10-QPeriod: Q1 FY2017

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q1 Ended Apr 1, 2016

Filed May 4, 2016For Securities:LHX

Summary

L3Harris Technologies (formerly Harris Corporation) reported its fiscal third-quarter 2016 results, demonstrating significant growth primarily driven by the acquisition of Exelis in the prior year. Revenue surged by 60.8% year-over-year to $1.9 billion, reflecting the consolidated performance of the acquired entity across all segments. Despite the revenue increase, the company faced challenges, notably a $367 million non-cash impairment charge related to goodwill and other assets in the Critical Networks segment, impacting net income. However, income from continuing operations before income taxes showed a healthy increase of 34.6%. Diluted EPS from continuing operations also saw an increase, though it was significantly impacted by the impairment charge over the year-to-date period. The company continues to manage its capital effectively, with a strong operating cash flow and an available revolving credit facility, while also returning capital to shareholders through dividends.

Financial Highlights

50 data points
Beta

Revenue

$1.55B

34.9% Gross Margin

Net Income

$168.00M

10.8% Net Margin

EPS (Diluted)

$1.34

Total Assets

$11.90B

Cash & Equivalents

$302.00M

Free Cash Flow

$423.00M

Financial Statements
Beta
Revenue$1.55B
Cost of Revenue$1.01B
Gross Profit$541.00M
Operating Expenses$273.00M
Interest Expense$46.00M
Net Income$168.00M
EPS (Basic)$1.35
EPS (Diluted)$1.34
Shares Outstanding (Basic)124.00M
Shares Outstanding (Diluted)125.10M

Key Highlights

  • 1Revenue significantly increased by 60.8% to $1.9 billion in Q3 FY2016, largely due to the Exelis acquisition.
  • 2Income from continuing operations before income taxes rose by 34.6% to $241 million in Q3 FY2016.
  • 3A substantial $367 million non-cash impairment charge was recognized in Q2 FY2016 for goodwill and other assets in the Critical Networks segment.
  • 4Net cash provided by operating activities increased by 28.4% to $507 million for the first three quarters of FY2016.
  • 5The company completed the divestiture of its composite aerostructures business (Aerostructures) on April 8, 2016.
  • 6Net income for the three quarters ended April 1, 2016, was $164 million, a significant decrease from $390 million in the prior year, primarily due to the aforementioned impairment charge.
  • 7The company maintained its commitment to returning capital to shareholders, increasing its quarterly cash dividend.

Frequently Asked Questions

The primary driver of the significant revenue increase was the acquisition of Exelis, which was completed in the fourth quarter of fiscal 2015. This acquisition integrated Exelis' operations into L3Harris's reporting, leading to substantial top-line growth across all business segments.

The $367 million non-cash impairment charge for goodwill and other assets in the Critical Networks segment was primarily due to the downturn in the energy market, which negatively impacted the operations of Harris CapRock Communications, a part of that segment. This downturn affected customer operations and the segment's financial outlook.

The company reported a net decrease in cash and cash equivalents for the first three quarters of FY2016, largely due to significant debt repayments related to financing the Exelis acquisition. Despite increased debt levels, the company had $302 million in cash and cash equivalents at the end of Q3 FY2016 and an undrawn $1 billion revolving credit facility, indicating sufficient liquidity to meet its obligations and anticipated working capital needs.

Yes, the company completed the divestiture of its composite aerostructures business (Aerostructures) on April 8, 2016, for $187 million in cash and the assumption of a $23 million capitalized lease. This business was part of the Electronic Systems segment.