L3Harris Technologies Inc (LHX) 2005 Q2 法說會逐字稿

Good afternoon and welcome everyone to The Harris Corporation's second quarter fiscal 2005 conference call. I am Pamela Padgett, Vice President of Investor Relations. On the call with me today is Howard Lance, Chairman and CEO, Bryan Roub, Senior Vice President and Chief Financial Officer and Bob Henry, Senior Vice President and President of the Government Communications Systems Division. Before we get started though, I have to say a few words about forward-looking statements.

In the course of this teleconference Howard, Bryan or other 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 the tables of our release and on this teleconference we will discuss certain ratios and information that are non-GAAP financial measures.

A reconciliation to the comparable GAAP measures is included in the tables of our 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. And with that, Howard, I will turn the call to you.

Thank you Pam. And thanks to all of you for joining us for our second quarter earnings call. Today we will provide additional details on Harris results for the second fiscal quarter. And we will discuss the updated earnings guidance for fiscal year 2005 that was provided in our press release this afternoon.

Bryan will give additional details on our financial performance and outlook. We had exceptional results during our fiscal second quarter. Consistent with our past 6 quarters of strong revenue growth and profitability expansion. Consolidated revenue was $737 million. This is an increase of 24 percent compared to the prior year quarter of 594 million.

Even excluding our recent acquisitions, we still delivered strong year over year organic revenue growth of 17 percent. This reflects our continuing focus on driving top line sales growth through new program wins, market share gains, new products and geographic expansion. All 4 of our business segments had year over year and a sequential revenue growth and increases in operating income. Both Orkand and Encoda Systems acquisitions completed in fiscal 2005 are on plan.

And contributing to growth and profitability consistent with our previous expectations. Complimenting our revenue growth was continued strong growth in profitability in the second quarter. Net income from continuing operations increased by 42 percent. From 31.7 million in the prior year quarter to 45.1 million this quarter.

Earnings per diluted share were $0.65. However, excluding $0.10 per share in acquisition costs associated with the Encoda Systems integration, earnings per share in the quarter were $0.75. That's a 63 percent increase when compared to $0.46 last year. So as not to confuse you today with too many numbers, all of my further comments will exclude the second quarter acquisition integration costs. Now, let's turn to some specific details in each of the businesses. The government communication system segment had another outstanding quarter. Revenue increased 31 percent to $447 million.

Operating income increased 46 percent to $53.1 million. This was a driven by revenue growth and excellent program execution. Return on sales in the quarter was an unusually high 11.9 percent in the segment.

And this is due to the benefit of $5.7 million of income in the quarter related to the final settlement of our fiscal year 2001 overhead rates with the U.S. Government. Let me give you some additional details on this income item. Each fiscal year we establish what's known as a disallowance reserve. Against a variety of potentially unallowable Government program costs. These reserves are then subject to audit by the Government against the actual costs, but the audits don't occur until 2 to 3 years in arrears for the fiscal year end. The audit for fiscal year 2001 was finally completed last quarter.

And for this particular year it turned out that we had unused reserves for these unallowable costs of $7.7 million. About $2 million of this reserve was included in income in the first quarter since certain aspects of the audit were complete. In the second quarter when the audit became final, we released $5.7 million more.

As a point of reference, in the late 1990's, Harris had several years of negative adjustments after these Government audits. As a result, we increased our reserves rates going forward. It turns out that for fiscal year 2001 we did not need the higher amount that was reserved.

Getting back to the results. Revenue growth was driven by a broad spectrum of government customers and new programs. The largest year over year growth came from 3 programs: The FAA Telecommunications Infrastructure Program and the Iraqi Media Network Program. Both from our civil programs business unit. And the third was the recently won Patriot Operations and Maintenance Program for the National Reconnaissance Office from our technical services business unit. Recently awarded DoD contracts also contributed to growth in the quarter. These programs included the Advanced Extremely High Frequency terminal program for the U.S. Navy, the Aerial Common Sensor program for the U.S. Army, Avionics for the F/A-18 Super Hornet and several other MILSATCOM terminal programs.

Also during the second quarter we announced several important new program wins. And these will help continue to drive revenue growth in this segment as we move into next year. First, was a new contract with the Defense Information Systems Agency with a potential value of $175 million over 9 years. Harris technical services will provide systems engineering and maintenance for the Agency's crisis management system. This is a secure, high performance voice, video and data network.

It's used by top level government decision makers to exchange high interest, time sensitive information. We were also awarded a 3 year $80 million contract by the National Security Agency. Harris will provide NSA with application integration and deployment, training and logistics support for newly developed software that will be used to improve and expedite their decision making.

Harris was also awarded a 2-year contract from Boeing Satellite Systems. This contract will be to provide communications antennas for the next 3 Direct TV satellites. These antennas will greatly enhance satellite capacity for services to DirectTV customers. Including hundreds of new local and national HDTV channels. We were also awarded a 3 year $37 million system design and development contract in the quarter to provide unfurlable spaceborne antennas for the new Mobile User Objective System program. MUOS as it's called is a narrow band tactical satellite communications system that will be used by U.S. war fighters within the theater of operations.

Harris large reflector antennas will enable real-time multimedia communications for troops on the move. Finally, following the end of the quarter we received a $22 million, 3 month training and support contract from the Iraqi Media Network. As you know, IMN is Iraq's public television and radio broadcasting network.

Our team will be supporting broadcast and newspaper coverage of Iraq's national elections next week. The previous $105 million contract was with the Defense Contracting Command and that was completed in early January. Harris and its partners had a solid success in this program during the past year. Upgrading the IMN's systems infrastructure and broadcast capabilities and doing this work in a very difficult security environment.

Our team designed and constructed 2 world-class studios. One. for news and one for entertainment programming both located in Baghdad. Fully 80 percent of IMN's broadcast content is now locally produced. And production capacity of Al Sabah, the national newspaper has been increased to 350,000 copies per day. We have had an impressive number of program wins already in the first half of this fiscal year. Even so, there are a number of large program opportunities still in the pipeline that we expect to be awarded some time in the calendar year 2005.

Let me just run through some of those. They include a 10 year $600 million contract to provide systems integration work for the FAA Automated Flight Service Stations. This contract is expected to be awarded sometime in this quarter. A $450 million10 year program with the U.S.

Navy to provide tactical common data links for its LAMPS helicopters. A $500 million opportunity over 15 years with the U.S. Army for the Warfighter Information Network Tactical Battlefield Communications System. Also known as the WIN-T. The phase two award for $400 million over 8 years to organize millions of electronic records for the National Archives and Records Administration. A $250 million potential contract value over 10 years as part of the Motorola team on the integrated wireless network program. This is a joint Department of Homeland Security, Justice Department program utilizing communication solutions from both Harris government communication systems and Harris microwave communications divisions.

Also, there is a $330 million opportunity over 10 years with the National Oceanographic and Atmospheric Administration for its Advanced Weather Information Processing System. And several large classified programs are also expected to be awarded during this time. And then following on early in calendar year 2006 is the $1.2 billion down select opportunity for the U.S. Navy or the Advanced EHF Satellite Communications Terminals and the $800 million, 5 year U.S. Census Bureau Field Automation program.

This combination of programs already won along with those that will be won are expected to provide for continued double digit growth in this segment well into our next fiscal year. Let me turn now to our communications division. RF had another fantastic quarter. With revenue of $116 million and year over year revenue growth of 10 percent. Segment operating income was $32.4 million, and that's an operating margin at 27.9 percent return on sales and are remaining strong at very high level.

Orders during the quarter increased significantly and were greater than sales. In fact, year to date orders for RF communications division are now up 16 percent to compared to last year at the same time. Demand for our high frequency and multiband radios remains very strong. With no indication of slowing down.

Several factors are contributing to our continuing year over year revenue growth including requirements for additional FALCON II technical radios to support troop deployments in Iraq and other regions. Second, requirements to support the U.S. Army Brigade Modularity Initiative. And third, replacement of outdated and non-interoperable communications systems, especially in international markets. Included in the strong order flow this quarter were 2 orders, each for $30 million awarded to Harris by the U.S. Army.

Our state of the art radios are a critical component in the Army's new modularity program. This program is designed to equip our forces with communications equipment in multiple configurations that support both military and civilian peacekeeping roles. The reliability to FALCON II has been repeatedly proven in combat. And these new orders reflect the Army's confidence in our radios and our in-region support.

And we plan to widen our competitive technology lead in June of this year with the release of our new FALCON III multiband handheld radio. We believe this will be the first radio on the market to include the new JTRS software communications architecture. The Bowman Programme for the U.K. Ministry of Defense also contributed to segment revenue growth in the quarter. And it will continue to be a significant growth driver throughout fiscal year 2005. With sales now estimated to increase to $65 million from about $35 million in fiscal 2004.

Operating performance on Bowman has been very positive. The team has successfully met every important program milestone. Bowman will also be strategically important to Harris in helping to expand our footprint in Europe. Recent news, however, on Bowman product cost is even more exciting. We expect to finalize supplier contracts in the third quarter that will significantly reduce our cost for PC board subassemblies.

These cost savings combined with a favorable U.S. Dollar British Pound exchange rate will result in enhanced profitability for the RF division in the second half of the year. This program's success points out the significant operating leverage that can be achieved in a well managed fixed price customer production program.

The RF opportunity pipeline has also expanded significantly which bodes well for fiscal 2006. In the domestic market, we expect the proposed $80 billion supplemental U.S. defense budget to include additional funding for the U.S. Army's modularity program.

We also expect it will fund additional radio requirements for the Marine Corps, the Army Reserve, and the National Guard. Our opportunity pipeline is also benefiting from strong demand in the international markets. There's a lot of foreign government investment is focused on communications. Orders are anticipated from Algeria, the Philippines, United Kingdom and other allied nations. The previously anticipated $65 million order from Pakistan is now expected to be received in February, about one month earlier than before. As a result, we expect to ship up to $20 million of that order in fiscal 2005.

The strengthening of these near term opportunities has resulted in the need to increase our manufacturing capacity. I have recently authorized an additional $2 million investment in RF capital expenditures this year to fund this expansion. Manufacturing capacity is not a constraint on our ability to turn orders into revenue. Nor to meet our customer's delivery expectations.

We have already put in place a full second shift operation at the Rochester, New York manufacturing facility and we have made made contingency plans to manufacture more radios in our UK facility and to ship some VHF handheld radio production to a contract manufacturer if necessary. Turning to our commercial businesses and microwave first, revenue in the microwave communication segment was $86 million in the quarter. A 3 percent increase compared to the prior year quarter but a 23 percent increase sequentially from the first quarter of this year.

Operating margins continue to steadily improve. Operating income from microwave $2.6 million during the quarter, compared to a loss of $1.8 million in the year ago quarter. Increasing shipments of our new lower cost, high technology, TRuepoint family of microwave radios continues to contribute to these improving gross margins. Microwaves profitability also continues to benefit from previous cost reduction actions and an ongoing focus on operational efficiency in the division.

The TRuepoint 5000 rollout achieved several milestones in this quarter. Year-to-date TRuepoint orders reached $17 million. And year-to-date sales totaled $11 million. We continue to expect TRuepoint's sales to reach our goal of $30 million for fiscal 2005 in total. With the majority of those sales to customers in international markets. TRuepoint manufacturing was successfully transferred from Montreal, Canada to our premier radio manufacturing facility in San Antonio, Texas in the quarter. Product lines should benefit from this move in improved cost efficiencies.

And additional TRuepoint products in the 13 and 15 gigahertz frequency bands were released during the quarter. Final releases will follow in the back half of the year for the remaining 10, 11, 18 and 38 gigahertz frequencies. The continued rollout should help drive sales growth and further margin improvement. Major new international orders in the quarter for microwave systems came from customers in Nigeria, Eastern Europe, Latin America, China and Southeast Asia.

We also added resources in the quarter to increase our emphasis on international distributor and channel partners sales. Strength in North America is still coming primarily from upgrades in private networks for state, county and local governments, fueled by homeland security funding. The upgrade cycle in these private networks boosted by post-9/11 interoperability concerns appears to be well underway. And Harris is participating at a high level. Wireless service providers have recently announced plans to make 3G systems or third generation systems deployment a priority going forward. Which should also drive additional microwave system requirements to support mobile networks in North America. Another bright spot for the microwaves segment during the quarter was increased revenue from our NetBoss network management software solution. NetBoss has become an integral part of the total value proposition that we offer to our telecom customers. We have a strong leadership team in place in our microwave division and we remain focused on continuing to improve the results in this segment in each quarter.

We are carefully executing on our strategy for profitable growth. Unlike a few other companies who are taking revenue at any price and losing even more money on the bottom line in the process. Turning to our broadcast communications segment.

Revenue in the quarter increased 49 percent to $99 million. Which included $21 million in revenue from Encoda Systems. We completed the acquisition of Encoda, as you recall, in early November, 2004. Operating income was $9.6 million in the quarter which included $3.7 million from Encoda. This result compares to only 2.6 million in the year ago quarter. The broadcast division achieved double digit organic revenue growth in the quarter. And revenue increased in each one of the segment's 5 business units namely television, radio, software systems, networking and government solutions, Europe. Growth drivers for the quarter included new sales of HD radio equipment, sales of analog TV equipment, both in domestic and international markets, and sales of studio and networking equipment to the Iraqi Media Network Program.

Harris was awarded an important contract during the quarter. This is from the Belo Corporation to upgrade for additional television stations to full power digital transmission capability. Belo has the 30 year relationship with Harris. They have 44 Harris transmitters among their 19 stations. Harris is clearly Belo's partner of choice for analog and digital television transmission systems. Harris also entered into a multimillion dollar agreement with Cox Radio during the quarter for the provision of the Digital HD radio transmitters from now to 2008.

Cox owns 78 stations in 18 markets. We believe that our broadcast business is well-positioned to benefit from the expanding rollout of HD radio by Cox, Clear Channel and other major radio groups in the U.S. In fact, to support this view, at the recent Consumer Electronics Show, iBiquity announced an agreement with 21 radio groups to convert to another 2,000 stations to HD radio over the next several years. Before I leave the broadcast segment I'd like to make just a few comments on the status of the Encoda Systems integration into our broadcast segment.

First, Encoda remains on target to contribute $0.12 to Harris EPS during fiscal 2005. Second, the integration of the business into Harris we believe is going quite well. We have managed the integration costs within our previously established range and we do not expect any additional material integration costs in the second half. Our philosophy on integration is to rapidly assimilate newly acquired businesses.

Less than 100 days into the integration we have already made excellent progress on new product integration and road mapping, joint marketing and selling plans, common human resources programs, and a shared services environment for IT and financial operations. We have organizationally combined our Harris automation business with Encoda to create Harris Broadcast Software Systems. Offering end to end solutions for the broadcast and media industry.

Software systems had a good orders quarter including a substantial expansion order from XM Satellite Radio and a new media asset management software order from Television Networks in Ireland and Dubai. When combined with our traditional hardware transmission business Software Systems positions Harris as the dynamic force in total content and delivery solutions

for both existing and evolving global broadcast markets. We now have the ability to help our customers effectively create, manage, distribute and transmit audio and video content to end users by a wide range of media; terrestrial television broadcasting, cable, satellite, radio, broadband, handheld PDA or cellphone. We believe this creates outstanding prospects for expanded global market presence by our broadcast business. With that, let me turn the call over to our Chief Financial Officer, Bryan Roub.

Thank you, Howard. Our financial position and level of liquidity is really strong. Cash and cash equivalents were 230 million at the end of the second quarter and that's after spending more than 400 million for the Encoda and Orkand acquisitions in the first half. We generated 80 million of cash from operations in the quarter and 85 million for the first half. Each of our segments contributed positive cash flow in the quarter and for the year to date.

Our year to date cash flow from operations of 85 million is down from the extraordinarily good prior year of 127 million. Capital expenditures and depreciation for 17 million and 16 million in the quarter, slightly greater than the corresponding amounts for the prior year quarter of 15 million and 14 million. Note that the capital spending is concentrated as you'd expect in our government segments and is tied to their growth. We continue to focus on asset management and have had good results again this quarter.

We've made solid improvement over the past several years and expect to continue the improvement throughout fiscal 2005. Sequentially, inventory turns improved 9.3, up from 8.7 in the prior quarter. While days sales outstanding improved to 60 days down from 64 days and increased collections of accounts and notes receivable in all our businesses.

As I mentioned last quarter another metric we monitor is the dollars invested in a net operating working capital. Net operating working capital at the end of the quarter was 291 million or 10 percent of annualized sales, a decrease of 35 million from the prior sequential quarter on sales growth of 10 percent. This compares to 12 percent of sales in the first quarter. Also, of note is the return on invested capital in the second quarter was a hefty 15 percent. In the quarter we bought back 587,000 shares of our common stock at an average price of 61.64. And under our existing repurchase agreement, we have a pending authorization to repurchase approximately 2.6 million more shares.

We expect that we will continue to repurchase shares of common stock to offset the dilutive effect of shares issued under our stock incentive plans as we go forward. As I noted earlier our liquidity remains outstanding. The earliest maturity of any long term debt is in 2007. And we have more than 300 million of unused credit facilities available to us.

We also have debt capacity well beyond the unused facility. As the Company's total debt to total capital ratio remains at an incredibly low 23 percent. Now I'd like to comment on our cash flow outlook for fiscal 2005. At the midpoint I am happy with our progress toward having another very strong year. We expect our cash flow from operations to be in the $200 million to $250 million range. As most of you know we took a lot of working capital off the balance sheet last year despite our strong growth.

Not only in our commercial businesses but also in our government businesses. I think I was being a little too aggressive in my earlier assessment of our ability to repeat that performance given all the growth we are experiencing. Although we are continuing to improve our asset management metrics as I mentioned, our growth is so strong that we need to provide some working capital to support that growth.

Capital expenditures should be in a $70 million to $75 million range with depreciation between $60 and $65 million. Finally, I'd like to talk briefly about 2 income tax items that impacted the second quarter as well, as our level of non-operating loss in the quarter. In the second quarter there was a $3.5 million reduction in taxes primarily due to the resolution of certain tax issues for which liabilities had previously been established. Our previous guidance anticipated this tax benefit that represents $0.5 a share. However, what we didn't anticipate was an increase in our effective tax rate from 32 percent which partially offset the tax benefit.

We now believe our fiscal 2005 effective tax rate will be 33 percent. An effective tax rate calculation is one of the items reconciled as a non-GAAP financial measure posted on our website. For those of you who are interested. One final item, the nonoperating loss for this quarter included $3 million of losses from the liquidation of the bulk of our securities available for sale. We expect minimal income or loss from the sale of securities going forward as the securities have been virtually eliminated. Back to you, Howard.

Thanks, Bryan. Now, let me conclude my remarks today by discussing our revised fiscal 2005 outlook. We are once again increasing our earnings expectations for the year. Strong revenue and profitability results across all Harris businesses in the second quarter combined with a much stronger order book in our RF Communications Business give us confidence that the Company will now post significantly higher earnings for the fiscal year.

We are raising our fiscal year 2005 earnings guidance from a previous range of $2.60 to $2.70 per diluted share to a new range of $2.85 to $2.95 per diluted share. Revenue for the Company in fiscal 2005 is not expected to grow by 16 to 18 percent compared with fiscal 2004 to nearly $3 billion. This compares to previous guidance of 13 to 15 percent growth. The increase in our revenue expectation compared to previous guidance is attributable to increased order rates at the RF communications division.

Domestic and international demand for Harris radios has continued to exceed our forecasts. We now expect RF communications to experience revenue growth for the fiscal year of approximately 20 percent above last year. With very strong second half year over year revenue growth rates.

And if the Supplemental Defense Budget proceeds as planned, and we think it will and provides additional funding for the Army Modularity Program and for Marine Corps, Army Reserve and National Guard radio needs, we believed demand for Harris radios could sustain double digit growth rates at the RF division well into fiscal 2006. RF division profit margins are expected to expand in the second half of the year as a result of the higher revenue and the combined impact of the Bowman Programme cost reductions I mentioned earlier, and the favorable foreign exchange rates. For the fiscal year in total, RF division margins should achieve 30 percent return on sales. Revenue at government communication systems is expected to grow by at 16 to 18 percent in fiscal 2005. As a result of new program wins and the inclusion of Orkand revenue of about $95 million as we had previously indicated.

Profit margins for the year are expected to be at fiscal 2004 levels or a little better. Thanks to continued excellent performance on programs and program award fees. Of course, this return on sales guidance excludes the positive contribution to income of $7.7 million a year to date that was associated with the final settlement of 2001 overhead rates that I've discussed earlier.

The there has been considerable speculation in recent weeks surrounding potential defense budget cuts in Government fiscal years 2006 to 2008 and beyond. We believe that the market has overreacted to the impact these cuts might have on Harris and specifically the impact on our government communications systems business. While it appears inevitable that the Department of Defense will share the burden of getting the Federal deficit back in line, there are a number of important mitigating circumstances that suggest that Harris will continue to grow and outperform the market.

Consider the following: We have an extremely diverse set of over 250 programs across our 4 business units, DoD, national, civil and technical services. No one or two programs alone drive the Harris' revenue stream. So our risk profile is more attractive. Second, only 25 percent of fiscal 2005 revenue in the segment is from DoD programs that are funded by the RDT&E Budget Authority.

Third, remember that Harris serves DoD not as a big platform provider, but as a provider of a broad range of communication systems on a wide number of programs. We are a communications enabler. Much of the work we do is networking at the highest architectural level whether it's tactical or transformational communications, SATCOM, precision munitions, unmanned aircraft or avionics. Transformational communications and IT systems and intelligence surveillance and reconnaissance activities will continue to be the highest priorities for Government investment in our view. And these are the Harris sweet spots.

Proposed reductions in major platforms such as the F/A-22 Raptor or the DDX Destroyer will have minimal impact to us in the next few fiscal years. And as for the impact in the out years of the budget projection, we have more than adequate time to implement contingency growth and investment strategies between now and then. The fastest-growing business units in this division; our civil programs and our technical services business. Where major new growth programs have already been awarded to us. We have successfully captured a major position serving a number of civil agencies. And we have a fast-growing technical services business that also serve a large variety of customers. Of course including DoD but also including agencies such as the U.S. Postal Service, the State Department, the Department of the Treasury and the Departments of Justice and Customs. Our civil and technical services business units together now represent 35 percent of expected fiscal 2005 revenue. And finally, let me remind you that our national programs business unit represents 40 percent of this segment's revenue.

International programs; we provide advance technologies for intelligence, surveillance and reconnaissance that allow our intelligence community customers to collect, process, analyze and disseminate intelligence information that is critical to senior level decision makers. We are clearly viewed by our customers as we said before as a national asset. And we believe that our programs will continue to be fully funded. While we may not sustain the 15 to 20 percent plus year over year growth rates of recent fiscal years, we are extremely well positioned and remain committed to achieving double-digit revenue growth at this division going forward.

While our fiscal 2005 outlook for microwaves and broadcast segments remains essentially unchanged from previous guidance, I have much higher confidence in achieving our guidance given our solid first half performance. The successful roll out of TRuepoint, our expectations for the Encoda Systems acquisition and the positive impact of our cost reduction activities are all driving improved profitability in fiscal 2005. With more that can be achieved in future years. We've experienced enormous growth in a relatively short period of time.

And we've added 2 important acquisitions this year that expand the markets we address and provide additional accretion to earnings. Personally, I could not be more pleased with our performance in the quarter and the opportunities we see ahead in both the government and commercial parts of our business. At this time, I will ask Justin to open the line and we will be glad to take your questions.

[Caller instructions.] Our first question comes from Chris Donaghey with Suntrust Robinson.

Great quarter, guys. Couple of questions. First of all relative growth in the classified programs to the rest of the government communications segment, can you talk about that?

DoD and the national segment in this fiscal year are growing but they're growing at a much slower rate than the civil and technical segments of our government systems business, Chris.

Okay. And on the balance sheet, Bryan goodwill and intangibles grew about $400 million between the identifiable and intangible assets. Can you just break out where that increase to goodwill and tangibles comes from?

That's Encoda and - - Encoda and Orkand. And the split - - it escapes me at the second. I'll look it up.

Well, the combined acquisition prices were approximately $405 million. And one is a services businesses as you know, Chris, the other a software business. Neither one of them have huge amounts of hard assets in terms of PP&E inventory and the like. So the vast majority of that is assigned to either goodwill or amortized as identifiable and tangible assets.

And Chris, we'll file our 10Q tomorrow . And that will have that in there.

Yes, that's in there it.

Just one last question. The expensing of options how that will affect you?

We detail of course what the cost would be this year. We are doing the analysis now and we will start expensing consistent with the requirement at the beginning of our fiscal year 2006.

We don't expect it to be huge but it will probably be a couple of cents. And we will provide better guidance on that as we approach the new year. And I'm talking about the incremental cost of our stock based programs this year compared to next year.

And Chris, on the goodwill, 50 million goes to the Orkand and about 290 goes to Encoda.

Thanks. Again, great quarter guys.

Next, we go to Rich Valera with Needham & Company .

Thank you. Bryan, just a quick clarification.

I'm trying to get to that $0.75. I'm having a little trouble if I divide the kind of pro forma 52.1 million number by the 70.9 million diluted share. So I'm getting like $0.735. I'm just not sure if I'm using the right share count. Any help there?

You add back the interest - - the interest - - the calculation is in the - - will be in the 10Q.

I think the difference is the add back.

Of interest for ventures.

Okay.

Because you assume that the - - you assume that they are converted.

Oh, exactly. Okay. Got you, right. You back out the interest because you give it back because - - exactly.

Right. And it's, round numbers it's about $900,000. So if you add that to the income, I hope our math is correct and that the answer is $0.75 - -

I think that will work. That helps. And just in terms of the tax rate, what should we assume for the second half? Should we be assuming 33 percent.

Yes, sir.

Okay. That's a helpful clarification. And them, moving on to RF communication, Howard, it sounds like you're pretty significantly increasing the capacity there. Can you say what the quarterly capacity is at now with these new expansions? And do you expect to hit that in the next quarter or two?

I don't have a particular number in my hip pocket. But I think the changes that we have put in place, the investments, the additional work shifts, I think capacity is as big as it needs to be to achieve even about the guidance that we've provided. Our goal was to make sure that capacity was not any kind of a limiting factor on our ability to take orders, turn them to revenue quickly, which is a key competitive advantage that we have. And to meet commitments on programs like the delivery schedule for the Pakistan order that we're expecting to get here in February and so on.

Great. And very nice margin on a microwave. I think helped by the two-thirds I guess of a quarter of Encoda. And next quarter you have a full quarter of Encoda which has very nice margins. Should we - - can we expect that margin to continue to move up at least sequentially as you include a full quarter of Encoda?

Sure, Rich. I assume you're referring to the broadcast side --

Broadcast. My mistake.

No problem. Yes, certainly the margins from Encoda will help to improve the return on sales for the total segment. But at the same time I don't want to to think that I've let up the focus and that Jeremy Wensinger, the President, has let up on his efforts to drive the core margins of our previous business to a higher levels. But the combination of those two factors should help to you know gradually continue to make improvements in return on sales. And of course as we have said before, in any given quarter, it's revenue dependent as well as somewhat product mix dependent. But we made nice progress this quarter.

And this quarter we were able to give you the breakout between Encoda and broadcast so that you could see what the underlying improvement was in the core business. Going forward, that's going to be very difficult because of our integration process now where we're putting those businesses together. We will still have pretty good perspective to the top line. But we're going to lose a little bit of our ability to single out the profit contribution of Encoda versus the core business. But the two together, we expect to continue to improve.

Great. And one final when if I could. You mentioned a number of a very large programs that you could conceivably have awarded and I think this calendar year. The one that surprised me a little bit was [iWin] are you suggesting that - - I guess you're on the Motorola team, could be awarded in calendar '05?

Yes, it could. Absolutely.

Great. That's good news. Thanks, guys.

Thank you, Rich.

Next we move to have John Bucher with Harris Nesbitt.

John Bucher, Harris Nesbitt. Question again on the RF communications side. Fantastic growth and incredible order velocity there that you reported. I'm wondering as the Falcon III units come on line, do you anticipate any existing orders that might migrate over to Falcon III? Or do you think that represents additional incremental opportunity?

I see some incremental opportunity as it relates to say our handheld that I talked about. Because we are going to have a much more competitive handheld model, John, when release that new radio in June.

Not only is it going to have the SCA architecture that JTRS requires, but it's a more technologically advanced radio than our current handheld. And you know we have a decent competitive position. [Bitalis] has always had a very strong position there with their [MBider] radio. And were going to have a product that can really compete not only domestically but internationally. So think as it relates to that particular product, I believe there is some incremental opportunity.

As it relates to the rest of the Falcon III family as it rolls out, you know, over a multi-period time frame, you know, I think there are some opportunities. But we are very satisfied with our market share level. The Falcon III we believe will sustain it. And importantly we believe it will sustain it even in the face of way down the road whenever Cluster 5 does reach the market. So, we view it as just an opportunity to continue to evolve the technology and transition customers. And what it does do that I think you can see with our Falcon II radio is eventually enough people start adopting the new radio, that for compatibility they want to bring along an upgrade to the previous installed base. And that helps to continue to generate volume.

And just looking at the longer term growth prospects for RF Com. you know, the notion that Cluster 5 is stretched out, do you still see potentially your other future programs of Falcon III those other platforms possibly being commercially ready in the event that there is such a schedule stretch out?

Well I certainly absolutely would reconfirm what we said before is our Falcon III entire family we believe will be to market long before Cluster 5 volume is ever in production.

I think what we're so excited about, at least I am is that we have a little more visibility in this business than we have had as a result of the Army moving forward with the modularity program. And that modularity program we expect to be funded in the supplemental. And it's not dependent on how long we stay in Iraq or Afghanistan or anywhere else. That's a Force transformation project that our radios are going to be a key part of it.

And then on top of that you have as I indicated, additional radios for troop deployments and extended tours in Iraq, Afghanistan and elsewhere. And then you have now the international market wanting to maintain interoperability and compatibility. And so money is available not only through our foreign military sales budget but importantly financed by the allied countries. So we have to quote Chet Massari our Division President I think the best visibility in this business that we have had certainly during the past couple of years. And we are very confident that we will continue growth or we would not have it indicated. We think we can contain double digit growth even into '06 because we haven't had the visibility to do that in the past. We're very pleased that we can now.

Thank you very much.

Next we move to Jim Mcilree with Unterberg, Towbin.

Thank you and good evening, Pam and gentleman. Howard on the laundry list of programs that you're chasing in the GCSD with those programs that you think you have a higher chance of winning than other things that you might be chasing? Or are those just the biggest ones out there?

Well, they're the biggest ones. I'm going to punt this one over to my friend Bob Henry here with regards to the odds of winning because I am always interested in that, Jim.

We've - - the track record has been quite good, in wins, at over 60 percent. And so if I look at that, we would expect to win 2 out of every 3 of those programs. And our plans sort of reflect that as we go forward. So we're pretty confident that we can win 2 of those 3 programs in the next few months here, by June of this year which is in the fiscal year. We've already won 3 this year. And we do have 3 other ones pending.

I don't want to think, Jim, that we're really on the edge with our outlook because we have actually been winning. In the 2 years and I've been with Harris, Bob and his team have actually won at a higher rate more like 80 percent plus. We're at getting overconfident or complacent that we can maintain that. Instead were planning at our more traditional 60 percent win rate level which is kind of our historic level for some years prior.

Okay. The overhead adjustments that you spoke about earlier, I'm assuming that a fiscal '02 audit is coming up soon. And is it reasonable to expect that you'll have another favorable adjustment there?

It is possible that in this fiscal year the 2002 audit could come on the table. The combination of we have a new contracts officer from the government serving Harris. That combination and I think a general desire to accelerate and reduce this lag between the close of the programs year and when the audit occurs could bring that on the table.

It is not in our guidance. It could all occur. And at this point if it does occur I think it's more likely than not that we will have some favorable benefit from it. But at this point it would be too early in the process for me to quantify that, Jim.

And have you changed your policy towards the reserves based on this benefit that you just received?

Yes, yes. In the same way that we adjusted the reserves up when we were having negative audit outcomes, we now are reducing the reserves - - will reduce the reserves going forward based on this outcome for the 2001 audit. And as I said, our sense that we'll have at least some positive contribution from the 2002 audit.

Again, it may or may not occur this fiscal year, it might slip into early part of next fiscal year. In the last couple of years we haven't really talked about this item because the outcomes have been essentially neutral.

Okay.

And the other point just to not to get into too much detail but because of the nature of our business and where we're located, we have basically one very large cost pool in our Florida operations and a second one in our technical services operations.

You compare that with, I don't know, a company let's say like [L-3] that has operations all over. They are going to have a different pool at each place. So if you have a lot of operations these are closing all the time. You have some positive, some negative, it never really shows up. Ours is highlighted by the fact that we have one very large cost pool. And if it does move that we didn't need the particular reserves for these on proved expenses then we get this kind of an outcome potentially.

Okay. And Howard, since you've arrived at Harris, you've been consistent in under promising and over delivering. And just wondering if any of your policy has changed towards how you're presenting your guidance towards investors? Are you becoming a little bit more aggressive or less conservative or more comfortable? Has anything changed in the way you think about presenting to investors your forward-looking guidance?

I would say generally no. What's interesting about guidance is you never know if you're really being conservative or not until it's too late.

Obviously, you could look at the guidance we provided over now my 8 quarters. We'd met or exceeded the guidance on all 8 quarters and you can say well, wow he's really conservative. We're not trying to be conservative. We're trying to be balanced. We do want to meet or exceed our guidance. But we're not trying to grossly exceeded guidance that we provide. The facts are we haven't had the visibility in RF. And it's continued to be stronger for longer than we thought. We've won programs at a higher rate in GCSD. And we've delivered on the cost reduction actions that we've made in the commercial side.

I believe what have said today in the call, in the press release, in my comments is that we now believe we have a better visibility in RF. So you know that doesn't mean we won't still beat it. No. On the other hand we might not meet it. But I'm giving you the best guidance that we have. Not only for the rest of this year, but we feel confident he enough in how and 2006 is starting to shape of that we've provided you with a little bit of an early peak to help you in estimating what kinds of results we might be able to deliver in our fiscal 2006. Obviously we will discuss that in much more detail in March at our scheduled Analyst, Investor Meeting here at our headquarters. Does that answer your question?

Yes, it does thank you very much and obviously very impressive results and good luck going forward.

Thank you.

Next we'll move to Chris Quilty of Raymond James.

Evening gentleman and Pam. Sorry about that. Just wanted to follow up on the RF Comms. I was looking through my last couple of notes here and you started off the year looking for 4 to 6 percent growth. Then took it up to 7 percent after the first quarter and now 20 percent. So something dramatic has happened in the last 3 months or so. And I guess my question for you is how much of that is related to the supplemental versus general pickup in business from international customers and other items?

And if you're looking at increased visibility from the supplemental, I know there's perhaps a little bit of, I don't know of contention is the right word, the Army seems to have socked about $12 billion out of their baseline FY '06 program revenues. And put it into the supplemental to see if people would catch it. And they caught it. But it sounds like it will get pushed through because everybody feels sorry for the Army because they are hashing in out in Iraq and Afghanistan. But there still is probably some risk to that. If they really want to toe the line, they can say "hey, look put this back in your FY '06 budget and we'll talk about it later".

Let me make sure I'm clear on a couple of points. First of all the supplemental budget has no material impact on FY '05 outlook.

So what we're talking about when say that the supplemental budget it certainly is supporting our more robust outlook for double digit growth in RF in '06. But it's not required for '05. As we look back - - it's a very good question obviously we've asked it of ourselves: How could we have been so low in our outlook? I guess to steal a phrase from a movie we've had the perfect storm occur.

We've had a large pickup in international orders. And the Pakistan order was not even on our radar would we began the year. We've had much stronger demand from the DoD. We had expected demand related to deployment of troops. But the troops count has gone up. They're deployed longer and in larger numbers. The modularity program has been a big deal. They've been talking about this brigade realignment more nimble, smaller, faster, more effective both in wartime and peacetime kinds of applications. But they're actually doing it. And as a result we are seeing a big increase from that.

Some of that modularity program we believe will be funded in the normal government fiscal year budget. If you look at the 753 document that was leaked. I don't know if that's what the budget will look like. But it looked like a pretty official document to us and a lot of other people. They had $25 billion or something like that increase for Army modularity programs broadly. And, you know, here's radios will be a small portion of that.

Filling the Marine Corps, Army Reserve, National Guard needs is really what we will see in FY '06 if the supplemental budget is funded. I agree with you I think it will be contentious, but I also believe ultimately it will be approved.

We've also been I think positively surprised by the rate at which the U.S. military as well as foreign allies are replacing outdated radios because they are non-interoperable with today's systems. And so it really is a case of 3 or 4 or 5 different drivers all coming together. The good news from our standpoint is it looks like the growth is sustainable. And is not just something we'd be very pleased to have 2 more great quarters. But we want to be able to continue growth beyond that. And unless there would be a significant change at this point, the supplemental budget is not approved or something totally unexpected happens, we feel confident that we can achieve continued growth in RF in FY '06.

Okay. And also on the RF Comms. just because you're going to be first to market in the Falcon III does that mean people are going to buy it? Or you know in terms of looking at their budget and saying geez, how long do we want to - - or how quickly do we want to jump on the jitters platform? Will they tend to push back and wait? Or do you have any indication whether you'vee have early buys?

Well, I won't speculate on that. But I will say as I commented earlier the handheld radio particularly, which is the first one we're coming out with, is - - has historically not been the strongest part of our product line. So I think we are going to have a better handheld multiband radio. And believe we're going to sell some product that perhaps we wouldn't have sold otherwise or that would have been purchased from another supplier.

Okay. And one final question if I can. Pm Encoda have you gotten any subsequent feedback now that the acquisition has closed from your customers about how they view the acquisition and what you've been telling them in terms of what you'll invest in Encoda? because it appears that it was a little under invested for the last couple years and things looking up at all?

Yes. I don't personally know of any negative comments. Customers, users, the installed base I believe are thrilled that Harris now owns Encoda.

We're in the business, we are committed to it in the long run. And we have been talking with all of our customers about the investments we are making in the next generation software platforms that they're all interested in. So I think those are all positives. If you're asking whether a bunch of potential customers who weren't going to buy from Encoda will now buy from us because we own Encoda, I think the jury is still out on that. I am very optimistic that they will. But we'll see over time.

Very good. Thank you and keep up the good work.

We'll try. Thank you.

Next we have a question from Larry Harris with Oppenheimer.

Thank you. And if I could add my congratulations to the quarter and to the outlook and.

Thank you.

With respect to the Falcon III, you indicated that it would be introduced in June. So therefore could we expected some shipments in the fiscal 2006 timeframe for the handheld unit?

Certainly.

If we have orders Larry we'll be in a position to satisfy those that it is going to be released to the market. We'll provide a lot more and information on our Falcon III program at the March meeting. And I think that's - - we will probably be more prepared to go into greater detail on the schedule. And we'll have the experts there from the division to answer questions.

That's great. And any sort of update certainly look like broadcast was stronger pretty much across the board with respect to the digital TV, HDTV transition here in the U.S.?

I don't have anything particular to note. You know that the FCC as we had previously reported has at least established in writing the July 2006 date for all stations to be broadcasting in their full geographic area on the digital format.

I think everyone believes that there will still be waivers and extensions of that. And so as we've said earlier, we're not baking the entire growth plan into '06 when that's happening. Right now they are really down in the deep process of picking channels. You know if you have a digital channel on 52 and have an analog channel on 4, which one do you want for your digital channel. They're being forced to make that decision I think over the next 90 days or so. And there are some technical issues related to how much power you use, 3, 4 and I think even 5 and 6. Have potential some more interference because the digital versus analog. And so a lot of those decisions I think are in our customers' minds right now.

I think that after that their minds are going to quickly turn to their next 12 month capital schedules. And we'll be working with them to make it clear that we can't produce the entire market's need for transmitters in one quarter. And so hopefully we will have some notice. But at some point, at some point I firmly believe that, that business is going to turn on like spigot for a while. As it did last time and I'm not going to count on it. We are going to drive growth from other areas as well. But when the market does come, we're going to continue to get our market share at a nice order again this quarter from Belo as I talked about.

Next we move to Ted Wheeler with Buckingham Research.

Great results. A couple of specific questions. On this reserve issue that the '01 audit hit here this year, when did you or when will you make that change it to sort of the best guesstimate you can make for the reserve policy? In other words, you went extra conservative and you just implied you're going to go back to something more in line with where the results have been. And I just want to be clear. Did you make that change already or is that something that you're about to make?

It's a 2006 fiscal year process. But don't think of it as a pool where you throw in a chunk of reserve dollars. It's all reserved at the individual program level. And so it's kind of the aggregate pool of reserves for unallowable costs that we're talking about.

We basically do that process on a fiscal year basis. And you also do on all the major programs. When you win a program you make those decisions. So when I was trying to say, Ted, was that as a result of this hour, we are going to be a little lower at putting reserves in. And whereas after the outcome in the late 90's, we got a little more aggressive to try and compensate in 200. You know, in hindsight it went a little further than we needed to.

Yes, the reality is we have a much better handle on what is allowable and unallowable. So going forward we're less likely to have a big surprise.

Are we talking like 10 basis points of margin when all the dust settles, something like that, or is it more?

I think that - - what we would suggest that you do and I tried to articulate in the guidance and may not have been very clear. So let me repeat it is we would suggest that you take this year's outlook and you look at margins in Bob's Government Systems business to be about the same ROS as it was last year. Maybe a little bit better. And then you would add onto it the incremental benefit of $7.7 million to estimate kind of where this year comes out. As it relates to thinking about next year, we would not expect we're going to have that $7.7 billion. But I would expect and I've been consistent in saying this internally and externally that we expect every business to improve margins every year.

So Bob is - - I don't need to tell him that. He's on his programs and his people to accomplish that every quarter and every year so we would aspire to have some improvement in margins next year. But to have apples and apples you would to exclude the $7.7 million.

Right. But the methodology of setting up the reserves will be changed to some degree in '06?

Yes, a little bit. I don't think in the context of planning that you're talking about, I don't think it's a big change.

Okay. Secondly, on the RF Comm. and the differential from where you're now guiding and where you saw it 2 quarters ago. I guess I'm really struck by the operating margin.

I guess I had thought that you know given the fact you break it out it's visible, you were a little leery of the margins where they were. And here now you're saying 30 percent and it sound like you're saying that that's going to continue, 30 percent?

Well this year we are getting the benefit not only of higher volume. As we all know that does help the margin. Because we have fixed costs essentially in manufacturing overhead. So if you could put on that second shift and produce all the radios you're going to do better on a margin standpoint. Plus you're buying more material, you have better negotiating leverage with your suppliers. We will have a one-time benefit in the second half of this year related to this Bowman cost reduction. And we can talk more with you about that. But we are doing it on the Bowman percent of completion accounting.

And what that means is that at the end of this year, let's say we will be for discussion purposes 60 percent of the way through the program, that means that we need to have recognized 60 percent of the costs and 60 percent of the revenue.

The fact that our costs for the program end now go down, because of this cost reduction we'll get the benefit for the rest of the program. At percent completion you get a one-time catch-up in the current year. And that will occur in Q3 or Q4 or some combination of the two. Now, having said that I want to invest in this business to continue to grow it. And so we are going to spend money on R&D, on sales and marketing on any aspect of that business to ensure its continued growth going forward. We've been doing at the last couple of years. I'm going to continue doing that going forward. So expenses will go up and will mitigate some of the leverage that we get. But we're confident that we can achieve around 30 percent return on sales this year as we indicated in the guidance. And going forward probably a little lower than that. But because of the one-time impact of the Bowman catch-up - - this will be, what I consider a high margin business for a long time. Our team is doing a great job. And I tell you they've taken up the challenge that I've given them to keep those margins there and they are accomplishing it. We are all very proud of their work.

It's totally - - very impressive. No question.

Last question on the GCSD, if I kind of pencil through the guidance detail with you talked about the second half I think I'm going to get to revenues growth under 10 percent. If I sort of factor in Orkand it would feel like the revenue growth will be noticeably below 10 percent. But I guess I thought I heard to think that you could sustain a 10 percent growth rate sort of a longer time. Maybe '06. and maybe even a little bit beyond that. And I just wondered on the second half being perhaps lower than that is that a pause, do you have reason to think it's going to go back up to it in '06?

Absolutely. We've got some tough comparables in the back half of this year. And I believe it is just timing.

We've been at well over 10 percent organically in the first half. And we believe with the programs that we have: One, the programs that we are likely to win. And what we believe frankly is a minimal impact of all of this haranguing about the defense budgets for our Company. Given where we play at we believe that we can obtain that double digit growth. That's what we have established. And based on what it looks like the defense budget is going to do over the next few years, double-digit growth is going to be several times the growth rate of the defense budget. So I think you recall in the last 4 years, 3 years we were able to do about 3X, the DoD budget. Not that that's a very good metric but it's the only one we've kind of got out there. And we would expect - - I fully expect Bob's team to be able to achieve 3X the budget going forward and so we - -

Is Bob twitching as you say that?

At all. Ted, it's not my number. It's Bob's number.

Absolutely right, it's my number so.

Very nice job, guys. Thank you.

One other comment is don't forget we have a balanced portfolio which we're managing. Which includes civil and services which I expect to grow faster than DoD and the national stuff. But on balance the double digit growth should be good in the next few years going forward.

Great. Thanks.

Next we'll move to David Feinberg with Morgan Stanley.

Hi, can you hear me?

Yes.

Switching gears a little bit away from some of the defense related contracts. I was interested about the opportunity you had with Motorola. In particular we've heard a lot since 9/11 about opportunities for one unified communication network here in the U.S.

I'm interested as far as what the different components of this contract or this opportunity were? What the scope is? Dollar amount? Who else was participating along with you and Motorola as far as revenue timing and what technical - - what challenges lay ahead? Whether it's just an issue of being approved or if there's some R&D that needs to be invested as well?

Well, first of all, let me see that Motorola has been a longtime partner of us for Harris in the microwave space for many years. Especially in international markets and in many of the state and local bids where they're putting together a system utilizing Motorola base stations and Harris microwave equipment.

Specifically and I'll let Bob talked about the integrated wireless network pursuit. Which is interesting I think from another standpoint that it's Harris Government Systems and Harris microwave working together as a partner with Motorola on that job.

Let me make a couple of comments on this. There were 5 teams that qualified for this pursuit. There were 8 that were submitted. 5 that were qualifies. We were on the Motorola team. So with Motorola were qualified as were 4 other teams who will be preparing RFP'S for submission in the March timeframe. We believe that they will probably do - - they can do 1 or 2 awards. We think that they may do 2 awards to go forward. And we're fairly confident that the Motorola led team with Harris on it could one of those 2 awards going forward. And it is a joint program with a joint program office between the Department of Justice and Treasury and the Department of Homeland Security. Which is a one of the first ones that they will be doing.

The idea is to integrate about 2500 radio sites and over 80,000 law enforcement officers from 15 different agencies with an integrated interoperable network to communicate during times of emergency. And just in a regular communications also. So that's sort of what the scope of it. We would hopefully be supplying systems expertise software and some networked expertise from the GCSD Division and equipment from MCD in the form of wireless communications of a variety of sorts going forward. And the program is a 10 year program. And we're right now we're saying that our portion of that would be in the $250 million area.

This is a really big program and it's going to occur over that number of years just because of the size and scope and the funding.

What I think we're going to see is a - - and I think it's an advantage for Harris, is a large number of programs where it's a $400 million program over 10 years. And we get a lot of those which gives us this ability to balance and sustain through the cycle as opposed to having one or two programs, David, that we're very dependent on.

Okay. And then one quick follow-up, I apologize if you addressed this I had to hop off for a second. Within microwave, any indication or any impact from the Nextel, Sprint merger as far as your - - does that at all impact your outlook for the business going forward? I know you've had success internationally, traditionally with that business that you have said that you would like to break into the U.S. markets. Does this - - does that merger similar to what Cingular and AT&T did last year have any impact?

No. I know we've had very little business from Sprint. And I can't recall, maybe someone else was in the room here can, how much we've had from Nextel. But I actually think that merger is an opportunity for us.

Obviously, they have all lot to sort out domestically. We've had a know some business with Nextel Internationally in the past. But I think domestically we haven't had much of a relationship with either one. So I think it's an opportunity and I know for a fact there have been meetings actually since the merger that have occurred. And I think we have been building our relationship with Sprint for some time. And I am optimistic that we will have some good opportunity there. So we'll keep you posted.

Great. Thank you and congratulations on a great quarter.

Operator will take one more really quick question. I'm sorry that we've let this go this long.

The last question we have is Mark Jordan with A.G. Edwards.

Let's talk about RF again. And I know you've made some comments about level of optimism in growth into - - or well into fiscal '06. Talking a little bit beyond that you've got some major programs with Bowman and the out periods maturing, JTRS ramping. Could you talk about how you view those 2 larger piece of business interacting as we stand now? Has JTRS slipped a little bit in terms of when you should expect revenues and sort of an update on how you see the Bowman Programme evolving in its latter stages?

Mark, I appreciate the question. I'm just going to touch on it on a real high level. This is going to be exactly the right subject for us to focus on in March at the analysts meeting where we have more time.

We do have we think one more fiscal year of growth in Bowman sequentially. And then by '07, '08 as that program ramps down we're going to have to replace that volume. We certainly expect that the JTRS program Clusters 1 and 3 that we are on are going to be ramping up by that time. I think overall JTRS is moving a little bit to the right.

While that would be a negative if you're the head of the JTRS Group at Harris, I think it just means that we will sell a lot more of our Falcon II and Falcon III radios in the interim. So, we will try and sort all that out for you with a little better clarity at least as best we can in the March meeting. But we are still expecting at least one more year of sequential growth from Bowman in '06. But certainly not year over year the kind of growth of $30 million we're getting this year. We're going to get less $5, $10 million incrementally next year. The real key to FY '06 is the orders that we get this year.

We basically are in shape with orders to handle the expectations we've communicated for this fiscal year with the supplemental, with the government fiscal year '06 of budget that we see coming. And we think we're going to get - - and the international.

We think we're going to get a strong number of orders this year. And exit the year with a very strong backlog of very high book-to-bill ratio for the year. And that's going to then drive the FY '06 growth that we've started to talk about. You know, it's always dangerous to get too far out in front of yourself. We normally wouldn't be talking about FY '06 at this point. But we did have better visibility than we've had in the past. And we feel that the market overall has overreacted to talks about defense budget cuts. And while there will certainly be individual programs that will be a challenge to get funded or may move to the right as I've said earlier we think we are in a much better position than most to continue to grow and deliver on the numbers we've talked about. So, sorry I can't go into more detail today with you on that. But we absolutely will at the March meeting.

Thank you everyone for joining us. Please put on your calendar March 10 and 11 for our Analyst Meeting and we will be filing the 10Q tomorrow. Thank you.