Good afternoon and welcome to Harris Corporation's Second Quarter Fiscal 2007 Earnings Release 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 ma'am.

Good afternoon everyone and welcome to Harris Corporation's second quarter fiscal 2007 earnings call. I am Pamela Padgett, Vice President of Investor Relations and Corporate Communications. And on the call today is Howard Lance, Chairman, President, and CEO; Gary McArthur, Vice President and Chief Financial Officer and Bob Henry, Executive Vice President and President of the Government Communications Systems Division. Before we get started, a few words about forward-looking statements. In the course of this teleconference Howard, Gary, or other management may make forward-looking statements. Forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to different 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. 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. With that Howard, I'll turn the call over to you.Howard Lance: Thanks Pam, and thanks to all of you for joining us today on our second quarter earnings call. Harris once again posted excellent revenue and earnings growth in the second fiscal quarter of 2007. While growth was led by the RF Communications segment, the Government Communications, Microwave Communications segments also delivered strong revenue growth and solid operating performance. In the Broadcast Communications segment we delivered organic revenue growth but income was lower. On the engineering and technology front we are make real progress driving increased revenue from our new product programs. Revenue from product…

Thank you, Howard. Good afternoon. Before jumping into my comments about our financial position, I'd like to take a moment and make a few comments about the recently completed combination of our Microwave division with Stratex Networks. I echo Howard's comments and that we couldn't be happier with the progress made to-date in putting the two companies together, and with the combined entities go forward business outlook. As announced on Friday of last week, the Harris Microwave and Stratex combination is expected to be neutral to fiscal 2007 earnings, excluding the anticipated integration and acquisition costs estimated at $0.16 per diluted share and the after tax gain to Harris that will be recorded in our third quarter of approximately $0.92 per diluted share. A detailed description of the calculation for determining the gain is available on our website. With regards to our financial position, we had a very good second quarter. A key driver of our improving financial position is our strong and improving earnings before interest, taxes, depreciation, and amortization, or EBITDA. EBITDA on a non-GAAP basis increased from $140 million in the second quarter of fiscal 2006 to $180 million in the second quarter of fiscal 2007, or 29%. This large increase was led by the growth in RF Communications earnings and the improved operating income before depreciation and amortization, at both Microwave and Broadcast. Non-GAAP EBITDA as a percentage of revenue also increased from 17% in the prior year quarter to 18% in the current quarter. Cash, cash equivalents and short term investments increased to $368 million as of the quarter just ended. Cash flow generated from operating activities was $128 million in the quarter. Year-to-date cash flow from operations was $182 million as compared to $112 million in the first half of fiscal 2006. All four…

Let me close now by discussing our updated fiscal year 2007 guidance. It reflects a strong second quarter results and also now includes expected results of Harris Stratex Networks starting from January 29th. Our consolidated revenue growth expectation has been increased to a range of 19% to 21% higher than fiscal year 2006 revenue. Organic revenue growth is expected to be 12% to 14% higher. We are also increasing guidance for non-GAAP earnings from a range of $2.70 to $2.80 per diluted share to arrange from $2.75 to $2.85 per diluted share. We are raising expected government communications systems revenue growth to a range of 6% to 8% higher than last year, with expected operating margins in a range of 11% to 12%. We are also increasing the RF communications segment expected revenue growth to 38% to 40% above 2006, with expected operating margins for the year at approximately 34%. For Broadcast Communications, we now expect revenue growth of 13% to 15% above 2006 with operating margin in the range of 9% to 10%. Perhaps a bit higher if we can get costs out through our actions more quickly. The actions we will implement in the back half of this year along with expected 2008 revenue growth should drive much higher returns in fiscal 2008. The results of Harris Stratex Networks will be consolidated into our results beginning in our third fiscal quarter, with a deduction for minority interest reflecting the approximately 44% of the company that we do not own. Our outlook for fiscal 2007 for the Harris Stratex Networks' segment includes seven months of the microwave division results on a standalone basis and five months of the combined Harris Stratex Networks results. Revenue is now expected in a range from $525 million to $535 million with operating margin expected to be in the range from 9% to 10%. Our guidance was developed using the pro forma information for Harris Stratex Networks that they provided in an 8-K filed in conjunction with their press release this afternoon. Pam I'll turn it back over to you.

Operator, we are ready to open the line for questions. In interest of time, I would appreciate it if everyone would limit themselves to two questions. If you have more than two questions though, you are more than welcome to get back in the queue. Okay operator.

(Operator Instructions). Our first question will come from John Bucher with BMO Capital Markets.

Hi, John Bucher, thank you very much. Howard, did orders exceed revenues in RF Com and then did you say in your comments about the international composition. I think you commented on the orders there. Can you say what international sales were as a percentage of RF Com segment sales?

John, your first questions orders for the second quarter alone were slightly lower than revenue for the first half were significantly higher than revenue, so backlog was significantly higher at the end of the second quarter than at the beginning of the fiscal year. And I am sorry. Could you please comment again your second question?

I was going to try to make that just one question in the interest of counting, but the second question was I know you commented on the order composition in RF Com. I was just wondering whether you could say what international sales were as a percentage of total sales for the quarter in RF Com? And then my second question was, on the new revised addressable potential market that you posted, much appreciated. I think you referred to nearly $6 billion total addressable market opportunity as sort of a 2007 to 2008. Should we view that as a two-year opportunity funnel? Thank you.

Let me deal with the second question first. No, we are talking about $6 billion annual market opportunity John. By saying 2007 to 2008, what I am talking about is the fact that as we release new products, we reach the full potential of that $6 billion annual market opportunity. So, that's why the timing is spread, because we're introducing as you can see when you look at the chart, a number of new products out of the Falcon III family and many others that I've commented on today. In terms of the specific mix in the quarter for RF, we don't usually talk about that in a given quarter, but clearly we're at 37% international in '06. That percentage will be lower in '07 as we have lower revenue as a percent for international, absolute dollars for revenue for international will be higher, but we expect very, very strong order rates as I indicated we're up 25% to 30% is our expectation for the year for RF International orders, and we think that bodes very well for continued growth from international. As I said earlier we see this as the beginning of a multi year growth cycle.

Yes, that does appear outstanding. Thank you very much.

Moving on to Joe Nadol with JP Morgan

Thanks, good afternoon. Howard, first of all, the budget, the upcoming supplemental. It looks like a lot of the radio funding is going to be, and looks very robust first of all, but a lot of it's coming under the SINCGARS category as opposed to HF and obviously you have started to penetrate that area over the past year or so. I am wondering if you could offer any color on your strategy there. How much share you think you can take off that chunk of money?

Well I don't think I can speculate. Clearly though, we view the $1.4 billion in the 2007 supplemental budget request for SINCGARS as business that we now can compete for as a result of the capabilities of our Falcon III. In addition you've got the line item IHFR which is just short of $500 million, which will be for a variety of high frequency and multiband handheld radios. You've got an $850 million line item I think for Marine Corp tactical radio. So, there is a sizable amount of opportunity in the supplemental budget that we think will be procured then over the coming quarters.

Okay. Secondly, on the addressable market expansion side again, there seems to be three relatively larger categories, International systems and programs, portable SATCOM and COMSEC terminals. I was wondering if you could just give maybe a little bit of color, particularly in the international one because it is such a large piece and also you have 33% market share of the 2.7 billion addressable calendar year '06. Is there any sense as to what sort of market share we could expect in say '08 on that incremental piece of addressable market.

Well, first of all as it relates to some of those, if you take for example the SATCOM on-the-move, this is a SATCOM upgrade program that we are on the team with the VIASAT, and so that's an example of getting into a new capability where we'll develop new products to go after that market. The COMSEC terminals, we have several new programs underway, and new products that are expanding our capabilities beyond the chip level into the secure terminal product line area. So, those are examples of how we are trying to use the foundation of Falcon III technology which really is core in not only our Falcon III Tactical Radio Product line but these new products for expanding the served market, trying to use that platform and the investments we've made in that to drive growth. I'm going to ask Bob to talk at a high level about the International systems business, but clearly what we're talking about, there is a market that we have just not pursued up until this point and we think it offers significant opportunity for us. We are not going to be specific at this point Joe with regard to what kind of revenue we think we can get in the next one to two years but I think as we move towards our Analyst meeting in May, we will be able to provide a little more color around that. But Bob perhaps you can talk about at a high level of this -- the general direction that we're headed?

Sure, let me start off by talking about where some of the more significant opportunities appear to be and those would be in the Middle East and in Eastern Europe. We've already had briefings with all of our dealers and our customers in all the key countries and we've stepped up the amount of people we have in our business development and our advanced programs operation to not only capture radio business but to capture some of the new products that Howard already alluded to. We've already submitted a request for information on a job in the Netherlands. Howard already talked about Pakistan and Iraq and Mexico. We have a number of opportunities in the UAE and Algeria, Nigeria, The Philippines, Georgia, Ukraine, I could go on and on with opportunities for radios and some of the new products that we are in the process of putting out. Congress has approved the Pakistan purchase, of course of the 3900 RF-5800H radios. That's been done. And we've also been notified that Congress has approved up to $2.1 billion of arms sales to Saudi Arabia. That was done in early October. And what we're going to be doing there is we're going to be aiming at the Saudi Arabian National Guard portion of this program. We are the standard HF radio supplier for the Saudi Arabian National Guard going forward. And then the last one that we're looking at is in the Philippines where the government has approved $100 million for military equipment and we're looking for the VHF handheld radios there. We've already supplied about 2000 of those radios previously there. I think the total amount they are looking for is 16,000. So we're going to work towards capturing those other 14,000.

Joe, I think one way to think about the International systems business and the reason we think we are going to be successful is, first of all we are going to stick to our netting and focus on those kinds of systems integration jobs that deal with coms or information technology, leveraging capabilities that we already have. So, we are not going to venture off into areas that we don't have knowledge of and to bring the local knowledge of the customer and the local support, we are utilizing the RF Global Dealer Network which already is established in all of these countries. So, we're very pleased. I think we've in excess of $500 million and opportunity pipeline value already identified and you know how quickly that opportunity turns into awards and how much of that we get I don't know at this point but, it's sizeable and we've got feet-on-the-street pursuing it. So, that hopefully gives you a little color in that part of that growth market.

Yes, sure does, thanks very much.

Moving on to Rich Valera with Needham & Co Rich Valera - Needham & Co.: Thank you. Howard you mentioned that your program with the FAA is going to essentially conclude the implementation phase at the end of this calendar year. Just wondering how significant that is on a run rate basis and should we be concerned about that drop in run rates with respect to just the year-over-year growth for government comps as a whole moving beyond 2007?

No, not at all, good question though. The way this program works is revenue builds as you do deployments. So, you turn on the services and that's how we get then income. So, it's actually going to continue to build until full deployment and then it would, if there was nothing else it would flatten out, but we know what's going to happen. After that is they're going to have an additional services they want to put on the network and that's why we talked about. Still our expectation that this program that's currently awarded in, let say the initial deployment phase of $2.2 billion over 15 years, we think it still reaches the potential of $3.5 billion that we've established. This is a network that has a level of reliability and security that's going to allow them to transition other networks, legacy networks on to this backbone, once we're fully done. So, you should not expect a drop off, you should expect we believe continued growth in future years. Rich Valera - Needham & Co.: Thank you for that and just quickly on the high bandwidth networking radio that you are doing for JNN. One, can you size that opportunity and two, can you maybe just give a little color around that. As I understood that JNN was primarily a satellite based system and this sounds like it is a terrestrial component to that, if you could just elaborate on that?

Yes, I don't really have at this point any specific market opportunities Rich that I can comment on. But I think that the interest, you are right, JNN is primarily satellite based but this aspect of it has, primarily the interest has been driven because of the capabilities that we have in this ad-hoc mobile networking competency. And working with BAE Systems, we have both invested some of our own internal R&D to productize this capability and presented that some months ago to General Dynamics and they are very interested in rolling this out, utilizing our capabilities. So, we are just trying to highlight that it's another clear program opportunity. I think it also highlights that Harris Government Systems is moving away from a mode of where we sit and simply catch RFPs that are pitched from the government and in our business, we are trying to become much more proactive in identifying growth opportunities. We had integrated a lot of capabilities with the RF Division working closely with GCSD and we are learning from that how to more quickly productize opportunities, the high bandwidth networking radio is an example of that. Our activities in taking advantage of base infrastructure quotations where we can put together systems of wireless secured communications on military bases is another example of that. Rich Valera - Needham & Co.: Okay, thanks Howard.

Moving onto, Chris Donaghey with Suntrust Robinson and Humphrey.

Hi, good evening guys, and congratulations.

Thank you.

Howard or Bob whoever, I noticed today that the Air Force released a RFP for the SDD phase face for cluster AMS. Can you just kind of provide us an update on what the current state of expectations are for JTRS and how it impacts your business today and maybe over the next couple of years?

Sure. Let me address that for you. As you know we have positions on the GMR close to one end on the AMF pre-SDD. As you said the RFP finally came out on the -- at the end of January when they said it would for the AMF portion of that. These are multi-year development programs, both of them are with LRIPs in the year 2011 and 2010. So, there is still a lot of time before they are going to get product out to the field. We fully support the JTRS program and we're working towards a successful completion of our development work over time on that. And in the mean time we will continue to sell in our SCA compliant Falcon III, radios and since we're in production on those right now. And as I said the production on the other radios won't be till the year 2010, I believe for the AMF and for the GMR 2011. So, we're in very good at this point in time.

Okay, great. Thanks.

Moving onto Jim Mcilree with Unterberg Towbin.

Thank you. Good evening. With the expansion in the RF addressable market, will that come at the expense of margins, it seems like moving into the handheld personal soldier radios particularly could be a lower margin? Thank you.

Yes, a little too early at this point Jim I think to determine that. We have had great success in maintaining our margins in this business as we have grown. We have ticked up our investment for these new products. Going forward, it's really not going to be a question of maintaining, I mean the gross margins are more than large enough to maintain the operating margins we have. It's really going to be a trade-off between how much level of investment you want to make for future growth. But to the extent that there is any downward pressure, I see it as relatively minor. If you recall back, four or five years ago, this business was kind of in the mid-teens I think in terms of return on sales. We don't envision anything like that in the future. And we believe we now have enough scale and enough progress in our supply chain program that even more competitive lower price point projects such as individual soldier radios can be delivered to customers with very attractive operating margins because of our commercial business model. So, we're trying to give you more color around that as we proceed on into fiscal year '08, but at this point I don't see any immediate new term concerns.

Moving on to Larry Harris with Oppenheimer

Yes, thank you and congratulation on the results for the quarter. Just a few clarifications regarding the Broadcast area and it looks like you're taking the appropriate actions there. Any opportunities in terms of Mobile TV, now that Verizon is getting close to launching service in some cities, also in terms of digital radio, looking at the number station that could launch in 2007, do you think we will see an increase over 2006 or would be a similar number and also in terms of the broadcast infrastructure area, that's done well. Could we see that continue to grow over the next few quarters, thank you?

Well let me deal with the last part of that first, the acquisition of Leitch Technologies and Aastra Digital Video which serve this very large and diverse video distribution area, continuous to perform very well and we believe that we will continue to see double-digit growth rates in those products and that part of our broadcast segment certainly for several more years, we don't see that slowing down. As it relates to your question about transmission, we're going to resize our transmission business from a profit stand point, assuming pretty modest growth going forward. Then if it results in faster Mobile TV ramp up as you say because of Verizon or others or if we get faster ramp up in HD radio or if we hit a return to higher orders in digital transmission leading up to the FCC mandate in February of '09. All of those kinds of things would just give us even better margins. So, do we expect some growth? We are just going to plan on very modest growth in the combined transmission business and to the extent that we do better than that, then we'll get even better leverage on the bottom line. But we are not going to count on high growth. We did that this year, we've learned our lesson from that and we are going to reset the cost structure of the business of kind of that current FY'07 levels.

Understood, sounds like a good plan. Thank you.

Chris Quilty with Raymond James as our next question.

Thanks. Howard, can you comment within the Government Communications business whether intelligence programs were up or down this year and understanding that those are generally classified programs. What's your sense of the ability to get back to the sort of double digit growth rates that you experienced two or three years ago?

Just a clarification Chris, when you talk about intelligence programs, you are talking about at Harris or government budgets?

At Harris.

Okay. So, we returned to year-over-year growth in the second quarter and we expect to see growth in the second half as well. But we started out pretty week in the national business in the first quarter. So, for the total year we'll be flat to maybe slightly higher than fiscal year '06. But the good news is the momentum I think we are building. It's coming from kind of our traditional intelligence customer base, as they're starting to release new funding for new programs. We are very encouraged by that. It's also coming from our commercial space systems initiatives and you've seen a couple of press releases that we have talked about how that business has grown in significance and not only is it growing in the traditional antenna area, but we are now starting to get opportunities to expand into doing more space electronics and potentially systems integration on future commercial satellites. So, I’m very optimistic we'll continue to grow going forward that's a big part of our government systems' revenue and we need that business area to grow going forward in order to deliver the overall government systems growth that we want. I think double digit growth is a little optimistic. That doesn’t mean that Russ Haney and his team and that business won't set those kind of objectives and we won't encourage those, but that's probably a little optimistic. Given that the base, that business is two and a half times as large as it was four or five years ago. So, just the kind of the power of large numbers makes double-digit growth in that particular segment more difficult.

You have continued to do it in the RF Comps?

Well, we're certainly going to establish those kinds of objectives for all of our business. I think Bob is on the record multiple times, if we're not growing any of those government segments at double-digit, he's not a happy camper and so we work very hard to try and have real plans to achieve that, sometimes we do, sometimes we don’t. But the overall planning process we put in place which is on them, and at the root of that is expand your serve market and get a faster throughput on new products. Those are the two core things that we're trying to do and you find that fingerprint all over every single one of the segments at Harris that we talk about. So, we will see, but at this point, I am just saying Chris I wouldn't commit to that double-digit growth for the national segment going forward based on what I know today. But it's growing again and that is a positive.

Thank you.

And next is Steve Mather with Sanders Morris and Harris.

Hi, good afternoon, Howard.

Hi.

Hi, so much to talk about. I will leave to one because your are probably all going to hop on the next call with Stratex. Let's see, you mentioned venturing into new areas by leveraging your knowledge base and history and you've certainly done an unusually good job in the last three years of doing that, and of course you have a pretty good harvest through the next couple of quarters. Without giving away too much, can you discuss the extent to which you still see incremental opportunities for acquisitions the way you have over the last -- let's say the last three years?

Well, I think my view hasn’t changed too much. We continue to look at strategic acquisitions that would accomplish several objectives, either give a scale in a particular business segment, bring new customers that we think we have synergies with and can leverage other products or systems integration work through them, or fill in geographies that we think offer higher growth and finally would bring us technologies or competency that would be complimentary to our core comps and information systems technology, but something we can get faster than doing ourselves. We try and then map those kinds of target universe of companies with affordability, with the ability to deliver good returns well above our cost to capital within just a few years, to deliver synergy such that deals can be accretive to earnings within kind of the first twelve months is usually what we are targeting. And so, it’s a rich environment, there's lots of targets out there. But I would say very similar to the last three of four years, the ones that offer the fastest growth and the most interest and synergies also are the once that are the higher priced. And so, all I can is that our pipeline of acquisition candidates continuous to be pretty robust and we continue to work on lots of projects, which one's will actually lead to closure we can't say at any given time. But we at the same time are not counting on acquisitions to do the basic blocking and tackling of organic growth and margin expansion. So, I think we have a pretty good balance and I think our results, the last several years would show that we're doing organic improvement, we're also trying to do smart acquisitions.

Operator, we'll take one quick question.

Certainly, our last question will come form Joe Campbell with Lehman Brothers.

Good afternoon, Howard, Gary and Pam, I think a real feet to not just book all the stuff but to build all those radios, so congratulations on congratulations on a good quarter. I think what we are trying to understand from the charts that you've provided with regard to the $6 billion, should we be thinking that you know Harris is kind of a third share you hade at $2.7 billion market and sales of roughly a third of that. Whether or not are you suggesting that at least there is a possibility out there that you could have a third of $6 billion for $2 billion in the kind of '08 timeframe or should we think of these add-ons as more sort of entry into the markets so that your shares should be naturally lower to start with and perhaps a target of 30. So, just a kind of question about how we should interpret this chart you've given us? Thank you.

Joe, I think certainly our aspirations in the long term would be to have that kind of market share in new adjacent markets that we have earned in our core markets. But I think it's fair to say that you don't accomplish at day one when you enter a market that you really don't have a presence in and you are doing that organically. You don't go in very often. I don't think there are many examples in business where you would achieve that same market share immediately. But certainly that's our aspiration over the longer term. 2008 is not longer term, so I wouldn't expect to have that kind of market share in 2008 but I am very pleased with the momentum that we have and you know us well enough by now that we wouldn't be talking about those market opportunities in those programs unless we had traction in each of them. So, I feel very good about the progress we are making, not only in RF but at GCSD, in broadcast and of course the progress that Harris Stratex is making in expanding our served markets and driving organic growth. So, again in May we'll talk a lot more about those growth opportunities to our investors as part of our industry today.

Well, we and I'm sure all the shareholders hope you make it.

Well, thank you. We will make it.

Thank you every one for joining us and let me know how I can help you.