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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 1-3863
HARRIS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-0276860
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(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1025 W. NASA Boulevard
Melbourne, Florida 32919
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(407) 727-9100
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1 per share New York Stock Exchange, Inc.
7 3/4% Sinking Fund Debentures due 2001 New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to
Section 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of August 31, 1995 is $2,222,850.00.
The number of shares outstanding of the registrant's class of common stock,
as of August 31, 1995 is 39,122,312.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed September 15, 1995
(Incorporated by Reference into Part III).
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PART I
ITEM 1. BUSINESS
THE COMPANY
Harris Corporation was incorporated in Delaware in 1926 as the successor to
three companies founded in the 1890's. The executive offices of the Company are
located at 1025 W. NASA Boulevard, Melbourne, Florida 32919, and the telephone
number is (407) 727-9100.
Harris Corporation, along with its subsidiaries (hereinafter called
"Harris" or the "Company"), is a worldwide company focused on four core
businesses: advanced electronic systems, semiconductors, communications and an
office equipment distribution network.
The Company's four core businesses were carried out during fiscal 1995
through three business sectors and a subsidiary, which correspond to its
business segments used for financial reporting purposes: Communications Sector,
Semiconductor Sector, Lanier Worldwide, Inc. and Electronic Systems Sector.
Harris structures its operations primarily around the markets it serves. Its
operating divisions, which are the basic operating units, have been organized on
the basis of technology and markets. For the most part, each operating division
has its own marketing, engineering, manufacturing and service organizations.
Reference is made to the Note Business Segments in the Notes to Financial
Statements for further information with respect to business sectors and the
subsidiary.
Total sales in fiscal 1995 increased to $3.4 billion from $3.3 billion a
year earlier. Total sales in the United States increased 3.1 percent, and
international sales, which amounted to 30 percent of the corporate total,
increased 3.5 percent. Net Income increased 38.2 percent to $154.5 million from
$111.8 million. Results for fiscal 1994 included an $11.5 million after-tax
charge resulting from the Company's write-off of securities received from the
1990 sale of a discontinued business and a $10.1 million one-time after-tax
charge for a cumulative effect of a change in accounting principle.
The Company's three business sectors and the subsidiary and their principal
products are as follows:
Communications Sector: produces broadcast, radio-communication, and
telecommunication products and systems, including transmitters and studio
equipment for radio and TV, HF, VHF and UHF radio-communication equipment,
microwave radios, digital telephone switches, telephone subscriber-loop
equipment, and in-building paging equipment.
Semiconductor Sector: produces advanced analog, digital and mixed-signal
integrated circuits and discrete semiconductors for power, signal processing,
data-acquisition, and logic applications for automotive systems, wireless
communications, telecommunications line cards, video and imaging systems,
industrial equipment, computer peripherals, and military and aerospace systems.
Lanier Worldwide, Inc.: sells, services, supports and provides supplies for
copying systems, facsimile systems and networks, dictation systems,
optical-based electronic-image management systems, continuous recording systems
and PC-based health care management systems.
Electronic Systems Sector: engages in advanced research, and develops,
designs and produces advanced information processing and communication systems
and software for defense applications, air traffic control, avionics, satellite
communications, space exploration, public safety, simulation, energy management,
law enforcement, electronic systems testing, airports, and newspaper
composition.
The financial results shown in the tables below are presented to comply
with current financial accounting standards relating to business segment
reporting. Information concerning the identifiable assets of the Company's
business segments is contained in the Note Business Segments in the Notes to
Financial Statements. In calculating operating profit, allocations of certain
expenses among the business segments involve the exercise of business judgment.
Intersegment sales, which are insignificant, are accounted for at prices
comparable to those paid by unaffiliated customers.
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NET SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
(DOLLARS IN MILLIONS)
NET SALES
YEAR ENDED COMMUNI- SEMI- LANIER ELECTRONIC
JUNE 30 CATIONS CONDUCTOR WORLDWIDE SYSTEMS TOTAL
----------------------- ---------- -------- -------- ---------- ---------
1993................... $544.2 $590.8 $ 922.0 $1,042.1 $ 3,099.1
1994................... 628.2 635.3 943.7 1,128.9 3,336.1
1995................... 724.8 658.7 1,024.8 1,035.8 3,444.1
OPERATING PROFIT
YEAR ENDED COMMUNI- SEMI- LANIER ELECTRONIC CORPORATE INTEREST
JUNE 30 CATIONS CONDUCTOR WORLDWIDE SYSTEMS EXPENSE EXPENSE TOTAL
----------------------- ------- ------- ------- ------- ------- ------- ------
1993................... $43.9 $44.4 $ 84.2 $ 98.9 $(41.7 ) $(59.9 ) $169.8
1994................... 57.6 70.2 89.8 101.3 (67.1 )* (58.3 ) 193.5
1995................... 68.5 83.0 105.7 95.5 (49.7 ) (65.4 ) 237.6
---------------
*Corporate expense in 1994 includes a $17.8 million charge resulting from the
write-off of securities received from the 1990 sale of a discontinued business.
COMMUNICATIONS
The Communications Sector of the Company designs, manufactures, and sells
products characterized by three principal communication technologies:
telecommunications, including microwave products and systems, digital telephone
switches, telephone test equipment and auxiliary telecommunication products;
broadcast, including radio and television products and transmission systems; and
two-way radio, including high-frequency (HF), very high frequency (VHF) and
ultra-high frequency (UHF) products, and complete turnkey communication systems.
Sales in fiscal 1995 for this business segment increased 15.4 percent to
$724.8 million from $628.2 million. The sector recorded operating profit of
$68.5 million, up from $57.6 million in fiscal 1994. The sector contributed 21
percent of Company sales in fiscal 1995 and 19 percent in fiscal 1994.
The sector is a worldwide supplier of voice and data digital network
switches and private-branch exchanges (PBXs) to long-distance carriers,
utilities, corporations and government agencies.
The sector also supplies telecommunication products and systems under the
Dracon trademark, including telephone test systems and tools, ISDN terminal
adapters and telephone-integrated voice-paging systems for a wide variety of
in-plant applications.
Under the Farinon trademark, the sector is the largest producer of low- and
medium-capacity analog and digital microwave systems in North America.
The sector is the largest supplier of radio and television broadcast
transmission equipment and radio-studio equipment in the United States. The
sector's products include radio and television transmitters, antennas, and
audio, remote-control and video production systems. The sector is also a leading
supplier of mobile broadcast units.
This sector is a leading supplier of two-way HF, VHF and UHF radio
equipment and offers a comprehensive line of products and systems for long- and
short-distance communications. The sector also designs and installs turnkey
communication systems involving a variety of communication technologies,
including HF, VHF, microwave, fiber-optics and switching systems with command
and control centers. The products are sold to commercial and government
customers worldwide.
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Internationally, particularly in the developing and oil-producing nations,
the sector designs, sells, installs and services communication systems involving
radio and television broadcasting equipment and long- and short-range radios on
both a product and a turnkey basis.
Principal customers for products of the Communications Sector include
foreign and domestic government and military agencies, commercial and industrial
firms, radio and TV broadcasters, telephone companies, utilities, construction
companies and oil producers.
In general, these products are sold and serviced domestically directly to
customers through the sales organizations of the operating divisions and through
established distribution channels. Internationally, the sector markets and sells
its products and services through established distribution channels. See
"International Business."
The backlog of unfilled orders for this segment of Harris' business was
$309 million at June 30, 1995, substantially all of which is expected to be
filled during the 1996 fiscal year, compared with $300 million a year earlier.
SEMICONDUCTOR
The Semiconductor Sector of the Company produces advanced analog, digital,
power and mixed-signal integrated circuits and discrete semiconductors for
data-acquisition, signal processing, logic and power applications that demand
the highest levels of performance in terms of speed, precision, low power
consumption and reliability, often in harsh environments.
Sales in fiscal 1995 for this business segment increased 3.7 percent to
$658.7 million from $635.3 million in fiscal 1994. The sector's operating profit
was $83.0 million in fiscal 1995, compared with $70.2 milion in fiscal 1994. The
sector contributed 19 percent of Company sales in fiscal 1995 and 1994.
The sector produces discrete-power products, including MOS (metal oxide
semiconductors) power devices, transistors, rectifiers, power control circuits
and transient suppression products. The sector pioneered development of
"intelligent-power" technology which permits the combination of analog, logic
and power circuits on the same chip. Such products are widely used in automotive
electronic systems, such as automotive ignition systems, anti-lock braking and
engine control, and instrument display.
The sector is a major supplier of devices which address the communications
market through the provision of complex functions, including wireless, broadband
and data conversion components. In addition, the sector is a leader in
mixed-signal telecommunication line card applications, including SLICs
(subscriber line interface circuits), CODECs (Coder/Decoder), and cross-point
switches used in private-branch-exchange (PBX) systems and of other circuits for
cellular communications, high resolution medical imaging, broadcast and
interactive cable video and military radar systems.
The sector is a major supplier of integrated circuits and discrete devices
to the military and aerospace markets, with an emphasis on commercial and
military space applications. The sector is the leading supplier of
radiation-hardened circuits. The sector's custom, semicustom and standard
integrated circuits are based on CMOS (complementary metal oxide semiconductor),
SOS (silicon-on-sapphire), SOI (silicon-on-insulator), bipolar analog and power
analog/digital process technologies.
The sector is also a leading supplier of custom and semicustom integrated
circuits, known as application specific integrated circuits (ASICs). These
circuits are designed for high-performance military, space, automotive and
industrial applications.
Principal customers for the products of this sector include video imaging,
computer, communication, telephone, industrial, medical and other electronic
equipment manufacturers, automobile manufacturers, defense contractors and U.S.
government agencies. In general, these products are sold directly to customers
through a worldwide sales organization, which includes independent
manufacturers' representatives, and to distributors, who, in turn, resell to
their customers. Internationally, this sector also sells through distributors.
See "International Business."
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The integrated circuit manufacturing technology and integrated circuit
industry is characterized by rapid advances in product performance technology.
Harris is a party to technology exchange agreements with other companies to
develop new and expanded technologies.
The backlog of unfilled orders for this segment of Harris' business was
$354 million at June 30, 1995, substantially all of which is expected to be
filled during the 1996 fiscal year, compared with $298 million a year earlier.
LANIER WORLDWIDE
Lanier Worldwide, Inc. is a wholly-owned subsidiary of Harris which
markets, sells, and services office equipment and business communication
products on a global basis.
Sales in fiscal 1995 for this business segment increased 8.6 percent to
$1,024.8 million from $943.7 million in fiscal year 1994. Operating profit was
$105.7 million, up from $89.8 million last year. Lanier Worldwide contributed 30
percent of Company sales in fiscal 1995 and 28 percent in 1994.
Lanier Worldwide provides copying, dictation, continuous recording,
facsimile systems and multi-functional devices, as new management solutions,
facilities management operations and other services through a global network of
direct sales and service centers and authorized dealers. Lanier Worldwide also
leases certain of these products to customers on a short-term basis.
Due to the nature of its business, backlog of unfilled orders is not
considered significant to an understanding of this segment's business.
ELECTRONIC SYSTEMS
The Electronic Systems Sector of Harris is composed of several operating
divisions and is engaged in advanced research, development, design and
production of advanced information processing and communication systems and
sub-systems for government and commercial organizations in the United States and
overseas. Applications of the sector's state-of-the-art technologies include air
traffic control, avionics, communications, space exploration, energy management,
electronics systems testing, newspaper composition and information management
systems.
The Electronic Systems Sector is a major supplier of advanced-technology
and electronic systems to the United States Department of Defense, the Federal
Aviation Administration, National Aeronautics and Space Administration, Federal
Bureau of Investigation and other federal and local government agencies,
aircraft manufacturers, airports, electric utilities, newspapers and publishing
houses.
Sales in fiscal 1995 for this business segment decreased 8.2 percent to
$1,035.8 million from $1,128.9 million in fiscal 1994. Sales in fiscal 1994
included a computer systems business which was spun off to shareholders in
fiscal 1995. Excluding the sales of this business in 1994, sales decreased 2.7
percent. Operating profit of $95.5 million decreased from $101.3 million in the
previous year. This sector contributed 30 percent of Company sales in fiscal
1995 and 34 percent in 1994.
The sector is the leading supplier of air-traffic control communication
systems. The sector is also a major supplier of custom aircraft and spaceborne
communication and information processing systems, a leading supplier of
terrestrial and satellite communication systems and a preeminent supplier of
super-high-frequency military satellite ground terminals for the Department of
Defense.
The sector is a major supplier of custom ground-based systems and software
designed to collect, store, retrieve, process, analyze, display and distribute
information for government, defense and law enforcement applications, including
meteorological data processing systems and range management information systems.
The sector also provides computer controlled electronic maintenance, logistic,
simulation and test systems for military aircraft, ships and ground vehicles.
The sector is a worldwide supplier of energy management and distribution
automation systems for electric utilities and information-processing systems for
newspapers and publishing houses.
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Most of the sales of this sector are made directly or indirectly to the
United States government under contracts or subcontracts containing standard
government clauses providing for redetermination of profits, if applicable, and
for termination for the convenience of the government or for default of the
contractor. These sales consist of a variety of contracts and programs with
various governmental agencies, with no single program accounting for 10 percent
or more of total Harris sales.
The backlog of unfilled orders for this segment of Harris' business was
$568 million at June 30, 1995, substantially all of which is expected to be
filled during the 1996 fiscal year, compared with $530 million a year earlier.
INTERNATIONAL BUSINESS
In fiscal 1995, sales of products exported from the United States or
manufactured abroad were $1,016 million or 29.5 percent of the corporate total,
compared with $982 million or 29.4 percent of the corporate total in fiscal 1994
and $877 million (28.3 percent) in fiscal 1993. Exports from the United States,
principally to Europe and Asia, totalled $525 million or 51.6 percent of the
international sales in fiscal 1995, $388 million or 39.5 percent of the
international sales in fiscal 1994 and $295 million or 33.7 percent in fiscal
1993 of the international sales.
Foreign operations represented 14.3 percent of consolidated net sales and
22.7 percent of consolidated total assets as of June 30, 1995. Electronic
products and systems are produced principally in the United States and
international electronic revenues are derived primarily from exports.
Semiconductor assembly facilities are located in Malaysia and Ireland and
electronic products assembly facilities are located in Canada and England.
International marketing activities are conducted through subsidiaries which
operate in Canada, Europe, Central and South America, Asia and Australia.
Reference is made to Exhibit 21 "Subsidiaries of the Registrant" for further
information regarding foreign subsidiaries.
Harris utilizes indirect sales channels, including dealers, distributors
and sales representatives, in the marketing and sale of some lines of equipment,
both domestically and internationally. These independent representatives may buy
for resale, or, in some cases, solicit orders from commercial or governmental
customers for direct sales by Harris. Prices to the ultimate customer in many
instances may be recommended or established by the independent representative
and may be on a basis which is above or below the Company's list prices. Such
independent representative generally receives a discount from the Company's list
prices and may mark-up such prices in setting the final sales prices paid by the
customer. During the fiscal year, orders came from a large number of foreign
countries, no one of which accounted for as much as five percent of total
orders.
Certain of Harris' exports are paid for by letters of credit, with the
balance either on open account or installment note basis. Advance payments,
progress payments or other similar payments received prior to or upon shipment
often cover most of the related costs incurred. Performance guarantees are
generally required on significant foreign government contracts.
The particular economic, social and political conditions for business
conducted outside the United States differ from those encountered by domestic
business. Management believes that the composite business risk for the
international business as a whole is somewhat greater than that faced by its
domestic operations as a whole. International business may subject the Company
to, among other things: the laws and regulations of foreign governments relating
to investments, operations, currency exchange controls, revaluations, taxes, and
fluctuations of currencies; uncertainties as to local laws and enforcement of
contract and intellectual property rights; and occasional requirements for
onerous contract clauses; and, in certain areas, the risk of war, rapid changes
in governments and economic and political policies, the threat of international
boycotts and United States anti-boycott legislation. Nevertheless, in the
opinion of management, these risks are offset by the diversification of the
international business and the protection provided by letters of credit and
advance payments.
Except for inconsequential matters involving road and utility
rights-of-way, Harris has never been subjected to threat of government
expropriation, either within the United States or abroad.
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Financial information regarding the Company's domestic and international
operations is contained in the Note Business Segments in the Notes to Financial
Statements.
COMPETITION; PRINCIPAL CUSTOMERS; BACKLOG
The Company operates in highly competitive businesses that are sensitive to
technological advances. While successful product and systems development is not
necessarily dependent on total financial resources, some of Harris' competitors
in each of the sectors of its business are larger and can maintain higher levels
of expenditures for research and development than Harris. Harris concentrates in
each of its sectors on the market opportunities which management believes are
compatible with its overall technological capabilities and objectives. Principal
competitive factors in these sectors are cost-effectiveness, product quality and
reliability, service and ability to meet delivery schedules as well as, in
international areas, the effectiveness of dealers.
Sales to the U.S. government, which is the Company's only customer
accounting for 10 percent or more of total sales, were 30.4 percent, 34.8
percent, and 35.7 percent of total sales in 1995, 1994 and 1993 respectively. It
is not expected that Defense Department budget cutbacks will have a material
effect on the profitability of the Company, due in part to the Company's efforts
to diversify and reduce its reliance on defense contracts.
Harris' backlog of unfilled orders was approximately $1.2 billion at June
30, 1995 and $1.1 billion at June 30, 1994. Substantially all of the backlog
orders at June 30, 1995 are expected to be filled by June 30, 1996.
RESEARCH AND ENGINEERING
Research and engineering expenditures by Harris totaled approximately $601
million in 1995, $624 million in 1994 and $564 million in 1993.
Company-sponsored research and product development costs were $134 million in
1995, $128 million in 1994 and $121 million in 1993. The balance was funded by
government and commercial customers. Company-funded research is directed to the
development of new products and to building technological capability in selected
semiconductor, communications and electronic systems areas. Government-funded
research helps strengthen and broaden the technical capabilities of Harris in
its areas of interest. Almost all of the decentralized operating divisions
maintain their own engineering and new product development departments, with
scientific assistance provided by advanced-technology departments.
Harris holds numerous patents which it considers, in the aggregate, to
constitute an important asset. However, it does not consider its business or any
sector to be materially dependent upon any single patent or any group of related
patents. The Company is engaged in a pro-active patent licensing program and has
entered into a number of license agreements which generate royalty income.
Although existing license agreements have generated income in past years and
will do so in the future, there can be no assurances the Company will enter into
additional income producing agreements.
ENVIRONMENTAL AND OTHER REGULATIONS
The manufacturing facilities of Harris, in common with those of industry
generally, are subject to numerous laws and regulations designed to protect the
environment, particularly in regard to wastes and emissions. Harris has complied
with these requirements and such compliance has not had a material adverse
effect on its business or financial condition. Expenditures to protect the
environment and to comply with current environmental laws and regulations over
the next several years are not expected to have a material impact on the
Company's competitive or financial position. If future laws and regulations
contain more stringent requirements than presently anticipated, expenditures may
be higher than the Company's present estimates of potential capital expenses.
Waste treatment facilities and pollution control equipment have been
installed to satisfy legal requirements and to achieve the Company's waste
minimization and prevention goals. An estimated $.9 million was spent on
environmental capital projects in fiscal 1995. The Company currently forecasts
authorization for environmental-related capital projects totalling $1.2 million
in fiscal 1996. Such amounts may increase in future years. The Company
anticipates that capital expenditures may be required over the next several
years
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for compliance costs under the new Clean Air Act; however, considerable
uncertainty remains with regard to estimates of such capital expenditures
because the regulations have not yet been issued.
EMPLOYEES
As of June 30, 1995, Harris had approximately 26,600 employees.
ITEM 2. PROPERTIES
Harris operates approximately 29 plants and approximately 400 offices in
the United States, Canada, Europe, Central and South America, Asia and Australia
consisting of about 7.0 million square feet of manufacturing, administrative,
engineering and office facilities that are owned and about 3.5 million square
feet of sales, office and manufacturing facilities that are leased. The leased
facilities are occupied under leases for terms ranging from one year to 30
years, a majority of which can be terminated or renewed at no longer than
five-year intervals at Harris' option. The location of the principal
manufacturing plants owned by the Company in the United States and the sectors
which utilize such plants are as follows: Electronic Systems -- Malabar,
Melbourne and Palm Bay, Florida; Semiconductor -- Palm Bay, Florida; Findlay,
Ohio; and Mountaintop, Pennsylvania; Communications -- Novato and San Carlos,
California; Quincy, Illinois; and Rochester, New York; and Lanier Worldwide --
Atlanta, Georgia. Harris considers its facilities to be suitable and adequate
for the purposes for which they are used.
As of June 30, 1995, the following facilities were in productive use by
Harris:
SQ. FT. TOTAL SQ. FT. TOTAL
SECTOR FUNCTION OWNED LEASED
------ -------- ------------- -------------
Electronic Systems Office/Manufacturing 2,866,000 457,000
Semiconductor Office/Manufacturing 2,067,000 52,000
Communications Office/Manufacturing 750,000 628,000
Lanier Worldwide Office/Manufacturing 144,000 592,000
OTHER
Corporate Offices 1,188,000 121,000
Sales/Service Offices 13,700 1,690,000
---------- ----------
TOTALS 7,028,700 3,540,000
ITEM 3. LEGAL PROCEEDINGS
From time to time, as a normal incident of the nature and kind of business
in which the Company is engaged, various claims or charges are asserted and
litigation commenced against the Company arising from or related to product
liability; patents, trademarks, or trade secrets; breach of warranty; antitrust;
distribution; or contractual relations. Claimed amounts may be substantial, but
may not bear any reasonable relationship to the merits of the claim or the
extent of any real risk of court awards. In the opinion of management, final
judgments, if any, which might be rendered against the Company in such
litigation are reserved against or would not have a material adverse effect on
the financial position or the business of the Company as a whole.
The Company may from time to time be, either individually or in conjunction
with other major U.S. manufacturers or defense contractors, the subject of U.S.
government investigations for alleged criminal or civil violations of
procurement or other federal laws. No criminal charges are presently known to be
filed against the Company and the Company is unable to predict the outcome of
such investigations or to estimate the amounts of claims or other actions that
could be instituted against it, its officers or employees as a result of such
investigations. Under present government procurement regulations, indictment
could result in a government contractor, such as the Company, being suspended or
debarred from eligibility for awards of new government contracts for up to three
years. In addition, the Company's foreign export control licenses could be
suspended or revoked. The Company is currently involved in various
investigations and is cooperating with the representatives of the responsible
government agencies. Management does not believe that the outcome of
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these investigations will have any material adverse effect on the financial
position or the business of the Company as a whole.
In addition, the Company is subject to numerous federal and state
environmental laws and regulatory requirements and is involved from time to time
in investigations or litigation of various potential environmental issues
concerning the ongoing conduct of its facilities or the remediation as a result
of past activities. The Company from time to time receives notices from the
United States Environmental Protection Agency and equivalent state environmental
agencies that it is a potentially responsible party ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act (commonly
known as the "Superfund Act") and/or equivalent state legislation. Such notices
assert potential liability for cleanup costs of various sites, most of which are
non-Company owned treatment or disposal sites, allegedly containing hazardous
substances attributable to the Company from past operations. The Company has
been named as a PRP at only 14 such sites, excluding sites as to which the
Company's records disclose no involvement or as to which the Company's liability
has been finally determined; the Company expects to resolve most of such
exposures on a de minimis basis. The Company is also occasionally a defendant in
"toxic tort" litigation involving alleged personal injury or property damage
claims resulting from past hazardous waste management practices. In the opinion
of management, any payments the Company may be required to make as a result of
these claims will not have a material adverse effect on the financial condition
or the business of the Company as a whole.
In August 1991, PLS, Inc., a California software company, filed suit
against the Company in California Superior Court for San Diego County alleging
fraud, breach of contract and other charges in connection with a license
agreement the Company had transferred in January 1990 to a third party, which
thereafter filed for bankruptcy protection. In December 1992, the jury returned
a verdict in favor of the plaintiff. In May 1993, the court reduced the jury
award and entered judgment against the Company for $13,379,000 in compensatory
damages and $53,424,700 in punitive damages, together with interest and costs of
suit. The Company posted a bond to stay enforcement of the judgment and filed a
notice of appeal with the California Court of Appeal. The Company is vigorously
pursuing its appeal. All appellate briefs have been filed and a decision is
expected mid-calendar year 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT AS OF SEPTEMBER 1, 1995.* (SEE ALSO ITEM 10
OF PART III).
EXECUTIVE BUSINESS EXPERIENCE DURING
NAME AGE OFFICE HELD PAST FIVE YEARS
---- --- ----------- --------------------------
Phillip W. Farmer 57 Chairman, President and Chairman of the Board and Chief
Chief Executive Officer Executive Officer since July, 1995.
President since April, 1993. Chief
Operating Officer 1993-95.
Executive Vice President and Acting
President -- Semiconductor Sector,
1991 to 1993. President --
Electronic Systems Sector, 1989 to
1991. Senior Vice President --
Sector Executive, 1988 to 1989.
Vice President -- Palm Bay
Operations, 1986 to 1988. Vice
President -- General Manager,
Government Support Systems
Division, 1982 to 1986. Director
since 1993.
Wesley E. Cantrell 60 President and President and Chief Executive
Chief Executive Officer Officer, Lanier Worldwide, Inc.
Lanier Worldwide, Inc. since March, 1987. Senior Vice
President -- Sector Executive,
Lanier Business Products Sector,
1985 to 1987. President, Lanier
Business Products, 1977 to 1987.
Executive Vice President and
National Sales Manager, Lanier
Business Products, 1972 to 1977.
Vice President, Lanier Business
Products, 1966 to 1972. Employed by
Lanier Business Products since
1955.
John C. Garrett 52 President -- Semiconductor President -- Semiconductor Sector
Sector since April, 1993. Formerly
Executive Vice President,
Industrial Business, Square D
Company 1987 to 1993, and various
general management assignments with
General Electric Company 1964 to
1987.
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*This listing identifies the executive officers of the Company, as defined
pursuant to the Securities Exchange Act of 1934, as well as all other corporate
officers.
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EXECUTIVE BUSINESS EXPERIENCE DURING
NAME AGE OFFICE HELD PAST FIVE YEARS
---- --- ----------- --------------------------
Allen S. Henry 55 President -- Electronic President -- Electronic Systems
Systems Sector Sector since June, 1991. Vice
President -- General Manager,
Government Communication Systems
Division, 1989 to 1991. Vice
President -- Programs, Aerospace
Systems Division, 1985 to 1989.
Vice President -- Engineering,
Aerospace Systems Division, 1983 to
1985. Vice President --
Engineering, Electronic Systems
Division, 1980 to 1983. Director --
Engineering, Electronic Systems
Division, April to December 1980.
Employed by Harris since 1972.
Guy W. Numann 63 President -- President -- Communications Sector
Communications Sector since August, 1989. Senior Vice
President -- Sector Executive, 1984
to 1989. Vice President -- Group
Executive, RF Communications Group,
1983 to 1984. Vice President --
General Manager, RF Communications
Division, 1974 to 1983. Vice
President -- Engineering, RF
Communications Division, 1970 to
1974.
Bryan R. Roub 54 Senior Vice President -- Senior Vice President -- Finance
Chief Financial Officer since July, 1984. Formerly with
Midland-Ross Corporation in the
capacities of Executive Vice
President -- Finance, 1982 to 1984;
Senior Vice President, 1981 to
1982; Vice President and
Controller, 1977 to 1981; and
Controller, 1973 to 1977.
Robert E. Sullivan 63 Senior Vice President -- Senior Vice President --
Administration Administration since September,
1986. Formerly Senior Vice
President -- Finance and
Administration at Harris Graphics
Corporation, 1983 to 1986. Vice
President -- Controller at Harris,
1981 to 1983 and various management
positions, including Vice President
-- Treasurer, 1971 to 1981.
10
12
EXECUTIVE BUSINESS EXPERIENCE DURING
NAME AGE OFFICE HELD PAST FIVE YEARS
---- --- ----------- --------------------------
Richard L. Ballantyne 55 Vice President -- General Vice President -- General Counsel and
Counsel and Secretary Secretary since November, 1989.
Formerly Vice President -- General
Counsel and Secretary, Prime
Computer, Inc., 1982 to 1989.
W. Peter Carney 63 Vice President -- Vice President -- Corporate Relations
Corporate Relations since October, 1987. Director --
Corporate Communications, 1981 to
1987.
James L. Christie 43 Vice President -- Vice President -- Internal Audit
Internal Audit since August, 1992. Director --
Internal Audit, 1986 to 1992.
Formerly Director -- Internal Audit
and Division Controller at Harris
Graphics Corporation, 1985 to 1986.
Various corporate and division
financial positions at Harris, 1978
to 1985.
Robert W. Fay 48 Vice President -- Vice President -- Controller since
Controller January, 1993. Acting Vice
President -- Controller,
Semiconductor Sector, 1991 to 1993.
Vice President -- Treasurer, 1988
to 1993. Treasurer, 1985 to 1988.
Director -- Financial Operations,
Semiconductor Sector, 1984 to 1985.
Controller -- Bipolar Digital
Semiconductor Division, 1981 to
1984. Manager -- Corporate Finance
and Cash Management, 1978 to 1981.
Nick E. Heldreth 53 Vice President -- Vice President -- Human Resources
Human Resources since June, 1986. Formerly Vice
President -- Personnel and
Industrial Relations, Commercial
Products Division, Pratt & Whitney
and various related assignments
with
United Technologies Corporation,
1974 to 1986.
Herbert N. McCauley 62 Vice President -- Vice President -- Information
Information Management Management since August, 1980.
Director -- Management Information
Systems, 1976 to 1980.
11
13
EXECUTIVE BUSINESS EXPERIENCE DURING
NAME AGE OFFICE HELD PAST FIVE YEARS
---- --- ----------- --------------------------
Ronald R. Spoehel 37 Vice President -- Vice President -- Corporate
Corporate Development Development since October, 1994.
Formerly, Senior Vice President,
ICF Kaiser International, Inc., in
various general management
assignments including member of the
office of the chairman, chief
financial officer, and treasurer,
1990 to 1994; and, Vice President,
Investment Banking, Lehman Brothers
(formerly Shearson Lehman Hutton
Inc.), 1985 to 1990.
David S. Wasserman 52 Vice President -- Treasurer Vice President -- Treasurer since
January, 1993. Vice President --
Taxes 1987 to 1993. Formerly Senior
Vice President, Midland-Ross
Corporation, 1979 to 1987.
There is no family relationship between any of the Company's executive
officers or directors. All of the Company's executive officers are elected by
and serve at the pleasure of the Board of Directors.
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14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Harris Corporation Common Stock, par value $1 per share (the "Common
Stock"), is listed on the New York Stock Exchange, Inc. and is also traded on
the Boston, Chicago, Philadelphia and Pacific Stock Exchanges and through the
Intermarket Trading System. As of August 31, 1995, there were 9,845 holders of
record of the Common Stock.
The high and low closing prices as reported in the consolidated transaction
reporting system and the dividends paid on the Common Stock for each quarterly
period in the last two fiscal years are reported below:
PER SHARE AMOUNTS (IN DOLLARS)
--------------------------------------------------------
QUARTERS ENDED
--------------------------------------------------------
9-30-94 12-31-94 3-31-95 6-30-95 TOTAL
----------- ----------- ----------- ----------- -----------
Fiscal 1995
Dividends................... $.31 $.31 $.31 $.31 $1.24
Stock Prices (high/low)..... 49 1/8-41 3/8 48 7/8-38 48 3/8-40 1/2 53 3/8-46 3/8
9-30-93 12-31-93 3-31-94 6-30-94 TOTAL
----------- ----------- ----------- ----------- -----------
Fiscal 1994
Dividends................... $.28 $.28 $.28 $.28 $1.12
Stock prices (high/low)..... 43 3/4-36 3/8 47 3/8-41 1/2 52 1/4-44 49-41 3/4
In August, 1995, the directors declared a quarterly cash dividend of 34
cents per share. The Company has paid cash dividends in every year since 1941.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial information of Harris
Corporation and its subsidiaries for each year during the five year period ended
June 30, 1995. This table should be read in conjunction with other financial
information of Harris, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and financial statements included
elsewhere herein.
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Net sales..................... $3,444.1 $3,336.1 $3,099.1 $3,004.0 $3,040.1
Income from continuing
operations before
extraordinary item and
cumulative effect of change
in accounting principle..... 154.5 121.9 111.1 87.5 19.5
Discontinued operations....... -- -- -- (9.3) --
Extraordinary loss from early
retirement of debt.......... -- -- -- (3.0) --
Cumulative effect of change in
accounting principle........ -- (10.1) -- -- --
Net income.................... 154.5 111.8 111.1 75.2 19.5
Per share data:
Income from continuing
operations before
extraordinary item and
cumulative effect of
change in accounting
principle................ 3.95 3.07 2.82 2.24 .50
Discontinued operations..... -- -- -- (.24) --
Extraordinary loss.......... -- -- -- (.08) --
Cumulative effect of
accounting change........ -- (.25) -- -- --
Net income.................. 3.95 2.82 2.82 1.92 .50
Cash dividends.............. 1.24 1.12 1.04 1.04 1.04
Net working capital........... 755.4 893.6 792.5 768.9 643.0
Total assets.................. 2,836.0 2,677.1 2,542.0 2,483.8 2,485.8
Long-term debt................ 475.9 661.7 612.0 612.5 563.3
13
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The information in this review, along with Business Segment data shown on
page 2, reflects the Company's continuing operations.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED WITH 1994 -- Sales in fiscal 1995 increased 3 percent while
income before cumulative effect of change in accounting principle increased 27
percent. Income for 1994 included a $17.8 million charge ($11.5 million after
income taxes) for the Corporation's write-off of securities received from a
prior-year sale of a discontinued business.
Semiconductor segment sales increased 4 percent despite a significant
decline in defense business. Strong sales of commercial products more than
offset the decline in military shipments. The segment reported a 37 percent
increase in net income for the year. Segment earnings benefited from increased
sales of core commercial products, continuing improvements in operating margins,
and increased patent royalty income. These increases were partially offset by
reduced gains from the ongoing sales of investment securities.
Communications segment sales increased 15 percent and net income increased
19 percent. The increase in sales and earnings resulted from growth in the
segment's radio communications, broadcast equipment, and telecommunication
systems businesses. Domestic sales were up sharply for the year and
international sales were maintained despite economic disruptions in certain
major markets such as Mexico.
Sales in the Lanier Worldwide segment increased 9 percent while net income
increased 27 percent. Sales were strong in both domestic and international
markets. Segment earnings benefited from the increased profitability of Lanier's
European and other international operations.
Electronic Systems sales and net income decreased 8 and 12 percent,
respectively. Prior-year results included a computer systems business which was
spun off to shareholders in the first quarter of fiscal 1995. Excluding the
computer systems business from fiscal 1994 results, sales and net income
decreased 3 and 9 percent, respectively. Segment results were adversely impacted
by lower sales to the U.S. Government and by delays in shipments of a new energy
management system.
Cost of sales, rentals, and services as a percentage of sales decreased to
67.6 percent from 68.2 percent in the prior year. Continuing margin improvement
in the Semiconductor and Communications segments was offset in part by a higher
cost ratio in the Electronic Systems segment. Engineering, selling, and
administrative expenses as a percentage of sales were 24.3 percent in fiscal
1995, compared to 24.9 percent in the prior year. Electronic Systems segment
operating expenses were sharply lower due to cost reduction efforts begun in the
second quarter of fiscal 1995. Corporation-sponsored research and development
expenditures were 4.9 percent more than the previous year's expenditures.
Interest income and interest expense were higher in fiscal 1995 due to
higher interest rates. "Other-net" expense was higher in fiscal 1995 because
1994 included a $15.6 million gain from the sale of a facility.
The provision for income taxes in fiscal 1995 was 35.0 percent of income
before income taxes compared to 37.0 percent in fiscal 1994. The lower rate in
fiscal 1995 resulted from increased tax benefits associated with foreign income.
CAPITAL EXPENDITURES -- Expenditures for land, buildings, and equipment totaled
$140 million in 1995, up from $117 million in the prior year. In addition,
during fiscal 1995, $65 million was invested in equipment for rental to
customers, up from $51 million invested in the prior year. Substantially all of
this investment in rental equipment is related to Lanier Worldwide products.
FISCAL 1994 COMPARED WITH 1993 -- Sales in fiscal 1994 increased 8 percent,
while income before cumulative effect of change in accounting principle
increased 10 percent. Income from operations for 1994 included a $17.8 million
charge ($11.5 million after income taxes) for the Company's write-off of
securities received from a prior-year sale of a discontinued business.
Semiconductor segment sales increased 8 percent while net income was up 85
percent. Strong sales and earnings of commercial products more than offset a
decline in military shipments. In 1994, the segment took
14
16
actions to streamline its manufacturing operations as a response to declining
military-related sales. Segment profit margins increased in 1994 due to ongoing
cost reduction programs and a larger mix of higher-value products. Results for
the year included an after-tax charge of $12.1 million to establish reserves for
restructuring actions completed during fiscal 1995. Restructuring actions
resulted primarily from a decision to close a facility in Singapore and related
employee-termination costs. Restructuring charges were partially offset by an
after-tax gain of $9.9 million from the sale of a fabrication facility. The sale
of this facility will not materially impact segment operations. Segment net
income in both years also includes comparable gains from ongoing sales of
investment securities.
Communications segment sales increased 15 percent and net income increased
33 percent. Sales growth was principally in international markets. International
sales accounted for 53 percent and 48 percent of total sales in 1994 and 1993,
respectively. International sales in 1994 were particularly strong in rapidly
developing countries such as China, Mexico, and Russia. The segment expects
international sales to account for two-thirds of total segment sales within the
next few years. International segment sales are transacted on terms that
substantially mitigate credit and foreign currency risks. The increase in
segment earnings was due to higher sales while maintaining operating expenses at
prior-year levels.
Lanier Worldwide segment sales increased 2 percent and net income increased
17 percent. In the United States, segment sales and net income continued their
strong performance. The segment returned to profitability in Europe in the
second half of 1994, as a result of restructuring efforts with special emphasis
on the French, Italian, and European Headquarters operations. This turnaround
occurred despite unfavorable foreign exchange rates and economic conditions that
continue in many of the segment's European markets.
Electronic Systems segment sales increased 8 percent while segment net
income decreased 8 percent. Strong sales in the segment's air traffic control
business and information systems business were responsible for the sales
increase and reflect continuing diversification of the segment's product lines
and markets. Changing defense priorities and federal budget pressure are
expected to restrain funding of defense-related programs in the future, thereby
making the segment's diversification strategy a continuing emphasis of the
business. Segment net income declined due to losses incurred in its
telecommunications business and costs associated with the close-down of the
segment's facilities in Orlando, Florida. In the fourth quarter of 1994, the
telecommunications business was downsized and moved to the Company's
Communications segment.
Cost of sales, rentals, and services as a percentage of sales increased to
68.2 percent from 67.3 percent in the prior year due to slightly higher cost
ratios in all segments. Engineering, selling, and administrative expenses as a
percentage of sales were 24.9 percent in fiscal 1994, compared to 26.5 percent
in the prior year. While total operating expenses were higher than 1993, the
increase in these expenses was less than the relative increase in sales. Lower
marketing expenses for the Lanier Worldwide segment contributed to the 1994
lower expense ratio as this segment began to realize the savings from combining
many of its marketing and distribution units. Company-sponsored research and
development expenditures were 5.8 percent more than the previous year.
Interest income and interest expense were slightly lower during fiscal
1994. The increase in income in the "Other-net" category resulted from a gain on
the sale of a semiconductor facility, offset in part by higher provisions for
doubtful accounts receivable, foreign currency losses, and reductions in gains
from the sale of investment securities.
The provision for income taxes in fiscal 1994 was 37.0 percent of income
before income taxes compared to 34.6 percent in the prior year. The increase
from the statutory rate in both years resulted from the provision for state
income taxes.
CAPITAL EXPENDITURES -- Expenditures for land, buildings, and equipment totaled
$117 million in 1994, up from $95 million in the prior year. In addition, during
fiscal 1994, $51 million was invested in equipment for rental to customers, down
from $54 million invested in the prior year. Substantially all of this
investment in rental equipment is related to Lanier Worldwide products.
15
17
FINANCIAL CONDITION
Cash Position. At June 30, 1995, cash, and cash equivalents totaled $119
million, a decrease from $139 million at June 30, 1994. Marketable securities
were $22 million at June 30, 1995.
Receivables, Unbilled Costs, and Inventories. Notes and accounts receivable
amounted to $824 million at June 30, 1995, compared to $798 million a year
earlier. Unbilled costs and inventories increased $37 million over the prior
year to $870 million. The increase in these accounts is proportionate to the
increase in revenues.
Borrowing Arrangements. The Company has available $500 million under
revolving credit agreements until May 1, 2000. Under these agreements, $160
million was outstanding at June 30, 1995. In addition, the Company has $143
million in open bank credit lines, of which $106 million was available at June
30, 1995.
Capitalization. At June 30, 1995, debt totaled $646 million, representing
34.1 percent of total capitalization (defined as the sum of total debt plus
shareholders' equity). A year earlier, debt of $683 million was 36.5 percent of
total capitalization. Year-end long-term debt included $150 million of 10 3/8
percent debentures due 2018, $300 million of notes payable to banks and
insurance companies and $26 million of other long-term debt.
In 1995, the Company issued 484,937 shares of the Common Stock to employees
under the terms of the Company's stock purchase, option and incentive plans.
The Company expects to maintain operating ratios, fixed-charge coverages,
and balance-sheet ratios sufficient for retention of its present debt ratings.
Retirement Plans. Retirement benefits for substantially all of the
Company's employees are provided primarily through a retirement plan having
profit-sharing and savings elements. The Company also has non-contributory
defined-benefit pension plans. All obligations under the Company's retirement
plans have been fully funded by the Company's contributions, the provision for
which totaled $71 million during the 1995 fiscal year. The Company provides
limited health-care benefits to retirees who have 10 or more years of service.
In 1994, the Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
implementation of this accounting standard resulted in a one-time after-tax
charge of $10.1 million. The ongoing impact of this accounting standard is not
expected to have a material effect in future years.
Impact of Foreign Exchange. Approximately 80 percent of the Company's
international business is transacted in local currency environments. The impact
of translating the assets and liabilities of these operations to U.S. dollars is
included as a component of Shareholders' Equity. At June 30, 1995, the
cumulative translation adjustment reduced Shareholders' Equity by $10 million
compared to a reduction of $22 million at June 30, 1994.
The Company utilizes exchange rate agreements with customers and suppliers
and foreign currency hedging instruments to minimize the currency risks of
international transactions. Gains and losses resulting from currency rate
fluctuations did not have a material effect on the Company's result in 1995,
1994, or 1993.
Impact of Inflation
To the extent feasible, the Company has consistently followed the practice
of adjusting its prices to reflect the impact of inflation on wages and salaries
for employees and the cost of purchased materials and services.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are
set forth in the pages indicated in Item 14(a)(1) and (2) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, with respect to Directors of the
Company, is incorporated herein by reference to the Company's Proxy Statement to
be filed September 15, 1995. See also pages 8 through 11 of Part I above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item, with respect to compensation of
Directors and Executive Officers of the Company, is incorporated herein by
reference to the Company's Proxy Statement to be filed September 15, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item, with respect to security ownership
of certain beneficial owners and management, is incorporated herein by reference
to the Company's Proxy Statement to be filed September 15, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended June 30, 1995, there existed no relationships
and there were no transactions reportable under this Item.
17
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
PAGE
(1) Financial Statements:
Consolidated Statement of Income -- Years ended June 30, 1995, 1994
and 1993........................................................... 23
Consolidated Statement of Retained Earnings --
Years ended June 30, 1995, 1994 and 1993.......................... 23
Consolidated Balance Sheet -- June 30, 1995 and 1994................ 24
Consolidated Statement of Cash Flows --
Years ended June 30, 1995, 1994 and 1993.......................... 25
Notes to Financial Statements....................................... 26
(2) Financial Statement Schedules:
For each of the three years in the period ended June 30, 1995.
Schedule II -- Valuation and Qualifying Accounts............... 33
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
(3) Exhibits
(3)(a) Restated Certificate of Incorporation of Harris Corporation
(October 1986) is incorporated herein by reference to Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
26, 1986.
(3)(b) By-laws of Harris Corporation as in effect on the date
hereof is incorporated herein by reference to Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1986.
(4)(a) Specimen stock certificate for the Company's Common Stock is
incorporated herein by reference to Exhibit 4(c) to the Company's
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on September 13, 1982 (Registration Number 2-79308).
(4)(b) Rights Agreement dated as of November 24, 1986, between
Harris Corporation and Ameritrust Company National Association, as
Rights Agent, is incorporated herein by reference to Exhibit 1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 9, 1986.
(4)(c) Registrant by this filing agrees, upon request, to furnish
to the Securities and Exchange Commission copies of financial documents
evidencing long-term debt.
(10) Material Contracts:
*(a) Senior Executive Severance Agreements are incorporated
herein by reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-K for the year ended June 30, 1987.
*(b) Harris Corporation Annual Incentive Plan is incorporated
herein by reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the year ended June 30, 1991.
*(c) Harris Corporation Stock Incentive Plan is incorporated
herein by reference to Exhibit 10(c) of the Company's Annual Report
on Form 10-K for the year ended June 30, 1994.
*(d) Harris Corporation 1981 Stock Option Plan for Key Employees
is incorporated herein by reference to Exhibit 10(d) of the Company's
Annual Report on Form 10-K for the year ended June 30, 1991.
18
20
*(e) Lanier Worldwide, Inc. Key Contributor Bonus Plan.
*(f) Lanier Worldwide, Inc. Long-Term Incentive Plan for Key
Employees.
*(g) Harris Corporation Retirement Plan.
*(h) Harris Corporation Supplemental Executive Retirement Plan
is incorporated by reference to Exhibit 10(h) of the Company's Annual
Report on Form 10-K for the year ended June 30, 1994.
(h)(i) Amendment to Harris Corporation Supplemental Executive
Retirement Plan.
*(i) Lanier Worldwide, Inc. Pension Plan is incorporated herein
by reference to Exhibit 10(i) of the Company's Annual Report on Form
10-K for the year ended June 30, 1994.
*(j) Lanier Worldwide, Inc. Savings Incentive Plan is
incorporated herein by reference to Exhibit 10(j) of the Company's
Annual Report on Form 10-K for the year ended June 30, 1994.
*(k) Lanier Worldwide, Inc. Supplemental Executive Retirement
Plan is incorporated herein by reference to Exhibit 10(k) of the
Company's Annual Report on Form 10-K for the year ended June 30,
1994.
*(l) Directors Retirement Plan is incorporated herein by
reference to Exhibit 10(l) to the Company's Annual Report on Form
10-K for the year ended June 30, 1990.
(11) Statement regarding computation of net income per share.
(12) Ratio of Earning to Fixed Charges.
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
fiscal year ended June 30, 1995.
------------------
*Management contract or compensatory plan or arrangement.
19
21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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)
Dated: September 8, 1995
By /s/ BRYAN R. ROUB
Bryan R. Roub
Senior Vice President-Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------------------------------------------------------------------------- ----------------
/s/ PHILLIP W. FARMER Chairman of the Board, President
Phillip W. Farmer and Chief Executive Officer
(Principal Executive Officer)
/s/ BRYAN R. ROUB Senior Vice President -- Chief
Bryan R. Roub Financial Officer
(Principal Financial Officer)
/s/ ROBERT W. FAY Vice President -- Controller
Robert W. Fay (Principal Accounting Officer)
/s/ ROBERT CIZIK Director
Robert Cizik
/s/ LESTER E. COLEMAN Director
Lester E. Coleman
/s/ RALPH D. DENUNZIO Director
September 8, 1995
Ralph D. DeNunzio
/s/ JOSEPH L. DIONNE Director
Joseph L. Dionne
/s/ C. JACKSON GRAYSON, JR. Director
C. Jackson Grayson, Jr.
/s/ JOHN T. HARTLEY Director
John T. Hartley
/s/ KAREN KATEN Director
Karen Katen
/s/ WALTER F. RAAB Director
Walter F. Raab
/s/ ALEXANDER B. TROWBRIDGE Director
Alexander B. Trowbridge
20
22
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED JUNE 30, 1995
HARRIS CORPORATION
MELBOURNE, FLORIDA
21
23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Harris Directors and Shareholders:
We have audited the accompanying consolidated balance sheet of Harris
Corporation and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, retained earnings, and cash flows for each of
the three years in the period ended June 30, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Harris
Corporation and subsidiaries at June 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in the Accounting Change note to the financial statements,
effective July 1, 1993, the Corporation changed its method of accounting for
postretirement benefits other than pensions.
ERNST & YOUNG LLP
Orlando, Florida
July 27, 1995
22
24
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
Years ended June 30
-------------------------------------------------------------------------------------------------------
In millions except per share amounts 1995 1994 1993
-------------------------------------------------------------------------------------------------------
REVENUE
Revenue from product sales and rentals $3,032.2 $2,972.0 $2,739.2
Revenue from services 411.9 364.1 359.9
Interest 36.8 33.3 34.2
-------------------------------------------------------------------------------------------------------
3,480.9 3,369.4 3,133.3
COSTS AND EXPENSES
Cost of product sales and rentals 2,075.9 2,055.7 1,872.7
Cost of services 252.6 219.1 213.3
Engineering, selling, and administrative expenses 835.8 830.8 822.2
Interest 65.4 58.3 59.9
Write-off of securities - 17.8 -
Other-net 13.6 (5.8) (4.6)
-------------------------------------------------------------------------------------------------------
3,243.3 3,175.9 2,963.5
-------------------------------------------------------------------------------------------------------
Income before income taxes 237.6 193.5 169.8
Income taxes 83.1 71.6 58.7
-------------------------------------------------------------------------------------------------------
Income before cumulative effect of change
in accounting principle 154.5 121.9 111.1
Cumulative effect of change in accounting principle -
net of income taxes - (10.1) -
-------------------------------------------------------------------------------------------------------
Net income $ 154.5 $ 111.8 $ 111.1
=======================================================================================================
Income per share:
Before cumulative effect of change in accounting principle $3.95 $3.07 $2.82
Cumulative effect of change in accounting principle - (.25) -
-------------------------------------------------------------------------------------------------------
Net income per share $3.95 $2.82 $2.82
=======================================================================================================
Consolidated Statement of Retained Earnings
Years ended June 30
-------------------------------------------------------------------------------------------------------
In millions except per share amounts 1995 1994 1993
-------------------------------------------------------------------------------------------------------
Balance at beginning of year $943.1 $906.7 $836.4
Net income for the year 154.5 111.8 111.1
Cash dividends ($1.24 per share in 1995,
$1.12 per share in 1994 and $1.04 per share in 1993) (48.2) (44.2) (40.8)
Non-cash dividend (55.2) - -
Treasury stock retired (24.8) (31.2) -
-------------------------------------------------------------------------------------------------------
Balance at end of year $969.4 $943.1 $906.7
=======================================================================================================
See Notes to Financial Statement
Harris Corporation
23
25
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
June 30
-----------------------------------------------------------------------------------------------------
In millions 1995 1994
-----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 119.3 $ 139.1
Marketable securities 22.3 -
Receivables 657.1 647.2
Unbilled costs and accrued earnings on fixed-price contracts 374.9 369.7
Inventories 494.9 463.1
Deferred income taxes 142.2 79.2
-----------------------------------------------------------------------------------------------------
Total current assets 1,810.7 1,698.3
OTHER ASSETS
Plant and equipment 581.0 551.3
Notes receivable-net 166.6 151.1
Intangibles resulting from acquisitions 166.6 166.0
Other assets 111.1 110.4
-----------------------------------------------------------------------------------------------------
$2,836.0 $2,677.1
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 37.7 $ 19.8
Trade accounts payable 168.7 184.5
Compensation and benefits 193.4 188.5
Other accrued items 168.4 164.9
Advance payments by customers 89.4 59.7
Unearned leasing and service income 174.6 129.3
Income taxes 90.5 57.0
Current portion of long-term debt 132.6 1.0
-----------------------------------------------------------------------------------------------------
Total current liabilities 1,055.3 804.7
OTHER LIABILITIES
Deferred income taxes 56.0 22.7
Long-term debt 475.9 661.7
SHAREHOLDERS' EQUITY
Preferred Stock, without par value:
1,000,000 shares authorized; none issued
Common Stock, $1.00 par value:
100,000,000 shares authorized; issued and outstanding
38,877,019 shares in 1995 and 39,298,118 shares in 1994 38.9 39.3
Other capital 240.3 230.3
Retained earnings 969.4 943.1
Net unrealized gain on securities available for sale 12.2 -
Unearned compensation (1.7) (3.2)
Cumulative translation adjustments (10.3) (21.5)
-----------------------------------------------------------------------------------------------------
Total shareholders' equity 1,248.8 1,188.0
-----------------------------------------------------------------------------------------------------
$2,836.0 $2,677.1
=====================================================================================================
See Notes to Financial Statements.
24
Harris Corporation
26
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended June 30
------------------------------------------------------------------------------------------------------
In millions 1995 1994 1993
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income before cumulative effect of change in
accounting principle $154.5 $121.9 $111.1
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation 155.0 145.7 150.0
Amortization 10.3 7.7 7.3
Non-current deferred income taxes 33.3 12.1 (27.8)
Changes in assets and liabilities:
Receivables (49.5) (43.6) 8.0
Unbilled costs and inventories (53.4) (67.4) (58.1)
Trade payables and accrued liabilities (1.0) 39.7 (18.8)
Advance payments and unearned income 76.0 12.9 7.8
Income taxes (35.9) (33.6) 50.6
Other (.3) (22.3) (20.8)
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 289.0 173.1 209.3
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquired business - - (25.9)
Capital expenditures-net of normal disposals (194.5) (134.9) (137.1)
------------------------------------------------------------------------------------------------------
Net cash used in investing activities (194.5) (134.9) (163.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 750.0 302.7 362.1
Payments of borrowings (787.8) (267.1) (373.7)
Cash dividends (56.6) (44.2) (40.8)
Purchase of Common Stock for treasury (29.8) (36.7) -
Proceeds from sale of Common Stock 8.6 13.5 10.3
------------------------------------------------------------------------------------------------------
Net cash used in financing activities (115.6) (31.8) (42.1)
------------------------------------------------------------------------------------------------------
Effect of translation on cash and cash equivalents 1.3 1.0 3.3
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19.8) 7.4 7.5
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 139.1 131.7 124.2
------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $119.3 $139.1 $131.7
======================================================================================================
See Notes to Financial Statements.
25
Harris Corporation
27
Notes to Financial Statements
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION-The consolidated financial statements include the
accounts of the Corporation and its subsidiaries. Significant intercompany
transactions and accounts have been eliminated.
CASH EQUIVALENTS-Cash equivalents are temporary cash investments with a
maturity of three months or less when purchased. These investments include
accrued interest and are carried at the lower of cost or market.
MARKETABLE SECURITIES-Marketable securities are stated at fair value, with the
unrealized gains and losses, net of tax, included as a separate component of
shareholders' equity. Realized gains and losses from marketable securities are
determined using the specific identification method.
INVENTORIES-Inventories are priced at the lower of cost (determined by average
and first-in, first-out methods) or market.
PLANT AND EQUIPMENT-Plant and equipment is carried on the basis of cost.
Depreciation of buildings, machinery and equipment is computed by straight-line
and accelerated methods. The estimated useful lives of buildings range between
5 and 50 years. The estimated useful lives of machinery and equipment range
between 3 and 10 years. Depreciation of rental equipment is computed by the
straight-line method using estimated useful lives between 3 and 5 years.
INTANGIBLES-Intangibles resulting from acquisitions are being amortized by the
straight-line method principally over 40 years. Recoverability of intangibles
is assessed using estimated undiscounted cash flows of related operations.
INCOME TAXES-The Corporation follows the liability method of accounting for
income taxes.
REVENUE RECOGNITION-Revenue is recognized from sales other than on long-term
contracts when a product is shipped, from rentals as they accrue, and from
services when performed. Revenue on long-term contracts is accounted for
principally by the percentage-of-completion method whereby income is recognized
based on the estimated stage of completion of individual contracts. Unearned
income on service contracts is amortized by the straight-line method over the
term of the contracts.
FUTURES AND FORWARD CONTRACTS-Gains and losses on futures and forward contracts
that qualify as hedges are deferred and recognized as an adjustment of the
carrying amount of the hedged asset or liability or anticipated transaction.
RETIREMENT BENEFITS-The Corporation and its subsidiaries provide retirement
benefits to substantially all employees primarily through a retirement plan
having profit-sharing and savings elements. Contributions by the Corporation to
the retirement plan are based on profits and employees' savings with no other
funding requirements. The Corporation may make additional contributions to the
fund at its discretion. The Corporation also has non-contributory
defined-benefit pension plans which are fully funded.
Retirement benefits also include an unfunded limited health-care plan for
U.S.-based retirees. In 1994, the Corporation began accruing the
estimated cost of retiree medical benefits during an employee's active service
life. The Corporation previously expensed the cost of these benefits on a
pay-as-you-go basis.
UNEARNED COMPENSATION-Compensation resulting from performance shares granted
under the Corporation's long-term incentive plan is amortized to expense over
the vesting period of the performance shares and is adjusted for changes in the
market value of the Common Stock.
EARNINGS PER SHARE-Income per share is based upon the weighted average number
of common shares outstanding during each year.
ACCOUNTING CHANGES
In 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 of unrealized gains and losses is reported as a separate
component of shareholders' equity until realized. The cost basis of marketable
securities at June 30, 1995, was $2.3 million. The amount of gross realized
gains included in net income in 1995 was not material.
In 1994, the Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Health-care benefits are provided on a limited cost-sharing basis
to retirees who have 10 or more years of service. The cumulative effect at July
1, 1993, of adopting this statement resulted in a one-time charge of $10.1
million net of income tax benefits of $6.4 million. The impact of this change
on income before cumulative effect of change in accounting principle was not
material in 1994.
26
Harris Corporation
28
NONRECURRING ITEMS
In 1994, the Corporation's residual holding in a company that acquired its 1989
discontinued data-communication business became impaired due to bankruptcy
proceedings. Consequently, the Corporation provided $17.8 million ($11.5
million after income taxes or 29 cents per share) to write off its interest in
equity securities and promissory notes of this company. Also in 1994, the
Corporation sold a Semiconductor fabrication facility for $35.5 million in
cash. This sale resulted in a gain of $15.6 million ($9.9 million after income
taxes or 25 cents per share) and is included in "Other-net" expense in the
Consolidated Statement of Income.
CONTINGENCIES RESULTING FROM
DISCONTINUED OPERATION
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 interest 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
operation charges included legal costs the Corporation expects to incur in
defending itself in this matter.
RECEIVABLES
Receivables are summarized below:
--------------------------------------------------------------
(In millions) 1995 1994
--------------------------------------------------------------
Accounts receivable $588.3 $581.8
Notes receivable due within one year-net 98.8 94.9
--------------------------------------------------------------
687.1 676.7
Less allowances for collection losses 30.0 29.5
--------------------------------------------------------------
$657.1 $647.2
==============================================================
INVENTORIES AND UNBILLED COSTS
Inventories are summarized below:
--------------------------------------------------------------
(In millions) 1995 1994
--------------------------------------------------------------
Finished products $184.4 $185.6
Work in process 226.8 200.0
Raw materials and supplies 83.7 77.5
--------------------------------------------------------------
$494.9 $463.1
==============================================================
Unbilled costs and accrued earnings on fixed-price contracts are net of
progress payments of $240.2 million in 1995 and $206.4 million in 1994.
PLANT AND EQUIPMENT
Plant and equipment are summarized below:
-------------------------------------------------------------------
(In millions) 1995 1994
-------------------------------------------------------------------
Land $ 30.2 $ 30.3
Buildings 441.9 431.4
Machinery and equipment 1,133.4 1,068.8
Rental equipment 211.7 188.3
-------------------------------------------------------------------
1,817.2 1,718.8
Less allowances for depreciation 1,236.2 1,167.5
-------------------------------------------------------------------
$ 581.0 $ 551.3
===================================================================
INTANGIBLES
Accumulated amortization of intangible assets at June 30 was $43.1 million for
1995 and $33.1 million for 1994.
CREDIT ARRANGEMENTS
The Corporation maintains revolving credit agreements which provide for
borrowing up to $500.0 million until May 1, 2000. These agreements provide for
advances under a competitive advance facility and a committed facility at
various interest rates, but in no event above LIBOR plus 0.225 percent. A
facility fee of 0.125 percent per annum is payable on the credit. The
Corporation is not required to maintain compensating balances in connection
with these agreements. Under these agreements, $160.0 million was outstanding
at June 30, 1995, $150.0 million of which has been classified as long-term
based on the Corporation's intent to maintain borrowings of at least that
amount for the next year.
The Corporation also has lines of credit for short-term financing
aggregating $142.6 million from various U.S. and foreign banks, of which $105.8
million was available on June 30, 1995. These arrangements provide for borrowing
at various interest rates, are reviewed annually for renewal, and may be used on
such terms as the Corporation and the banks mutually agree. These lines do not
require compensating balances.
Short-term debt is summarized below:
-------------------------------------------------------------------
(In millions) 1995 1994
-------------------------------------------------------------------
Bank notes $33.1 $14.5
Other 4.6 5.3
-------------------------------------------------------------------
$37.7 $19.8
===================================================================
LONG-TERM DEBT
Long-term debt includes the following:
-------------------------------------------------------------------
(In millions) 1995 1994
-------------------------------------------------------------------
Notes payable to banks $150.0 $200.0
10 3/8% debentures, due 2018 150.0 150.0
Notes payable to insurance companies 150.0 250.0
Unsecured term notes 4.5 34.5
Other 21.4 27.2
-------------------------------------------------------------------
$475.9 $661.7
===================================================================
Harris Corporation
27
29
NOTES TO FINANCIAL STATEMENTS
The weighted average interest rate for notes payable to banks was 6.2
percent in 1995 and 4.8 percent in 1994. The weighted average interest rate for
notes payable to insurance companies was 9.7 percent in 1995 and 9.4 percent in
1994. Indentures and note agreements contain certain financial covenants
including maintenance of at least $800.0 million of tangible net worth and
total debt not to exceed 45 percent of total capital. Maturities on long-term
debt for the five years following 1995 are: $132.6 million in 1996, $1.5
million in 1997, $5.6 million in 1998, $57.0 million in 1999, and $187.7
million in 2000.
SHAREHOLDERS' EQUITY
Changes in shareholders' equity accounts other than retained earnings are summarized as follows:
------------------------------------------------------------------------------------------------------------------------------------
Common Net Unrealized Cumulative
Stock Other Gain on Unearned Translation
(In millions) Amount Capital Securities Compensation Adjustments
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 1, 1992 $39.2 $202.4 $ - $(11.5) $ 2.0
Shares issued under Stock Option Plan (299,811 shares) .3 9.7 - - -
Shares granted under Stock Incentive Plans (228,750 shares) .2 6.2 - (6.5) -
Compensation expense - - - 7.3 -
Termination of shares granted under Stock Incentive Plans
(75,192 shares) (.1) (2.3) - 2.4 -
Shares sold under Employee Stock Purchase Plans
(10,294 shares) - .3 - - -
Foreign currency translation adjustments - - - - (15.0)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 39.6 216.3 - (8.3) (13.0)
Shares issued under Stock Option Plan (315,747 shares) .3 11.1 - - -
Shares granted under Stock Incentive Plans (257,909 shares) .3 9.6 - (9.8) -
Compensation expense - - - 10.7 -
Termination of shares granted under Stock Incentive Plans
(126,638 shares) (.1) (4.1) - 4.2 -
Shares sold under Employee Stock Purchase Plans
(47,904 shares) - 2.1 - - -
Foreign currency translation adjustments - - - - (8.5)
Purchase and retirement of Common Stock for treasury
(801,300 shares) (.8) (4.7) - - -
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 39.3 230.3 - (3.2) (21.5)
Adjustment to beginning balance for change in accounting
method, net of income taxes of $7.1 - - 11.1 - -
Shares issued under Stock Option Plan (136,058 shares) .1 4.0 - - -
Shares granted under Stock Incentive Plans (249,950 shares) .3 10.6 - (10.9) -
Compensation expense - - - 11.8 -
Termination and award of shares granted under
Stock Incentive Plans (202,536 shares) (.2) (4.7) - .6 -
Shares sold under Employee Stock Purchase Plans
(98,929 shares) .1 4.4 - - -
Change in unrealized gains on securities, net of
income taxes of $.7 - - 1.1 - -
Foreign currency translation adjustments - - - - 11.2
Purchase and retirement of Common Stock for treasury
(703.500 shares) (.7) (4.3) - - -
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $38.9 $240.3 $12.2 $(1.7) $(10.3)
------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE RIGHTS
Each outstanding share of Common Stock includes one preferred share purchase
right that entitles the holder to purchase one two-hundredth share of a new
series of participating preferred stock at an exercise price of $125. The
rights will not be exercisable, or transferable apart from the Common Stock,
until 10 days following an announcement that a person or affiliated group has
acquired, or obtained the right to acquire, beneficial ownership of 20 percent
or more of the Common Stock or until 10 days following an announcement of a
tender or exchange offer for 30 percent or more of the Common Stock. The
rights, which do not have voting rights, will be exercisable by all holders
except for a holder or affiliated group beneficially owning 20 percent or more
of the Common Stock. All rights will expire on November 23, 1996, and may be
redeemed by the Corporation at a price of $.01 per right at any time prior to
either their expiration or such time that the rights become exercisable. In
the event that the Corporation is acquired in a merger or other business
combination or certain other events occur, provision shall be made so that each
holder of a right shall have the right to receive, upon exercise thereof at the
then-current exercise price, that number of shares of common stock of the
surviving company which at the time of such transaction would have a market
value of two times the exercise price of the right.
28
30
NON-CASH DIVIDEND
In 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 20 shares of the Corporation's Common Stock. Cash
dividends shown in the Consolidated Statement of Cash Flows includes the $8.4
million cash balance of the Harris Computer System Corporation at the time of
the spin-off; the remainder of the dividend is a non-cash transaction.
STOCK OPTIONS AND AWARDS
The following information relates to stock option and incentive stock awards.
Option prices are 100 percent of market value on the date the options are
granted. Option grants are for a maximum of ten years after dates of grant and
may be exercised in installments.
--------------------------------------------------------------
Number of Option Prices
Shares Per Share
--------------------------------------------------------------
Exercised during the year:
1993 411,538 $14.38 to $35.69
1994 504,203 $14.38 to $38.63
1995 283,604 $23.75 to $50.50
Granted during 1995 159,994 $40.63 to $52.88
Expired during 1995 20,750 $30.88 to $52.25
Terminations during 1995 2,074 $21.88 to $48.50
Outstanding at June 30, 1994 751,926 $14.38 to $52.25
Outstanding at June 30, 1995 605,492 $21.88 to $52.88
Exercisable at June 30, 1994 581,660 $14.38 to $46.88
Exercisable at June 30, 1995 508,251 $21.88 to $51.00
==============================================================
The Corporation has a stock incentive plan for directors and key employees.
Awards under this plan may include the grant of performance shares, restricted
stock, stock options, stock appreciation rights or other stock-based awards.
The aggregate number of shares of Common Stock which may be awarded under the
plan in each fiscal year is one percent of the total outstanding shares of
Common Stock plus shares available from prior years. Performance shares
outstanding were 625,551 at June 30, 1995; 735,966 at June 30, 1994; and
608,306 at June 30, 1993. Shares of Common Stock reserved for future awards
under the plan were 1,046,717 at June 30, 1995; 864,970 at June 30, 1994; and
749,169 at June 30, 1993.
Under the Corporation's domestic retirement plan, employees may purchase a
limited amount of the Corporation's Common Stock at 70 percent of current
market value. Under employee stock purchase plans, 98,929 shares were issued
during fiscal 1995. Shares of Common Stock reserved for future purchases by the
retirement plan were 1,361,568 at June 30, 1995.
RETIREMENT PLANS
Retirement and defined-benefit plans expense amounted to $71.2 million in 1995,
$70.2 million in 1994, and $56.9 million in 1993.
RESEARCH AND DEVELOPMENT
Corporation-sponsored research and product development costs were $133.9
million in 1995, $127.7 million in 1994, and $120.6 million in 1993.
INTEREST EXPENSE
Total interest was $65.4 million in 1995, $58.6 million in 1994, and $60.2
million in 1993, of which $.3 million was capitalized in 1994 and 1993.
Interest paid was $64.8 million in 1995, $59.0 million in 1994, and $60.8
million in 1993.
LEASE COMMITMENTS
Total rental expense amounted to $52.7 million in 1995, $52.9 million in 1994,
and $56.1 million in 1993. Future minimum rental commitments under leases,
primarily for land and buildings, amounted to approximately $185.9 million at
June 30, 1995. These commitments for the years following 1995 are: 1996-$48.5
million; 1997-$36.0 million; 1998- $23.4 million; 1999-$17.7 million;
2000-$12.0 million; and $48.3 million thereafter.
INCOME TAXES
The provisions for income taxes are summarized as follows:
--------------------------------------------------------------
(In millions) 1995 1994 1993
--------------------------------------------------------------
Current:
United States $ 89.0 $ 50.0 $ 18.6
International 19.9 11.3 20.7
State and local 11.7 4.9 6.0
--------------------------------------------------------------
120.6 66.2 45.3
--------------------------------------------------------------
Deferred:
United States (32.5) (2.8) 15.6
International (4.7) 5.6 (.4)
State and local (.3) 2.6 (1.8)
--------------------------------------------------------------
(37.5) 5.4 13.4
--------------------------------------------------------------
$ 83.1 $ 71.6 $ 58.7
==============================================================
The components of deferred income tax assets (liabilities) at June 30 are as
follows:
--------------------------------------------------------------------------
(In millions) 1995 1994
--------------------------------------------------------------------------
CURRENT NON-CURRENT Current Non-Current
DEFERRED DEFERRED Deferred Deferred
--------------------------------------------------------------------------
Completed contracts $ 7.1 $ - $(13.2) $ 20.6
Inventory valuations 13.5 - 15.8 -
Accruals 117.6 7.3 73.9 8.5
Depreciation - (54.3) - (49.3)
Leases (.5) (19.8) (1.0) (18.3)
International tax loss
carryforwards - 9.7 - 12.8
All other net 4.5 16.8 6.6 15.8
--------------------------------------------------------------------------
142.2 (40.3) 82.1 (9.9)
Valuation allowance - (15.7) (2.9) (12.8)
--------------------------------------------------------------------------
$142.2 $(56.0) $ 79.2 $(22.7)
==========================================================================
Harris Corporation
29
31
NOTES TO FINANCIAL STATEMENTS
A reconciliation of the the statutory United States income tax rate to the
effective income tax rate follows:
--------------------------------------------------------------------
(In millions) 1995 1994 1993
--------------------------------------------------------------------
Statutory U.S. income tax rate 35.0% 35.0% 34.0%
State taxes 3.1 2.6 1.6
Adjustment to prior-year accruals - - (3.1)
International income (4.0) 1.2 2.2
Tax benefits related to export sales (1.4) (3.1) (1.4)
Nondeductible amortization .8 .9 .7
Other items 1.5 .4 .6
--------------------------------------------------------------------
Effective income tax rate 35.0% 37.0% 34.6%
====================================================================
United States income taxes have not been provided on $440.2 million of
undistributed earnings of international subsidiaries because of the
Corporation's intention to reinvest these earnings. The determination of
unrecognized deferred U.S. tax liability for the undistributed earnings of
international subsidiaries is not practicable.
Pretax income of international subsidiaries was $63.2 million in 1995,
$55.9 million in 1994, and $38.2 million in 1993.
Income taxes paid were $79.2 million in 1995, $80.2 million in 1994, and
$24.4 million in 1993.
BUSINESS SEGMENTS
Descriptions of the Corporation's business segments appear on page 1. Net
sales and operating profit by segment are on page 2. These pages
are an integral part of these financial statements.
Sales made to the U.S. government by all segments (primarily Electronic
Systems segment) were 30.4 percent of total sales in 1995, 34.8 percent of
total sales in 1994, and 35.7 percent of total sales in 1993. Intersegment
sales, which are insignificant, are accounted for at prices comparable to
unaffiliated customers.
Selected information by business segment and geographical area is
summarized below:
------------------------------------------------------------
(In millions) 1995 1994 1993
------------------------------------------------------------
IDENTIFIABLE ASSETS
Communications $ 442.5 $ 406.2 $ 370.5
Semiconductor 639.2 609.3 643.1
Lanier Worldwide 831.6 738.6 689.2
Electronic Systems 672.3 730.8 657.9
Corporate 250.4 192.2 181.3
------------------------------------------------------------
$2,836.0 $2,677.1 $2,542.0
============================================================
CAPITAL EXPENDITURES
Communications $ 22.6 $ 17.5 $ 16.5
Semiconductor 80.4 43.6 27.4
Lanier Worldwide 13.0 14.1 8.9
Electronic Systems 18.6 26.5 34.5
Corporate 5.4 14.9 8.1
------------------------------------------------------------
$ 140.0 $ 116.6 $ 95.4
============================================================
DEPRECIATION
Communications $ 14.8 $ 13.9 $ 13.1
Semiconductor 44.5 47.5 52.0
Lanier Worldwide 10.0 7.0 6.9
Electronic Systems 25.7 29.0 30.4
Corporate 10.2 6.5 6.8
------------------------------------------------------------
$ 105.2 $ 103.9 $ 109.2
============================================================
GEOGRAPHICAL
INFORMATION
U.S. operations:
Net sales $2,952.4 $2,741.8 $2,517.2
Operating profit 174.4 137.6 131.6
Identifiable assets 2,191.9 2,041.2 1,951.0
International operations:
Net sales $ 491.7 $ 594.3 $ 581.9
Operating profit 63.2 55.9 38.2
Identifiable assets 644.1 635.9 591.0
============================================================
Corporate assets consist primarily of cash, cash equivalents, deferred
income taxes, and plant and equipment.
Export sales were approximately $524.6 million in 1995, $387.6 million in
1994, and $295.4 million in 1993. Export sales and net sales of international
operations were made principally to Europe and Asia.
FINANCIAL INSTRUMENTS
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 that arise from doing business in
international markets. Contracts are for periods consistent with the terms of
the underlying transaction, generally one year or less.
30
Harris Corporation
32
At June 30, 1995, open foreign exchange contracts were $270.7 million (as
described below), of which $179.9 million were to hedge off-balance-sheet
commitments. Additionally, for the year ended June 30, 1995, the Corporation
purchased and sold $787.8 million of foreign exchange forward and option
contracts.
Deferred gains and losses are included on a net basis in the Consolidated
Balance Sheet as "Other assets" and are recorded in income as part of the
underlying transaction when it is recognized.
At June 30, 1995, the Corporation had $14.5 million in open option contracts.
Total open foreign exchange contracts at June 30, 1995, are described in the
table below.
COMMITMENTS TO BUY
FOREIGN CURRENCIES:
----------------------------------------------------------------------------------
Contract Amount
---------------
Foreign Deferred Gains Maturities
(In millions) Currency U.S. and (Losses) (in months)
----------------------------------------------------------------------------------
Australian Dollar 7.2 $ 5.3 $(.1) 1 to 8
Canadian Dollar 16.6 12.0 - 1 to 4
Belgian Franc 72.0 2.4 .1 1 to 5
Irish Punt 5.8 8.8 .7 1 to 12
Japanese Yen 5,271.0 61.9 .8 1 to 6
Malaysian Ringgit 103.7 40.7 1.8 1 to 6
British Pound .4 .6 - 1
German Mark 12.7 8.5 .7 7
Italian Lira 1,000.0 .6 - 3
----------------------------------------------------------------------------------
COMMITMENTS TO SELL
FOREIGN CURRENCIES:
----------------------------------------------------------------------------------
Contract Amount
---------------
Foreign Deferred Gains Maturities
(In millions) Currency U.S. and (Losses) (in months)
----------------------------------------------------------------------------------
Australian Dollar 6.0 $ 4.4 $ - 1 to 10
Canadian Dollar 3.5 2.5 - 1
French Franc 82.4 15.9 (1.0) 1 to 12
German Mark 74.4 50.1 (3.7) 1 to 13
Italian Lira 22,945.0 13.3 (.8) 1 to 12
Japanese Yen 624.3 6.9 (.5) 1 to 3
British Pound 23.5 36.8 (.4) 1 to 19
----------------------------------------------------------------------------------
31
33
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is summarized below.
Quarters ended
----------------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share amounts 9-30-94 12-31-94 3-31-95 6-30-95 TOTAL YEAR
----------------------------------------------------------------------------------------------------------------------------
FISCAL 1995
Net sales $ 807.3 $ 863.1 $ 850.4 $ 923.3 $3,444.1
Gross profit 245.8 272.9 271.8 325.1 1,115.6
Income before income taxes 44.3 53.5 58.5 81.3 237.6
Net income 28.8 34.8 38.0 52.9 154.5
Per share:
Net income .73 .88 .98 1.36 3.95
Cash dividends .31 .31 .31 .31 1.24
Stock prices (high/low) 49-1/8 - 41-3/8 48-7/8 - 38 48-3/8 - 40-1/2 53-3/8 - 46-3/8
----------------------------------------------------------------------------------------------------------------------------
Quarters ended
----------------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share amounts 9-30-93 12-31-93 3-31-94 6-30-94(1) TOTAL YEAR
----------------------------------------------------------------------------------------------------------------------------
FISCAL 1994
Net sales $ 769.1 $ 807.5 $ 838.3 $ 921.2 $3,336.1
Gross profit 248.6 257.8 259.5 295.4 1,061.3
Income before income taxes 39.8 48.4 51.0 54.3 193.5
Income before cumulative effect
of change in accounting principle 24.7 30.0 33.0 34.2 121.9
Cumulative effect of change
in accounting principle (10.1) - - - (10.1)
Net income 14.6 30.0 33.0 34.2 111.8
Per share:
Income before cumulative effect of
change in accounting principle .62 .75 .83 .87 3.07
Cumulative effect of change
in accounting principle (.25) - - - (.25)
Net income .37 .75 .83 .87 2.82
Cash dividends .28 .28 .28 .28 1.12
Stock prices (high/low) 43-3/4 - 36-3/8 47-3/8 - 41-1/2 52-1/4 - 44 49 - 41-3/4
----------------------------------------------------------------------------------------------------------------------------------
(1) Fiscal 1994 fourth quarter results include a $17.8 million ($11.5 million after income taxes or 29 cents per share) charge
for the write-off of securities received from a prior-year sale of a discontinued business.
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34
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
HARRIS CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
=================================================================================================================
COL. A COL. B COL. C COL. D COL. E
-----------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
(1) (2)
BALANCE CHARGED CHARGED
AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS-- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
-----------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1995:
Amounts Deducted From
Respective Asset Accounts $ 7,746(B)
257(C)
--------
Allowances for collection losses... $29,492 $ 7,897 $ 590(A) $ 8,003 $29,976
======= ======= ======= ======== =======
YEAR ENDED JUNE 30, 1994:
Amounts Deducted From
Respective Asset Accounts $ 891(A)
6,754(B)
--------
Allowances for collection losses... $28,245 $ 8,790 $ 102(C) $ 7,645 $29,492
======= ======= ======= ======== =======
YEAR ENDED JUNE 30, 1993:
Amounts Deducted From
Respective Asset Accounts $ 1,028(A)
8,058(B)
--------
Allowances for collection losses... $29,638 $ 7,648 $ 45(D) $ 9,086 $28,245
======= ======= ======= ======== =======
Note A -- Foreign currency translation gains and losses.
Note B -- Uncollectible accounts charged off, less recoveries on accounts previously charged off.
Note C -- Amounts reclassified to other accounts in the Consolidated Balance Sheet.
Note D -- Additions resulting from businesses acquired.
33