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 March 31, 1997
or
[ ] 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 (I.R.S. Employer Identification No.)
incorporation or organization)
l025 West NASA Boulevard
Melbourne, Florida 32919
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(Address of principal executive offices)(Zip Code)
(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 April
29, 1997 was 39,790,719 shares.
2
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 March 31, 1997 and March 31,
1996, 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 and the three quarters ended
March 31, 1997 are not necessarily indicative of the results for the full fiscal
year.
Quarter Ended Three Quarters Ended
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March 31, March 31, March 31, March 31,
1997 1996 1997 1996
--------- ---------- --------- ---------
(In millions, except per share amounts)
Revenue
Revenue from sales, rentals
and services $ 921.4 $ 875.9 $ 2,750.7 $ 2,609.2
Interest 9.5 11.1 27.7 29.1
--------- --------- --------- ---------
930.9 887.0 2,778.4 2,638.3
Costs and Expenses
Cost of sales, rentals and
services 609.8 577.7 1,829.8 1,738.3
Engineering, selling and
administrative expenses 231.5 229.1 701.4 663.6
Interest 16.5 16.6 47.3 47.3
Other - net (10.2) (4.4) (11.1) 7.4
--------- --------- --------- ---------
Income before income taxes 83.3 68.0 211.0 181.7
Income taxes 27.7 23.8 71.7 63.6
--------- --------- --------- ---------
Net Income $ 55.6 $ 44.2 $ 139.3 $ 118.1
========= ========= ========= =========
Net Income Per Common Share (Primary) $ 1.40 $ 1.14 $ 3.55 $ 3.03
========= ========= ========= =========
Cash Dividends Paid Per Common Share $ .38 $ .34 $ 1.14 $ 1.02
========= ========= ========= =========
Primary Average Shares Outstanding 39.7 38.9 39.3 39.0
========= ========= ========= =========
See Notes to Financial Statements
(2)
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HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,
March 31, 1996
1997 (audited)
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ASSETS (In millions)
Current Assets
Cash and cash equivalents $ 60.2 $ 74.6
Marketable securities 68.1 24.8
Trade accounts and notes receivable - net, less allowance
for collection losses of $29,500,000 at March 31, 1997
and $31,300,000 at June 30, 1996 733.2 727.8
Unbilled costs and accrued earnings on fixed price contracts
based on percentage-of-completion accounting, less progress
payments of $236,100,000 at March 31, 1997 and
$216,600,000 at June 30, 1996 343.3 397.8
Inventories:
Work in process and finished products 485.6 412.7
Raw materials and supplies 141.3 131.4
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626.9 544.1
Deferred income taxes 158.9 171.8
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Total Current Assets 1,990.6 1,940.9
Plant and equipment, less allowances for depreciation of
$1,279,800,000 at March 31, 1997 and $1,278,000,000 at
June 30, 1996 857.3 721.7
Notes receivable - net 218.4 190.7
Intangibles resulting from acquisitions 222.3 212.8
Other assets 216.3 140.6
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$3,504.9 $3,206.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 252.7 $ 181.3
Trade accounts payable 159.6 209.0
Compensation and benefits 208.9 209.3
Other accrued items 207.0 190.8
Advance payments and unearned income 304.9 287.8
Income taxes 81.8 102.7
Current portion of long-term debt 5.3 2.2
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Total Current Liabilities 1,220.2 1,183.1
Deferred income taxes 89.6 62.2
Long-term debt 692.6 588.5
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 39,767,088 shares
at March 31 1997 and 38,871,603 at June 30, 1996 39.8 38.9
Other capital 287.4 266.0
Retained earnings 1,166.7 1,072.7
Net unrealized gain on securities available-for-sale (net
of taxes) 38.3 11.1
Unearned compensation (.5) .3
Cumulative translation adjustments (29.2) (16.1)
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Total Shareholders' Equity 1,502.5 1,372.9
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$3,504.9 $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
Three Quarters Ended
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March 31, March 31,
1997 1996
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(In millions)
Cash flows from operating activities
Net income $139.3 $118.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of plant and equipment 134.0 124.9
Non-current deferred income tax 27.4 2.8
(Increase) decrease in:
Accounts and notes receivable (31.8) (31.3)
Unbilled costs and inventories (27.7) (75.6)
Other assets (85.7) (63.3)
Increase (decrease) in:
Trade payables and accrued expenses (34.0) 24.1
Advance payments and unearned income 16.9 2.5
Income taxes (23.4) (13.8)
Other 20.7 9.9
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Net cash provided by operating activities 135.7 98.3
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Cash flows from investing activities
Cash paid for acquisitions (12.4) (43.9)
Additions of plant and equipment (280.9) (187.3)
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Net cash used in investing activities (293.3) (231.2)
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Cash flows from financing activities
Increase in short-term debt 74.5 4.7
Increase in long-term debt 104.0 112.4
Proceeds from sale of Common Stock 8.7 6.8
Purchase of Common Stock for treasury -- (26.0)
Cash dividends (45.3) (39.6)
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Net cash provided by financing activities 141.9 58.3
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Effect of exchange rate changes on cash and cash
equivalents 1.3 (2.2)
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Net decrease in cash and cash equivalents (14.4) (76.8)
Cash and cash equivalents, beginning of year 74.6 119.3
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Cash and cash equivalents, end of period $ 60.2 $ 42.5
====== ======
See Notes to Financial Statements
(4)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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 -- Credit Arrangements
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In November 1996, the Corporation replaced its existing $500 million revolving
credit agreement with an $800 million syndicated credit facility consisting of a
364-Day $300 million facility and a five year $500 million facility syndicated
credit agreement. These agreements provide for drawings at interest rates
determined by a pricing matrix based upon the Corporation's long-term debt
rating.
(5)
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Item 2. Management's Discussion & Analysis of Financial Condition & Results of
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Operations.
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Sales and net income for the third quarter were higher than the same period last
year by 5.2 percent and 25.8 percent, respectively. Sales for the first three
quarters increased 5.4 percent over the same period a year ago, while net income
increased by 18.0 percent. Segment net sales, operating profit and net income
were as follows:
Quarter Ended Three Quarters Ended
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March 31, March 31, Percent March 31, March 31, Percent
1997 1996 Inc./(Dec.) 1997 1996 Inc./(Dec.)
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(Dollars in millions)
NET SALES
Electronic Systems $ 251.8 $ 234.1 8 $ 748.3 $ 683.9 9
Semiconductor 169.0 169.5 -- 491.8 522.2 (6)
Communications 216.5 196.7 10 673.0 590.1 14
Lanier Worldwide 284.1 275.6 3 837.6 813.0 3
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Total $ 921.4 $ 875.9 5 $2,750.7 $2,609.2 5
======== ======== ======== ========
OPERATING PROFIT
Electronic Systems $ 23.6 $ 19.6 20 $ 60.2 $ 57.0 6
Semiconductor 32.3 29.0 11 72.1 68.4 5
Communications 20.9 19.0 10 62.5 55.0 14
Lanier Worldwide 31.0 27.1 14 86.7 80.5 8
Corporate Expense (8.1) (10.1) (20) (23.2) (31.9) (27)
Interest Expense (16.4) (16.6) 1 (47.3) (47.3) --
-------- -------- -------- --------
Total $ 83.3 $ 68.0 23 $ 211.0 $ 181.7 16
======== ======== ======== ========
NET INCOME
Electronic Systems $ 10.8 $ 6.7 61 $ 26.9 $ 20.6 31
Semiconductor 17.1 16.0 7 36.7 35.4 4
Communications 11.7 9.3 26 32.4 26.3 23
Lanier Worldwide 16.0 12.2 31 43.3 35.8 21
-------- -------- -------- --------
Total $ 55.6 $ 44.2 26 $ 139.3 $ 118.1 18
======== ======== ======== ========
Electronic Systems segment sales were moderately higher for the quarter and the
first three quarters due to growth in its information systems business. Segment
third quarter profits were up sharply on higher revenues and increased margins
for the segment's core defense products, particularly information and aerospace
systems and reduced losses in its energy management business. Net income for the
first three quarters includes a gain from the sale of a building which was
substantially offset by write-offs on certain programs.
Sales in the Semiconductor segment were flat for the quarter and down
year-to-date. Earnings were moderately higher for the quarter and slightly
higher for the year as the impact of flat sales has been offset by higher
royalty income and improved margins for intelligent power and digital products.
Communications segment sales and earnings were up for both the third quarter and
the first three quarters. In the third quarter the segment benefited from strong
sales growth and increased earnings in its microwave systems business, as well
as from lower tax rates. A significant gain from the sale of an investment
security (described below) was substantially offset by very poor performance in
its digital switch business. This poor performance, which is expected to
continue in the fourth quarter, relates to high margin orders expected this
fiscal year which were delayed until fiscal 1998, while product development
costs continued at high levels.
Sales in the Lanier Worldwide segment were slightly higher than the comparable
periods a year ago despite being adversely affected by currency fluctuations in
European markets. Earnings were significantly higher due to improved margins in
the U.S. and lower income taxes.
Cost of sales as a percentage of net sales were 66.2 percent in the third
quarter and 66.5 percent in the first three quarters of this year compared to
66.0 percent and 66.6 percent for the respective periods last year. For the
year, cost ratios were lower in the Semiconductor segment due to increased
royalties and in the Lanier segment due to favorable exchange rates.
(6)
7
Engineering, selling, and administrative expenses as a percentage of net sales
decreased to 25.1 percent in the third quarter and 25.5 percent for the year
compared to 26.2 percent and 25.4 percent for the comparable prior year periods.
The decrease in operating expenses for the third quarter was primarily due to
lower administrative costs which were offset in part by higher research and
development expenditures. For the first three quarters research and development
was $17 million higher than last year's comparable period.
Interest expense was relatively unchanged for the quarter and the year despite
higher average borrowings as additional interest on a portion of new
construction related borrowings has been capitalized as a component of plant and
equipment under construction. "Other-net" expenses were significantly lower for
the quarter due to gains from the sale of investment securities. For the first
three quarters, "Other-net" expense also includes a gain on the sale of a
building and foreign currency gains.
The provision for income taxes as a percentage of pretax income was 33.3 percent
in the third quarter and 34.0 percent for the first three quarters compared to
35.0 percent for the same periods a year ago. The statutory federal tax rate for
all periods was 35.0 percent. Tax rates on foreign source income and export
sales benefited the current year periods.
Net income as a percentage of sales was 6.0 percent for the third quarter and
5.1 percent for the year-to-date, compared to 5.0 percent and 4.5 percent in the
same periods last year for the previously stated reasons.
Working capital increased from $757.8 million at June 30, 1996, to $770.4
million at the end of the third quarter. 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
$350-$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. In January 1997, the Corporation's
long-term debt rating was raised by Standard and Poor's Ratings Group to A- from
BBB+ and was reaffirmed by Moody's Investors Service as A3.
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 Fibre
Communications, Inc. (AFCI), undertook an initial public offering of its common
stock on October 1, 1996. In the third quarter, the Corporation sold 237,248
AFCI shares. At the present time, the Corporation has no definitive plans to
sell other AFCI shares. Based upon the quoted market price of AFCI on March
31, 1997, the unrealized gain on this investment was $33.2 million after tax.
(7)
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PART II. OTHER INFORMATION
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Item 2. Changes in Securities.
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Recent Sales of Unregistered Securities.
On March 28, 1997, in connection with the acquisition of all
shares of Quorum Group, Inc., a privately held Minnesota
corporation, the Corporation issued an aggregate of 695,305 shares
of its Common Stock to the eight former shareholders of Quorum
Group, Inc. Based upon the closing price of the shares of Common
Stock on the New York Stock Exchange, Inc., the 695,305 shares
delivered at the closing of the acquisition had a market value of
approximately $54 million.
The sale and issuance of the securities in connection with the
acquisition of Quorum Group, Inc. were deemed to be exempt from
registration under the Securities Act of 1933 (the "Securities
Act") in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, as transactions by an issuer
not involving any public offering. The eight former shareholders
of Quorum Group, Inc. receiving shares of Common Stock of the
Corporation each represented their intentions to acquire the
shares for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends
were affixed to the securities issued in such transaction. All
recipients had adequate access, through their relationship to the
Corporation, to information about the Corporation.
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 February 28, 1997, relating to the rescission of its previously
announced stock repurchase program.
Items 1, 3, 4 and 5 of Part II are not applicable and have been omitted.
(8)
9
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: May 8, 1997 By:/s/Bryan R. Roub
--------------------------
Bryan R. Roub
Senior Vice President & Chief
Financial Officer (principal
financial officer and duly
authorized officer)
(9)
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EXHIBIT INDEX
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Exhibit No.
Under Reg.
S-K, Item 601 Description
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(11) Statement re: Computation of Per
Share Earnings.
(27) Financial Data Schedule.