Jan 31 2012
Harris Corporation (NYSE:HRS) reported revenue in the second quarter of fiscal 2012 of $1.45 billion compared with $1.44 billion in the prior-year quarter. GAAP net income was $133 million, or $1.16 per diluted share, compared with $151 million, or $1.18 per diluted share, in the prior year. Non-GAAP net income was $140 million, or $1.22 per diluted share, compared with $155 million, or $1.20 per diluted share, in the prior year. Revenue and earnings in the prior-year quarter benefited from $80 million in expedited shipments of tactical radios to equip MRAP vehicles. Non-GAAP net income excludes acquisition-related costs in both quarters. A reconciliation of GAAP to non-GAAP financial measures is provided in Tables 5 through 8, along with accompanying notes. Orders in the second quarter were $1.20 billion.
"Harris posted solid second quarter results with earnings per share in line with the prior year, despite orders and revenue being dampened by the constrained government spending environment," said William M. Brown, president and chief executive officer. "The sequential increase in operating income for the company, driven by operating margin improvement in all of our segments, was encouraging. Cash flow from operations increased significantly compared to the previous quarter and the prior year, supporting expectations for strong cash flow again this year."
RF Communications
Revenue for the RF Communications segment was $526 million compared with $545 million in the prior year. Tactical Communications revenue of $391 million reflected a significant increase in international revenue, which partially offset a decline in Department of Defense revenue. International revenue was driven by major deliveries to countries in Asia and Africa. Public Safety and Professional Communications revenue was $135 million and increased 14 percent over the prior year. Operating income for the RF Communications segment was $172 million compared with $189 million in the prior year.
Orders for the segment totaled $268 million, including $183 million in Tactical Communications and $85 million in Public Safety and Professional Communications. At the end of the second quarter, backlog was $581 million in Tactical Communications and $671 million in Public Safety and Professional Communications.
Orders in the quarter included $70 million from a country in Africa for Falcon II® radios for the next phase of a multi-year modernization program, bringing orders to a total of $257 million for this program that has a potential value of $400 million. Orders also included $11 million from the Brazilian Ministry of Defence for Falcon II and Falcon III® radios in support of multi-year modernization programs, bringing orders to a total of $29 million for these programs that have a potential opportunity in excess of $300 million over the next several years in this rapidly emerging market.
Following the close of the quarter, Harris received a $235 million order from the Australian Department of Defence for Falcon II and Falcon III radios for the second phase of JP2072. This is the second order under this potential $500 million multi-year modernization program and brings orders to a total of $347 million for this program.
Integrated Network Solutions
Revenue for the Integrated Network Solutions segment was $526 million, an increase of 6 percent compared with $496 million in the prior year. Revenue benefited from the April 2011 acquisition of Schlumberger's Global Connectivity Services business. On an organic basis, revenue declined 4 percent primarily as a result of weakness at IT Services.
Operating income for the segment was $16 million compared with $21 million in the prior year. Non-GAAP operating income, excluding acquisition-related costs, was $25 million and flat with the prior year, despite the combined loss of $8 million in Cyber Integrated Solutions and Healthcare Solutions.
New Indefinite Delivery Indefinite Quantity (IDIQ) contract vehicles awarded in the quarter included Connections II from the General Services Administration, with a total ceiling value of $5 billion, to deliver IT communications and networking solutions for U.S. federal government agencies worldwide; a five-year, $82 million contract with a classified customer to provide a fully-managed, end-to-end communications solution using both terrestrial and satellite capabilities; and a five-year, $31 million IT services subcontract for the U.S. Navy Cyber Forces Command OCONUS Navy Enterprise Network (ONE-Net).
Government Communications Systems
Revenue for the Government Communications Systems segment was $422 million and flat with the prior year. Operating income was $63 million compared with $59 million in the prior year. Operating margin was a strong 14.9 percent driven by a more favorable product mix and outstanding cost performance on fixed-priced programs.
New contract wins in the quarter included awards totaling $46 million over two years for avionics and other communications components for the F-35 fighter aircraft; a two-year, $18 million contract from a classified customer; and a follow-on contract for $11 million from the U.S. Air Force for telemetry modules. Harris has also been selected, as part of the Boeing team, to continue to provide critical communications capability for the U.S. Missile Defense Agency's Ground-based Midcourse Defense (GMD) Development and Sustainment Contract.
Earnings Guidance
The company reiterated its previous guidance for non-GAAP net income for fiscal 2012 in the range of $5.10 to $5.30 per diluted share ($4.92 to $5.12 per diluted share on a GAAP basis). Fiscal 2012 non-GAAP earnings guidance excludes acquisition-related costs. Fiscal 2012 revenue is now expected to be about $6 billion, compared to the previous range of $6.15 to $6.30 billion.
Source: Harris Corporation