01—Abstract
Summary
Summary of the 10-Q filed August 4, 2020. Cited figures are marked; the original filing is the authoritative source.
L3Harris Technologies, Inc. reported strong revenue growth for the quarter ended July 3, 2020, primarily driven by the inclusion of L3 operations following the L3Harris Merger in June 2019.
While "as reported" revenue surged by 138%a year-over-year, the "pro forma" revenue remained flat, indicating that the core business operations were stable. Despite the revenue increase, net income from continuing operations saw a slight increase of 3% on an "as reported" basis, but a significant decrease of 33% on a "pro forma" basis. This divergence highlights the impact of the merger and operational adjustments.
The company also experienced goodwill impairments, particularly in its Commercial Aviation Solutions sector due to the COVID-19 pandemic's impact on air travel, leading to significant charges. The balance sheet shows a robust cash position, bolstered by operating activities and proceeds from business sales, alongside a substantial long-term debt load, much of which was assumed in the merger. The company continues to manage its debt and capital structure, including share repurchases and dividend payments.
02—Key points
Key Highlights
- Revenue significantly increased by 138% on an 'as reported' basis to $4.4 billion in Q2 2020 compared to Q2 2019, largely due to the L3 merger.
- Pro forma revenue remained flat, indicating stability in the combined business operations.
- Income from continuing operations saw a slight 3% increase on an 'as reported' basis but a 33% decrease on a 'pro forma' basis, reflecting merger impacts and other charges.
- The company recorded significant goodwill and other asset impairments totaling $70 million for the quarter and $394 million for the year-to-date, primarily related to the Commercial Aviation Solutions sector due to COVID-19 impacts.
- Cash and cash equivalents increased substantially to $1.95 billion, driven by strong operating cash flow and proceeds from business divestitures.
- Long-term debt remains substantial at $6.27 billion, with the majority assumed from the L3 merger.
- The company continues to execute its capital allocation strategy, including share repurchases and dividend payments, while managing its debt structure.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2021, L3HARRIS Technologies, Inc. kept $0.06.
- Revenue$4.45B100.0%
- Cost of revenue−$3.17B71.4%
- Gross profit$1.27B28.6%
- Operating costs−$769.0M17.3%
- Operating income$501.0M11.3%
- Interest, other & tax−$223.0M5.0%
- Net income$278.0M6.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2021filed August 4, 2020Financial Statements
Q2 FY2021 against Q2 FY2020
| Line item | Q2 FY2021Q2 FY2020 | Change |
|---|---|---|
| Revenue | $4.45B$1.86B | +138.3% |
| Cost of Revenue | $3.17B$1.22B | +159.6% |
| Gross Profit | $1.27B$642.00M | +97.8% |
| SG&A Expenses | $855.00M$349.00M | +145.0% |
| Operating Income | $501.00M$512.00M | −2.1% |
| Interest Expense | $68.00M$39.00M | +74.4% |
| Net Income | $278.00M$268.00M | +3.7% |
| EPS (Basic) | $1.31$2.26 | −42.0% |
| EPS (Diluted) | $1.30$2.20 | −40.9% |
| Shares Outstanding (Basic) | 215.90M118.30M | +82.5% |
| Shares Outstanding (Diluted) | 217.80M121.10M | +79.9% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the significant revenue increase in the quarter?
The substantial 138% increase in 'as reported' revenue to $4.4 billion is primarily due to the full inclusion of L3 Technologies' financial results following the L3Harris Merger, which was completed on June 29, 2019. The 'pro forma' revenue, which accounts for both companies on a comparable basis, remained flat, indicating stable underlying business performance.
How did the COVID-19 pandemic impact the company's financial results?
The COVID-19 pandemic significantly impacted the Commercial Aviation Solutions sector, leading to a decrease in demand and resulting in goodwill and other asset impairments totaling $70 million for the quarter and $394 million year-to-date. While the company's defense-related businesses are expected to be more stable, commercial and international segments faced headwinds.
What is the company's current liquidity position and debt situation?
L3Harris Technologies ended the quarter with a strong cash position of $1.95 billion, boosted by operating cash flows and proceeds from divesting certain businesses. However, the company carries a significant amount of long-term debt, totaling $6.27 billion, largely from the L3 merger. The company has a $2 billion revolving credit facility and stated its belief that current liquidity and cash generation will be sufficient for its foreseeable needs.
What is the company doing with its cash and how is it managing its capital?
The company is actively managing its capital through share repurchases, totaling $700 million in the first half of the year, and consistent dividend payments, with a recent increase in the quarterly rate. The company also made significant debt repayments and capital expenditures. Proceeds from recent divestitures are also contributing to liquidity.
06—Continue