L3Harris Technologies, Inc.
Q1 2008 Earnings Call Transcript

Published: 2 Nov 2007

[Operator:]

Good afternoon, and welcome tothe Harris Corporation's First Quarter Earnings Release Conference Call. Thiscall is being recorded. Beginning today's meeting is Pamela Padgett, VicePresident of Investor Relations and Corporate Communications. Please go ahead,Ma’am.

[Pamela Padgett:]

Thank you, good afternooneveryone and welcome to Harris’s first quarter fiscal 2008 conference call. I amPamela Padgett, Vice President of Investor Relations and CorporateCommunications and on the call with me today is Howard Lance, Chairman,President and CEO; Bob Henry, Executive Vice President and Chief OperatingOfficer; Gary McArthur, Vice President and Chief Financial Officer. And beforewe get started I am going to say a few words about forward-looking statements. In the course of thisteleconference, Howard, Garyor other management may make forward-looking statements. Forward-lookingstatements involve assumptions, risks, and uncertainties that could causeactual results to differ materially from those statements. For more informationand a discussion of such assumptions, risks, and uncertainties, please see thepress release and filings made by Harris with the SEC. In addition, in ourpress release and on this teleconference, we will discuss certain financialmeasures and information that are non-GAAP financial measures. A reconciling tothe comparable GAAP measures is included in the tables of our press release andon the investor relations section of our website which is www.harris.com. Areplay of this call will also be available on the Investor Relations section ofour website. And Howard I will turn the callforward to you.

[Howard Lance:]

Thank you, Pam, and welcome againto all of you joining us today for our first quarter earnings call. Fiscal 2008got off to an excellent start. As Harris posted strong revenue and earnings growthin the first quarter. And new orders set the stage for continued growth goingforward. Revenue increased 30%, comparedto the first quarter of last year, to $1.2 billion. Organic revenue growth,excluding the impact of acquisitions, was a strong 13%, and orders in the firstquarter increased 24% from the prior year quarter, to $1.4 billion. Operating performance was alsoexcellent. Non-GAAP net income that is excluding acquisition related costs, was$1.4 million, and non-GAAP earnings per diluted share was $0.76, which was anincrease of 10% from the prior year. But you have to remember the prior yearquarter benefited from a favorable tax settlement of $12 million, or $0.08 pershare. I also want to remind you that oursegment reporting in the first quarter reflects a change relating to ourgovernment businesses. Defense program is now combined with the results of theRF Communications Division in a segment renamed Defense Communications andElectronics. We filed the Form 8-K onSeptember 11 which provided historical financial results for the newlyconfigured segments by quarter for those fiscal years 2006 and 2007. This newsegment reporting reflects how we are operating the businesses to take fulladvantage of synergies across a broad spectrum of global defense communicationsmarket opportunities. For example, in fiscal 2007 welaunched our international systems growth initiative to leverage our systemsintegration expertise and the RF Communications Division international dealerorganization. This new initiative has created $1 billion international systemsopportunity pipeline, and it's also spurned new integrated communicationsolutions for Harris, such as our recently introduced Border Security Shelter. Let's now move on to the segmentresults for the first quarter. In the Defense Communications Electronicsegment, which again includes RF Communications Division in the Defense programsbusiness. First quarter revenue increased by 13% to $429 million, operatingincome increased 21% to $132 million, or about 31% of sales. Margins for RF Communicationsproducts were a bit higher than the previous year quarter, and slightly aboveour fiscal 2008 guidance, due to a favorable mix of high margin, Falcon IIshipments that we had in the quarter. RF Communications revenueincreased 20% compared to the prior year quarter. Demand for Harris tacticalradios was strong in both our domestic and international markets, and acrossall product lines including the Falcon II and new Falcon III radio systems.Backlog for RF Communications increased in the quarter, to a record high ofabout $1 billion. During the quarter, Harrisreceived $26 million in new orders for the Navy's Mine Resistant AmbushProtected or MRAP vehicles. Brining our total orders to-date for the Navy andMarine Corps to $145 million, and Harris HF and multi-band radios will be usedon many of the MRAP vehicles for the Army. In fact, we received our first Army MRAPorder in the quarter for $20 million, and an $8 million order was receivedafter the quarter ended. The MRAP vehicle programs represent an excellentgrowth opportunity for us going forward. These vehicles are receiving priorityfunding from the Pentagon at the direction of Secretary Defense Gates. Our Falcon tactical radio suiteis sole sourced on both the Navy and Marine Corps vehicles. And our new FalconIII vehicular grab-and-go configuration, which provides two handheld radios,allows for continuous communications when they're removed from the vehicle. Andthat's an important capability in urban environments, which fixed amount,legacy radios can't offer. So in total, we booked $173million in MRAP orders so far. We believe that the potential opportunity acrossDoD could amount to an additional $500 million in future tactical radio ordersfor Harris, as some 22,000 MRAP vehicles are ultimately deployed. Demand alsoremains robust across a broader range of U.S. DoD and international customers.Production continues to ramp up for our next generation Falcon III radios. During the quarter, we receivednew orders for Falcon III multi-band handhelds from the U.S. Army and Navy, aswell as from the governments of France,Spain and Denmark. The$212 million tactical handheld radio contract award from the Marine Corps andthe $158 million order that we received under that contracts so far was a keywin for us. We have now shipped about 21,000Falcon III radios, since the introduction of the new product. We are also verypleased with the rollout of other products, aimed at further increasing ouraddressable market size. The Falcon III multi-band, man-pack radio shouldreceive NSA type 1 certification by the end of this calendar year. We believethe Falcon III man-pack will be the first JTRS compatible radio deployed withwideband networking capability and certified by NSA. During some recent field trialsthe Falcon III man-pack is really illustrating how wideband networkingcapabilities can address the very demanding mission requirements of today andnot have to wait until year's in the future when JTRS programmed radios mightbegin production. The Falcon III man-pack underwentextensive testing at Fort Worth, Texas and White Sands Missile Range, New Mexicoin September. During these exercises, multipleradios were used in both fixed and mobile ad hoc networking applications toevaluate potential enhancements to the communications network currently used onthe army patriot missile system. Also our new high capacity lineof sight broadband Ethernet radio has been well received with new contractstotaling $10 million from the Army and Marine Corps received during the quarter.These radios provide ground troops the ability to send secure highband widthdata between command posts and forward operating basis at data rate in excess of80 million bits per second. Turning to international. Ourinternational business activity also remained very robust for RF Com. International orders during thequarter included

[Gary McArthur:]

Thank you, Howard. Good afternooneveryone. The company's strong financial foundation and expected strong cashflow generation will enable us to continue to invest in internal growthinitiatives and strategic acquisitions, pay dividends and repurchase stock. EBITDA on a non-GAAP basiscontinued to be very strong increasing in the first quarter of fiscal 2008 to$214 million, or 31%. Net operating working capital as a percent of revenueincreased from 11.7% to 12.6%, primarily as a result of the acquisition ofMultimax. Cash, cash equivalence and short-terminvestments were $359 million as of the quarter just ended. Cash flow generatedfrom operating activities was $64 million in the quarter as compared to $54million in the prior year quarter. First quarter operating cash flow istraditionally our lowest quarter and non-indicative of cash flow for the entireyear as a result of payments in the quarter of our annual incentive bonuses andprofit sharing contributions that are tied to the results of the previousfiscal year. Our expectations for cash flowfrom operations for fiscal 2008 continued to be in the range of $550 million to$600 million. Depreciation and amortization for the first quarter increasedfrom 27 million in Q1 of 2007 to 42 million for Q1 of fiscal 2008. Primarily due to the increase inproperty plan equipment and identifiable intangible assets resulting from theHarris Microwave combination with Stratex networks and the acquisition ofMultimax, depreciation and amortization for fiscal year 2008 is expected to bebetween $165 million and $175 million. Capital expenditures includingcapitalized software in the first quarter as compared to the prior year firstquarter decreased slightly from $35 million-$33 million. Our guidance forfiscal year 2008 for capital expenditures remains at between $140 million and$150 million. Our outlook for the full year taxrate for fiscal 2008,continues to be at 34%, noting that the tax rate for anygiven quarter could vary up or down as a result of discrete tax events.Regarding our capital structure, in July we initiated the steps necessary toredeem the $140 million of outstanding 3.5% convertible debt. Resulting inessentially all of the debentures being converted into $6.6 million shares ofcommon stock, on August 28, 2007, we redeemed the remaining $3000 of principalamount of debentures that were not converted. As you will recall, we funded the$400 million purchase price of Multimax with commercial paper backed by our$500 million credit facility. Our intent remains to refinance the $400 millionwith longer-term fixed rate debt prior to the end of this calendar year mostlikely in mid November. During the first quarter, we repurchased nearly $900,000shares of our common stock and the average price including commissions of$56.67 per share. Repurchases to date under our $600 million program totaled$250 million, leaving us with the remaining authorization to repurchase ourcommon stock of $300 million. Back to you, Howard.

[Howard Lance:]

Thanks, Gary. Let me conclude my prepared remarks bysummarizing our updated financial outlook for fiscal 2008. As you saw in ourpress release, we've increased non-GAAP earnings guidance for fiscal year '08from a previous range of $3.30-$3.40 pre- diluted share to a new range of $3.35-$3.45per share. As a result of stronger than excepted revenue and profitability inDefense Communications and Electronics segment, midpoint of the new guidancerepresents year-over-year EPS growth were about 21%. Revenue for the year is expectedto also increase in a range of about 21% above 2008, with strong organic growthin the range of 9%-11% higher than last year. We expect to achieve our revenuegrowth in each operating segment. Let me summarize those for you. We expect 15%-17% organic growthin Defense Communication and Electronics, driven by RF Communications growth ofabout 20%. We expect 28%-30% growth in government communication systems,reflecting 6% to 8% underlying organic growth plus the contribution of theMultimax acquisition. We expect 5%-10% organic growth in Broadcast Communicationsand we calculate that by excluding about $19 million in revenue from fiscal2007 attributed to the exceeded radio resale business. And we expect revenue of$670 million-$700 million for the year at Harris Stratex networks consistentwith our previous outlook. Turning to our expectations forsegment operating margins, we expect about 28% of sales in DefenseCommunications and Electronics. With the RF Communications Division that's partof that segment at about 33%, again consistent with our previous guidance We expect operating margins ofabout 9%-11% of sales in Government Communication Systems, which includesabsorbing the lower operating margin we experience in the first quarter as aresult of the reflector programs costs increases. We continue to expect 10%-12%sales operating margins of Broadcast Communications, and about 10% of sales inHarris Stratex Networks. We believe that all adds up toanother very strong year of expected growth and financial performance for thecompany At this point I’ll ask theoperator to open the line and we'll take your questions.

[Operator:]

Thank you, sir. The question-and-answersession will be conducted electronically. (Operator Instructions). And we'lltake our first question, which will come from Carter Copeland from LehmanBrothers.

[Carter Copeland:]

Good evening.

[Howard Lance:]

Hello, Carter.

[Carter Copeland:]

I wanted to ask very brieflyabout the IDIQ contract with one of the (inaudible) program office. I saw thetwo recent past quarters were issued under there for Talus. Were thosecompetitively bid, and were you in there or hoping to win any of those, or anycolor there would be great.

[Howard Lance:]

Yeah. The answer would be yes, wewere in there; yes we had hoped to win. This is the first competitiveprocurement under that task order. It’s fair to say it was very competitive,especially from a pricing standpoint. We are up against some challenges becauseof the fact that the army has been utilizing Talus and their incumbenciesrelatively strong. We didn't expect to win the first one, as you see from ourincreased guidance; we really didn't have it baked it into plan for the year. So, we know that thesecompetitive procurements, especially where you had very interest incumbents,are going to take a while for them to see the benefits but we were pleased tobe a part of the procurement there will be more and I am confident we are goingto win a portion of that business overtime.

[Carter Copeland:]

So these are -- the each taskorder is different, is basically what you are saying?

[Howard Lance:]

That...

[Carter Copeland:]

…in terms of cost being moreentrenched in the case of this most recent one.

[Howard Lance:]

Well, when I say…what I mean…isthat at the Army, Talus has been the supplier of handhelds for a long time.Look over at the Marine Corps. On the other hand, we won sole source for this$212 million ceiling contract in the same kind of competition. So, it's clearthat the Army continues to take the route of being more interested in theincumbent supplier. We think we offer significantlymore functionality in our product, and that does require a modest premium. Atthis point they've gone with the low price supplier. Again, on all of thesecontracts, we think they're going to be many more procurements. We are verypleased now to have these vehicles in place where we are guaranteed to be ableto compete. Prior to this they were also sourced from Talus, so we are takingsome solace in being in the game at this point.

[Carter Copeland:]

Of course, thank you very much,Howard.

[Operator:]

Our next question comes from JoeNadol from JP Morgan.

[Joe Nadol:]

Thanks good afternoon.

[Howard Lance:]

Hi, Joe.

[Joe Nadol:]

Hi, Howard. On the (Gulfcom) segment,there was $24 million in overrun. You came pretty close to what we would haveexpected on the operating income lines. Despite that, I am wondering how bigwas the pricing, I guess benefit from the IT contract that was mentioned in thetaxed year? And was there anything else going on in the quarter?

[Howard Lance:]

Yeah. As we thought about, it is avery good question, because we did have a pretty good quarter--in spite oftaking this $24 million in charges. In aggregate I would probably tell youthere was probably $16 million-17 million benefit on the flip side coming froma combination of some end of year procurement up sides where we have got someorders at the end of the government fiscal year you are using available fundsunder these various IDIQ contracts we have. We did note the catch up profitfrom renegotiation of contract pricing on one of our major IT servicescontracts, can't go into the detail because it's a confidential contract, butthat was a major number. We also had some good award fees on several close outsin the quarter on programs across the government communication systems space.So, depending on how you want to look at it we were able to absorb this cost,on the flipside we would have done better obviously if we haven't had to takethese charges. But it does speak a bit to diversification that we have in thesegment, but does that give you a sense of the color around the offsets therethat help to make up…

[Joe Nadol:]

Yeah, that’s very helpful. Secondquestion is on the MRAP side. It's pretty helpful that you had to kind ofquantify the opportunity. I am just wondering sort of more qualitatively youhave, the…I think…173 million of orders so far--you mentioned there is other500 opportunity. Is that expected future booking or is, I mean, how much ofthat 500 do you really feel highly confident and how much is a little bit moreof a reach? But may be -- I guess, something is specifically but the Armyvehicles were its a little tougher for you guys to break in. How much of that500 is Army versus sea Marine and other services?

[Howard Lance:]

I don't have that particular splitat my finger tips, what I can tell you is that, we are basing the $500 millionopportunity on of that 22,000 total vehicles procured, but about 17,000 or15,000 have been essentially funded at this point. But we think there are goingto be request to fund about another 7000. So, I wanted you to know what arebasis is for total vehicle production. We are assuming that we are going tomaintain our sole source position for the whole suite on the Marine Crops andthe Navy. And we are assuming a factored amount of business that would comealong from the Army will of course get whatever HF they put in the vehicles, wewill get. We probably won't get much of the VHF and we'll probably get aportion of the multi-band. So, we factor all of that in and a round number is,we feel pretty comfortable eventually, but we should be able to book $500million in orders that assumes obviously the funding is maintained and so onand so forth and it really do 22,000 units. I can't tell you what the timingwill be on that. What I will tell you is that, we don't really have any of thatadditional in our guidance for this year as revenue. So, if we do getadditional orders and have very short turnaround which show this is a very highpriority project, subject to our production capacity we are putting onadditional capacity in the second half of the year to break up any bottlenecksthat we have but subject to that one caveat we would have some upside if we getadditional material and ramp orders that about what we already have for thisfiscal year.

[Joe Nadol:]

It seems like with the $1 billionbacklog I am surprised you didn’t raise your RF plus forecast a little moregiven the backlog and then the other opportunities you mentioned the MRAP andalso on the international stuff you were talking but haven't been booked yet,so I am wondering why you didn't bring apple a bit more?

[Howard Lance:]

Well I’ll it chalk it up to myconservative nature that all this is still not booked, we did about 20%year-over-year as we sat on our ramp in the first quarter We feel prettycomfortable that is sustainable throughout the year but we are ramping up thefactory pretty fast more than our capacity I worry occasionally about oursupply chain capacity and we don’t want to be in a position where an importantpart of our company profitability gets estimated beyond what we know we candeliver.

[Joe Nadol:]

Okay, thank you.

[Howard Lance:]

You are welcome, thanks.

[Operator:]

We now move on to Steve Ferrantiwith Stephens Incorporated.

[Steve Ferranti:]

Thank you. Good evening, andcongratulations on a great quarter, guys.

[Howard Lance:]

Hi, Steve. Thank you.

[Steve Ferranti:]

I wonder if we can delve a littlebit more into the capacity situation at RF Communications. Can you sort ofquantify for us in terms of where we are today in capacity? Any metrics you canprovide? That would be great; and where you are heading, and maybe how much ofthis future demand you see might be done at Rochester?

[Howard Lance:]

You know, overall, we havecapacity, and I talked in numerous quarterly calls about how we've addedcapacity--so it’s not an overall capacity issue we have some bottlenecks onindividual lines it's impossible to be precise about the forecast and theactual product line by product line subassembly by subassembly. And again, thesame is true of our supply chain, Bob Henry and his team have a lot a workgoing on right now on the supply chain to make sure there aren't any bottlenecksout there, but clearly without coding a number we want to be in a position toadd 25%, 35% more output than we delivered in the first quarter as quickly aswe can. And those are the kind of numbersyou'll get to when you look at 20% year-over-year growth that's in ourguidance. So in the not too distant future, we will be producing primarily the Rochester factory at overtwice the revenue that we are producing at six to seven quarters ago. So that'sa pretty monumental feed and our operations teams doing an outstanding job. Sodon't be concerned that there are huge limits to capacity but it's really morecase of dealing now with bottlenecks and also dealing with customersrequirements shifting them all around when we get MRAP orders as we have thelast quarter those have the highest government priority and we've got to moveothers things out of the way. So we are dealing with lots ofins and outs. So not a concern, but I wanted to mention that we are bringing anadditional capacity and again it's in that 25%-35% kind of overall capacityvery quickly.

[Steve Ferranti:]

Okay, that's helpful thanks. Andone last one for me--so given the strong backlog you've got in RF Com today,how do you feel your visibility is at this point in the year compared with sayprevious years it seems like given a backlog and so given the growth estimateswe've got it seems to me stronger than normal visibility in this segment. Iwonder if you can sort of comment on that?

[Howard Lance:]

I think for the rest of thisfiscal year we have good visibility. I think that again we are prettycomfortable that we're going to be at least 20% higher in revenue than lastyear, and as the next quarter proceeds we would love nothing more than tocontinue to increase that guidance, but we still need to book some more ordersfor this year as a whole year isn't locked up yet, and we'll continue to drivenot just for this year but for all of our sales people who are listening to thecall, we want to drive future growth for next year as well. So, we are focusedon not only getting this backlog up, by keeping the backlog up where it is. Iam very pleased to say that the pipeline is there to allow that, not only withDoD programs like MRAP are obviously helping. You heard me talk about many ofthe international pursuits they are still looking very good, and again Icontinue to be very optimistic about the long-term potential of theinternational systems business, which will bring along radios, and integrationsolutions from our Defense Programs area.

[Steve Ferranti:]

Okay, that’s all I have, thankyou and congratulations again.

[Howard Lance:]

Thank you.

[Operator:]

Our next question comes from TedWheeler with Buckingham Research.

[Ted Wheeler:]

Hi, good afternoon.

[Howard Lance:]

Hey, Ted.

[Ted Wheeler:]

Howard just on the guidance,another point, the Defense Communications 28% margin, I guess I noticed that’sdown a little bit from last year, your first quarter was up. I guess RF Com mayhave a little unusually good back end of last year, but is there anything elsein the segment that in Defense Programs, its depressing margins, and if thereis, could you kind of walk us through the timing of when that may change?

[Howard Lance:]

Ted, the margins for this segmentI really over overwhelmingly impacted by what you see in the margins are in theRFPs, because it's a vast majority of the revenue and profitability in DefenseCommunications. We ran last year in the second half of fiscal '07, almost 35%ROS, we provided guidance this year of 33%, largely as a result. And again I amtalking RF Communications guidance largely as a result of increase shipments ofthe Falcon III products, which as they start their life are lower margin thanHF radios, both as a result of them being small handheld radios and because weare fairly young in our production cycle. We did a little better than that 33%in the first quarter, but we are still right now calling for about 33% for theyear-end total. So, the reason that the segment total at around 28% would beslightly behind last year, I have in on my charted it about 29% of thissegment, apples-to-apples both year about a percent lower would be because ofprimarily the lower RF margins. Defense Programs margin continue to be aboutthe same as they were last year, round about the mid-teens.

[Ted Wheeler:]

And probably staying that way fora while?

[Howard Lance:]

Yeah, I don't see a lot ofthings, so they are going to change that, we have new programs coming on thatare lower than that, but we have other programs going into production. Bob, ifyou want to jump in. Production programs we tended to do a little better thanthat.

[Bob Henry:]

Yeah, especially on the Avionicsside of the house and we expect that they were to come back over the nextcouple of quarters.

[Gary McArthur:]

You know, this is a pretty lowquarter for Avionics as I indicated in my remarks, Ted.

[Ted Wheeler:]

Okay. And that might be a bit ofthe margin lift, you said, it comes about?

[Gary McArthur:]

Yeah. I think that will, thatgives us confident in on the second half, that we will certainly meet theguidance on operating margin in the segment that we're talking about.

[Ted Wheeler:]

There was one other question Ihad and I might not have gotten everything correct as you answered a little bitquickly, but I think you mentioned in the IT services area and IDIQ opportunitywas a $50 billion ceiling?

[Gary McArthur:]

Yeah that program is called ALLIANT.And ALLIANT was awarded to a relatively large number of contractors; Harris wasone of those this has been on our pursued list as a important win for sometime. Ted Hengst and his team weresuccessful in getting us one of those contract awards and it’s through the GSAthat it literally has tentacles out to almost every agency in the FederalGovernment can buy IT products and services on ALLIANT. So not only will this be avehicle for things that we can do directly but it will be a vehicle for otherpartner companies that want to use us as a conduit to the customer, Bob,anything you want to add on that?

[Bob Henry:]

Yeah. The use of the othercompanies using that vehicle is something that the Multimax had--and they havea site of it, website that the people can go through to do that and that’s beenquite successful, so that was one of the reasons that we looked at Multimax andclose on that acquisition.

[Gary McArthur:]

The future in this IT servicesbusiness is very much this large IDIQ contract vehicles and if you are not avehicle yourself directly as a prime you have to go through other people andthe margins frankly are less attractive. I am sorry here is the case where wepicked up a number of these prime positions with the Multimax acquisition butwe actually concurrent with doing that acquisition we won our own on theALLIANT program and I think it will be a strong vehicle for us going forward.

[Ted Wheeler:]

Just kind of gradually buildover…

[Gary McArthur:]

Yeah, absolutely, absolutely. AndI couldn’t tell you for example in the quarter what our revenue under ALLIANTwas. I don't honestly know, I doubt that it was too material in the firstquarter, but I think overtime I mean I literally and MILCOM I had the benefitof sitting with CIOs from the Intel community from the DoD community and thisis clearly where you want to be in terms of growing your day to day servicesbusiness with task orders and one thing Multimax brought to the party is this webportal that Bob spoke of as well as a wonderful proposal center where they canvery quickly provide quotes on a variety or services almost like off of a pricelist and frankly we are learning how they do that and we are incorporating thatin rest of our IT services business there are quite good at that.

[Ted Wheeler:]

That was a good nice win. Thanks.

[Gary McArthur:]

Thank you.

[Operator:]

We now move onto Larry Harrisfrom Oppenheimer.

[Larry Harris:]

Yes, thank you andcongratulations on the international Falcon III win.

[Howard Lance:]

Thank you.

[Larry Harris:]

With respect to broadcast, if youcan just give us a little more update in terms of the station upgrades of lowto full power and right now. What's the approximate business mix withinbroadcast relative to say transmitters versus video infrastructure versussoftware?

[Howard Lance:]

I will have to ask Gary to maybe look that upwhile we are talking and I have that in front of me in terms of the mix in thequarter we can give you some approximate numbers here in a second. The thing Iwant to takeaway I think in the broadcast segment Larry is we are continuing tosee double-digit growth in the video infrastructure and digital mediabusinesses all of those different kinds of products that are enabling ourcustomers to make the transition to manage digital content and broadcast in HD.It's the majority of the revenue and it's grown at double-digit rates. Now, I think for something on theorder of 8 quarters in a row doesn’t appear to be slowing. Tim Thorsteinson hadjust come back from trips to Europe. He was inAsia in the quarter, and the international way we continue to think asfollowing a year or two behind the U.S. adoption. So, we feel like wegot a good growth potential for the bulk of this segment for sometime to come. On software we had been negativefor a couple of quarters. This quarter was barely positive, but it wasn’t adrain. That was good to see, continuing to get some new wins, but we continueto struggle in software with our rental model wear. We get this contract withSony, or with BSkyB or with Nexstar Communications, and maybe it's a five yearcontract and we recognized the revenue over five year's rather than all itonce. So we are not expecting a lot of growth there. For several quarters, it wasDigital TV that was down year-over-year. This quarter Digital TV actually waspositive slightly. We think that’s encouraging, we had some success in pullingin some customers who wanted to take their transmitters in fiscal year '09, andwe have said we got the capacity it's really use it or loose it. So, the teamhas done a good job in pulling some of that in the fiscal year '08, but wedidn’t have the same level of international analog revenue, so that was whatcreated at down growth year-over-year with regard to transmission. So, that’skind of color around it. Garyyou want to give some general range of the kind of how the 100% of the revenuewould broadcast split between our three pieces.

[Gary McArthur:]

Sure. In '08 transmission revenuefor the first quarter is approximately 25%, our software business is inadditional 25% and the infrastructure and digital media business is theremaining 50%.

[Howard Lance:]

So, it's a majority the businessand as a way it's growing those percentages for the digital infrastructure andmedia business going to get larger as we go forward.

[Larry Harris:]

Alright. Well, thank you verymuch.

[Howard Lance:]

Okay. Thank you, Larry.

[Pamela Padgett:]

Hey, Tiffany. We will take onereally quick question. I know we have others in the queue, but I can't line upagainst a Harris Stratex call.

[Operator:]

Thank you, ma'am. Our finalquestion of the day will come from Chris Donaghey, with SunTrust Robinson and Humphrey.

[Chris Donaghey:]

Hi. Good evening, guys--andagain, good quarter. Howard, I wonder if you can help me understand theseasonality of this new segment. About my calculation, this was the firstsequential decline in RF Communications from the fourth quarter to the firstquarter with the segment itself doing about 13% total growth. So, can you justhelp me understand the sequential or the seasonality of this business has astructure not going through the rest of '08? And also, if you can help on themargin side as well the seasonality and the margins through the year?

[Howard Lance:]

Well, the second question first,there really shouldn't be any appreciable seasonality, normally what's going togive us a little seasonality in the backend of this year on margin is the mixof Falcon III as its ramps up, slightly lower margin. And that's why we areholding at a 33% operating margin guidance for RF for the year, even though westarted on the first quarter little higher. In terms of your sequential point,I think it’s accurate that we had just very slight sequential declined in RFfrom the fourth quarter than the first quarter, we use to always have andthat’s it only been in recent years that we haven't. I wouldn’t draw a wholelot of conclusion from that. We have a very strong yearin-and-out and clearly we're going to have a very strong second half as we didlast year. So, I think that there’s not going to be a lot of appreciableseasonality differences but there is a little more in the second half orramping up in the capacity as I said. So as a general statement, the increasedguidance that we've given on EPS I see most of that I guess at the mid-pointadditional nickel really coming most of it in the second half of the year as aresult of much higher production in shipments in Defense Communications as wellas continued growth in Broadcast and Harris Stratex in the second half.

[Chris Donaghey:]

Okay great. Thank you, Howard.

[Howard Lance:]

Okay, thank you.

[Pamela Padgett:]

Thank you everyone we appreciateyour time again.