Harris Corporation Reports Increased Sales And Orders For The Third Quarter - Company Financial Information

Cambridge Telcom Report, May 1, 2000

Harris Corporation (NYSE:HRS) Wednesday reported that pro forma third quarter sales grew by 5 percent and orders increased by 13 percent, compared to last year's third quarter. Pro forma net income of $20.9 million and earnings per share of $.30 for the quarter exceeded consensus Wall Street expectations of $.26 per share. With the inclusion of costs associated with the telephone switch business and other one-time expenses and gains, the company reported a net loss for the third quarter of $14.3 million or $.21 per share.

Third quarter pro forma results exclude the following items: 1. Exit costs and business results for the company's telephone switch business;

2. A write-off of purchased in-process R&D related to the acquisition of Louth Automation; and

3. A gain associated with securities sold during Intersil's initial public offering.

These adjustments are detailed in the attached pro forma condensed consolidated statement of income and business segment information. The following discussion is presented on a pro forma basis to exclude these three items.

Sales during the quarter rose to $437 million, compared to $418 million in the prior year. Sales in the commercial communications segment showed significant strength, growing 20 percent over the prior year. All four major commercial product lines - microwave radios, broadcast systems, network support products, and tactical radios - had double-digit sales growth. Sales in the government segment were down 9 percent, as anticipated. However, new wins of government programs continued to increase the backlog.

Operating income for the third quarter of fiscal 2000 was $32.6 million, compared to $36.3 million in the previous year. The decline was due primarily to reduced operating profits in the government communications segment. Government results, however, were in line with expectations. Driven mainly by strong sales growth, operating income in the commercial communications segment increased 28 percent over the prior year.

In the first three quarters of fiscal 2000, sales were $1,233 million, compared to $1,184 million during the comparable period last year. Operating income in the first nine months was $78.0 million versus $93.7 million last year.

In the company's commercial communications segment, new orders grew 25 percent during the quarter, with double-digit growth in all four major product lines. In the company's largest commercial product line - microwave communications - orders increased 39 percent.

Importantly, Harris announced last week that it entered into a definitive agreement to acquire the point-to-point microwave business of TRT Lucent Technologies. The acquisition provides for a five-year preferred supplier agreement to serve the worldwide point-to-point microwave needs of Lucent's wireless divisions. "This relationship with Lucent represents a significant step toward the worldwide consolidation in the microwave industry. It will add significantly to Harris' sales volume and bring us closer to our objective of being the number one microwave supplier in the world," said Phillip W. Farmer, chairman and CEO. The transaction should close during the fourth quarter.

Harris yesterday entered into another agreement that will further add to Harris' microwave sales volume. The three-year strategic agreement, in which Harris will provide microwave radios to a worldwide provider of telecommunications infrastructure equipment, is valued at $90 million. Under the agreement, which is retroactive to March 1, Harris already has received a $12 million order for microwave radios in Mexico.

In the company's broadcast product line, Harris completed the acquisition of Louth Automation, the leading supplier of advanced automation solutions for digital television (DTV), over-the-air broadcast, cable, and industrial applications. "We are very excited about the acquisition of Louth. The acquisition brings competencies in automation and control to complement Harris' leadership position in broadcast transmission and digital encoding, giving us an even larger role in the future growth and direction of this industry," Farmer said.

As previously announced, the company is exiting its telephone switch product line in order to focus on the remaining high-growth network support product line. Growth in network support products is being driven by the expansion of emerging telecom carriers and the rollout of broadband communication services for voice, data and video, particularly Internet traffic.

The company's tactical radio product line continued to enjoy significant growth, mainly due to expanding international markets coupled with the success of new product rollouts. Orders set a record for the quarter, including major wins in South America, Asia, Europe, and the U.S.

The company's government communications segment won additional key contracts during the quarter, including a five-year $111 million contract to supply the next generation of multi-band, shipboard satellite terminals for use by the U.S. Navy. Other recent wins include a $4.8 million contract, which potentially could reach $32 million, to provide engineering field services for the U.S. Air Force fleet of U-2 reconnaissance aircraft. This week, Harris won a $24 million contract, with options for six additional years that would increase the value to $185 million, to provide support services to the Air Force for the Operational Space Services and Support contract. Also during the quarter, key milestones were reached on the Comanche helicopter and the Joint Strike Fighter platforms where Harris is developing avionics systems for both programs.