10-QPeriod: Q3 FY2006

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q3 Ended Sep 30, 2005

Filed October 27, 2005For Securities:LHX

Summary

L3Harris Technologies (LHX) reported a strong first quarter for fiscal year 2006, with net income increasing by 25.4% to $50.3 million ($0.36 per diluted share) compared to the prior year. Revenue also saw a significant increase of 13.5% to $759.7 million. This growth was driven by robust performance across most segments, particularly RF Communications, which experienced a 50.8% revenue surge and an 84.4% increase in operating income. The company's financial health appears solid, with a substantial increase in cash flow from operating activities to $83.4 million, up from $9.2 million in the previous year. This was bolstered by a significant financing activity, including the issuance of $300 million in 5% notes. Notably, L3Harris also announced the significant acquisition of Leitch Technology Corporation for approximately $450 million, which is expected to enhance its Broadcast Communications segment.

Key Highlights

  • 1Net income increased by 25.4% to $50.3 million ($0.36 per diluted share) year-over-year.
  • 2Revenue grew by 13.5% to $759.7 million, driven by strong performance in RF Communications, Broadcast Communications, and Microwave Communications segments.
  • 3RF Communications segment showed exceptional growth with a 50.8% revenue increase and an 84.4% rise in operating income.
  • 4Cash flow from operating activities significantly improved, reaching $83.4 million compared to $9.2 million in the prior year.
  • 5The company completed a $300 million issuance of 5% notes due in 2015, strengthening its capital position.
  • 6L3Harris announced and completed the acquisition of Leitch Technology Corporation for approximately $450 million, expanding its Broadcast Communications segment.
  • 7Gross margin as a percentage of revenue improved to 29.6% from 24.7% in the prior year, indicating improved operational efficiency.

Frequently Asked Questions

Revenue growth was primarily driven by strong domestic and international demand for tactical radio systems in the RF Communications segment, an increase in sales from the TRuepoint™ radio product line in the Microwave Communications segment, and the inclusion of results from the Encoda acquisition in the Broadcast Communications segment. The Government Communications Systems segment revenue remained relatively flat but showed improved operating income.

The company's cash and cash equivalents increased significantly to $729.1 million. This increase was primarily driven by strong cash flow from operating activities ($83.4 million) and substantial net cash provided by financing activities, notably the issuance of $300 million in 5% notes. The company also made dividend payments and repurchased some shares.

The Broadcast Communications segment reported an operating loss of $12.0 million, primarily due to $18.0 million in charges related to consolidating manufacturing locations and other cost-reduction initiatives. While this impacted current profitability, these actions are expected to improve segment profitability in the long term. The acquisition of Leitch, which will operate within this segment, is anticipated to further strengthen its position.

Management believes that existing cash, cash generated from operations, potential sales of marketable securities, and access to debt and equity markets will be sufficient to meet its anticipated requirements for working capital, capital expenditures, and share repurchases for the next 12 months and the foreseeable future. The company also anticipates continued tax payments and has a revolving credit facility of $500 million available.