10-QPeriod: Q1 FY2016

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q1 Ended Apr 3, 2015

Filed May 6, 2015For Securities:LHX

Summary

L3Harris Technologies (LHX) reported its third-quarter fiscal year 2015 results, showing a decrease in revenue and net income compared to the prior year. Total revenue declined by 6.4% to $1.19 billion, and income from continuing operations attributable to common shareholders fell by 8.4% to $125.7 million, or $1.20 per diluted share. The company is actively pursuing a significant acquisition of Exelis, which was announced in February 2015 and is expected to close in June 2015, subject to regulatory and shareholder approvals. This pending acquisition has led to increased financing activities and associated costs, including new debt issuance and redemption of existing notes, impacting the company's financial structure and increasing leverage. Operational performance varied across segments, with RF Communications showing slight revenue decline but operating income growth, while Government Communications Systems experienced revenue decline but operating income growth, and Integrated Network Solutions saw declines in both revenue and operating income. Management is focused on navigating the integration of Exelis while managing ongoing operational performance.

Financial Highlights

51 data points
Beta

Revenue

$1.19B

36.5% Gross Margin

Net Income

$126.00M

10.6% Net Margin

EPS (Diluted)

$1.20

Total Assets

$4.83B

Cash & Equivalents

$488.00M

Free Cash Flow

$293.00M

Financial Statements
Beta
Revenue$1.19B
Cost of Revenue$754.00M
Gross Profit$433.00M
Operating Expenses$220.00M
Operating Income$390.30M
Interest Expense$34.00M
Net Income$126.00M
EPS (Basic)$1.21
EPS (Diluted)$1.20
Shares Outstanding (Basic)103.70M
Shares Outstanding (Diluted)104.80M

Key Highlights

  • 1Total revenue for the third quarter of fiscal 2015 decreased by 6.4% to $1.19 billion compared to the prior year's quarter.
  • 2Income from continuing operations attributable to common shareholders decreased by 8.4% to $125.7 million ($1.20 per diluted share) for the third quarter.
  • 3The company announced a pending acquisition of Exelis for approximately $4.75 billion, with an expected closing in June 2015.
  • 4Significant financing activities, including new debt issuance ($2.4 billion) and debt redemptions, were undertaken in anticipation of the Exelis acquisition.
  • 5RF Communications segment revenue decreased 1.4% but operating income increased 5.1%.
  • 6Integrated Network Solutions segment experienced a notable revenue decrease of 14.1% and an operating income decrease of 44.9%.
  • 7Net cash provided by operating activities for the first three quarters of fiscal 2015 decreased by 13.0% to $395.2 million.

Frequently Asked Questions

The decrease in revenue was primarily due to lower sales in the Public Safety and Professional Communications part of the RF Communications segment, IT Services and Harris CapRock Communications within the Integrated Network Solutions segment, and also a decline in the Government Communications Systems segment. These were partially offset by stronger Tactical Communications revenue within the RF Communications segment.

L3Harris announced a definitive agreement to acquire Exelis on February 6, 2015, valued at approximately $4.75 billion. The transaction is subject to customary closing conditions, including regulatory and Exelis shareholder approval, with an expected closing in June 2015. The company has secured financing for the acquisition and has undertaken significant debt issuance and redemption activities in preparation.

Performance varied by segment. RF Communications saw a slight revenue dip but an increase in operating income. Government Communications Systems experienced a revenue decrease but an increase in operating income. Integrated Network Solutions faced declines in both revenue and operating income.

As of April 3, 2015, L3Harris had $487.7 million in cash and cash equivalents. The company noted it has no long-term debt maturing until December 1, 2017, and an available $1 billion revolving credit facility. Management believes existing cash, operational cash flows, and credit facilities are sufficient for anticipated working capital, capital expenditures, dividends, and share repurchases, including funding the Exelis acquisition.