UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 28, ~~2007~~2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-33278

HARRIS STRATEX NETWORKS, INC.

(Exact name of registrant as specified in its charter)


Delaware		20-5961564

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

637 Davis Drive
Morrisville, North Carolina		27560

(Address of principal executive offices)		(Zip Code)

(919) 767-3250

(Registrant’s telephone number, including area code)

Indicate by checkmark whether the registrant (l) 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. Yesþ Noo

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

~~Large Accelerated Filer~~o ~~Accelerated Filer~~o ~~Non-Accelerated Filer~~þ ~~Smaller reporting company~~ o

~~(Do~~


Large accelerated filer o		Accelerated filer þ

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12 b-2 of the Exchange Act). Yeso Noþ



	Class of Stock	Shares Outstanding as of ~~January 31, 2007~~		May 2, 2008
	Class A Common Stock, par value $0.01 per share		~~25,505,703~~25,556,002
	Class B Common Stock, par value $0.01 per share		32,913,377

Total shares of common stock outstanding		~~58,419,080~~58,469,379

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HARRIS STRATEX NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Quarter Ended						Two Quarters Ended						Quarter Ended						Three Quarters Ended
	December 28,			December 29,			December 28,			December 29,			March 28,			March 30,			March 28,			March 30,
	2007			2006			2007			2006
	(In millions, except per common share amounts)
(In millions, except per common share amounts)													2008			2007			2008			2007
Revenue from product sales and services:
Revenue from external product sales	$	148.9		$	82.5		$	297.5		$	164.4		$	147.3		$	105.6		$	444.8		$	270.0
Revenue from product sales with Harris Corporation		3.7			0.9			4.9			1.4			1.5			2.3			6.4			3.7

Total revenue from product sales		152.6			83.4			302.4			165.8			148.8			107.9			451.2			273.7
Revenue from services		28.5			17.8			51.0			29.0			29.4			31.1			80.4			60.1

Total revenue from product sales and services		181.1			101.2			353.4			194.8			178.2			139.0			531.6			333.8
Cost of product sales and services:
Cost of external product sales		(98.0	)		(50.5	)		(204.9	)		(102.5	)		(101.4	)		(76.5	)		(306.3	)		(178.9	)
Cost of product sales with Harris Corporation		(3.3	)		(2.1	)		(3.6	)		(2.4	)		(0.6	)		(1.7	)		(4.2	)		(4.1	)

Total cost of product sales		(101.3	)		(52.6	)		(208.5	)		(104.9	)		(102.0	)		(78.2	)		(310.5	)		(183.0	)
Cost of services		(24.8	)		(13.7	)		(38.4	)		(21.6	)		(21.4	)		(23.1	)		(59.8	)		(44.7	)
Cost of sales billed from Harris Corporation		(4.0	)		(0.1	)		(4.6	)		(2.7	)		—			(0.5	)		(4.6	)		(3.2	)
Amortization of purchased technology		(1.7	)		—			(3.5	)		—			(1.8	)		(1.2	)		(5.3	)		(1.2	)

Total cost of product sales and services		(131.8	)		(66.4	)		(255.0	)		(129.2	)		(125.2	)		(103.0	)		(380.2	)		(232.1	)

Gross margin		49.3			34.8			98.4			65.6			53.0			36.0			151.4			101.7
Research and development expenses		(10.9	)		(8.3	)		(23.3	)		(15.7	)		(11.5	)		(11.1	)		(34.8	)		(26.8	)
Selling and administrative expenses		(31.2	)		(16.3	)		(61.4	)		(31.1	)		(28.7	)		(26.1	)		(90.0	)		(57.5	)
Selling and administrative expenses with Harris Corporation		(1.7	)		(1.5	)		(3.4	)		(3.2	)		(1.7	)		(1.6	)		(5.2	)		(4.7	)

Total research, development, selling and administrative expenses		(43.8	)		(26.1	)		(88.1	)		(50.0	)		(41.9	)		(38.8	)		(130.0	)		(89.0	)
Amortization of identifiable intangible assets		(1.9	)		—			(3.7	)		—			(1.9	)		(3.0	)		(5.6	)		(3.0	)

Acquired in-process research and development														—			(15.3	)		—			(15.3	)
Restructuring charges		(4.4	)		(0.7	)		(8.4	)		(0.7	)		—			(1.3	)		(8.4	)		(2.0	)
Corporate allocations expense from Harris Corporation		—			(1.8	)		—			(3.4	)		—			(0.3	)		—			(3.7	)

Operating (loss) income		(0.8	)		6.2			(1.8	)		11.5
Operating income (loss)														9.2			(22.7	)		7.4			(11.3	)
Interest income		0.4			0.2			1.1			0.3			0.3			0.9			1.4			1.2
Interest expense		(0.8	)		(0.3	)		(1.5	)		(0.5	)		(0.7	)		(1.1	)		(2.2	)		(1.5	)

(Loss) income before provision for income taxes		(1.2	)		6.1			(2.2	)		11.3
Benefit (provision) for income taxes		0.2			(0.3	)		0.4			(0.7	)

Net (loss) income	$	(1.0	)	$	5.8		$	(1.8	)	$	10.6
Income (loss) before provision for income taxes														8.8			(22.9	)		6.6			(11.6	)
Provision for income taxes														(1.5	)		(0.3	)		(1.1	)		(1.0	)


Net loss per common share:
Basic and diluted	$	(0.02	)		N/A		$	(0.03	)		N/A
Net income (loss)													$	7.3		$	(23.2	)	$	5.5		$	(12.6	)


Basic and diluted weighted average shares outstanding		58.4			N/A			58.4			N/A
Net income (loss) per common share of Class A and Class B common stock(1):
Basic													$	0.12		$	(0.58	)	$	0.09		$	(0.93	)

Diluted(2)													$	0.09		$	(0.58	)		$0.05		$	(0.93	)


Basic weighted average shares outstanding (3)														58.4			40.3			58.4			13.5
Diluted weighted average shares outstanding (3)														58.7			40.3			58.9			13.5

HARRIS STRATEX NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 28,			June 29,			March 28,			June 29,
	2007			2007
	(In millions, except share amounts)
(In millions, except share amounts)							2008			2007
Assets
Current Assets
Cash and cash equivalents	$	73.0		$	69.2		$	97.0		$	69.2
Short-term investments and available for sale securities		10.0			20.4			3.4			20.4
Receivables		207.6			185.3			199.0			185.3
Unbilled costs		38.4			36.9			35.7			36.9
Inventories		130.0			135.7			125.3			135.7
Deferred income taxes		7.1			4.1			6.5			4.1
Other current assets		22.0			21.7			17.5			21.7

Total current assets		488.1			473.3			484.4			473.3
Long-Term Assets
Property, plant and equipment		78.2			80.0			74.4			80.0
Goodwill		314.6			323.6			315.4			323.6
Identifiable intangible assets		137.2			144.5			133.2			144.5
Capitalized software		9.5			9.7			9.6			9.7
Non-current portion of notes receivable		4.1			5.3			3.4			5.3
Non-current deferred income taxes		0.1			0.5			—			0.5
Other assets		3.8			1.2			3.0			1.2

Total long-term assets		547.5			564.8			539.0			564.8

Total assets	$	1,035.6		$	1,038.1		$	1,023.4		$	1,038.1

Liabilities and Shareholders’ Equity
Current Liabilities
Short-term debt	$	—		$	1.2		$	—		$	1.2
Current portion of long-term debt		7.6			10.7			6.0			10.7
Accounts payable		96.5			84.7			81.8			84.7
Compensation and benefits		7.4			11.5			12.5			11.5
Other accrued items		43.8			44.7			44.8			44.7
Advance payments and unearned income		27.9			22.3			26.7			22.3
Income taxes payable		4.0			6.8			3.6			6.8
Restructuring liabilities		9.8			10.8			6.7			10.8
Current portion of long-term capital lease obligation to Harris Corporation		2.5			3.1			1.6			3.1
Due to Harris Corporation		16.2			17.2			20.5			17.2

Total Current Liabilities		215.7			213.0			204.2			213.0
Long-Term Liabilities
Long-term debt		6.3			8.8			5.0			8.8
Long-term portion of capital lease obligation to Harris Corporation		1.8			2.8			1.6			2.8
Restructuring and other long-term liabilities		8.3			11.8			6.2			11.8
Redeemable preference shares		8.3			8.3			8.3			8.3
Warrants		3.1			3.9			0.6			3.9
Deferred income taxes		23.6			31.5			21.2			31.5

Total Liabilities		267.1			280.1			247.1			280.1
Commitments and contingencies
Shareholders’ Equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued		—			—			—			—
Common stock, Class A, $0.01 par value; 300,000,000 shares authorized; issued and outstanding 25,476,101 shares at December 28, 2007 and 25,400,856 shares at June 29, 2007		0.3			0.3
Common stock, Class B $0.01 par value; 100,000,000 shares authorized; issued and outstanding 32,913,377 shares at December 28, 2007 and June 29, 2007		0.3			0.3
Common stock, Class A, $0.01 par value; 300,000,000 shares authorized; issued and outstanding 25,554,877 shares at March 28, 2008 and 25,400,856 shares at June 29, 2007								0.3			0.3
Common stock, Class B $0.01 par value; 100,000,000 shares authorized; issued and outstanding 32,913,377 shares at March 28, 2008 and June 29, 2007								0.3			0.3
Additional paid-in-capital		784.8			778.3			786.9			778.3
Accumulated deficit		(22.7	)		(20.9	)		(15.4	)		(20.9	)
Accumulated other comprehensive income		5.8			—			4.2			—

Total Shareholders’ Equity		768.5			758.0			776.3			758.0

Total Liabilities And Shareholders’ Equity	$	1,035.6		$	1,038.1		$	1,023.4		$	1,038.1

HARRIS STRATEX NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)


	Two Quarters Ended						Three Quarters Ended
	December 28,			December 29,			March 28,			March 30,
	2007			2006
	(In millions)
(In millions)							2008			2007
Operating Activities
Net (loss) income	$	(1.8	)	$	10.6
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Net income (loss)							$	5.5		$	(12.6	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of identifiable intangible assets acquired in the Stratex acquisition		7.2			—			10.9			19.4
Other non-cash charges related to the Stratex acquisition								—			5.4
Depreciation and amortization of property, plant and equipment and capitalized software		9.4			6.2			15.2			12.2
Non-cash stock-based compensation expense		3.6			—			5.3			1.0
Non-cash charges for restructuring and inventory write-downs		7.8			—			7.8			—
Decrease in fair value of warrants		(0.8	)		—			(3.2	)		—
Deferred income tax (benefit) expense		(3.5	)		—			(0.2	)		1.0
Changes in operating assets and liabilities:
Receivables		(20.9	)		15.4			(11.7	)		2.7
Unbilled costs and inventories		0.6			(23.7	)		8.0			(32.0	)
Accounts payable and accrued expenses		7.1			(4.5	)		(1.4	)		(0.7	)
Advance payments and unearned income		5.5			6.4			4.3			4.8
Due to Harris Corporation		0.5			(12.3	)		4.6			(3.7	)
Other		(2.6	)		(3.8	)
Decrease in restructuring liabilities and other								(9.7	)		(9.0	)

Net cash provided by (used in) operating activities		12.1			(5.7	)		35.4			(11.5	)

Investing Activities
Cash acquired from the Stratex acquisition, net of acquisition costs of $12.7 million								—			20.4
Purchases of short-term investments and available for sale securities		(4.4	)		—			(8.3	)		(33.2	)
Sales of short-term investments and available for sale securities		14.8			—			25.3			17.8
Additions of property, plant and equipment		(3.6	)		(1.9	)		(6.3	)		(4.4	)
Additions of capitalized software		(6.5	)		(3.1	)		(7.9	)		(2.8	)

Net cash provided by (used in) investing activities		0.3			(5.0	)		2.8			(2.2	)

Financing Activities
Decrease in short-term debt		(1.2	)		(0.1	)		(1.2	)		—
Proceeds from issuance of redeemable preference shares								—			8.3
Payments on long-term debt		(5.6	)		—			(8.4	)		(2.6	)
Proceeds from issuance of Class B common stock to Harris Corporation								—			26.9
Payments on long-term capital lease obligation to Harris Corporation		(2.0	)		—			(3.2	)		—
Proceeds from exercise of former Stratex stock options		0.9			—			1.5			1.4
Registration costs for Class A common stock issued in Stratex acquisition								—			(1.1	)
Proceeds from exercise of former Stratex warrants								—			0.2
Net cash and other transfers from Harris Corporation prior to the Stratex acquisition		—			8.5			—			24.1

Net cash (used in) provided by financing activities		(7.9	)		8.4			(11.3	)		57.2

Effect of exchange rate changes on cash and cash equivalents		(0.7	)		0.7			0.9			(2.9	)

Net (decrease) increase in cash and cash equivalents		3.8			(1.6	)
Net increase in cash and cash equivalents								27.8			40.6
Cash and cash equivalents, beginning of year		69.2			13.8			69.2			13.8

Cash and cash equivalents, end of period	$	73.0		$	12.2		$	97.0		$	54.4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~December~~

March 28, ~~2007~~2008

(Unaudited)

Note A — Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Harris Stratex Networks, Inc. and its wholly-owned and majority-owned subsidiaries (“we,” “us” and “our”) and have been prepared by us, without an audit, in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and changes in cash flows in conformity with U.S. generally accepted accounting principles. In the opinion of our management, such financial statements reflect all adjustments (consisting only of normal, recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods.

The results for the quarter ended ~~December~~March 28, ~~2007~~2008 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at June 29, 2007 has been derived from our audited financial statements but does not include all the information and footnotes required by generally accepted accounting principles in the United States for annual financial statements. We provide complete financial statements in our Annual Report on Form 10-K, which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 29, 2007 (“Fiscal 2007 Form 10-K”).

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. Actual results could differ from those estimates.

Prior to January 26, 2007, we were a division of Harris Corporation (“Harris”). For periods prior to January 26, 2007, our consolidated financial statements include the accounts of the MCD and Harris subsidiaries classified as part of MCD, our financial reporting predecessor entity. These financial statements have been determined to be our historical financial statements. As used in these notes, the term “MCD” refers to the consolidated operations of the Microwave Communications Division of Harris.

For periods prior to January 26, 2007, our historical financial statements are presented on a carve-out basis and reflect the assets, liabilities, revenue and expenses that were directly attributable to MCD as it was operated within Harris. Our condensed consolidated statements of operations include all of the related costs of doing business, including an allocation of certain general corporate expenses of Harris, which were in support of MCD, including costs for finance, legal, treasury, purchasing, quality, environmental, safety, human resources, tax, audit and public relations departments and other corporate and infrastructure costs. We were allocated ~~$1.8~~$0.3 million and ~~$3.4~~$3.7 million for these general corporate expenses from Harris during the quarter and ~~two~~three quarters ended ~~December 29, 2006.~~March 30, 2007. These costs represented approximately ~~10.2 percent~~6.1% and ~~10.0 percent~~9.4% of the total cost of these allocated services in the quarter and ~~two~~three quarters ended ~~December 29, 2006.~~March 30, 2007. These cost allocations were based primarily on a ratio of our revenue to total Harris revenue, multiplied by the total headquarters expense of Harris. The allocation of Harris overhead expenses to us concluded on January 26, 2007. We believe these allocations were made on a reasonable basis. Harris currently owns approximately ~~56 percent~~56% of our common stock.

On January 26, 2007, we acquired Stratex Networks, Inc. (“Stratex”). The results of operations and cash flows of Stratex were not included in any of our consolidated financial statements before January 26, 2007.

Note B — Recent Accounting Pronouncements

Accounting for Uncertain Tax Positions

On June 30, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a “more-likely-than-not” threshold for the recognition and derecognition of tax positions, provides guidance on the accounting for interest and penalties relating to tax positions and requires that the cumulative effect of applying the provisions of FIN 48 shall be reported as an adjustment to the opening balance in retained earnings (deficit) or other appropriate components of equity or net assets. Refer toNote N – Income Taxes, for additional information relating to our accounting for FIN 48 and income taxes.

Fair Value Measurements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“Statement 157”). Statement 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Statement 157 applies under other accounting pronouncements that require fair value measurement in which the FASB concluded that fair value was the relevant measurement, but does not require any new fair value measurements. Statement 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007, which for us will be our fiscal 2009. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which defers the effective date of Statement 157 for nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, which for us will be our fiscal 2010. We are currently evaluating the impact Statement 157 may have on our financial position, results of operations and cash flows.

Accounting for Business Combinations

On December 4, 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“Statement 141R”). Statement 141R requires that, upon a business combination, the acquired assets, assumed liabilities, contractual contingencies and contingent liabilities, be recognized and measured at their fair value at the acquisition date. Statement 141R also requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred. In addition, Statement 141R requires that acquired in-process research and development be measured at fair value and capitalized as an indefinite-lived intangible asset, and it is therefore not subject to amortization until the project is completed or abandoned. Moreover, Statement 141R requires changes in deferred tax asset valuation allowances and acquired income tax uncertainties that are recognized after the measurement period be recognized in income tax expense. Statement 141R is to be applied prospectively and is effective for fiscal years beginning on or after December 15, 2008, which for us will be our fiscal 2010.

Accounting for Noncontrolling Interests in Consolidated Financial Statements

On December 4, 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“Statement 160”). Statement 160 requires that noncontrolling interests (previously referred to as minority interests) be clearly identified and presented as a component of equity, separate from the parent’s equity. Statement 160 also requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; that changes in ownership interest be accounted for as equity transactions; and that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in that subsidiary and the gain or loss on the deconsolidation of that subsidiary be measured at fair value. Statement 160 is to be applied prospectively, except for the presentation and disclosure requirements (which are to be applied retrospectively for all periods presented) and is effective for fiscal years beginning after December 15, 2008, which for us will be our fiscal 2010. We are currently evaluating the impact Statement 160 may have on our financial position, results of operations and cash flows.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“Statement 161”). Statement 161 applies to all derivative instruments, including bifurcated derivative instruments (and to nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of FASB Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“Statement 133”)) and related hedged items accounted for under Statement 133. Statement 161 amends and expands the disclosure requirements of Statement 133 to provide greater transparency as to (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, Statement 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the volume of derivative activity and fair value amounts of, and gains and losses on, derivative instruments including location of such amounts in the financial statements, and disclosures about credit-risk-related contingent features in derivative agreements. Statement 161 is effective for fiscal years and interim periods that begin after November 15, 2008, which for us will be the third quarter of our fiscal 2009. We are currently evaluating the impact Statement 161 may have on our financial position, results of operations and cash flows.

Note C — Short-Term Investments and Available for Sale Securities

Short-term investments and available for sale securities as of ~~December~~March 28, ~~2007~~2008 consisted of the following:


	December 28, 2007								March 28, 2008
			Gross		Gross						Gross		Gross
			Unrealized		Unrealized		Market				Unrealized		Unrealized		Market
	Cost		Gain		Loss		Value		Cost		Gain		Loss		Value
	(In millions)								(In millions)
Certificates of deposit									$	0.6	$	—	$	—	$	0.6
Commercial paper										1.5		—		—		1.5
Corporate notes	$	8.8	$	—	$	—	$	8.8		1.3		—		—		1.3

Government notes		1.2		—		—		1.2

Total short-term investments and available for sale securities	$	10.0	$	—	$	—	$	10.0	$	3.4	$	—	$	—	$	3.4

Note D — Accumulated Other Comprehensive Income (Loss) and Comprehensive Income (Loss)

The changes in components of our accumulated other comprehensive income (loss) during the ~~two~~three quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006~~March 30, 2007 were as follows:

Short-Term
Investments Total
and Accumulated
Foreign Available Other
Currency Hedging for Sale Comprehensive
Translation Derivatives Securities Income (Loss)
(In millions)
Balance at June 29, 2007 $ — $ — $ — $ —
Foreign currency translation 5.8 — — 5.8

Balance at December 28, 2007 $ 5.8 $ — $ — $ 5.8

Balance at June 30, 2006 $ (1.5 ) $ 0.1 $ — $ (1.4 )
Foreign currency translation (3.4 ) — — (3.4 )

Balance at December 29, 2006 $ (4.9 ) $ 0.1 $ — $ (4.8 )


							Short-Term
							Investments		Total
							and		Accumulated
	Foreign						Available		Other
	Currency			Hedging			for Sale		Comprehensive
	Translation			Derivatives			Securities		Income (Loss)
	(In millions)
Balance at June 29, 2007	$	—		$	—		$	—	$	—
Changes in accumulated other comprehensive income (loss)		4.9			(0.7	)		—		4.2

Balance at March 28, 2008	$	4.9		$	(0.7	)	$	—	$	4.2


Balance at June 30, 2006	$	(1.5	)	$	0.1		$	—	$	(1.4	)
Changes in accumulated other comprehensive income (loss)		(4.1	)		(0.2	)		—		(4.3	)

Balance at March 30, 2007	$	(5.6	)	$	(0.1	)	$	—	$	(5.7	)

Total comprehensive income (loss) for the quarters and three quarters ended ~~December~~March 28, 2008 and March 30, 2007 ~~and December 29, 2006 was~~is comprised of the following:

Quarter Ended Two Quarters Ended
December 28, December 29, December 28, December 29,
2007 2006 2007 2006
(In millions)
Net (loss) income $ (1.0 ) $ 5.8 $ (1.8 ) $ 10.6
Other comprehensive (loss) income:
Foreign currency translation 3.1 (3.7 ) 5.8 (3.4 )
Net unrealized gain (loss) on hedging activities (0.3 ) — — —

Total comprehensive income $ 1.8 $ 2.1 $ 4.0 $ 7.2


	Quarter Ended						Three Quarters Ended
	March 28,			March 30,			March 28,			March 30,
	2008			2007			2008			2007
	(In millions)
Net income (loss)	$	7.3		$	(23.2	)	$	5.5		$	(12.6	)
Other comprehensive income (loss):
Foreign currency translation		(0.9	)		(0.8	)		4.9			(4.1	)
Net unrealized loss on hedging activities		(0.7	)		(0.2	)		(0.7	)		(0.2	)

Total comprehensive income (loss)	$	5.7		$	(24.2	)	$	9.7		$	(16.9	)

Note E — Receivables

Our receivables are summarized below:


	December 28,			June 29,			March 28,			June 29,
	2007			2007			2008			2007
	(In millions)						(In millions)
Accounts receivable	$	212.5		$	190.5		$	203.3		$	190.5
Notes receivable due within one year — net		3.6			3.3			5.2			3.3

		216.1			193.8			208.5			193.8
Less allowances for collection losses		(8.5	)		(8.5	)		(9.5	)		(8.5	)

	$	207.6		$	185.3		$	199.0		$	185.3

Inc. These restructuring plans included the consolidation of facilities and operations of the predecessor entities in Canada, France, the U.S., China, Brazil and, to a lesser extent, Mexico, New Zealand and the United Kingdom.

In the second quarter of fiscal 2008, we recorded an additional $4.4 million of restructuring charges in connection with implementation of these fiscal 2007 plans. The cost of these plans as they related to reductions in force during the second quarter of fiscal 2008 consisted of retention, severance and other benefits totaling $0.9 million. We also recorded $1.1 million in restructuring charges relating to the impairment of a lease and $0.1 million relating to the write-off of fixed assets. These restructuring activities also resulted in scaled down operations and reduced activity in Brazil. This reduced activity in Brazil negatively affected the fair value of a recoverable value-added type tax (“ICMS”) included in “Other current assets” on the Company’s balance sheet. We recorded an impairment of $2.3 million in restructuring charges during the quarter ended December 28, 2007 relating to the reduction in fair value of ICMS tax recoverable in Brazil.

~~In the~~ first ~~two~~three quarters of fiscal 2008, we recorded an additional $8.4 million of restructuring charges in connection with implementation of these fiscal 2007 plans. The cost of these plans as they relate to the reductions in force during the first ~~two~~three quarters of fiscal ~~2007~~2008 primarily consisted ~~primarily~~ of retention, severance and other benefits totaling $3.4 million. ~~We also~~Additionally, during the first three quarters of fiscal 2008 we recorded $1.4 million in

restructuring charges related to the impairment of a lease and $1.9 million relating to the write-off of fixed assets and leasehold improvements. These restructuring activities also resulted in scaled down operations and reduced activity in Brazil. This reduced activity in Brazil negatively affected the fair value of a recoverable value-added type tax (“ICMS”) included in “Other current assets” on ~~the Company’s balance sheet.~~our Condensed Consolidated Balance Sheets (Unaudited). We also recorded an impairment of $2.3 million in restructuring charges during the ~~quarter ended December 28, 2007~~first three fiscal quarters of 2008 relating to the reduction in fair value of ICMS tax recoverable in Brazil. These charges to restructuring in the first ~~two~~three quarters of fiscal 2008 were partially offset by $0.3 million for the reduction in severance estimated to be paid in France and a $0.3 million reduction in the amount estimated to close out our restructuring liability in connection with our fiscal year 2006 restructuring plan to transfer our Montreal manufacturing activities to our San Antonio, Texas facility.

InDuring the third quarter of fiscal 2007, in connection with the Stratex acquisition on January 26, 2007, we recognized $12.0 million of restructuring liabilities representing the fair value of Stratex restructuring liabilities incurred prior to, and not related to, the acquisition as summarized in the table below. Those charges related to building lease obligations at four of ~~Stratex’s~~Stratex’ U.S. facilities.

In During the ~~two~~three quarters ended ~~December~~March 28, ~~2007,~~2008, we made payments of ~~$1.4~~$2.0 million on these leases, which reduced the liability by ~~$1.0~~$1.5 million, net of ~~$0.4~~$0.5 million in interest expense. Also during the ~~two~~three quarters ended ~~December~~March 28, ~~2007,~~2008, new information became available with regard to our utilization of the space under these building lease obligations and we reduced our restructuring liability by $1.1 million with an offsetting decrease to goodwill under purchase accounting.

The information in the following table summarizes our restructuring activity during the quarter ended ~~December~~March 28, ~~2007~~2008 and the remaining restructuring liability as of ~~December~~March 28, ~~2007.~~2008.

Severance Facilities
and and
Benefits Other Total
(In millions)
Restructuring liability at June 29, 2007 $ 7.8 $ 10.8 $ 18.6
Provision in the two quarters ended December 28, 2007 3.4 5.6 9.0
Release of accrual to statement of operations in the two quarters ended December 28, 2007 (0.6 ) — (0.6 )
Amount credited to goodwill in the two quarters ended December 28, 2007 — (1.1 ) (1.1 )
Other adjustments to liability, including foreign currency translation during the period 0.6 — 0.6
Non-cash charges in the two quarters ended December 28, 2007 — (4.1 ) (4.1 )
Cash payments in the two quarters ended December 28, 2007 (5.0 ) (1.6 ) (6.6 )

Restructuring liability at December 28, 2007 $ 6.2 $ 9.6 $ 15.8

Current portion of restructuring liability at December 28, 2007 $ 6.2 $ 3.6 9.8
Long-term portion of restructuring liability at December 28, 2007 — 6.0 6.0

Total restructuring liability at December 28, 2007 $ 6.2 $ 9.6 $ 15.8


	Severance			Facilities
	and			and
	Benefits			Other			Total
	(In millions)
Restructuring liability at June 29, 2007	$	7.8		$	10.8		$	18.6
Provision in the three quarters ended March 28, 2008		3.4			5.6			9.0
Release of accrual to statement of operations in the three quarters ended March 28, 2008		(0.6	)		—			(0.6	)
Amount credited to goodwill in the three quarters ended March 28, 2008		—			(1.1	)		(1.1	)
Other adjustments to liability, including foreign currency translation during the period		0.6			—			0.6
Non-cash charges in the three quarters ended March 28, 2008		—			(4.1	)		(4.1	)
Cash payments in the three quarters ended March 28, 2008		(7.7	)		(2.4	)		(10.1	)

Restructuring liability at March 28, 2008	$	3.5		$	8.8		$	12.3


Current portion of restructuring liability at March 28, 2008	$	3.5		$	3.2		$	6.7
Long-term portion of restructuring liability at March 28, 2008		—			5.6			5.6

Total restructuring liability at March 28, 2008	$	3.5		$	8.8		$	12.3

Our fiscal year 2007 restructuring plans are expected to be fully implemented by ~~March 28,~~June 27, 2008. The following table summarizes our costs incurred through ~~December~~March 28, ~~2007 and costs expected to be incurred~~2008 for our fiscal 2007 restructuring plans:


													Total Costs
			Total Costs										Incurred During		Cumulative				Total
			Incurred During		Cumulative						Total Costs		the Three		Costs				Restructuring
	Total Costs		the Two Quarters		Costs Incurred				Total		Incurred		Quarters		Incurred		Estimated		Costs
	Incurred through		Ended		through		Estimated		Restructuring		through		Ended		through		Additional		Expected
	June 29,		December 28,		December 28,		Additional Costs		Costs Expected		June 29,		March 28,		March 28,		Costs		to be
	2007		2007		2007		to be Incurred		to be Incurred		2007		2008		2008		to be Incurred		Incurred
					(In millions)						(In millions)
North America Microwave:
Severance and benefits	$	5.1	$	2.8	$	7.9	$	0.6	$	8.5	$	5.1	$	2.8	$	7.9	$	0.3	$	8.2
Facilities and other		—		3.2		3.2		—		3.2		—		3.2		3.2		—		3.2

Total North America Microwave	$	5.1	$	6.0	$	11.1	$	0.6	$	11.7	$	5.1	$	6.0	$	11.1	$	0.3	$	11.4


International Microwave:
Severance and benefits	$	4.2	$	0.1	$	4.3	$	—	$	4.3	$	4.2	$	0.1	$	4.3	$	—	$	4.3

Facilities and other		—		2.3		2.3		—		2.3		—		2.3		2.3		—		2.3

Total International Microwave	$	4.2	$	2.4	$	6.6	$	—	$	6.6	$	4.2	$	2.4	$	6.6	$	—	$	6.6

Totals	$	9.3	$	8.4	$	17.7	$	0.6	$	18.3	$	9.3	$	8.4	$	17.7	$	0.3	$	18.0

Note L — Share-Based Compensation

Compensation expense for share-based awards was ~~$1.9~~$2.0 million and ~~$0.3~~$1.4 million for the quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006.~~March 30, 2007. Compensation expense for share-based awards was ~~$4.3~~$6.3 million and ~~$0.7~~$2.1 million for the ~~two~~three quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006.~~March 30, 2007. Amounts were included in our ~~consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations (Unaudited) as follows:


	Quarter Ended				Two Quarters Ended				Quarter Ended				Three Quarters Ended
	December 28,		December 29,		December 28,		December 29,		March 28,		March 30,		March 28,		March 30,
	2007		2006		2007		2006		2008		2007		2008		2007
			(In millions)						(In millions)
Cost of product sales and services	$	0.5	$	—	$	0.7	$	—	$	0.3	$	0.1	$	0.9	$	0.1

Research and development expenses		0.2		—		0.7		—		0.4		0.5		1.1		0.5

Selling and administrative expenses		1.2		0.3		2.9		0.7		1.3		0.8		4.3		1.5

Total compensation expense	$	1.9	$	0.3	$	4.3	$	0.7	$	2.0	$	1.4	$	6.3	$	2.1

Revenue and income (loss) ~~income~~ before income taxes by segment are as follows:


	Quarter Ended						Two Quarters Ended						Quarter Ended						Three Quarters Ended
	December 28,			December 29,			December 28,			December 29,			March 28,			March 30,			March 28,			March 30,
	2007			2006			2007			2006			2008			2007			2008			2007
				(In millions)									(In millions)
Revenue
North America Microwave	$	63.8		$	58.7		$	120.4		$	108.6		$	56.9		$	48.9		$	177.3		$	157.5
International Microwave		110.8			37.5			220.0			76.7			117.1			84.9			337.1			161.6
Network Operations		6.5			5.0			13.0			9.5			4.2			5.2			17.2			14.7

Total Revenue	$	181.1		$	101.2		$	353.4		$	194.8		$	178.2		$	139.0		$	531.6		$	333.8

(Loss) Income Before Income Taxes
Segment Operating (Loss) Income:

Income (Loss) Before Income Taxes
Segment Operating Income (Loss):
North America Microwave (1)	$	0.6		$	5.6		$	(1.1	)	$	8.6		$	3.9		$	1.3		$	2.8		$	9.9
International Microwave (2)		(2.0	)		2.3			(2.1	)		5.9			5.6			(24.0	)		3.5			(18.2	)
Network Operations		0.6			0.1			1.4			0.4			(0.3	)		0.3			1.1			0.7
Corporate allocations expense from Harris		—			(1.8	)		—			(3.4	)		—			(0.3	)		—			(3.7	)

Net interest expense		(0.4	)		(0.1	)		(0.4	)		(0.2	)		(0.4	)		(0.2	)		(0.8	)		(0.3	)

(Loss) income before provision for income taxes	$	(1.2	)	$	6.1		$	(2.2	)	$	11.3
Income (loss) before provision for income taxes													$	8.8		$	(22.9	)	$	6.6		$	(11.6	)


(1)		During the quarter ~~and two quarters~~ ended ~~December~~March 28, ~~2007,~~2008, we recorded $0.7 ~~million and $1.3~~ million in amortization of developed technology, tradenames, customer relationships, and non-compete agreements, $0.3 ~~million and $0.5~~ million in amortization of the step-up in the fair value of fixed assets related to the acquisition of Stratex, ~~$4.3 million and $8.1 million in restructuring charges, $1.1 million and $2.1~~$0.3 million in merger-related integration charges, ~~$0.1~~and $1.9 million ~~and $0.9 million~~ in ~~charges for impairment of a lease agreement and $1.8 million and $4.1 million in FAS 123R~~ share-based compensation in our North America Microwave segment. ~~Additionally, we recorded $1.9 million for inventory markdowns during the quarter ended December 28, 2007.~~

~~(2)~~		During the ~~quarter and two~~three quarters ended ~~December~~March 28, ~~2007,~~2008, we recorded ~~$2.9 million and $5.9~~$2.0 million in amortization of developed technology, tradenames, customer relationships, and non-compete agreements, ~~$0.4 million and $0.9~~$0.8 million in amortization of the step-up in the fair value of fixed assets related to the acquisition of Stratex, ~~$0.1 million and $0.3~~$8.1 million in restructuring charges, ~~$2.1~~$2.4 million in merger related integration charges, $6.0 million in share-based compensation, $1.9 million for inventory markdowns, and $0.9 million for an impaired lease in our North America Microwave segment.

		During the quarter and three quarters ended March 30, 2007, we recorded $0.3 million write-off of a portion of the fair value adjustments related to inventory and fixed assets and $0.9 million amortization of developed technology, tradenames, customer relationships, contract backlog and non-competition agreements. Additionally, for the quarter and three quarters ended March 30, 2007 we recorded $1.3 million and ~~$3.9~~$2.3 million of charges related principally to restructuring and integration activities undertaken in connection with the merger in our North America Microwave segment.

(2)		During the quarter ended March 28, 2008, we recorded $3.0 million in amortization of developed technology, tradenames, customer relationships, and non-compete agreements, $0.4 million in amortization of the step-up in the fair value of fixed assets related to the acquisition of Stratex, $0.6 million in merger related integration charges, and $0.1 million ~~and $0.2 million~~ in ~~FAS 123R~~ share-based compensation in our International Microwave segment. ~~Additionally,~~

		During the three quarters ended March 28, 2008, we recorded $8.9 million in amortization of developed technology, tradenames, customer relationships, and non-compete agreements, $1.3 million in amortization of the step-up in the fair value of fixed assets related to the acquisition of Stratex, $0.3 million in restructuring charges, $4.5 million in merger related integration charges, and $0.3 million in share-based compensation in our International Microwave segment and $1.8 million for inventory ~~markdowns during~~markdowns.

		During the quarter and three quarters ended ~~December 28, 2007.~~March 30, 2007, we recorded $15.3 million write off of in-process research and development, $5.6 million write-off of a portion of the fair value adjustments related to inventory and fixed assets, $3.2 million amortization of developed technology, tradenames, customer relationships, contract backlog and non-competition agreements, and $2.2 million of charges related to integration activities undertaken in connection with the merger in our International Microwave segment.

Note N — Income Taxes

The income tax ~~benefit for the first two quarters of fiscal 2008~~expense reflects our pre-tax ~~loss~~income and is based on our estimated fiscal 2008 annual effective tax rate. The income tax ~~benefit~~provision on pre-tax income for the quarter and three quarters ended March 28, 2008 was $1.5 million and $1.1 million.

The income tax expense on the pre-tax loss for the quarter and ~~two~~three quarters ended ~~December 28,~~March 30, 2007 was ~~$0.2~~$0.3 million and ~~$0.4~~$1.0 million. The variation between income taxes and income tax expense at the U.S. statutory rate of ~~35 percent~~35% is primarily due to the consolidation of our foreign operations, which are subject to income taxes at lower statutory rates.

The ~~income~~effective tax ~~provision on pre-tax income for~~rate in the quarter and ~~two~~three quarters ended ~~December 29, 2006~~March 30, 2007 was ~~$0.3 million and $0.7 million based upon an allocation of~~also impacted by favorable tax ~~expense from Harris Corporation.~~

We adopted the provisions of FIN 48 on June 30, 2007. FIN 48 prescribes a comprehensive model for financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expectedadjustments recorded in purchase accounting offset by unfavorable carve-out adjustments attributable to ~~be taken in income tax returns. As a result of adopting FIN 48, we recorded a decrease in retained earnings of less than $0.1 million and a corresponding increase to tax liabilities.~~MCD.

As of ~~December~~March 28, ~~2007~~2008 and June ~~30,~~29, 2007, we had a liability for unrecognized tax benefits of ~~$28.4~~$27.5 million and $28.1 million for various federal, foreign, and state income tax matters. Unrecognized tax benefits decreased by $0.6 million a majority of which was recorded as a reduction to our valuation allowance. The adoption of FIN 48 resulted in a reclassification of deferred tax asset items which included a full valuation allowance, as well as goodwill for appropriate balance sheet presentation. If the unrecognized tax benefits associated with these positions are ultimately recognized, ~~ultimately,~~ they would not have a material impact on our effective tax rate or ~~our~~ financial position.

We account for interest and penalties related to unrecognized tax benefits as part of our provision for federal, foreign, and state income tax expense. We accrued an additional amount for such interest of less than $0.1 million in the quarter and ~~two~~three quarters ended ~~December~~March 28, 2007. No penalties have been accrued. We accrued less than $0.1 million at June ~~30,~~29, 2007 for the payment of any such interest.

We expect that the amount of unrecognized tax benefit may change in the next twelve months; however, it is not expected to have a significant impact on our results of operations, financial position or cash flows.

We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax jurisdictions include the U.S., Nigeria, Singapore, New Zealand, Poland, South Africa, France, and the UK. The earliest years still open and subject to ongoing audits as of the date of adoption of FIN 48 for these jurisdictions are as follows: (i) United States (Federal/State)—2003/2002; (ii) Nigeria—2003; (iii) Singapore—2000; (iv) New Zealand—2003; (v) Poland—2003; (vi) South Africa—2001; (vii) France—2005; and (viii) UK—2006.

Note O — Related Party Transactions with Harris

Prior to the Stratex acquisition, Harris provided information services, human resources, financial shared services, facilities, legal support and supply chain management services to us. The charges for those services were billed to us primarily based on actual usage. During the quarter and ~~two~~three quarters ended ~~December 29, 2006,~~March 30, 2007, Harris charged us ~~$1.5~~$1.6 million and ~~$3.2~~$4.7 million for those services.

On January 26, 2007, we entered into a Transition Services Agreement with Harris to provide for certain services during the periods subsequent to the Stratex acquisition. These services also are charged to us based primarily on actual usage and include database management, supply chain operating systems, eBusiness services, sales and service, financial systems, back office material resource planning support, HR systems, internal and information systems shared services support, network management and help desk support, and server administration and support. During the quarter and ~~two~~three quarters ended ~~December~~March 28, ~~2007,~~2008, Harris charged us $1.7 million and ~~$3.4~~$5.2 million for these services.

We have sales to, and purchases from, other Harris entities from time to time. Prior to January 26, 2007, the entity initiating the transaction sold to the other Harris entity at cost or transfer price, depending on jurisdiction. The entity making the sale to the end customer recorded the profit on the transaction above cost or transfer price, depending on jurisdiction. Subsequent to January 26, 2007, these purchases and sales are recorded at market price. Our sales to other Harris entities were ~~$3.7~~$1.5 million and ~~$0.9~~$2.3 million for the quarters ended ~~December~~March 28, 2008 and March 30, 2007 and ~~December 29, 2006 and $4.9~~$6.4 million and ~~$1.4~~$3.7 million for the ~~two~~three quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006.~~March 30, 2007. We also recognized costs associated with related party purchases from Harris of ~~$4.0 million~~zero and ~~$0.1~~$0.5 million for the quarters ended ~~December~~March 28, 2008 and March 30, 2007 and ~~December 29, 2006 and 4.6~~$4.6 million, and ~~$2.7~~$3.2 million for the ~~two~~three quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006.~~March 30, 2007.

Harris was the primary source of our financing and equity activities through January 26, 2007, the date of the Stratex acquisition. During the ~~two~~three quarters ended ~~December 29, 2006,~~March 30, 2007, Harris’ net investment in us increased by $8.5 million.

Additionally, through the date of the Stratex acquisition, Harris loaned cash to us to fund our international entities, and we distributed excess cash back to Harris. This arrangement ended on January 26, 2007. We recognized interest income and expense on these loans. The amount of interest income and expense for the quarter and ~~two~~three quarters ended ~~December 29, 2006~~March 30, 2007 was not significant.

The unpaid amounts billed from Harris are included within “Due to Harris Corporation” on ~~the condensed consolidated balance sheets.~~our Condensed Consolidated Balance Sheets (Unaudited). Additionally, we have other receivables and payables in the normal course of business with Harris. These amounts are netted within “Due to Harris Corporation” on ~~the condensed consolidated balance sheets.~~our Condensed Consolidated Balance Sheets (Unaudited). Total receivables from Harris were ~~$1.8~~$4.2 million and $0.7 million at ~~December~~March 28, ~~2007~~2008 and June 29, 2007. Total payables to Harris were ~~$18.0~~$24.7 million and $17.9 million at ~~December~~March 28, ~~2007~~2008 and June 29, 2007.

Prior to January 26, 2007, MCD used certain assets in Canada owned by Harris that were not contributed to us as part of the Combination Agreement. We continue to use these assets in our business and, on January 26, 2007, we entered into a five-year lease agreement with Harris for these assets. This agreement is a capital lease under generally accepted accounting principles with an initial lease obligation balance of $5.9 million and the related asset amount is included in property, plant and equipment on our ~~balance sheet.~~Condensed Consolidated Balance Sheets (Unaudited).

During the first quarter of fiscal 2008, we recognized an impairment charge of $1.3 million on a portion of these assets which is included in our restructuring charges. We also recognized an increase of $0.4 million to the lease obligation balance during the ~~quarter~~three quarters ended ~~December~~March 28, ~~2007~~2008 from a recapitalization under the lease terms, primarily because of the impairment charge discussed above and a rescheduling of the lease payments. Quarterly lease payments are due to Harris based on the amount of ~~103 percent~~103% of Harris’ annual depreciation calculated in accordance with U.S. generally accepted accounting principles. Our depreciation expense on this capital lease was ~~$0.5~~$0.3 million and ~~$0.9~~$1.2 million during the quarter and ~~two~~three quarters ended ~~December~~March 28, ~~2007.~~2008.

During the first ~~quarter~~three quarters of fiscal 2008, we paid Harris ~~$2.0~~$3.2 million under this capital lease obligation resulting from the $1.3 million impairment discussed above and the principal payments. As of ~~December~~March 28, ~~2007,~~2008, our total capital lease obligation to Harris was ~~$4.3~~$3.2 million.

Note P — Net Income per Share of Class A and Class B Common Stock

We compute net income per share of Class A and Class B common stock in accordance with Statement of Financial Accounting Standards No. 128 “Earnings per Share” (“Statement 128”) using the two class method. Under the provisions of Statement 128, basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.

The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are substantially similar. However, the holders of Class B common stock have the sole and exclusive right to elect or remove the Class B directors, who currently number five of the nine members of our board of directors. Further, our restated certificate of incorporation cannot be amended or replaced to adversely affect the rights of the holders of Class B common stock or to approve a new issuance of Class B common stock without the approval of the holders of a majority of Class B common stock. At any time each holder may exchange the holder’s shares of Class B common stock for an equal number of shares of Class A common stock at the holder’s option. Under certain circumstances, each share of Class B common stock will convert automatically into one share of Class A common

stock. The holders of Class B common stock have the right to preserve their proportionate interest in the company by participating in any issuance of capital stock by the company other than issuances pursuant to stock option or similar employee benefit plan. As a result, and in accordance with EITF 03-6,Participating Securities and the Two-Class Method under FASB Statement No. 128,the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as we assume the conversion of Class B common stock in the computation of the diluted net income per share of Class A common stock, the undistributed earnings are equal to net income for that computation.

The following table sets forth the computation of basic and diluted net income per share of Class A and Class B common stock for the quarter and three quarters ended March 28, 2008:


	Quarter Ended						Three Quarters Ended
	March 28,						March 28,
	2008						2008
	(In millions, except per common share amounts)
	Class A			Class B			Class A			Class B
Basic net income per share:
Numerator:
Allocation of undistributed earnings	$	3.2		$	4.1		$	2.4		$	3.1
Denominator:
Weighted average common shares outstanding		25.5			32.9			25.5			32.9

Basic net income per share	$	0.1249		$	0.1249		$	0.0949		$	0.0949


Diluted net income per share:
Numerator:
Allocation of undistributed earnings for basic computation	$	3.2		$	4.1		$	2.4		$	3.1
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares		4.1			—			3.1			—
Change in fair value of warrants, net of tax		(2.1	)		—			(2.7	)		—
Reallocation of undistributed earnings to Class B shares		—			(1.2	)		—			(1.5	)

Allocation of undistributed earnings		5.2			2.9			2.8			1.6
Denominator:
Number of shares used in basic computation		25.5			32.9			25.5			32.9
Weighted average effect of dilutive securities – add:
Conversion of Class B to Class A common shares outstanding		32.9			—			32.9			—
Stock options		0.2			—			0.3			—
Warrants		0.1			—			0.2			—

Number of shares used in per share computations		58.7			32.9			58.9			32.9

Diluted net income per share	$	0.0888		$	0.0888		$	0.0484		$	0.0484

We excluded 2.4 million shares for both the quarter and three quarters ended March 28, 2008 attributable to outstanding stock options from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. The net income per share amounts are the same for Class A and Class B because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. Diluted earnings per share is not presented for the quarter and three quarters ended March 30, 2007 due to a net loss in both periods.

Note Q — Legal Proceedings

On February 8, 2007, a court order was entered against Stratex do Brasil, a subsidiary of Harris Stratex Networks Operating Company, in Brazil, to enforce performance of an alleged agreement between the former Stratex Networks, Inc. entity and a supplier. We have not determined what, if any, liability this may result in, as the court did not award any damages. We have appealed the decision to enforce the alleged agreement, and do not expect this litigation to have a material adverse effect on our business, operating results or financial condition.

From time to time, we may be involved in various legal claims and litigation that arise in the normal course of our operations. While the results of such claims and litigation cannot be predicted with certainty, we currently believe that we are not a party to any litigation the final outcome of which is likely to have a material adverse effect on our financial position, results of operations or cash flows. However, should we not prevail in any such litigation; it could have a materially adverse impact on our operating results, cash flows or financial position.

Note R — Subsequent Event – Transition of Chief Executive Officer

Our Board of Directors has appointed Harald J. Braun as President and Chief Executive Officer of the Company, effective April 8, 2008. Our Class B Directors, joined by all Class A Directors, have also appointed Mr. Braun as a Class B Director. In connection with the appointment of his successor, Guy M. Campbell, who previously had announced his retirement at the end of the current fiscal year, submitted his resignation as President and Chief Executive Officer and a Class B Director, effective April 8, 2008. Mr. Campbell has agreed to remain as a senior advisor and employee of the Company until June 27, 2008.

During the fourth quarter of fiscal 2008, we expect to record a charge of approximately $2.0 million for separation payments, recruiting fees and other related expenses in connection with this management transition.

1518

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Harris Stratex Networks, Inc.

We have reviewed the condensed consolidated balance sheet of Harris Stratex Networks, Inc. and subsidiaries as of ~~December~~March 28, ~~2007,~~2008, the related condensed consolidated statements of operations for the quarter and ~~two~~three quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006,~~March 30, 2007, and the condensed consolidated statements of cash flows for the ~~two~~three quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006.~~March 30, 2007. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Harris Stratex Networks, Inc. and subsidiaries as of June 29, 2007, and the related consolidated statements of operations and cash flows for the year then ended, not presented herein, and in our report dated August 16, 2007, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 29, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Raleigh, North Carolina
~~February 1,~~

May 2, 2008

1619

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which include, without limitation, statements about the market for our technology, our strategy and competition. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. For example, the words ~~“believes”, “anticipates”, “plans”, “expects”,~~“believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed below under the discussions of “Risk Factors” set forth in our annual report onForm 10-K filed with the Securities and Exchange Commission on August 27, 2007. All ~~forward looking~~forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements.

Acquisition of Stratex Networks, Inc. and Combination with MCD

On January 26, 2007, Harris Stratex Networks, Inc. (the “Company,” “HSTX,” “Harris Stratex,” “we,” “us” and “our”) completed its merger (the “Stratex acquisition”) with Stratex Networks, Inc. (“Stratex”) pursuant to a Formation, Contribution and Merger Agreement among Harris, Stratex, and Stratex Merger Corp., as amended and restated on December 18, 2006 and amended by letter agreement on January 26, 2007. In the transaction, Stratex Merger Corp., a wholly-owned subsidiary of the Company, merged with and into Stratex with Stratex as the surviving corporation (renamed as “Harris Stratex Networks Operating Corporation”). Concurrently with the merger of Stratex and Stratex Merger Corp. (the “merger”), Harris contributed the Microwave Communications Division (“MCD”), along with $32.1 million in cash (comprised of $26.9 million contributed on January 26, 2007 and $5.2 million held by the Company’s foreign operating subsidiaries on January 26, 2007) to the Company and the Company assumed the liabilities (with certain exceptions) of MCD (the “contribution transaction”).

Pursuant to the merger, each share of Stratex common stock was converted into one-fourth of a share of our Class A common stock, and a total of 24,782,153 shares of our Class A common stock were issued to the former holders of Stratex common stock. In the contribution transaction, Harris contributed the assets of MCD, along with $32.1 million in cash, and in exchange, we assumed certain liabilities of Harris related to MCD and issued 32,913,377 shares of our Class B common stock to Harris. As a result of these transactions, Harris owned approximately ~~57 percent~~57% and the former Stratex shareholders owned approximately ~~43 percent~~43% of our total outstanding stock immediately following the closing.

We completed the Stratex acquisition to create a leading global communications solutions company offering end-to-end wireless transmission solutions for mobile and fixed-wireless service providers and private networks.

The Stratex acquisition was accounted for as a purchase business combination, with MCD considered the acquiror for accounting purposes. Thus, the historical results discussed herein for periods prior to January 26, 2007 represent the separate financial results of MCD on a carve-out basis. Total consideration paid by us was approximately $493.1 million as summarized in the following table:


			January 26,
			2007
			(In millions)
Calculation of Allocable Purchase Price	January 26, 2007
	(In millions)
Value of Harris Stratex Networks shares issued to Stratex Networks stockholders	$	464.9	$	464.9
Value of Stratex Networks vested options assumed		15.5		15.5
Acquisition costs		12.7		12.7

Total allocable purchase price	$	493.1	$	493.1

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

	•		Business Considerations — a general description of our businesses; the drivers of these businesses and our strategy for achieving value and key indicators that are relevant to us in the microwave communications industry.

	•		Operations Review — an analysis of our consolidated results of operations and of the results in each of its three operating segments, to the extent the operating segment results are helpful to gaining an understanding of our business as a whole.

	•		Liquidity, Capital Resources and Financial Strategies — an analysis of cash flows, contractual obligations, off-balance sheet arrangements, commercial commitments, financial risk management, impact of foreign exchange and impact of inflation.

	•		Critical Accounting Policies and Estimates — a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by us and their potential impact.

Business Considerations

General

Prior to the merger and the contribution transaction, MCD was a leading global provider of turnkey wireless transmission solutions and comprehensive network management software, with an extensive services suite. With innovative products and a broad portfolio, MCD was a market share leader in North America and a top-tier provider in international markets, most notably in the growing Middle East/Africa region. Stratex ~~Networks~~ was a leading provider of innovative wireless transmission solutions to mobile wireless carriers and data access providers around the world. As a result of the combination of the two historical businesses, Harris Stratex was formed and has become a leading independent wireless networks solutions provider, focused on delivering 1) microwave digital radio and other communications products, systems and professional services for private network operators and mobile telecommunications providers; and 2) turnkey end-to-end network management and service assurance solutions for broadband and converged networks. Our three segments serve markets for microwave products and services in North America Microwave, International Microwave and network management software solutions worldwide or Network Operations. All of our revenue, income and cash flow are derived from the sale of these products, systems, software and services. We generally sell directly to the end customer. However, to extend our global footprint and maximize our penetration in certain markets, we sometimes sell through agents, resellers and/or distributors, particularly in international markets.

Our mission statement is: “Harris Stratex Networks offers the most reliable, flexible, scalable, and easy to use wireless network solutions in the world for mobile, government and private networks. Every day, we build lasting customer relationships, grow our company and build new value for our shareholders by listening to our customers, delivering innovative products matched to market demand and offering superior service and quality. We’re committed to helping customers meet their competitive demands by building new wireless networks, upgrading existing networks and providing complete professional services.”

Drivers of Harris Stratex Businesses and Strategy for Achieving Value

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

	•		Achieving profitable revenue growth in all segments;

	•		Focusing on operating efficiencies and cost reductions; and

	•		Maintaining an efficient capital structure.

Achieving Profitable Revenue Growth in All Segments

We are a global provider of wireless transmission networks solutions. We focus on capitalizing on our strength in the North American market by continuing to win opportunities with wireless telecommunications providers as well as federal, state and other private network operators. ~~Growth~~We believe that our growth opportunities will come from network and capacity expansion and the evolution to IP networking in both the public and private segments. Other growth drivers for our business segments include the emergingtriple-playservices (voice, data and video) market in the public sector, the trend towards network hardening and interoperability for public safety and disaster response agencies and the

FCC directive to relocate frequency bands in the 2 GHz range to open up spectrum for ~~Advanced Wireless Services.~~advanced wireless services. Wireless transmission systems are particularly well-suited to meet increasing demand for high-reliability, high-bandwidth networks that are more secure and better protected against natural and man-made disasters.

We are focused on increasing international revenue by offering innovative new products and expanding regional sales channels to capture greenfield network opportunities. We also focus on two major evolutionary trends in the global communications market by 1) penetrating large regional mobile telecom operators to participate in network expansion and new third-generation (“3G”) network opportunities; and 2) enabling the migration to Internet Protocol (IP) networking in both the public and private segments by providing both IP-enabled and IP-centric wireless transmission solutions.

We offer a broad range of engineering and other professional services for network planning, systems architecture design and project management as a global competitive advantage. We will expand our Network Operations offerings in microwave and non-microwave opportunities to create a differentiator for our total solutions offerings.

~~Backlog~~

The backlog of unfilled orders was $230 million at December 28, 2007 compared with $232 million at July 27, 2007. Substantially all of this backlog is expected to be filled during calendar year 2008, but we can give no assurance of such fulfillment. Product orders in our current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. Accordingly, although useful for scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period because of the timing of orders, delivery intervals, customer and product mix and the possibility of changes in delivery schedules and additions or cancellations of orders.

Focusing on Operating Efficiencies and Cost Reductions

The principal areas of focus for operating efficiencies and cost management are: 1) reducing procurement costs through an emphasis on coordinated supply chain management; 2) reducing product costs through dedicated value engineering resources focused on product value engineering; 3) improving manufacturing efficiencies across all segments; and 4) optimizing facility utilization.

Maintaining an Efficient Capital Structure

Our capital structure is intended to optimize our cost of capital. We believe a 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 ~~$83.0~~$100.4 million in cash, cash equivalents, short-term investments and available for sale securities as of ~~December~~March 28, ~~2007.~~2008.

Key Indicators

We believe our key drivers, when fully implemented, will improve key indicators such as: revenue, gross margin, net income and operating cash flows.

1922

Gross Margin


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	178.2		$	139.0			28.2	%
Cost of product sales and services	$	(125.2	)	$	(103.0	)		21.6	%
Gross margin	$	53.0		$	36.0			47.2	%
% of revenue		29.7	%		25.9	%

Our third quarter fiscal 2008 gross margin was $53.0 million, or 29.7% of revenue, compared with $36.0 million, or 25.9% of revenue in the third quarter of fiscal 2007. Our third quarter fiscal 2008 gross margin was reduced by $1.8 million of amortization on developed technology, and $0.2 million of amortization of the fair value of adjustments for fixed assets acquired from Stratex. Our third quarter fiscal 2007 gross margin was reduced by $1.2 million of amortization on developed technology and $5.6 million write-off of a portion of the fair value adjustments related to inventory and fixed assets.

After consideration of the purchase accounting adjustments discussed in the previous paragraph, gross margin percentage for the third quarter of fiscal 2008 was flat when compared with the third quarter of fiscal 2007, after consideration of purchase accounting adjustments in both periods. Gross margin percentage continued to be adversely affected by increased freight costs in the third quarter of fiscal 2008 and by the product mix in the International Microwave segment. Our total gross margin increased in the third quarter fiscal 2008 compared with the third quarter of fiscal 2007 primarily due to higher revenue.

Research and Development Expenses


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	178.2		$	139.0			28.2	%
Research and development expenses	$	11.5		$	11.1			3.6	%
% of revenue		6.5	%		8.0	%

Research and development (“R&D”) expenses were $11.5 million in the third quarter of fiscal 2008, compared with $11.1 million in the third quarter of fiscal 2007. As a percent of revenue, these expenses decreased from 8.0% in the third quarter of fiscal 2007 to 6.5% in the third quarter of fiscal 2008 due to higher revenue. The increase in R&D expense was attributable to higher spending in the third quarter of fiscal 2008 related to our TRuepoint 6000 development efforts.

Selling and Administrative Expenses


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	178.2		$	139.0			28.2	%
Selling and administrative expenses	$	30.4		$	27.7			9.7	%
% of revenue		17.1	%		20.0	%

Our third quarter fiscal 2008 selling and administrative (“S&A”) expenses increased to $30.4 million from $27.7 million in the third quarter of fiscal 2007. As a percentage of revenue, these expenses decreased from 20.0% of revenue in the third quarter of fiscal 2007 to 17.1% of revenue in the third quarter of fiscal 2008. The decline in percentage of revenue during the third quarter of fiscal 2008 was primarily due to a $2.5 million gain on change in fair value of warrants classified in S&A expenses with none recorded in the third quarter of fiscal 2007 and the increase in revenue. The majority of the increase in spending in the third quarter of fiscal 2008 compared with the third quarter of fiscal 2007 came from S&A expenses associated with the former Stratex business. The remainder of the increase resulted from higher selling expenses associated with the increase in revenue, and increased costs incurred for compliance with Sarbanes-Oxley requirements. We anticipate that the total cost of compliance with the

Sarbanes-Oxley internal control review and attestation process will approximate $3.0 million in fiscal 2008.

Income Taxes


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Income (loss) before income taxes	$	8.8		$	(22.9	)		N/M
Income tax provision	$	(1.5	)	$	(0.3	)		N/M
% of Income (loss) before income taxes		17.0	%		(1.3	)%

The income tax expense of $1.5 million for the third quarter of fiscal 2008 reflected our pre-tax income based on our estimated annual effective tax rate. The variation between income taxes and income tax expense at the statutory rate of 35% was primarily due to the consolidation of our foreign operations, which are subject to income taxes at lower statutory rates.

The effective tax rate in the quarter ended March 30, 2007 of 1.3% was impacted by favorable tax adjustments recorded in purchase accounting offset by unfavorable carve-out tax adjustments attributable to MCD. A deferred tax liability in the amount of $16.4 million was recognized in accordance with Statement 109 for the difference between the assigned values for purchase accounting purposes and the tax bases of the assets and liabilities acquired as a result of the Stratex acquisition. The offset was recorded as an increase to goodwill.

Discussion of Business Segments

North America Microwave Segment


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	56.9		$	48.9			16.4	%
Segment operating income	$	3.9		$	1.3			200.0	%
% of revenue		6.9	%		2.7	%

North America Microwave segment revenue increased by $8.0 million or 16.4% from the third quarter of fiscal 2007 to the third quarter of fiscal 2008. Revenue for the third quarters of fiscal 2008 and fiscal 2007 included $6.9 million and $1.4 million from sales of former Stratex products and services. Revenue drivers in the North America Microwave segment included customer demand for increased bandwidth, footprint expansion and the relocation of advanced wireless services to the 2 gigahertz spectrum by mobile operators.

Our third quarter fiscal 2008 operating income was reduced by the following amounts related to the acquisition of Stratex and our restructuring plans: $0.3 million for amortization of the fair value adjustments for fixed assets, $0.7 million for amortization of developed technology, trade names, customer relationships, and non-compete agreements and $0.3 million of integration expenses undertaken in connection with the merger.

Operating income for this segment for the third quarter of fiscal 2007 was reduced by the following amounts related to the acquisition of Stratex: $0.3 million for amortization of a portion of the fair value adjustments related to fixed assets, for $0.9 million amortization of developed technology, tradenames, customer relationships, contract backlog and non-competition agreements and $1.3 million of charges related principally to restructuring and integration activities undertaken in connection with the merger.

During the third quarter of fiscal 2008 we also recorded $1.9 million in share-based compensation expense.in our North America Microwave segment compared with $1.4 million in the third quarter of fiscal 2007. Excluding the impact of the charges discussed above, the operating margin for our North America Microwave segment improved in the third quarter of fiscal 2008 compared with the third quarter of fiscal 2007 due to the higher gross margin generated by the higher revenue, partially offset by comparable levels of expenses.

International Microwave Segment


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	117.1		$	84.9			37.9	%
Segment operating income (loss)	$	5.6		$	(24.0	)		N/M
% of revenue		4.8	%		N/M

International Microwave segment revenue increased by $32.2 million or 37.9% in the third quarter of fiscal 2008 compared with the third quarter of fiscal 2007. Revenue in the third quarters of fiscal 2008 and fiscal 2007 included $86.7 million and $47.4 million from sales of former Stratex products and services. Excluding the impact of the revenue from Stratex products and services, our International Microwave segment revenue decreased by $7.1 million because of our transition to selling the former Stratex products.

International Microwave segment reported an operating income of $5.6 million for the third quarter of fiscal 2008 compared with an operating loss of $24.0 million for the third quarter of fiscal 2007. The operating income for the third quarter of fiscal 2008 reflected the following charges related to the acquisition of Stratex: $0.4 million for amortization of the fair value adjustments for fixed assets, $3.0 million for amortization of developed technology, tradenames, customer relationships, contract backlog and non-compete agreements, and $0.6 million of integration expenses associated with the merger. The operating loss for this segment for the third quarter of fiscal 2007 of $24.0 million included the following amounts related to the acquisition of Stratex: a $15.3 million write-off of in-process research and development, $5.6 million for amortization of a portion of the fair value adjustments related to inventory and fixed assets, $3.2 million amortization of developed technology, tradenames, customer relationships, contract backlog and non-competition agreements, and $2.2 million of charges related principally to integration activities undertaken in connection with the merger.

We also recorded $0.1 million in share-based compensation expense during the third quarter of fiscal 2008 in our International Microwave segment compared with zero in the third quarter of fiscal 2007.

Excluding the impact of the charges discussed above, the operating margin for our International Microwave segment improved in the third quarter of fiscal 2008 compared with the third quarter of fiscal 2007 due to the higher gross margin generated by the higher revenue, partially offset by comparable levels of expenses.

Network Operations Segment


							Percentage
	Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	4.2		$	5.2			(19.2	%)
Segment operating (loss) income	$	(0.3	)	$	0.3			(200.0	%)
% of revenue		(7.1	)%		5.8	%

Network Operations segment revenue decreased by 19.2% from the third quarter of fiscal 2007 to the third quarter of fiscal 2008 due to delays in customer orders. Consequently, this segment had an operating loss of $0.3 million in the third quarter of fiscal 2008 compared with operating income of $0.3 million in the third quarter of fiscal 2007.

Three Quarters Ended March 28, 2008 Compared with the Three Quarters Ended March 30, 2007

Revenue and Net Income (Loss)


							Percentage
	3Qs FY 08			3Qs FY 07			Increase/(Decrease)
	(In millions, except percentages)
Revenue	$	531.6		$	333.8			59.3	%
Net income (loss)	$	5.5		$	(12.6	)		N/M
% of revenue		1.0	%		N/M

N/M = Not statistically meaningful

3Qs FY = First three quarters of fiscal year

The results for the first three quarters of fiscal 2008 include the operations acquired in the Stratex acquisition for the entire period while the results for the first three quarters of fiscal 2007 included only the results of MCD prior to the merger. Historically, Stratex derived its revenues primarily from international markets.

Our revenue for the ~~second quarter~~first three quarters of fiscal 2008 was ~~$181.1~~$531.6 million, an increase of ~~$79.9~~$197.8 million or ~~79.0 percent,~~59.3%, compared towith the ~~second quarter~~first three quarters of fiscal 2007. Revenue in the ~~second quarter~~first three quarters of fiscal 2008 included ~~$91.3~~$253.3 million from sales of former Stratex products and ~~services.~~services compared with $48.8 million in the first three quarters of fiscal 2007. Excluding the impact of the Stratex acquisition, revenue declined ~~$11.4~~$6.7 million, primarily due to a decrease ~~in the International Microwave segment~~ in sales of the former MCD business products and ~~services. Revenue~~services in the ~~second quarter of fiscal 2008 included a significant amount of sales of the former Stratex products and services and fewer sales of products and services of the former MCD business.~~International Microwave segment. The Network Operations segment revenue increased by ~~$1.5~~$2.5 million in the ~~second quarter~~first three quarters of fiscal 2008 compared towith the ~~second quarter~~first three fiscal quarters of fiscal 2007, as this segment experienced increased demand for its service assurance solution with Next Generation Network customers.

Our ~~second quarter~~net income for first three quarters fiscal 2008 was $5.5 million compared with a net loss ~~was $1.0 million compared to net income~~ of ~~$5.8~~$12.6 million in the ~~second quarter~~first three quarters of fiscal ~~2007, which reflected only MCD’s historical operations.~~2007. The ~~second quarter fiscal~~net income in the three quarters ended March 28, 2008 and net loss ~~and second quarter fiscal~~in the three quarters ended March 30, 2007 ~~net income~~ included the following purchase accounting adjustments and other expenses related to the acquisition and integration of Stratex, ~~FAS 123R~~ share-based compensation expense and inventory markdowns:

Q2 FY 08 Q2 FY 07
(In millions)
Cost of integration activities undertaken in connection with the merger $ 3.2 $ 1.7
Amortization of the fair value adjustments related to fixed assets 0.7 —

Amortization of developed technology 1.7 —

Amortization of trade names, customer relationships and non-competition agreements 1.9 —

Restructuring charges 4.4 —

Lease impairment 0.1 —

FAS 123R share-based compensation expense 1.9 0.3

Inventory markdowns 3.7 —

Totals $ 17.6 $ 2.0

These charges were classified in either cost of product sales and services or selling and administrative expenses depending on the nature of the charge in the second quarter of fiscal 2008. Excluding these charges, our operations were profitable in the second quarter of fiscal 2008.


	3Qs FY		3Qs FY
	08		07
	(In millions)
Write-off of in-process research & development	$	—	$	15.3
Cost of integration activities undertaken in connection with the merger		6.9		3.9
Amortization of the fair value adjustments related to fixed assets and inventory		2.1		5.9
Amortization of developed technology		5.3		1.2
Amortization of trade names, customer relationships and non-competition agreements and backlog		5.6		3.0
Restructuring charges		8.4		1.3
Lease impairment		0.9		—
Share-based compensation expense		6.3		1.1
Inventory markdowns		3.7		—

Totals	$	39.2	$	31.7

During the ~~quarter~~three quarters ended ~~December~~March 28, ~~2007,~~2008, we continued the restructuring activities and plans approved in connection with the merger between MCD and Stratex. These restructuring plans included the consolidation of facilities and operations of the predecessor entities in Canada, France, the U.S., China, Brazil and, to a lesser extent, Mexico, New Zealand and the United Kingdom.

~~We recorded an additional $4.4 million of~~ These restructuring ~~charges in connection with implementation of these fiscal 2007 plans~~activities were completed during the ~~second~~third quarter of fiscal 2008. The costs related to reductions in force consisted of retention, severance and other benefits totaling $0.9 million. We also recorded $1.1 million in restructuring charges relating to the impairment of a lease and $0.1 million

relating to the write-off of fixed assets. These restructuring activities also resulted in scaled down operations and reduced activity in Brazil, which adversely affected the fair value of a recoverable value-added type tax (“ICMS”) included in “Other current assets” on the Company’s balance sheet. Consequently, we recorded an impairment of $2.3 million in restructuring charges during the quarter ended December 28, 2007 relating to the reduction in fair value of ICMS tax recoverable in Brazil.

~~We expect to fully implement our 2007 restructuring plans by March 28, 2008 and anticipate that we will incur additional restructuring costs of $0.6 million.~~

During the second quarter of fiscal 2008, we recorded a total of $3.7 million for inventory markdowns which have been classified in “Cost of product sales” on the Statement of Operations during the quarter ended December 28, 2007 in accordance with the guidance in Emerging Issues Task Force (“EITF”) Abstracts Issues No. 96-9 “Classification of Inventory Markdowns and Other Costs Associated with a Restructuring.”

~~Gross Margin~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 181.1 $ 101.2 79.0 %
Cost of product sales and services $ (131.8 ) $ (66.4 ) 98.5 %
Gross margin $ 49.3 $ 34.8 41.7 %
% of revenue 27.2 % 34.4 %

Our second quarter fiscal 2008 gross margin was $49.3 million, or 27.2 percent of revenue, compared to $34.8 million, or 34.4 percent of revenue in the second quarter of fiscal 2007. Our second quarter fiscal 2008 gross margin was reduced by $3.7 million in markdowns of inventory, $1.7 million of amortization on developed technology, $0.2 million of amortization of the fair value of adjustments for fixed assets acquired from Stratex and $0.9 million of merger integration costs. In the second quarter of fiscal 2007, we did not incur such costs. Gross margin increased in the second quarter fiscal 2008 primarily due to sales of former Stratex products and services (such as Eclipse) in our International Microwave segment and an increase in revenue from our Network Operations segment.

Our gross margin percentage in the second quarter of fiscal 2008 was comparatively lower than the gross margin percentage in the second quarter of fiscal 2007 because of the expenses described above and because our International Microwave segment revenue included a significant amount of the lower-margin, low-capacity version of Eclipse microwave radio sales in the second quarter of fiscal 2008. In addition, we experienced a shift in sales from the Africa and Europe, Middle East and Russia regions to the Latin America and Asia Pacific regions, where prices for our products and services are generally lower. Finally, we absorbed an increase in freight and service costs during the second quarter of fiscal 2008. We anticipate product mix and increased freight and service costs will continue to impact International Microwave segment gross margins to a similar extent for the remainder of fiscal year 2008.

~~Research and Development Expenses~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 181.1 $ 101.2 79.0 %
Research and development expenses $ 10.9 $ 8.3 31.3 %
% of revenue 6.0 % 8.2 %

Research and development (“R&D”) expenses were $10.9 million in the second quarter of fiscal 2008, compared to $8.3 million in the second quarter of fiscal 2007. As a percent of revenue, these expenses decreased from 8.2 percent in the second quarter of fiscal 2007 to 6.0 percent in the second quarter of fiscal 2008 due to higher revenue. The majority of the increase in spending in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was attributable to the R&D activities acquired from Stratex. Some of the increase was attributable to higher spending in the second quarter of fiscal 2008 related to our TRuepoint 6000 development efforts.

~~Selling and Administrative Expenses~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 181.1 $ 101.2 79.0 %
Selling and administrative expenses $ 32.9 $ 17.8 84.8 %
% of revenue 18.2 % 17.6 %

Our second quarter fiscal 2008 selling and administrative (“S&A”) expenses increased to $32.9 million from $17.8 million in the second quarter of fiscal 2007. As a percentage of revenue, these expenses increased from 17.6 percent of revenue in the second quarter of fiscal 2007 to 18.2 percent of revenue in the second quarter of fiscal 2008. The majority of the increase in spending in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was attributable to S&A expenses associated with the former Stratex business. The remainder of the increase was due to higher selling expenses associated with the increase in revenue, and increased costs incurred for compliance with Sarbanes-Oxley requirements. We anticipate that the total cost of compliance with Sarbanes-Oxley will be approximately $3.0 million in fiscal 2008.

~~Income Taxes~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
(Loss) income before income taxes $ (1.2 ) $ 6.1 N/M
Income tax benefit (provision) $ 0.2 $ (0.3 ) N/M
% of (loss) income before income taxes 16.7 % 4.9 %

The income tax benefit of $0.2 million for the second quarter of fiscal 2008 reflected our pre-tax loss based on our estimated annual effective tax rate. The variation between income taxes and income tax expense at the statutory rate of 35 percent was primarily due to the consolidation of our foreign operations, which are subject to income taxes at lower statutory rates.

~~The income tax provision for the second quarter of fiscal 2007 was $0.3 million and was based upon an allocation of tax expense from Harris.~~

~~Discussion of Business Segments~~

~~North America Microwave Segment~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 63.8 $ 58.7 8.7 %
Segment operating income $ 0.6 $ 5.6 (89.3 )%
% of revenue 0.9 % 9.5 %

North America Microwave segment revenue increased by $5.1 million or 8.7 percent from the second quarter of fiscal 2007 to the second quarter of fiscal 2008. Revenue for the second quarter of fiscal 2008 included $6.1 million from sales of former Stratex products and services. Revenue drivers in the North America Microwave segment include customer demand for increased bandwidth, footprint expansion and the 2 gigahertz microwave relocation for advanced wireless services from mobile operators.

Our second quarter fiscal 2008 operating income was reduced by the following amounts related to the acquisition of Stratex and our restructuring plans: $0.3 million amortization of the fair value adjustments for fixed assets, $0.7 million amortization of developed technology, trade names, customer relationships, and non-compete agreements, $4.3 million of restructuring charges, $0.1 million in charges for impairment of a lease agreement and $1.1 of integration expenses undertaken in connection with the merger. The North

~~America Microwave segment second quarter fiscal 2008 operating income was further reduced by $1.9 million of the markdowns of inventory discussed above.~~

We also recorded $1.8 million in FAS 123R share-based compensation expense during the second quarter of fiscal 2008 in our North America Microwave segment compared to $0.3 million in the second quarter of fiscal 2007.

~~International Microwave Segment~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 110.8 $ 37.5 195.5 %
Segment operating (loss) income $ (2.0 ) $ 2.3 (187.0 )
% of revenue (1.8 )% 6.1 %

International Microwave segment revenue increased by $73.3 million or 195.5 percent in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007. Revenue in the second quarter of fiscal 2008 included $85.2 million from sales of former Stratex products and services. Excluding the impact of the revenue from Stratex products and services, our International Microwave segment revenue decreased by $11.9 million as sales are transitioning to the products and services of the former Stratex business. International Microwave segment revenue in the second quarter of fiscal 2008 included a significant amount of sales of the former Stratex business and fewer sales of the former MCD business.

International Microwave segment had an operating loss of $2.0 million for the second quarter of fiscal 2008 compared to operating income of $2.3 million for the second quarter of fiscal 2007. The operating loss for the second quarter of fiscal 2008 reflected the following charges related to the acquisition of Stratex: $0.4 million amortization of the fair value adjustments for fixed assets, $2.9 million amortization of developed technology, tradenames, customer relationships, contract backlog and non-compete agreements, and $0.1 million of restructuring charges and $2.1 million of integration expenses associated with the merger. Our second quarter fiscal 2008 operating loss was further increased by $1.8 million of markdowns of inventory. In addition, we experienced a shift in sales from the Africa and Europe, Middle East and Russia regions to the Latin America and Asia Pacific regions, where prices for our products and services are generally lower. Finally, we absorbed an increase in freight and service costs during the second quarter of fiscal 2008. We anticipate product mix and freight and service costs will continue to impact International Microwave segment gross margins to a similar extent for the remainder of fiscal year 2008.

We also recorded $0.1 million in FAS 123R share-based compensation expense during the second quarter of fiscal 2008 in our International Microwave segment compared to none in the second quarter of fiscal 2007.

~~Network Operations Segment~~

Percentage
Q2 FY 08 Q2 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 6.5 $ 5.0 30.0 %
Segment operating income $ 0.6 $ 0.1 500.0 %
% of revenue 9.2 % 2.0 %

Network Operations segment revenue increased by 30 percent from the second quarter of fiscal 2007 to the second quarter of fiscal 2008. This segment had operating income of $0.6 million in the second quarter of fiscal 2008 compared to operating income of $0.1 million in the second quarter of fiscal 2007. Additionally, operating income as a percentage of sales increased to 9.2 percent in the second quarter of fiscal 2008 compared to 2.0 percent in the second quarter of fiscal 2007. The increase in revenue resulted primarily from an increase in software and license revenue in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007.

The Network Operations segment experienced increased demand in the second quarter of fiscal 2008 for its service assurance solution with Next Generation Network customers compared to the second quarter of fiscal 2007 as a result of new features and

functionality in our product offerings. The increase in second quarter fiscal 2008 operating income and as a percentage of revenue compared to second quarter fiscal 2007 was driven by product mix including an increase in higher margin software and license revenue and a decrease in selling and administrative expenses as a percentage of revenue.

~~Two Quarters Ended December 28, 2007 Compared to the Two Quarters Ended December 29, 2006~~

~~Revenue and Net (Loss) Income~~

Percentage
H1 FY 08 H1 FY 07 Increase/(Decrease)
(In millions, except percentages)
Revenue $ 353.4 $ 194.8 81.4 %
Net (loss) income $ (1.8 ) $ 10.6 N/M
% of revenue (0.5 )% 5.4 %

~~N/M = Not meaningful~~
~~H1 FY = First half of fiscal year or first two quarters of fiscal year~~

The results for the first two quarters of fiscal 2008 include the operations acquired in the Stratex acquisition for the entire period while the results for the first two quarters of fiscal 2007 include only the results of MCD prior to the merger. Historically, Stratex derived its revenues primarily from international markets.

Our revenue for the first two quarters of fiscal 2008 was $353.4 million, an increase of $158.6 million or 81.4 percent, compared to the first two quarters of fiscal 2007. Revenue in the first two quarters of fiscal 2008 included $159.7 million from sales of former Stratex products and services. Excluding the impact of the Stratex acquisition, revenue declined $1.1 million, primarily due to a decrease in the International Microwave segment in sales of the former MCD business products and services. Revenue in the first half of fiscal 2008 included a significant amount of sales of the former Stratex products and services and fewer sales of the former MCD business. The Network Operations segment revenue increased by $3.5 million in the first two quarters of fiscal 2008 compared to the first two fiscal quarters of fiscal 2007, as this segment experienced increased demand for its service assurance solution with Next Generation Network customers.

Our first two quarters fiscal 2008 net loss was $1.8 million compared to net income of $10.6 million in the first two quarters of fiscal 2007, which reflected only MCD’s historical operations. Our net loss was $1.0 million in the two quarters ended December 28, 2007 compared to net income of $5.8 million in the two quarters ended December 29, 2006 which reflected only MCD’s historical operations. The net loss in the two quarters ended December 28, 2007 and net income in the two quarters ended December 29, 2006 included the following purchase accounting adjustments and other expenses related to the acquisition and integration of Stratex, FAS 123R share-based compensation expense and inventory markdowns:

H1 FY 08 H1 FY 07
(In millions)
Cost of integration activities undertaken in connection with the merger $ 6.0 $ 1.7
Amortization of the fair value adjustments related to fixed assets 1.4 —

Amortization of developed technology 3.5 —

Amortization of trade names, customer relationships and non-competition agreements 3.7 —

Restructuring charges 8.4 —

Lease impairment 0.9 —

FAS 123R share-based compensation expense 4.3 0.7

Inventory markdowns 3.7 —

Totals $ 31.9 $ 2.4

These charges were classified in either cost of product sales and services or selling and administrative expenses depending on the nature of the charge in the two quarters ended December 28, 2007. Excluding these charges, our operations were profitable in the two quarters ended December 28, 2007.

restructuring charges related to the impairment of a lease, $1.4 million relating to ~~the write-off of fixed assets and~~ leasehold improvements and $2.3 million relating to the reduction in fair value of ICMS tax recoverable in Brazil.

These charges to restructuring in the first ~~two~~three quarters of fiscal 2008 were partially offset by $0.3 million for the reduction in severance estimated to be paid in France and a $0.3 million reduction in the amount estimated to close out our restructuring liability in connection with our fiscal year 2006 restructuring plan to transfer our Montreal manufacturing activities to our San Antonio, Texas facility.

~~We expect to fully implement our 2007 restructuring plans by March 28, 2008 and anticipate that we will incur additional restructuring costs of $0.6 million.~~

Gross Margin


							Percentage									Percentage
	H1 FY 08			H1 FY 07			Increase/(Decrease)			3Qs FY 08			3Qs FY 07			Increase/(Decrease)
	(In millions, except percentages)									(In millions, except percentages)
Revenue	$	353.4		$	194.8			81.4	%	$	531.6		$	333.8			59.3	%
Cost of product sales and services	$	(255.0	)	$	(129.2	)		97.4	%	$	(380.2	)	$	(232.1	)		63.8	%
Gross margin	$	98.4		$	65.6			50.0	%	$	151.4		$	101.7			48.9	%
% of revenue		27.8	%		33.7	%					28.5	%		30.5	%

Gross margin for the first ~~two~~three quarters of fiscal 2008 was ~~$98.4~~$151.4 million, or ~~27.8 percent~~28.5% of revenue, compared ~~to $65.6~~with $101.7 million, or ~~33.7 percent~~30.5% of revenue in the first ~~two~~three quarters of fiscal 2007. ~~Our~~Gross margin for this first ~~two~~three quarters fiscal 2008 ~~gross margin~~ was reduced by $3.7 million infor inventory markdowns, ~~of inventory, $3.5~~$5.3 million offor amortization on developed technology and ~~$0.4~~$0.6 million offor amortization of the fair value of adjustments for fixed assets acquired from Stratex and $1.5 million of merger integration costs. InGross margin for the first ~~two~~three quarters of fiscal 2007 we did not incur costs for these items in our gross margin. The increase in gross margin during the first two quarters of fiscal 2008 resulted from sales of former Stratex products and services primarily in our International Microwave segment and gross margin generatedwas reduced by the ~~increase in revenue from our Network Operations segment.~~following amounts related to the acquisition of Stratex: a $5.6 million write-off of a portion of the fair value adjustments related to inventory and fixed assets, and $1.2 million for amortization of developed technology.

~~Our first two quarters of fiscal 2008 selling~~Selling and administrative (“S&A”) expenses for the first three fiscal quarters of fiscal 2008 increased to ~~$64.8~~$95.2 million from ~~$34.3~~$62.2 million in the first ~~two~~three quarters of fiscal 2007. As a percentage of revenue, these expenses ~~increased~~decreased from ~~17.6 percent~~18.6% of revenue in the first ~~two~~three quarters of fiscal 2007 to ~~18.3 percent~~17.9% of revenue in the first ~~two~~three quarters of fiscal 2008 ~~due~~. This decline resulted primarily ~~to $4.5~~from a $3.2 million gain on the change in fair value of warrants classified in S&A expenses ~~incurred related to integration activities undertaken~~with no similar adjustment recorded in ~~connection with~~ the ~~merger.~~third quarter of fiscal 2007. S&A expenses also increased as a result of the increase in revenue. The majority of the increase in spending in the first ~~two~~three quarters of fiscal 2008 compared towith the first ~~two~~three quarters of fiscal 2007 was attributable to the S&A expenses associated with the former Stratex business. The remainder of the increase was due to higher selling expenses associated with the increase in revenue, and increased costs incurred for compliance with Sarbanes-Oxley ~~requirements. We anticipate that the total cost~~requirements for review and attestation of ~~compliance with Sarbanes-Oxley will be approximately $3.0 million in fiscal 2008.~~internal control over financial reporting.

~~Our~~Operating loss for the first ~~two~~three quarters of fiscal 2008 operating loss was increased by the following amounts related to the acquisition of Stratex: ~~$0.5~~$0.8 million for amortization of the fair value adjustments for fixed assets, ~~$1.3~~$2.0 million for amortization of developed technology, trade names, customer relationships, and non-compete agreements, $8.1 million of restructuring charges, $0.9 million ~~in charges~~ for impairment of a lease agreement and ~~$2.1~~$2.4 million of integration expenses undertaken in connection with the merger including the reduction in force at our Montreal facility. The North America Microwave segment first ~~two~~three quarters fiscal 2008 operating loss was further increased by $1.9 million of ~~the~~inventory markdowns, ~~of inventory~~as discussed above. Operating income for this segment in the first three quarters of fiscal 2007 was reduced by the following amounts related to the acquisition of Stratex: a $0.3 million write-off of a portion of the fair value adjustments for fixed assets, $0.9 million for amortization of developed technology, tradenames, customer relationships and noncompete agreements, and $2.3 million of charges related principally to restructuring and integration activities undertaken in connection with the merger.

The North America Microwave segment operating results ~~were~~ also ~~negatively impacted because we recorded $4.1~~included $6.0 million in ~~FAS 123R~~ share-based compensation expense during the first ~~two~~three quarters of fiscal 2008 compared ~~to $0.7~~with $2.1 million in the first ~~two~~three quarters of fiscal 2007.

International Microwave Segment


							Percentage									Percentage
	H1 FY 08			H1 FY 07			Increase/(Decrease)			3Qs FY 08			3Qs FY 07			Increase/(Decrease)
	(In millions, except percentages)									(In millions, except percentages)
Revenue	$	220.0		$	76.7			186.8	%	$	337.1		$	161.6			108.6	%
Segment operating loss	$	(2.1	)	$	5.9			(135.6	)%
Segment operating income (loss)										$	3.5		$	(18.2	)		N/M
% of revenue		(1.0	)%		7.7	%					1.0	%		N/M

during the first ~~two~~three quarters of fiscal 2008. ~~We anticipate product mix and increased freight and service costs will continue to impact International Microwave segment gross margins to a similar extent~~Operating loss for the ~~remainder~~first three quarters of fiscal ~~year 2008.~~2007 was increased by the following amounts related to the acquisition of Stratex: a $15.3 million write-off of in-process research and development, $5.6 million for amortization of the fair value adjustments for inventory and fixed assets, $3.2 million for amortization of developed technology, tradenames, customer relationships, contract backlog and noncompete agreements, and $2.2 million of charges related principally to restructuring and integration activities undertaken in connection with the merger.

We also recorded ~~$0.2~~$0.3 million in ~~FAS 123R~~ share-based compensation expense during the first ~~two~~three quarters of fiscal 2008 in our International Microwave segment compared towith none in the first ~~two~~three quarters of fiscal 2007.

of business with Harris. These amounts are netted within “Due to Harris Corporation” on ~~the condensed consolidated balance sheets.~~our Condensed Consolidated Balance Sheets (Unaudited). Total receivables from Harris were ~~$1.8~~$4.2 million and $0.7 million at ~~December~~March 28, ~~2007~~2008 and June 29, 2007. Total payables to Harris were ~~$18.0~~$24.7 million and $17.9 million at ~~December~~March 28, ~~2007~~2008 and June 29, 2007.

During the first quarter of fiscal 2008, we paid Harris ~~$2.0~~$3.2 million under this capital lease obligation resulting from the $1.3 million impairment discussed above and the principal payments. As of ~~December~~March 28, ~~2007,~~2008, our total capital lease obligation to Harris was ~~$4.3~~$3.2 million.

We currently believe that existing cash, cash equivalents, short-term investments and available for sale securities, funds generated from operations and access to our credit facility will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for the next 12 months and the foreseeable future. We estimate that approximately ~~$10 million to $12~~$7.0 million of our cash will be used in integration and restructuring activities during the next 12 months. Our total additions of capitalized software and property, plant and equipment for fiscal year 2008 are expected to be in the range of ~~$16~~$18 million to $20 million.

We do not anticipate other significant non-operational cash payments during the remainder of fiscal 2008.

There can be no assurance, however, that our business will generate cash flow, 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, or obtain financing. If we need to obtain additional financing, we cannot be assured that it will be available on favorable terms, or at all. Our ability to make scheduled principal payments or pay interest on or refinance any future indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the microwave communications market and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Net Cash Provided by (Used in) Operating Activities

Our net cash and cash equivalents provided by operating activities was ~~$12.1~~$35.4 million in the first ~~two~~three quarters of fiscal 2008 compared ~~to $5.7~~with $11.5 million used in operating activities in the first ~~two~~three quarters of fiscal 2007. Operating cash flow in the first ~~two~~three quarters of fiscal 2008 was positively affected by $5.5 million net income, a decrease in unbilled costs and inventories and increases in accounts payable and accrued expenses ($~~7.1~~1.4 million), an increase in advance payments and unearned income ($~~5.5~~4.3 million) and other cash flow from operations. These increases to operating cash flow were partially offset by an increase of ~~$20.9~~$11.7 million in receivables and a $9.7 million decrease to restructuring liabilities and other during the first ~~two fiscal~~three quarters of fiscal 2008.

Net Cash Provided by (Used in) Investing Activities

Our net cash provided by investing activities was ~~$0.3~~$2.8 million in the first ~~two~~three quarters of fiscal 2008 compared ~~to $5.0~~with $2.2 million used in investing activities during the first ~~two~~three quarters of fiscal 2007. Net cash used in investing activities in the first ~~two~~three quarters of fiscal 2008 was ~~$4.4~~$8.3 million in purchases of short-term investments, ~~$6.5~~$7.9 million of additions of capitalized software primarily for the purchase and implementation of new enterprise-wide information systems and ~~$3.6~~$6.3 million of additions of property, plant and equipment. These uses of cash in investing activities during the first ~~two~~three quarters of fiscal 2008 were more than offset by the receipt of ~~$14.8~~$25.3 million in proceeds from the sale and maturity of short-term investments and available for sale securities.

Net cash used in investing activities in the first ~~two~~three quarters of fiscal 2007 was primarily due to ~~$1.9~~$4.4 million of additions of plant and equipment, ~~and $3.1~~$2.8 million of additions of capitalized ~~software.~~software and $15.4 million of net purchases from short-term investing activities, partially offset by $20.4 million of net cash acquired from the Stratex acquisition.

Net Cash (Used in) Provided by Financing Activities

Our net cash used in financing activities in the first ~~two~~three quarters of fiscal 2008 was ~~$7.9~~$11.3 million compared ~~to $8.4~~with $57.2 million provided by financing activities in the first ~~two~~three quarters of fiscal 2007. The net cash used in financing activities induring the first ~~two~~three quarters of fiscal 2008 was for the repayment of $1.2 million in short-term debt, payment of ~~$2.0~~$3.2 million on our capital lease obligation to Harris and ~~$5.6~~$8.4 million in principal payments on long-term debt. We received ~~$0.9~~$1.5 million in proceeds from the exercise of former Stratex ~~options. In~~stock options during the first ~~two~~three quarters of fiscal 2008.

During the first three quarters of fiscal 2007, our cash provided by financing activities was primarily from net cash and other transfers from Harris prior to the Stratex acquisition totaling ~~$8.5 million.~~$24.1 million, $26.9 million in proceeds from the issuance of Class B common stock to Harris, $8.3 million in proceeds from the issuance of redeemable preference shares and $1.4 million in proceeds from the exercise of former Stratex stock options. Cash used in financing activities during the first three quarters of fiscal 2007 primarily consisted of $2.6 million of payments on long-term debt.

Sources of Liquidity

At ~~December~~March 28, ~~2007,~~2008, our principal sources of liquidity consisted of ~~$83.0~~$100.4 million in cash, cash equivalents, short-term investments and available for sale securities and ~~$27.9~~$30.4 million of available credit under our $50 million credit facility.

Available Credit Facility and Repayment of Debt

~~We have $27.9~~At March 28, 2008, we had $30.4 million of credit available against our $50 million revolving credit facility ~~with a commercial bank as~~ mentioned above. ~~The~~This amount was determined by reducing the total facility amount of ~~revolving credit available is~~ $50 million ~~less~~by the amount of borrowings outstanding ~~balance~~and unexpired standby letters of ~~the term loan portion and any usage under the revolving~~ credit ~~portion. The~~as of March 28, 2008. As of that date, the balance of the term loan portion of our credit facility was ~~$13.9~~$11.0 million ~~as of December 28, 2007~~ and there were ~~$8.2~~$8.6 million ~~outstanding~~ in unexpired standby letters of ~~credit as of that date, which are defined as usage under the revolving credit portion of the facility.~~credit. There were no borrowings under the short-term debt portion of the facility as of ~~December~~March 28, ~~2007. As the term loans are repaid, additional credit will be available under the revolving credit portion of the facility.~~2008.

Depending on the results of our operations and the growth of our business, we may require additional financing which may not be available to us in the required time frame on commercially reasonable terms, if at all. We are currently negotiating a new credit facility to replace the current facility. Commitments have been received from two commercial banks for a $120 million revolving credit facility with ~~major financial institutions.~~an initial committed amount of $70 million. The existing lender has provided one of the commitment letters. We have negotiated the general terms and conditions of the new credit facility with the banks and are currently finalizing the loan agreement. To allow sufficient time for finalization of the loan documentation for the new facility, the expiry date of the current facility has been extended to July 29, 2008 by an amendment dated April 30, 2008. As a condition of the new facility, the remaining term debt balance will be repaid. However, ~~we believe that we have~~all standby letters of credit issued by the ~~financial resources needed to meet our business requirements for at least the next 12 months.~~current lender will remain outstanding.

Our debt consisted of the following at ~~December~~March 28, ~~2007~~2008 and June 29, 2007:


	December 28,			June 29,			March 28,			June 29,
	2007			2007			2008			2007
	(In millions)						(In millions)
Credit Facility with Bank:
Term Loan A	$	2.6		$	5.7		$	1.0		$	5.7
Term Loan B		11.3			13.8			10.0			13.8
Other short-term notes		—			1.2			—			1.2

Total		13.9			20.7			11.0			20.7
Less current portion and short-term notes		(7.6	)		(11.9	)		(6.0	)		(11.9	)

Long-term debt	$	6.3		$	8.8		$	5.0		$	8.8

Based on covenants included as part of the credit facility we have to maintain, as measured at the last day of each fiscal quarter, tangible net worth of at least $54 million plus: 1) ~~25 percent~~25% of net income, as determined in accordance with U.S. GAAP (exclusive of losses); and 2) ~~50 percent~~50% of any increase to net worth due to subordinated debt or net equity proceeds from either public or private offerings (exclusive of issuances of stock under our employee benefit plans) for such quarter and all preceding quarters since December 31, 2005. We also have to maintain, as measured at the last day of each fiscal month, a ratio of not less than 1.25 determined as follows: (a) the sum of total unrestricted cash and cash equivalents plus short-term and long-term marketable securities plus ~~25 percent~~25% of all accounts receivable due to us minus certain outstanding bank services and reserve for foreign currency contract transactions divided by (b) the aggregate amount of outstanding borrowings and other obligations to the bank. As of ~~December~~March 28, ~~2007,~~2008, we were in compliance with these financial covenants.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, provision for doubtful accounts and sales returns, provision for inventory obsolescence, fair value of investments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, restructuring obligations, product warranty obligations, and contingencies and litigation, among others. We base our estimates on historical experience, our assessment of current factors impacting the estimates and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We refer to accounting estimates of this type as “critical accounting estimates.”

Critical Accounting Policies

Our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in Note B — “Significant Accounting Policies” in our Notes to Consolidated Financial Statements included in our Fiscal 2007 Form 10-K. Critical accounting policies and estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies and estimates for us include: (i) revenue recognition, (ii) provisions for excess and obsolete inventory losses, (iii) goodwill and intangible assets, and (iv) income taxes and tax valuation allowances. For additional discussion of our critical accounting policies and estimates, see our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2007 Form 10-K.

Impact of Recently Issued Accounting Pronouncements

As described in “Note B — Recent Accounting Pronouncements” in our Notes to Condensed Consolidated Financial Statements included in this Form 10-Q, there are accounting pronouncements that have recently been issued but have not yet been implemented by us. Note B in this Form 10-Q describes the potential impact that these pronouncements are expected to have, if known, on our financial position, results of operations and cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks.

Exchange Rate Risk

We use foreign exchange contracts to hedge both balance sheet and off-balance sheet future foreign currency commitments. Generally, these foreign exchange contracts offset foreign currency denominated inventory and purchase commitments from suppliers; accounts receivable from, and future committed sales to, customers; and inter-company loans. We believe the use of foreign currency financial instruments reduces the risks that arise from doing business in international markets. At ~~December~~March 28, ~~2007,~~2008, we had open foreign exchange contracts with a notional amount of ~~$63.6~~$58.2 million ($52.5 million at June 29, 2007), of which ~~$19.3~~$9.8 million ($15.1 million at June 29, 2007) were designated as Statement 133 hedges and ~~$44.3~~$48.4 million ($37.4 million at June 29, 2007) were not designated as Statement 133 hedges. At ~~December~~March 28, ~~2007,~~2008, contract expiration dates ~~range~~ranged from less than one month to ~~1.5~~2.5 months with a weighted average contract life of ~~approximately~~less than one month. ~~More specifically, the~~The foreign exchange contracts designated as Statement 133 hedges have been used primarily to hedge currency exposures from customer orders denominated in non-functional currencies currently in backlog.

As of ~~December~~March 28, ~~2007,~~2008, we estimated that a pre-tax ~~gain~~loss of ~~less than $0.1~~$0.7 million would be reclassified into earnings from accumulated other comprehensive income within the next ~~1.5~~three months related to these cash flow hedges.

Factors that could impact the effectiveness of our hedging programs for foreign currency include accuracy of sales estimates, volatility of currency markets and the cost and availability of hedging instruments. A ~~10 percent~~10% adverse change in currency exchange rates would have an impact of ~~$5.7~~$5.5 million on the fair value of such instruments.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents, short-term investments and bank debt.

Exposure on Cash Equivalents and Short-term Investments:We do not use derivative financial instruments in our short-term investment portfolio. We invest in high-credit quality issues and, by policy, limit the amount of credit exposure to any one issuer and country. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. As of March 28, 2008, our portfolio does not contain mortgage based and auction rate securities. The portfolio is also diversified by maturity to ensure that funds are readily available as needed to meet our liquidity needs. This policy reduces the potential need to sell securities in order to meet liquidity needs and therefore the potential effect of changing market rates on the value of securities sold.

WeAs of March 28, 2008, we had ~~$83.0~~$3.4 million ~~in cash, cash equivalents and~~of short-term investments ~~at December 28, 2007. Short-term investments totaled $10.0 million at December 28, 2007. At December 28, 2007, short-term investments had~~with contractual maturities ranging from 1 ~~month~~ to 810 months. These investments included certificates of deposit, commercial paper and corporate notes.

The primary objective of our short-term investment activities is to preserve principal while maximizing yields, without significantly increasing risk. Our short-term investments are at fixed interest rates; therefore, changes in interest rates will not generate a gain or loss on these investments unless they are sold prior to maturity. Actual gains and losses due to the sale of our short-term investments prior to maturity have been not been significant. The average number of days to maturity for short-term investments held at ~~December~~March 28, ~~2007~~2008 was 58108 days and had an average yield of ~~5.25 percent~~4.48% per annum. The average number of days to maturity for our cash equivalents at ~~December~~March 28, ~~2007~~2008 was 4less than 2 days and had an average yield of ~~4.9 percent~~2.84% per annum. The potential loss in fair value resulting from a hypothetical ~~10 percent~~10% decrease in quoted market price was approximately ~~$1.0~~$0.3 million at ~~December~~March 28, ~~2007.~~2008.

As of ~~December~~March 28, ~~2007,~~2008, unrealized ~~gains~~losses on short-term investments were less than $0.1 million. The investments have been recorded at fair value on our balance sheet.

Exposure on Borrowings:Any borrowings under the revolving portion of our credit facility will be at an interest rate of the bank’s prime rate or LIBOR plus ~~2 percent.~~2%. As of ~~December~~March 28, ~~2007~~2008 we had ~~$27.9~~$30.3 million of available credit. All of our borrowings at ~~December~~March 28, ~~2007~~2008 bear interest at fixed rates. A hypothetical ~~10 percent~~10% change in interest rates would not have a material impact on our financial position, results of operations or cash flows.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures:Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of ~~December~~March 28, ~~2007,~~2008, our disclosure controls and procedures were effective.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Descriptions of our legal proceedings are contained in Part I, Item 1, Financial Statements — Notes to Condensed Consolidated Financial Statements — “Note P.Q.”

Item 1A. Risk Factors.

Investors should carefully review and consider the information regarding certain factors which could materially affect our business, operating results, cash flows and financial condition set forth under Item 1A. “Risk Factors” in our Fiscal 2007 Form 10-K. We do not believe that there have been any material changes to the risk factors previously disclosed in our Fiscal 2007 Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks such as the relative proportions of higher margin and lower margin products sold during any quarter, increased costs for Sarbanes-Oxley compliance and for continuing integration of our merged operations and systems and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

~~Item 4. Submission of Matters to a Vote of Security Holders.~~

Our 2007 Annual Meeting of Shareholders was held on November 14, 2007. A total of 55,404,169 of our outstanding shares were represented in person or by proxy at the meeting. This represented approximately 95% of our shares issued, outstanding and entitled to be voted at the 2007 Annual Meeting of Shareholders.

Proposal 1: Shareholders elected four Class A nominees and five Class B nominees to our Board of Directors for a one-year term expiring at the Annual Meeting of Shareholders in 2008, or until their successors are elected and qualified. The vote tabulation for individual directors was:

Number of Shares
For Withheld
Class A Nominee

Charles D. Kissner 47,176,820 8,227,349
William A. Hasler 52,170,427 3,233,742
Clifford H. Higggerson 55,142,521 261,648
Edward F. Thompson 55,130,501 273,668
Class B Nominee

Guy M. Campbell 32,913,377 —

Eric C. Evans 32,913,377 —

Howard L. Lance 32,913,377 —

Dr. Mohsen Sohi 32,913,377 —

Dr. James C. Stoffel 32,913,377 —

~~Proposal 2: To ratify our Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accountants for the fiscal year ending June 27, 2008.~~

Number of Shares
For Against Abstain
55,362,802 18,142 23,225

~~Proposal 2 was approved by our shareholders.~~


	Page
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the Quarter and ~~Two~~Three Quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006~~March 30, 2007		3
Condensed Consolidated Balance Sheets at ~~December~~March 28, ~~2007~~2008 and June 29, 2007		4
Condensed Consolidated Statements of Cash Flows for the ~~Two~~Three Quarters ended ~~December~~March 28, ~~2007~~2008 and ~~December 29, 2006~~March 30, 2007		5
Notes to Condensed Consolidated Financial Statements (Unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1720
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3336
Item 4. Controls and Procedures		3437
Part II. Other Information:
Item 1. Legal Proceedings		3539
Item 1A. Risk Factors		35
~~Item 4. Submission of Matters to a Vote of Security Holders~~		3539
Item 6. Exhibits		3639
Signature		3740
Exhibit Index
EXHIBIT 10.1
EXHIBIT 10.15.1
EXHIBIT 10.15.2
EXHIBIT 15
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


~~N/A~~(1)		- The net income (loss) per common share amounts are the same for Class A and Class B because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

(2)		For the quarter and three quarters ended March 28, 2008, the calculations of diluted earnings per share include a potential deduction to net income of $2.1 million and $2.7 million for the assumed after-tax effect of the change in fair value of warrants using the “treasury stock” method (see Note P).

(3)		Prior to January 26, 2007, the Company was a division of Harris Corporation and there were no shares outstanding for purposes of income or loss ~~per share~~ calculations. Basic and diluted weighted average shares outstanding are calculated based on the daily outstanding shares, reflecting the fact that no shares were outstanding prior to January 26, 2007.


	December 28,			June 29,			March 28,			June 29,
	2007			2007			2008			2007
	(In millions)						(In millions)
Finished products	$	54.7		$	52.9		$	59.5		$	52.9
Work in process		37.3			28.6			31.3			28.6
Raw materials and supplies		59.6			68.4			61.2			68.4

		151.6			149.9			152.0			149.9
Inventory reserves		(21.6	)		(14.2	)		(26.7	)		(14.2	)

	$	130.0		$	135.7		$	125.3		$	135.7


	December 28,			June 29,			March 28,			June 29,
	2007			2007			2008			2007
Dividend yield		0	%		0	%		0	%		0	%
Expected volatility		45.3	%		43.1	%		57.2	%		43.1	%
Risk-free interest rate		3.29	%		4.91	%		1.52	%		4.91	%
Expected holding period	0.92 year			1.25 years			0.75 year			1.25 years


			Years
	Years Ending		Ending
	in June		in June
	(In millions)		(In millions)
2008	$	5.1	$	2.3
2009		5.0		5.0
2010		3.8		3.7

Total	$	13.9	$	11.0


							Percentage									Percentage
	Q2 FY 08			Q2 FY 07			Increase/(Decrease)			Q3 FY 08			Q3 FY 07			Increase/(Decrease)
	(In millions, except percentages)									(In millions, except percentages)
Revenue	$	181.1		$	101.2			79.0	%	$	178.2		$	139.0			28.2	%
Net (loss) income	$	(1.0	)	$	5.8			N/M
Net income (loss)										$	7.3		$	(23.2	)		N/M
% of revenue		(0.6	)%		5.7	%					4.1	%		N/M


	Number of Shares
	For		Withheld
Class A Nominee
Charles D. Kissner		47,176,820		8,227,349
William A. Hasler		52,170,427		3,233,742
Clifford H. Higggerson		55,142,521		261,648
Edward F. Thompson		55,130,501		273,668
Class B Nominee
Guy M. Campbell		32,913,377		—

Eric C. Evans		32,913,377		—

Howard L. Lance		32,913,377		—

Dr. Mohsen Sohi		32,913,377		—

Dr. James C. Stoffel		32,913,377		—


Exhibit
Number		Description

(10.1)		Amendment No. 6 to Amended and Restated Loan and Security Agreement.

(10.15.1)		Employment Agreement with Harald J. Braun.

(10.15.2)		Separation Agreement and Release of All Claims with Guy M. Campbell.

(15)		Letter Regarding Unaudited Interim Financial Information.

(31.1)		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

(31.2)		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

(32.1)		Section 1350 Certification of Chief Executive Officer.

(32.2)		Section 1350 Certification of Chief Financial Officer.


	HARRIS STRATEX NETWORKS, INC. (Registrant)
Dated: ~~February 5,~~May 6, 2008	By:	/s/ Sarah A. Dudash
		Sarah A. Dudash
		Vice President and Chief Financial Officer (principal financial officer and duly authorized officer)