reported that revenue in its fiscal fourth quarter ended June 27, 2008, increased 19 percent to $1.4 billion, compared to $1.2 billion in the prior-year quarter. Organic revenue increased 12 percent. Orders in the fourth quarter were significantly higher than revenue.

GAAP net income in the fourth quarter of fiscal 2008 was $122 million, or $.90 per diluted share, compared to $88 million, or $.63 per diluted share, in the prior-year quarter. Non-GAAP net income in the fourth quarter of fiscal 2008 was $128 million, or $.95 per diluted share, compared to $99 million, or $.71 per diluted share, in the prior-year quarter, an increase of 34 percent. Non-GAAP net income in fiscal 2008 excludes acquisition-related costs. A reconciliation of GAAP to non-GAAP financial measures is provided in Tables 5 through 8 along with the accompanying notes.

Full-year revenue in fiscal 2008 was $5.3 billion, a 25 percent increase compared to $4.2 billion in the prior year. Organic revenue increased 13 percent, and new orders were significantly higher than revenue. GAAP net income in fiscal 2008 was $444 million, or $3.26 per diluted share, compared to $480 million, or $3.43 per diluted share, in the prior year. Non-GAAP net income in fiscal 2008, which excludes acquisition-related costs, was $462 million, or $3.39 per diluted share, an 18 percent increase compared to non-GAAP net income in fiscal 2007 of $391 million, or $2.80 per diluted share. Non-GAAP net income in fiscal 2007 excludes charges associated with cost-reduction actions, asset impairments, acquisition costs and the significant gain associated with the Harris Stratex Networks combination.

'Harris achieved excellent financial results, notwithstanding the unexpected higher costs and accounting errors in the fourth quarter at Harris Stratex Networks. We continued to deliver double-digit organic revenue growth, and orders were significantly higher than revenue,' said Howard L. Lance, chairman, president and chief executive officer. 'Revenue increased in all four operating segments during the fourth quarter, on both a year-over-year and sequential basis. New orders combined with a robust pipeline of opportunities in the markets we serve are giving us confidence that fiscal 2009 will be another year of strong financial performance. To ensure margin expansion, cost-reduction actions have been initiated to better align resources to support faster-growing, higher-margin market opportunities.'

Defense Communications and Electronics

The Defense Communications and Electronics segment -- comprised of the RF Communications Division and Defense Programs -- continued its strong momentum of revenue and earnings growth. Fourth quarter revenue of $567 million was 22 percent higher than the prior-year quarter and sequentially was 12 percent higher than the third quarter. Operating income for the quarter increased 29 percent to $170 million, compared to the prior-year quarter, and operating margin was 30 percent.

RF Communications. Fourth quarter revenue in the RF Communications Division was $441 million, increasing 36 percent compared to $326 million in the prior-year quarter. RF Communications also posted another strong quarter of sequential revenue growth with revenue increasing 13 percent compared to the third quarter. Strong market demand and customer preference in both U.S. and international markets is continuing for Harris Falcon(R) tactical radios. This continuing success was highlighted by the diverse group of international customer shipments in the quarter, including Pakistan, Algeria, Georgia, the Philippines, Saudi Arabia, the Bahamas, Estonia, Ethiopia, Honduras, Macedonia, Nicaragua, Romania and the United Kingdom.

Worldwide demand for Harris software-defined tactical radios continues to be driven by multiple factors, including modernization programs, force expansion, force restructuring, interoperability requirements, and requirements for network-centric communications. Customer priorities continue to evolve across the defense, homeland security, public safety and peacekeeping landscape. Their communications systems need to be versatile and adaptable in order to be effective in multiple operating environments and missions. Demand will continue to increase for network-centric communications systems that can significantly improve situational awareness and force effectiveness through communications superiority. Harris Falcon radios embrace these changing mission priorities and offer superior multimission performance.

RF Communications orders in the fourth quarter included:

-- $118 million contract from the U.S. Marine Corps for Falcon II(R) multiband manpack radios as part of a $350 million Indefinite Delivery, Indefinite Quantity (IDIQ) contract to transition from legacy single-band radios to multiband, multimission software-defined radios;

-- $43 million order from a Latin American country for Falcon II HF radios;

-- $42 million order from the U.S. Army for 1,400 Falcon II vehicular adapter systems -- including power amplifiers, filters, antenna systems, and other installation components -- for installation of Falcon II manpack radios in MRAP (Mine Resistant Ambush Protected) vehicles;

-- $18 million order for Falcon II HF radios to modernize and support communications networks for the Iraq Ministry of Defense;

-- $16 million order for Bowman HF tactical radios from the United Kingdom; and

-- $15 million contract from the Polish Ministry of National Defense for Falcon II manpack radios and vehicular installations for the Combat Net Radio program of the Polish Armed Forces.

Total orders in the RF Communications Division for fiscal 2008 were approximately $1.7 billion and were significantly higher than full-year revenue. Backlog in the business at year-end was about $1 billion, 23 percent higher than at the end of fiscal 2007.

In July, the new Falcon III(R) AN/PRC-117G multiband, multimission manpack radio became the first manpack radio with wideband networking capability to be certified by the Joint Tactical Radio System (JTRS) Joint Program Executive Office (JPEO). The radio had previously received Type-1 security certification from the National Security Agency (NSA). The radio provides secure IP data transmission at on-air rates up to 5 megabits per second, mobile ad-hoc networking, and automated network establishment and maintenance. The radio also provides networked voice, data and video communications and true battlefield situational awareness to military and peace-keeping forces on the move. The radio has full interoperability with currently fielded legacy radios such as SINCGARS. Harris already has received initial orders for the new Falcon III manpack from a number of Department of Defense (DoD) and other U.S. Government customers.

Following the close of the quarter, RF Communications introduced the Unity(TM) XG-100 land mobile radio, the newest product in a family of multiband, software-defined radios that will give federal, state and local public safety responders the ability to communicate using a single radio across multiple frequencies with virtually any agency responding to an emergency. The Unity(TM) XG-100 expands on the capabilities of the RF-1033M, the first Harris land mobile radio introduced earlier this year, and extends the covered frequency range to include the 700/800 MHz bands.

Defense Programs. Defense Programs revenue declined 7 percent compared to the prior-year quarter. The prior-year quarter benefited from higher levels of production on the F/A-18 and F-22A aircraft programs. In the fourth quarter, DoD programs with higher revenue included the LMST (Lightweight Multiband Satellite Terminal) program for the U.S. Marine Corps, the F-35 Joint Strike Fighter program, and the next-generation U.S. Air Force Global Positioning System (GPS) control segment. Revenue declined in the fourth quarter from the JDAM (Joint Direct Attack Munitions) program as it neared completion.

Significant Defense Programs awards in the fourth quarter included two separate contracts totaling $162 million to provide multiband SATCOM terminals for various U.S. Navy ships. Harris also secured several follow-on contracts for avionics systems for the F-35 Lightning II Joint Strike Fighter aircraft, as well as anti-scintillation modems and the In-Flight Interceptor Communications System (IFICS) for the U.S. Missile Defense Agency (MDA).

Government Communications Systems

The Government Communications Systems segment -- comprised of Civil Programs, National Intelligence Programs, and IT Services -- reported fourth quarter revenue of $512 million, an increase of 24 percent compared to the prior-year quarter. Operating income in the fourth quarter of fiscal 2008 increased 57 percent to $52 million, compared to $33 million in the prior-year quarter. Operating margin was a strong 10.2 percent.

The strong rebound in operating performance was primarily the result of the company's progress made over the last several months in implementing new designs in several commercial satellite reflector programs. Of the 10 commercial reflectors that are in various stages of design, assembly, test and delivery, four have now been completed and the first has been successfully deployed in space. A fifth reflector was nearing completion when it sustained accidental damage. As a result of the company's maintenance of insurance policies covering accidental damage and related costs, any financial impact associated with the accident is not expected to be material.

Organic revenue increased 6 percent in the fourth quarter, compared to the prior-year quarter, driven by the NETCENTS IT integration and services program for the U.S. Air Force, the Navy/ Marine Corps Intranet (NMCI) program, the Field Data Collection Automation (FDCA) program for the U.S. Census Bureau, the Global Geospatial Intelligence (GGI) program for the National Geospatial-Intelligence Agency (NGA), and the Network Space Operations and Maintenance (NSOM) program for the Air Force 50th Space Wing.

Key Government Communications Systems contract awards in the fourth quarter included several new classified programs with a combined value of $113 million, a $58 million contract for a new NASA space suit communications system, and a $20 million IT services contract for a next-generation Tactical Video Capture System (TVCS) that will support training at various U.S. Marine Corps locations across the U.S. and abroad.

Harris also was awarded its second contract in a new market for the company -- Healthcare IT. Under a $12 million contract for the U.S. Army Dental Command Information Management & Technology Division, Harris will provide local operations and support to the U.S. Army Dental Command at Ft. Sam Houston, Texas, and other Army dental clinics at locations around the world.

Broadcast Communications

Fourth-quarter revenue in the Broadcast Communications segment was $174 million, a 5 percent increase compared to the prior-year quarter. Orders were higher than revenue. Sales of transmission equipment increased at double-digit rates due to strong shipments in the U.S. market for the over-the-air digital transmission build-out. Video infrastructure equipment sales, including routers, master control, test and measurement, and multiviewers, continued to increase at strong double-digit rates driven by the continuing global conversion by media organizations to digital and HD (high-definition) operations. Sales of server equipment declined compared to an unusually strong prior-year quarter. The continuing product transition to new traffic and billing software platforms in North American and international markets dampened sales of legacy software products.

GAAP and non-GAAP operating income was $8 million, flat with the prior-year quarter GAAP operating income. Non-GAAP operating income in the prior-year quarter was $12 million, excluding expenses related to cost-reduction actions in the transmission and software areas of the business. Operating expenses in the quarter increased for R&D and marketing. Increased investment is being directed at expansion in higher-growth, higher-margin product areas and growing international markets such as the Middle East, Asia Pacific, Europe and Latin America.

Sequentially, operating performance improved, compared to the third quarter of fiscal 2008. Revenue was 10 percent higher, while operating income was 14 percent higher despite increased marketing expenses related to annual fourth quarter trade shows. Following the end of the quarter, cost-reduction actions including additional headcount reductions were initiated to further improve operating performance.

During the fourth quarter, the Harris ONE(TM) solution, which improves workflow solutions across the entire broadcast delivery value chain, continued to gain traction in both domestic and international markets. Harris received a significant order from Sezmi, a new entertainment services company that is combining traditional TV content, movies and Internet video in a single easy-to-use product. Harris is providing Sezmi with traffic and scheduling systems and a multichannel playout and nationwide distribution system, including video encoding, video servers, multiviewers, routers, test and measurement systems and signal processing equipment. Additionally, Harris will distribute content and provide network and IT managed services utilizing its network operations center (NOC) in Melbourne, Florida.

Harris received a significant order in the quarter from Special Broadcasting Service (SBS), Australia's multicultural and multilingual public broadcaster, to supply a Harris ONE(TM) solution for the comprehensive rebuild of SBS' facility in Sydney to HD operations. Other Harris ONE(TM) solution orders received during the quarter included Showtime Arabia, a leading Pay TV network in the Middle East, GSEN, the new radio and TV Gaming Sports Entertainment Network in Las Vegas, The Advance Broadcast Corporation, the largest cable TV company in Thailand, and Kalaignar TV India. Other key orders came from CBS Television for HD video servers, CTV, a leading broadcaster in Canada, for multiple HD conversion systems, the National Basketball Association for NetVX encoders to backhaul live HD feeds to 29 arenas, and Cimax International in China and the Botswana Government Department of Information and Broadcasting, both for radio transmitters.

Harris Stratex Networks, Inc.

Harris Stratex Networks revenue for the fourth quarter is expected to be $187 million, a 7 percent increase compared to $174 million in the prior-year quarter. Revenue is expected to increase 5 percent compared to sequential third quarter revenue of $178 million. Harris Stratex Networks (Nasdaq: HSTX) is a 56 percent majority-owned subsidiary of Harris.

Revenue drivers continue to be the transition to IP networks, the evolution to 4G technologies, and wireless network infrastructure expansion in emerging regions. The company achieved record booking levels in the fourth quarter with a 1.6 to 1 book-to-bill ratio, which is expected to contribute to revenue generation in fiscal 2009. Increased orders came from Africa, Europe, the Middle East and Russia as well as North America. Demand for its Eclipse(TM) product line was particularly strong when compared with prior periods.

Segment GAAP operating loss in the fourth quarter is expected to be $36 million. Non-GAAP operating loss is expected to be $19 million and excludes integration costs of $17 million associated with the Harris Stratex Networks combination. The non-GAAP operating loss resulted from unexpected operating cost increases and accounting errors related to prior periods totaling $32 million.

Outlook

Harris reconfirmed its earnings guidance for fiscal 2009 in a range of $4.05 to $4.15 per diluted share.