<PAGE> 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 April 2, 1999
or
[ ] 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) 727-9l00
===============================
(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 May 7,
1999 was 79,733,164 shares.
<PAGE> 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 April 2, 1999 and April 3,
1998, 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 and the three quarters ended
April 2, 1999 are not necessarily indicative of the results for the full fiscal
year.
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
---------------------- ---------------------
April 2, April 3, April 2, April 3,
1999 1998 1999 1998
----------- ---------- ---------- ----------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue
Revenue from sales, rentals
and services $ 949.6 $ 961.6 $ 2,757.4 $ 2,911.2
Interest 15.3 14.6 39.8 34.1
------- ------- --------- ---------
964.9 976.2 2,797.2 2,945.3
Costs and Expenses
Cost of sales, rentals and
services 658.6 627.5 1,876.6 1,924.3
Engineering, selling and
administrative expenses 234.3 246.0 693.0 742.5
Interest 21.6 19.9 63.9 53.2
Restructuring expense -- -- (11.0) --
Special charge for litigation costs -- -- 20.6 --
Other - net (12.4) (8.0) (31.6) (11.4)
------- ------- --------- ---------
Income before income taxes 62.8 90.8 185.7 236.7
Income taxes 21.4 30.9 63.1 80.5
------- ------- --------- ---------
Net Income $ 41.4 $ 59.9 $ 122.6 $ 156.2
======= ======= ========= =========
Net Income Per Common Share
Basic $ .52 $ .76 $ 1.54 $ 1.97
======= ======= ========= =========
Diluted $ .52 $ .75 $ 1.54 $ 1.96
======= ======= ========= =========
Cash Dividends Paid Per Common Share $ .24 $ .22 $ .72 $ .66
======= ======= ========= =========
Average Shares Outstanding
Basic 79.4 79.4 79.5 79.2
======= ======= ========= =========
Diluted 79.7 79.9 79.8 79.7
======= ======= ========= =========
</TABLE>
See Notes to Financial Statements
(2)
<PAGE> 3
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
July 3,
April 2, 1998
1999 (audited)
------------ -----------
ASSETS (In millions)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 116.1 $ 184.3
Marketable securities 17.4 44.5
Accounts and notes receivable - net, less allowance
for collection losses of $44,300,000 at April 2, 1999
and $30,600,000 at July 3, 1998 891.0 805.1
Unbilled costs and accrued earnings on fixed price contracts
based on percentage-of-completion accounting, less progress
payments of $182,200,000 at April 2, 1999 and
$179,000,000 at July 3, 1998 202.9 247.0
Inventories:
Work in process and finished products 433.1 481.2
Raw materials and supplies 145.9 122.4
------- -------
579.0 603.6
Deferred income taxes 195.8 215.2
------- -------
Total Current Assets 2,002.2 2,099.7
Plant and equipment, less allowances for depreciation of
$1,445,900,000 at April 2, 1999 and $1,360,900,000 at
July 3, 1998 962.9 947.0
Notes receivable - net 220.2 232.5
Intangibles resulting from acquisitions 276.9 214.4
Other assets 398.1 290.4
-------- --------
$3,860.3 $3,784.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 366.5 $ 231.0
Accounts payable 197.8 190.3
Compensation and benefits 208.3 230.0
Other accrued items 245.8 241.9
Advance payments and unearned income 187.5 228.2
Income taxes 49.1 83.9
Current portion of long-term debt 58.1 56.5
-------- --------
Total Current Liabilities 1,313.1 1,261.8
Deferred income taxes 132.7 144.3
Long-term debt 774.8 768.6
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 79,773,790 shares
at April 2, 1999 and 80,012,625 at July 3, 1998 79.8 80.0
Other capital 271.2 271.3
Retained earnings 1,340.8 1,282.8
Unearned compensation (8.1) (3.2)
Accumulated other comprehensive loss (44.0) (21.6)
-------- --------
Total Shareholders' Equity 1,639.7 1,609.3
-------- --------
$3,860.3 $3,784.0
======== ========
</TABLE>
See Notes to Financial Statements
(3)
<PAGE> 4
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Quarters Ended
-----------------------
April 2, April 3,
1999 1998
------------- --------
(In millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $122.6 $156.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 205.2 155.0
Non-current deferred income tax (11.6) (3.4)
(Increase) decrease in:
Accounts and notes receivable (9.7) 39.6
Unbilled costs and inventories 109.1 (32.2)
Other assets (77.8) (71.1)
Increase (decrease) in:
Accounts payable and accrued expenses (90.6) (44.3)
Advance payments and unearned income (45.0) (44.0)
Income taxes 1.9 27.7
Other (2.8) 10.8
------ ------
Net cash provided by operating activities 201.3 194.3
------ ------
INVESTING ACTIVITIES
Cash paid for acquisitions (213.0) (9.9)
Additions of plant and equipment (143.3) (226.5)
------ ------
Net cash used in investing activities (356.3) (236.4)
------ ------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 137.0 (90.4)
Increase in long-term debt 6.3 149.7
Proceeds from sale of Common Stock 2.7 11.5
Purchase of Treasury Stock (8.9) -
Cash dividends (57.4) (52.5)
------ ------
Net cash provided by financing activities 79.7 18.3
------ ------
Effect of exchange rate changes on cash and cash
equivalents 7.1 (5.6)
------ ------
Net decrease in cash and cash equivalents (68.2) (29.4)
Cash and cash equivalents, beginning of year 184.3 70.7
------ ------
Cash and cash equivalents, end of period $116.1 $ 41.3
====== ======
</TABLE>
See Notes to Financial Statements
(4)
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 1999
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/A for the fiscal year ended July 3, 1998.
Note B -- Accounting Changes
- ----------------------------
For the first quarter ended October 2, 1998, the Corporation adopted Statement
of Financial Accounting Standards (FAS) No. 130, "Reporting Comprehensive
Income". This Statement requires reporting of changes in shareholders' equity
that do not result directly from transactions with shareholders. These changes
include the fair value adjustment to certain cost-based investments and foreign
currency translation adjustments. Comprehensive earnings for the quarter and the
first three quarters ended April 2, 1999 were $21.9 million and $100.2 million,
respectively. Prior fiscal year comprehensive earnings for the quarter and the
first three quarters ended April 3, 1998 were $63.8 million and $138.5 million,
respectively. Prior year financial statements have been reclassified to conform
to the requirements of FAS No. 130.
The components of accumulated other comprehensive loss, net of related tax, at
April 2, 1999 and July 3, 1998 are as follows:
<TABLE>
<CAPTION>
April 2, July 3,
(in millions) 1999 1998
----------------------------------------------------------------------
<S> <C> <C>
Net unrealized gains on securities
available-for-sale $ 8.3 $ 25.3
Foreign currency translation adjustments (52.3) (46.9)
------ ------
$(44.0) $(21.6)
====== ======
</TABLE>
The Corporation also adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information", as
of the first quarter ended October 2, 1998. This statement establishes new rules
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial statements. The Corporation was in compliance with the provisions of
the new statement and, therefore, will not be required to restate prior year
business segment data.
Net sales, operating profit and net income by segment are on page 8. That
information is an integral part of these financial statements. Intersegment
revenues are not material.
Total assets by segment are as follows:
<TABLE>
<CAPTION>
April 2, July 3,
(in millions) 1999 1998
-----------------------------------------------------
<S> <C> <C>
Electronic Systems $ 563.8 $ 545.7
Semiconductor 929.5 1,022.0
Communications 759.6 716.7
Lanier Worldwide 1,292.4 1,166.5
Corporate 315.0 333.1
-------- --------
$3,860.3 $3,784.0
======== ========
</TABLE>
(5)
<PAGE> 6
Note C -- Net Income Per Share
- ------------------------------
Average outstanding shares used in the computation of net income per share are
as follows:
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
April 2, April 3, April 2, April 3,
(in millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Weighted average shares
outstanding 79.8 80.0 79.9 79.8
Contingently issuable shares (.4) (.6) (.4) (.6)
---- ---- ---- ----
79.4 79.4 79.5 79.2
==== ==== ==== ====
Diluted:
Weighted average shares
outstanding 79.8 80.0 79.9 79.8
Dilutive stock options .1 .3 .2 .3
Contingently issuable shares (.2) (.4) (.3) (.4)
---- ---- ---- ----
79.7 79.9 79.8 79.7
==== ==== ==== ====
</TABLE>
Note D -- Restructuring
- -----------------------
In fiscal 1998, the Corporation recorded a $83.8 million charge ($55.7 million
after income taxes) for the restructuring of its operations. Restructuring
actions included a work force reduction of approximately 2,300 employees and the
exit of six product lines, the most significant being the semiconductor
commercial logic product line. At April 2, 1999, 1,670 employees have been
terminated with the remainder to be terminated before the end of fiscal 1999.
During the second quarter of fiscal 1999, the Corporation completed the sale of
its Semiconductor commercial logic product line. This sale resulted in a gain
before income taxes of $11.0 million. Other smaller product lines are in the
process of being discontinued through the fulfillment of sales backlog and
commitments, collection of receivables and the liquidation of inventory.
Reserve usage for the three quarters ended April 2, 1999 is summarized below:
<TABLE>
<CAPTION>
Use of Reserves
Reserve Balance ----------------- Reserve Balance
(in millions) at July 3, 1998 Cash Non-Cash at April 2, 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance benefits $48.1 $25.0 - $23.1
Facility write-offs 1.2 1.2 - -
Other exit costs 6.7 6.7 - -
----- ----- --- -----
$56.0 $32.9 - $23.1
===== ===== =====
</TABLE>
Note E -- Reclassifications
- ---------------------------
Based upon certain restructuring actions taken during fiscal 1998, the Company
recorded restructuring expenses of $130.0 million. These charges were for
employee terminations and certain product line exits, including provisions for
inventory write-offs and product to be returned from distributors. Pursuant to
comments from the Securities and Exchange Commission, the Company's Consolidated
Statement of Income for fiscal 1998 has been amended by reclassifying $31.0
million of inventory write-offs to cost of sales and rentals, $12.8 million of
distributor returns to a reduction of revenue from product sales and rentals,
and $2.4 million from restructuring to administrative expenses. Reference is
made to the Company's financial statements included in Form 10-K/A.
(6)
<PAGE> 7
Note F -- Financial Instruments
- -------------------------------
The Company uses foreign exchange contracts to hedge off-balance sheet foreign
currency commitments and anticipated transactions. The Company has significant
manufacturing operations in Malaysia and has a hedging program in place to set
the exchange rates on the Company's foreign currency operating commitments in
Malaysia. Under this hedging program, increases or decreases in the Company's
local currency manufacturing costs and operating expenses are partially offset
by realized gains and losses, respectively, on the hedging instruments.
At April 2, 1999, the Company had foreign currency exchange contracts to buy
117.6 million Malaysian Ringgits for $37.5 million. The maturity period for
these contracts is 1 to 5 months. Deferred losses resulting from ringgit
contracts are $29.2 million.
Note G -- Subsequent Event
- --------------------------
On April 13, 1999, the Company announced its intention to spin off its Lanier
Worldwide subsidiary as an independent, publicly traded company and its
intention to sell its Semiconductor power product line. The spin-off is expected
to take the form of a tax-free stock dividend of Lanier stock and is subject to
final approval of Harris' Board of Directors and formal declaration of the
dividend. The sale of the Semiconductor power product line is expected to be
completed during the summer of 1999. The Company also announced its intention to
undertake specific actions to become a pure communications equipment company and
to undertake other repositioning actions.
(7)
<PAGE> 8
Item 2. Management's Discussion & Analysis of Financial Condition & Results of
- ------------------------------------------------------------------------------
Operations.
- -----------
RESULTS OF OPERATIONS
Sales and net income for the third quarter were lower than the same period last
year by 1.2 percent and 30.9 percent, respectively. Sales for the first three
quarters decreased 5.3 percent over the same period a year ago, while net income
declined by 21.5 percent. Fiscal 1999 results for the first three quarters
include a restructuring gain of $11.0 million ($6.7 million after tax) from the
sale of a product line and a $20.6 million ($13.6 million after tax) provision
related to a patent litigation judgment. The provision relates to the settlement
of a lawsuit in which the Federal Circuit Court of Appeals on September 9, 1998
upheld a lower court ruling that the Company had infringed a competitor's patent
for an analog television transmitter circuit. The award totaled $15.4 million
plus attorneys fees and interest and relates to an older product no longer
manufactured by the Company. Segment net sales, operating profit and net income
were as follows:
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
---------------------------------- -----------------------------------
April 2, April 3, Percent April 2, April 3, Percent
1999 1998 Inc./(Dec.) 1999 1998 Inc./(Dec.)
---------------------------------- -----------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Electronic Systems $ 222.6 $ 231.0 (4) $ 621.2 $ 730.0 (15)
Semiconductor 153.2 175.8 (13) 432.7 531.3 (19)
Communications 219.3 239.0 (8) 655.1 718.0 (9)
Lanier Worldwide 354.5 315.8 12 1,048.4 931.9 13
-------- -------- ---------- ----------
Total $ 949.6 $ 961.6 (1) $ 2,757.4 $ 2,911.2 (5)
======== ======== ========== ==========
OPERATING PROFIT
Electronic Systems $ 23.6 $ 19.8 19 $ 65.9 $ 59.2 11
Semiconductor 12.3 31.6 (61) 56.4 76.5 (26)
Communications 10.9 31.4 (65) 19.6 84.9 (77)
Lanier Worldwide 30.8 35.6 (13) 105.8 99.6 6
Corporate Expense 6.8 (7.7) -- 1.9 (30.3) --
Interest Expense (21.6) (19.9) 9 (63.9) (53.2) 20
-------- -------- ---------- ----------
Total $ 62.8 $ 90.8 (31) $ 185.7 $ 236.7 (22)
======== ======== ========== ==========
NET INCOME
Electronic Systems $ 13.4 $ 7.9 70 $ 34.6 $ 24.1 44
Semiconductor 6.2 17.5 (65) 26.5 40.2 (34)
Communications 5.3 17.1 (69) 6.7 45.1 (85)
Lanier Worldwide 16.5 17.4 (5) 54.8 46.8 17
-------- -------- ---------- ----------
Total $ 41.4 $ 59.9 (31) $ 122.6 $ 156.2 (22)
======== ======== ========== ==========
</TABLE>
The Electronic Systems segment reported lower sales for both the third quarter
and the first three quarters as new program starts in the segment's information
and aerospace product lines have not kept pace with the wind-down of ongoing
programs. Notwithstanding, segment earnings were substantially higher for the
third quarter and the first three quarters compared to prior year periods due
primarily to the final settlement with the U.S. Government of overhead rates for
previous years and continued strength in the segment's communications systems
business.
Semiconductor segment sales were lower for the third quarter and the first three
quarters compared to prior year periods due to continuing weak demand in many of
the segment's product lines. Sales did increase, however, by 29 percent over
current year second quarter sales due to stronger demand for the segment's power
products. Continuing pricing pressure, weak demand, and significantly lower
royalty income negatively impacted operating profit and net income while lower
operating expenses resulting from prior year restructuring actions and ongoing
cost controls helped to preserve margins. Operating profit for the first three
quarters of this year also includes an $11.0 million gain from the sale of
technology associated with the segment's exit of its commercial logic product
line.
(8)
<PAGE> 9
Sales in the Communications segment were moderately lower for both the quarter
and the first three quarters compared to the prior year periods as weakness in
the segment's international markets were in part offset by gains in the domestic
broadcast and communications products businesses. Segment earnings were
significantly lower for the third quarter and the three quarters to date due to
lower sales volume and pricing pressures attributed to weak conditions in the
segment's international markets, along with lower gains from the sale of
marketable securities and lower royalty income. Earnings for the first three
quarters also were adversely impacted by the previously described $20.6 million
($13.6 million after tax) provision for a patent litigation judgment.
Lanier Worldwide segment sales increased in both the third quarter and the first
three quarters over prior year periods and were driven by the successful first
quarter acquisition and integration of the Agfa-Gevaert Group's copying systems
business. The acquisition doubled Lanier's market share in the European office
equipment market. Lower third quarter domestic sales and lower operating margins
caused primarily by pricing pressures on analog products in the U.S. resulted in
moderately lower third quarter earnings. For the first three quarters earnings
were moderately higher compared to the prior year period primarily due to higher
sales associated with acquisitions. The segment's earnings in the third quarter
and the first three quarters were also negatively impacted by charges related to
accounting irregularities by a former employee over several years at one of its
foreign subsidiaries. Based on preliminary information, the magnitude is
believed to be approximately $10 million before income taxes and any potential
recovery. The Company has reserves for the problem of approximately $5 million
at April 2, 1999.
Corporate expense decreased significantly for both the third quarter and the
year-to-date due to gains from investment securities, foreign currency exchange
gains, and lower expenses associated with employee benefit and retirement plans.
Cost of sales as a percentage of net sales were 69.4 percent in the third
quarter and 68.1 percent in the first three quarters of this year compared to
65.3 percent and 66.1 percent for the respective periods a year ago. The
increase in the cost ratio was primarily due to lower royalty income in the
Semiconductor segment and reduced operating margins in the Semiconductor power
products line, the Communications microwave systems product line and the Lanier
domestic analog copier product line.
Engineering, selling, and administrative expenses as a percentage of net sales
were 24.7 percent for the third quarter and 25.1 percent for the first three
quarters compared to 25.6 percent and 25.5 percent for the comparable prior year
periods. The decrease in the third quarter ratio was due to a lower proportion
of administrative and general expenses.
Interest income was higher in the first three quarters because of interest
earned on notes receivable and on amounts due from the Internal Revenue Service.
Interest expense also increased in both the third quarter and the first three
quarters of fiscal 1999, due to higher average borrowings and a lower amount of
capitalized interest compared to the prior year's periods. Capitalized interest
is included as a component of plant and equipment on the balance sheet.
"Other-net" expense was lower due primarily to gains on foreign currency and
gains from the sale of assets.
The provision for income taxes as a percentage of pretax income was 34.0 percent
in all periods. The statutory federal income tax rate for all periods was 35.0
percent. All periods benefited from lower tax rates on foreign source income and
export sales.
Net income as a percentage of sales was 4.4 percent for the third quarter and
4.4 percent for the year-to-date, compared to 6.2 percent and 5.4 percent in the
same periods last year for the previously stated reasons.
(9)
<PAGE> 10
LIQUIDITY AND FINANCIAL POSITION
Working capital decreased from $837.9 million at July 3, 1998, to $689.1 million
at the end of the third quarter largely due to cash and short-term debt used to
fund Lanier Worldwide's acquisition of the Agfa-Gevaert copying systems
business. Capital expenditures are down substantially from last year's first
three quarters due to completion of several semiconductor related projects.
Total capital expenditures for the Corporation in fiscal 1999, including
expenditures for customer rental equipment, are expected to be approximately
$200 million compared to $285 million for fiscal 1998. Cash expenditures during
the first three quarters for restructuring actions were $32.9 million. In
October 1998, the Corporation filed a $500 million "shelf" debt registration
statement with the Securities and Exchange Commission. This statement became
effective in April 1999. Debt securities may be issued from time to time under a
prospectus supplement that will contain specific information about the terms of
an offering. Proceeds from the sale of debt securities will be used for general
corporate purposes, including the repayment of existing indebtedness and
additions to working capital. In November 1998, the Company's 364-day $300
million credit facility expired. The Company is currently negotiating with banks
new short-term credit facilities of approximately $250 million which is intended
to redeem and prepay higher interest borrowings. It is anticipated that cash
received from the proposed sale of non-core businesses will be used to retire
this new short-term facility. The requirement for funds to finance capital
expenditures, acquisitions of new businesses and other operational requirements
during the remainder of fiscal 1999 will be met by cash flow from operations,
potential sales of debt securities and other available borrowing capacity.
In April 1999, the Company announced its intention to spin off its Lanier
Worldwide subsidiary. Associated with this transaction the Company expects to
include a significant portion of its existing debt as part of the spin-off,
resulting in a total debt to capital ratio less than the 42 percent ratio at
April 2, 1999. As a result of the spin-off announcement, the Company was advised
that it is on a "credit watch" relative to its present debt ratings. This is
considered customary in the circumstances.
YEAR 2000 ISSUE
Certain software and hardware systems are time sensitive. Older time-sensitive
systems often use a two-digit dating convention (e.g., "00" rather than "2000")
that could result in system failure and disruption of operations as the year
2000 approaches. The Year 2000 problem will impact the Company, its vendors and
suppliers, customers, and other third parties that interface with the Company.
With regard to the Year 2000 problem, project initiatives of varying magnitudes
have been identified throughout the Company and its various business segments.
Each project has been assigned a leader and prioritized based on the size of the
task and the perceived business risk. A steering committee comprised of senior
management in key functional areas including: accounting, finance, legal,
quality and new processes and information management has been established to
monitor and oversee the progress of each project. The Board of Directors is
briefed on the Company's Year 2000 state of readiness at it regular meetings and
is actively monitoring and advising the Company.
At April 2, 1999, the Company had completed over 202 of its remediation programs
and was actively working on an additional 189 programs. The focus of these
completed and in-process programs is to replace or modify time-sensitive
software systems and equipment. The Company has provided Year 2000 internet web
pages to communicate general and product specific issues and has initiated
formal programs with significant suppliers, customers and other relevant third
parties to resolve certain Year 2000 problems. However, the Company believes it
has no material exposure to contingencies related to the Year 2000 issue for the
products it has sold.
The Company has Year 2000 exposure in its operating systems and business
systems; including engineering, manufacturing, order fulfillment, program
management, financial and administrative functions. It is the Company's belief
that the greatest potential risk from the Year 2000 issue could be its inability
to meet commitment dates on delivery of product and has focused the majority of
the Company's effort and dedicated resources to address this issue. In addition,
the Company believes that a limited number of the non-information technology
systems, such as manufacturing machinery, equipment and test equipment with date
sensitive software and embedded microprocessors may be affected, and evaluation
and remediation are continuing.
(10)
<PAGE> 11
The Company believes it is diligently addressing the Year 2000 issues and that
it will satisfactorily resolve significant Year 2000 problems. The Company
anticipates completing most of its Year 2000 projects during fiscal 1999, with
major completion milestones being targeted for the fourth quarter of fiscal
1999. In the event the Company falls short of these milestones, additional
internal resources will be focused on completing these projects or implementing
contingency plans. The estimated cost for resolving Year 2000 issues is
approximately $46 million with approximately $32 million expended to date. These
costs are generally not incremental to existing information technology budgets.
Rather, internal resources were re-deployed and timetables for implementation of
replacement systems were accelerated. The largest portion of this expenditure is
being used to replace existing software and hardware.
Estimates of Year 2000 related costs are based on numerous assumptions and there
is no certainty that estimates will be achieved and actual costs could be
materially greater than anticipated. Specific factors that might cause such
difference include, but are not limited to, the continuing availability of
personnel trained in this area, the ability to timely identify and correct all
relevant computer programs, and similar uncertainties.
As part of the Year 2000 program, detailed contingency plans are being
formalized as the target date for completion approaches. Contingency plans
address both internal and external issues to the extent possible. Business
disruption scenarios are currently being identified and appropriate strategies
and detailed plans are being evaluated and tested. The Company believes the most
reasonably likely worst case scenario would be the inability of third parties,
including utilities, to deliver supplies and services that are critical to the
Company's operations and that could not readily be replaced by other suppliers
or internally. In such a circumstance, the Company's operations could be
interrupted, with adverse effects on financial results.
OUTLOOK
The Company believes that revenue for the current year will be slightly lower
than fiscal 1998. Earnings for the fourth quarter and the fiscal year are
expected to be lower than fiscal 1998 results before restructuring provisions
and other one-time related charges. Lower royalty income and an ongoing industry
downturn in the Company's semiconductor business and general market weakness for
communications products continue to adversely impact earnings from operations.
The fiscal 1998 restructuring program is being vigorously implemented to reduce
cost and maintain profit margins. The Company's recently announced plan to
reposition the Company as a pure communications company, modify its internal
structure and divest non-core business will result in substantially lower future
consolidated net sales. Related costs associated with streamlining the Company's
overhead structure will negatively impact short-term earnings but are expected
to benefit profit margins for the repositioned Company.
FORWARD-LOOKING STATEMENTS
This report contains, and certain of the Company's other public documents and
statements and oral statements contain and will contain, forward-looking
statements that reflect management's current assumptions and estimates of future
performance and economic conditions. Such statements are made in reliance upon
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The Company cautions investors that any forward-looking statements are
subject to risks and uncertainties that may cause actual results and future
trends to differ materially from those projected, stated, or implied by the
forward-looking statements.
The Company's consolidated results and the forward-looking statements could be
affected by, among other things, general economic conditions in the markets in
which the Company operates; economic developments that have a particularly
adverse effect on one or more of the markets served by the Company; the ability
to execute management's repositioning as a pure communications company
(including management's plan to modify its internal structure
(11)
<PAGE> 12
and divest non-core businesses); stability of key markets for communications
products, particularly Asia and South America; fluctuation in foreign currency
exchange rates and the effectiveness of the Company's currency hedging program;
worldwide demand for integrated semiconductor circuits; reductions in the U.S.
and worldwide defense and space budgets; effect of continuing consolidation in
the U.S. defense industry on the Company's direct and indirect business with the
U.S. government; the Company's ability to receive contract awards; continued
development and market acceptance of new products, especially digital television
broadcast products and semiconductor wireless products; continued success of the
Company's patent licensing programs; the ability of Harris, its customers and
suppliers to become Year 2000 compliant; and the successful resolution of patent
infringement and other general litigation. Harris disclaims any intention or
obligation to update or revise forward-looking statements, whether as a result
of new information, future events, or otherwise.
(12)
<PAGE> 13
PART II. OTHER INFORMATION.
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits:
(12) Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on form 8-K.
No Current Reports on Form 8-K were filed during the fiscal quarter
ended April 2, 1999.
Items 1, 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
(13)
<PAGE> 14
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: May 13, 1999 By:/s/Bryan R. Roub
-----------------------------
Bryan R. Roub
Senior Vice President & Chief
Financial Officer (principal
financial officer and duly
authorized officer)
(14)
<PAGE> 15
EXHIBIT INDEX
-------------
Exhibit No.
Under Reg.
S-K, Item 601 Description
------------- -----------
(12) Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Quarters Ended
April 2, April 3,
1999 1998
------- -------
(Millions of Dollars, Except Ratios)
<S> <C> <C>
EARNINGS:
Net income . . . . . . . . . . . . . . . . . . . . . $122.6 $156.2
Plus: Income taxes. . . . . . . . . . . . . . . . . 63.1 80.5
Fixed charges . . . . . . . . . . . . . . . . 80.7 73.5
Amortization of capitalized interest. . . . . 1.0 .9
Less: Interest capitalized during the period. . . . (.2) (6.3)
------ ------
$267.2 $304.8
====== ======
FIXED CHARGES:
Interest expense . . . . . . . . . . . . . . . . . . $ 63.9 $ 53.2
Plus: Interest capitalized during the period. . . . .2 6.3
Portion of rents deemed representative of the
interest factor. . . . . . . . . . . . . . . 16.6 14.0
------ ------
$ 80.7 $ 73.5
====== ======
RATIO OF EARNINGS TO FIXED CHARGES . . . . . . . . . 3.31 4.15
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-02-1999
<PERIOD-START> JUL-04-1999
<PERIOD-END> APR-02-1999
<CASH> 116,100
<SECURITIES> 17,400
<RECEIVABLES> 891,000
<ALLOWANCES> 44,300
<INVENTORY> 579,000
<CURRENT-ASSETS> 2,002,200
<PP&E> 2,408,800
<DEPRECIATION> 1,445,900
<TOTAL-ASSETS> 3,860,300
<CURRENT-LIABILITIES> 1,313,100
<BONDS> 774,800
0
0
<COMMON> 79,800
<OTHER-SE> 1,559,900
<TOTAL-LIABILITY-AND-EQUITY> 3,860,300
<SALES> 2,757,400
<TOTAL-REVENUES> 2,797,200
<CGS> 1,876,600
<TOTAL-COSTS> 693,000
<OTHER-EXPENSES> (22,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,900
<INCOME-PRETAX> 185,700
<INCOME-TAX> 63,100
<INCOME-CONTINUING> 122,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,600
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
