10-QPeriod: Q3 FY2020

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q3 Ended Sep 27, 2019

Filed October 31, 2019For Securities:LHX

Summary

L3Harris Technologies, Inc. (LHX) reported a significant increase in revenue for the quarter ended September 27, 2019, largely driven by the completion of the L3Harris Merger on June 29, 2019. The reported revenue surged by 187% to $4.43 billion, primarily reflecting the inclusion of L3's operations. On a pro forma basis, which adjusts for the merger's impact on the prior year's comparable period, revenue grew a more modest 10% to $4.43 billion, indicating underlying organic growth across key segments like Space and Airborne Systems, and Integrated Mission Systems. Net income from continuing operations also saw a substantial increase on a reported basis, rising 101% to $435 million, translating to diluted earnings per share of $1.90. The pro forma adjusted net income shows a 17% increase to $435 million, with diluted EPS reaching $1.90 as well, demonstrating improved profitability from the combined entity. The company also completed the sale of its Harris Night Vision business, recognizing a pre-tax gain of $229 million, which contributed to the reported earnings. L3Harris's balance sheet reflects the significant impact of the merger, with substantial increases in goodwill, intangible assets, and long-term debt.

Financial Highlights

53 data points
Beta

Revenue

$4.43B

26.8% Gross Margin

Net Income

$429.00M

9.7% Net Margin

EPS (Diluted)

$1.90

Total Assets

$38.95B

Cash & Equivalents

$1.00B

Free Cash Flow

-$3.00M

Financial Statements
Beta
Revenue$4.43B
Cost of Revenue$3.24B
Gross Profit$1.19B
SG&A Expenses$999.00M
Operating Expenses$999.00M
Operating Income$941.00M
Interest Expense$67.00M
Net Income$429.00M
EPS (Basic)$1.93
EPS (Diluted)$1.90
Shares Outstanding (Basic)222.60M
Shares Outstanding (Diluted)225.40M

Key Highlights

  • 1Revenue for the quarter ended September 27, 2019, increased 187% to $4.43 billion compared to $1.54 billion in the prior year, primarily due to the L3Harris Merger.
  • 2On a pro forma basis, revenue increased 10% to $4.43 billion, indicating organic growth, with Space and Airborne Systems and Integrated Mission Systems showing strength.
  • 3Income from continuing operations increased 101% to $435 million (reported) and 17% (pro forma) compared to the prior year.
  • 4Diluted earnings per share for continuing operations rose 7% to $1.90 on a reported basis and increased to $1.90 from $1.63 on a pro forma basis.
  • 5The company recognized a $229 million pre-tax gain from the sale of the Harris Night Vision business.
  • 6Goodwill and intangible assets increased significantly due to the acquisition accounting for the L3Harris Merger.
  • 7The company ended the quarter with a strong cash position of $1.0 billion, benefiting from merger-related cash inflows and operating activities.

Frequently Asked Questions

The primary driver of the significant 187% revenue increase to $4.43 billion was the completion of the L3Harris Merger on June 29, 2019. This merger consolidated the operations of L3 and Harris, and the reported results for the quarter ended September 27, 2019, include the full combined entity, whereas the prior year period only reflects Harris's standalone operations.

The L3Harris Merger, accounted for under the acquisition method, had a profound impact. It led to a substantial increase in total assets, particularly goodwill and intangible assets, reflecting the fair value of L3's net assets acquired. Long-term debt also increased significantly due to debt assumed as part of the merger. The merger also resulted in a large number of shares issued, increasing the weighted average shares outstanding and affecting EPS calculations.

The pro forma financial information adjusts the prior year's results to reflect the L3Harris Merger as if it had occurred at the beginning of that period. This allows for a more comparable view of the combined company's operational performance and organic growth trends, smoothing out the impact of the merger's timing on year-over-year comparisons. For instance, pro forma revenue shows a more modest but still positive 10% growth, highlighting underlying business performance.

Yes, the sale of the Harris Night Vision business on September 13, 2019, resulted in a pre-tax gain of $229 million, which was recognized in the quarter and contributed positively to the reported income from continuing operations. This divestiture was part of the regulatory process for the L3Harris Merger.