<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, 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.
39,059,596 Shares
----------
<PAGE> 2
PART I. FINANCIAL INFORMATION
- ------------------------------
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following information for the quarters ended December 31, 1995 and December
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 December 31, 1995 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,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue
Revenue from sales, rentals
and services $916.6 $863.1 $1,733.3 $1,670.4
Interest 10.2 9.2 19.2 18.0
------ ------ -------- --------
926.8 872.3 1,752.5 1,688.4
Costs and Expenses
Cost of sales, rentals and
services 615.5 590.2 1,160.6 1,151.7
Engineering, selling and
administrative expenses 223.0 209.1 434.5 405.0
Interest 16.6 16.0 31.9 30.8
Other - net 9.6 3.5 11.8 3.1
------ ------ ------- --------
Income before income taxes 62.1 53.5 113.7 97.8
Income taxes 21.7 18.7 39.8 34.2
------ ------ ------- --------
Net Income $ 40.4 $ 34.8 $ 73.9 $ 63.6
====== ====== ======= ========
Net Income Per Common Share (Primary) $1.03 $.88 $1.89 $1.61
===== ==== ===== =====
Cash Dividends Paid Per Common Share $.34 $.31 $.68 $.62
==== ==== ==== ====
</TABLE>
<PAGE> 3
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------- -----------
ASSETS (In millions)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 64.0 $ 119.3
Marketable securities 21.2 22.3
Trade accounts and notes receivable - net, less allowance
for collection losses of $34,400,000 at December 31, 1995
and $30,000,000 at June 30, 1995 684.1 657.1
Unbilled costs and accrued earnings on fixed price contracts
based on percentage-of-completion accounting, less progress
payments of $232,500,000 at December 31, 1995 and
$240,200,000 at June 30, 1995 384.9 374.9
Inventories:
Work in process and finished products 465.6 411.2
Raw materials and supplies 95.4 83.7
------- -------
561.0 494.9
Deferred income taxes 146.2 142.2
------- -------
Total Current Assets 1,861.4 1,810.7
Plant and equipment, less allowances for depreciation of
$1,264,500,000 at December 31, 1995 and $1,236,200,000 at
June 30, 1995 625.9 581.0
Notes receivable - net 164.5 166.6
Intangibles resulting from acquisitions 200.2 166.6
Other assets 155.3 111.1
-------- --------
$3,007.3 $2,836.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 178.6 $ 37.7
Trade accounts payable 149.9 168.7
Compensation and benefits 168.4 193.4
Other accrued items 200.8 168.4
Advance payments and unearned income 277.9 264.0
Income taxes 78.2 90.5
Current portion of long-term debt 101.8 132.6
-------- --------
Total Current Liabilities 1,155.6 1,055.3
Deferred income taxes 58.2 56.0
Long-term debt 488.4 475.9
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 39,059,596 shares
at December 31, 1995 and 38,877,019 at June 30, 1995 39.1 38.9
Other capital 263.9 240.3
Retained earnings 1,007.2 969.4
Net unrealized gain on securities available-for-sale (net
of taxes) 11.7 12.2
Unearned compensation (7.1) (1.7)
Cumulative translation adjustments (9.7) (10.3)
-------- --------
Total Shareholders' Equity 1,305.1 1,248.8
-------- --------
$3,007.3 $2,836.0
======== ========
</TABLE>
<PAGE> 4
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Two Quarters Ended
----------------------------
December 31, December 31,
1995 1994
------------- -------------
(In millions)
<S> <C> <C>
Cash flows from operating activities
Net income $ 73.9 $ 63.6
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation of plant and equipment 81.1 72.4
Non-current deferred income tax 2.2 (7.8)
(Increase) decrease in:
Accounts and notes receivable (23.9) (25.3)
Unbilled costs and inventories (75.0) (42.0)
Other assets (68.5) (7.6)
Increase (decrease) in:
Trade payables and accrued expenses (14.8) (54.0)
Advance payments and unearned income 14.0 19.0
Income taxes (14.1) 2.9
Other 2.9 (3.2)
----- -----
Net cash provided by (used in) operating activities (22.2) 18.0
----- ----
Cash flows from investing activities
Additions of plant and equipment-net of
normal disposals (118.9) (89.9)
------ -----
Net cash used in investing activities (118.9) (89.9)
------ -----
Cash flows from financing activities
Increase in short-term debt 110.1 44.2
Increase (decrease) in long-term debt 12.4 (7.3)
Proceeds from sale of Common Stock 4.0 2.9
Purchase of Common Stock for treasury (11.1) (17.2)
Cash dividends (26.5) (24.3)
Dividend-in-kind - (8.4)
----- -----
Net cash provided by (used in) financing activities 88.9 (10.1)
----- -----
Effect of exchange rate changes on cash and cash
equivalents (3.1) 2.1
----- -----
Net decrease in cash and cash equivalents $(55.3) $(79.9)
====== ======
</TABLE>
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 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, 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 -- Subsequent Event
- --------------------------
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 its long-term
debt.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
Sales and net income for the second quarter were higher than the same period
last year by 6.2 percent and 16.1 percent, respectively. Sales for the first
two quarters increased 3.8 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 Two Quarters Ended
--------------------------------------- ----------------------------------------
Dec. 31 Dec. 31 Percent Dec. 31 Dec. 31 Percent
1995 1994 Inc./(Dec) 1995 1994 Inc./(Dec)
--------------------------------------- ----------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Semiconductor $180.1 $158.2 13.9 $ 352.7 $ 313.9 12.4
Communications 212.8 184.1 15.6 393.4 343.7 14.5
Lanier Worldwide 287.5 262.5 9.5 537.3 491.1 9.4
Electronic Systems 236.2 258.3 (8.6) 449.9 521.7 (13.8)
----- ----- ------- -------
Total $916.6 $863.1 6.2 $1,733.3 $1,670.4 3.8
===== ===== ======= =======
OPERATING PROFIT
Semiconductor $ 20.3 $ 16.6 22.3 $ 39.4 $ 29.1 35.4
Communications 20.2 17.8 13.5 36.0 29.9 20.4
Lanier Worldwide 32.0 27.9 14.7 53.4 46.4 15.1
Electronic Systems 17.0 22.3 (23.8) 37.4 48.1 (22.2)
Corporate Expense (10.8) (15.1) (28.5) (20.6) (24.9) (17.3)
Interest Expense (16.6) (16.0) 3.8 (31.9) (30.8) 3.6
----- ----- ----- -----
Total $ 62.1 $ 53.5 16.1 $113.7 $ 97.8 16.3
===== ===== ===== =====
NET INCOME
Semiconductor $10.0 $ 7.6 31.6 $19.4 $12.8 51.6
Communications 9.4 8.5 10.6 17.0 14.0 21.4
Lanier Worldwide 14.7 11.3 30.1 23.6 18.4 28.3
Electronic Systems 6.3 7.4 (14.9) 13.9 18.4 (24.5)
---- ---- ---- ----
Total $40.4 $34.8 16.1 $73.9 $63.6 16.2
==== ==== ==== ====
</TABLE>
Semiconductor segment earnings for the second quarter and first two quarters
benefited from increased sales of power control products, stabilization of the
market for military products, improvements in gross margins and patent royalty
income. An increase in research and development expenses partially offset the
improvement in gross margin.
Second quarter and year-to-date increases in the Communications segment sales
and earnings were led by the segment's telecommunications business,
particularly microwave systems, and the segment's broadcast products business.
An improvement in gross margin was partially offset by increases in research
and development and marketing expenses.
Strong sales in both domestic and international markets resulted in increased
sales for the Lanier Worldwide segment. Earnings increases in the second
quarter and the first two quarters have resulted from increased sales and
reduced operating expenses.
Decreases in second quarter and year-to-date sales and earnings at the
Electronic Systems segment were caused by the cost impact of 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 . An increase in the segment's cost of
sales ratio was partially offset by a decrease in the operating expense ratio.
Cost of sales as a percentage of net sales decreased to 67.2 percent in the
second quarter and 67.0 percent in the first two quarters of this year compared
to 68.4 percent and 68.9 percent for the respective periods last year. The
decreases were due to improved gross margins in the Semiconductor and
Communications segments.
Engineering, selling, and administrative expenses as a percentage of net sales
increased to 24.3 percent in the second quarter and 25.1 percent year-to-date
compared to 24.2 percent for both periods last year. Compared to last year,
operating expense ratios were higher for
<PAGE> 7
the Semiconductor and Communications segments and lower for the Electronic
Systems and Lanier Worldwide segments. Company funded research and development
for the first two quarters of the current year is $8 million higher than the
same period a year ago.
Interest expense in the quarter and the year increased from the prior year due
to higher interest rates. "Other net" expenses were higher for the second
quarter and the first two quarters due to increased provisions for doubtful
accounts, reduced gains from the sale of investment securities and foreign
currency losses.
The provision for income taxes as a percentage of pretax income was 35.0
percent in the second 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 4.4 percent and 4.3 percent for the second
quarter and year-to-date, compared to 4.0 percent and 3.8 percent in the same
periods last year for the previously stated reasons.
Working capital decreased $49.6 million from $755.4 million at June 30, 1995 to
$705.8 million at the end of the second quarter due to an increase in
short-term debt. On January 15, 1996, the Corporation refinanced a portion of
its long-term debt with $100 million, 7% debentures due January 15, 2026. 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.
<PAGE> 8
PART II OTHER INFORMATION
- -------------------------
Item 5. Other Information
-----------------
On October 12, 1995, 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 and
Prospectus Supplement, both dated October 12, 1995, relating to the
proposed offer and sale of up to $162,500,000 aggregate principal
amount of the Registrant's Medium-Term Notes. 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:
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On October 18, 1995, the Registrant filed with the Commission a
Current Report on Form 8-K relating to the proposed offer and sale
of the Registrant's Medium-Term Notes 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: February 7, 1996 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 Two Quarters Ended
-------------------------- --------------------------
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(In millions except per share amounts)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 39.2 39.3 39.1 39.4
===== ===== ===== =====
Net income $ 40.4 $ 34.8 $ 73.9 $ 63.6
====== ====== ====== ======
Net income per share - primary $ 1.03 $ .88 $ 1.89 $ 1.61
====== ====== ====== ======
Fully diluted:
Total primary average shares
outstanding 39.2 39.3 39.1 39.4
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 .1 .1 .1
----- ----- ----- -----
Average fully diluted shares
outstanding 39.3 39.4 39.2 39.5
===== ===== ===== =====
Net income per share - fully diluted $1.03 $.88 $1.89 $1.61
===== ==== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 64,000
<SECURITIES> 21,200
<RECEIVABLES> 718,500
<ALLOWANCES> 34,400
<INVENTORY> 561,000
<CURRENT-ASSETS> 1,861,400
<PP&E> 1,890,400
<DEPRECIATION> 1,264,500
<TOTAL-ASSETS> 3,007,300
<CURRENT-LIABILITIES> 1,155,600
<BONDS> 488,400
<COMMON> 39,100
0
0
<OTHER-SE> 1,266,000
<TOTAL-LIABILITY-AND-EQUITY> 3,007,300
<SALES> 1,733,300
<TOTAL-REVENUES> 1,752,500
<CGS> 1,160,600
<TOTAL-COSTS> 434,500
<OTHER-EXPENSES> 11,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,900
<INCOME-PRETAX> 113,700
<INCOME-TAX> 39,800
<INCOME-CONTINUING> 73,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,900
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89
</TABLE>
