UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number 1-3863

HARRIS CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (321) 727-9100

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes ü   No   

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes     No ü 

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ü   No   

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.       

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

      Large accelerated filer      ü   Accelerated filer          Non-accelerated filer        

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes         No ü 

      The aggregate market value of the voting common equity held by non-affiliates of the registrant was $5,670,756,975 (based upon the closing sale price per share of the stock on the New York Stock Exchange) on the last business day of the registrant’s most recently completed second fiscal quarter (December 30, 2005). For purposes of this calculation, the registrant has assumed that its directors and executive officers are affiliates.

      The number of outstanding shares of the registrant’s common stock as of August 18, 2006 was 133,858,630.

Documents Incorporated by Reference:

      Portions of the registrant’s Proxy Statement for the 2006 Annual Meeting of Shareholders scheduled to be held on October 27, 2006, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended June 30, 2006, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described therein.

HARRIS CORPORATION

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2006

TABLE OF CONTENTS

      This Annual Report on Form 10-K contains trademarks, service marks and registered marks of Harris Corporation and its subsidiaries. HD Radio^tm is a registered trademark of iBiquity Digital Corporation.

Cautionary Statement Regarding Forward-Looking Statements

      This Annual Report on Form 10-K, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements: of our plans, strategies and objectives for future operations; concerning new products, services or developments; regarding future economic conditions, performance or outlook; as to the outcome of contingencies; as to the value of our contract awards and programs; of beliefs or expectations; and of assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of the filing of this Annual Report on Form 10-K. Factors that might cause our results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, those discussed in “Item 1A. Risk Factors” below. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we undertake no obligation, other than imposed by law, to update forward-looking statements to reflect further developments or information obtained after the date of filing of this Annual Report on Form 10-K or, in the case of any document incorporated by reference, the date of that document, and disclaim any obligation to do so.

PART I

HARRIS

      Harris Corporation, together with its subsidiaries, is an international communications and information technology company focused on providing assured communications products, systems and services for government and commercial customers. Our operating divisions serve markets for government communications, secure tactical radios, microwave communications and broadcast communications and systems.

      Harris was incorporated in Delaware in 1926 as the successor to three companies founded in the 1890s. Our principal executive offices are located at 1025 West NASA Boulevard, Melbourne, Florida 32919, and our telephone number is (321) 727-9100. Our common stock is listed on the New York Stock Exchange under the symbol “HRS.” On August 18, 2006, we employed approximately 13,900 people. We sell products in more than 150 countries. Unless the context otherwise requires, the terms “we,” “our,” “us,” “Company,” and “Harris” as used in this Annual Report on Form 10-K refer to Harris Corporation and its subsidiaries.

General

      We structure our operations around the following four business segments: (1) Government Communications Systems, (2) RF Communications, (3) Microwave Communications, and (4) Broadcast Communications. In the fourth quarter of fiscal 2004, in conjunction with the sale of our tools and test systems (“TTS”) product line, we changed our segment reporting structure by eliminating the Network Support segment as a separate reportable segment. The TTS product line is reported as a discontinued operation, and the NetBoss^® network operations software business, which was part of the Network Support segment, has been consolidated into the Microwave Communications segment. Segment information for all periods presented has been reclassified to reflect such segment reporting structure. Unless otherwise noted, disclosures in this Annual Report on Form 10-K relate only to our continuing operations. Financial information with respect to all of our other activities, including corporate costs not allocated to the operating segments or discontinued operations, is reported as part of Headquarters Expense or Non-Operating Income (Loss).

      Each of our business segments, which we also refer to as “divisions,” has been organized on the basis of specific communications markets. Each business segment has its own marketing, engineering, manufacturing and product service and maintenance organization. We produce most of the products we sell.

      Our total revenue in fiscal 2006 was approximately $3.5 billion compared to approximately $3.0 billion in fiscal 2005. Total revenue in the United States increased approximately 12 percent from fiscal 2005 while international revenue, which amounted to approximately 21 percent of our total revenue in fiscal 2006, increased

approximately 34 percent from fiscal 2005. Our net income for fiscal 2006 was $237.9 million compared to $202.2 million in fiscal 2005, an increase of 18 percent.

Recent Acquisitions

      Acquisition of Leitch Technology Corporation. On October 25, 2005, we acquired Leitch Technology Corporation (“Leitch”), a publicly-held provider of high-performance video systems for the television broadcast industry, including routers and distribution equipment, signal processing, signal management and monitoring, servers and storage area networks, branding software and post-production editing systems. The cash purchase price for Leitch, including assumed liabilities, was approximately $513 million. The Leitch business is being operated within our Broadcast Communications segment.

      Acquisition of Optimal Solutions, Inc. On April 28, 2006, we acquired Optimal Solutions, Inc. (“OSi”), a privately-held provider of air-time sales, traffic and billing software to broadcast stations. The acquisition of OSi expands our capabilities in enterprise-wide software for managing and scheduling advertising and programming for broadcasters. The purchase price for OSi, including assumed liabilities, was approximately $37 million. The purchase price, which is subject to post-closing adjustment, may be increased if certain operating goals are achieved. The OSi business is being operated within our Broadcast Communications segment.

      Acquisition of Aastra Digital Video. On May 31, 2006, we acquired Aastra Digital Video, a business unit of Aastra Technologies Limited. Aastra Digital Video develops and markets video networking, encoding, decoding and multiplexing technologies used by television broadcasters, telecommunications providers and satellite networks. The purchase price for Aastra Digital Video, including assumed liabilities, was approximately $36 million. The Aastra Digital Video business is being operated within our Broadcast Communications segment.

Subsequent Event — Agreement with Stratex Networks, Inc.

      On September 5, 2006, we announced that we entered into a definitive agreement with Stratex Networks, Inc. (“Stratex Networks”), a publicly held provider of high-speed wireless transmission systems, under which we will combine our Microwave Communications Division with Stratex Networks to form a new company named “Harris Stratex Networks, Inc.” Under the terms of the agreement, we will contribute our Microwave Communications Division and $25 million of cash in exchange for approximately 56 percent ownership of the combined company. Stratex Networks shareholders will exchange their existing ownership of Stratex Networks for approximately 44 percent ownership of the combined company. The transaction is subject to approval by Stratex Networks shareholders, customary regulatory approvals, and other customary closing conditions. Following the closing, it is expected that Harris Stratex Networks, Inc. will be listed on the NASDAQ Global Market. The transaction is expected to close during the second or third quarter of our fiscal year 2007. The financial results of Harris Stratex Networks, Inc. will be reflected in our consolidated financial statements, with appropriate elimination of the minority interest not held by us.

Financial Information About Our Business Segments

      Financial information with respect to our business segments, including revenue, operating income or loss and total assets, is contained in Note 23: Business Segments in the Notes to Consolidated Financial Statements (the “Notes”) and is incorporated herein by reference. Financial information with respect to our operations outside the United States is also contained in Note 23: Business Segments in the Notes and is incorporated herein by reference.

Description of Business by Segment

      Government Communications Systems designs, develops and supports state-of-the-art communications and information networks and equipment; develops intelligence, surveillance and reconnaissance solutions; designs and supports information systems for image and other data collection, processing, interpretation, storage and retrieval; and offers engineering, operations and support services. This segment serves a diversified customer base within the U.S. Government, including the Department of Defense (“DoD”), Federal Aviation Administration (“FAA”), National Reconnaissance Office (“NRO”), National Geospatial-Intelligence Agency (“NGA”), Census Bureau, Department of State, National Security Agency (“NSA”), National Oceanic and Atmospheric Administration (“NOAA”), Defense Information Systems Agency (“DISA”) and other government agencies. Government Communications Systems also provides services, systems and products for other aerospace and defense companies, including Lockheed Martin Corporation, The Boeing Company, Northrop Grumman

Corporation, Space Systems/ Loral and ITT Industries. The Government Communications Systems segment serves four strategic program areas:

      Department of Defense Programs: Government Communications Systems is a major supplier of spaceborne and airborne communications and information processing systems and equipment. Government Communications Systems provides military satellite communications, data links, avionics, network communications, large deployable satellite antenna systems, and flat-panel, phased-array and single-mission antennas. Government Communications Systems is a supplier of high-frequency satellite ground terminals for the DoD, supplying the U.S. Army, Navy, Air Force and Marines. Government Communications Systems is providing high-speed networking and satellite communications, including processors, encryptors and terminals, to assist the DoD’s ongoing transformation of military communications. The DoD’s Global Information Grid will provide forces with access to information when and where they need it via secure, interoperable and mobile communications networks. A key element of this information grid is the U.S. Army’s Warfighter Information Network — Tactical (“WIN-T”), for which Government Communications Systems is providing secure, high-speed wireless local area networking and phased array capabilities for WIN-T’s wireless transmission system. Government Communications Systems is also providing multiband satellite communications technology and development to the U.S. Navy’s Advanced Extremely High Frequency (“AEHF”) satellite program, supplying four Navy Multiband Terminal prototypes to support the AEHF program. These terminals will allow units at sea and onshore to communicate from anywhere via military and commercial satellites simultaneously, and will enable secure command and control capability and enhanced communications, such as tactical data and imagery, real-time video, battlefield maps, and targeting information. Government Communications Systems is developing network-centric communications system architectures and technologies that will link sensors, platforms, weapons and soldiers and is also developing open-architecture, directional, mobile ad hoc networking capabilities. During fiscal 2006, Government Communications Systems was awarded significant contracts, including: a three-year, $27 million contract to develop and integrate a communications system that will link the U.S. Navy’s Advanced Deployable System undersea surveillance sensors with host Littoral Combat ships; a contract with the U.S. Air Force for anti-jam GPS technology for munitions; a contract to develop an encrypted data link system for an Air Force missile; and a contract to develop a Solid State Recording Device for Army helicopters. Ongoing previously awarded programs also include: a contract to provide tactical common data links for the U.S. Navy Light Airborne Multi-purpose System (“LAMPS”) helicopters; a contract to provide large unfurlable spaceborne antennas for the Mobile User Objective System, a narrowband tactical satellite communications system that will enhance the U.S. Navy’s existing satellite tactical communications system; a contract with the U.S. Navy for Multi-band Shipboard Satellite Communications Terminals (“MSSCT”); contracts for portions of the communications systems for the Ground-based Midcourse Defense (“GMD”) program (formerly known as National Missile Defense); follow-on awards for the U.S. Army’s Multiple Launch Rocket System program, including improved fire control systems (“IFCS”); a contract for Multi-function Information Distribution Systems (“MIDS”) terminals for aircraft such as the U.S. Navy’s F/A-18 and the U.S. Air Force’s F-16, as well as ground-based applications; and contracts for the F-22 Raptor, F/A-18E/F Super Hornet and F-35 Joint Strike Fighter aircraft platforms to provide high-performance, advanced avionics such as high-speed fiber optic networking and switching, intra-flight data links, image processing, digital map software and other electronic components.

      National Programs: Government Communications Systems also is a provider of communications equipment and systems, and image and information processing solutions to national intelligence and security agencies and customers. Government Communications Systems provides comprehensive solutions for intelligence, surveillance and reconnaissance. Government Communications Systems addresses each of the six steps of the intelligence cycle: tasking, collection, processing, exploitation, dissemination and analysis of information. Government Communications Systems provides communications equipment, advanced imagery products and information processing for intelligence systems, and develops and supplies state-of-the-art wireless surveillance and tracking equipment for vehicular, man-portable, airborne, and remote/unattended applications. Such intelligence and surveillance solutions help improve situational awareness, data collection accuracy and product analysis by correlating near real-time mission data and intelligence reference data for display and analysis by strategic and tactical planners and decision makers. A significant portion of this program area involves classified programs. While classified programs generally are not discussed in this Annual Report on Form 10-K, the operating results relating to classified programs are included in our consolidated financial statements, and the business risks associated with such programs do not differ materially from those of other U.S. Government programs. During fiscal 2006, Government Communications Systems was awarded a contract with Space Systems/Loral to design and construct four unfurlable mesh reflectors for commercial satellites. During fiscal 2005, Government Communications Systems was awarded a three-year, potential $77 million Rapidly

Deployable Integrated Command and Control System (“RADIC”) program by the NSA to develop a knowledge-management software system for its analysts. Government Communications Systems is also supplying geospatial and imagery-derived products for the NGA under the Global Geospatial Intelligence program, including foundation data products, three-dimensional visualization, mapping and charting production services, surveying services and production management.

      Civil Programs: Government Communications Systems also is a supplier to civilian agencies of the U.S. Government, including the FAA and the Census Bureau, supplying these agencies with custom systems and software designed to collect, store, retrieve, process, analyze, interpret, display and distribute information, including meteorological data processing systems, electronic archival systems, graphic information systems and telecommunication services systems. Government Communications Systems provides systems integration to large-scale, geographically dispersed enterprises. Government Communications Systems is assisting the FAA in modernizing the U.S. air traffic control system and infrastructure. For example, we are the prime contractor on a 15-year, $2.2 billion contract to integrate and modernize the FAA’s Telecommunications Infrastructure (“FTI”). This program is consolidating telecommunications at more than 4,400 FAA facilities nationwide, while reducing operating costs, enhancing network security and improving service. During fiscal 2005, we were awarded a further contract by the FAA to add mission support services to the FTI program, as well as a follow-on contract for the FAA’s Weather and Advanced Radar Processing System. The total contract amount for the FTI program, including options, could reach $3.5 billion through 2017. Government Communications Systems is also working with the FAA on other programs, including the Voice Switching and Control System program, which allows air traffic controllers to establish critical air-to-ground and ground-to-ground communications with pilots as well as other air traffic controllers.

      Government Communications Systems also is a developer of complex, large-scale databases and information systems and services. Government Communications Systems is the prime contractor for the U.S. Census Bureau’s Master Address File/ Topologically Integrated Geographic Encoding and Referencing Accuracy Improvement Project (“MTAIP”). The MTAIP contract was awarded to Harris in 2002 and during fiscal 2006 the U.S. Census Bureau exercised its option to extend the contract for four years. Currently anticipated to provide total revenue of $210 million over an eight-year period ending in 2010, the MTAIP program will provide a computer database of all addresses and locations where people live or work, covering an estimated 115 million residences and 60 million businesses in the U.S. During fiscal 2006, Government Communications Systems was awarded a five-year, $600 million contract from the U.S. Census Bureau as prime contractor for its Field Data Collection Automation (“FDCA”) Program. Under the FDCA Program, Government Communications Systems will integrate multiple automated systems required to obtain data from field census takers during the 2010 census. The automated system will capture information collected during field interviews. During fiscal 2005, Government Communications Systems, together with Broadcast Communications, completed a contract to rebuild the Iraqi Media Network (“IMN”), which is bringing modern radio, TV broadcast and newspaper infrastructure and media content to the people of Iraq.

      Technical Services Programs: Government Communications Systems also provides technical engineering, operations and services to the U.S. Government. Such services include information technology outsourcing, enterprise management, engineering and systems design. Information technology outsourcing services include data entry, network administration, system operations and maintenance and procurement and logistics support. Enterprise management services include systems engineering and integration, network design, capacity expansions and information assurance and security. During fiscal 2005, Government Communications Systems was selected by the NRO to provide operations, maintenance and support services for the agency’s global communications and information systems (“Patriot”) program which is expected to yield more cost-effective information technology service management. This program has a potential value of $1 billion over 10 years. During fiscal 2005, Government Communications Systems was also awarded a contract with a potential value of $175 million, over nine years, from the DISA in support of its Crisis Management System. Under the Mission Communications Operations and Maintenance (“MCOM”) program, Government Communications Systems provides operations and maintenance services to the U.S. Air Force Satellite Control Network’s communications functions at Schriever AFB, Colorado, and Onizuka AFS, California. Under the Operational Space Services and Support (“OSSS”) program, Government Communications Systems provides operations and maintenance services to the Air Force Satellite Control Network remote tracking stations and global positioning satellite sites worldwide. During the first quarter of fiscal 2005, Harris completed the acquisition of The Orkand Corporation (“Orkand”), a privately-held provider of technical services and information technology for U.S. Government agencies, including the Department of State, Department of Labor, Department of the Interior, Department of

Health and Human Services, and Department of Energy. The acquisition of Orkand continues to provide insight into additional opportunities with these new customers.

      Revenue, Backlog and Contracts: Revenue in fiscal 2006 for the Government Communications Systems segment increased to $1,813 million from $1,805 million in fiscal 2005 and $1,506 million in fiscal 2004. Segment operating income increased 6 percent to $216.5 million from $203.4 million in fiscal 2005 and $153.4 million in fiscal 2004. This segment contributed 52 percent of our total revenue in fiscal 2006, 60 percent in fiscal 2005 and 60 percent in fiscal 2004. In fiscal 2006, approximately 33 percent of the revenue for this segment was under contracts with prime contractors and approximately 67 percent was under direct contracts with customers, compared to 28 percent of revenue under contracts with prime contractors and 72 percent of revenue under direct contracts with customers in fiscal 2005. Some of this segment’s significant programs in fiscal 2006 included the FTI program, the Patriot program, the MCOM program, the F-35 Joint Strike Fighter platform and various classified programs. Other significant programs included the AEHF, F/ A-18E/ F, IFCS, MTAIP, MIDS, MSSCT and the U.S. Air Force’s family of Beyond Line-of-Sight (“FAB-T”) program and several classified programs. The largest program by revenue represented approximately 10 percent of this segment’s revenue for fiscal 2006, compared to approximately 6 percent for fiscal 2005. The 10 largest programs by revenue represented approximately 33 percent of this segment’s revenue in fiscal 2006, 31 percent in fiscal 2005 and approximately 30 percent in fiscal 2004. This segment currently has a diverse portfolio of approximately 300 programs, each having a value over $1 million. Historically, this diversity has provided a stable backlog and reduced potential risks that come from reductions in funding or changes in customer priorities. In fiscal 2006, U.S. Government customers, whether directly or through prime contractors, accounted for approximately 95 percent of this segment’s total revenue compared to 91 percent in fiscal 2005, with the DoD accounting for 56 percent of this segment’s fiscal 2006 revenue and the FAA accounting for 13 percent.

      The funded backlog of unfilled orders for this segment was $382 million at July 28, 2006, compared with $410 million at July 29, 2005 and $463 million at July 30, 2004. Substantially all this funded backlog is expected to be filled during fiscal 2007, but we can give no assurance of such fulfillment. Unfunded backlog for this segment was $4,159 million at July 28, 2006, compared with $4,019 million at July 29, 2005 and $3,170 million at July 30, 2004. Additional information regarding funded and unfunded backlog for this segment is provided under “Item 1. Business — Funded and Unfunded Backlog.”

      Most of the sales of the Government Communications Systems segment are made directly or indirectly to the U.S. Government under contracts or subcontracts containing standard government contract clauses providing for redetermination of profits, if applicable, and for termination at the convenience of the U.S. Government or for default based upon performance of the contractor. This segment’s contracts include both cost-reimbursement and fixed-price contracts. Cost-reimbursement contracts provide for the reimbursement of allowable costs plus the payment of a fee. These contracts fall into three basic types: (i) cost-plus fixed-fee contracts, which provide for the payment of a fixed fee irrespective of the final cost of performance; (ii) cost-plus incentive-fee contracts, which provide for increases or decreases in the fee, within specified limits, based upon actual results compared to contractual targets relating to factors such as cost, performance and delivery schedule; and (iii) cost-plus award-fee contracts, which provide for the payment of an award fee determined at the discretion of the customer based upon the performance of the contractor against pre-established performance criteria. Under cost-reimbursement contracts, this segment is reimbursed periodically for allowable costs and is paid a portion of the fee based on contract progress. Some costs incident to performing a contract have been made partially or wholly unallowable for reimbursement by statute or regulation. Examples are certain merger and acquisition costs, lobbying costs and certain litigation defense costs.

      This segment’s fixed-price contracts are either firm fixed-price contracts or fixed-price incentive contracts. Under firm fixed-price contracts, this segment agrees to perform a specific scope of work for a fixed price and, as a result, benefits from cost savings and carries the burden of cost overruns. Under fixed-price incentive contracts, this segment shares with the U.S. Government both savings accrued from contracts performed for less than target costs as well as costs incurred in excess of targets up to a negotiated ceiling price (which is higher than the target cost), but carries the entire burden of costs exceeding the negotiated ceiling price. Accordingly, under such incentive contracts, profit may also be adjusted up or down depending upon whether specified performance objectives are met. Under firm fixed-price and fixed-price incentive contracts, this segment usually receives either milestone payments equaling 100 percent of the contract price or monthly progress payments from the U.S. Government in amounts equaling 75 percent of costs incurred under U.S. Government contracts. The remaining amounts, including profits or incentive fees, are billed upon delivery and final acceptance of end items and deliverables under the contract. Fixed-price contracts generally have higher profit margins than cost-reimbursement contracts. Production contracts are mainly fixed-price contracts, and development contracts are

generally cost-reimbursement contracts. For fiscal 2006, 52 percent of the revenue of this segment was generated from cost-reimbursement contracts and 48 percent was generated from fixed-price contracts compared to 60 percent and 40 percent, respectively, in fiscal 2005 and 68 percent and 32 percent, respectively, in fiscal 2004. For a discussion of certain risks affecting this segment, see “Item 1. Business — Principal Customers; Government Contracts,” “Item 3. Legal Proceedings” and “Item 1A. Risk Factors.”

      RF Communications is a worldwide supplier of secure voice and data radio communications products, systems and networks to the DoD, Federal and state agencies, and military, government, and commercial organizations worldwide. RF Communications offers a comprehensive line of secure radio products and systems for manpack, handheld, vehicular, strategic fixed-site and shipboard applications. These radio systems are highly flexible, interoperable and capable of supporting diverse mission requirements.

      RF Communications’ Falcon^® family of tactical radios includes the Falcon II secure high-frequency, very high-frequency, ultra high-frequency and multiband software-defined tactical radios, and the Falcon III multiband handheld and vehicular radio systems. These radios are built on a software-defined radio platform that is reprogrammable to add features or software upgrades. Software-defined radio technology offers significantly increased flexibility in support of a variety of wireless communications protocols. These radios also have military-strength embedded encryption and can be linked to computers, providing network capabilities on the battlefield. The Falcon III AN/ PRC-152(C) has been certified by the NSA for the protection of voice and data traffic up through TOP SECRET/ SCI level. The Joint Tactical Radio System (“JTRS”) Software Communications Architecture (“SCA”) of the AN/ PRC-152(C) has been certified “SCA Compliant with Waivers” by the Joint Program Executive Office Joint Tactical Radio System Test and Evaluation Laboratory (“JPEO JTEL”). Falcon III radios provide interoperability with key legacy waveforms, including Single Channel Ground and Airborne Systems (“SINCGARS”), and can be configured to accommodate vehicle-mounted functionality while providing handheld portability for quick-dismount scenarios. These radios provide soldiers with total battlefield connections, including secure ground-to-air and tactical satellite communications, and an embedded global positioning system for situational awareness.

      RF Communications provides embedded encryption. Its Sierra^tm II cryptographic subsystem is a miniaturized programmable module that can be integrated into radios and other voice and data communications devices to encrypt classified information prior to transmission and storage. Sierra II was certified in fiscal 2005 by the NSA. RF Communications’ encryption modules currently meet or exceed the highest security standards established by the U.S. Government. Sierra II can be used for tactical radios, wireless local-area-networks, remote sensors, guided munitions and unmanned aerial vehicles. RF Communications also offers the Citadel^® cryptographic engine which provides military grade encryption for non-Type 1 applications.

      RF Communications also provides unattended ground sensor systems. These include remote, battery-operated products that are designed for surveillance and monitoring of high-value resources such as troop encampments, airfields, base installations, supply routes and depots.

      The worldwide transformation to modernize tactical communications to provide secure, interoperable and reliable communications is driving strong demand and positive results for this segment. Force modernization efforts, including ground force restructuring and expansion, have gained increasing momentum and funding as the DoD seeks to deliver enhanced command, control and communications to more and smaller operating units. In fiscal 2006, RF Communications responded to requirements for its Falcon family of radios from a broad base of U.S. Government customers. For example, the U.S. Army’s Modularity program is a major force-transformation initiative that includes smaller, more agile and rapidly deployable fighting units. The smaller units are more independent and require greater capabilities for communications up and down the command structure, which has created demand for our Falcon radios. Similar communications modernization programs are under way by the U.S. Marines, the Army Reserve and the National Guard. Internationally, RF Communications’ radios are the standard of NATO and Partnership for Peace countries. Sales in fiscal 2006 were made to NATO members, including the United Kingdom, Canada, Romania, Poland, Germany, Hungary and Bulgaria. Additionally, sales in fiscal 2006 were made to the following countries: Pakistan, Iraq, Ethiopia, Chile, Algeria, Georgia, Uganda, Saudi Arabia, Sweden, Australia, Tajikistan and Yemen.

      RF Communications has a key position on the U.K. Ministry of Defence Bowman Tactical Radio Programme (“Bowman”). Under the terms of the Bowman contract with General Dynamics United Kingdom Limited, with a value to RF Communications of approximately $245 million, this segment is providing more

than 10,000 high-frequency radio units over the course of the five-year program. Production for Bowman began in fiscal 2003.

      Revenue in fiscal 2006 for the RF Communications segment increased 51 percent over fiscal 2005 to $809 million from $537 million and was $430 million in fiscal 2004. Segment operating income increased 68 percent to $278.9 million in fiscal 2006, compared to $166.5 million in fiscal 2005 and was $118.9 million in fiscal 2004. The RF Communications segment contributed 23 percent of our total revenue in fiscal 2006, 17 percent in fiscal 2005 and 17 percent in fiscal 2004. In fiscal 2006, approximately 37 percent of the revenue of this segment were derived outside of the United States, compared to 45 percent in fiscal 2005 and 47 percent in fiscal 2004. In fiscal 2006, U.S. Government customers, whether directly or through others, accounted for approximately 72 percent of this segment’s total revenue, compared to 54 percent in fiscal 2005 and 56 percent in fiscal 2004.

      In general, this segment’s domestic products are sold and serviced directly to customers through its sales organizations and through established distribution channels. Internationally, this segment markets and sells its products and services through regional sales offices and established distribution channels. See “Item 1. Business — International Business.”

      The backlog of unfilled orders for this segment was $703 million at July 28, 2006, compared to $427 million at July 29, 2005 and $331 million at July 30, 2004. Approximately 90 percent of this backlog of unfilled orders is expected to be filled during fiscal 2007, but we can give no assurance of such fulfillment. For a discussion of certain risks affecting this segment, see “Item 1. Business — Principal Customers; Government Contracts,” “Item 3. Legal Proceedings” and “Item 1A. Risk Factors.”

      Microwave Communications designs, manufactures and sells a broad range of microwave radios for use in worldwide wireless communications networks. Applications include wireless/mobile infrastructure connectivity; secure data networks; public safety transport for state, local and Federal government users; and right-of-way connectivity for utilities, pipelines, railroads and industrial companies. In general, wireless networks are constructed using microwave radios and other equipment to connect cell sites, fixed-access facilities, switching systems, land mobile radio systems and other similar systems. For many applications, microwave systems offer a lower-cost, highly reliable alternative to competing transmission technologies such as fiber or “wired” systems. This segment’s microwave product line spans frequencies from 2 to 38 GHz and includes the:

      Microwave Communications provides turnkey microwave systems and service capabilities, offering complete network and systems engineering support and services, including planning, design and systems integration, site surveys, deployment, management, training and customer service — a key competitive discriminator for the Microwave Communications segment in the microwave radio industry.

      Microwave Communications also offers a comprehensive network management system. Its NetBoss^® integrated communications network management platform supports wireless, wireline and Internet service providers. NetBoss offers fault management, performance management, service activation, billing mediation and

Operational Support System (“OSS”) integration in a modular, off-the-shelf solution designed for rapid deployment. The modularity of NetBoss enables customers to implement a comprehensive set of capabilities immediately or gradually, as their needs dictate. The newest product offering is NetBoss EM, an element manager. Following the sale of our TTS business during fiscal 2004, the NetBoss network operations software product line became part of the Microwave Communications segment and prior periods have been restated to reflect this change.

      Principal customers for Microwave Communications’ products and services include domestic and international wireless/mobile service providers, original equipment manufacturers, as well as private network users such as public safety agencies, utilities, pipelines, railroads and other industrial enterprises. No single customer accounted for more than 15 percent of fiscal 2006 revenue for the Microwave Communications segment. During fiscal 2006, Microwave Communications entered into a contract with Vmobile Nigeria to provide radios for the build-out of its telecom network that spans more than 5,000 kilometers. As part of providing both backbone and access microwave solutions for this complex and expansive network, Microwave Communications is also providing network architecture and planning. During fiscal 2006, Microwave Communications entered into a contract to supply radios and products to the Commonwealth of Kentucky to assist in the conversion of the Kentucky Early Warning System from analog to digital, utilizing TRuepoint radios that will be used to provide first-responders with critical voice and video services. Approximately 57 percent of the revenue of this segment was derived outside of the United States in fiscal 2006, compared to 46 percent in fiscal 2005 and 52 percent in fiscal 2004. In general, this segment’s North American products and services are sold directly to customers through its sales organizations and through established distribution channels. Internationally, this segment markets and sells its products and services through regional sales offices and established distribution channels. See “Item 1. Business — International Business.”

      Revenue in fiscal 2006 for the Microwave Communications segment increased 9 percent from $320 million in fiscal 2005 to $349 million in fiscal 2006 and was $330 million in fiscal 2004. This segment had an operating loss of $19.6 million in fiscal 2006, compared to operating income of $7.7 million in fiscal 2005 and an operating loss of $12.1 million in fiscal 2004. The Microwave Communications segment contributed 10 percent of our total revenue in fiscal 2006, 11 percent in fiscal 2005 and 13 percent in fiscal 2004.

      The backlog of unfilled orders for this segment was $164 million at July 28, 2006, compared with $94 million at July 29, 2005 and $81 million at July 30, 2004. Substantially all of this backlog is expected to be filled during fiscal 2007, but we can give no assurance of such fulfillment. For a discussion of certain risks affecting this segment, see “Item 3. Legal Proceedings” and “Item 1A. Risk Factors.”

      Broadcast Communications’ hardware and software solutions support the entire content creation, management, distribution, and delivery process for broadcast, cable, satellite, and other media content providers. This segment serves the global digital and analog markets, providing enterprise software and studio, video distribution and digital media products, network management, and transmission equipment and systems.

      The current trend and future of broadcast media involves digitizing content and transporting it simultaneously over many different networks to many types of devices. This transition from analog to digital technology enables content owners and service providers to consolidate and automate their operations. As a result, this need to create, manage, and ultimately deliver digital media content is driving an infrastructure upgrade cycle for the media industry.

      Television: Broadcast Communications develops, manufactures, and supplies digital and analog television transmission equipment for over-the-air broadcasters and for the emerging mobile television market. In addition to high definition picture clarity, digital technology gives broadcasters the opportunity to expand channel and service offerings. In response to the U.S. Government-mandated transition from analog to digital transmission, Broadcast Communications provided the nation’s first advanced digital television transmitter, as well as the first commercial digital television application and is a leader with respect to the U.S. digital standard known as “ATSC.” Innovations have included the development of a line of analog transmitters that can be upgraded for digital operation in the field. Additionally, in fiscal 2005, Broadcast Communications introduced PowerCD^tm, a new family of high-power UHF ATSC transmitters designed to deliver maximum in-band RF power per watt of electricity, and Broadcast Communications continues to develop next-generation transmission equipment to provide broadcasters with a smooth path from analog to digital broadcasting. Broadcast Communications is also a provider of European-standard digital “DVB-T” transmission equipment supported by a technology development center in Austria that focuses on European-standard DVB-T transmissions systems. Broadcast

Communications is also expanding efforts to reach the emerging mobile television market under the concept of transmitting real-time television to personal devices such as cell phones, PDAs or other mobile devices. Mobile video is in its early stage of growth, with only a limited number of content providers. Broadcast Communications is developing and providing transmission equipment for various mobile video broadcasting trials in Australia, China, the Netherlands, the U.K. and the U.S.

      Radio: Broadcast Communications develops, manufactures, and supplies end-to-end products, systems, and services for the radio broadcast market. Product offerings include digital and analog transmission equipment, audio and networking consoles, studio products, monitoring and control solutions, and systems that range from single-radio studios to consolidated operations and complete nationwide networks with hundreds of radio sites. Broadcast Communications is a leader in the transition from analog to digital radio. Product offerings address the U.S. digital standard called “IBOC” (In-Band/ On-Channel), which is referred to in the market as “HD Radio^tm”, as well as international digital standards including “DAB” (Digital Audio Broadcasting) and “DRM” (Digital Radio Mondiale). The rollout of HD Radio in the U.S. is progressing with approximately 2,500 of 13,500 radio stations committing to implement HD Radio over the next several years and approximately 800 stations currently on-air. During fiscal 2005, Broadcast Communications introduced its second-generation transmission product family called FLEXSTAR^tm, which provides a bandwidth-efficient bitstream so broadcasters can offer supplemental audio and data capability along with the main program stream. This enables broadcasters to develop new revenue-generating opportunities including multiple programs on the same channel, 5.1 surround sound, on-demand traffic, weather and sports reports, store-and-play capabilities, and real-time navigation.

      Software Systems: Broadcast Communications’ software systems offering, which was significantly expanded with the fiscal 2005 acquisition of Encoda Systems Holdings, Inc. (“Encoda”), enables customers to better manage their digital media workflow through a portfolio of software products for programming, scheduling, traffic and billing, as well as for complementary automation and digital asset management solutions. Initial modules of the next-generation digital content delivery platform, called H-Class, were launched during fiscal 2005. The H-Class software system, which began deliveries in fiscal 2006, is an enterprise platform which can intelligently manage delivery of rich digital media across multiple networks, channels, formats, and devices. H-Class provides broadcasters and other media, entertainment, and content distribution customers with a means to integrate disparate processes from creation to consumption into a single, modular system. Our recent acquisition of OSi expands Broadcast Communications’ capabilities in enterprise-wide software for managing and scheduling advertising and programming for broadcasters.

      Video Distribution and Networking Solutions: Video distribution products and solutions offered by Broadcast Communications assist the movement of broadcasters to a multi-channel and multi-media environment as such products enable the movement of rich media, audio and data efficiently over a variety of networks. During the second quarter of fiscal 2006, we acquired Leitch, a provider of high-performance video systems for the television broadcast industry, including routers and distribution equipment, signal processing, signal management and monitoring, servers and storage area networks, branding software and post-production editing systems. Broadcast Communications is a leader in the conversion from analog to digital video networking equipment. Products include: the Platinum^tm large router for mixed video and audio signal routing, the IconMaster^tm digital master control system and the NEXIO^tm line of video servers. Broadcast Communications further enhanced its video networking offerings with the acquisition in the fourth quarter of fiscal 2006 of Aastra Digital Video, a developer of video networking, encoding, decoding and multiplexing technologies used by television broadcasters, telecommunications providers and satellite networks. Networking solutions provided by Broadcast Communications include routing and distribution, signal processing, and network monitoring and management tools for multiple markets. In addition to providing solutions to the traditional broadcast and cable markets, customers also include the U.S. Government and public safety organizations for mission-critical, first-response scenarios. For example, Broadcast Communications, in conjunction with Government Communications Systems, is providing extensive networking solutions for the FTI program. Rapidly growing demand for content over an increasing number of devices is driving a transition from single, dedicated networks to flexible systems that automatically deliver content over the most appropriate and cost-effective network, transporting the right content to the right person on the right device.

      Revenue for the Broadcast Communications segment increased 40 percent from $384 million in fiscal 2005 to $538 million in fiscal 2006 and was $287 million in fiscal 2004. Segment operating income was $22.8 million in fiscal 2006, compared to $18.1 million in fiscal 2005 and $8.1 million in fiscal 2004. The Broadcast Communications segment contributed 15 percent of our total revenue in fiscal 2006, 12 percent in fiscal 2005 and 11 percent in fiscal 2004. Approximately 41 percent of the revenue of this segment were derived outside of

the United States in fiscal 2006, compared to 34 percent in fiscal 2005 and 39 percent in fiscal 2004. Principal customers for Broadcast Communications’ products and services include domestic and international television and radio broadcast networks and content originators. No single customer accounted for more than 2 percent of fiscal 2006 revenue for the Broadcast Communications segment. During fiscal 2006, Broadcast Communications entered into a multi-year agreement with Cumulus Broadcasting to provide HD Radio transmission systems to over 250 Cumulus AM and FM stations. Broadcast Communications also supplied HD Radio transmission products for Clear Channel Communications and CBS Radio. Customers for software and networking systems included Tribune Broadcasting, Turner Broadcasting, British Sky Broadcasting (“BSkyB”) in the U.K., TV Azteca in Mexico, Norkring in Norway, SkyPerfect in Japan, Antena 3 in Spain, Swisscom Broadcasting in Switzerland, BridgeNetworks in Australia and KUB Telekomunikasi in Malaysia.

      In general, this segment’s domestic products are sold and serviced directly to customers through its sales organizations and through established distribution channels. Internationally, this segment markets and sells its products and services through regional sales offices and established distribution channels. See “Item 1. Business — International Business.”

      The backlog of unfilled orders for this segment was $240 million at July 28, 2006, compared with $210 million at July 29, 2005 and $105 million at July 30, 2004. Approximately 67 percent of this backlog is expected to be filled during fiscal 2007, but we can give no assurance of such fulfillment. For a discussion of certain risks affecting this segment, see “Item 3. Legal Proceedings” and “Item 1A. Risk Factors.”

International Business

      Revenue in fiscal 2006 from products exported from the United States (including foreign military sales) or manufactured abroad was $746.5 million (21 percent of our total revenue), compared with $559.0 million (19 percent of our total revenue) in fiscal 2005 and $507.5 million (20 percent of our total revenue) in fiscal 2004. Our international sales include both direct exports from the United States and sales from foreign subsidiaries. Most of the international sales are derived from the Microwave Communications, RF Communications and Broadcast Communications segments. Direct export sales are primarily denominated in U.S. dollars, whereas sales from foreign subsidiaries are generally denominated in the local currency of the subsidiary. Exports from the United States, principally to Europe, Asia, Africa and Canada, totaled $418.0 million (56 percent of our international revenue) in fiscal 2006, $326.6 million (58 percent of our international revenue) in fiscal 2005 and $308.6 million (61 percent of our international revenue) in fiscal 2004. Foreign operations represented 9 percent of revenue in fiscal 2006, 8 percent of revenue in fiscal 2005 and 8 percent of revenue in fiscal 2004. Foreign operations represented 24 percent of long-lived assets as of June 30, 2006 and 9 percent of long-lived assets as of July 1, 2005. Financial information regarding our domestic and international operations is contained in Note 23: Business Segments in the Notes and is incorporated herein by reference.

      Principal international manufacturing facilities are located in Canada, China and the United Kingdom. International marketing activities are conducted through subsidiaries which operate in Canada, Europe, Central and South America and Asia. We have also established international marketing organizations and several regional sales offices. Reference is made to Exhibit 21 “Subsidiaries of the Registrant” for further information regarding our foreign subsidiaries.

      We utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or governmental customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. These independent representatives generally receive a discount from our list prices and may mark up those prices in setting the final sales prices paid by the customer. During fiscal 2006, revenue from indirect sales channels represented 6 percent of our total revenue and 23 percent of our international revenue, compared to revenue from indirect sales channels in fiscal 2005 representing 6 percent of our total revenue and 32 percent of our international revenue.

      Fiscal 2006 revenue came from a large number of foreign countries, of which no single country accounted for 4 percent or more of our total revenue. Some of our exports are paid for by letters of credit, with the balance carried either on an open account or installment note basis. Advance payments, progress payments or other similar payments received prior to, or upon shipment often cover most of the related costs incurred. Significant foreign government contracts generally require us to provide performance guarantees. In order to stay

competitive in international markets, we also enter into recourse and vendor financing to facilitate sales to certain customers.

      The particular economic, social and political conditions for business conducted outside the U.S. differ from those encountered by domestic businesses. Our management believes that the overall business risk for the international business as a whole is somewhat greater than that faced by our domestic operations as a whole. A description of the types of risks to which we are subject in international business is contained in “Item 1A. Risk Factors.” Nevertheless, in the opinion of our management, these risks are offset by the diversification of the international business and the protection provided by letters of credit and advance payments.

Competition

      We operate in highly competitive markets that are sensitive to technological advances. Although successful product and systems development is not necessarily dependent on substantial financial resources, some of our competitors in each of our businesses are larger than we are and can maintain higher levels of expenditures for research and development. In each of our businesses we concentrate on the market opportunities that our management believes are compatible with our resources, overall technological capabilities and objectives. Principal competitive factors in these businesses are cost-effectiveness, product quality and reliability, technological capabilities, service, ability to meet delivery schedules and the effectiveness of dealers in international areas.

      In the Government Communications Systems segment principal competitors include: Boeing, Computer Sciences, General Dynamics, ITT Industries, L-3 Communications, Lockheed Martin, Northrop Grumman, Raytheon and SAIC. Consolidation among U.S. defense and aerospace companies has resulted in a reduction in the number of principal prime contractors. As a result of this consolidation, we frequently “partner” or are involved in subcontracting and teaming relationships with companies that are, from time to time, competitors on other programs.

      In the RF Communications segment principal competitors include: General Dynamics, ITT Industries, Raytheon, Rohde & Schwarz, Tadiran and Thales.

      In the Microwave Communications segment principal competitors include: Alcatel, Ericsson, Fujitsu, NEC, Nokia, Siemens and Stratex Networks, as well as other smaller companies. Several of our competitors are original equipment manufacturers or systems integrators through which we sometimes distribute and sell products and services to end-users. We believe that our network and systems engineering support and service are key competitive strengths for this segment.

      In the Broadcast Communications segment principal competitors include: Broadcast Electronics, NEC, Omnibus, Rohde & Schwarz, Sony, and Thomson/ Grass Valley, as well as other smaller companies and divisions of large companies. We believe that our broad product offering and total content delivery solutions are key competitive strengths for this segment.

Principal Customers; Government Contracts

      Sales to the U.S. Government, which is our only customer accounting for 3 percent or more of our total revenue, were 66 percent of our total revenue in each of fiscal 2006, 2005 and 2004. Additional information regarding customers for each of our segments is provided under “Item 1. Business — Description of Business by Segment.” Our U.S. Government sales are predominantly derived from contracts with agencies of, and prime contractors to, the U.S. Government. U.S. Government contracts are terminable at the convenience of the U.S. Government, as well as for default based on performance. Companies engaged in supplying goods and services to the U.S. Government are dependent on Congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies resulting from various military, political and international developments. Long-term government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods become unavailable. Under contracts terminable at the convenience of the U.S. Government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts that are terminable for default generally provide that the U.S. Government pays only for the work it has accepted and may require the contractor to pay for the incremental cost of reprocurement and may hold the contractor liable for damages. In many cases, there is also uncertainty relating to the complexity of designs, necessity for design improvements and difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work. Under many U.S. Government contracts, we are required to maintain facility and personnel

security clearances complying with DoD and other Federal agency requirements. For further discussion of risks relating to U.S. Government contracts, see “Item 3. Legal Proceedings” and “Item 1A. Risk Factors.”

Funded and Unfunded Backlog

      Our total company-wide funded and unfunded backlog was approximately $5,641 million at July 28, 2006, $5,160 million at July 29, 2005 and $4,132 million at July 30, 2004. The funded portion of this backlog was approximately $1,482 million at July 28, 2006, $1,141 million at July 29, 2005 and $962 million at July 30, 2004. The determination of backlog involves substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a cost-reimbursement or incentive nature.

      We define funded backlog as unfilled firm orders for which funding has been authorized. Unfunded backlog is primarily unfilled firm and expected follow-on orders that have not yet met our established funding criteria. Our established funding criteria require both authorization by the customer as well as our management’s determination that there is little or no risk to the authorized funding being rescinded. In fiscal 2007, we expect to fill approximately 88 percent of our total funded backlog as of July 28, 2006. However, there can be no assurance that our funded backlog will become revenue in any particular period, if at all. Backlog is subject to delivery delays and program cancellations, which are beyond our control. Additional information with regard to the backlog of each of our segments is provided under “Item 1. Business — Description of Business by Segment” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Research, Development and Engineering

      Research, development and engineering expenditures totaled approximately $814 million in fiscal 2006, $870 million in fiscal 2005 and $841 million in fiscal 2004.

      Company-sponsored research and product development costs, which included research and development for commercial products and independent research and development related to government products and services, were approximately $188 million in fiscal 2006, $137 million in fiscal 2005 and $111 million in fiscal 2004. A portion of our independent research and development costs are allocated among contracts and programs in process under U.S. Government contractual arrangements. Company-sponsored research and product development costs not otherwise allocable are charged to expense when incurred. The portion of total research, development and engineering expenditures not company-sponsored was funded by U.S. Government and commercial customers and is included in our revenue. Company-funded research is directed to the development of new products and to building technological capability in selected communications and electronic systems markets. U.S. Government-funded research helps strengthen and broaden our technical capabilities. Almost all of our segments maintain their own engineering and new product development departments, with scientific assistance provided by advanced-technology departments. As of June 30, 2006, we employed approximately 6,200 engineers and scientists and are continuing efforts to make the technologies developed in any of our business segments available for all other business segments.

Patents and Other Intellectual Property

      We consider our patents and other intellectual property rights, in the aggregate, to constitute an important asset. We own a large and valuable portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property. We also license intellectual property to and from third parties. As of June 30, 2006, we held approximately 892 U.S. patents and 470 foreign patents, and had approximately 396 U.S. patent applications pending and 937 foreign patent applications pending. However, we do not consider our business or any business segment to be materially dependent upon any single patent, license or other intellectual property right, or any group of related patents, licenses or other intellectual property rights. We are engaged in a proactive patent licensing program and have entered into a number of licenses and cross-license agreements, some of which generate royalty income. Although existing license agreements have generated income in past years and may do so in the future, there can be no assurances we will enter into additional income-producing license agreements. From time to time we engage in litigation to protect our patents and other intellectual property. Any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. With regard to patents relating to our Government Communications Systems segment, the U.S. Government often has an irrevocable, non-exclusive, royalty-free license, pursuant to which the U.S. Government may use or authorize others to use the inventions covered by such patents. Pursuant to similar arrangements, the U.S. Government may consent to our use of inventions covered by patents owned by other persons. Numerous trademarks used on or in connection with our products are also considered to be a valuable asset.

Environmental and Other Regulations

      Our facilities and operations, in common with those of industry in general, are subject to numerous domestic and international laws and regulations designed to protect the environment, particularly with regard to wastes and emissions. We believe that we have complied with these requirements and that such compliance has not had a material adverse effect on our results of operations, financial condition or cash flows. Based upon currently available information, we do not expect expenditures to protect the environment and to comply with current environmental laws and regulations over the next several years to have a material impact on our competitive or financial position, but we can give no assurance that such expenditures will not exceed current expectations. If future laws and regulations contain more stringent requirements than presently anticipated, actual expenditures may be higher than our present estimates of those expenditures. We have installed waste treatment facilities and pollution control equipment to satisfy legal requirements and to achieve our waste minimization and prevention goals. We did not spend material amounts on environmental capital projects in fiscal 2006, 2005 or 2004. A portion of our environmental expenditures relates to discontinued operations for which we have retained certain environmental liabilities. We currently expect that amounts to be spent for environmental-related capital projects will not be material in fiscal 2007. These amounts may increase in future years. Additional information regarding environmental and regulatory matters is set forth in “Item 3. Legal Proceedings” and in Note 1: Significant Accounting Policies in the Notes.

      Electronic products are subject to governmental environmental regulation in a number of jurisdictions. Equipment produced by our Broadcast Communications and Microwave Communications segments, in particular, are subject to domestic and international requirements requiring end-of-life management and/or restricting materials in products delivered to customers. Such requirements are not applicable to most equipment produced by our Government Communications Systems and RF Communications segments. We believe that we have substantially complied with such rules and regulations, where applicable, with respect to our existing products sold into such jurisdictions. We intend to comply with such rules and regulations with respect to our future products.

      Radio communications are also subject to governmental regulation. Equipment produced by our Broadcast Communications and Microwave Communications segments, in particular, is subject to domestic and international requirements to avoid interference among users of radio and television frequencies and to permit interconnection of telecommunications equipment. We believe that we have substantially complied with such rules and regulations with respect to our existing products, and we intend to comply with such rules and regulations with respect to our future products. Reallocation of the frequency spectrum also could impact our business, financial condition and results of operations.

Raw Materials and Supplies

      Because of the diversity of our products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources for the wide array of raw materials (such as electronic components, printed circuit boards, metals and plastics) needed for our operations and for our products. We are dependent upon suppliers and subcontractors for a large number of components and subsystems and the ability of our suppliers and subcontractors to adhere to customer or regulatory materials restrictions and to meet performance and quality specifications and delivery schedules. In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. While we have been affected by financial and performance issues of some of our suppliers and subcontractors, we have not been materially adversely affected by the inability to obtain raw materials or products.

Seasonality

      No material portion of our business is considered to be seasonal. Various factors can affect the distribution of our revenue between accounting periods, including the timing of U.S. Government awards, the availability of funding, product deliveries and customer acceptance.

Employees

      As of June 30, 2006, we employed approximately 13,900 people, compared with approximately 12,600 employees at the end of fiscal 2005. Approximately 12,500 of our employees are located in the United States. A significant number of employees in our Government Communications Systems segment possess a security clearance. We also utilize a number of independent contractors. None of our employees in the United States is represented by a labor union. In certain international subsidiaries, our employees are represented by workers’ councils or statutory labor unions. In general, we believe that our relations with our employees are good.

Website Access to Harris Reports; Available Information

      General. We maintain an Internet website at http://www.harris.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge on our website as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). We will also provide the reports in electronic or paper form free of charge upon request. We also make available free of charge on our website our annual report to shareholders and proxy statement. Our website and the information posted thereon are not incorporated into this Annual Report on Form 10-K or any other report that we file with or furnish to the SEC. All reports we file with or furnish to the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room, 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

      Additional information relating to our businesses, including our operating segments, is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

      Corporate Governance Principles and Committee Charters. We previously adopted Corporate Governance Principles, which are available on the Corporate Governance section of our website at www.harris.com/harris/cg/. In addition, the charters of each of the committees of our Board, including the Audit Committee, Corporate Governance Committee and Management Development and Compensation Committee, are also available on the Corporate Governance section of our website. A copy of the charters is also available free of charge upon written request to our Corporate Secretary at Harris Corporation, 1025 West NASA Boulevard, Melbourne, Florida 32919.

      Certifications. We have filed with the SEC the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report on Form 10-K. In addition, an annual CEO certification was submitted by our Chief Executive Officer to the New York Stock Exchange in 2005 in accordance with the NYSE’s listing standards, which included a certification that he was not aware of any violation by Harris of the NYSE’s corporate governance listing standards.

      We have described many of the trends and other factors that could impact our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, our business, operating results, cash flows and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or our anticipated future results.

We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures.

      We participate in markets that are subject to uncertain economic conditions. As a result, it is difficult to estimate the level of growth in some of the markets in which we participate. Because all components of our budgeting and forecasting are dependent upon estimates of growth in the markets we serve, the uncertainty renders estimates of future income and expenditures even more difficult than usual. As a result, we may make significant investments and expenditures but never realize the anticipated benefits, which could adversely affect our results of operations. The future direction of the overall domestic and global economies also will have a significant impact on our overall performance.

We depend on the U.S. Government for a significant portion of our revenue, and the loss of this relationship or a shift in U.S. Government funding could have adverse consequences on our future business.

      We are highly dependent on sales to the U.S. Government. Approximately 66 percent of our net revenue in each of fiscal 2006, 2005 and 2004 was derived from sales to the U.S. Government. Therefore, any significant disruption or deterioration of our relationship with the U.S. Government could significantly reduce our revenue. Our U.S. Government programs must compete with programs managed by other government contractors for a limited number of programs and for uncertain levels of funding. Our competitors continuously engage in efforts to expand their business relationships with the U.S. Government and will continue these efforts in the future. The U.S. Government may choose to use other contractors for its limited number of programs. In addition, the funding of defense programs also competes with non-defense spending of the U.S. Government. Budget decisions made by the U.S. Government are outside of our control and have long-term consequences for our

business. A shift in U.S. Government spending to other programs in which we are not involved, or a reduction in U.S. Government spending generally, could have material adverse consequences for our business.

We depend significantly on our U.S. Government contracts, which often are only partially funded, subject to immediate termination, and heavily regulated and audited. The termination or failure to fund one or more of these contracts could have an adverse impact on our business.

      Over its lifetime, a U.S. Government program may be implemented by the award of many different individual contracts and subcontracts. The funding of U.S. Government programs is subject to Congressional appropriations. Although multi-year contracts may be planned or authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years. Consequently, programs often receive only partial funding initially, and additional funds are committed only as Congress makes further appropriations. The termination of funding for a U.S. Government program would result in a loss of anticipated future revenue attributable to that program, which could have an adverse impact on our operations. In addition, the termination of a program or the failure to commit additional funds to a program that already has been started could result in lost revenue and increase our overall costs of doing business.

      Generally, U.S. Government contracts are subject to oversight audits by U.S. Government representatives. In addition, the contracts generally contain provisions permitting termination, in whole or in part, without prior notice at the U.S. Government’s convenience upon the payment only for work done and commitments made at the time of termination. We can give no assurance that one or more of our U.S. Government contracts will not be terminated under these circumstances. Also, we can give no assurance that we would be able to procure new contracts to offset the revenue or backlog lost as a result of any termination of our U.S. Government contracts. Because a significant portion of our revenue is dependent on our performance and payment under our U.S. Government contracts, the loss of one or more large contracts could have a material adverse impact on our financial condition.

      Our government business also is subject to specific procurement regulations and a variety of socioeconomic and other requirements. These requirements, although customary in U.S. Government contracts, increase our performance and compliance costs. These costs might increase in the future, thereby reducing our margins, which could have an adverse effect on our financial condition. Failure to comply with these regulations and requirements could lead to suspension or debarment from U.S. Government contracting or subcontracting for a period of time. Among the causes for debarment are violations of various statutes, including those related to procurement integrity, export control, U.S. Government security regulations, employment practices, protection of the environment, accuracy of records and the recording of costs and foreign corruption. The termination of a U.S. Government contract or relationship as a result of any of these acts would have an adverse impact on our operations and could have an adverse effect on our reputation and ability to procure other U.S. Government contracts in the future.

We enter into fixed-price contracts that could subject us to losses in the event of cost overruns.

      We have a number of firm, fixed-price contracts. During fiscal 2006 and 2005, approximately 38 percent and 34 percent, respectively, of our total Government Communications Systems and RF Communications segments’ revenue was from fixed-price contracts. These contracts allow us to benefit from cost savings, but they carry the burden of potential cost overruns since we assume all of the cost risk. If our initial estimates are incorrect, we can lose money on these contracts. U.S. Government contracts can expose us to potentially large losses because the U.S. Government can compel us to complete a project or, in certain circumstances, pay the entire cost of its replacement by another provider regardless of the size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these projects involve new technologies and applications and can last for years, unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, problems with other contractors and cost overruns, can result in the contractual price becoming less favorable or even unprofitable to us over time. Furthermore, if we do not meet project deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts we may not realize their full benefits. Our results of operations are dependent on our ability to maximize our earnings from our contracts. Lower earnings caused by cost overruns and cost controls would have an adverse impact on our financial results.

We derive a substantial portion of our revenue from international operations and are subject to the risks of doing business in foreign countries, including fluctuations in foreign currency exchange rates.

      We are dependent on sales to customers outside the United States. In fiscal 2006, 2005 and 2004, revenue for products exported from the U.S. or manufactured abroad was 21 percent, 19 percent and 20 percent, respectively, of our total revenue. Approximately 44 percent of our international business in fiscal 2006 was transacted in local currency environments. Losses resulting from currency rate fluctuations can adversely affect our results. We expect that international revenue will continue to account for a significant portion of our total revenue. Also, a significant portion of our international revenue is in less-developed countries. We are subject to risks of doing business internationally, including:

      While these factors and the impacts of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition and results of operations in the future.

Our future success will depend on our ability to develop new products that achieve market acceptance.

      Both our commercial and defense businesses are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future performance depends on a number of factors, including our ability to:

      We believe that, in order to remain competitive in the future, we will need to continue to develop new products, which will require the investment of significant financial resources in new product development. The need to make these expenditures could divert our attention and resources from other projects, and we cannot be sure that these expenditures ultimately will lead to the timely development of new products. Due to the design complexity of some of our products, we may experience delays in completing development and introducing new products in the future. Any delays could result in increased costs of development or redirect resources from other projects. In addition, we cannot provide assurances that the markets for our products will develop as we currently anticipate. The failure of our products to gain market acceptance could significantly reduce our revenue and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing products that gain market acceptance in advance of our products or that our competitors will not develop new products that cause our existing products to become obsolete. If we fail in our new product development efforts or our products fail to achieve market acceptance more rapidly than those of our competitors, our revenue will decline and our business, financial condition and results of operations will be adversely affected.

We cannot predict the consequences of future geo-political events, but they may affect adversely the markets in which we operate, our ability to insure against risks, our operations or our profitability.

      The terrorist attacks in the United States on September 11, 2001, the subsequent U.S.-led military response, current conflicts in the Middle East and the potential for future terrorist activities and other recent geo-political events have created economic and political uncertainties that could have a material adverse effect on our business and the prices of our securities. These matters have caused uncertainty in the world’s financial and insurance markets and may increase significantly the political, economic and social instability in the

geographic areas in which we operate. These matters also have caused the premiums charged for our insurance coverages to increase and may cause some coverages to be unavailable altogether. While our government businesses have benefited from homeland defense initiatives and the war on terror, these developments may affect adversely our business and profitability and the prices of our securities in ways that we cannot predict at this time.

We have made, and may continue to make, strategic acquisitions that involve significant risks and uncertainties.

      We have made, and we may continue to make, strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include:

The inability of our subcontractors to perform, or our key suppliers to timely deliver our components or products, could cause our products to be produced in an untimely or unsatisfactory manner.

      On many of our contracts, we engage subcontractors. In addition, there are certain parts or components which we source from other manufacturers or vendors. Some of our suppliers, from time to time, experience financial and operational difficulties, which may impact their ability to supply the materials, components and subsystems that we require. Any inability to develop alternative sources of supply on a cost-effective basis could materially impair our ability to manufacture and deliver our products to customers in a timely manner. We can give no assurances that we will be free from material supply problems or component or subsystems problems in the future. Also, our subcontractors and other suppliers may not be able to maintain the quality of the materials, components and subsystems they supply, which might result in greater product returns and could harm our business, financial condition and results of operations.

Third parties have claimed in the past and may claim in the future that we are infringing upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.

      Many of the markets we serve are characterized by vigorous protection and pursuit of intellectual property rights, which often has resulted in protracted and expensive litigation. Third parties have claimed in the past and may claim in the future that we are infringing their intellectual property rights, and we may be found to be infringing or to have infringed those intellectual property rights. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products. Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to successfully protect and enforce our intellectual property rights, our competitive position could suffer. Our pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of these patents or trademark registrations. In addition, our patents may not provide us a significant competitive advantage. We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and our competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop competing technologies.

The outcome of litigation or arbitration in which we are involved is unpredictable and an adverse decision in any such matter could have a material adverse affect on our financial position and results of operations.

      We are defendants in a number of litigation matters and are involved in a number of arbitrations. These actions may divert financial and management resources that would otherwise be used to benefit our operations. No assurances can be given that the results of these or new matters will be favorable to us. An adverse resolution of lawsuits or arbitrations could have a material adverse affect on our financial condition.

We are subject to customer credit risk.

      We sometimes provide medium-term and long-term customer financing. Customer financing arrangements may include all or a portion of the purchase price for our products and services, as well as working capital. We also may assist customers in obtaining financing from banks and other sources on a recourse or non-recourse basis. While we generally have been able to place a portion of our customer financings with third-party lenders, or to otherwise insure a portion of this risk, a portion of these financings is provided directly by us. There can be higher risks associated with some of these financings, particularly when provided to start-up operations such as local network providers, to customers in developing countries or to customers in specific financing-intensive areas of the telecommunications industry. If customers fail to meet their obligations, losses could be incurred and such losses could have an adverse effect on us. Our losses could be much greater if it becomes more difficult to place or insure against these risks with third parties.

The fair values of our portfolio of passive investments are subject to significant price volatility or erosion.

      We have investments in securities of privately-held companies, many of which still can be considered in the start-up or developmental stages. These investments are illiquid and are inherently risky as the markets for the technologies or products they have under development are typically in the early stages and may never materialize. We could lose our entire investment in these companies.

Developing new technologies entails significant risks and uncertainties.

      We are exposed to liabilities that are unique to the products and services we provide. A significant portion of our business relates to designing, developing and manufacturing advanced defense and technology systems and products. New technologies associated with these systems and products may be untested or unproven. Components of certain of the defense systems and products we develop are inherently dangerous. Failures of satellites, missile systems, air-traffic control systems, homeland security applications and aircraft have the potential to cause loss of life and extensive property damage. In most circumstances, we may receive indemnification from the U.S. Government. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. It also is not possible to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of U.S. Government indemnity and our insurance coverage could harm our financial condition and operating results. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our reputation among our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.

We have significant operations in Florida that could be impacted in the event of a hurricane and operations in California that could be impacted in the event of an earthquake.

      Our corporate headquarters and significant operations of our Government Communications Systems segment are located in Florida. In addition, our Broadcast Communications and Microwave Communications segments have locations near major earthquake fault lines in California. In the event of a major hurricane, earthquake or other natural disaster we could experience business interruptions, destruction of facilities and/or loss of life, all of which could materially adversely affect our business.

Changes in our effective tax rate may have an adverse effect on our results of operations.

      Our future effective tax rates may be adversely affected by a number of factors including:

      Any significant increase in our future effective tax rates could adversely impact net income for future periods.

      None.

      Our principal executive offices are located at owned facilities in Melbourne, Florida. As of June 30, 2006, we operated approximately 122 facilities in the United States, Canada, Europe, Central and South America and Asia, consisting of about 6.2 million square feet of manufacturing, administrative, research and development, warehousing, engineering and office space, of which approximately 4.3 million square feet are owned and approximately 1.9 million square feet are leased. There are no material encumbrances on any of our facilities. Our leased facilities are for the most part occupied under leases for terms ranging from one month to 9 years, a majority of which can be terminated or renewed at no longer than five-year intervals at our option. As of June 30, 2006, the locations and approximate floor space of our principal offices and facilities in productive use were as follows:

      In the opinion of management, our facilities, whether owned or leased, are suitable and adequate for their intended purposes and have capacities adequate for current and projected needs. While we have some unused or under-utilized facilities, they are not considered significant. We continuously review our anticipated requirements for facilities and will, from time to time, acquire additional facilities, expand existing facilities, and dispose of existing facilities or parts thereof, as management deems necessary. For more information about our lease obligations, see Note 19: Lease Commitments in the Notes. Our facilities and other properties are generally maintained in good operating condition.

      General. From time to time, as a normal incident of the nature and kind of businesses in which we are engaged, various claims or charges are asserted and litigation commenced against us arising from or related to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; the sale or use of products containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We have recorded accruals for losses related to those matters that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs are generally expensed when incurred. While it is not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims or proceedings may be disposed of or decided unfavorably to us, based upon available information, in the opinion of management, settlements and final judgments, if any, which are considered probable of being rendered against us in litigation or arbitration in existence at June 30, 2006 are reserved against, covered by insurance or would not have a material adverse effect on our financial position, results of operations or cash flows.

      U.S. Government Business. U.S. Government contractors, such as us, engaged in supplying goods and services to the U.S. Government and its various agencies, depend on Congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies. U.S. Government contracts typically involve long lead times for design and development, are subject to significant changes in contract scheduling and may be unilaterally modified or cancelled by the U.S. Government. Often these contracts call for successful design and production of complex and technologically advanced products or systems. We may participate in supplying goods and services to the

U.S. Government as either a prime contractor or as a subcontractor to a prime contractor. Disputes may arise between the prime contractor and the U.S. Government and the prime contractor and its subcontractors and may result in litigation between the contracting parties.

      Generally, U.S. Government contracts are subject to procurement laws and regulations, including the Federal Acquisition Regulation (“FAR”), which outline uniform policies and procedures for acquiring goods and services by the U.S. Government, and specific acquisition regulations that implement or supplement the FAR, such as the Defense Federal Acquisition Regulations. As a U.S. Government contractor, our contract costs are audited and reviewed on a continual basis by the Defense Contract Audit Agency. In addition to these routine audits, from time to time, we may, either individually or in conjunction with other U.S. Government contractors, be the subject of audits and investigations by other agencies of the U.S. Government. These audits and investigations are conducted to determine if our performance and administration of our U.S. Government contracts are compliant with applicable contractual requirements and procurement and other applicable Federal statutes and regulations. These investigations may be conducted without our knowledge. We are unable to predict the outcome of such investigations or to estimate the amounts of resulting claims or other actions that could be instituted against us, our officers or employees. Under present U.S. Government procurement regulations, if indicted or adjudged in violation of procurement or other Federal civil laws, a contractor, such as us, or one or more of our operating divisions or subdivisions, could be subject to fines, penalties, repayments, or compensatory or treble damages. U.S. Government regulations also provide that certain findings against a contractor may lead to suspension or debarment from eligibility for awards of new U.S. Government contracts for up to three years. In addition, a U.S. Government contractor’s export privileges could be suspended or revoked. Suspension or debarment could have a material adverse effect on us because of our reliance on U.S. Government contracts.

      International. As an international company, we are, from time to time, the subject of investigations relating to our international operations, including under the U.S. Foreign Corrupt Practices Act and similar U.S. and international laws.

      Environmental. We are subject to numerous Federal, state and foreign environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues concerning activities at our facilities or former facilities or remediation as a result of past activities. From time to time, we receive notices from the U.S. Environmental Protection Agency or equivalent state or foreign environmental agencies that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent laws. Such notices assert potential liability for cleanup costs at various sites, which include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances attributable to us from past operations. We own, previously owned or have been named as a potentially responsible party at 16 such sites, excluding sites as to which our records disclose no involvement or as to which our liability has been finally determined. While it is not feasible to predict the outcome of many of these proceedings, in the opinion of our management, any payments we may be required to make as a result of such claims in existence at June 30, 2006 will not have a material adverse effect on our financial condition or our business taken as a whole. Additional information regarding environmental matters is set forth in Note 1: Significant Accounting Policies in the Notes, which Note is incorporated herein by reference.

      No matters were submitted by us to a vote of our security holders during the fourth quarter of fiscal 2006.

EXECUTIVE OFFICERS OF THE REGISTRANT

      The name, age, position held with us, and principal occupation and employment during at least the past 5 years for each of our executive officers as of August 26, 2006, are as follows:

      There is no family relationship between any of our executive officers or directors, and there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our directors or officers acting solely in their capacities as such. All of our executive officers are elected annually and serve at the pleasure of our Board of Directors.

PART II

Market Information and Price Range of Common Stock

      Our common stock, par value $1.00 per share, is listed and primarily traded on the New York Stock Exchange, Inc. (“NYSE”), under the ticker symbol “HRS.” According to the records of our transfer agent, as of August 18, 2006, there were approximately 7,124 holders of record of our common stock. On February 25, 2005 our Board of Directors approved a two-for-one stock split of our common stock. The stock split was effected in the form of a 100 percent stock dividend distributed on March 30, 2005 to shareholders of record on March 14, 2005. All share and per share amounts and information presented in this Annual Report on Form 10-K have been retroactively restated to reflect the effect of this stock split for all periods presented. The high and low sales prices of our common stock as reported on the NYSE composite transactions reporting system and the dividends paid on our common stock for each quarterly period in our last two fiscal years are reported below:

      On August 18, 2006, the last sale price of our common stock as reported in the NYSE composite transactions reporting system was $45.45 per share.

Dividends

      The dividends paid on our common stock for each quarter in our last two fiscal years are set forth in the tables above. On August 26, 2006, our Board of Directors increased our annual dividend rate from $0.32 per share to $0.44 per share and declared a quarterly cash dividend of $0.11 per share, which will be paid on September 15, 2006 to holders of record on September 6, 2006. Our annual common stock dividend rate, on a post-stock split basis, was $0.32, $0.24, and $0.20 per share in fiscal 2006, 2005 and 2004, respectively. Quarterly cash dividends are typically paid in March, June, September and December. We have paid cash dividends every year since 1941, and we currently expect that cash dividends will continue to be paid in the near future, but we can give no assurance. The declaration of dividends and the amount thereof will depend on a number of factors, including our financial condition, capital requirements, results of operations, future business prospects and other factors that our Board of Directors may deem relevant.

Sales of Unregistered Securities

      During fiscal 2006, we did not issue or sell any unregistered securities.

Issuer Repurchases of Equity Securities

      During fiscal 2006, we repurchased 1,050,000 shares of our common stock at an average price per share of $42.71. During fiscal 2005, we repurchased 1,874,000 shares of our common stock at an average price per share of $30.10. We currently expect that we will repurchase shares of our common stock to offset the dilutive effect of shares issued under our stock incentive plans. However, the level of repurchases also depends on a number of factors, including our financial condition, capital requirements, results of operations, future business prospects and other factors that our Board of Directors may deem relevant. Shares repurchased by us are cancelled and retired.

      The following table sets forth information with respect to repurchases by us of our common stock during the fiscal quarter ended June 30, 2006:

     See Note 15: Stock Options and Share-Based Compensation in the Notes for a general description of our stock and equity incentive plans.

      The following table summarizes our selected historical financial information for each of the last five fiscal years. All amounts presented have been restated on a continuing operations basis. Discontinued operations are more fully discussed in Note 2: Discontinued Operations in the Notes. The selected financial information shown below has been derived from our audited consolidated financial statements, which for data presented for fiscal years 2006 and 2005 are included elsewhere in this Annual Report on Form 10-K. This table should be read in conjunction with our other financial information, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes, included elsewhere in this Annual Report on Form 10-K.

OVERVIEW

      The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand Harris. MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements and related Notes appearing elsewhere in this Annual Report on Form 10-K. Except for the historical information contained herein, the discussions in MD&A contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”

      The following is a list of the sections of MD&A, together with our perspective on the contents of these sections of MD&A, which we hope will make reading these pages more productive:

BUSINESS CONSIDERATIONS

General

      We are an international communications and information technology company focused on providing assured communications products, systems and services for government and commercial customers. Our four segments serve markets for government communications, secure tactical radios, microwave communications and broadcast communications. Our company generates revenue, income and cash flows by developing, manufacturing and selling communications products and software as well as providing related services. We generally sell products and services directly to our customers, the largest of which is the U.S. Government and its prime contractors;

however, we utilize agents and distributors to sell some products and services, especially in international markets.

      We operate in four business segments: (1) Government Communications Systems, (2) RF Communications, (3) Microwave Communications, and (4) Broadcast Communications. Financial information with respect to all of our other activities, including corporate costs not allocated to the business segments or discontinued operations, is reported as part of Headquarters Expense or Non-Operating Income (Loss).

      Harris’ mission statement is as follows: “Harris Corporation will be the best-in-class global provider of mission-critical assured communications systems and services to both government and commercial customers, combining advanced technology and application knowledge to offer a superior value proposition.”

Value Drivers of Our Businesses and Our Strategy for Achieving Value

      We are committed to our mission statement, and we believe that executing our mission statement creates value. Consistent with this commitment to effective execution, we currently focus on these key value drivers:

          Continuing profitable revenue growth in all segments: We plan to focus on continued profitable growth by implementing the following strategies in each segment:

      Government Communications Systems: Build on successes in core markets such as avionics, data links, antennas, space-hardened electronics, communications networks, database and image processing, wireless products, and mission services; and continue emphasis on customer and program diversification to balance portfolio risk by leveraging capabilities into new Federal agencies with communications and information technology needs.

      RF Communications: Leverage reputation and position as a leading provider of tactical radios in the areas of high-frequency (“HF”), multiband and cryptographic sub-systems; and expand market reach with the new Falcon^® III product family.

      Microwave Communications: Capitalize on our strength in the North American market by continuing to win opportunities with public telecommunications providers as well as Federal, state and other private network operators to meet increasing demand for capacity requirements and the demand for high-reliability, high-bandwidth networks that are more secure and better protected against natural and man-made disasters; increase our international revenue by offering new products and expanding regional sales channels to penetrate major regional mobile telecom operators; and continue to offer engineering and other professional services for network planning, systems architecture design and project management as a global competitive advantage.

      Broadcast Communications: Offer the global media market a broad portfolio of hardware and software solutions to support every segment of the supply chain that brings digital audio, video and data to consumers; and continue to fund a robust offering of new products including video distribution and digital media products, HD Radio^tm and other transmission equipment and software solutions.

      Focusing on operating efficiencies and cost reductions: Our principal focus areas for operating efficiencies and cost management are: reducing procurement costs through an emphasis on coordinated supply chain management; reducing product costs through dedicated engineering resources focused on product design; improving manufacturing efficiencies across all segments; and optimizing facility utilization.

      Leveraging corporate initiatives across business segments: One of our strengths is our ability to transfer technology among segments and focus our research and development projects in ways that benefit Harris as a whole. Another area of focus is cross-selling through division sales channels and joint pursuits by multiple divisions. Other corporate initiatives include joint international market channel development, such as shared distributors and coordinated “go-to-market” strategies.

      Making strategic acquisitions: Another key value driver is effective capital allocation by following macro-economic market and technology trends and by making effective acquisitions and investments to build or complement the strengths in our base businesses. We believe acquisitions may also serve to balance and enhance

our portfolio of businesses. Recently we have made several acquisitions in our Broadcast Communications segment including Encoda, Leitch, OSi and Aastra Digital Video. These acquisitions helped us expand our product and service portfolio so we can offer end-to-end content delivery, transport and asset management solutions to our customers.

      Maintaining an efficient capital structure: Our capital structure is intended to optimize our cost of capital. We believe our strong capital position, access to key financial markets, ability to raise funds at a low effective cost and overall low cost of borrowing provide a competitive advantage. We had $293.9 million in cash, cash equivalents and short-term investments as of June 30, 2006 and had $334.2 million of cash flows provided by operating activities during fiscal 2006. Our cash is not restricted and can be used to invest in capital expenditures, make strategic acquisitions, repurchase our common stock or pay dividends to our shareholders.

Fiscal 2006 Key Indicators

      We believe our value drivers, when implemented, will improve our key indicators such as: (1) net income and net income per diluted share; (2) revenue; (3) gross profit margin; (4) net income as a percentage of revenue; (5) operating cash flows; (6) return on average assets; and (7) return on average equity. The measure of our success is reflected in our results of operations and liquidity and capital resources key indicators:

      Results of Operations Key Indicators: Net income, net income per diluted share, revenue, gross margin, and net income as a percentage of revenue represent key measurements of our value drivers:

      Refer to MD&A heading “Operations Review” below for more information.

      Liquidity and Capital Resources Key Indicators: Net cash provided by operating activities, return on average assets and return on average equity represent key measurements of our value drivers.

      Refer to MD&A heading “Liquidity, Capital Resources and Financial Strategies” below for more information.

Industry-Wide Opportunities, Challenges and Risks

      Government and Defense Industry: The 2006 Quadrennial Defense Review (“QDR”), a Congressionally mandated review of U.S. military defense strategy, continued and accelerated the DoD’s prior commitment to a transformation of the military to focus more on the needs of its combat commanders and to develop portfolios of joint capabilities. As a result, the U.S. Government remains committed to funding intelligence, information superiority, special operations and support. Requirements to upgrade and modernize communications capabilities and provide more secure, interoperable and reliable communications remain a funding priority. Another funding priority is the security of the U.S., which includes better communications interplay between law enforcement, civil government agencies, intelligence agencies and our military services. Funding for investments in secure tactical communications, information technology, information processing and additional communications assets and upgrades remains solid. Another priority of the U.S. Government is investments in productivity, cost reductions and outsourcing. As a result, programs that promote these initiatives are also expected to receive

funding. International defense forces continue to drive toward communications upgrades and interoperability with the systems and equipment used by the U.S. Government.

      Below is a table that outlines the national defense budget estimates for U.S. Government fiscal year (“GFY”) 2007 to GFY 2011 from the Office of the Undersecretary of Defense (Comptroller):

      The $439.3 billion DoD GFY 2007 budget request is approximately 7 percent above the DoD-enacted GFY 2006 budget of $410.8 billion, excluding supplemental appropriations. While the DoD’s budget increase can be a positive indicator of growth for the defense industry, we believe that the level of growth and amount of budget ultimately allocated to the DoD procurement (“Procurement”), along with research, development, test and evaluation (“RDT&E”) components of the DoD budget, are a better indicator of DoD spending. These accounts are applicable to defense contractors because they generally represent the amounts that are expended for military hardware and technology. We also believe that the federal budget deficit is putting pressure on spending in all agencies and the number of large new program starts has slowed.

      While there is no assurance that the requested DoD budget increases will continue to be approved by Congress, the current outlook is one of increased DoD spending, which we believe will continue to positively affect our future orders, sales, income and cash flows. Conversely, a decline in the DoD budget would generally have a negative effect on future orders, sales, income and cash flows of defense contractors, including us, depending on the weapons platforms and programs affected by such budget reductions. In addition, increased emphasis on U.S. homeland security may increase demand for our capabilities in areas such as security systems, information security, crisis management, preparedness and prevention services, and civilian security operations.

      Government markets other than the U.S. Department of Defense: We provide products and services to a number of U.S. Government agencies other than the DoD, including FAA, NRO, NGA, Census Bureau, Department of State, NSA, NOAA, and others. Although our lines of business addressing civil government needs are not dependent on defense budgets, they share many of the same risks as our defense businesses, as well as other risks unique to the particular programs. Recent trends continue to indicate an increase in demand by Federal and civil government agencies for upgrading and investing in new information technology systems and solutions.

      We are subject to U.S. Government oversight. Therefore, the U.S. Government may investigate our business practices and audit our compliance with applicable rules and regulations. Depending on the results of those investigations and audits, the U.S. Government could make claims against us. Under U.S. Government procurement regulations and practices, an indictment or conviction of a government contractor could result in that contractor being fined and/or suspended from being able to bid on, or being awarded, new U.S. Government contracts for a period of time. Similar government oversight exists in most other countries where we conduct business. We are currently not aware of any compliance audits or investigations that could result in a significant impact to our financial condition, results of operations or cash flows.

      While recent developments in the government and defense industry have had a positive impact on our Government Communications Systems and RF Communications segments, we remain subject to other risks associated with U.S. Government business, including technological uncertainties, dependence on annual appropriations and allotment of funds, extensive regulations and other risks, which are discussed under “Item 1A. Risk Factors” and under “Item 3. Legal Proceedings” in this Annual Report on Form 10-K.

      Microwave Communications and Broadcast Communications Industry: Global economic growth rates continue at modest, but stable levels in the microwave and broadcast communications industries.

      Global trends and developments in the microwave communications markets include:

      Global trends and developments in the broadcast communications markets include:

      Our management believes that our experience and capabilities are well aligned with, and that we are positioned to capitalize on, the market trends noted above. While we believe that these developments generally will have a positive impact on us, we remain subject to general economic conditions that could adversely affect our customers. We also remain subject to other risks associated with these markets, including technological uncertainties, changes in the FCC’s regulations for the roll-out of digital television, slow market adoption of digital radio or any of our new products and other risks which are discussed under “Forward-Looking Statements and Factors that May Affect Future Results” and “Item 1A. Risk Factors” in this Annual Report on Form 10-K.

OPERATIONS REVIEW

Revenue and Income From Continuing Operations

      Fiscal 2006 Compared With Fiscal 2005: Our revenue for fiscal 2006 was $3,474.8 million, an increase of 15.8 percent compared to fiscal 2005. Income from continuing operations for fiscal 2006 was $237.9 million, an

increase of 17.7 percent compared to fiscal 2005 income from continuing operations of $202.2 million. Revenue increased in all four of our business segments and was led by the increase in our RF Communications segment, which increased 50.5 percent. Our Broadcast Communications segment’s revenue increase was primarily due to the impact of the Leitch acquisition in the second quarter of fiscal 2006 and the Encoda acquisition in the second quarter of fiscal 2005.

      Operating income in our RF Communications, Government Communications Systems and Broadcast Communications segments improved in fiscal 2006 when compared to fiscal 2005. Our RF Communications segment led this improvement with a 67.5 percent increase. Our Microwave Communications segment had a $19.6 million operating loss in fiscal 2006 that included the impact of $39.6 million in charges associated with product discontinuances and a shutdown of manufacturing activities in Montreal, Canada. Our Broadcast Communications segment operating income was adversely impacted by a $25.0 million charge related to cost-reduction actions in fiscal 2006 and the impact of $11.9 million of charges related to our Leitch acquisition. Headquarters expense increased in fiscal 2006 and included the impact of a $5.4 million charge associated with a decision we received in our arbitration with Bourdex.

      Net interest expense increased due to our September 2005 issuance of $300 million aggregate principal amount of 5% notes due 2015. We had a non-operating loss of $1.2 million in fiscal 2006, compared to $6.3 million in fiscal 2005. Our income taxes as a percentage of income before taxes increased from 32.2 percent in fiscal 2005 to 37.5 percent in fiscal 2006, primarily due to a portion of the charges mentioned above being recorded in foreign jurisdictions where we have significant net operating losses and realization of the associated tax benefits is considered uncertain. See the “Discussion of Business Segments” portion below of this MD&A for further information.

      Fiscal 2005 Compared With Fiscal 2004: Our revenue for fiscal 2005 was $3,000.6 million, an increase of 19.1 percent compared to fiscal 2004. Revenue increased in our Government Communications Systems, RF Communications and Broadcast Communications segments. Our Government Communications Systems and Broadcast Communications segments’ revenue increases included the impact of the Orkand and Encoda acquisitions, respectively. Income from continuing operations for fiscal 2005 was $202.2 million, or $1.46 per diluted share, compared to $125.7 million, or $0.92 per diluted share, in fiscal 2004.

      Operating income from all four of our segments improved in fiscal 2005 when compared to fiscal 2004. Our RF Communications and Government Communications Systems segments led this improvement with 40.0 percent and 32.6 percent increases, respectively. Our Microwave Communications segment generated operating income of $7.7 million in fiscal 2005 compared to an operating loss of $12.1 million in fiscal 2004. Our Broadcast Communications segment’s operating income increased to $18.1 million in fiscal 2005 compared with $8.1 million in fiscal 2004, and its results for fiscal 2005 reflect the contribution from the Encoda acquisition, which included a $4.8 million impairment of capitalized software and a $3.8 million write-off of in-process research and development. These improvements in income were offset by an increase in headquarters expense and corporate eliminations in fiscal 2005 when compared to fiscal 2004. In fiscal 2005, we had a non-operating loss of $6.3 million compared to a non-operating loss of $11.0 million in fiscal 2004. See the “Discussion of Business Segments” portion below of this MD&A for further information.

Gross Margin

      Fiscal 2006 Compared With Fiscal 2005: Our gross margin (revenue less cost of product sales and services) as a percentage of revenue was 31.7 percent in fiscal 2006 compared to 27.5 percent in fiscal 2005. Gross margin as a percent of revenue increased in our Broadcast Communications, Government Communications Systems and RF Communications segments and decreased in our Microwave Communications segment. The fiscal 2006 gross margin was also positively impacted by a larger mix of sales coming from our higher-margin RF Communications segment’s products in fiscal 2006 compared to fiscal 2005. Gross margins decreased

in our Microwave Communications segment due to $35.0 million of inventory write-downs and other charges associated with product discontinuances and the shutdown of manufacturing activities in our Montreal, Canada plant. The gross margin increase in our Broadcast Communications segment includes the impact of our Leitch and Encoda acquisitions, which have higher gross margins as a percentage of revenue than many of our other operations. The gross margin in our Broadcast Communications segment was adversely impacted by $11.3 million of inventory write-downs associated with previously announced cost reduction actions, including the transfer of European manufacturing operations to the United States and outsourcing of other manufacturing activity and $2.7 million of lower margins being recognized subsequent to our acquisition of Leitch due to a step up in inventory recorded as of the acquisition date. See the “Discussion of Business Segments” discussion below of this MD&A for further information.

      Fiscal 2005 Compared With Fiscal 2004: Our gross margin as a percentage of revenue was 27.5 percent in fiscal 2005 compared to 25.0 percent in fiscal 2004. Gross margin as a percent of revenue increased across all segments. The increase in gross margin in fiscal 2005 was significantly enhanced by additional software sales as a result of our acquisition of Encoda and margin leverage associated with higher sales volume in our RF Communications segment. These improvements in gross margin were partially offset by a $4.8 million write-off related to the impairment of capitalized software development costs associated with our acquisition of Encoda and a larger mix of revenue from our Government Communications Systems segment, which carries a lower gross margin than our other three business segments due to the high level of cost-reimbursable programs it performs for the U.S. Government. See the “Discussion of Business Segments” discussion below of this MD&A for further information.

Engineering, Selling and Administrative Expenses

      Fiscal 2006 Compared With Fiscal 2005: Our engineering, selling and administrative expenses increased from $502.6 million in fiscal 2005 to $695.4 million in fiscal 2006. As a percentage of revenue, these expenses increased from 16.7 percent in fiscal 2005 to 20.0 percent in fiscal 2006. The increase in our engineering, selling, and administrative expenses in whole dollars, as well as a percentage of revenue, is primarily related to increased research and development costs associated with our RF Communications segment’s Falcon^® III radio development, our acquisitions of Leitch and Encoda, $13.7 million of charges related to cost-reduction actions in our Broadcast Communications segment and a $5.4 million charge in headquarters expense related to our arbitration with Bourdex. The Leitch and Encoda businesses typically have higher engineering, selling and administrative expenses as a percentage of revenue than other Harris businesses. See the “Discussion of Business Segments” discussion below of this MD&A for further information.

      Overall company-sponsored research and product development costs, which are included in engineering, selling and administrative expenses, were $187.8 million in fiscal 2006, compared to $137.3 million in fiscal 2005. The increase was primarily due to increased spending on the development of our Falcon^® III radio in our RF Communications segment and the acquisitions of Leitch and Encoda.

      Customer-sponsored research and development, which does not impact engineering, selling and administrative expenses, was $626.0 million in fiscal 2006 compared to $733.0 million in fiscal 2005. Customer-sponsored research and development is included in our revenue and cost of product sales and services.

      Fiscal 2005 Compared With Fiscal 2004: Our engineering, selling and administrative expenses increased from $421.0 million in fiscal 2004 to $502.6 million in fiscal 2005. As a percentage of revenue, these expenses were flat at 16.7 percent. The increase in our engineering, selling, and administrative expenses is primarily related to our acquisition of Encoda. This business typically has higher engineering, selling and administrative expenses than other Harris businesses. Fiscal 2005 engineering, selling and administrative expenses include a $3.8 million write-off of in-process research and development related to our acquisition of Encoda. Additionally, our Government Communications Systems and RF Communications segments had higher research and development costs in fiscal 2005 when compared to fiscal 2004. The rate of increase in our Government Communications Systems and RF Communications segments’ revenue, however, outpaced the rate of increase in engineering, selling and administrative expenses. Corporate eliminations and headquarters expense, which are

included in engineering, selling and administrative expenses, also increased by $9.2 million and $6.3 million, respectively. See the “Discussion of Business Segments” discussion below of this MD&A for further information.

      Overall company-sponsored research and product development costs, which are included in engineering, selling and administrative expenses, were $137.3 million in fiscal 2005, compared to $111.3 million in fiscal 2004. The increase was primarily due to a relatively high level of spending on the development of our Falcon^® III radio in our RF Communications segment and an increased level of independent research and development projects and bids and proposals in our Government Communications Systems segment.

      Customer-sponsored research and development, which does not impact engineering, selling and administrative expenses, was $733.0 million in fiscal 2005 compared to $729.9 million in fiscal 2004. Customer-sponsored research and development is included in our revenue and cost of product sales and services.

Non-Operating Income (Loss)

      Fiscal 2006 Compared With Fiscal 2005: Our non-operating loss was $1.2 million for fiscal 2006, compared to a non-operating loss of $6.3 million for fiscal 2005. The fiscal 2006 decrease in the loss was primarily due to a $3.7 million loss recognized on the sale of securities in fiscal 2005. See Note 21: Non-Operating Income (Loss) in the Notes for further information.

      We have an equity investment in Terion, Inc. (“Terion”), a privately-held company that provides wireless data communication and information solutions for mobile and remote business-to-business applications focusing on the transportation industry. The maximum exposure to loss we have with our ownership interest in Terion is $23.0 million.

      During July 2006, Terion’s largest customer, representing approximately 60,000 units of an installed base of approximately 110,000 units, informed Terion that it had signed a contract with another provider and would be moving its fleet off of Terion’s system over the next two years. Terion and the customer are actively negotiating the terms of the wind down of their relationship after which Terion management will prepare an updated outlook and forecast. Though we do not currently have adequate information to calculate the potential impairment to our investment, we believe that the required write-down of our investment will be significant. Once the impairment amount is determined, we will record the impairment under the caption “Non-operating income (loss)” on the Consolidated Statement of Income. See Note 9: Selected Investments in the Notes for further information.

      Fiscal 2005 Compared With Fiscal 2004: Our non-operating loss was $6.3 million for fiscal 2005, compared to a non-operating loss of $11.0 million for fiscal 2004. The decrease in non-operating loss was primarily due to an $8.5 million gain in fiscal 2005 from our execution of a patent cross-licensing agreement. See Note 21: Non-Operating Income (Loss) in the Notes for further information.

Interest Income and Interest Expense

      Fiscal 2006 Compared With Fiscal 2005: Our interest income increased from $7.5 million in fiscal 2005 to $11.8 million in fiscal 2006 due to higher rates of interest earned on our cash and cash equivalents and short-term investments. Our interest expense increased from $24.0 million in fiscal 2005 to $36.5 million in fiscal 2006 as we issued $300 million in aggregate principal amount of 5% Notes due October 1, 2015 in the first quarter of fiscal 2006.

      Fiscal 2005 Compared With Fiscal 2004: Our interest income increased from $6.2 million in fiscal 2004 to $7.5 million in fiscal 2005. Higher rates of interest earned on our cash and cash equivalents and short-term investments were partially offset by lower cash and short-term investment balances as a result of the acquisitions of Encoda and Orkand. Our interest expense decreased from $24.5 million in fiscal 2004 to $24.0 million in fiscal 2005 due to lower short-term debt balances.

Income Taxes

      Fiscal 2006 Compared With Fiscal 2005: Our provision for income taxes as a percentage of income from continuing operations before income taxes increased from 32.2 percent in fiscal 2005 to 37.5 percent in fiscal 2006. The increase in the rate is primarily attributable to charges associated with inventory write-downs in our Microwave Communications segment, cost-reduction actions in our Broadcast Communications segment and a charge from our arbitration with Bourdex being recorded in foreign jurisdictions, where realization of the associated tax benefits are considered uncertain because we have significant operating losses in those jurisdictions. The remaining increase in the rate was mainly driven by the increase in our earnings and the fixed nature of tax credits and other benefits we received in both years related to export sales and a $3.5 million reduction in taxes in fiscal 2005 from the resolution of certain tax issues, for which liabilities had previously been established.

      Fiscal 2005 Compared With Fiscal 2004: Our provision for income taxes as a percentage of income from continuing operations before income taxes was 32.2 percent in fiscal 2005 and 30.2 percent in fiscal 2004. The increase in the rate is primarily due to the settlement of a foreign tax audit in fiscal 2004 that resulted in an income tax benefit of $3.3 million. The fiscal 2005 rate, however, was also affected by a $3.5 million reduction in taxes from the resolution of certain tax issues for which liabilities had previously been established, as well as a $3.8 million non-deductible write-off of in-process research and development related to our Encoda acquisition. The remaining increase in the rate was mainly driven by the increase in our earnings and the fixed nature of tax credits and other benefits we received in both years related to export sales.

Discussion of Business Segments

Government Communications Systems Segment

      Fiscal 2006 Compared With Fiscal 2005: Government Communications Systems segment revenue increased 0.4 percent and operating income increased 6.4 percent from fiscal 2005 to fiscal 2006. The increase in revenue primarily came from the FTI program for the FAA, the Patriot technical services program for the NRO, the RADIC program for the NSA and increased sales of commercial satellite antenna products, partially offset by spending constraints on our national intelligence customers. Also, fiscal 2005 benefited from $79 million in revenue from the IMN program, which was completed in the fourth quarter of fiscal 2005. Significant programs in fiscal 2006 included FTI, Patriot, MCOM, F-35 Joint Strike Fighter, OSSS, State 6 program for the U.S. Department of State Bureau of Consular Affairs to modernize their information technology architecture, FAB-T, F/A-18E/F, MTAIP and various classified programs.

      Total funded and unfunded backlog was approximately $4.572 billion and $4.401 billion at June 30, 2006 and July 1, 2005, respectively. These amounts included both funded backlog (unfilled firm orders for which funding has been authorized) and unfunded backlog (primarily unfilled firm and expected follow-on orders that have not yet met our established funding criteria). Our established funding criteria require both authorization by the customer as well as our management’s determination that there is little or no risk to the authorized funding being rescinded. Funded backlog was approximately $400 million at June 30, 2006 compared to $395 million at July 2, 2005.

      Government Communications Systems segment operating income improved during fiscal 2006 when compared to fiscal 2005, primarily due to strong program execution and a higher mix of fixed-price production programs and favorable program closeouts, which was partially offset by investments made for programs such as FTI and Patriot that are in their early phases. Engineering, selling and administrative expenses in this segment increased in fiscal 2006 when compared to fiscal 2005 due to increased investment in supply chain-related initiatives and the impact of expensing stock options under Statement of Financial Accounting Standards, No. 123(R), “Share-Based Payment” (“Statement 123R”).

      The following major contract awards and highlights occurred during fiscal 2006 in our Government Communications Systems segment:

      During fiscal 2006 this segment derived 95 percent of its revenue from the U.S. Government including 56 percent from the DoD and 13 percent from the FAA.

      Fiscal 2005 Compared With Fiscal 2004: Government Communications Systems segment revenue increased 19.9 percent and operating income increased 32.6 percent from fiscal 2004 to fiscal 2005. Revenue growth was attributable to both the acquisition of Orkand and organic revenue growth, which was driven by the FTI program, the Patriot technical services program for the NRO, and the IMN program. Other programs contributing to revenue growth included the AEHF, F/A-18 E/F Super Hornet, MIDS, the U.S. Army’s Aerial Common Sensor program (“ACS”) and MTAIP program.

      Government Communications Systems segment operating income improved during fiscal 2005 when compared to fiscal 2004 due to the revenue growth discussed above and excellent program execution. Government Communications Systems operating income also benefited from the final settlement of fiscal 2001 and an anticipated settlement of fiscal 2002 government overhead rates, which totaled $10.7 million. This benefit resulted from a more favorable outcome than what we previously estimated and reflected in our reserve position. Engineering, selling and administrative expenses increased in our Government Communications Systems segment in fiscal 2005 when compared to fiscal 2004 due to additional research and development, the acquisition of Orkand and headcount increases in administrative positions needed to support this segment’s growth in revenue. The rate of increase in revenue, however, exceeded the rate of increase in engineering, selling and administrative expenses.

      The following highlights occurred during fiscal 2005 in our Government Communications Systems segment:

RF Communications Segment

      Fiscal 2006 Compared With Fiscal 2005: RF Communications segment revenue increased 50.5 percent and operating income increased 67.5 percent from fiscal 2005 to fiscal 2006. Strong revenue growth came from both U.S. and international markets and was primarily driven by force modernization, force restructuring initiatives moving communications closer to individual soldiers, and the worldwide need for interoperable communications. This demand led to increased sales of our Falcon^® II family of products and the successful introduction of our new Falcon^® III product family.

      The operating income improvement in our RF Communications segment was driven primarily by improved gross margin on higher sales volume as manufacturing efficiencies were realized. Engineering, selling and administrative expenses increased in our RF Communications segment during fiscal 2006 when compared to fiscal 2005 due to additional research and development costs associated with the development of our Falcon^® III product family and expenses needed to market and sell new products. To continue to meet strong demand across all product lines in this segment, we significantly expanded our radio manufacturing capacity.

      Orders for fiscal 2006 were above $1.0 billion for this segment. Significant orders secured during fiscal 2006 included:

      Fiscal 2005 Compared With Fiscal 2004: RF Communications segment revenue increased 24.8 percent and operating income increased 40.0 percent from fiscal 2004 to fiscal 2005. Domestic revenue drivers included deliveries for both multiband and HF Falcon^® II radios to support the U.S. Army Modularity initiative, Army Reserve, National Guard and Marine Corps. International revenue benefited from the continuing ramp up of the Bowman Tactical Radio Programme for the U.K. Ministry of Defence, the initial deliveries of Falcon^® II radios

to Pakistan under a $68 million contract awarded in fiscal 2005 and other deliveries within the international market.

      The operating income improvement in our RF Communications segment was driven by improved gross margin on higher sales volume and cost savings from successful negotiations with contract manufacturers on the U.K. Bowman Tactical Radio Programme. Engineering, selling and administrative expenses increased in our RF Communications segment during fiscal 2005 when compared to fiscal 2004 due to additional research and development costs associated with the development of our Falcon^® III products and expenses needed to sustain the growth in this segment’s revenue. The rate of increase in revenue, however, exceeded the rate of increase in engineering, selling and administrative expenses.

      Orders during the year were significantly greater than sales. Tactical radio demand from DoD customers continued to be strong during fiscal 2005. Force modernization efforts gained increased momentum and funding. This initiative delivers enhanced command, control and communications to more and smaller operating units. Significant domestic orders secured during fiscal 2005 included:

      Demand in international markets also remained strong as the need for communications that are secure, interoperable and reliable has grown. International orders were received from NATO members and other countries, including a $68 million order from Pakistan and large orders from Algeria, the Philippines, Ethiopia, the Republic of Georgia, Denmark, Estonia, Sweden, Azerbaijan, and the Netherlands.

Microwave Communications Segment

     Fiscal 2006 Compared With Fiscal 2005: Microwave Communications segment revenue increased 8.9 percent from fiscal 2005 to fiscal 2006. This segment had an operating loss of $19.6 million in fiscal 2006 compared to operating income of $7.7 million in fiscal 2006. The success of this segment’s TRuepoint^tm radio products and a strengthening market for microwave radios primarily drove the increase in revenue. International order rates increased, particularly in Africa. In North America, microwave demand for both private networks and mobile service providers continued to be driven by capacity expansion and by network upgrades to provide high-reliability, high-bandwidth applications.

      The decrease in operating income was primarily due to $39.6 million of inventory write-downs and severance costs associated with product discontinuances and the shut-down of our manufacturing activities in Montreal, Canada. During the second quarter of fiscal 2006, the Microwave Communications segment successfully released additional frequencies of the TRuepoint^tm product family, essentially completing all current frequencies intended to be offered in the low- and mid-capacity microwave radio market segments. In light of these releases, and the market acceptance of previously released frequencies as demonstrated by TRuepoint^tm product sales, management announced during the second quarter of fiscal 2006 a manufacturer’s discontinuance (“MD”) of the MicroStar M/ H^tm, MicroStar L^tm and Galaxy^tm product families (the product families the TRuepoint^tm product line was developed to replace) and of the ClearBurst^tm product family, a product line that

shares manufacturing facilities with the MicroStar^tm and the Galaxy^tm product lines in Montreal, Canada. In November 2005, letters were sent to MicroStar^tm, Galaxy^tm and ClearBurst^tm customers, informing them of the MD announcement.

      We estimated expected demand for these products based on: responses to the letters noted above and a percentage of the installed base, using previous product MD history as a basis for this estimate. In addition, the customer service inventory of these discontinued products was reviewed and quantities required to support existing warranty obligations and contractual obligations were quantified. These analyses identified inventory held in multiple locations including Montreal, Canada; Redwood Shores, California; San Antonio, Texas; Paris, France; Mexico City, Mexico; Sao Paulo, Brazil; and Shenzhen, China. As a result of these analyses, $34.0 million of inventory was written down in the second quarter of fiscal 2006. Also, $5.6 million of severance and other costs were recorded in fiscal 2006 related to the shutdown of manufacturing activities in our Montreal, Canada plant and product discontinuances. The inventory reserved for in the second quarter of fiscal 2006 has been subsequently disposed of or scrapped. No additional material costs or charges are expected to be incurred in connection with these product discontinuances.

      The decrease in gross margins and operating income associated with the product discontinuances noted above were partially offset by improved gross margins in fiscal 2006 as a result of increased shipments of TRuepoint^tm, a family of lower-cost microwave radios, and a shift away from lower-margin international projects. Engineering, selling and administrative expenses increased in fiscal 2006 when compared to fiscal 2005 as a result of increased selling expenses and stock and cash based compensation plan expenses.

      Orders in our Microwave Communications segment increased 21 percent from $332 million in fiscal 2005 to $402 million in fiscal 2006. Significant orders received in this segment during fiscal 2006 included:

      On September 5, 2006, we announced that we entered into a definitive agreement with Stratex Networks pursuant to which we will combine the Microwave Communications segment with Stratex Networks. For additional information regarding the transaction, see “Item 1. Business — Subsequent Event — Agreement with Stratex Networks, Inc.”

      Fiscal 2005 Compared With Fiscal 2004: Microwave Communications segment revenue decreased 2.9 percent from fiscal 2004 to fiscal 2005. The segment improved from an operating loss of $12.1 million in fiscal 2004 to operating income of $7.7 million in fiscal 2005. North American sales remained strong. Strength in international markets came from the Middle East, Africa, Europe and improved Latin American markets. The slight decline in revenue was primarily attributable to the revenue generated in fiscal 2004 from the build out of a large mobile telecom network for MTN Nigeria, which was only partially offset by an increase in North American revenue and new international contracts won during fiscal 2005.

      Gross margins in the Microwave Communications segment improved in fiscal 2005 as a result of increased shipments of TRuepoint^tm, a new family of lower-cost microwave radios, and a shift away from lower-margin international projects. Engineering, selling and administrative expenses were lower in fiscal 2005 when compared to fiscal 2004 due to cost-reduction actions taken during fiscal 2004. The fiscal 2004 operating loss of $12.1 million included a charge of $7.3 million associated with cost-reduction actions related to the successful transfer of TRuepoint^tm production from Montreal, Canada to San Antonio, Texas as well as the consolidation of administrative and support functions at this segment’s Durham, North Carolina location. TRuepoint^tm orders and sales accelerated during fiscal 2005. TRuepoint^tm orders were significantly greater than sales of $45 million for fiscal 2005, which exceeded our goal of $30 million in sales of TRuepoint^tm for the year.

      Significant orders during the year included an on-going network project for the Federal Bureau of Investigation, a major order with a large defense contractor in support of an international communications project, and various private network and mobile telecommunications providers in North America. In addition to North America, major new international orders included Vee Networks Limited in Nigeria, MTN Nigeria,

Nextel Brazil and Mexico, Loteny Telecom in the Ivory Coast, Umniah Mobile Company in Jordan, and PT Alvarid in Indonesia. We expanded our customer base in the Middle East and Africa and received orders from several new channel partners, including IRTE in Italy and ZTE and Huawei in China, which served to expand our international presence. During fiscal 2005 we also signed a long-term preferred supplier agreement with Sprint to provide TRuepoint^tm radios for its nationwide mobile services.

Broadcast Communications Segment

      Fiscal 2006 Compared With Fiscal 2005: Broadcast Communications segment revenue increased 40.2 percent and operating income increased 26.0 percent from fiscal 2005 to fiscal 2006. Leitch, which was acquired in October 2005, and Encoda, which was acquired in November 2004, were main contributors to the increase in segment revenue and operating income. The increase in revenue was also partly attributable to increased demand for digital TV, Net VX networking, and HD Radio^tm products.

      The operating income for this segment was adversely impacted by a $25.0 million charge related to inventory write-downs, severance and other costs associated with cost-reduction actions. The cost-reduction actions were taken to address ongoing weakness in our international broadcast transmission markets and to further improve the segment’s profitability. These actions included closing our Huntingdon, United Kingdom facility; relocating manufacturing of European-standard transmission products to our Quincy, Illinois facility; reducing our infrastructure in Austria; outsourcing manufacturing of radio consoles and related products from our Mason, Ohio facility; and headcount reductions from further integration within our software systems business. Charges incurred in fiscal 2006 related to these actions included $9.7 million of severance and other employee-related exit costs and $2.3 million of facility-related exit costs. These actions resulted in a headcount reduction of 150. The cost-reduction actions helped to significantly improve operating margins for this segment in fiscal 2006.

      Research and development costs in this segment were higher because we continued to invest in new product development such as our H-Class^tm broadcast enterprise software systems solution, FlexStar^® HD Radio^tm transmission products, next-generation video distribution and media products and transmission equipment for use in mobile video broadcasting applications.

      During fiscal 2006, we made three strategic acquisitions in this segment. In October 2005, we completed the acquisition of Leitch, a publicly-held provider of high-performance video systems for the television broadcast industry. In April 2006, we completed the acquisition of OSi, a privately-held provider of air-time sales, traffic and billing software systems to over 350 call-letter broadcast stations in North America. In May 2006, we completed the acquisition of Aastra Digital Video, a developer and marketer of video networking products.

      Operating income was negatively impacted during fiscal 2006 by $11.9 million of charges related to our acquisition of Leitch, including the write-off of in-process research and development, lower margins being recognized subsequent to our acquisition due to a step-up of inventory taken at the acquisition date and integration activities. For further information related to the acquisition of Leitch, including the allocation of the purchase price and pro forma results as if Leitch had been acquired as of the beginning of the periods presented, see Note 4: Business Combinations in the Notes.

      Orders in our Broadcast Communications segment increased 66 percent from $308 million in fiscal 2005 to $511 million in fiscal 2006. This increase was primarily due to the acquisitions of Leitch and Encoda. Significant orders received by our Broadcast Communications segment during fiscal 2006 included:

      Fiscal 2005 Compared With Fiscal 2004: Broadcast Communications segment revenue increased 33.7 percent from fiscal 2004 to fiscal 2005. The segment also had operating income of $18.1 million in fiscal 2005 compared to $8.1 million in fiscal 2004.

      Encoda, which was acquired in the second quarter of fiscal 2005, made significant contributions to segment revenue in fiscal 2005. Revenue drivers in fiscal 2005 also included increased sales in the U.S. of HD Radio^tm transmission equipment. The roll out of HD Radio^tm continued to gain momentum with 2,500 radio stations committed to begin their digital broadcasts during the next four years. U.S. digital television (“DTV”) transmission equipment sales increased in fiscal 2005 when compared to fiscal 2004 as broadcasters moved to meet FCC deadlines for full-power transmission digital signals. This segment also experienced a growing demand for its Intraplex products on our FTI program with the FAA to carry high volumes of real-time, mission-critical data. Revenue growth was dampened, however, by weakness in international market conditions for both analog and European-standard digital broadcasting equipment and for legacy automation systems as we transitioned customers to our new H-Class^tm enterprise software system.

      Operating income increased from $8.1 million in fiscal 2004 to $18.1 million in fiscal 2005. The increase in operating income in fiscal 2005 when compared to fiscal 2004 was primarily due to the acquisition of Encoda. Encoda sells software solution products and services that carry higher gross margins than most of this segment’s other products and services. Engineering, selling and administrative expenses increased significantly, which was also primarily due to the Encoda acquisition. Encoda’s products and services require a higher investment in research and development than most of our other products in this segment. Research and development costs in this segment were also higher because we continued to invest in new product development. During fiscal 2005, we introduced the first module in our next-generation H-Class^tm broadcast enterprise software systems solutions. We also introduced the new PowerCD^tm UHF digital transmitter that allows broadcasters to transition quickly to DTV while reducing energy costs. We also developed transmission equipment for use in mobile video broadcasting trials in the U.S., U.K., Australia and China, and we continued to invest in our second-generation FlexStar^® HD Radio^tm transmission product line.

      The fiscal 2005 segment operating income of $18.1 million also included $8.6 million of acquisition-related costs, including a $4.8 million impairment of capitalized software costs related to a software product sold by our Broadcast Communications segment and being displaced by a product offered by Encoda and a $3.8 million write-off of in-process research and development.

      The following highlights occurred during fiscal 2005 in our Broadcast Communications segment:

Headquarters Expense and Corporate Eliminations

      Fiscal 2006 Compared With Fiscal 2005: Headquarters expense increased 30.0 percent from $58.0 million in fiscal 2005 to $75.4 million in fiscal 2006. As a percentage of revenue, headquarters expense increased from 1.9 percent in fiscal 2005 to 2.2 percent in fiscal 2006. The increase in headquarters expense was primarily due to a $5.4 million charge associated with a decision we received in our arbitration with Bourdex. The increase in headquarters expense also included the impact of stock-based compensation expense, consulting fees and charitable contributions. Corporate eliminations were unchanged at $16.5 million in fiscal 2005 and fiscal 2006.

      Fiscal 2005 Compared With Fiscal 2004: Headquarters expense increased 12.2 percent from $51.7 million in fiscal 2004 to $58.0 million in fiscal 2005. The increase in headquarters expense was primarily due to higher compensation expense related to stock-based compensation as a result of the increased price for Harris stock as well as additional costs associated with the implementation of Sarbanes-Oxley Act Section 404 and initiatives related to supply chain management, strategic acquisitions and technology transfers. Corporate eliminations increased 126.0 percent from $7.3 million in fiscal 2004 to $16.5 million in fiscal 2005. As a percentage of revenue, headquarters expense decreased from 2.1 percent in fiscal 2004 to 1.9 percent in fiscal 2005. The increase in corporate eliminations was due to an increase in intersegment sales between our Broadcast Communications and Government Communications Systems segments related to our FTI program.

In-Process Research and Development

      In connection with the Leitch and Encoda acquisitions, we allocated $3.6 million and $3.8 million, respectively, of the purchase prices to in-process research and development projects. These allocations represent the estimated fair value based on risk-adjusted cash flows related to the incomplete products. At the date of each acquisition, the development of these projects had not yet reached technological feasibility and the in-process research and development had no alternative future uses. Accordingly, these costs were expensed as a one-time charge to earnings and are included in engineering, selling and administrative expenses.

      In making these purchase price allocations we relied on present value calculations of income, an analysis of project accomplishments and completion costs and an assessment of overall contribution and project risk. The amounts assigned to the in-process research and development were associated with research projects for which technological feasibility had not been established.

      The value assigned to the purchased in-process research and development was determined by estimating the costs to develop the purchased in-process research and development into commercially viable products and discounting the net cash flows to their present value using a discount rate of 25 percent for both Leitch and Encoda.

      The Leitch projects were for the development of their Platinum^tm and IconMaster^tm products. The Platinum^tm product is a mid- to large-size router with audio, monitoring output, streaming and event-configuration capabilities. The IconMaster^tm product is a modular, mid-size master control with branding capabilities. As of the valuation date, these projects were estimated to be completed at the end of January 2006 and had remaining costs until completion of approximately $1.0 million.

      The Encoda project was for the development of a next-generation product line that encompassed some of the latest research applicable to media technologies, such as emergence and learning theory. As of the valuation date, this project was considered to be approximately 30 to 40 percent complete and had remaining costs until completion of approximately $6.2 million.

Discontinued Operations

      In the fourth quarter of fiscal 2004, we completed the sale of our TTS product line to a subsidiary of Danaher Corporation for $43.1 million after giving effect to post-closing adjustments. The gain on the sale that was recorded in the fourth quarter of fiscal 2004 was $18.9 million pre-tax and $9.1 million after-tax. This transaction, along with the results of the TTS product line, has been reported as a discontinued operation for all periods presented. Revenue from the TTS product line was $40.3 million in fiscal 2004. The product line also had a pre-tax operating loss of $3.5 million in fiscal 2004. Discontinued operations are more fully discussed in Note 2: Discontinued Operations in the Notes.

      We changed our segment reporting structure effective May 28, 2004 in conjunction with the sale of our TTS product line. The TTS product line was formerly part of the Network Support segment. As a result of the sale, our Consolidated Financial Statements and the Notes report the TTS product line as a discontinued operation, and accordingly, prior periods have been restated. We also have eliminated the Network Support segment as a separate reportable segment. The NetBoss^® network operations product line, which was also part of the Network Support segment, was not included in the sale and is consolidated in the Microwave Communications segment for all periods presented. The NetBoss^® management team reports to the President of the Microwave Communications Division.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES

Cash Flows

      Cash and cash equivalents: Our cash and cash equivalents decreased by $196.3 million to $181.3 million at the end of fiscal 2006, primarily due to the $509.6 million of cash paid for the acquisitions of Leitch, OSi and Aastra Digital Video; $146.4 million of software and property, plant and equipment additions; $112.6 million net purchases of short-term investments; $44.9 million of common stock repurchases and $42.7 million of cash dividends. These decreases were partially offset by $334.2 million of cash flow generated from operating activities and the issuance during the first quarter of fiscal 2006 of $300 million in aggregate principal amount of 5% Notes due October 1, 2015. See Note 13: Long-Term Debt in the Notes for further information.

      Management currently believes that existing cash, funds generated from operations, our credit facilities and access to the public and private debt and equity markets will be sufficient to provide for our anticipated requirements for working capital, capital expenditures and stock repurchases under the current repurchase program for the next 12 months and the foreseeable future. We expect tax payments over the next three years to approximate our tax expense during the same period. We anticipate that our fiscal 2007 cash payments may include strategic acquisitions. With the exception of potential acquisitions, no other significant cash payments are anticipated in fiscal 2007 and thereafter, other than those noted in the “Contractual Obligations” discussion below of this MD&A.

      There can be no assurance, however, that our business will continue to generate cash flow at current levels, or that anticipated operational improvements will be achieved. If we are unable to maintain cash balances or generate sufficient cash flow from operations to service our obligations, we may be required to sell assets, reduce capital expenditures, terminate our stock repurchase program, reduce or eliminate dividends, refinance all or a portion of our existing debt or obtain additional financing. Our ability to make scheduled principal payments or pay interest on or refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the government, defense, microwave communications and broadcast communications markets and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

      Net cash provided by operating activities: Our net cash provided by operating activities was $334.2 million in fiscal 2006 compared to $338.8 million in fiscal 2005. All four of our segments generated positive cash flows

in fiscal 2006 with RF Communications and Microwave Communications posting significant improvements when compared to fiscal 2005. Fiscal 2006 cash flow improvements that resulted from higher operating income in our RF Communications, Government Communications Systems and Broadcast Communications segments and improved capital management in our Microwave Communications segment were offset by an increase in working capital needed to support the growth in our RF Communications segment, a higher mix of fixed-price programs in our Government Communications Systems segment, income tax refunds collected in fiscal 2005 and a $13.5 million adverse impact in fiscal 2006 from Statement 123R. We expect cash flow provided by operating activities in fiscal 2007 to exceed $400 million.

      Net cash used in investing activities: Our net cash used in investing activities was $768.6 million in fiscal 2006 compared to $316.7 million in fiscal 2005. Net cash used in investing activities in fiscal 2006 was due to $509.6 million cash paid for business acquisitions, $112.6 million net purchases of short-term investments, $101.8 million additions of property, plant and equipment and $44.6 million additions of capitalized software. Net cash used in investing activities in fiscal 2005 was primarily due to $427.3 million cash paid for business acquisitions, $75.0 million additions of property, plant and equipment and $23.8 million additions of capitalized software, which was partially offset by $196.0 million net proceeds from the sale of short-term investments and $13.4 million proceeds from the sale of securities available-for-sale.

      The increase in our additions of capitalized software and property, plant and equipment from $98.8 million in fiscal 2005 to $146.4 million in fiscal 2006 mainly relates to increased software purchases in our Government Communications Systems segment, increased manufacturing capacity related to Falcon^® II and Falcon^® III radio production in our RF Communications segment and our Leitch acquisition. Our total additions of capitalized software and property, plant and equipment in fiscal 2007 are expected to be in the $140 million to $150 million range.

      Net cash provided by (used in) financing activities: Our net cash provided by financing activities in fiscal 2006 was $236.4 million compared to net cash used in financing activities in fiscal 2005 of $76.9 million. The net cash provided by financing activities in fiscal 2006 was primarily from the issuance of $300 million in aggregate principal amount of 5% Notes due October 1, 2015. See Note 13: Long-Term Debt in the Notes for more information. The net cash provided by financing activities in fiscal 2006 also included proceeds from the exercise of employee stock options of $33.8 million. The cash provided by financing activities from the issuance of debt and proceeds from the exercise of employee stock options was partially offset by the payment of cash dividends totaling $42.7 million and the repurchase of common stock of $44.9 million. In fiscal 2006, we issued 1,697,526 shares of common stock to employees under the terms of our option and incentive plans.

      The net cash used in financing activities of $76.9 million in fiscal 2005 was primarily due to repurchases of our common stock of $56.4 million and $31.9 million of cash dividends paid. Net payments of borrowings in fiscal 2005 were $8.4 million. Proceeds from the exercise of employee stock options of $19.8 million in fiscal 2005 partially offset these payments. In fiscal 2005, we issued 2,224,816 shares of common stock to employees under the terms of our option and incentive plans.

Common Stock Repurchases

      During fiscal 2006, we used $44.9 million to repurchase 1,050,000 shares of our common stock at an average price per share of $42.71 including commissions. During fiscal 2005, we used $56.4 million to repurchase 1,874,000 shares of our common stock at an average price per share of $30.10 including commissions. We currently expect that we will repurchase shares of common stock to offset the dilutive effect of shares issued under our stock incentive plans. Additional information regarding repurchases made during fiscal 2006 and our repurchase programs is set forth above under Part II, “Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Dividend Policy

      On August 26, 2006, our Board of Directors authorized a quarterly common stock dividend of $0.11 per share, for an annualized rate of $0.44 per share, which was our fifth consecutive annual increase. Our annual common stock dividend was $0.32, $0.24, and $0.20 per share in fiscal 2006, 2005, and 2004, respectively. Additional information concerning our dividends is set forth above under Part II, “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Capital Structure and Resources

      On March 31, 2005, we entered into a five-year senior unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of lenders. The Credit Agreement provides for the extension of credit to us in the

form of revolving loans and letters of credit issuances at any time and from time to time during the term of the Credit Agreement, in an aggregate principal amount at any time outstanding not to exceed $500 million (we may request an increase, not to exceed an additional $250 million). The Credit Agreement may be used for working capital and other general corporate purposes and to support any commercial paper that we may issue. At our election, borrowings under the Credit Agreement will bear interest either at LIBOR plus an applicable margin or at the base rate. The base rate is a fluctuating rate equal to the higher of the Federal funds rate plus 0.50 percent or SunTrust Bank’s publicly announced prime lending rate. The Credit Agreement provides that the interest rate margin over LIBOR, initially set at 0.50 percent, will increase or decrease within certain limits based on changes in the ratings of our senior, unsecured long-term debt securities. We are also permitted to request borrowings with interest rates and terms that are to be set pursuant to competitive bid procedures or directly negotiated with a lender or lenders.

      The Credit Agreement contains certain covenants, including covenants limiting: liens on our assets; certain mergers, consolidations or sales of assets; certain sale and leaseback transactions; certain vendor financing investments; and the use of proceeds for hostile acquisitions. The Credit Agreement also prohibits our consolidated ratio of total indebtedness to total capital from being greater than 0.60 to 1.00 and prohibits our consolidated ratio of adjusted EBITDA to net interest expense from being less than 3.00 to 1.00 for any rolling four-quarter period. The Credit Agreement contains certain events of default, including payment defaults; failure to perform or observe terms and covenants; material inaccuracy of representations or warranties; default under other indebtedness with a principal amount in excess of $50 million; the occurrence of one or more judgments or orders for the payment of money in excess of $50 million that remain unsatisfied; incurrence of certain ERISA liabilities in excess of $50 million; failure to pay debts as they come due, or our bankruptcy; or a change of control, including if a person or group becomes the beneficial owner of 25 percent or more of our voting stock. If an event of default occurs the lenders may, among other things, terminate their commitments and declare all outstanding borrowings, together with accrued interest and fees, to be immediately due and payable. All amounts borrowed or outstanding under the Credit Agreement are due and mature on March 31, 2010, unless the commitments are terminated earlier either at our request or if certain events of default occur. At June 30, 2006, no borrowings were outstanding under the Credit Agreement.

      On September 20, 2005, we completed the issuance of $300 million in aggregate principal amount of 5% Notes due October 1, 2015. Interest on the notes is payable on April 1 and October 1 of each year. We may redeem the notes in whole, or in part, at any time at the “make-whole” redemption price. The “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the notes being redeemed or the sum of the present values of the remaining scheduled payments of the principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as defined, plus 15 basis points. In each case, we will pay accrued interest on the principal amount of the notes being redeemed to the redemption date. We incurred $4.1 million in debt issuance costs and discounts related to the issuance of the notes, which are being amortized on a straight-line basis over a ten-year period and reflected as a portion of interest expense in the Consolidated Statement of Income.

      We have a universal shelf registration statement related to the potential future issuance of an indeterminate amount of securities, including debt securities, preferred stock, common stock, fractional interests in preferred stock represented by depository shares and warrants to purchase debt securities, preferred stock or common stock.

      In fiscal 2003, we issued $150 million in aggregate principal amount of 3.5% Convertible Debentures due 2022. These debentures are convertible at a conversion price of $22.625 during any calendar quarter if the closing price of our common stock, for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the prior calendar quarter, is more than $24.8875, and in certain other circumstances as described in Note 16: Net Income Per Share in the Notes. Based upon satisfaction of the market price trigger as of the end of the calendar quarter ended June 30, 2006, these debentures are convertible during the calendar quarter ended September 30, 2006 into shares of our common stock.

      In addition to our $150 million 3.5% Convertible Debentures and $300 million 5% Notes mentioned above, we have outstanding unsecured long-term debt securities of $250.9 million. The earliest maturity date of any such long-term debt securities is fiscal 2008.

      We have uncommitted short-term lines of credit aggregating $40.0 million from various international banks, $39.8 million of which was available on June 30, 2006. These lines provide for borrowings at various interest rates, typically may be terminated upon notice, may be used on such terms as mutually agreed to by the banks

and us and are reviewed annually for renewal or modification. These lines do not require compensating balances. We have a short-term commercial paper program in place, which we may utilize to satisfy short-term cash requirements. There were no borrowings under the commercial paper program at June 30, 2006.

      Our debt is currently rated “BBB” by Standard and Poor’s Rating Group and “Baa2” by Moody’s Investors Service. We expect to maintain operating ratios, fixed-charge coverage ratios and balance sheet ratios sufficient for retention of or improvement to these debt ratings. There are no assurances that our credit ratings will not be reduced in the future. If our credit rating is lowered below “investment grade,” then we may not be able to issue short-term commercial paper, but may instead need to borrow under our credit facilities or pursue other options. We do not currently foresee losing our investment-grade debt ratings, but no assurances can be given, however. If our debt ratings were downgraded, however, it could adversely impact, among other things, our future borrowing costs and access to capital markets.

Contractual Obligations

      At June 30, 2006, we had contractual cash obligations to repay debt to purchase goods and services and to make payments under operating leases. Payments due under these long-term obligations are as follows: