Harris Board Debated Broadcast Division Future for Years
announcement that Harris wants to
sell its division that manufactures broadcast equipment may have
surprised some readers, internally, Harris Corp. had been discussing the future
of the broadcast communications division for awhile.
How, if or when to
exit the business was a frequent topic among board members, according to a
transcript of yesterday’s earnings call with analysts, provided by the investment website Seeking Alpha.
Asked by an analyst
how Harris made the decision to sell the broadcast communications segment “given that
the business is sort of hovering around break-even,” Harris Corp. President/CEO
William Brown said “It’s been discussed quite frequently over the last several
years, given where broadcast happens to be and some of the charges that have
been taken in the past.” Topics included how to make the division “better” and
what would be the timing if the company chose to exit the business all played a
part, according to Brown.
that in its Broadcast Communications division, weaker demand in North America
and longer international sales lead time led to a 14% decline in revenue to
$111 million and resulted in a non-GAAP operating loss of $4 million compared
to operating income in the prior year of $2 million.
Board members looked
at the division question especially hard in the last six months.
In the end, “given
the tough environment that we’re facing, we think it's important for us to just
focus our resources, including our management time and attention, on the
businesses that we know to be core to our company so we can be successful into
FY ’13 and beyond,” said Brown.
Much of Harris
business consists of military and government communications contracts.
Faced with a slowdown in government spending on the military and the uneven
economic recovery, the company faced tough choices and decided to focus on what
it could control — costs.
Brown said: Over the
past six months, I spent a considerable amount of time in Washington meeting
with administration officials and elected representatives, who are all
wrestling with the trade-offs and tough choices to tackle the deficit problem
we face as a nation. How that debate plays out in an election year has
significant implications for our company, the defense industry and our nation
as a whole. And I don’t expect much more clarity on the situation until we're
well into our next fiscal year.”
While it’s hard to
give an exact number for how much cash Harris expects to get from the sale of
the broadcast division because the company has just begun the sale process,
Brown answered a question about that this way: “What we said was we would use
$200 million from whatever the proceeds were for divesting [the] Broadcast [Communications
division] to buy back shares. Our assumption is that the transaction closes at
the end of this calendar year, so we use that proceeds of $200 million in Q3 FY
’13. We fully expect that the proceeds will be substantially higher than that
What happens if the
broadcast business doesn’t generate the figure that Harris wants to sell it
for? Would Harris consider spinning that off to investors in the same way that
the microwave business was divested some years ago?
answering, “Our intention … is to divest the business in a sale with cash
returning to the company.”