1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended March 31, 1996 Commission File Number 1-3863 HARRIS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 34-0276860 - - ------------------------ ----------------------- (State of Incorporation) (IRS Employer Identification No.) 1025 West NASA Boulevard Melbourne, Florida 32919 ---------------------------------------- (Address of principal executive offices) (407) 727-9100 ------------------------------ (Registrant's telephone number) =============================== Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. 38,838,858 Shares
2 PART I. FINANCIAL INFORMATION - - ------------------------------ HARRIS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME The following information for the quarters ended March 31, 1996 and March 31, 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 March 31, 1996 are not necessarily indicative of the results for the full fiscal year. <TABLE> <CAPTION> Quarter Ended Three Quarters Ended -------------------------- ------------------------- March 31, March 31, March 31, March 31, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ (In millions, except per share amounts) <S> <C> <C> <C> <C> Revenue Revenue from sales, rentals and services $875.9 $850.4 $2,609.2 $2,520.8 Interest 12.1 9.5 31.3 27.5 ------ ------ -------- -------- 888.0 859.9 2,640.5 2,548.3 Costs and Expenses Cost of sales, rentals and services 577.7 578.6 1,738.3 1,730.3 Engineering, selling and administrative expenses 229.1 201.2 663.6 606.2 Interest 17.6 17.3 49.5 48.1 Other - net (4.4) 4.3 7.4 7.4 ------ ------ ------- -------- Income before income taxes 68.0 58.5 181.7 156.3 Income taxes 23.8 20.5 63.6 54.7 ------ ------ ------- -------- Net Income $ 44.2 $ 38.0 $ 118.1 $ 101.6 ====== ====== ======== ======== Net Income Per Common Share (Primary) $ 1.14 $ .98 $ 3.03 $ 2.59 ===== ====== ======== ======== Cash Dividends Paid Per Common Share $ .34 $ .31 $ 1.02 $ .93 ==== ====== ======== ======== </TABLE>
3 HARRIS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET <TABLE> <CAPTION> March 31, June 30, 1996 1995 ------------- ----------- (In millions) <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 42.5 $ 119.3 Marketable securities 22.0 22.3 Trade accounts and notes receivable - net, less allowance for collection losses of $32,700,000 at March 31, 1996 and $30,000,000 at June 30, 1995 683.9 657.1 Unbilled costs and accrued earnings on fixed price contracts based on percentage-of-completion accounting, less progress payments of $244,000,000 at March 31, 1996 and $240,200,000 at June 30, 1995 366.3 374.9 Inventories: Work in process and finished products 486.2 411.2 Raw materials and supplies 99.6 83.7 ------- ------- 585.8 494.9 Deferred income taxes 153.7 142.2 ------- ------- Total Current Assets 1,854.2 1,810.7 Plant and equipment, less allowances for depreciation of $1,268,500,000 at March 31, 1996 and $1,236,200,000 at June 30, 1995 661.4 581.0 Notes receivable - net 177.2 166.6 Intangibles resulting from acquisitions 207.2 166.6 Other assets 170.2 111.1 -------- -------- $3,070.2 $2,836.0 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt $ 173.5 $ 37.7 Trade accounts payable 157.9 168.7 Compensation and benefits 199.8 193.4 Other accrued items 211.9 168.4 Advance payments and unearned income 267.1 264.0 Income taxes 86.3 90.5 Current portion of long-term debt 1.5 132.6 -------- -------- Total Current Liabilities 1,098.0 1,055.3 Deferred income taxes 57.5 56.0 Long-term debt 588.3 475.9 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 38,838,858 shares at March 31, 1996 and 38,877,019 at June 30, 1995 38.8 38.9 Other capital 263.9 240.3 Retained earnings 1,025.6 969.4 Net unrealized gain on securities available-for-sale (net of taxes) 12.0 12.2 Unearned compensation (2.0) (1.7) Cumulative translation adjustments (11.9) (10.3) -------- -------- Total Shareholders' Equity 1,326.4 1,248.8 -------- -------- $3,070.2 $2,836.0 ======== ======== </TABLE>
4 HARRIS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> Three Quarters Ended ---------------------------- March 31, March 31, 1996 1995 ------------- ------------- (In millions) <S> <C> <C> Cash flows from operating activities Net income $118.1 $101.6 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 124.9 112.2 Non-current deferred income tax 1.5 21.9 (Increase) decrease in: Accounts and notes receivable (36.4) (36.6) Unbilled costs and inventories (81.2) (82.9) Other assets (93.8) (18.2) Increase (decrease) in: Trade payables and accrued expenses 35.6 (37.9) Advance payments and unearned income 3.1 24.0 Income taxes (13.8) (33.5) Other 4.9 15.9 ------ ------ Net cash provided by operating activities 62.9 66.5 ------ ------ Cash flows from investing activities Additions of plant and equipment-net of normal disposals (195.9) (137.4) ------ ------ Net cash used in investing activities (195.9) (137.4) ------ ------ Cash flows from financing activities Increase in short-term debt 4.7 64.0 Increase (decrease) in long-term debt 112.4 (7.9) Proceeds from sale of Common Stock 6.8 4.8 Purchase of Common Stock for treasury (25.9) (29.0) Cash dividends (39.6) (36.2) Dividend-in-kind - (8.4) ------ ------ Net cash provided by (used in) financing activities 58.4 (12.7) ------ ------ Effect of exchange rate changes on cash and cash equivalents (2.2) 1.7 ------ ------ Net decrease in cash and cash equivalents (76.8) (81.9) Cash and cash equivalents, beginning of year 119.3 139.1 ------ ------ Cash and cash equivalents, end of quarter $ 42.5 $ 57.2 ====== ====== </TABLE>
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 Note A -- Basis of Presentation - - ------------------------------- 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 Form 10K for the fiscal year ended June 30, 1995. Note B -- Litigation - - -------------------- In 1993, a California state court awarded damages against the Corporation in the amount of $66.9 million, together with interest and costs of suit, to a California software company. The suit arose from a contract between the plaintiff and a discontinued operation of the Corporation. The Corporation believes the judgment is unjustified and has filed an appeal with the California Court of Appeals. The appeals court is expected to render its decision by February 1997. The ultimate outcome of this litigation is unknown. Accordingly, no provisions, beyond those already provided as part of prior discontinued operation charges, have been made in the accompanying consolidated financial statements. Prior discontinued operations charges included legal costs the Corporation expects to incur in defending itself in this matter. Note C -- Long-Term Debt - - ------------------------ On January 16, 1996, the Corporation issued $100 million 7% debentures, due January 15, 2026. Proceeds from the issuance were used for general corporate purposes, including the refinancing of a portion of long-term debt.
6 MANAGEMENT'S DISCUSSION AND ANALYSIS - - ------------------------------------ Sales and net income for the third quarter were higher than the same period last year by 3.0 percent and 16.3 percent, respectively. Sales for the first three quarters increased 3.5 percent over the same period a year ago, while net income increased by 16.2 percent. Segment sales, operating profit, and net income are as follows: <TABLE> <CAPTION> Quarter Ended Three Quarters Ended --------------------------------------- --------------------------------------- March 31 March 31 Percent March 31 March 31 Percent 1996 1995 Inc./(Dec) 1996 1995 Inc./(Dec) --------------------------------------- --------------------------------------- (Dollars in millions) <S> <C> <C> <C> <C> <C> <C> NET SALES Electronic Systems $234.1 $250.5 (6.5) $ 683.9 $ 772.2 (11.4) Semiconductor 169.5 160.8 5.4 522.2 474.7 10.0 Communications 196.7 189.0 4.1 590.1 532.7 10.8 Lanier Worldwide 275.6 250.1 10.2 813.0 741.2 9.7 ------ ------ -------- -------- Total $875.9 $850.4 3.0 $2,609.2 $2,520.8 3.5 ====== ====== ======== ======== OPERATING PROFIT Electronic Systems $ 19.6 $ 23.5 (16.6) $ 57.0 $ 71.6 (20.4) Semiconductor 29.0 17.9 62.0 68.4 47.0 45.5 Communications 19.0 17.0 11.8 55.0 46.9 17.3 Lanier Worldwide 27.1 23.9 13.4 80.5 70.3 14.5 Corporate Expense (9.1) (6.5) 40.0 (29.7) (31.4) (5.4) Interest Expense (17.6) (17.3) 1.7 (49.5) (48.1) 2.9 ------ ------ -------- -------- Total $ 68.0 $ 58.5 16.2 $181.7 $156.3 16.3 ====== ====== ======== ======== NET INCOME Electronic Systems $ 6.7 $ 9.7 (30.9) $ 20.6 $ 28.1 (26.7) Semiconductor 16.0 10.2 56.9 35.4 23.0 53.9 Communications 9.3 7.6 22.4 26.3 21.6 21.8 Lanier Worldwide 12.2 10.5 16.2 35.8 28.9 23.9 ------ ------ -------- -------- Total $44.2 $38.0 16.3 $118.1 $101.6 16.2 ====== ====== ======== ======== </TABLE> Third quarter and year-to-date sales and earnings at the Electronic Systems segment were adversely affected by lower sales and losses in the energy management systems business and continued competitive pressure in parts of the defense-related businesses. Year-to-date earnings were also impacted by a write-off on a development program. Semiconductor segment sales and earnings for the third quarter and the year have benefited from strong performance of power control products and military and space products. The segment reported continuing improvement in operating margins and increased patent royalty income. Third quarter and year-to-date increases in Communications segment sales and earnings were led by the segment's telecommunications and wireless businesses, particularly microwave systems, broadcast products, and the telephone test equipment business. Strong sales in the domestic office products business resulted in increased sales and earnings at the Lanier Worldwide segment for the third quarter and year-to-date. Cost of sales as a percentage of net sales decreased to 66.0 percent in the third quarter and 66.6 percent year-to-date compared to 68.0 percent and 68.6 percent for the respective periods last year. The decreases were due to higher gross margins in the Semiconductor and Communications segments. Engineering, selling, and administrative expenses as a percentage of net sales increased to 26.2 percent in the third quarter and 25.4 percent year-to-date compared to 23.7 and 24.0 for the same periods last year. Increases within the Semiconductor and Communications segments in research and development and marketing expenditures contributed to the higher operating expense ratios.
7 A slight increase in interest rates and higher levels of borrowing resulted in increased interest expense for the quarter and year-to-date. "Other-net" expense for the third quarter decreased due to foreign currency gains and increased gains on the sale of investment securities. The provision for income taxes as a percentage of pretax income was 35.0 percent in the third quarter and year-to-date for both years. The statutory federal tax rates for both periods was 35.0 percent. Income as a percentage of sales was 5.0 percent and 4.5 percent for the third quarter and year-to-date, compared to 4.5 percent and 4.0 percent in the same periods last year for the previously stated reasons. Working capital increased slightly from $755.4 million at June 30, 1995 to $756.2 million at the end of the third quarter. The Corporation anticipates that the requirement for funds to finance operations during the remainder of fiscal 1996 will be met by cash flow from operations and borrowing capacity. The Corporation also anticipates refinancing a portion of its short-term debt with long-term borrowings prior to June 30, 1996.
8 PART II OTHER INFORMATION - - ------------------------- Item 5. Other Information ----------------- On January 10, 1996, the Registrant filed with the Securities and Exchange Commission (the "Commission"), pursuant to Rule 424(b)(5) under the Securities Act of 1933, as amended, a Prospectus, dated January 10, 1996, relating to the offer and sale of $100,000,000 aggregate principal amount of the Registrant's 7% Debentures, due January 15, 2026. The Prospectus and Prospectus Supplement form part of the Registrant's Registration Statement on Form S-3 (Commission File No. 33-35315) (the "Registration Statement") that was declared effective by the Commission on October 3, 1990, which Registration Statement originally registered $200,000,000 aggregate principal amount of the Registrant's debt securities. Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits: (3(i)) Restated Certificate of Incorporation of Harris Corporation (1995) (3(ii)) By-Laws of Harris Corporation as in effect February 23, 1996 (11) Statement re: computation of per share earnings. (27) Financial Data Schedule (b) Reports on Form 8-K. The Registrant filed with the Commission two Current Reports on Form 8-K dated January 4 and January 10, 1996, respectively, relating to the offer and sale of the Registrant's 7% Debentures described in Item 5. SIGNATURES ---------- 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 --------------------------------- (Registrant) Date: May 1, 1996 By:/s/Bryan R. Roub --------------------------------- Bryan R. Roub Senior Vice President and Chief Financial Officer