<PAGE> 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 the quarter ended March 31, 1995 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.
38,884,031 Shares
----------
<PAGE> 2
PART I. FINANCIAL INFORMATION
- - ------------------------------
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following information for the quarters ended March 31, 1995 and March 31,
1994, 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, 1995 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,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue
Revenue from sales, rentals
and services $850.4 $838.3 $2,520.8 $2,414.9
Interest 9.5 8.3 27.5 25.6
------ ------ -------- --------
859.9 846.6 2,548.3 2,440.5
Costs and Expenses
Cost of sales, rentals and
services 578.6 578.8 1,730.3 1,649.0
Engineering, selling and
administrative expenses 201.2 202.6 606.2 607.4
Interest 17.3 14.8 48.1 43.5
Other - net 4.3 (.6) 7.4 1.4
------ ------ ------- --------
Income before income taxes 58.5 51.0 156.3 139.2
Income taxes 20.5 18.0 54.7 51.5
------ ------ ------- --------
Income before cumulative effect of
change in accounting principle 38.0 33.0 101.6 87.7
Cumulative effect of change in
accounting principle (Postretirement
Benefits Other Than Pensions) - - - (10.1)
------ ------ ------- --------
Net Income $ 38.0 $ 33.0 $ 101.6 $ 77.6
====== ====== ======= ========
Income per share before cumulative effect
of change in accounting principle $.98 $.83 $2.59 $2.20
Cumulative effect of change in
accounting principle - - - (.25)
---- ---- ----- -----
Net Income Per Common Share (Primary) $.98 $.83 $2.59 $1.95
==== ==== ===== =====
Cash Dividends Paid Per Common Share $.31 $.28 $.93 $.84
==== ==== ==== ====
</TABLE>
<PAGE> 3
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
------------- -------------
(In millions)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 57.2 $ 139.1
Marketable securities 25.7 -
Trade accounts and notes receivable - net, less allowance
for collection losses of $29,100,000 at March 31, 1995
and $29,500,000 at June 30, 1994 650.4 647.2
Unbilled costs and accrued earnings on fixed price contracts
based on percentage-of-completion accounting, less progress
payments of $226,600,000 at March 31, 1995 and
$206,400,000 at June 30, 1994 406.4 369.7
Inventories:
Work in process and finished products 410.5 385.6
Raw materials and supplies 82.5 77.5
------- -------
493.0 463.1
Deferred income taxes 112.1 79.2
------- -------
Total Current Assets 1,744.8 1,698.3
Plant and equipment, less allowances for depreciation of
$1,208,600,000 at March 31, 1995 and $1,167,500,000 at
June 30, 1994 574.8 551.3
Notes receivable - net 160.4 151.1
Intangibles resulting from acquisitions 167.4 166.0
Other assets 101.0 110.4
-------- --------
$2,748.4 $2,677.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 82.8 $ 19.8
Trade accounts payable 130.5 184.5
Compensation and benefits 185.0 188.5
Other accrued items 178.2 164.9
Advance payments and unearned income 211.8 189.0
Income taxes 60.8 57.0
Current portion of long-term debt 2.0 1.0
-------- --------
Total Current Liabilities 851.1 804.7
Deferred income taxes 44.6 22.7
Long-term debt 653.8 661.7
Shareholders' Equity
Capital stock:
Preferred Stock, without par value:
Authorized - 1,000,000 shares; issued - none - -
Common Stock, par value $1 per share:
Authorized - 100,000,000 shares; issued 38,884,031 shares
at March 31, 1995 and 39,298,118 at June 30, 1994 38.9 39.3
Other capital 239.7 230.3
Retained earnings 929.5 943.1
Net unrealized gain on securities available-for-sale (net
of taxes) 9.1 -
Unearned compensation (6.5) (3.2)
Cumulative translation adjustments (11.8) (21.5)
-------- --------
Total Shareholders' Equity 1,198.9 1,188.0
-------- --------
$2,748.4 $2,677.1
======== ========
</TABLE>
<PAGE> 4
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Quarters Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
(In millions)
<S> <C> <C>
Cash flows from operating activities
Income before cumulative effect of change
in accounting principle $101.6 $ 87.7
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation of plant and equipment 112.2 116.4
Non-current deferred income tax 21.9 12.5
Cumulative effect of change in accounting
principle - (10.1)
(Increase) decrease in:
Accounts and notes receivable (36.6) (13.0)
Unbilled costs and inventories (82.9) (102.4)
Other assets (18.2) (18.4)
Increase (decrease) in:
Trade payables and accrued expenses (37.9) (29.9)
Advance payments and unearned income 24.0 (6.5)
Income taxes (33.5) (50.3)
Other 15.9 (2.0)
----- -----
Net cash provided by (used in) operating activities 66.5 (16.0)
----- -----
Cash flows from investing activities
Additions of plant and equipment-net of
normal disposals (137.4) (116.8)
------ ------
Net cash used in investing activities (137.4) (116.8)
------ ------
Cash flows from financing activities
Increase in short-term debt 64.0 34.8
Increase (decrease) in long-term debt (7.9) 49.9
Proceeds from sale of Common Stock 4.8 13.3
Purchase of Common Stock for treasury (29.0) (16.7)
Cash dividends (36.2) (33.3)
Dividend-in-kind (8.4) -
----- -----
Net cash provided by (used in) financing activities (12.7) 48.0
----- -----
Effect of exchange rate changes on cash and cash
equivalents 1.7 3.2
----- -----
Net decrease in cash and cash equivalents (81.9) (81.6)
Cash and cash equivalents, beginning of year 139.1 131.7
------ ------
Cash and cash equivalents, at end of third quarter $ 57.2 $ 50.1
====== ======
</TABLE>
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
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, 1994.
Note B -- Accounting Standards
- - ------------------------------
In the first quarter of fiscal 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Under the provisions of this standard, the
Corporation's marketable securities, all of which are classified as
available-for-sale, are reported at fair value, with unrealized gains and
losses excluded from net income. The net after-tax amount is reported as a
separate component of shareholder's equity until realized. The cost basis of
marketable securities at March 31, 1995, was $10.8 million. Realized gains or
losses are determined using the specific identification method. Gross realized
gains included in net income for the first three quarters of fiscal 1995 were
not material.
Note C -- Dividend-in-kind
- - --------------------------
In the first quarter of the fiscal 1995, the Corporation spun off as a tax free
dividend its computer systems business by distributing one share of Harris
Computer Systems Corporation common stock for every twenty shares of the
Corporation's Common Stock. The distribution ($55.2 million) is included as a
charge to retained earnings in the Condensed Consolidated Balance Sheet. In
the Condensed Consolidated Statement of Cash Flows, the dividend is presented
as a noncash transaction except for $8.4 million which was the cash balance of
Harris Computer Systems Corporation at the time of the spin-off.
Note D -- Litigation
- - --------------------
In 1993, 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. The court reduced the punitive damages to
$53.4 million, and entered judgment for the compensatory and punitive damages,
together with interests and costs of suit. 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 appealed to the
California Court of Appeal. The plaintiff has filed a separate appeal seeking
reinstatement of the original punitive damage award. The Appeal Court is
expected to render its decision by June 1996. 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 E -- Restructuring
- - -----------------------
In the fourth quarter of fiscal 1994, the Corporation recorded a $12.1 million
(after-tax) restructuring charge to exit certain existing Semiconductor
operations. This charge was included in "Other-net" expense in the
Consolidated Statement of Income. The components of this charge were $10.7
million for employee termination payments and $1.4 million for the relocation
and write-off of fixed assets. At March 31, 1995, $2.0 million (after-tax) of
reserves remain. Due to local statutory requirements, the closure of a
Singapore facility and the usage of remaining reserves will not be completed
until the fourth quarter of 1995.
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
Note F -- Foreign Currency Contracts
- - ------------------------------------
The Corporation uses foreign exchange contracts and options to hedge
intercompany accounts and off-balance-sheet foreign currency commitments.
Specifically, these foreign exchange contracts offset foreign currency
denominated inventory and purchase commitments from suppliers, accounts
receivable from and future committed sales to customers, and firm committed
operating expenses. Management believes the use of foreign currency financial
instruments should reduce the risks which arise from doing business in
international markets. Contracts are for periods consistent with the terms of
the underlying transaction, generally one year or less. At March 31, 1995,
open foreign exchange contracts were $264.6 million (as described below) of
which $232.8 million were to hedge off-balance-sheet commitments.
Additionally, for the quarter ended March 31, 1995, the Corporation purchased
and sold $183.7 million of foreign exchange forward and option contracts.
Deferred gains and losses are included on a net basis in the Condensed
Consolidated Balance Sheet as other assets. They are recorded in income as
part of the underlying transaction when it is recognized.
At March 31, 1995, the Corporation had $9.2 million in open option contracts.
Total open foreign exchange contracts at March 31, 1995, are described in the
table below.
<TABLE>
<CAPTION>
COMMITMENTS TO BUY FOREIGN CURRENCIES (in millions):
CONTRACT AMOUNT
-------------------
FOREIGN DEFERRED GAINS
------- AND <LOSSES> MATURITIES
CURRENCY CURRENCY U.S. U.S. (in months)
- - -------- -------- ------ -------------- -----------
<S> <C> <C> <C> <C>
Australian Dollar 6.5 $ 4.8 $(0.1) 1 to 10
Canadian Dollar 5.3 3.8 0.0 1 to 2
Belgium Franc 42.0 1.3 .1 1 to 4
Irish Punt 6.0 8.6 1.0 1 to 7
Japanese Yen 3,111.5 33.7 1.2 1 to 9
Malaysian Ringgit 120.9 46.5 1.1 1 to 9
British Pound .8 1.2 0.0 1 to 3
German Mark 20.6 14.2 .5 1 to 10
</TABLE>
<TABLE>
<CAPTION>
COMMITMENTS TO SELL FOREIGN CURRENCIES (in millions):
CONTRACT AMOUNT
-------------------
FOREIGN DEFERRED GAINS
------- AND <LOSSES> MATURITIES
CURRENCY CURRENCY U.S. U.S. (in months)
- - -------- -------- ------ -------------- -----------
<S> <C> <C> <C> <C>
Australian Dollar 5.4 $ 4.0 $ 0.0 1 to 12
Canadian Dollar 7.4 5.2 0.0 1 to 3
French Franc 68.8 12.9 (1.0) 1 to 12
German Mark 75.9 49.5 (4.8) 1 to 13
Italian Lira 20,700.0 12.3 0.0 1 to 9
Japanese Yen 1,510.6 15.4 (1.5) 1 to 5
British Pound 32.5 50.7 (1.3) 1 to 22
Chilean Peso 209.6 .5 0.0 3
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - ------------------------------------
Sales and net income for the third quarter increased 1.4 percent and 15.2
percent, respectively, over last year's third quarter. Sales for the first
three quarters increased 4.4 percent over the same period a year ago, while
income before cumulative effect of change in accounting principle increased
15.8 percent.
The Semiconductor segment reported a significant increase in net income on
level sales for both third quarter and year-to-date results. Segment earnings
benefited from the increased sales of core commercial products. Results
continue to be adversely affected by a decline in military shipments. Cost
reduction efforts undertaken in last year's fourth quarter continue to result
in improved cost of sales and operating expense ratios. Of the $12.1 million
charge for cost reduction actions taken in the prior year, $2.0 million of
reserves remain and are expected to be used in the fourth quarter of the
current year.
Sales and net income were up significantly in the Communications segment for
the quarter and first three quarters to date. The increases in sales and
earnings resulted from growth in the segment's radio communications, broadcast
equipment, and microwave systems businesses. A higher cost of sales ratio in
the current year due to changes in product mix and markets was offset by a
lower operating expense ratio.
The Lanier Worldwide segment reported higher sales and net income for the third
quarter and the first three quarters as a result of strong domestic and
international shipments. Operating expense ratios continue to improve as the
segment benefits from prior year cost reduction efforts. While this segment
sources most of its products in Japan, the recent strengthening of the Japanese
yen against the U.S. dollar is not expected to have a significant impact on
near term results due to foreign exchange contracts and vendor agreements that
mitigate the risk of foreign currency changes.
Electronic Systems segment sales were substantially lower for the third quarter
and moderately lower for the year-to-date. Prior year results included a
computer systems business which was spun off to shareholders in the first
quarter of Fiscal 1995. Segment earnings are significantly lower than prior
year periods and have been adversely affected by lower than anticipated
shipments of a new energy-management system. Segment-wide streamlining actions
begun in the second quarter of the current year contributed to an improved
operating expense ratio.
Cost of sales as a percentage of net sales decreased to 68.0 percent in the
third quarter from 69.0 percent in last year's third quarter due to improved
gross margins in the Semiconductor segment.
Engineering, selling, and administrative expenses as a percentage of net sales
decreased to 23.7 percent in the third quarter and 24.0 percent year-to-date
compared to 24.2 percent for the third quarter last year and 25.2 percent for
the prior year-to-date. The lower operating expense ratios for all segments
reflects the Corporation's continuing cost reduction initiatives.
Interest expense in the quarter and the year increased due to higher interest
rates. Other-net expense was higher for the third quarter and year-to-date due
to reduced gains from the sale of investment securities and increased losses on
foreign currency transactions in the current year.
Increased foreign tax benefits reduced the provision for income taxes as a
percentage of pre-tax income from 35.3 percent in the third quarter of last
year and 37.0 percent for the three quarters last year to 35.0 percent for both
periods in the current year.
Income before cumulative effect of change in accounting principle as a
percentage of sales was 4.5 percent and 4.0 percent for the quarter and
year-to-date, compared to 3.9 percent and 3.6 percent in the same periods last
year for the previously stated reasons.
Working capital was unchanged from June 30, 1994. The Corporation anticipates
that the requirement for funds to finance operations during the remainder of
the fiscal year will be met by cash flow from operations.
<PAGE> 8
PART II OTHER INFORMATION
- - -------------------------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits:
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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 10, 1995 By:/s/Bryan R. Roub
---------------------------------
Bryan R. Roub
Senior Vice President and
Chief Financial Officer
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
----------
Quarter Ended Three Quarters Ended
------------------------- --------------------------
March 31, March 31, March 31, March 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(In millions except per share amounts)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 39.0 39.8 39.2 39.8
===== ===== ===== =====
Income before cumulative effect of
change in accounting principle $ 38.0 $ 33.0 $101.6 $ 87.7
Cumulative effect of change in
accounting principle - - - (10.1)
------ ------ ------ ------
Net income $ 38.0 $ 33.0 $101.6 $ 77.6
====== ====== ====== ======
Per share amounts:
Income before cumulative effect of
change in accounting principle $.98 $.83 $2.59 $2.20
Cumulative effect of change in
accounting principle - - - (.25)
---- ---- ----- -----
Total $.98 $.83 $2.59 $1.95
==== ==== ===== =====
Fully diluted:
Total primary average shares
outstanding 39.0 39.8 39.2 39.8
Dilutive stock options and employee
stock purchase plan shares - based
on treasury stock method using the
greater of quarter-end market price
or average market price .1 .2 .1 .2
----- ----- ----- -----
Average fully diluted shares
outstanding 39.1 40.0 39.3 40.0
===== ===== ===== =====
Per share amounts:
Income before cumulative effect of
change in accounting principle $.97 $.83 $2.58 $2.19
Cumulative effect of change in
accounting principle - - - (.25)
---- ---- ----- -----
Total $.97 $.83 $2.58 $1.94
==== ==== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 57,200
<SECURITIES> 25,700
<RECEIVABLES> 679,500
<ALLOWANCES> 29,100
<INVENTORY> 493,000
<CURRENT-ASSETS> 1,744,800
<PP&E> 1,783,400
<DEPRECIATION> 1,208,600
<TOTAL-ASSETS> 2,748,400
<CURRENT-LIABILITIES> 851,100
<BONDS> 653,800
<COMMON> 38,900
0
0
<OTHER-SE> 1,160,000
<TOTAL-LIABILITY-AND-EQUITY> 2,748,400
<SALES> 2,520,800
<TOTAL-REVENUES> 2,548,300
<CGS> 1,730,300
<TOTAL-COSTS> 606,200
<OTHER-EXPENSES> 7,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,100
<INCOME-PRETAX> 156,300
<INCOME-TAX> 54,700
<INCOME-CONTINUING> 101,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,600
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.58
</TABLE>
