10-QPeriod: Q3 FY2012

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q3 Ended Dec 30, 2011

Filed February 1, 2012For Securities:LHX

Summary

L3Harris Technologies, Inc. (LHX) reported its second quarter fiscal year 2012 results, showing a slight revenue increase of 0.5% to $1,446.4 million compared to the prior year quarter. However, net income saw a significant decrease of 11.9% to $133.1 million, resulting in diluted earnings per share of $1.16, down from $1.18 in the prior year. This decline was primarily attributed to higher operating costs associated with recent acquisitions and integration efforts, particularly within the Integrated Network Solutions segment. Additionally, increased interest expenses due to higher borrowings to fund acquisitions and share repurchases also impacted profitability. The company's performance varied across its segments. RF Communications experienced a revenue decrease, partly due to the absence of significant expedited shipments seen in the prior year. Integrated Network Solutions saw revenue growth driven by acquisitions, but its operating income was negatively impacted by integration charges and losses in specific initiatives. The Government Communications Systems segment showed modest revenue growth and an increase in operating income, driven by a favorable product mix and cost performance. Despite the dip in net income, the company highlighted its strong financial position, substantial share repurchase activity, and commitment to returning capital to shareholders through dividends.

Key Highlights

  • 1Revenue for the second quarter of fiscal 2012 increased slightly by 0.5% to $1,446.4 million, compared to $1,438.5 million in the prior year quarter.
  • 2Net income attributable to Harris Corporation decreased by 11.9% to $133.1 million in the second quarter of fiscal 2012, down from $151.1 million in the prior year quarter.
  • 3Diluted earnings per share declined to $1.16 from $1.18 year-over-year, reflecting the decrease in net income.
  • 4Engineering, Selling, and Administrative (ESA) expenses increased by 12.2% to $286.4 million, primarily due to integration costs from recent acquisitions.
  • 5Net cash provided by operating activities for the first two quarters of fiscal 2012 was $278.0 million, a decrease from $389.3 million in the same period last year.
  • 6The company actively repurchased shares, using $417.0 million in the first two quarters of fiscal 2012, contributing to a reduction in weighted average shares outstanding.
  • 7Long-term debt increased, with the company noting $544.9 million in short-term debt outstanding at the end of the quarter, primarily due to commercial paper issued to fund share repurchases.

Frequently Asked Questions

The decrease in net income was primarily driven by increased integration and other costs associated with recent acquisitions (CapRock, Schlumberger GCS, and Carefx), combined with losses in cyber and healthcare solutions initiatives within the Integrated Network Solutions segment. Additionally, higher interest expenses due to increased borrowings for acquisitions and share repurchases also contributed to the decline.

Revenue for RF Communications decreased due to the absence of significant expedited shipments seen in the prior year. Integrated Network Solutions saw revenue growth from acquisitions but lower operating income due to integration costs and specific initiative losses. Government Communications Systems experienced a slight revenue increase and a rise in operating income, benefiting from a favorable product mix and cost performance.

The company reported a net increase in cash and cash equivalents of $20.1 million in the first two quarters of fiscal 2012, ending with $387.0 million. Net cash provided by operating activities decreased compared to the prior year. The company stated its financial position remained strong with available credit facilities and indicated sufficient resources for anticipated needs over the next 12 months and beyond, though it acknowledged potential impacts from global economic uncertainty.

The company continues to actively repurchase shares under its $1 billion share repurchase program, using $417.0 million in the first two quarters of fiscal 2012. This program is intended to offset the dilutive effect of shares issued under incentive plans. The Board of Directors also increased the quarterly cash dividend rate to $0.28 per share, representing the tenth consecutive annual increase, indicating a commitment to returning capital to shareholders.