<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 quarter ended December 31, 1994 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.
39,115,295 Shares
----------
<PAGE> 2
<TABLE>
PART I. FINANCIAL INFORMATION
- - -----------------------------
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following information for the quarters ended December 31, 1994 and December
31, 1993, 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, 1994 are
not necessarily indicative of the results for the full fiscal year.
<CAPTION>
Quarter Ended Two Quarters Ended
------------------------------- ------------------------------
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
------------ ------------ ------------- ------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue
Revenue from sales, rentals
and services $863.1 $807.5 $1,670.4 $1,576.6
Interest 9.2 9.1 18.0 17.3
------ ------ -------- --------
872.3 816.6 1,688.4 1,593.9
Costs and Expenses
Cost of sales, rentals and
services 590.2 549.7 1,151.7 1,070.2
Engineering, selling and
administrative expenses 209.1 201.3 405.0 404.8
Interest 16.0 14.5 30.8 28.7
Other - net 3.5 2.7 3.1 2.0
------ ------ -------- --------
Income before income taxes 53.5 48.4 97.8 88.2
Income taxes 18.7 18.4 34.2 33.5
------ ------ -------- --------
Income before cumulative effect of
change in accounting principle 34.8 30.0 63.6 54.7
Cumulative effect of change in
accounting principle (Postretirement
Benefits Other Than Pensions) - - - (10.1)
------ ------ -------- --------
Net Income $ 34.8 $ 30.0 $ 63.6 $ 44.6
====== ====== ======== ========
Income per share before cumulative effect
of change in accounting principle $.88 $.75 $1.61 $1.37
Cumulative effect of change in
accounting principle - - - (.25)
====== ====== ======== ========
Net Income Per Common Share (Primary) $.88 $.75 $1.61 $1.12
====== ====== ======== ========
Cash Dividends Paid Per Common Share $.31 $.28 $ .62 $ .56
====== ====== ======== ========
</TABLE>
<PAGE> 3
<TABLE>
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31, June 30,
1994 1994
-----------------------------
(In millions)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 59.2 $ 139.1
Marketable securities 25.2 --
Trade accounts and notes receivable -- net, less allowance for collection losses
of $28,800,000 at December 31, 1994 and $29,500,000 at June 30, 1994 643.6 647.2
Unbilled costs and accrued earnings on fixed price contracts based on percentage-
of-completion accounting, less progress payments of $216,200,000 at December 31,
1994 and $206,400,000 at June 30, 1994 386.3 369.7
Inventories:
Work in process and finished products 391.4 385.6
Raw materials and supplies 80.8 77.5
-------- --------
472.2 463.1
Deferred income taxes 88.7 79.2
-------- --------
Total Current Assets 1,675.2 1,698.3
Plant and equipment, less allowances for depreciation of $1,193,000,000 at
December 31, 1994 and $1,167,500,000 at June 30, 1994 574.6 551.3
Notes receivable -- net 156.0 151.1
Intangibles resulting from acquisitions 163.4 166.0
Other assets 96.7 110.4
-------- --------
$2,665.9 $2,677.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 63.2 $ 19.8
Trade accounts payable 135.8 184.5
Compensation and benefits 163.3 188.5
Other accrued items 178.5 164.9
Advance payments and unearned income 206.9 189.0
Income taxes 73.7 57.0
Current portion of long-term debt 1.8 1.0
-------- --------
Total Current Liabilities 823.2 804.7
Deferred income taxes 14.9 22.7
Long-term debt 654.4 661.7
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 39,115,295 shares at December 31,
1994 and 39,298,118 at June 30, 1994 39.1 39.3
Other capital 240.0 230.3
Retained earnings 912.9 943.1
Net unrealized gain on securities available-for-sale (net of taxes) 8.7 --
Unearned compensation (11.8) (3.2)
Cumulative transaction adjustments (15.5) (21.5)
-------- --------
Total Shareholders' Equity 1,173.4 1,188.0
-------- --------
$2,665.9 $2,677.1
======== ========
</TABLE>
<PAGE> 4
<TABLE>
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Two Quarters Ended
---------------------------
December 31, December 31,
1994 1993
------------ ------------
(In millions)
<S> <C> <C>
Cash flows from operating activities
Income before cumulative effect of change
in accounting principle $ 63.6 $ 54.7
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation of plant and equipment 72.4 77.7
Non-current deferred income tax (7.8) 2.2
Cumulative effect of change in accounting principle - (10.1)
(Increase) decrease in:
Accounts and notes receivable (25.3) (1.0)
Unbilled costs and inventories (42.0) (69.0)
Other assets (7.6) (7.1)
Increase (decrease) in:
Trade payables and accrued expenses (54.0) (60.2)
Advance payments and unearned income 19.0 (7.9)
Income taxes 2.9 (30.0)
Other (3.2) (3.0)
------ ------
Net cash provided by (used in) operating activities 18.0 (53.7)
------ ------
Cash flows from investing activities
Additions of plant and equipment-net of
normal disposals (89.9) (79.6)
Net cash used in investing activities (89.9) (79.6)
------ ------
Cash flows from financing activities
Increase in short-term debt 44.2 68.3
Increase (decrease) in long-term debt (7.3) -
Proceeds from sale of Common Stock 2.9 7.3
Purchase of Common Stock for treasury (17.2) (5.5)
Cash dividends (24.3) (22.2)
Dividend-in-kind (8.4) -
------ ------
Net cash provided by (used in) financing activities (10.1) 47.9
------ ------
Effect of exchange rate changes on cash and cash
equivalents 2.1 (2.5)
------ ------
Net decrease in cash and cash equivalents $(79.9) $(82.9)
====== ======
</TABLE>
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
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 and reported as a net after-tax amount as a
separate component of shareholder's equity until realized. The cost basis of
marketable securities at December 31, 1994, was $10.9 million. Realized gains
or losses are determined using the specific identification method. Gross
realized gains included in net income for the first two 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 Appeals. The plaintiff has filed a separate appeal seeking
reinstatement of the original punitive damage award. The Appeals 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 December 31, 1994, $7.0 (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 third and fourth quarters of 1995.
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
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 that 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 December 31, 1994,
open foreign exchange contracts were $267.1 million (as described below) of
which $201.0 million were to hedge off-balance-sheet commitments. Additionally,
for the two quarters ended December 31, 1994, the Corporation purchased and
sold $384.9 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 December 31, 1994, the Corporation had no open option contracts. Open
foreign exchange contracts at December 31, 1994, are described in the table
below.
<TABLE>
COMMITMENTS TO BUY U.S. DOLLARS (in millions):
<CAPTION>
CONTRACT AMOUNT
-------------------- DEFERRED GAINS
FOREIGN AND (LOSSES) MATURITIES
CURRENCY CURRENCY U.S. U.S. (in months)
- - -------- -------- ------- ------- -------------
<S> <C> <C> <C> <C>
Australian Dollar 4.3 $ 3.2 $ 0.1 1 to 5
Singapore Dollar 9.3 6.2 0.2 1 to 3
Canadian Dollar 13.0 9.5 (0.2) 1 to 5
Belgium Franc 120.0 3.8 (0.1) 1 to 4
Irish Punt 7.7 10.9 0.8 1 to 9
Japanese Yen 1,921.7 19.4 (0.2) 1 to 5
Malaysian Ringgit 118.0 44.2 1.9 1 to 10
British Pound 2.1 3.3 0.0 1 to 6
</TABLE>
<TABLE>
COMMITMENTS TO SELL U.S. DOLLARS (in millions):
<CAPTION>
CONTRACT AMOUNT
-------------------- DEFERRED GAINS
FOREIGN AND (LOSSES) MATURITIES
CURRENCY CURRENCY U.S. U.S. (in months)
- - -------- -------- ------- ------- -------------
<S> <C> <C> <C> <C>
Australian Dollar 3.3 $ 2.4 $(0.1) 1 to 5
Canadian Dollar 3.5 2.6 0.1 1
French Franc 70.9 13.0 0.0 1 to 3
German Mark 79.5 51.0 0.5 1 to 5
Italian Lira 21,800.0 13.6 0.4 1 to 11
Japanese Yen 2,519.1 25.6 0.5 1 to 8
Malaysian Ringgit 16.0 6.3 0.0 1
British Pound 33.8 52.1 (0.2) 1 to 9
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - ------------------------------------
Sales and net income for the second quarter increased 6.9 percent and 16
percent, respectively, over last year's second quarter. Sales for the first
two quarters increased 6.0 percent over the same period a year ago, while
income before cumulative effect of change in accounting principle increased
16.3 percent.
The Semiconductor segment reported a modest increase in sales and a significant
increase in net income for both second quarter and year-to-date results.
Significant growth in sales of core commercial products more than offset an
anticipated decline in military sales. Improved cost of sales ratios and
operating expense ratios resulted from higher sales and cost reduction efforts
undertaken in last year's fourth quarter. Of the $12.1 million charge for cost
reduction actions taken in the prior year, $7.0 million of reserves remain and
are expected to be used in the second half of the current fiscal year.
Sales and net income were up significantly in the Communications segment for
the quarter and first two 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, benefiting from strong domestic and international
shipments, reported record quarterly sales for the second quarter. Segment net
income for the quarter and the year increased significantly due to increased
sales and increased profitability in the segment's European operations.
Second quarter net income was signficiantly lower for the Electronic Systems
segment. For the year, net income is moderately lower while sales are
relatively flat for both periods. Disruptions resulting from segment-wide
streamlining actions and delays in shipment of a new energy management system
for electric utilities were primarily responsible for the decline in quarterly
earnings.
Cost of sales as a percentage of net sales increased to 68.4 percent in the
second quarter and 68.9 percent in the first two quarters of this year compared
to 68.1 percent and 67.9 percent for the respective periods last year. These
increases were due to decreased gross margins in the Electronic Systems and
Communications segments.
Engineering, selling, and administrative expenses as a percentage of net sales
decreased to 24.2 percent in both the second quarter and the first two quarters
compared to 24.9 percent in last year's second quarter and 25.7 percent in
last year's two quarters to date. The operating expense ratio was lower for
all segments and reflects continuing cost reduction initiatives of the
Corporation.
Interest expense in the quarter and the year increased due to higher interest
rates. "Other-net" expense was higher for the second quarter and the first two
quarters due to reduced gains from the sale of investment securities in the
current year.
The provision for income taxes as a percentage of pre-tax income was 35 percent
in the second quarter and the first two quarters of this year, compared to 38
percent for the same periods last year. The decrease in the effective tax rate
from the prior year is due to increased foreign tax benefits.
Income before cumulative effect of change in accounting principle as a
percentage of sales was 4.0 percent and 3.8 percent for the quarter and
year-to-date, compared to 3.7 percent and 3.5 percent in the same periods last
year for the previously stated reasons.
Working capital decreased $41.6 million from $893.6 million at June 30, 1994 to
$852.0 million at the end of the second quarter due to the spin-off of a
computer systems business which had working capital of $38.7 million. 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: February 10, 1995 By: /s/ Bryan R. Roub
--------------------------------
Bryan R. Roub
Senior Vice President and
Chief Financial Officer
<PAGE> 1
<TABLE>
EXHIBIT 11 -- COMPUTATION OF NET INCOME PER SHARE
----------
<CAPTION>
Quarter Ended Two Quarters Ended
------------------------------- -----------------------------
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
------------ ------------ ------------ ------------
(In millions except per share amounts)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 39.3 39.9 39.4 39.8
======= ======= ======= =======
Income before cumulative effect of change in accounting
principle $ 34.8 $ 30.0 $ 63.6 $ 54.7
Cumulative effect of change in accounting principle -- -- -- (10.1)
------- ------- ------- -------
Net income $ 34.8 $ 30.0 $ 63.6 $ 44.6
======= ======= ======= =======
Per share amounts:
Income before cumulative effect of change in accounting
principle $.88 $.75 $1.61 $1.37
Cumulative effect of change in Accounting principle -- -- -- (.25)
---- ---- ----- -----
Total $.88 $.75 $1.61 $1.12
==== ==== ===== =====
Fully diluted:
Total primary average shares outstanding 39.3 39.9 39.4 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 39.4 40.1 39.5 40.0
======= ======== ======= =======
Per shares amounts:
Income before cumulative effect of change in accounting
principle $.88 $.75 $1.61 $1.36
Cumulative effect of change in accounting principle -- -- -- (.25)
---- ---- ----- -----
Total $.88 $.75 $1.61 $1.11
==== ==== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-30-1994
<CASH> 59,200
<SECURITIES> 25,200
<RECEIVABLES> 672,400
<ALLOWANCES> 28,800
<INVENTORY> 472,200
<CURRENT-ASSETS> 1,675,200
<PP&E> 1,767,600
<DEPRECIATION> 1,193,000
<TOTAL-ASSETS> 2,665,900
<CURRENT-LIABILITIES> 823,200
<BONDS> 0
<COMMON> 39,100
0
0
<OTHER-SE> 1,134,300
<TOTAL-LIABILITY-AND-EQUITY> 2,665,900
<SALES> 1,670,400
<TOTAL-REVENUES> 1,688,400
<CGS> 1,151,700
<TOTAL-COSTS> 405,000
<OTHER-EXPENSES> 3,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,800
<INCOME-PRETAX> 97,800
<INCOME-TAX> 34,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,600
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
