01—Abstract
Summary
Summary of the 10-Q filed October 31, 2019. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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 millionb, 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.
02—Key points
Key Highlights
- Revenue 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.
- On 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.
- Income from continuing operations increased 101% to $435 million (reported) and 17% (pro forma) compared to the prior year.
- Diluted 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.
- The company recognized a $229 million pre-tax gain from the sale of the Harris Night Vision business.
- Goodwill and intangible assets increased significantly due to the acquisition accounting for the L3Harris Merger.
- The company ended the quarter with a strong cash position of $1.0 billion, benefiting from merger-related cash inflows and operating activities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2020, L3HARRIS Technologies, Inc. kept $0.10.
- Revenue$4.43B100.0%
- Cost of revenue−$3.24B73.2%
- Gross profit$1.19B26.8%
- Operating costs−$248.0M5.6%
- Operating income$941.0M21.2%
- Interest, other & tax−$512.0M11.6%
- Net income$429.0M9.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed October 31, 2019Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $4.43B$1.54B | +187.4% |
| Cost of Revenue | $3.24B$1.01B | +221.0% |
| Gross Profit | $1.19B$532.00M | +123.5% |
| SG&A Expenses | $999.00M— | — |
| Operating Expenses | $999.00M$279.00M | +258.1% |
| Operating Income | $941.00M$216.00M | +335.6% |
| Interest Expense | $67.00M$44.00M | +52.3% |
| Net Income | $429.00M$213.00M | +101.4% |
| EPS (Basic) | $1.93$1.81 | +6.6% |
| EPS (Diluted) | $1.90$1.77 | +7.3% |
| Shares Outstanding (Basic) | 222.60M117.90M | +88.8% |
| Shares Outstanding (Diluted) | 225.40M120.60M | +86.9% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant revenue increase in this quarter?
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.
How did the L3Harris Merger impact the company's financial statements?
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.
What is the significance of the pro forma financial information provided?
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.
Did the sale of the Harris Night Vision business have a material impact on the quarter's results?
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.
06—Continue