Harris Corporation Reports Fiscal 2016 Second Quarter Results
MELBOURNE, Fla —Harris Corporation (NYSE:HRS) reported revenue in the second quarter of fiscal 2016 of $1.84 billion, compared with $1.21 billion in the prior year. GAAP loss from continuing operations was $135 million, or $1.09 per diluted share, compared with GAAP income from continuing operations of $139 million, or $1.32 per diluted share, in the prior year. Second quarter results benefited from the acquisition of Exelis, but the company recorded a non-cash after-tax charge of $328 million, or $2.63 per diluted share, to write down goodwill and other assets of the CapRock business due to the downturn in the energy market and its impact on customer operations.
Non-GAAP income from continuing operations was $187 million, or $1.49 per diluted share, excluding the non-cash charge related to CapRock, acquisition-related items, restructuring and other charges. A reconciliation of GAAP to non-GAAP financial measures is provided in the tables.
Free cash flow (net cash provided by operating activities less capital expenditures) in the second quarter was $298 million compared with $104 million in the prior year.
"Second quarter non-GAAP earnings were solid, benefiting from integration savings as well as the recently re-enacted R&D tax credit," said William M. Brown, chairman, president and chief executive officer.
"We've made excellent progress in both achieving anticipated synergy savings and identifying additional opportunities. As a result, we now expect to exit fiscal 2017 with annual run-rate savings in a range of $140 to $150 million, significantly higher than our previous expectation of about $120 million. Separately, we launched additional restructuring and other actions in the quarter as part of our ongoing strategy to lower costs and improve operating performance."
Communication Systems segment revenue in the second quarter was $489 million. Segment operating income was $121 million, and non-GAAP operating income was $138 million, excluding restructuring and other charges.
Tactical radio orders included $66 million from a Middle East nation and $10 million from an Eastern European country. Public Safety orders included $20 million from the Arizona Public Service Company for a state-wide P25 communication system and $18 million from the U.S. Air National Guard for land mobile radios.
Space and Intelligence Systems
Space and Intelligence Systems segment revenue in the second quarter was $446 million and operating income was $67 million.
Harris was awarded a 3-year, $23 million contract from a classified customer to support space superiority missions; a 3-year, $23 million follow-on contract from NASA for Advanced Baseline Imager weather sensor modules; and a 1-year, $14 million follow-on contract from the U.S. Air Force for the System Engineering and Sustainment Integrator (SENSOR) program. Harris also received orders totaling $172 million from classified customers.
Following the close of the quarter, Harris was awarded a $316 million follow-on contract from NASA for payloads on the third and fourth weather satellites on the Joint Polar Satellite System.
Electronic Systems segment revenue in the second quarter was $382 million. Segment operating income was $63 million, and non-GAAP operating income was $69 million, excluding restructuring and other charges.
Orders included $19 million from the U.S. Air Force for B-1B electronic warfare self-protection subsystems. Harris also was awarded a 5-year (2-year base, three 1-year options), $28 million, single-award IDIQ contract from the U.S. Navy for repair services for the Integrated Defensive Electronic Countermeasures (IDECM) program and $46 million in follow-on contracts for the F-35 program.
Critical Networks segment revenue in the second quarter was $541 million. Segment operating loss was $308 million, reflecting the non-cash charge related to CapRock, restructuring and other charges. Non-GAAP operating income was $71 million, excluding these charges.
Orders included $62 million from the Defense Information Systems Agency (DISA) and $40 million under the Future Commercial SATCOM Acquisition (FCSA) program for terrestrial and satellite communications services. Harris also was awarded a 5-year, $5 billion, multi-award Cyber Security and Information Systems Technical Area Tasks IDIQ contract from the U.S. Air Force; a 10-year, $4.3 billion, multi-award Global Network Services IDIQ contract from DISA to provide telecommunications services; a 2.5-year (8-month base, two 11-month options), $42 million contract from the U.S. Air Force for wide-area-network high-speed transport and data storage services; and a 5-year contract extension from Royal Caribbean for advanced maritime communications solutions.
Harris increased its guidance for fiscal 2016 non-GAAP income from continuing operations from a range of $5.60-$5.80 per diluted share to a range of $5.70-$5.80 per diluted share, excluding the non-cash charge related to CapRock, acquisition-related items, restructuring and other charges. Harris revised its guidance for fiscal 2016 GAAP income from continuing operations from a range of $5.25-$5.45 per diluted share to a range of $2.80-$2.90 per diluted share. GAAP income from continuing operations guidance could change as a result of any further integration actions related to the Exelis acquisition. Guidance for fiscal 2016 revenue is updated from a range of $7.67-$7.83 billion to a range of $7.60-$7.68 billion. Harris will host a conference call today, February 2, at 8:30 a.m. Eastern Time (ET) to discuss its second quarter fiscal 2016 financial results. The dial-in numbers for the teleconference are (877) 303-9481 (U.S.) and (760) 666-3582 (International), using participant code 32487722. Please allow at least 10 minutes before the scheduled start time to connect to the teleconference. Participants are encouraged to listen via live webcast and view management's supporting slide presentation at www.harris.com/webcast/quarterly/2016Q2. A recording of the call will be available on the Harris website beginning at approximately 12 p.m. ET on February 2.
About Harris Corporation
Harris Corporation is a leading technology innovator, solving our customers' toughest mission-critical challenges by providing solutions that connect, inform and protect. Harris supports customers in over 125 countries. The company has approximately $8 billion in annual revenue and 22,000 employees and is organized into four business segments: Communication Systems, Space and Intelligence Systems, Electronic Systems, and Critical Networks. Learn more at harris.com.
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Non-GAAP Financial Measures
This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission ("SEC"), including income from continuing operations and income from continuing operations per diluted share for the second quarter of fiscal 2016, in each case excluding an impairment charge, acquisition-related items, restructuring and other charges; free cash flow for the second quarter of fiscal 2016 and fiscal 2015, excluding cash flow for capital expenditures; segment operating income for the second quarter of fiscal 2016 for the Communication Systems and Electronic Systems segments, in each case excluding restructuring and other charges; segment operating income for the second quarter of fiscal 2016 for the Critical Networks segment, excluding impairment, restructuring and other charges; and the guidance range for expected income from continuing operations per diluted share for fiscal 2016, excluding an impairment charge, acquisition-related items, restructuring and other charges. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles ("GAAP"). Harris management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from charges that may, or could, have a disproportionately positive or negative impact on results in any particular period. Harris management also believes that these non-GAAP financial measures enhance the ability of investors to analyze Harris business trends and to understand Harris performance. In addition, Harris may utilize non-GAAP financial measures as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for some management compensation purposes. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures presented in accordance with GAAP.
Attachments: Financial Statements (8 tables).
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Statements in this press release that are not historical facts are forward-looking statements that reflect management's current expectations, assumptions and estimates of future performance and economic conditions. Such statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this release include but are not limited to: earnings and revenue guidance for fiscal 2016; expectations related to Exelis integration savings and cost synergies and restructuring savings; potential contract opportunities and awards; the potential value of contract awards; and other statements regarding outlook or that are not historical facts. The company cautions investors that any forward-looking statements are subject to risks and uncertainties that may cause actual results and future trends to differ materially from those matters expressed in or implied by such forward-looking statements. The company's consolidated results, future trends and forward-looking statements could be affected by many factors, risks and uncertainties, including but not limited to: the loss of the company's relationship with the U.S. Government or a change or reduction in U.S. Government funding; potential changes in U.S. Government or customer priorities and requirements (including potential deferrals of awards, terminations, reductions of expenditures, changes to respond to the priorities of Congress and the Administration, budgetary constraints, debt ceiling implications, sequestration and cost-cutting initiatives); a security breach, through cyber attack or otherwise, or other significant disruptions of the company's IT networks and systems or those the company operates for customers; the level of returns on defined benefit plan assets and changes in interest rates; risks inherent with large long-term fixed-price contracts, particularly the ability to contain cost overruns; changes in estimates used in accounting for the company's programs; financial and government and regulatory risks relating to international sales and operations; effects of any non-compliance with laws; the continued effects of the general weakness in the global economy and U.S. Government's budget deficits and national debt and sequestration; the company's ability to continue to develop new products that achieve market acceptance; the consequences of uncertain economic conditions and future geo-political events; strategic acquisitions and divestitures and the risks and uncertainties related thereto, including the company's ability to manage and integrate acquired businesses (including achieve estimated synergy savings and realize other expected benefits), the actual amount and timing of integration and other acquisition-related items and potential disruption to relationships with employees, suppliers and customers, including the U.S. Government, and to the company's business generally; performance of the company's subcontractors and suppliers; potential claims related to infringement of intellectual property rights or environmental remediation or other contingencies, litigation and legal matters and the ultimate outcome thereof; risks inherent in developing new and complex technologies and/or that may not be covered adequately by insurance or indemnity; changes in the company's effective tax rate; increased indebtedness and significant unfunded pension liability and potential downgrades in the company's credit ratings; unforeseen environmental issues; natural disasters or other disruptions affecting the company's operations; sustained weakness or volatility in oil or natural gas prices or negative expectations about future prices or volatility; changes in the regulatory framework that applies to, or of satellite bandwidth constraints on, the company's managed satellite and terrestrial communications solutions; changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired; the company's ability to attract and retain key employees, maintain reasonable relationships with unionized employees and manage escalating costs of providing employee health care; and potential tax, indemnification and other liabilities and exposures related to Exelis' spin-off of Vectrus, Inc. and Exelis' spin-off from ITT Corporation. Further information relating to these and other factors that may impact the company's results, future trends and forward-looking statements are disclosed in the company's filings with the SEC. The forward-looking statements contained in this release are made as of the date of this release, and the company disclaims any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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