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 December 31, 1996 [ ] 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 ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 34-0276860 - - --------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) l025 West NASA Boulevard Melbourne, Florida 32919 -------------------------------------------------- (Address of principal executive offices)(Zip Code) (407) 727-9100 ---------------------------------------------------- (Registrant's telephone number, including area code) =============================== 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 --- --- The number of shares outstanding of the registrant's common stock, as of January 30, 1997 was 39,002,938 shares.
2 PART I. FINANCIAL INFORMATION ----------------------------- ITEM 1. Financial Statements - - ----------------------------- HARRIS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME The following information for the quarters ended December 31, 1996 and December 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 December 31, 1996 are not necessarily indicative of the results for the full fiscal year. <TABLE> <CAPTION> Quarter Ended Two Quarters Ended -------------------------- ------------------------- December 31, December 31, December 31, December 31, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ (In millions, except per share amounts) <S> <C> <C> <C> <C> Revenue Revenue from sales, rentals and services $945.9 $916.6 $1,829.3 $1,733.3 Interest 9.1 9.3 18.2 18.0 ------ ------ -------- -------- 955.0 925.9 1,847.5 1,751.3 Costs and Expenses Cost of sales, rentals and services 634.3 615.5 1,220.0 1,160.6 Engineering, selling and administrative expenses 239.0 223.0 469.9 434.5 Interest 16.0 15.7 30.8 30.7 Other - net (3.8) 9.6 (.9) 11.8 ------ ------ ------- -------- Income before income taxes 69.5 62.1 127.7 113.7 Income taxes 24.0 21.7 44.1 39.8 ------ ------ ------- -------- Net Income $ 45.5 $ 40.4 $ 83.6 $ 73.9 ====== ====== ======= ======== Net Income Per Common Share (Primary) $1.17 $1.03 $2.15 $1.89 ===== ===== ===== ===== Cash Dividends Paid Per Common Share $.38 $.34 $.76 $.68 ==== ==== ==== ==== </TABLE> See Notes to Financial Statements (2)
3 <TABLE> HARRIS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET <CAPTION> June 30, December 31, 1996 1996 (audited) ------------ --------- ASSETS (In millions) <S> <C> <C> Current Assets Cash and cash equivalents $ 61.4 $ 74.6 Marketable securities 117.2 24.8 Trade accounts and notes receivable - net, less allowance for collection losses of $32,800,000 at December 31, 1996 and $31,300,000 at June 30, 1996 756.1 727.8 Unbilled costs and accrued earnings on fixed price contracts based on percentage-of-completion accounting, less progress payments of $238,200,000 at December 31, 1996 and $216,600,000 at June 30, 1996 401.1 397.8 Inventories: Work in process and finished products 472.9 412.7 Raw materials and supplies 133.9 131.4 ------- ------- 606.8 544.1 Deferred income taxes 138.9 171.8 ------- ------- Total Current Assets 2,081.5 1,940.9 Plant and equipment, less allowances for depreciation of $1,270,400,000 at December 31, 1996 and $1,278,100,000 at June 30, 1996 827.3 721.7 Notes receivable - net 217.9 190.7 Intangibles resulting from acquisitions 210.9 212.8 Other assets 175.0 140.6 -------- -------- $3,512.6 $3,206.7 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt $ 270.2 $ 181.3 Trade accounts payable 214.8 209.0 Compensation and benefits 193.6 209.3 Other accrued items 209.6 190.8 Advance payments and unearned income 296.8 287.8 Income taxes 83.6 102.7 Current portion of long-term debt 2.1 2.2 -------- -------- Total Current Liabilities 1,270.7 1,183.1 Deferred income taxes 70.6 62.2 Long-term debt 689.0 588.5 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 39,002,888 shares at December 31, 1996 and 38,871,603 at June 30, 1996 39.0 38.9 Other capital 277.6 266.0 Retained earnings 1,126.9 1,072.7 Net unrealized gain on securities available-for-sale (net of taxes) 65.5 11.1 Unearned compensation (5.9) .3 Cumulative translation adjustments (20.8) (16.1) -------- -------- Total Shareholders' Equity 1,482.3 1,372.9 -------- -------- $3,512.6 $3,206.7 ======== ======== </TABLE> See Notes to Financial Statements (3)
4 <TABLE> HARRIS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS <CAPTION> Two Quarters Ended -------------------------- December 31, December 31, 1996 1995 ------------- ------------ (In millions) <S> <C> <C> Cash flows from operating activities Net income $ 83.6 $ 73.9 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of plant and equipment 85.5 81.1 Non-current deferred income tax 8.4 3.5 (Increase) decrease in: Accounts and notes receivable (54.8) (20.3) Unbilled costs and inventories (65.4) (69.7) Other assets (37.4) (44.6) Increase (decrease) in: Trade payables and accrued expenses 8.6 (26.0) Advance payments and unearned income 9.0 13.4 Income taxes (21.0) (14.4) Other 8.8 3.2 ----- ----- Net cash provided by operating activities 25.3 .1 ----- ----- Cash flows from investing activities Cash paid for acquisitions (5.6) (34.5) Additions of plant and equipment (197.5) (106.7) ------ ------ Net cash used in investing activities (203.1) (141.2) ------ ------ Cash flows from financing activities Increase in short-term debt 88.8 110.1 Increase in long-term debt 100.4 12.4 Proceeds from sale of Common Stock 5.0 4.0 Purchase of Common Stock for treasury - (11.1) Cash dividends (29.5) (26.5) ----- ----- Net cash provided by financing activities 164.7 88.9 ----- ----- Effect of exchange rate changes on cash and cash equivalents (.1) (3.1) ----- ----- Net decrease in cash and cash equivalents $(13.2) $(55.3) Cash and cash equivalents, beginning of year 74.6 119.3 ------ ------ Cash and cash equivalents, end of period $ 61.4 $ 64.0 ====== ====== </TABLE> See Notes to Financial Statements (4)
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 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 Annual Report on Form 10-K for the fiscal year ended June 30, 1996. Note B -- Reclassifications - - --------------------------- Prior year amounts have been reclassified to conform with current year classifications. Note C -- Credit Arrangements - - ----------------------------- 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. These agreements provide for drawings at interest rates determined by a pricing matrix based upon the Corporation's long-term debt rating. (5)
6 ITEM 2. Management's Discussion & Analysis of Financial Condition & Results of - - ------------------------------------------------------------------------------ Operations - - ---------- Results for the second quarter and first two quarters were higher than the comparable periods a year ago. Segment net sales, operating profit and net income were as follows: <TABLE> <CAPTION> Quarter Ended Two Quarters Ended ---------------------------------------- ------------------------------------- Dec. 31 Dec. 31 Percent Dec. 31 Dec. 31 Percent 1996 1995 Inc./(Dec) 1996 1995 Inc./(Dec) ---------------------------------------- ------------------------------------- (Dollars in millions) <S> <C> <C> <C> <C> <C> <C> NET SALES Communications $248.4 $212.8 17 $ 456.5 $ 393.4 16 Lanier Worldwide 294.1 287.5 2 553.5 537.3 3 Electronic Systems 242.1 236.2 2 496.5 449.9 10 Semiconductor 161.3 180.1 (10) 322.8 352.7 (8) ----- ----- ------- ------- Total $945.9 $916.6 3 $1,829.3 $1,733.3 4 ===== ===== ======= ======= OPERATING PROFIT Communications $ 22.0 $ 20.2 9 $ 41.6 $ 36.0 16 Lanier Worldwide 33.0 32.0 3 55.6 53.4 4 Electronic Systems 17.3 17.0 2 36.6 37.4 (2) Semiconductor 19.1 20.3 (6) 39.8 39.4 1 Corporate Expense (5.9) (11.7) (48) (15.1) (21.8) (31) Interest Expense (16.0) (15.7) 2 (30.8) (30.7) - ----- ----- ---- ----- Total $ 69.5 $ 62.1 12 $127.7 $113.7 12 ===== ===== ===== ===== NET INCOME Communications $11.2 $ 9.4 19 $20.8 $17.0 22 Lanier Worldwide 16.7 14.7 14 27.2 23.6 15 Electronic Systems 8.0 6.3 27 16.0 13.9 15 Semiconductor 9.6 10.0 (4) 19.6 19.4 1 ---- ---- ---- ---- Total $45.5 $40.4 13 $83.6 $73.9 13 ==== ==== ==== ==== </TABLE> Communications segment sales and earnings were up strongly over the prior year periods, led by strong demand for the segment's microwave and broadcast products. Net income benefited from lower tax rates resulting from tax benefits of foreign operations. Sales and operating profit were up slightly in the Lanier Worldwide segment, while net income was up 14 percent for the quarter and 15 percent year-to-date. Lower interest expense, favorable foreign exchange rates and lower income taxes contributed to the strong increase in net income. Electronic Systems segment sales were up slightly in the second quarter and moderately for the year, while operating profit was relatively unchanged. Net income was up sharply for the quarter as the segment recognized tax benefits associated with the sale of a building. The first two quarters include write-offs on certain programs that have been substantially offset by the gain on the sale of a building. Sales were moderately lower for the Semiconductor segment for both the quarter and the year due to an industry-wide downturn. Earnings were somewhat lower for the quarter and slightly higher for the year as the impact of lower sales has been offset by higher royalty income and improved margins in military and space products and intelligent power circuits. Cost of sales as a percentage of net sales decreased to 67.1 percent in the second quarter and 66.7 percent in the first two quarters of this year compared to 67.2 percent and 67.0 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 increased to 25.3 percent in the second quarter and 25.7 percent for the year compared to 24.3 percent and 25.1 percent for the comparable prior year periods. Operating expenses were somewhat higher in all expense categories, including research and development, which is $12 million higher for the current year. Interest expense is only slightly higher for the quarter and the year despite higher average borrowings as additional interest on borrowings has been capitalized as a component of plant and equipment under construction. "Other-net" expenses were significantly lower for the quarter and the year due to a gain on the sale of a building and foreign currency gains. The provision for income taxes as a percentage of pretax income was 34.5 percent in both the second quarter and the first two 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 4.8 percent and 4.6 percent for the second quarter and year-to-date, compared to 4.4 percent and 4.3 percent in the same periods last year for the previously stated reasons. Working capital increased from 757.8 at June 30, 1996, to 810.8 at the end of the second 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 $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. 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., (AFC) undertook an initial public offering of its common stock on October 1, 1996. Based upon the quoted market price of AFC on December 31, 1996, the unrealized gain on this investment was $57.3 million after tax. On January 24, 1997, AFC filed a registration statement with the SEC relating to a proposed secondary public offering. The Corporation has indicated that it intends to sell up to 300,000 AFC shares pursuant to this offering. Based upon certain agreements entered into with the underwriters, the Corporation will not sell any of its other AFC shares for the ninety-day period following the closing of the proposed secondary public offering. At the present time the Corporation has no definitive plans to sell other AFC shares when the restrictions expire. (7)
8 PART II. OTHER INFORMATION -------------------------- Item 4. Submission of Matters to a Vote of Security Holders. - - ------------------------------------------------------------- At the Annual meeting of shareholders held on October 25, 1996, the following proposals were adopted by the margins indicated. 1. To elect three nominees to the Board of Directors: <TABLE> <CAPTION> NOMINEES NUMBER OF SHARES -------- ---------------- FOR WITHHELD --- -------- <S> <C> <C> Robert Cizik 33,248,734 94,439 John T. Hartley 33,248,298 94,875 Karen Katen 33,243,666 99,507 </TABLE> 2. To ratify the selection of Ernst & Young LLP as the independent public auditors of the Company for the current fiscal year. For 33,230,049 Against 44,818 Abstain 68,306 Item 6. Exhibits and Reports on Form 8-K. - - ------------------------------------------ (a) Exhibits: (10) Material Contracts Harris Corporation Bank Credit Agreements: (i) $300,000,000 364-Day Credit Agreement, dated as of November 6, 1996. (ii) $500,000,000 5-Year Credit Agreement, dated as of November 6, 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 a Current Report on Form 8-K on October 23, 1996, relating to the filing of a Prospectus Supplement concerning the proposed offer and sale of up to $150,000,000 aggregate initial public offering price of the Registrant's Medium Term Notes and the issuance of a press release announcing its financial results for the fiscal quarter ended September 30, 1996. The Registrant filed with the Commission a Current Report on Form 8-K on December 6, 1996, relating the adoption of a new Stockholder Protection Rights Plan and the related declaration of a dividend of one Right for each outstanding share of Common Stock of the Registrant held of record at the close of business on December 6, 1996. Items 2, 3 and 5 of Part II are not applicable and have been omitted. (8)
9 SIGNATURE --------- 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: February 11, 1997 By:/s/Bryan R. Roub ---------------------------------- Bryan R. Roub Senior Vice President & Chief Financial Officer (principal financial officer and duly authorized officer) (9)
10 EXHIBIT INDEX ------------- Exhibit No. Under Reg. S-K, Item 601 Description -------------- ----------- [S] [C] (10)(i) Harris Corporation $300,000,000 364-Day Credit Agreement, dated as of November 6, 1996. (10)(ii) Harris Corporation $500,000,000 5-Year Credit Agreement, dated as of November 6, 1996. (11) Statement re: computation of per share earnings. (27) Financial Data Schedule.