10-QPeriod: Q3 FY2019

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q3 Ended Sep 28, 2018

Filed October 26, 2018For Securities:LHX

Summary

L3Harris Technologies (formerly Harris Corporation) reported strong financial performance for the first quarter of fiscal year 2019, ending September 28, 2018. Revenue increased by 9% year-over-year to $1.54 billion, driven by robust growth across all three business segments: Communication Systems, Electronic Systems, and Space and Intelligence Systems. Net income from continuing operations saw a significant jump of 31% to $216 million, resulting in a diluted EPS of $1.78, also up 31%. The company also demonstrated improved operational efficiency, with gross margin increasing by 8% and engineering, selling, and administrative expenses as a percentage of revenue decreasing. Net cash provided by operating activities increased by 23% to $117 million, reflecting strong operational execution. Notably, the company announced a significant development post-quarter: an all-stock merger of equals with L3 Technologies, Inc., expected to close mid-calendar year 2019, which will create a combined entity named L3 Harris Technologies, Inc. This merger is poised to reshape the company's market position in the aerospace and defense sector.

Financial Highlights

52 data points
Beta

Revenue

$1.54B

34.5% Gross Margin

Net Income

$213.00M

13.8% Net Margin

EPS (Diluted)

$1.77

Total Assets

$9.89B

Cash & Equivalents

$305.00M

Free Cash Flow

$86.00M

Financial Statements
Beta
Revenue$1.54B
Cost of Revenue$1.01B
Gross Profit$532.00M
Operating Expenses$279.00M
Operating Income$216.00M
Interest Expense$44.00M
Net Income$213.00M
EPS (Basic)$1.81
EPS (Diluted)$1.77
Shares Outstanding (Basic)117.90M
Shares Outstanding (Diluted)120.60M

Key Highlights

  • 1Revenue increased 9% to $1.54 billion in the first quarter of fiscal 2019 compared to the prior year.
  • 2Income from continuing operations surged by 31% to $216 million, translating to a 31% increase in diluted EPS to $1.78.
  • 3All three business segments—Communication Systems, Electronic Systems, and Space and Intelligence Systems—reported revenue growth.
  • 4Net cash provided by operating activities improved by 23% to $117 million, indicating stronger cash generation.
  • 5The company announced a significant merger of equals with L3 Technologies, Inc. to form L3 Harris Technologies, Inc., expected to close in mid-2019.
  • 6The effective tax rate decreased significantly to 16.0% from 27.6% in the prior year, partly due to the Tax Cuts and Jobs Act.

Frequently Asked Questions

The revenue increase of 9% to $1.54 billion was primarily driven by growth across all three business segments: Communication Systems (up 16%), Electronic Systems (up 9%), and Space and Intelligence Systems (up 5%). This indicates broad-based demand for the company's diverse offerings.

L3Harris adopted ASC 606, the new revenue recognition standard, using the full retrospective method. This adoption impacted the presentation of revenue and contract assets/liabilities and required restatement of prior periods for comparability. Additionally, ASU 2017-07 changed the presentation of net periodic pension and postretirement benefit costs. While these adoptions affected presentation and certain prior period figures, the core operational and cash flow results remain key indicators.

The announced merger of equals with L3 Technologies, Inc. is a transformative event, creating a combined entity named L3 Harris Technologies, Inc. Expected to close mid-calendar year 2019, this all-stock transaction aims to combine complementary portfolios, leading to enhanced scale, technological capabilities, and market position within the aerospace and defense industry. Investors should closely monitor the closing conditions and integration progress.

The company reported $305 million in cash and cash equivalents and a $1 billion revolving credit facility, indicating a solid liquidity position. Net cash provided by operating activities increased, and the company expects its existing cash, operational cash flow, and credit facilities to be sufficient for working capital, capital expenditures, dividends, and debt repayments for the foreseeable future. Significant debt was incurred for the Exelis acquisition, and the company is managing its capital structure, including share repurchases and dividend increases.