Harris Corporation 2017 Annual Report
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TACTICAL INNOVATION COMMUNICATIONS FOCUS EXECUTION ELECTRONIC WARFARE 2017 | ANNUAL REPORT HARRIS CORPORATION 2017 ANNUAL REPORT 2017 ANNUAL AVIONICS AIR TRAFFIC MANAGEMENT SPACE AND INTELLIGENCE HARRIS CORPORATION 1025 West NASA Boulevard Melbourne, Florida 32919-0001 U.S.: 1–800–442–7747 International: 1–321–727–9100 WEATHER SYSTEMS harris.com FINANCIAL INFORMATION FOR HIGHLIGHTS SHAREHOLDERS FISCAL YEARS ENDED (Dollars in millions, except stock price) CORPORATE HEADQUARTERS NON-GAAP EARNINGS 2016 2017 Harris Corporation PER SHARE* JULY 1 JUNE 30 1025 West NASA Boulevard TELL US WHAT YOU THINK! IN DOLLARS Melbourne, Florida 32919–0001 1–321–727–9100 $5.53 Revenue $5,992 $5,900 Share your Annual Report feedback: harris.com [email protected] $5.14 HARRIS STOCK EXCHANGE $4.58 * Harris common stock is listed and traded on the Non-GAAP Operating Income $1,108 $1,131 CORPORATION FORWARD–LOOKING STATEMENTS New York Stock Exchange. Ticker Symbol: HRS NYSE:HRS This report, including the letter to shareholders, contains forward–looking statements that are Non-GAAP Operating Margin* 18.5% 19.2% TRANSFER AGENT AND REGISTRAR based on the views of management regarding future events at the time of publication of this 15 16 17 Computershare 462 South 4th Street, Suite 1600 report. These forward–looking statements, Adjusted Free Cash Flow as a Louisville, KY 40202 which include, but are not limited to: our plans, Percentage of Non-GAAP Income 120% 123% 1–888–261–6777 | Outside the U.S., please dial 1–201–680–6578 strategies and objectives for future operations; * ADJUSTED FREE CASH from Continuing Operations www.computershare.com/investor new products, services or developments; future * FLOW IN MILLIONS economic conditions; outlook; the value of SHAREHOLDER SERVICES $850 Return to Shareholders contract and program awards; the effect of Computershare maintains the records for our registered our acquisitions on our business; our growth $772 Dividends $252 $262 $713 shareholders and can assist you with a variety of shareholder– potential; and the potential of the industries Share Repurchases $0 $710 related services at no charge. The Computershare automated and markets we serve, are subject to known telephone voice response system, at 1–888–261–6777, is available and unknown risks, uncertainties and other 15 16 17 24 hours a day, 7 days a week, to conduct a wide variety of secure Harris Stock Price $82.59 $109.08 factors that may cause our actual results to be transactions. materially different from those expressed in or implied by each forward–looking statement. * Electronic access to your financial statements and shareholder NET DEBT/EBITDA These risks, uncertainties and other factors are communications is available 24 hours a day, 7 days a week, via CUMULATIVE TOTAL RETURN discussed in our Form 10–K for the fiscal year 4.8 Computershare’s website, computershare.com/investor. Visit this ended June 30, 2017. 2.9 website to view and print Investment Plan Statements, Investor $295 Activity Reports, 1099 tax documents, notification of ACH 2.5 HRS ANNUAL CERTIFICATIONS transmissions, transaction activities, annual meeting materials and The most recent certifications by our Chief $219 other selected correspondence. $201 S&P 500 Executive Officer and Chief Financial Officer $191 You also can send mail to Computershare at: pursuant to sections 302 and 906 of the Sarbanes–Oxley Act of 2002 were filed as HRS UP 15 16 17 $121 Computershare Computershare S&P UP 195% exhibits to our Form 10–K for the fiscal year $100 98% SINCE FY12 P.O. Box 50500 462 South 4th Street, Suite 1600 SINCE FY12 ended June 30, 2017. Our most recent annual Louisville, KY 40233-5000 Louisville, KY 40202 CEO certification regarding Harris compliance (U.S. mail only) (Overnight delivery only) with corporate governance listing standards UNFUNDED PENSION FY 12 13 14 15 16 17 was submitted to the New York Stock Exchange LIABILITY IN MILLIONS ANNUAL MEETING in November 2016. $2,296 The 2017 annual meeting of shareholders will be held October 27 $2,181 at the Harris Global Innovation Center in Melbourne, Florida, starting at 1 p.m. Eastern time. The meeting will be webcast and $1,278 CUSTOMERS IN can be accessed from a link on the Investor Relations page on the Harris website: harris.com. This report is printed on Neo Star Gloss Cover, Neo MORE THAN Star Gloss Text, and Lynx Opaque papers that are Forest Stewardship Council® (FSC®) certified. 15 16 17 100 COUNTRIES INDEPENDENT ACCOUNTANTS Ernst & Young LLP | Orlando, Florida *Non–GAAP financial measures used in this Annual Report are defined and reconciled to the most directly comparable GAAP financial measures on page 5 of this Annual Report. GAAP refers to U.S. generally accepted DESIGN: CDW STRATEGIC COMMUNICATIONS accounting principles. PRINTING: RR DONNELLEY—ORLANDO PLANT HARRIS CORPORATION 2017 ANNUAL REPORT LETTER TO SHAREHOLDERS William M. Brown, Chairman, President and Chief Executive Officer and Harris’ world class tactical radio manufacturing facility in Rochester, NY Fiscal 2017 represented a critical inflection point in helps safeguard billions of people around the world Harris’ history. We entered the year in the midst of a every day. We map two thirds of the globe for the U.S. multi-year transformation to reposition the company military and intelligence community and our technology and deliver against our strategic priorities. has been part of every GPS satellite ever launched. We also support five of the FAA’s seven major NextGen air We exited the year as a more focused, innovation-driven traffic modernization initiatives. technology company committed to flawless execution across our strategies and programs. We look to build Innovation on this positive momentum in fiscal 2018, returning to organic growth. Our success is largely the result of our innovation strategy. We concentrate on developing differentiated Focus technologies – solutions with a true competitive advantage to address our customers’ most critical An important component of our transition strategy challenges. We leverage an expansive portfolio of was rebalancing our portfolio and focusing our efforts technologies created by our 7,700 engineers and an on high-margin businesses. We divested our CapRock industry-leading investment of 5 percent of revenue in and Government IT Services businesses for ~$1 billion independent research and development. combined – marking five divestitures in the past four years. New product introductions in fiscal 2017 included an HF manpack radio that provides warfighters 10 times faster These actions enabled us to free up and refocus data rates than competing solutions, and an advanced, resources toward our six core franchises – tactical wideband phased-array antenna with far superior communications, electronic warfare, avionics, air anti-jamming electronic warfare capabilities. Harris traffic management, space and intelligence, and engineers also introduced a new environmental sensor weather systems. that more precisely detects greenhouse gas emissions and a robotic system with human-like dexterity for We rebalanced our portfolio and focused unmatched operator ease of use in bomb disposal and other applications. our efforts on high-margin businesses. Our innovation also helped drive new program wins, We have strong customer relationships and market including one for next-generation, multi-channel positions in each of these franchises. For example, manpack radios that deliver new features and Harris has delivered over 1 million tactical radios for capabilities for U.S. Special Operations Forces, and warfighters, more than any other provider. Our weather another to speed intelligence gathering for the National imagery and ground processing technology for NOAA Geospatial-Intelligence Agency. Continued > 1 LETTER TO SHAREHOLDERS Continued We also received multiple avionics and electronic NEXT satellites, are now providing persistent, real-time warfare systems awards for the F-35, F-16 and F/A-18 tracking of more than 250,000 ships around the globe. fighter jets, as well as for the B-52 and C-130J. Commitment Execution We maintain our steadfast commitment to be a During the year, we delivered strong financial results responsible employer – one that fosters diversity, and successfully executed against our strategic provides a safe workplace and is trusted to operate priorities – rebalancing our portfolio, accelerating Exelis with the highest ethics and integrity. We have made integration, driving operational excellence, investing in significant strides, particularly in the hiring and differentiated technology and generating strong free promoting of women in the workplace. Women now cash flow. represent 32 percent of our executive leadership team – up more than 13 percentage points from five years ago. In fiscal 2017, we reported non-GAAP earnings per share I am proud of these advances, but know that we can of $5.53, up 8 percent versus the prior year, on organic do better. revenue down 0.5 percent to $5.9 billion. Free cash flow was a record $850 million, and together with divestiture We also strive to be a good corporate citizen. Each proceeds, total cash inflow was $1.9 billion – half of year, the company and employees contribute millions which was returned to shareholders, with the other half of dollars to schools, mission-focused agencies, and used to de-risk the balance sheet by paying down debt community organizations. Last year, we launched a new and prefunding the pension. volunteer initiative, and I am proud that our employees contributed nearly 54,000 hours of their time and We delivered strong financial results participated in 370 community-support projects around and successfully executed against our the globe. strategic priorities. Outlook We also completed Exelis integration, achieving $145 We enter fiscal 2018 a leaner, more focused company, million in net run-rate savings versus an initial $100 to operating in an environment of increasing government $120 million estimate, and finishing a full year ahead budgets, particularly in areas where Harris competes of our original plan. We eliminated 2 million square favorably.