LHX

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for Harris Corporation (now L3Harris Technologies, Inc.) for the quarter ended April 3, 2009. The company operates in four primary segments: RF Communications, Government Communications Systems, Broadcast Communications, and Harris Stratex Networks. A significant corporate event during this period was the announcement on March 31, 2009, of a spin-off of Harris Stratex Networks to shareholders, with the distribution scheduled for May 27, 2009. Consequently, Harris Stratex Networks results will be reported as discontinued operations beginning in the fourth quarter of fiscal 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Q3 revenue increased 2.4% year-over-year, driven by 12.0% growth in RF Communications and 6.7% growth in Government Communications Systems. This offset declines in Broadcast Communications (-16.6%) and Harris Stratex Networks (-11.3%) due to global recession impacts.
• Profitability: Q3 Net Income rose 5.7% to $114.2 million. However, YTD Net Income fell 39.8% to $194.3 million, primarily due to a $301.0 million non-cash impairment charge recorded in Q2 2009 related to goodwill and intangible assets in the Harris Stratex Networks segment.
• Segment Performance:
  • RF Communications: Strong performance with operating income up 7.0% in Q3.
  • Government Communications Systems: Operating income surged 245.3% in Q3, largely due to the absence of $46.8 million in cost overrun charges that impacted the prior year.
  • Harris Stratex Networks: Reported an operating loss of $34.1 million in Q3 (vs. $9.2 million income in Q3 2008) due to $32.7 million in charges related to technology platform acceleration and inventory write-downs.
• Tax Rate: The effective tax rate for the first three quarters of 2009 was 84.5%, significantly higher than the 31.4% in the prior year, driven by the non-deductible impairment charge.

Guidance, Outlook, and Risks

• Acquisitions: On April 16, 2009, Harris announced a definitive agreement to acquire Tyco Electronics Wireless Systems (M/A-COM) for approximately $675 million in cash, expected to close by June 2009. This will operate as the Public Safety business unit within the RF Communications segment.
• Spin-off: The Harris Stratex Networks spin-off is proceeding as planned. The segment's results will be classified as discontinued operations starting Q4 2009.
• Outlook Risks: Management noted reduced outlook for the RF Communications segment due to delays in significant orders (including a cancelled $500 million IDIQ contract for the U.S. Army) and pressure on DoD budgets. The global economic crisis continues to impact capital spending in the Broadcast and Stratex segments.
• Liquidity: The company maintains a strong liquidity position with $452.0 million in cash and a $750 million revolving credit facility with no borrowings outstanding as of April 3, 2009.
• Legal Proceedings: Harris Stratex Networks and certain officers are defendants in a federal securities class action lawsuit related to the restatement of Stratex's financial statements. Management intends to defend vigorously.

Investor Verification Checklist

• Impairment Details: Verify the specific valuation assumptions used for the $301.0 million goodwill impairment in Harris Stratex Networks and confirm the non-deductibility for tax purposes.
• Stratex Spin-off Timeline: Confirm the May 27, 2009 distribution date and the tax implications for shareholders.
• Acquisition Financing: Review the funding sources for the $675 million Tyco Electronics Wireless Systems acquisition (cash on hand vs. credit facility usage).
• Contract Delays: Assess the impact of the cancelled U.S. Army IDIQ contract and the delayed Iraq Ministry of Defence order on future RF Communications revenue guidance.
• Legal Exposure: Monitor the status of the securities class action lawsuit against Harris Stratex Networks and potential indemnification obligations.