01—Abstract
Summary
Summary of the 10-Q filed November 2, 2016. Cited figures are marked; the original filing is the authoritative source.
Harris Corporation's Form 10-Q filing for the quarter ended September 29, 2016, reveals a mixed financial performance.
While revenue saw a slight year-over-year decrease of 3% to $1.75 billiona, net income experienced an 8% increase, reaching $160 million. This improvement in profitability, reflected in a diluted EPS of $1.27, up from $1.18 in the prior year's quarter, was driven by improved gross margins across several segments, effective cost management, and a favorable tax rate. The company also continued its commitment to shareholder returns through a dividend increase and a significant share repurchase program.
Despite the overall increase in profitability, the company faced revenue declines in its Communication Systems, Electronic Systems, and Critical Networks segments. These decreases were partially offset by growth in Space and Intelligence Systems.
Notably, cash flow from operations declined significantly, primarily due to working capital changes and increased investment activities, leading to a substantial decrease in the company's cash and cash equivalents. The company highlighted ongoing integration efforts following the Exelis acquisition and proactive debt management, including debt repayments.
02—Key points
Key Highlights
- Revenue declined 3% year-over-year to $1.75 billion for the quarter, primarily due to lower performance in Communication Systems, Electronic Systems, and Critical Networks segments.
- Net income increased 8% to $160 million, leading to a diluted EPS of $1.27, an 8% increase from the prior year.
- Space and Intelligence Systems segment showed revenue growth of 4%, driven by intelligence community customers and the Radiation Budget Instrument program.
- Net cash provided by operating activities decreased by 33% to $43 million, impacting overall cash position.
- The company repurchased $100 million of its common stock during the quarter and increased its quarterly dividend to $0.53 per share.
- A new accounting standard for share-based compensation favorably impacted the effective tax rate and operating cash flows.
- The company is actively managing its long-term debt, having repaid $250 million in notes due October 1, 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2017, L3HARRIS Technologies, Inc. kept $0.11.
- Revenue$1.42B100.0%
- Cost of revenue−$897.0M63.2%
- Gross profit$523.0M36.8%
- Operating costs−$277.0M19.5%
- Operating income$246.0M17.3%
- Interest, other & tax−$86.0M6.1%
- Net income$160.0M11.3%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2017filed November 2, 2016Financial Statements
Q3 FY2017 against Q3 FY2016
| Line item | Q3 FY2017Q3 FY2016 | Change |
|---|---|---|
| Revenue | $1.42B$1.81B | −21.6% |
| Cost of Revenue | $897.00M$1.22B | −26.5% |
| Gross Profit | $523.00M$591.00M | −11.5% |
| Operating Expenses | $277.00M$329.00M | −15.8% |
| Operating Income | $246.00M— | — |
| Interest Expense | $44.00M$48.00M | −8.3% |
| Net Income | $160.00M$148.00M | +8.1% |
| EPS (Basic) | $1.29$1.20 | +7.5% |
| EPS (Diluted) | $1.27$1.18 | +7.6% |
| Shares Outstanding (Basic) | 123.90M123.50M | +0.3% |
| Shares Outstanding (Diluted) | 125.50M124.70M | +0.6% |
05—Questions
Frequently Asked Questions
What was the primary driver for the increase in net income despite the revenue decline?
The increase in net income was driven by several factors including improved gross margins in several segments (Space and Intelligence Systems, Electronic Systems, and Critical Networks), effective management of engineering, selling, and administrative expenses (ESA) due to synergy savings and restructuring actions, a lower effective tax rate partly due to the adoption of a new accounting standard for share-based compensation, and higher pension income.
How has the company's cash position changed, and what are the key reasons?
The company's cash and cash equivalents decreased by $203 million to $284 million during the quarter. This was primarily due to $100 million used for share repurchases, $68 million for cash dividends, $25 million for adjustments related to a business sale, $21 million for capital expenditures, and $30 million in net debt repayments. Additionally, net cash provided by operating activities decreased significantly compared to the prior year.
What are the company's plans for using the proceeds from the sale of its CapRock Communications business?
The company has entered into an agreement to sell its CapRock Communications commercial business for $425 million in cash. The proceeds are intended to be used to pay down debt and return cash to shareholders.
What is the company's outlook on liquidity and its ability to meet its financial obligations?
Management believes that its current cash position, expected cash flows from operations, its revolving credit facility, and access to debt and equity markets are sufficient to meet its anticipated working capital requirements, capital expenditures, dividend payments, share repurchases, and debt repayments for the next 12 months and beyond. However, they acknowledge potential future uncertainties related to debt levels, government budgets, and global economic conditions.
06—Continue