1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form l0-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION l3 or l5(d)
OF THE SECURITIES EXCHANGE ACT OF l934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number l-3863
HARRIS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 34-0276860
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
l025 West NASA Boulevard
Melbourne, Florida 329l9
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(Address of principal executive offices)
(407) 727-9l00
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5 (d) of the Securities Exchange Act of l934
during the preceding l2 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the registrant's common stock, as of October
29, 1996 was 38,969,998 shares.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following information for the quarters ended September 30, 1996 and
September 30, 1995 has not been audited by independent accountants, but in the
opinion of management reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for the
indicated periods. The results of operations for the quarter ended September 30,
1996 are not necessarily indicative of the results for the full fiscal year.
Quarter Ended
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September 30, September 30,
1996 1995
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(In millions, except per
share amounts)
Revenue
Revenue from sales, rentals
and services $ 883.4 $ 816.7
Interest 9.1 8.7
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892.5 825.4
Costs and Expenses
Cost of sales, rentals and
services 585.7 545.1
Engineering, selling and
administrative expenses 230.9 211.5
Interest 14.8 15.0
Other - net 2.9 2.2
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Income before income taxes 58.2 51.6
Income taxes 20.1 18.1
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Net Income $ 38.1 $ 33.5
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Net Income Per Common Share (Primary) $ .98 $ .86
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Cash Dividends Paid Per Common Share $ .38 $ .34
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See Notes to Financial Statements
(2)
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HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, June 30,
1996 1996
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ASSETS (In millions)
Current Assets
Cash and cash equivalents $ 67.7 $ 74.6
Marketable securities 26.4 24.8
Trade accounts and notes receivable - net, less allowance
for collection losses of $32,200,000 at September 30, 1996
and $31,300,000 at June 30, 1996 705.3 727.8
Unbilled costs and accrued earnings on fixed price contracts
based on percentage-of-completion accounting, less progress
payments of $225,600,000 at September 30, 1996 and
$216,600,000 at June 30, 1996 399.3 397.8
Inventories:
Work in process and finished products 462.5 412.7
Raw materials and supplies 133.6 131.4
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596.1 544.1
Deferred income taxes 165.3 171.8
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Total Current Assets 1,960.1 1,940.9
Plant and equipment, less allowances for depreciation of
$1,299,600,000 at September 30, 1996 and $1,278,100,000 at
June 30, 1996 780.8 721.7
Notes receivable - net 199.8 190.7
Intangibles resulting from acquisitions 208.8 212.8
Other assets 177.1 140.6
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$3,326.6 $3,206.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 174.4 $ 181.3
Trade accounts payable 170.2 209.0
Compensation and benefits 215.7 209.3
Other accrued items 220.0 190.8
Advance payments and unearned income 295.3 287.8
Income taxes 100.1 102.7
Current portion of long-term debt 2.0 2.2
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Total Current Liabilities 1,177.7 1,183.1
Deferred income taxes 60.5 62.2
Long-term debt 688.8 588.5
Shareholders' Equity
Capital stock:
Preferred Stock, without par value:
Authorized - 1,000,000 shares; issued - none -- --
Common Stock, par value $1 per share:
Authorized - 250,000,000 shares; issued 38,961,770 shares
at September 30, 1996 and 38,871,603 at June 30, 1996 39.0 38.9
Other capital 275.4 266.0
Retained earnings 1,096.1 1,072.7
Net unrealized gain on securities available-for-sale (net of
taxes) 12.1 11.1
Unearned compensation (8.5) .3
Cumulative translation adjustments (14.5) (16.1)
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Total Shareholders' Equity 1,399.6 1,372.9
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$3,326.6 $3,206.7
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See Notes to Financial Statements
(3)
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HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Quarter Ended
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September 30, September 30,
1996 1995
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(In millions)
Cash flows from operating activities
Net income $ 38.1 $ 33.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of plant and equipment 41.8 41.3
Non-current deferred income tax (1.7) 6.5
(Increase) decrease in:
Accounts and notes receivable 13.4 32.8
Unbilled costs and inventories (53.5) (54.2)
Other assets (37.1) (16.3)
Increase (decrease) in:
Trade payables and accrued expenses (3.2) (40.7)
Advance payments and unearned income 7.5 (2.2)
Income taxes 3.9 (21.8)
Other 5.3 (2.2)
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Net cash provided by (used in) operating activities 14.5 (23.3)
Cash flows from investing activities
Cash paid for acquisition of business -- (8.1)
Additions of plant and equipment (101.6) (45.0)
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Net cash used in investing activities (101.6) (53.1)
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Cash flows from financing activities
Increase (decrease) in short-term debt (7.1) 12.0
Increase in long-term debt 100.3 .1
Proceeds from sale of Common Stock 2.4 2.6
Purchase of Common Stock for treasury -- (1.7)
Cash dividends (14.7) (13.3)
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Net cash provided by (used in) financing activities 80.9 (.3)
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Effect of exchange rate changes on cash and cash
equivalents (.7) .5
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Net decrease in cash and cash equivalents (6.9) (76.2)
Cash and cash equivalents, beginning of year 74.6 119.3
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Cash and cash equivalents, end of quarter $ 67.7 $ 43.1
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See Notes to Financial Statements
(4)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Note A -- Basis of Presentation
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The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. 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 generally accepted
accounting principles. For further information refer to the financial statements
and notes to financial statements included in the Corporation's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996.
Note B -- Reclassifications
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Prior year amounts have been reclassified to conform with current year
classifications.
Note C -- Litigation
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In December 1992, a jury in a California state court awarded a California
software company $13.4 million in compensatory damages and $85.0 million in
punitive damages against the Corporation. In May 1993, the court reduced the
punitive damages to $53.4 million, and entered judgment for the compensatory and
punitive damages, together with interest and costs of suit. The suit arose from
an August 11, 1989 contract between the plaintiff and a discontinued operation
of the Corporation. The Corporation appealed the award to the California Court
of Appeal and on July 23, 1996, the court rendered its opinion. The Court of
Appeal reversed the award of punitive damages. The breach of contract judgment
was affirmed but remanded to the trial court for retrial solely on the issue of
compensatory damages with directions to limit the period of time for which
damages can be awarded. The plaintiff's petitions for rehearing by the
California Court of Appeal and for review by the California Supreme Court have
been denied. In light of the Court of Appeal's opinion, it is management's
belief that the ultimate outcome of this litigation will not have a material
effect on the Corporation's financial results.
(5)
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operation
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Net sales, operating profit and net income for the first quarter were higher
than the same period last year by 8.2 percent, 12.8 percent and 13.7 percent,
respectively.
Segment net sales, operating profit and net income were as follows:
Quarter Ended
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September 30, September 30, Percent
1996 1995 Change
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(Dollars in Millions)
NET SALES
Electronic Systems $254.4 $213.7 19
Semiconductor 161.5 172.6 (6)
Communications 208.1 180.6 15
Lanier Worldwide 259.4 249.8 4
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Total $883.4 $816.7 8
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OPERATING PROFIT
Electronic Systems $ 19.3 $ 20.4 (5)
Semiconductor 20.7 19.1 8
Communications 19.6 15.8 24
Lanier Worldwide 22.7 21.4 6
Corporate Expense (9.3) (10.1) (8)
Interest Expense (14.8) (15.0) (1)
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Total $ 58.2 $ 51.6 13
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NET INCOME
Electronic Systems $ 8.0 $ 7.6 5
Semiconductor 10.0 9.4 6
Communications 9.6 7.6 26
Lanier Worldwide 10.5 8.9 18
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Total $ 38.1 $ 33.5 14
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Sales were up strongly in the Electronic Systems segment while operating profit
was marginally lower and net income was marginally higher. This year's first
quarter included write-offs on certain programs where follow-on business now
appears unlikely. Additionally, net income benefited from lower income tax rates
compared to last year's first quarter.
Semiconductor segment sales were moderately lower as sales of commodity products
declined due to an industry-wide downturn in orders. Segment operating profit
and net income increased on significantly higher royalty income and improved
margins in military and space products and intelligent power circuits compared
to the same period last year.
Increases in the Communications segment sales and earnings were led by strong
growth in the segment's microwave and telephone test equipment businesses. The
24 percent increase in operating profit and 26 percent increase in net income
reflected increasing gross margin and slightly lower income tax rates.
Lanier Worldwide reported a small increase in sales for both domestic and
international operations. Earnings in this year's first quarter benefited from
the strength of the U.S. dollar verses the Japanese Yen, resulting in lower
product costs and higher operating margins.
Cost of sales as a percentage of net sales decreased to 66.3 percent versus 66.7
percent in last year's first quarter. Cost ratios were lower in the
Semiconductor segment due to increased royalties and in the Lanier segment due
to favorable foreign exchange rates.
(6)
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Engineering, selling, and administrative expenses as a percentage of net sales
increased from 25.9 percent last year to 26.1 percent in this year's first
quarter. Higher research and development in all four segments contributed to
higher operating expenses.
Interest expense in the first quarter decreased from the prior year due to
capitalization of interest on plant and equipment under construction and lower
interest rates. This decrease was partially offset by higher average borrowings.
The provision for income taxes as a percentage of pretax income was 34.5 percent
in the first quarter, compared to 35.0 percent in the prior year's first
quarter. The statutory federal tax rates for both periods was 35.0 percent. The
tax rates on foreign source income and export sales benefited both periods.
Income as a percentage of sales was 4.3 percent in the first quarter, compared
to 4.1 percent in the same period last year for the previously stated reasons.
Working capital increased from 757.8 at June 30, 1996, to 782.4 at the end of
the first quarter due to higher inventories. The Corporation continues to invest
heavily in the capital expansion of its Semiconductor business. Total capital
expenditures for the Corporation in fiscal 1997 are expected to be between
$300-$400 million. The requirement for funds to finance this investment and
other operational requirements during fiscal 1997 will be met by cash flow from
operations and unused borrowing capacity.
From time to time, the Corporation invests in emerging technology companies that
complement existing product lines. These investments are normally accounted for
on a cost basis. One such investment, Advanced Fiber Communications, Inc.,
undertook an initial public offering of its common stock on October 1, 1996.
Because of certain restrictions, the Corporation cannot sell any of its
approximately 5% interest until April 1, 1997. Based upon the quoted market
price of AFC on October 31, 1996, the unrealized gain on this investment was
$59.6 million after tax. At the present time, the Corporation has no definitive
plans to sell this investment when the restrictions expire.
(7)
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings.
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See Notes to Financial Statements.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed with the Commission a Current Report on Form 8-K
on July 23, 1996 relating to the decision of the California Court of
Appeal dicussed under "Note C -- Litigation" of the Notes to the
Condensed Consolidated Financial Statements, the announcement of its
financial results for the fiscal year ended June 30, 1996 and the
declaration of effectiveness of the Registrant's Registration Statement
on Form S-3.
Items 2, 3, 4, and 5 of Part II are not applicable and have been
omitted.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRIS CORPORATION
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(Registrant)
Date: November 8, 1996 By:/s/Bryan R. Roub
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Bryan R. Roub
Senior Vice President & Chief
Financial Officer (principal
financial officer and duly
authorized officer)
(8)