MELBOURNE, Fla. — Harris Corporation (NYSE:HRS) reported revenue in the third quarter of fiscal 2013 of $1.20 billion compared with $1.37 billion in the prior year. GAAP income from continuing operations was $125 million, or $1.12 per diluted share, compared with $155 million, or $1.38 per diluted share. Non-GAAP income from continuing operations in the prior year was $163 million, or $1.42 per diluted share. Fiscal 2012 non-GAAP amounts exclude acquisition-related costs, and a reconciliation of GAAP to non-GAAP financial measures is provided in the tables. Orders in the third quarter were $1.13 billion compared with $1.48 billion in the prior year. The company generated strong free cash flow of $185 million in the third quarter compared with $152 million in the prior year.
“Third quarter results were in line with our preliminary release issued April 11 and weaker than previously expected primarily due to U.S. and international tactical radio procurement delays,” said William M. Brown, president and chief executive officer. “U.S. Government funding constraints resulting from the continuing resolution were magnified when sequestration was triggered. Additionally, in the international market several key tactical radio orders have been pushed to later in the year or early next fiscal year.”
“We recently announced company-wide restructuring actions that are expected to generate net annualized cost savings of approximately $40 to $50 million. These cost savings, combined with benefits from our ongoing focus on operational excellence and reduced discretionary spending, will allow us to be successful in a challenging government market environment while continuing to invest in R&D and fund strategic growth initiatives.”
Revenue in the third quarter for the RF Communications segment was $418 million compared with $538 million in the prior year. Tactical Communications revenue was $276 million, declining 31 percent, and Public Safety revenue was $142 million, increasing 2 percent. Operating income for the RF Communications segment was $116 million compared with $182 million in the prior year. Operating margin was 27.8 percent compared with 33.8 percent in the prior year, and reflects lower volume in Tactical Communications.
Orders for the segment totaled $486 million, including $297 million in Tactical Communications and $189 million in Public Safety. Book-to-bill was 1.16 for the segment. At the end of the third quarter, backlog was $582 million in Tactical Communications and $619 million in Public Safety.
During the quarter, Harris was awarded a $500 million increase in the ceiling value of its Indefinite Delivery Indefinite Quantity (IDIQ) contract with the U.S. Army Communications-Electronics Command (CECOM), which supports international sales of military and land mobile radio systems under the U.S. Government’s Foreign Military Sales program. Harris received a variety of Falcon III® wideband vehicular, manpack and handheld radio orders, including $26 million from the U.S. Marine Corps and $19 million from the U.S. Navy. Harris also received a $10 million order from the U.S. Department of Defense for a new ISR device that combines wideband tactical communications and signals intelligence. Significant international orders included $40 million from the Royal Brunei Armed Forces for Falcon III VHF Combat Net and wideband manpack radios; $29 million from a country in Asia for Falcon III wideband manpack radios; $23 million from Australia for software upgrades; and $14 million from a country in Africa.
Public Safety orders in the quarter included $42 million from Chester County, Pennsylvania, and $19 million from Spotsylvania County, Virginia, to deploy P25 emergency communication systems; $23 million from the Commonwealth of Pennsylvania for a 2-year maintenance agreement extension to support the statewide radio system and manage the network operations center; and a $6 million order under a newly awarded $17 million contract from the U.S. Marine Corps to deploy a P25 system for the Marine Corps Installations East region that will also provide interoperability with civilian agencies.
Integrated Network Solutions
Revenue in the third quarter for the Integrated Network Solutions segment was $365 million, a 6 percent decrease compared with $388 million in the prior year as growth in CapRock Communications and Healthcare Solutions was more than offset by a decline in IT Services. Operating income for the segment was $30 million compared with $22 million in the prior year. Non-GAAP operating income in the prior year was $33 million.
CapRock Communications orders in the quarter included $24 million from several U.S. Government customers under the Defense Information Systems Agency (DISA) Future Commercial Satellite Communications Services Acquisition (FCSA) program and a $17 million follow-on order from CSnet International, Inc. for the operation and maintenance of a buoy-based subsea ocean observatory in the Mediterranean Sea. Harris also received in IT Services a $24 million follow-on order from the Canadian Department of National Defense for the CF-18 Avionics Optimized Weapons System Support program for the CF-18 Hornet fleet, and in Healthcare Solutions an award of a 4-year contract with a potential value of $38 million from the U.S. Department of Veterans Affairs to supply enterprise data warehouse services.
Government Communications Systems
Revenue in the third quarter for the Government Communications Systems segment was $442 million, a 6 percent decrease compared with $471 million in the prior year primarily due to lower revenue from Department of Defense customers. Operating income was $67 million compared with $64 million in the prior year. Operating margin was exceptional at 15.2 percent, resulting from strong program performance.
As previously announced in the third quarter, Harris completed the sale of its Broadcast Communications business to an affiliate of The Gores Group, LLC for $225 million. The price included $160 million in cash, subject to customary adjustments, a $15 million subordinated promissory note and an earnout of up to $50 million based on future performance.
The company reiterated its guidance announced April 11 for fiscal 2013 non-GAAP income from continuing operations in a range of $4.60 to $4.70 per diluted share, which excludes charges related to the announced restructuring and other actions ($3.95 to $4.33 per diluted share on a GAAP basis).
Harris will host a conference call today, April 30, at 8:30 a.m. Eastern Time (ET) to discuss its third quarter fiscal 2013 financial results. The dial-in numbers for the teleconference are (877) 474-9504 (U.S.) and (857) 244-7557 (International), using participant code 46595003. 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/conference-call. A recording of the call will be available on the Harris website beginning at 12 p.m. ET on April 30.