Harris Corporation 2006 Annual Report
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2006 ANNUAL REPORT SENDING A STRONG SIGNAL NEW NEW PRODUCTS. MARKETS. STRONG GROWTH CONTINUED IN FISCAL YEAR 2006. This growth, combined with our performance over the past three years, sends a strong signal that Harris has changed the way it views opportunities in the markets we serve and how we capitalize on those opportunities. Harris has a new growth culture. We are setting our sights higher and broader, and we will continue to raise the bar. We are growing our businesses through the accelerated development and introduction of new products and technologies, NEW SAME CUSTOMERS. COMMITMENT. expansion of addressable markets, and the escalation of business with current customers and new customers. While the application of our technologies, products, systems, and services may vary considerably by market segment, all of our businesses share the same commitment: ensuring the secure, reliable flow of mission-critical voice, data, and video communications, and related information for all of our customers. The Harris name will continue to represent the industry gold standard in quality, service, and support. FINANCIAL HIGHLIGHTS Dollars in millions except per share amounts 2006 2005 2004 Revenue from Continuing Operations $3,474.8 $3,000.6 $,518.6 Net Income 37.9 0. 13.8 Net Income Per Diluted Share 1.71 1.46 0.97 Return on Average Assets 8.5% 8.6% 6.% Return on Average Equity 15.3% 14.9% 10.8% Diluted Average Shares Outstanding (Millions) 141.6 141.3 140.3 Number of Record Shareholders 7,159 7,49 7,947 REVENUE FROM NET INCOME NET CASH FROM DIVIDEND PAID CONTINUING OPERATIONS NET INCOME PER DILUTED SHARE OPERATING ACTIVITIES PER COMMON SHARE WORLDWIDE EMPLOYMENT Dollars in Billions Dollars in Millions Dollars per Share Dollars in Millions Dollars per Share Fiscal Years Fiscal Years Fiscal Years Fiscal Years Fiscal Years Fiscal Years 9 900 , 3 338.8 1 0.32 237. 1.71 3.47 334.2 600 , 2 2 2 1 289. 202. 1.46 3.00 900 , 0 200 1 , 0 0.24 1 600 , 2.52 9 0.20 210.1 5 0.97 132.8 2.06 0.16 165. 1.84 0.62 82.6 0.10 0.45 59.5 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 HARRIS CORPORATION (NYSE:HRS) is an international communications and information technology company serving government and commercial markets in more than 150 countries. With headquarters in Melbourne, Florida, the company has annual sales of $3.5 billion and nearly 14,000 employees – including more than 6,000 engineers and scientists – dedicated to the development of best-in-class, assuredcommunications™ products, systems, software, and services. The company’s four business segments include: Government Communications Systems, which provides communications and information processing technology and systems for the U.S. Department of Defense, federal government agencies, and the intelligence community; RF Communications, which provides secure tactical radios and systems to U.S. and international defense and peacekeeping forces; Broadcast Communications, which provides video infrastructure and digital media products, enterprise software solutions, and TV and radio transmission equipment for existing and emerging broadcast markets and creators of rich media content worldwide; and Microwave Communications, which provides microwave radio transmission solutions for global telecom service providers and private networks, and network management systems. LETTER TO SHAREHOLDERS HOWARD L. LANCE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER IT WAS ANOTHER VERY SUCCESSFUL YEAR FOR YOUR COMPANY. As you can Our financial performance for fiscal year 006 see from the charts on the opposite page, our performance was excellent. Revenue reached $3.5 billion, a 16-percent during the past three years has been exceptional, and we are increase compared to the prior year. Net income was sending a strong signal that we expect more good years $38 million, up 18 percent, and net income per diluted ahead. Our growth strategy is working, and we are taking share was $1.71, up 17 percent. Non-GAAP net income*, actions every day that will fuel continued success. These excluding the impact of cost-reduction actions and acquisition actions include increasing R&D investments that drive new expenses, was $310 million, or $. per diluted share, products and technologies, increasing business with current an increase of 48 percent. Net cash provided by operations customers, reaching out to new customers, and expanding was $334 million. our served markets. Order trends provide a good indication of future In addition to investing in our current businesses, revenue growth, and we ended the year with significant strategic acquisitions continue to augment our growth. momentum. Orders for fiscal year 006 increased 6 percent In fiscal year 006, we completed three important acquisi- to a record $3.8 billion, and we ended the year with tions to increase the breadth of our product portfolio a large backlog. New orders in the fourth quarter were within the Broadcast Communications business. All three particularly strong in all four operating segments, companies are focused on areas of the market that offer at $1. billion in total, making it the largest quarter faster growth. To take full advantage of our expanded for orders in the company’s history. offering, we also have organized our sales and marketing teams around global accounts and markets. We are now GOVERNMENT COMMUNICATIONS SYSTEMS able to approach our customers as an end-to-end provider Revenue in the Government Communications Systems of digital content delivery solutions, including hardware, segment was $1.8 billion, about flat with the prior year. software, and services. We have clearly differentiated Operating income grew 6 percent to $17 million. ourselves from many of our competitors as a result of As of fiscal year end, total funded and unfunded backlog this strategy. was $4.5 billion. *Amounts used in the Letter to Shareholders that are considered non-GAAP financial measures are defined and reconciled to the most directly comparable GAAP measure on page 21 of this annual report. GAAP refers to accounting principles generally accepted in the U.S. 3 “NEW ORDERS IN THE FOURTH QUARTER WERE PARTICULARLY STRONG IN ALL FOUR OPERATING SEGMENTS, AT $1.2 BILLION IN TOTAL, MAKING IT THE LARGEST QUARTER FOR ORDERS IN THE COMPANY’S HISTORY.” HOWARD L. LANCE Our Department of Defense and Technical Services RF COMMUNICATIONS business areas had higher revenue compared to the prior RF Communications posted another record performance year. Revenue in the Civil Programs business area was about in fiscal year 006. Revenue increased 51 percent to flat, with significant growth in new programs offset by the $809 million, with operating income increasing 68 percent successful completion of the large Iraqi Media Network to $79 million. program. Revenue in the National Programs business area Orders exceeded $1.0 billion for the year and was negatively impacted for much of the year by government backlog increased to $703 million. Our backlog will drive funding constraints on several classified programs where continued strong revenue growth in fiscal year 007, Harris supports the intelligence community. with good visibility into fiscal year 008. Orders were Our Government Communications Systems business particularly strong in the fourth quarter and included serves a diversified base of U.S. government customers, a $169 million order from the U.S. Army for the vehicular with more than 300 major programs. We continue to grow version of the new Falcon® III handheld, multiband radio the business through our technology discriminators and system. Strong demand continues from both domestic and superior execution on programs that require advanced international markets, reflecting a clear customer preference communications and information systems. We are technical for the Falcon family of high-performance, feature-rich leaders in areas that require mission-critical performance, tactical radios. including avionics, data links, satellite antennas, ground Significant orders for our Falcon II radios during the processing systems, electronic systems, data fusion year were received from all branches of the U.S. Armed and analysis, geospatial image processing, and mission Forces, including the National Guard and Reserves. The U.S. and support services. Department of Defense continues to fund its force modern- The largest new program win during the year was a ization program, providing longer-range, multimission, five-year, $600 million contract awarded to Harris by the secure communications that enable increased command and U.S. Census Bureau for its Field Data Collection Automation control capabilities. Harris radios have been soldier-tested program. The Harris team will enable the Census Bureau and combat-proven and have earned their industry-leading to deliver the first paperless, door-to-door census in 010. reputation through performance, reliability, and ease of use. More than 500,000 census takers will be able to electronically Demand for Harris Falcon II radios also continues to capture and process information compiled during interviews, increase in international markets as U.S. allies expand their reducing the need for paper-based processing while improving communications modernization programs. Joint deployment accuracy and reducing costs. This program, along with for combat, peacekeeping, and humanitarian missions a previously awarded contract for a $10 million database requires improved communications interoperability among modernization program, positions Harris as the Census NATO and other coalition forces. For example, Harris radios Bureau’s key information technology enabler. are being used by all 37 nations that are part of the NATO The program with the largest revenue during the year forces currently deployed in southern Afghanistan. was the $. billion, 15-year Federal Aviation Administration We introduced our next-generation Falcon III multi- (FAA) Telecommunications Infrastructure (FTI) program. band, multimission handheld radio in early fiscal year 006, Awarded to Harris in fiscal year 003, this program involves and have already received substantial orders from the U.S.