Company Raises Fiscal 2006 Earnings Guidance MELBOURNE, Fla., Oct.
26 /PRNewswire-FirstCall/ -- Harris Corporation (NYSE:HRS) today
announced significant increases in revenue, net income, and
operating cash flow in the first quarter of fiscal year 2006.
Revenue in the first quarter increased 13 percent to $760 million.
GAAP net income for the first quarter of fiscal year 2006 was $50.3
million, and earnings were $.36 per diluted share. Non-GAAP net
income was $65.4 million, and non-GAAP earnings were $.47 per
diluted share, excluding a $15.1 million after-tax charge
associated with previously announced cost-reduction actions and
inventory write-downs in the company's Broadcast Communications
segment. Prior-year net income for the first quarter was $40.1
million, and earnings were $.29 per diluted share. Cash flow from
operations was $83 million, versus $9 million during the prior-year
quarter. (Please refer to Tables 5 and 6 for the reconciliation of
GAAP to non-GAAP financial measures.) The company also increased
non-GAAP earnings guidance for fiscal year 2006 from the previous
range of $1.80 to $1.90 per diluted share, provided on July 27,
2005, to a current range of $2.00 to $2.10 per diluted share.
Earnings guidance for the company excludes charges associated with
cost-reduction actions in the Broadcast Communications segment and
costs related to the acquisition of Leitch Technology. Revenue
growth for the total company in fiscal year 2006 is expected to be
in the range of 13 - 15 percent above fiscal year 2005. "Harris had
another quarter of outstanding earnings growth, and we expect
positive momentum from all four of our operating segments," said
Howard L. Lance, chairman, president, and chief executive officer.
"Our Government Communications Systems segment continued to expand
margins as a result of higher award fees on cost-plus programs and
a favorable mix of fixed-price production programs, including our
wireless products. In our RF Communications segment, strong
domestic and international demand for tactical radio systems
continued to drive significant revenue and income growth. During
the quarter, we received the first order for our new Falcon(R) III
multiband handheld radio, and we expect this product line to
significantly increase our addressable market for tactical radios
going forward. "In our Microwave Communications segment, expanding
sales of the new TRuepoint(TM) radio product line and improving
global wireless telecom markets drove increases in orders, sales,
and profit for the quarter. Improvement in our Broadcast
Communications segment results reflected the contribution of the
Software Systems business unit, which was acquired in fiscal 2005.
Subsequent to the close of the first quarter, Harris completed the
acquisition of Leitch Technology, further expanding our product
portfolio and leadership position in the broadcast industry."
Government Communications Systems Revenue in the Government
Communications Systems segment was $432.5 million in the first
quarter, compared to $432.2 million in the year-ago quarter.
Operating income increased 18 percent to $53.4 million, driven by
continued excellent program performance and a higher mix of
fixed-price production programs, including our wireless products
for the intelligence community. The prior-year quarter benefited
from $31 million in revenue from the Iraqi Media Network (IMN)
program, a short-term contract. The 15-month IMN program was
concluded in the fourth quarter of fiscal 2005, with $117 million
in total revenue. Programs that contributed to revenue growth in
the quarter included the $1 billion 10-year Patriot technical
services program for the National Reconnaissance Office; the
three-year potential $77 million RADIC program with the National
Security Agency (NSA) to develop new software systems for its
analysts; the FAB-T satellite communications program for U.S. Air
Force strategic aircraft; the Aerial Common Sensor program for the
U.S. Army; and the FAA Telecommunications Infrastructure (FTI)
program. New program wins during the first quarter included a
contract with Loral Space and Communications to design and
construct four unfurlable mesh reflectors for commercial
satellites; a contract expansion of the FTI program; a $17 million
contract with the U.S. Air Force for anti-jam GPS technology for
munitions; and a $16 million contract with the U.S. Army for large
aperture multiband deployable antennas. RF Communications Revenue
in the RF Communications segment was $170.9 million, a 51 percent
increase compared to the year-ago quarter. Revenue and orders grew
significantly in both domestic and international markets. Operating
income in the quarter was $58.1 million, representing an 84 percent
increase compared to the prior-year quarter. Gross margin
increases, resulting from higher sales volume and manufacturing
efficiencies, afforded the segment a continuing high level of
R&D spending for new products. Demand for Harris tactical
radios remained strong at the U.S. Army, Air Force, and Marine
Corps, as well as the Reserves and National Guard. Government
spending priorities continued to be focused on improving tactical
communications for force modernization and force restructuring
initiatives. International demand is being driven by similar
modernization programs and on- going demand for interoperable
communications among coalition forces. Major international orders
in the quarter included contracts with Chile, the Netherlands, and
the United Kingdom. During the quarter, Harris was awarded its
first Falcon III radio order -- a $38 million contract from the
U.S. Army to deliver more than 1,300 AN/PRC- 152(C) Multiband
Handheld Radio and Vehicular Adapter Amplifier systems. These
Falcon III systems will provide interoperability with key legacy
waveforms, including SINCGARS, and are configured to accommodate
vehicle- mounted functionality while providing portability for
quick-dismount scenarios. The Harris Falcon III is the first radio
certified by the NSA to implement the Software Communications
Architecture (SCA) developed for the Joint Tactical Radio System
(JTRS) program. Following the close of the quarter, Harris received
a $67 million order for its AN/PRC-117F(C) multiband tactical
radios as part of a multi-year potential $205 million contract with
the U.S. Marine Corps. Microwave Communications Revenue in the
Microwave Communications segment increased 9 percent to $75.3
million, compared to $69.4 million in the prior-year quarter. Sales
growth was driven by strength in the domestic market. Orders in the
quarter increased 18 percent and were greater than sales, showing
strong growth in both domestic and international markets. Operating
income was $3.0 million, compared to $0.9 million in the year-ago
quarter. North American sales and orders continued to be strong in
the first quarter, reflecting increased demand from mobile carriers
as well as from private networks. The increase in domestic mobile
carrier orders is an early indication of a rise in network capital
spending following recent market consolidations. International
orders continued to be strong in the Middle East and Africa, and
orders improved in Latin America and Asia. Sales for new
TRuepoint(TM) microwave radios continued to accelerate, and orders
in the quarter were greater than sales. All major frequencies and
capacities for the TRuepoint 4000 and 5000 radios have now been
released to production. During the next few months, efforts will be
focused on volume ramp-up, cost reductions, and feature enhancement
activities. To date, TRuepoint has been installed in more than 45
countries around the world. Broadcast Communications Revenue in the
Broadcast Communications segment was $87.7 million, compared to
$67.4 million in the prior-year quarter. The segment had a GAAP
operating loss in the quarter of $12.0 million, including charges
of $18.0 million for cost-reduction actions. Non-GAAP operating
income for the segment, excluding the charges, was $6.0 million for
the quarter. This compares to $2.3 million in operating income in
the year-ago quarter. The prior-year quarter benefited from $10
million in revenue from the Iraqi Media Network program. Revenue in
the first quarter included results from the recent acquisition in
the Software Systems business unit. Sales increased for U.S. HD
Radio(TM) transmission equipment and U.S. digital television (HDTV)
transmission equipment. In the international arena, however, weak
market conditions for international analog TV and radio broadcast
equipment persisted. Orders during the quarter from new customers
included high-definition software systems for SkyPerfect, a
Japanese provider of digital broadcast solutions, and for Antena 3,
a national TV and radio network in Spain. Other major orders in the
quarter included digital transmission and networking equipment for
TV Azteca in Mexico; digital transmitters for multiple stations in
the Southeast operated by Media General; and digital systems
compliant with European standards for Swisscom Broadcast, a leading
broadcast infrastructure provider in Switzerland. Orders for the
segment's high-definition radio transmission systems continued to
expand in the quarter, driven by the continuing rollout of HD Radio
in the U.S. market. During the quarter, the company recorded an $18
million charge as part of previously announced actions to improve
profitability amid ongoing international market weakness. Total
charges are now expected to be $30 million in fiscal 2006, with
most of the remaining charges to be taken in the second quarter.
The previously announced cost-reduction actions include closing the
Huntingdon, UK, facility; relocating manufacturing of European-
standard transmission products to the Quincy, Illinois, facility;
outsourcing manufacturing of radio consoles and related products
from the Mason, Ohio, facility; and headcount reductions from
further integration within the company's Software Systems business
unit. Savings associated with the actions are expected to yield a
two-year payback. On October 25, 2005, Harris completed the
acquisition of Leitch Technology Corporation, a global leader in
high-performance video systems for the television broadcast
industry. The acquisition considerably broadens the Harris product
portfolio and further expands the company's presence in fast-
growing digital market segments. Harris expects the transaction to
be neutral to fiscal year 2006 earnings per share, excluding the
impact of acquisition related in-process R&D write-offs and
one-time integration costs estimated at a range from $8 - $10
million. In fiscal year 2007, the transaction is expected to be
accretive by $.06 per share. Outlook "Our increased guidance for
fiscal year 2006 reflects our growing optimism for strong earnings
growth, and we expect each of our business segments to be
significant contributors to that growth," Lance said. "Cash flow
from operations was excellent in the first quarter and will
continue to be strong for the full year. The sales opportunity
pipeline in our RF Communications segment is robust and growing.
Operating margins have expanded in our Government Communications
Systems segment, and their opportunity pipeline also remains solid.
In both of our commercial businesses, the combination of new
products, recent acquisitions, and ongoing attention to costs will
continue to improve profitability." Harris will host a conference
call today at 5:00 p.m., Eastern Time, to discuss the above items.
Interested individuals are invited to listen to the call by using a
dial-in number: (719) 457-2625, access code: 3541709. The
conference call also will be broadcast live via the Internet at
http://www.harris.com/. A replay of the teleconference will be
available beginning at 8:00 p.m., Eastern Time, and will run until
midnight, Eastern Time, on Wednesday, November 2. To access the
replay, please call (719) 457-0820, access code: 3541709. A
recording of the call will also be available on Harris' website
beginning at 7:00 p.m., Eastern Time on October 26. Harris is an
international communications and information technology company
serving government and commercial markets in more than 150
countries. With headquarters in Melbourne, Florida, the company has
annual sales of over $3 billion and has 12,600 employees --
including 5,500 engineers and scientists -- dedicated to the
development of best-in-class assured communications(TM) products,
systems, and services. The company's operating divisions serve
markets for government communications, RF communications, broadcast
communications, and microwave communications. Additional
information about Harris Corporation is available at
http://www.harris.com/. Non-GAAP Financial Measures This press
release contains non-GAAP financial measures within the meaning of
Regulation G promulgated by the SEC, including fiscal 2006
earnings-per-share guidance excluding the impact of any facility
shutdown, relocation expenses, severance costs, and other charges
associated with the cost-reduction items in our Broadcast
Communications segment; and the acquisition-related costs
associated with our Leitch acquisition. Harris management believes
that these non-GAAP financial measures, when considered together
with the GAAP financial measures, provide information that is
useful to investors in understanding period-over-period operating
results separate and apart from items that may, or could, have a
disproportionately positive or negative impact on results in any
particular period. Management also believes that these non-GAAP
financial measures enhance the ability of investors to analyze
Harris business trends and to better understand the company's
performance. In addition, the company may utilize non-GAAP
financial measures as a guide in its forecasting, budgeting, and
long-term planning process and to measure operating performance for
some management compensation purposes. Any analysis of non-GAAP
financial measures should be used only in conjunction with results
presented in accordance with GAAP. Forward-Looking Statements
Statements in this press release that are not historical facts are
forward-looking statements that reflect management's current
expectations, assumptions, and estimates of future performance and
economic conditions. Such statements are made in reliance upon the
safe harbor provisions of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements in this release include but are not
limited to: earnings guidance for fiscal 2006, the potential value
of contract awards and potential contract awards, savings from
cost-reduction actions and statements regarding outlook, including
expected revenue growth. The Company cautions investors that any
forward-looking statements are subject to risks and uncertainties
that may cause actual results and future trends to differ
materially from those matters expressed in or implied by such
forward- looking statements. The Company's consolidated results and
the forward- looking statements could be affected by many factors,
including but not limited to: our participation in markets that are
often subject to uncertain economic conditions which makes it
difficult to estimate growth in our markets and, as a result,
future income and expenditures; our dependence on the U.S.
government for a significant portion of our revenues, and the loss
of this relationship or a shift in U.S. government funding could
have adverse consequences on our future business; potential changes
in U.S. government or customer priorities due to program reviews or
revisions to strategic objectives, including termination of or
potential failure to fund U.S. government contracts; risks inherent
with large long-term fixed-price contracts, particularly the
ability to contain cost overruns; the performance of critical
subcontractors or suppliers; financial and government and
regulatory risks relating to international sales and operations,
including fluctuations in foreign currency exchange rates and the
effectiveness of our currency hedging program; our ability to
continue to develop new products that achieve market acceptance;
the consequences of future geo-political events, which may affect
adversely the markets in which we operate, our ability to insure
against risks, our operations or our profitability; strategic
acquisitions and the risks and uncertainties related thereto,
including our ability to manage and integrate acquired businesses;
potential claims that we are infringing the intellectual property
rights of third parties; the successful resolution of patent
infringement claims and the ultimate outcome of other
contingencies, litigation and legal matters; customer credit risk;
the fair values of our portfolio of passive investments, which
values are subject to significant price volatility or erosion;
risks inherent in developing new technologies; the potential impact
of hurricanes on our operations in Florida and the potential impact
of earthquakes on our operations in California; the ability to
recruit and retain qualified personnel; and general economic
conditions in the markets in which we operate. Further information
relating to factors that may impact the Company's results and
forward-looking statements are disclosed in the Company's filings
with the SEC. Harris disclaims any intention or obligation, other
than imposed by law, to update or revise any forward-looking
statements, whether as a result of new information, future events,
or otherwise. HD Radio(TM) is a trademark of iBiquity Digital
Corporation. For additional information, contact Harris Corporation
at . Table 1 HARRIS CORPORATION FY'06 First Quarter Summary
condensed Consolidated Statement of Income Quarter Ended September
30, October 1, 2005 2004 (in millions, except per share amounts)
Revenue from product sales and services $759.7 $669.4 Cost of
product sales and services (534.8) (504.1) Engineering, selling and
administrative expenses (141.5) (101.0) Non-operating loss (0.6)
(1.7) Interest income 3.2 2.3 Interest expense (6.4) (6.0) Income
before income taxes 79.6 58.9 Income taxes (29.3) (18.8) Net income
$50.3 $40.1 Net Income Per Common Share Basic $.38 $.30 Diluted
$.36 $.29 Cash dividends paid per common share $.08 $.06 Average
basic shares outstanding 132.5 132.5 Average diluted shares
outstanding 141.1 140.8 Table 2 HARRIS CORPORATION FY'06 First
Quarter Summary Business Segment Information Quarter Ended
September 30, October 1, 2005 2004 (in millions) Revenue Government
Communications Systems $ 432.5 $ 432.2 RF Communications 170.9
113.3 Microwave Communications 75.3 69.4 Broadcast Communications
87.7 67.4 Corporate eliminations (6.7) (12.9) $ 759.7 $ 669.4
Income Before Income Taxes Segment Operating Income (Loss):
Government Communications Systems $53.4 $45.1 RF Communications
58.1 31.5 Microwave Communications 3.0 0.9 Broadcast Communications
(12.0) 2.3 Headquarters expense (15.5) (13.8) Corporate
eliminations (3.6) (1.7) Non-operating loss (0.6) (1.7) Net
interest (3.2) (3.7) $79.6 $58.9 Table 3 HARRIS CORPORATION FY'06
First Quarter Summary CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS Quarter Ended September 30, October 1, 2005 2004 (in
millions) Operating Activities Net income $50.3 $40.1 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 20.2 14.7 Non-current
deferred income tax 0.3 1.5 Loss on the sale of securities
available-for-sale --- 0.1 (Increase) decrease in: Accounts and
notes receivable 38.0 7.6 Unbilled costs and inventories (31.7)
(3.0) Increase (decrease) in: Accounts payable and accrued expenses
(33.5) (59.1) Advance payments and unearned income 2.2 (11.8)
Income taxes 24.4 11.3 Other 13.2 7.8 Net cash provided by
operating activities 83.4 9.2 Investing Activities Cash paid for
acquisition of businesses --- (63.6) Additions of plant and
equipment (14.6) (17.7) Additions of capitalized software (9.4)
(4.7) Proceeds from the sale of securities available-for-sale ---
0.5 Net cash used in investing activities (24.0) (85.5) Financing
Activities Proceeds from borrowings 309.1 6.7 Repayment of
borrowings (14.9) (10.6) Proceeds from exercise of employee stock
options 13.6 8.5 Repurchase of common stock (6.0) --- Cash
dividends (10.6) (8.0) Net cash provided by (used in) financing
activities 291.2 (3.4) Effect of exchange rate changes on cash and
cash equivalents 0.9 0.5 Net increase (decrease) in cash and cash
equivalents 351.5 (79.2) Cash and cash equivalents, beginning of
year 377.6 627.5 Cash and cash equivalents, end of quarter $ 729.1
$ 548.3 Table 4 HARRIS CORPORATION FY'06 First Quarter Summary
CONDENSED CONSOLIDATED BALANCE SHEET September 30, July 1, 2005
2005 (in millions) Assets Cash and cash equivalents $729.1 $377.6
Receivables 458.3 494.0 Unbilled costs and accrued earnings 141.1
119.7 Inventories 240.5 230.3 Current deferred income taxes 96.9
96.0 Plant and equipment 306.4 307.8 Goodwill 569.5 569.9
Identifiable intangible assets 98.2 99.1 Non-current notes
receivable 11.4 13.6 Other assets 155.1 149.4 $2,806.5 $2,457.4
Liabilities and Shareholders' Equity Short-term debt $3.8 $4.2
Accounts payable and accrued expenses 408.4 441.9 Advance payments
and unearned income 141.2 139.0 Income taxes payable 30.8 5.1
Non-current deferred income taxes 27.1 26.7 Long-term debt 700.0
401.4 Shareholders' equity 1,495.2 1,439.1 $2,806.5 $2,457.4 HARRIS
CORPORATION FY'06 First Quarter Summary RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES AND REGULATION G DISCLOSURE To supplement our
consolidated financial statements presented in accordance with
accounting principles generally accepted in the United States
(GAAP), we provide additional measures of segments' operating
income (loss), net income, and net income per diluted share
adjusted to exclude certain costs, expenses, and losses. Harris
management believes that these non-GAAP financial measures provide
information that is useful to investors in understanding
period-over-period operating results separate and apart from items
that may, or could, have a disproportionate positive or negative
impact on results in any particular period. Management also
believes that these non- GAAP measures enhance the ability of an
investor to analyze trends in Harris' business and to better
understand our performance. In addition, the Company may utilize
non-GAAP financial measures as a guide in its budgeting and long-
term planning process and to measure operating performance for some
management compensation purposes. Any analysis of non-GAAP
financial measures should be used only in conjunction with results
presented in accordance with GAAP. A reconciliation of these
non-GAAP financial measures with the most directly comparable
financial measures calculated in accordance with GAAP follows:
Table 5 HARRIS CORPORATION FY'06 First Quarter Summary
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Consolidated
Statement Of Income Quarter Ended Quarter Ended September 30, 2005
October 1, 2004 As Non- As Non- Reported Adjustment GAAP Reported
Adjustment GAAP (in millions, except per share amounts) Revenue
from product sales and services $ 759.7 $- $ 759.7 $669.4 $- $
669.4 Cost of product sales and services (A) (534.8) 11.3 (523.5)
(504.1) - (504.1) Engineering, selling and administrative expenses
(B) (141.5) 6.7 (134.8) (101.0) - (101.0) Non-operating loss (0.6)
- (0.6) (1.7) - (1.7) Interest income 3.2 - 3.2 2.3 - 2.3 Interest
expense (6.4) - (6.4) (6.0) - (6.0) Income before income taxes 79.6
18.0 97.6 58.9 - 58.9 Income taxes (29.3) (2.9) (32.2) (18.8) -
(18.8) Net income $ 50.3 $ 15.1 $ 65.4 $ 40.1 $- $ 40.1 Net income
per diluted common share $ .36 $ .11 $ .47 $ .29 $- $ .29 Table 6
HARRIS CORPORATION FY'06 First Quarter Summary RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES Business Segment Information Quarter
Ended Quarter Ended September 30, 2005 October 1, 2004 As Non- As
Non- Reported Adjustment GAAP Reported Adjustment GAAP (in
millions) Revenue Government Communications Systems $ 432.5 $ - $
432.5 $ 432.2 $ - $ 432.2 RF Communications 170.9 - 170.9 113.3 -
113.3 Microwave Communications 75.3 - 75.3 69.4 - 69.4 Broadcast
Communications 87.7 - 87.7 67.4 - 67.4 Corporate eliminations (6.7)
- (6.7) (12.9) - (12.9) $ 759.7 $ - $ 759.7 $ 669.4 $ - $ 669.4
Income Before Income Taxes Segment Operating Income (Loss):
Government Communications Systems $ 53.4 $ - $ 53.4 $ 45.1 $ - $
45.1 RF Communications 58.1 - 58.1 31.5 - 31.5 Microwave
Communications 3.0 - 3.0 0.9 - 0.9 Broadcast Communications(C)
(12.0) 18.0 6.0 2.3 - 2.3 Headquarters expense (15.5) - (15.5)
(13.8) - (13.8) Corporate eliminations (3.6) - (3.6) (1.7) - (1.7)
Non-operating income (loss) (0.6) - (0.6) (1.7) - (1.7) Net
interest (3.2) - (3.2) (3.7) - (3.7) $ 79.6 $ 18.0 $ 97.6 $ 58.9 $
- $ 58.9 HARRIS CORPORATION FY'06 First Quarter Summary
RECONCILIATION OF GAAP TO NON-GAAP MEASUREMENTS Notes to tables 5
and 6: Note A - Adjustments to cost of product sales and services
for the quarter relate to inventory write-downs associated with
previously announced cost- reduction actions including the transfer
of European manufacturing to the United States and outsourcing of
other manufacturing activity in the Broadcast Communications
segment. Note B - Adjustments to engineering, selling and
administrative expenses for the quarter relate to severance and
other costs associated with previously announced cost-reduction
actions including the transfer of European manufacturing to the
United States and outsourcing of other manufacturing activity in
the Broadcast Communications segment. Note C - Adjustments to
Broadcast Communications segment operating income (loss) for the
quarter are due to severance, inventory write downs and other costs
associated with previously announced cost-reduction actions
including the transfer of European manufacturing to the United
States and outsourcing of other manufacturing activity. As noted in
the release, the company raised its fiscal 2006 earnings guidance
to a range of $2.00 to $2.10 per diluted share, excluding the
impact of any facility shutdown, relocation expenses, severance
costs and other charges associated with the previously announced
cost-reduction actions in our Broadcast Communications segment and
costs associated with our acquisition of Leitch. On a GAAP basis
including such costs, the earnings guidance for fiscal 2006 is
$1.77 to $1.87. DATASOURCE: Harris Corporation CONTACT: Media, Tom
Hausman, +1-321-727-9131, or , or Investors, Pamela Padgett,
+1-321-727-9383, or , both of Harris Corporation Web site:
http://www.harris.com/
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