Table 1 CONDENSED CONSOLIDATED STATEMENT OF INCOME September 29, 2017 (In millions, except per share amounts) Revenue from product sales and services $ 1,413 $ 1,420 Cost of product sales and services (898) (897) Engineering, selling and administrative expenses (243) (277) Operating income 272 246 Non-operating income 1 Interest expense (41) (44) Income from continuing operations before income taxes 231 203 Income taxes (64) (58) Income from continuing operations 167 145 Discontinued operations, net of income taxes (6) 15 Net income $ 161 $ 160 Net income per common share Basic Continuing operations $ 1.40 $ 1.17 Discontinued operations (0.05) 0.12 $ 1.35 $ 1.29 Diluted Continuing operations $ 1.38 $ 1.16 Discontinued operations (0.06) 0.11 $ 1.32 $ 1.27 Cash dividends paid per common share $ 0.57 $ 0.53 Basic weighted average common shares outstanding 119.1 123.9 Diluted weighted average common shares outstanding 121.2 125.5 (A) Certain amounts reclassified to conform with current period presentation
Table 2 BUSINESS SEGMENT INFORMATION September 29, 2017 Revenue Communication Systems $ 410 $ 430 Electronic Systems 540 537 Space and Intelligence Systems 466 453 Corporate eliminations (3) $ 1,413 $ 1,420 Income From Continuing Operations Before Income Taxes Segment Operating Income: Communication Systems $ 118 $ 118 Electronic Systems 109 111 Space and Intelligence Systems 87 79 Unallocated corporate expense (41) (61) Corporate eliminations (1) (1) Non-operating income 1 Net interest expense (41) (44) $ 231 $ 203 (A) Certain amounts reclassified to conform with current period presentation of Harris CapRock Communications and government IT services businesses as discontinued operations, including reallocation of stranded costs and Financial Accounting Standards pension income previously reported as part of our Critical Networks segment.
Table 3 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS September 29, 2017 Operating Activities Net income $ 161 $ 160 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40 53 Amortization of intangible assets from Exelis Inc. acquisition 25 33 Share-based compensation 11 11 Qualified pension plan contributions (64) Pension income (34) (24) (Increase) decrease in: Accounts receivable (83) (39) Inventories (56) 2 Increase (decrease) in: Accounts payable (88) (90) Advance payments and unearned income 12 (31) Other 107 32 Net cash provided by operating activities 95 43 Investing Activities Net additions of property, plant and equipment (23) (21) Adjustment to proceeds from sale of business (25) Net cash used in investing activities (23) (46) Financing Activities Proceeds from borrowings 8 Repayments of borrowings (35) (38) Proceeds from exercises of employee stock options 14 15 Repurchases of common stock (75) (100) Cash dividends (69) (68) Other financing activities (9) (18) Net cash used in financing activities (174) (201) Effect of exchange rate changes on cash and cash equivalents 6 1 Net decrease in cash and cash equivalents (96) (203) Cash and cash equivalents, beginning of year 484 487 Cash and cash equivalents, end of quarter $ 388 $ 284 (A) Certain amounts reclassified to conform with current period presentation
Table 4 CONDENSED CONSOLIDATED BALANCE SHEET September 29, 2017 June 30, 2017 Assets Cash and cash equivalents $ 388 $ 484 Receivables 706 623 Inventories 896 841 Property, plant and equipment 890 904 Goodwill 5,376 5,366 Other intangible assets 1,077 1,104 Other assets 766 768 $ 10,099 $ 10,090 Liabilities and Equity Short-term debt $ 80 $ 80 Accounts payable 452 540 Compensation and benefits 130 140 Advance payments and unearned income 264 252 Current portion of long-term debt 522 554 Defined benefit plans 1,237 1,278 Long-term debt, net 3,395 3,396 Other liabilities 1,032 922 Equity 2,987 2,928 $ 10,099 $ 10,090
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND REGULATION G DISCLOSURE To supplement our condensed consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we provide additional measures of income from continuing operations per diluted common share, operating income, operating margin and net cash provided by operating activities, adjusted to exclude certain costs, charges, expenses and losses or other amounts. Harris management believes that these non-gaap financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding periodover-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Harris management also believes that these non-gaap financial measures enhance the ability of investors to analyze Harris business trends and to understand Harris performance. In addition, Harris may utilize non-gaap financial measures as guides in its forecasting, budgeting, and long-term planning processes and to measure operating performance for some management compensation purposes. Any analysis of non-gaap financial measures should be used only in conjunction with results presented in accordance with GAAP. A reconciliation of these non-gaap financial measures with the most directly comparable financial measures calculated in accordance with GAAP follows:
Table 5 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Income from Continuing Operations per Diluted Common Share As Reported Adjustment (B) Non-GAAP (In millions, except per share amounts) Income from continuing operations $ 145 $ 15 $ 160 Income from continuing operations per diluted common share $ 1.16 $ 0.12 $ 1.28 (A) Certain amounts reclassified to conform with current period presentation of Harris CapRock Communications and government IT services businesses as discontinued operations (B) Adjustment for Exelis Inc. acquisition-related charges, net of income taxes
Table 6 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Operating Income and Operating Margin As Reported Adjustment (B) Non-GAAP Revenue $ 1,420 $ $ 1,420 Operating income $ 246 $ 17 $ 263 Operating margin 17.3% 18.5% (A) Certain amounts reclassified to conform with current period presentation of Harris CapRock Communications and government IT services businesses as discontinued operations (B) Pre-tax adjustment for Exelis Inc. acquisition-related charges
Table 7 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Free Cash Flow Fiscal Year 2018 September 29, 2017 September 30, 2016 (Guidance) Net cash provided by operating activities $ 95 $ 43 $980 to $1,030 Less net capital expenditures (A) (23) (21) (130) Free cash flow $ 72 $ 22 $850 to $900 (A) Reflects additions of property, plant and equipment, net of proceeds from the sale of property, plant and equipment