LHX

Business Context and Reporting Period

This filing is a Form 10-Q for Harris Corporation (now L3Harris Technologies, Inc.) for the quarterly period ended September 29, 2000. The company operates in two primary continuing segments: Government Communications and Commercial Communications. The reporting period reflects the first quarter of fiscal 2001. The company recently completed the spin-off of Lanier Worldwide and the sale of its semiconductor business, which are reported as discontinued operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 15.4% year-over-year, driven by a 28.8% increase in the Commercial Communications segment and a 1.5% increase in Government Communications.
• Significant One-Time Charges: The operating loss was primarily driven by a $73.5 million charge for purchased in-process research and development (IPR&D) related to the acquisition of Wavtrace, Inc. Additionally, a $41 million restructuring charge was recorded in fiscal 2000 (impacting the period), though the cash outlays are expected in fiscal 2001.
• Other Income: Other income surged to $43.9 million (from $7.4 million) due to a $52.0 million gain on the sale of marketable securities (Intersil Holding Corporation).
• Segment Performance: Excluding the IPR&D write-off and exited product lines, the Commercial Communications segment's operating income increased 136.2% year-over-year. The Government Communications segment saw operating income rise 31.4%.
• Liquidity: Cash and cash equivalents decreased by $220.7 million during the quarter, largely due to the $126.1 million cash consideration for the Wavtrace acquisition and $51.6 million in stock repurchases.

Guidance, Outlook, and Risks

• Outlook: Management states the outlook for fiscal 2001 is improving, citing focus on the right communications markets for sales growth and profitability.
• Capital Allocation: The company plans to use remaining cash and marketable securities for general corporate purposes, including acquisitions and stock repurchases. A $500 million syndicated credit facility and a $500 million shelf registration are available.
• Restructuring: The company expects to pay remaining restructuring benefits (severance) in the second quarter of fiscal 2001. No further restructuring charges are anticipated for the exited product lines other than gains/losses from asset sales.
• Risks: Key risks include general economic conditions, stability of key markets (Asia, Brazil), foreign currency fluctuations, defense budget changes, and the successful integration of acquired businesses (Wavtrace, Louth Automation).
• Unusual Items: The $73.5 million IPR&D write-off is a non-cash charge expensed immediately because technological feasibility had not been established for the acquired ClearBurst 2000 product.

Investor Verification Checklist

• Verify the $73.5 million IPR&D write-off related to Wavtrace and the projected $8.4 million remaining development costs to achieve technological feasibility.
• Confirm the status of the Wavtrace acquisition integration and the timeline for the ClearBurst 2000 product launch.
• Review the restructuring reserve utilization and the expected cash outlays for severance in Q2 fiscal 2001.
• Assess the impact of the $52.0 million gain on securities on the "Other Income" line and its sustainability.
• Monitor the Commercial Communications segment margins, specifically the microwave and network support businesses, which drove the revenue growth.
• Check the stock repurchase program status; $51.6 million was spent in Q1, with 3.1 million shares remaining authorized.