Harris Corporation First Quarter Income Climbs 57% on Revenue
Growth of 22%; Company Increases Earnings Guidance for Fiscal Year
2005 MELBOURNE, Fla., Oct. 20 /PRNewswire-FirstCall/ -- Harris
Corporation (NYSE:HRS) announced strong fiscal 2005 first quarter
results, driven by both the continuing momentum in its government
businesses and improved profitability in its commercial businesses.
Revenue in the first quarter of fiscal 2005 increased 22 percent to
$669 million; income from continuing operations increased 57
percent to $40 million; and diluted earnings per share increased 53
percent to $.58, compared to the prior-year quarter. The company
also raised its fiscal year 2005 earnings guidance from $2.25 -
$2.35 per diluted share to a range of $2.60 - $2.70 per diluted
share. The revised guidance includes expected accretion of $.12 per
diluted share from the previously announced acquisition of Encoda
Systems Holdings, Inc. It excludes the impact of in-process R&D
write-offs and one-time integration costs associated with the
acquisition estimated at $6 - $10 million, or $.06 - $.10 per
diluted share. "All four of our businesses had revenue and income
growth in the quarter," said Howard L. Lance, chairman, president
and chief executive officer. "Our strategy is clearly working. We
are driving growth by expanding core markets, winning important new
programs and new orders that broaden our customer base, and
implementing our acquisition strategy. The focus on costs and
margins in our commercial businesses is beginning to flow through
to bottom-line results. And, our Broadcast and Microwave businesses
are moving in a positive direction. We believe that new products
and renewed customer and operations focus will contribute to
continued momentum." Government Communications Systems "The
Government Communications Systems segment turned in outstanding
results again this quarter," Lance said. "Equally important, the
segment was awarded five new multi-year contracts that have
significantly increased total backlog." Segment revenue in the
first quarter was $432.2 million, a 29 percent increase compared to
the prior-year quarter. Operating income increased 41 percent to
$45.1 million. Total backlog increased to a record $4.8 billion.
Improved results were driven by growth across all government
markets served by the segment. Major contributors to growth
included several classified programs, the FAA Telecommunications
Infrastructure (FTI) program, the Iraqi Media Network (IMN)
program, the Advanced Extremely High Frequency (AEHF) terminals
program for the U.S. Navy, and the MAF/Tiger database modernization
program for the U.S. Census Bureau. First quarter results also
benefited from the recent acquisition of the Orkand Corporation, a
leading provider of technical services and information technology
for U.S. government agencies. During the quarter, Harris was
selected by the U.S. National Reconnaissance Office for a potential
$1 billion, 10-year contract (Patriot program) to provide
operations, maintenance and support services for the agency's
global communications and information systems. The company was also
selected for a $10 million, one-year design and analysis phase of
the Electronic Record Archives (ERA) program by the U.S. National
Archives and Records Administration, a new customer. Harris is
leading one of two teams competing for the eight-year contract with
a potential value of $400 million. Harris was also awarded
contracts on two next-generation aerial surveillance platforms --
the Battle Management Command and Control (BMC2) portion for the
U.S. Air Force E-10A aircraft, and the U.S. Army's Aerial Common
Sensor (ACS) aircraft. As part of the ACS program, Harris was
awarded a $75 million, three-year, communications integration
contract with a large follow-on potential over the next 10 to 20
years. And in September, Harris was awarded a $275 million contract
by the Federal Aviation Administration (FAA) to add mission support
services into the FAA Telecommunications Infrastructure (FTI)
program scope. Total estimated value of the FTI program for Harris
is now $2.2 billion through 2017. RF Communications "The RF
Communications segment had strong growth as a result of continuing
demand for its Falcon(R) II tactical radios, by both U.S. and
allied military forces," Lance said. "The Harris Falcon II
continues to be the radio of choice for secure, interoperable, and
reliable communications on the battlefield." Segment revenue in the
first quarter of fiscal 2005 was $113.3 million, representing a 27
percent increase compared to the prior-year quarter. Operating
income increased 26 percent to $31.5 million. During the quarter, a
Boeing-led team that includes Harris' RF Communications segment was
awarded a $54.6 million contract for the Joint Tactical Radio
System-Airborne, Maritime/Fixed-Station (JTRS- AMF) program for the
Department of Defense. The initial 15-month contract is for
pre-system development and demonstrations. Total value to the
winning team is expected to be more than $2 billion. Other
significant orders in the quarter included Falcon II radios for the
U.S. Army, U.S. Army Reserve, and for Denmark, Estonia, Sweden,
Azerbaijan, and new customers in several African nations. During
the quarter, the U.S. Department of Defense also announced that it
has agreed to sell Harris Falcon II radios to Pakistan, through its
Foreign Military Sales (FMS) program, to help improve its ability
to gather intelligence and improve security along its borders.
Following final approval by the Pakistani government, Harris
expects to receive an order with a total value of approximately $65
million. Microwave Communications The Microwave Communications
segment was profitable in the quarter, due in great part to
cost-reduction actions taken in the prior year. Shipments of
TRuepoint(TM), a new family of microwave radios, also contributed
to improved profitability. First quarter revenue in the segment was
$69.4 million, and operating profit was $.9 million. "We have taken
significant costs out of our Microwave business," Lance said.
"Gross margins are improving and operating expenses are lower. The
roll-out of our new TRuepoint family of products continues on
schedule, with over $9 million in new orders booked during the
quarter, primarily from international customers. During the
quarter, we released additional capacities and feature sets for
radios in the 6, 7, and 8 GHz frequencies. The sales funnel for the
second quarter is strong, and we fully expect to meet our target of
$30 million in TRuepoint sales in fiscal 2005." In North America,
the sales funnel for public and private networks continued to be
rich with opportunities. Funding for network upgrades and
expansions continues to be available at the state, local and
federal level, including from the Department of Homeland Security.
Significant private network orders in the quarter included the U.S.
Army, Delaware County, Ohio, and for public utilities in Louisiana
and New Jersey. Broadcast Communications "In our Broadcast
Communications business, revenue increased in our networking and
radio systems product lines," Lance said. "More specifically,
drivers included sales of studio equipment, transmitters, and
networking equipment to the Iraqi Media Network, and the sale of HD
radio transmitters in the U.S. The restructuring in Europe and
reorganization in North America is behind us. We have a management
team clearly focused on driving growth and improving
profitability." Revenue in the segment was $67.4 million, a 15
percent increase compared to the prior-year quarter. Operating
income rose to $2.3 million. During the quarter, the company
received new international digital TV transmitter orders in
Australia, Bulgaria, and China. Digital radio contracts included
equipment for Cox Communications and several National Public Radio
member stations. To help advance the transition to HD Radio, Harris
is working with the nation's largest broadcasters, including Clear
Channel Radio, to demonstrate the benefits of digital radio
technology. At the recent National Association of Broadcasters
Radio trade show, Harris demonstrated its proprietary
Split-Level(TM) combining method that integrates the signal from an
existing FM analog transmitter with a new FM-HD Radio transmitter.
This technology represents a more cost-effective path to HD radio
implementation. Following the close of the quarter, Harris signed a
definitive agreement to acquire Encoda Systems, a leading global
supplier of software and services solutions for the broadcast and
media industry. Encoda's end-to-end workflow solutions include
traffic and billing, and program-scheduling systems that are the
broadcast industry standards, and automation and media asset
management solutions that are complementary to Harris' existing
automation business. The transaction is expected to close in early
November. "Encoda represents an outstanding strategic fit with
Harris' industry- leading Broadcast Communications business," said
Lance. "Its enterprise software solutions significantly expand our
software offering and give Harris market reach beyond our existing
customer base into cable and satellite markets." Financial Position
The company's financial position and level of liquidity continues
to be very strong. Cash flow from operations in the first quarter
was $5 million, well below the year-ago quarter, primarily due to
the timing of several cash items. Cash flow was reduced by
approximately $50 million from payments related to compensation and
retirement benefits that occurred in the first quarter, whereas the
same items occurred in the second quarter in fiscal 2004. In
addition, operations provided approximately $27 million less of
advance payments and unearned income, compared to the prior-year
quarter. Harris continues to expect cash flow from operations for
the fiscal year to be in the range of $200 - $250 million. Cash and
cash equivalents on hand at the end of the quarter were $548
million. Outlook "All four of our operating segments are off to a
good start in fiscal 2005," Lance said. "Strong momentum continues
in our two government businesses, with key program wins and new
orders setting the stage for continued growth above the market. Our
commercial businesses are making good progress in reducing expenses
and improving product gross margins. New products, such as the
TRuepoint microwave radio are expected to expand revenue in
international markets and contribute to higher margins. And the
Encoda acquisition adds important breadth and scale to our
broadcast software offerings and to our customer base worldwide. We
believe that our revised fiscal 2005 earnings guidance fully
reflects the expected contribution of all of these factors." 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) 457-2637,
access code: 801489. 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,
October 27. To access the replay, please call (719) 457-0820,
access code: 801489. A recording of the call will also be available
on Harris' website beginning at 7:00 p.m., Eastern Time on October
20. 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 operating divisions serve markets for
government communications, tactical radio, broadcast, and microwave
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/ . Non-GAAP Financial
Measures This press release and related tables contain non-GAAP
financial measures within the meaning of Regulation G promulgated
by the SEC, including fiscal 2005 guidance for income from
continuing operations per diluted common share, adjusted to exclude
the impact of in-process R&D write-offs and one-time
integration costs associated with the acquisition of Encoda Systems
Holdings, Inc.; and diluted earnings per share, excluding charges
related to cost- reduction actions taken in the fourth quarter of
fiscal 2004. A reconciliation of the difference between each
non-GAAP financial measure, with the most directly comparable
financial measure calculated in accordance with GAAP, is included
in this release. Management of Harris 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 Harris business trends and to
better understand the Company's performance. In addition, the
Company may utilize non-GAAP financials 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
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: earnings guidance for fiscal 2005, the
anticipated timing of the closing of the Encoda acquisition and the
impact of the acquisition on our fiscal 2005 earnings guidance for
fiscal 2005, and the potential value of contract awards and
potential contract awards. 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, as 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 is 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 to
update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. For
additional information, contact Harris Corporation at . Table 1
HARRIS CORPORATION FY'05 First Quarter Summary Consolidated
Statement of Income (in millions, except per share amounts) Quarter
Ended October 1, September 26, 2004 2003 Revenue from product sales
and services $669.4 $547.9 Cost of product sales and services
(504.1) (413.7) Engineering, selling and administrative expenses
(101.0) (91.6) Non-operating income (loss) (1.7) -- Interest income
2.3 1.3 Interest expense (6.0) (6.3) Income from continuing
operations before income taxes 58.9 37.6 Income taxes (18.8) (12.1)
Income from continuing operations 40.1 25.5 Discontinued
operations, net of income taxes -- 0.5 Net income $40.1 $26.0 Net
Income Per Common Share Basic Continuing operations $.60 $.38
Discontinued operations -- .01 $.60 $.39 Diluted Continuing
operations $.58 $.38 Discontinued operations -- .01 $.58 $.39 Cash
dividends paid per common share $.12 $.10 Average basic shares
outstanding 66.3 66.3 Average diluted shares outstanding 70.4 69.9
Table 2 HARRIS CORPORATION FY'05 First Quarter Summary Business
Segment Information (in millions) Quarter Ended October 1,
September 26, 2004 2003 Revenue Government Communications Systems
$432.2 $334.4 RF Communications 113.3 89.2 Microwave Communications
69.4 68.4 Broadcast Communications 67.4 58.4 Corporate eliminations
(12.9) (2.5) $669.4 $547.9 Income From Continuing Operations Before
Income Taxes Segment Operating Income (Loss): Government
Communications Systems $45.1 $31.9 RF Communications 31.5 25.0
Microwave Communications 0.9 (2.3) Broadcast Communications 2.3 1.1
Headquarters expense (13.8) (12.5) Corporate eliminations (1.7)
(0.6) Non-operating income (1.7) -- Net interest (3.7) (5.0) $58.9
$37.6 Table 3 HARRIS CORPORATION FY'05 First Quarter Summary
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) Quarter Ended
October 1, September 26, 2004 2003 Operating Activities Net income
$40.1 $26.0 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
12.6 13.4 Non-current deferred income tax 1.5 0.1 Loss (gain) on
the sale of securities available-for-sale 0.1 (0.8) (Increase)
decrease in: Accounts and notes receivable 7.6 (5.0) Unbilled costs
and inventories (3.0) 18.7 Increase (decrease) in: Accounts payable
and accrued expenses (59.1) 2.7 Advance payments and unearned
income (11.8) 14.8 Income taxes 11.3 12.2 Other 5.2 (0.6) Net cash
provided by operating activities 4.5 81.5 Investing Activities Cash
paid for acquisition of businesses (63.6) -- Additions of plant and
equipment (17.7) (14.3) Proceeds from the sale of securities
available-for-sale 0.5 1.4 Net cash used in investing activities
(80.8) (12.9) Financing Activities Proceeds from borrowings 6.7 0.3
Payment of borrowings (10.6) (1.7) Proceeds from exercise of
employee stock options 8.5 3.4 Cash dividends (8.0) (6.6) Net cash
used in financing activities (3.4) (4.6) Effect of exchange rate
changes on cash and cash equivalents 0.5 -- Net increase (decrease)
in cash and cash equivalents (79.2) 64.0 Cash and cash equivalents
at the beginning of the year 627.5 442.6 Cash and cash equivalents
at the end of the quarter $548.3 $506.6 Table 4 HARRIS CORPORATION
FY'05 First Quarter Summary CONDENSED CONSOLIDATED BALANCE SHEET
(in millions) October 1, July 2, 2004 2004 Assets Cash and cash
equivalents $548.3 $627.5 Marketable securities 14.5 16.1
Receivables 469.5 457.5 Unbilled costs and accrued earnings 103.4
111.1 Inventories 231.4 220.9 Current deferred income taxes 115.5
114.1 Income taxes receivable -- 6.6 Plant and equipment 290.4
283.3 Goodwill 278.4 223.3 Non-current notes receivable 16.3 18.1
Other assets 156.8 147.3 $2,224.5 $2,225.8 Liabilities and
Shareholders' Equity Short-term debt $7.5 $9.9 Accounts payable and
accrued expenses 361.3 403.8 Advance payments and unearned income
117.3 129.1 Income taxes payable 6.3 -- Non-current deferred income
taxes 4.1 2.8 Long-term debt 401.4 401.4 Shareholders' equity
1,326.6 1,278.8 $2,224.5 $2,225.8 Table 5 HARRIS CORPORATION FY'05
First Quarter Summary Diluted Earnings Per Share Calculation (in
millions, except per share amounts) Year Quarter Quarters Ended
Ended Ended Sept Jan Apr Jul Jul Oct 26, 2, 2, 2, 2, 1, 2003 2004
2004 2004 2004 2004 Income from continuing operations $25.5 $31.7
$35.4 $33.1 $125.7 $40.1 Impact of convertible debentures 0.9 0.9
0.9 0.9 3.6 0.9 Income from continuing operations used in diluted
share calculation(A) $26.4 $32.6 $36.3 $34.0 $129.3 $41.0 Net
income $26.0 $33.1 $35.5 $38.2 $132.8 $40.1 Impact of convertible
debentures 0.9 0.9 0.9 0.9 3.6 0.9 Net income used in diluted share
calculation(B) $26.9 $34.0 $36.4 $39.1 $136.4 $41.0 Basic shares
outstanding 66.3 66.3 66.2 66.2 66.2 66.3 Impact of dilutive stock
options 0.3 0.5 0.9 0.8 0.7 0.8 Impact of convertible debentures
3.3 3.3 3.3 3.3 3.3 3.3 Diluted shares outstanding(C) 69.9 70.1
70.4 70.3 70.2 70.4 Income from continuing operations per share
diluted(A)/(C) $.38 $.46 $.52 $.48 $1.84 $.58 Net income per share
diluted(B)/(C) $.39 $.48 $.52 $.55 $1.94 $.58 Note: Tables 5 and 6
reflect the calculation of earnings per share as if our convertible
debentures were converted for all periods presented. Accordingly,
the calculation above adds back the interest expense and debt issue
cost amortization included in our income from continuing operations
and net income for the numerator. The shares that would be issued
upon conversion are added to the denominator. Table 6 HARRIS
CORPORATION FY'05 First Quarter Summary Reconciliation of Non-GAAP
Diluted Earnings Per Share Calculation (in millions, except per
share amounts) Year Quarter Quarters Ended Ended Ended Sept Jan Apr
Jul Jul Oct 26, 2, 2, 2, 2, 1, 2003 2004 2004 2004 2004 2004 Income
from continuing operations $25.5 $31.7 $35.4 $33.1 $125.7 $40.1
Impact of convertible debentures 0.9 0.9 0.9 0.9 3.6 0.9
Adjustment(1) -- -- -- 5.1 5.1 -- Income from continuing operations
used in diluted share calculation(A) $26.4 $32.6 $36.3 $39.1 $134.4
$41.0 Basic shares outstanding 66.3 66.3 66.2 66.2 66.2 66.3 Impact
of dilutive stock options 0.3 0.5 0.9 0.8 0.7 0.8 Impact of
convertible debentures 3.3 3.3 3.3 3.3 3.3 3.3 Diluted shares
outstanding(B) 69.9 70.1 70.4 70.3 70.2 70.4 Income from continuing
operations per share diluted(A)/(B) $.38 $.46 $.52 $.56 $1.92 $.58
Note 1: Adjustment for the year and quarter ended July 2, 2004
relate to severance, moving, and other costs associated with cost
reduction actions aimed at reducing expenses in our Microwave
Communications segment, including the consolidation of
administrative and support functions at its Durham, North Carolina
location and the production support of its TRuepoint(TM) microwave
radio family in its San Antonio, Texas manufacturing facility.
http://www.harris.com/DATASOURCE: Harris Corporation CONTACT: Tom
Hausman, +1-321-727-9131, or , or Investor Relations, Pamela
Padgett, +1-321-727-9383, or Web site: http://www.harris.com/
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