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 October 3, 1997
or
[ ] 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 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 329l9
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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 October
31, 1997 was 79,826,777 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 October 3, 1997 and September
30, 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 ended October 3, 1997 are not
necessarily indicative of the results for the full fiscal year.
Quarter Ended
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October 3, September 30,
1997 1996
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(In millions, except per
share amounts)
Revenue
Revenue from sales, rentals
and services $ 979.6 $ 883.4
Interest 9.8 9.1
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989.4 892.5
Costs and Expenses
Cost of sales, rentals and services 655.8 585.7
Engineering, selling and administrative
expenses 250.9 230.9
Interest 16.9 14.8
Other - net (.3) 2.9
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Income before income taxes 66.1 58.2
Income taxes 22.5 20.1
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Net Income $ 43.6 $ 38.1
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Net Income Per Common Share (Primary) $ .55 $ .49
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Cash Dividends Paid Per Common Share $ .22 $ .19
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Primary Average Shares Outstanding 79.7 77.9
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See Notes to Financial Statements
(2)
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HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 27,
October 3, 1997
1997 (audited)
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ASSETS (In millions)
Current Assets
Cash and cash equivalents $ 66.4 $ 70.7
Marketable securities 118.4 91.3
Accounts and notes receivable - net, less allowance
for collection losses of $27,100,000 at October 3, 1997
and $28,300,000 at June 27, 1997 796.9 820.6
Unbilled costs and accrued earnings on fixed price contracts
based on percentage-of-completion accounting, less progress
payments of $198,400,000 at October 3, 1997 and
$187,800,000 at June 27, 1997 295.9 324.8
Inventories:
Work in process and finished products 506.3 493.1
Raw materials and supplies 122.8 118.0
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629.1 611.1
Deferred income taxes 122.4 145.0
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Total Current Assets 2,029.1 2,063.5
Plant and equipment, less allowances for depreciation of
$1,294,500,000 at October 3, 1997 and $1,282,300,000 at
June 27, 1997 903.6 878.3
Notes receivable - net 218.5 217.7
Intangibles resulting from acquisitions 223.8 227.5
Other assets 278.4 250.9
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$3,653.4 $3,637.9
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 367.5 $ 296.3
Accounts payable 167.4 196.8
Compensation and benefits 181.9 216.9
Other accrued items 188.3 191.7
Advance payments and unearned income 272.3 290.9
Income taxes 88.1 96.0
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Total Current Liabilities 1,265.5 1,288.6
Deferred income taxes 84.0 84.4
Long-term debt 686.2 686.7
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 79,812,147 shares
at October 3, 1997 and 77,743,206 at June 27, 1997 79.8 39.8
(shares adjusted to reflect September 1997 two-for-one
stock split)
Other capital 264.8 289.9
Retained earnings 1,246.0 1,219.9
Net unrealized gain on securities available-for-sale (net of
taxes) 70.9 53.8
Unearned compensation (9.3) 4.4
Cumulative translation adjustments (34.5) (29.6)
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Total Shareholders' Equity 1,617.7 1,578.2
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$3,653.4 $3,637.9
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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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October 3, September 30,
1997 1996
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(In millions)
OPERATING ACTIVITIES
Net income $ 43.6 $ 38.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of plant and equipment 47.3 41.8
Non-current deferred income tax (.4) (1.7)
(Increase) decrease in:
Accounts and notes receivable 24.6 13.4
Unbilled costs and inventories 11.9 (53.5)
Other assets (20.4) (37.1)
Increase (decrease) in:
Trade payables and accrued expenses (69.0) (3.2)
Advance payments and unearned income (18.6) 7.5
Income taxes 14.7 3.9
Other (13.1) 5.3
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Net cash provided by operating activities 20.6 14.5
INVESTING ACTIVITIES
Cash paid for acquired businesses (8.9) -
Additions of plant and equipment (72.6) (101.6)
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Net cash used in investing activities (81.5) (101.6)
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 71.2 (7.1)
Increase (decrease) in long-term debt (.5) 100.3
Proceeds from sale of Common Stock 4.0 2.4
Cash dividends (17.6) (14.7)
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Net cash provided by financing activities 57.1 80.9
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Effect of exchange rate changes on cash and cash
equivalents (.5) (.7)
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Net decrease in cash and cash
equivalents (4.3) (6.9)
Cash and cash equivalents, beginning of year 70.7 74.6
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Cash and cash equivalents, end of quarter $ 66.4 $ 67.7
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See Notes to Financial Statements
(4)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 3, 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/A for the fiscal year ended June 27, 1997.
Note B -- Stock Split
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On August 23, 1997, the Board of Directors authorized a two-for-one stock split
to shareholders of record on September 4, 1997. All reference in the financial
statements and exhibits to number of shares and per share amounts of the
Corporation's Common Stock have been restated to reflect the increased number of
shares outstanding.
Note C -- Reclassification
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Certain prior year amounts have been reclassified to conform with current year
classifications.
Note D -- Credit Arrangements
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In October 1997, the Corporation extended the 364-Day $300 million portion of
the $800 million syndicated credit facility for an additional 364-Day period.
The $800 facility provides for drawings at interest rates determined by a
pricing matrix based upon the Corporation's long-term debt rating.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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RESULTS OF OPERATIONS
Net sales, operating profit and net income for the first quarter of fiscal 1998
were higher than the same period last year by 10.9 percent, 13.6 percent and
14.4 percent, respectively.
Segment net sales, operating profit and net income were as follows:
Quarter Ended
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October 3, September 30, Percent
1997 1996 Inc./(Dec.)
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(In Millions)
NET SALES
Electronic Systems $261.4 $254.4 3
Semiconductor 180.7 161.5 12
Communications 240.3 208.1 15
Lanier Worldwide 297.2 259.4 15
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Total $979.6 $883.4 11
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OPERATING PROFIT
Electronic Systems $ 20.6 $ 19.3 7
Semiconductor 22.0 20.7 6
Communications 24.2 19.6 23
Lanier Worldwide 28.1 22.7 24
Corporate Expense (11.9) (9.3) (28)
Interest Expense (16.9) (14.8) (14)
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Total $ 66.1 $ 58.2 14
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NET INCOME
Electronic Systems $ 8.4 $ 8.0 5
Semiconductor 10.7 10.0 7
Communications 12.3 9.6 28
Lanier Worldwide 12.2 10.5 16
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Total $ 43.6 $ 38.1 14
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The Electronic Systems segment reported higher sales, operating profit and net
income over last year's first quarter. Results for the segment were led by
increased demand for information systems products and services. Revenue for the
remainder of fiscal 1998 is expected to be flat with moderately lower earnings
due to reduced margins from the segment's core defense products.
Semiconductor segment sales were up strongly, while operating profit and net
income were moderately higher in this year's first quarter compared to the
prior year period. While significantly lower industry-wide product pricing
continues for commodity semiconductors, the segment is shipping products at a
record volume. Royalty income included in earnings was significant and was at
the same level as the prior year. The expectation of a recovery in product
prices and increased manufacturing capacity is expected to result in increased
sales and earnings for fiscal 1998.
Sales, operating profit and net income in the Communications segment were
significantly higher than last year's first quarter. Growth in all but one of
the segment's major product lines, plus gains from the sale of investment
securities contributed to the first quarter earnings increase. Improvement in
the segment's digital switch business, coupled with growth in the segment's
microwave systems, broadcast products, and telephone test equipment businesses,
is expected to result in higher sales and earnings in fiscal 1998.
Lanier Worldwide segment sales, operating profit and net income were
significantly higher than the first quarter of last year. A significant increase
in domestic sales and improved performance in the segment's international
operations contributed to the
(6)
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increases in sales and earnings. Strength in both domestic and international
markets is expected to result in improved sales and earnings for the current
fiscal year.
Cost of sales as a percentage of net sales increased to 66.9 percent versus 66.3
percent in last year's first quarter. Cost ratios were higher for the
Communications and Lanier segments.
Engineering, selling, and administrative expenses as a percentage of net sales
decreased from 26.1 percent last year to 25.6 percent in this year's first
quarter due to lower operating expense ratios for the Lanier Worldwide and
Electronic Systems segments. Company funded research and development increased
$3.2 million from the prior year's first quarter to $46.5 million. Total
research and development, which includes both Company funded and customer
sponsored research and development, increased $29.8 million to $185.9 million
for the current year's first quarter.
Interest expense in the first quarter increased from the prior year due to
higher average borrowings. The decrease in "Other-net" expense was due to gains
resulting from the sale of investment securities.
The provision for income taxes as a percentage of pretax income was 34.0 percent
in the first quarter, compared to 34.5 percent in the prior year's first
quarter. The reduction from the statutory federal tax rate of 35.0 percent for
both years was due to tax rates on foreign source income and export sales.
Income as a percentage of sales was 4.5 percent in the first quarter, compared
to 4.3 percent in the same period last year for the previously stated reasons.
LIQUIDITY AND FINANCIAL POSITION
Working capital decreased from $774.9 million at June 27, 1997, to $763.6
million at the end of the first quarter due to lower receivables and unbilled
costs on fixed price contracts. The Company continues to invest in the capital
expansion of its semiconductor business. Total capital expenditures in fiscal
1998, including expenditures for customer rental equipment, are expected to be
approximately $300 million. The requirement for funds to finance this
investment and other operational requirements are expected to be met by cash
flow from operations and unused borrowing capacity.
FORWARD-LOOKING STATEMENTS
This report contains, and certain of the Company's other public documents and
statements contain and will contain, forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. Such statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
cautions investors that any forward-looking statements are subject to risks and
uncertainties that may cause actual results and future trends to differ
materially from those projected, stated, or implied by the forward-looking
statements.
The Company's consolidated results and the forward-looking statements could be
affected by, among other things, general economic conditions in the markets in
which the Company operates; economic developments that have a particularly
adverse effect on one or more of the markets served by the Company; ability to
execute management's internal operating plans; fluctuations in foreign currency
exchange rates; worldwide demand for integrated semiconductor circuits,
particularly power products; reductions in the U.S. and worldwide defense and
space budgets; effect of continuing consolidation in the U.S. defense industry
on the Company's direct and indirect business with the U.S. government; the
Company's ability to recover costs incurred on fixed price contracts;
termination of customer contracts; continued development and market acceptance
of new products, especially digital television broadcast products and
semiconductor wireless and multi-media products; continued success of the
Company's patent licensing programs, particularly as it relates to the
Semiconductor segment; and the successful resolution of patent infringement and
other general litigation.
(7)
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PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
(10) Material Contracts
(i) Harris Corporation 1997 Directors' Deferred Compensation and
Annual Stock Unit Award Plan (Amended and Restated Effective
October 24, 1997).
(ii) Amendment to Directors' Retirement Plan.
(iii) Amendment No. 1 to 364-Day Credit Agreement, dated as of
October 21, 1997.
(iv) Amendment No. 1 to 5-Year Credit Agreement, dated as of
October 21, 1997.
(v) Forms of Stock Option Agreements and Performance Share
Agreements under the Harris Corporation Stock Incentive Plan.
(11) Statement re: Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
(i) The Registrant filed with the Commission a Current Report on
Form 8-K on July 18, 1997 relating to forward-looking
statements.
(ii) The Registrant filed with the Commission a Current Report on
Form 8-K on August 25, 1997 relating to the declaration of a
two-for-one stock split and the increase in the indicated
annual dividend rate.
(iii) The Registrant filed with the Commission a Current Report on Form
8-K on September 29, 1997 relating to the number of additional
Common Stock shares issued in connection with the two-for-one
stock split and the impact of the stock split on the Company's
Stockholder Protection Rights Agreement.
Items 1, 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 10, 1997 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)
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EXHIBIT INDEX
Exhibit No.
Under Reg.
S-K, Item 601 Description
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(10) Material Contracts
10(i) Harris Corporation 1997 Directors'
Deferred Compensation and Annual
Stock Unit Award Plan (Amended and
Restated Effective October 24, 1997).
10(ii) Amendment to Directors' Retirement
Plan.
10(iii) Amendment No. 1 to 364-Day Credit
Agreement, dated as of October 21,
1997.
10(iv) Amendment No. 1 to 5-Year Credit
Agreement, dated as of October 21,
1997.
10(v) Forms of Stock Option Agreements and
Performance Share Agreements under
the Harris Corporation Stock
Incentive Plan.
(11) Statement re: Computation of Per
Share Earnings.
(27) Financial Data Schedule.