Harris Corporation Third Quarter Net Income Increased 57% and
Revenue Increased 23% on Strong Results in Government Segments
MELBOURNE, Fla., April 27 /PRNewswire-FirstCall/ -- Harris
Corporation today reported results for its fiscal 2004 third
quarter, ending April 2, 2004. Net income for the quarter increased
57 percent, and revenue increased 23 percent, primarily as a result
of continuing strong performance in the company's two government
businesses. Revenue in the third quarter of fiscal 2004 was $664.2
million, compared to $538.9 million in the year-ago quarter. Net
income in the third quarter of fiscal 2004 was $35.5 million, or
$.53 per diluted share, compared to the prior-year quarter of $22.6
million, or $.34 per diluted share. As expected, results in the
third quarter of fiscal 2004 included a non-operating loss of $1.4
million, compared to a $2.8 million non-operating gain in the
prior-year quarter. "Our Government Communications Systems and RF
Communications segments once again achieved record-setting results
in both revenue and operating income," said Howard L. Lance,
chairman, president, and chief executive officer. "Harris'
mission-critical communications systems are in high demand because
of their superior performance, both on and off the battlefield. We
have been successful in expanding our addressable markets and
solidifying our position as a preferred supplier to U.S. Government
and international customers. In addition, our excellent performance
is being rewarded with higher levels of program award fees. "We are
encouraged by the continuing improvement in our commercial
communications markets. Both our Microwave Communications and
Network Support segments achieved year-over-year revenue growth in
the third quarter, and our Broadcast segment achieved sequential
revenue improvement as well as strong order growth," Lance said.
"We continue to be very focused on profitability improvement in the
Microwave and Broadcast businesses and are taking additional
actions in the fourth quarter that will lower product costs and
reduce expenses going forward." Government Communications Systems
Revenue in the Government Communications Systems segment increased
33 percent to $394.8 million, versus $296.0 million in the third
quarter of fiscal 2003. Operating income in the Government
Communications Systems segment increased 62 percent to $43.0
million, compared to $26.6 million in the prior-year quarter. The
higher operating margin in the third quarter resulted from
continued solid program performance and higher award fees. Included
in award fees for the quarter was a seldom-awarded incentive fee on
a classified program for excellent schedule performance. Segment
revenue was driven by strong momentum across all key markets. Major
contributors to growth during the quarter included numerous
classified programs, the FAA Telecommunications Infrastructure
program, the MAF/Tiger program for the U.S. Census Bureau, and
numerous Department of Defense programs for avionics, satellite
communications, and missile defense. Total backlog for the segment,
including funded and unfunded programs, was $3.9 billion at
quarter-end. During the quarter, Harris won a six-year, $31 million
contract to design and develop the Multi-function Advanced Data
Link hardware for the F-35 Joint Strike Fighter. Potential
production and follow-on contracts could increase the value of the
program to more than $500 million through 2026. Also during the
quarter, Harris began work on the one-year, $96 million Iraqi Media
Network contract. Broadcasts from the Iraqi Media Network were
recently up-linked to satellite and can now be viewed throughout
much of the Middle East. RF Communications The RF Communications
segment reported operating income of $33.0 million in the third
quarter, a 39 percent increase compared to $23.8 million in the
prior-year quarter. Revenue in the segment increased 33 percent to
$116.1 million, compared to $87.6 million in the third quarter of
2003. Strong demand is continuing for Harris' Falcon(R) II tactical
radios, which are providing seamless communications
interoperability for U.S. and allied military forces in Iraq,
Afghanistan, and other theaters of operation. Harris is the leading
supplier of HF and multiband tactical radios. Operating margins
benefited from improvements in manufacturing efficiency and strong
performance on the UK Bowman Tactical Radio Programme. Orders in
the quarter included $19 million under the previously announced $43
million Indefinite Delivery, Indefinite Quantity contract from the
U.S. Navy Space and Naval Warfare Systems Command for shipboard HF
(high-frequency) radio communications systems. Orders in the
quarter also included radios for the U.S. Marine Corps and
international customers in Kuwait, Uzbekistan, Philippines, United
Kingdom, Armenia, Albania, Poland, and Norway. Following the close
of the quarter, Harris received a $15 million order, as part of the
U.S. Army rapid-fielding-initiative, to provide tactical radios for
forces being deployed to Iraq and Afghanistan. Microwave
Communications Revenue in the Microwave Communications segment was
$77.3 million in the third quarter of fiscal 2004, a 7 percent
increase over prior-year quarter sales of $72.2 million. The
segment reported an operating loss of $2.5 million, compared to a
loss of $0.8 million in the prior-year quarter. International
revenue increased to 57 percent of total segment revenue in the
third quarter, negatively impacting gross margin and operating
margin. During the quarter, Harris benefited from deliveries on a
$24 million contract with MTN Nigeria Communications. Harris'
MegaStar(R) 155 radios are being used for MTN's high-capacity
backhaul GSM network. MTN Nigeria Communications is one of the
largest cellular network providers in Africa. Also during the
quarter, Harris booked $2 million in orders for the new
TRuepoint(TM) family of microwave products. In North America,
Harris experienced a surge in orders from private network
operators. New orders included $6 million for the government of
Quebec, $6 million for the Imperial Irrigation District in Southern
California, $3 million for the city and county of Honolulu, and $3
million for an electric power utility in Eastern Canada. Network
Support The Network Support segment reported third quarter revenue
of $14.9 million, a 25 percent increase over the prior-year
quarter. The segment reported operating income of $0.7 million,
compared to an operating loss of $1.4 million in the third quarter
of fiscal 2003. Sales in the quarter benefited from deliveries on a
significant contract with MTC-Vodafone, won in the second quarter
of fiscal 2004. Harris is the prime contractor for MTC-Vodafone's
new multimillion-dollar Integrated Network Management System
project in Kuwait, which utilizes Harris' NetBoss(TM) network
management system. Broadcast Communications The Broadcast
Communications segment reported revenue of $73.3 million, a 3
percent decline compared to revenue of $75.9 million in the
prior-year quarter. Operating income was $0.5 million in the third
quarter of fiscal 2004, compared to $2.5 million in the prior-year
quarter. Sales declined in the quarter as a result of lower sales
of digital TV transmission equipment and international radio
transmission equipment. The third quarter of fiscal 2003 benefited
from a large radio project in Romania. The lower mix of digital TV
transmitters also negatively impacted operating results in the
quarter. In addition, results were impacted by productivity
declines in manufacturing related to implementation of a new
enterprise IT system in North America, which is nearing completion,
and the transfer of European manufacturing operations from Austria
to the UK. Improved manufacturing efficiency, along with additional
actions planned for the fourth quarter are expected to not only
lower costs, but also improve productivity. Orders in the third
quarter increased significantly compared to the prior- year quarter
and were higher across all three major product lines- transmission,
studio systems and products, and automation software. These orders
included $9 million for a Romanian TV project, $18 million for the
Iraqi Media Network, and high-power AM radios for China, Saudi
Arabia, and South Korea. In the U.S., Harris won contracts during
the quarter from Hearst-Argyle Television to upgrade digital
transmission facilities at 26 of its television stations; from the
Corporation for Public Broadcasting for digital-ready radio
transmission equipment at 13 of its member stations; and from Clear
Channel radio for digital-ready transmitters for five stations. At
the National Association of Broadcasters trade exhibition last
week, Harris introduced a number of new products, including the new
Atlas(TM) transmitters for international analog and digital
markets, the PowerCD(TM) UHF transmitter for the U.S. DTV market,
the Mini-HD(TM) transmitter for the U.S. digital radio market, and
audio codec products that deliver 5.1 surround sound for digital
radio. Financial Position The company's financial position and
level of liquidity continue to be very strong. Positive cash flow
provided by operations during the first three quarters of fiscal
2004 totaled $187.3 million, compared to $100.8 million in the
prior-year's comparable period. Net cash provided by operating
activities has improved in each segment during the first three
quarters of fiscal 2004. Cash and cash equivalents on hand at the
end of the third quarter were $534.9 million, substantially greater
than the $409.2 million total debt outstanding. The earliest
scheduled maturity of any long-term debt is 2007, and the company
has in excess of $300 million of unused committed credit
facilities. Share Repurchase Program In 1999, the Harris Board of
Directors authorized the repurchase of 15 million shares of Harris
common stock. With only 520,000 shares remaining under that
authorization, the Board of Directors recently authorized the
repurchase of an additional three million shares, bringing the
total number of shares authorized for future repurchases to 3.5
million. Harris expects to continue to repurchase shares of its
common stock to offset the dilutive effect of shares issued under
its stock incentive plans. Outlook For fiscal 2004, Harris expects
earnings in the range of $1.90 to $1.95 per diluted share, and
earnings for fiscal 2005 of $2.15 to $2.30 per diluted share. "The
outlook for our Government Communications Systems and RF
Communications segments remains very strong for the remainder of
fiscal 2004," Lance said. "As previously announced, we expect both
businesses to deliver solid revenue growth in fiscal 2005, with
operating margins similar to those achieved in fiscal 2004. We have
a broad base of strategic programs, supporting a wide range of U.S.
Government agencies and international customers. Recent program
wins are expected to continue to ramp up in fiscal 2005, and we are
pursuing a large pool of new opportunities in both businesses. "In
our commercial segments, we expect continued positive momentum in
revenue growth from improving global markets and new products.
Profitability is expected to improve as a result of the higher
revenue, as well as from additional actions being taken to lower
product costs and reduce expenses," Lance said. "We are well
positioned as a leader in these markets." Harris Corporation is an
international communications technology company focused on
providing assured communications(TM) products, systems and services
for government and commercial customers. The company's five
operating divisions serve markets for government communications,
tactical radio, broadcast, microwave, and network support systems.
Harris provides systems and service to customers in more than 150
countries. Additional information about Harris Corporation is
available at http://www.harris.com/. NOTE: In conjunction with the
quarterly earnings release, the company will conduct a conference
call on Tuesday, April 27 at 5 p.m. (ET). Interested individuals
are invited to listen to the call by using a dial-in number: (719)
457-2625, access code: 858194. The conference call also will be
broadcast live via the Internet at
http://www.harris.com/conference-call and a replay will be
available at the same site. Forward-Looking Statement 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: expectations for strong performance in our government-
related businesses, the potential value of contract awards and
potential contract awards, and earnings guidance for fiscal 2004
and 2005. 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: uncertain economic conditions which make it difficult
to estimate growth in our markets and, as a result, future income
and expenditures; the telecommunications downturn, which has had
and may continue to have a negative effect on our telecom
businesses; our dependence on the U.S. Government for a significant
portion of our revenues, as the loss of this relationship or a
shift in U.S. Government funding could have adverse consequences on
our future business; 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; the fair values of
our portfolio of passive investments, which values are subject to
significant price volatility or erosion; 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 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; 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 demand for financing and customer
credit risk; cost reductions, which may not yield the benefits we
expect and could have adverse effects on our future business; the
impact of competitive products and pricing; risks inherent in
developing new technologies; 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 to update or revise any forward-looking
statements, whether as a result of new information, future events,
or otherwise. Table 1 HARRIS CORPORATION FY'04 Third Quarter
Summary CONDENSED CONSOLIDATED STATEMENT OF INCOME (in millions,
except per Quarter Ended Three Quarters Ended share amounts) April
2, March 28, April 2, March 28, 2004 2003 2004 2003 Revenue from
product sales and services $664.2 $538.9 $1,832.0 $1,513.0 Cost of
product sales and services (498.7) (404.9) (1,368.1) (1,128.9)
Engineering, selling and administrative expenses (107.6) (97.6)
(308.2) (303.3) Non-operating income (loss) (1.4) 2.8 (7.4) 22.1
Interest income 1.6 1.5 4.4 5.0 Interest expense (5.9) (6.5) (18.5)
(18.8) Income before income taxes 52.2 34.2 134.2 89.1 Income taxes
(16.7) (11.6) (39.6) (30.3) Net income $35.5 $22.6 $94.6 $58.8 Net
Income Per Common Share Basic $.54 $.34 $1.43 $.89 Diluted $.53
$.34 $1.42 $.89 Cash dividends paid per common share $.10 $.08 $.30
$.24 Average basic shares outstanding 66.2 66.2 66.2 66.2 Average
diluted shares outstanding 67.1 66.4 66.8 66.4 Table 2 HARRIS
CORPORATION FY'04 Third Quarter Summary BUSINESS SEGMENT
INFORMATION (in millions) Quarter Ended Three Quarters Ended April
2, March 28, April 2, March 28, 2004 2003 2004 2003 Revenue
Government Communications Systems $394.8 $296.0 $1,070.7 $820.7 RF
Communications 116.1 87.6 310.9 226.7 Microwave Communications 77.3
72.2 222.5 203.8 Network Support 14.9 11.9 48.7 37.2 Broadcast
Communications 73.3 75.9 198.1 238.0 Corporate eliminations (12.2)
(4.7) (18.9) (13.4) $664.2 $538.9 $1,832.0 $1,513.0 Income Before
Income Taxes Segment Operating Income (Loss): Government
Communications Systems $43.0 $26.6 $111.2 $74.8 RF Communications
33.0 23.8 87.5 57.7 Microwave Communications (2.5) (0.8) (6.3)
(16.3) Network Support 0.7 (1.4) 4.1 (6.6) Broadcast Communications
0.5 2.5 4.2 10.4 Headquarters expense (14.3) (14.3) (39.2) (39.2)
Corporate eliminations (2.5) -- (5.8) -- Non-operating income
(loss) (1.4) 2.8 (7.4) 22.1 Net interest (4.3) (5.0) (14.1) (13.8)
$52.2 $34.2 $134.2 $89.1 Table 3 HARRIS CORPORATION FY'04 Third
Quarter Summary CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in
millions) Three Quarters Ended April 2, March 28, 2004 2003
Operating Activities Net income $94.6 $58.8 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 40.4 40.8 Non-current deferred income
tax (5.7) 5.3 Gain on the sale of securities available-for-sale
(2.5) (15.7) Gain on the sale of LiveTV, LLC -- (18.8) (Increase)
decrease in: Accounts and notes receivable (14.3) (1.1) Unbilled
costs and inventories 8.8 (18.4) Increase (decrease) in: Accounts
payable and accrued expenses 34.0 14.7 Advance payments and
unearned income 26.8 27.3 Income taxes (0.9) 2.0 Other 6.1 5.9 Net
cash provided by operating activities 187.3 100.8 Investing
Activities Additions of plant and equipment (43.4) (47.6) Cash paid
for selected investments (1.3) (4.4) Proceeds from the sale of
securities available-for-sale 7.4 19.3 Proceeds from the sale of
LiveTV, LLC -- 19.0I Net cash used in investing activities (37.3)
(13.7) Financing Activities Increase (decrease) in debt, net (25.8)
102.5 Proceeds from sale of common stock 29.7 1.7 Repurchase of
common stock (43.2) (2.9) Cash dividends (19.9) (15.9) Net cash
provided by (used in) financing activities (59.2) 85.4 Effect of
exchange rate changes on cash and cash equivalents 1.5 (2.2) Net
increase in cash and cash equivalents 92.3 170.3 Cash and cash
equivalents at the beginning of the year 442.6 226.2 Cash and cash
equivalents at the end of the quarter $534.9 $396.5 Table 4 HARRIS
CORPORATION FY'04 Third Quarter Summary CONDENSED CONSOLIDATED
BALANCE SHEET (in millions) April 2, June 27, 2004 2003 Assets Cash
and cash equivalents $534.9 $442.6 Marketable securities 18.5 23.1
Receivables 443.2 420.0 Unbilled costs and accrued earnings 125.4
164.8 Inventories 244.4 213.9 Current deferred income taxes 103.9
88.1 Income taxes receivable -- 5.2 Plant and equipment 289.3 289.2
Goodwill 238.2 228.1 Non-current notes receivable 19.3 28.2
Non-current deferred income taxes 26.1 20.4 Other assets 152.4
156.7 $2,195.6 $2,080.3 Liabilities and Shareholders' Equity
Short-term debt $7.8 $32.0 Accounts payable and accrued expenses
391.0 357.1 Advance payments and unearned income 133.3 106.4 Income
taxes payable 8.1 -- Long-term debt 401.4 401.6 Shareholders'
equity 1,254.0 1,183.2 $2,195.6 $2,080.3 DATASOURCE: Harris
Corporation CONTACT: Tom Hausman, +1-321-727-9131, , or Investor
relations inquiries - Pamela Padgett, +1-321-727-9383, , both of
Harris Corporation Web site: http://www.harris.com/
http://www.harris.com/conference-call
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