Table 1 CONDENSED CONSOLIDATED STATEMENT OF INCOME September 28, September 29, (In millions, except per share amounts) Revenue from product sales and services $ 1,542 $ 1,410 Cost of product sales and services (1,010) (919) Engineering, selling and administrative expenses (279) (268) Non-operating income 47 46 Interest income 1 Interest expense (44) (41) Income from continuing operations before income taxes 257 228 Income taxes (41) (63) Income from continuing operations 216 165 Discontinued operations, net of income taxes (3) (6) Net income $ 213 $ 159 Net income per common share Basic Continuing operations $ 1.82 $ 1.39 Discontinued operations (0.01) (0.06) $ 1.81 $ 1.33 Diluted Continuing operations $ 1.78 $ 1.36 Discontinued operations (0.01) (0.05) $ 1.77 $ 1.31 Cash dividends paid per common share $ 0.69 $ 0.57 Basic weighted average common shares outstanding 117.9 119.1 Diluted weighted average common shares outstanding 120.6 121.2
Table 2 BUSINESS SEGMENT INFORMATION September 28, September 29, Revenue Communication Systems $ 469 $ 406 Electronic Systems 589 541 Space and Intelligence Systems 488 466 Corporate eliminations (4) (3) $ 1,542 $ 1,410 Income From Continuing Operations Before Income Taxes Segment Operating Income: Communication Systems $ 140 $ 115 Electronic Systems 115 109 Space and Intelligence Systems 86 87 Unallocated corporate expense and corporate eliminations (41) (42) Pension adjustment (47) (46) Non-operating income 47 46 Net interest expense (43) (41) $ 257 $ 228
Table 3 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS September 28, September 29, Operating Activities Net income $ 213 $ 159 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of acquisition-related intangibles 29 28 Other depreciation and amortization 36 37 Pension income and share-based compensation (23) (Increase) decrease in: Accounts receivable 34 (54) Contract assets (88) (59) Inventories (3) (24) Increase (decrease) in: Accounts payable (141) (88) Contract liabilities 38 18 Other (1) 101 Net cash provided by operating activities 117 95 Investing Activities Net additions of property, plant and equipment (31) (23) Net cash used in investing activities (31) (23) Financing Activities Proceeds from borrowings 216 Repayments of borrowings (35) Proceeds from exercises of employee stock options 15 14 Repurchases of common stock (200 ) (75) Cash dividends (82 ) (69) Other financing activities (18 ) (9) Net cash used in financing activities (69 ) (174) Effect of exchange rate changes on cash and cash equivalents 6 Net increase (decrease) in cash and cash equivalents 17 (96) Cash and cash equivalents, beginning of year 288 484 Cash and cash equivalents, end of quarter $ 305 $ 388
Table 4 SELECTED BALANCE SHEET INFORMATION September 28, June 29, Assets Cash and cash equivalents $ 305 $ 288 Receivables 432 466 Contract assets 870 782 Inventories 413 411 Property, plant and equipment 898 900 Goodwill 5,373 5,372 Other intangible assets 960 989 Liabilities Short-term debt $ 294 $ 78 Accounts payable 480 622 Contract liabilities 410 372 Compensation and benefits 125 142 Current portion of long-term debt, net 305 304 Defined benefit plans 674 714 Long-term debt, net 3,410 3,408
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, net income, net income 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 period-over-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 EBIT and EBIT Margin September 28, September 29, Revenue from product sales and services (B) $ 1,542 $ 1,410 Net income $ 213 $ 159 Adjustments: Net interest expense 43 41 Income taxes 41 63 Discontinued operations, net of income taxes 3 6 Total adjustments 87 110 EBIT (A) $ 300 $ 269 EBIT margin percentage (A) / (B) 19.5% 19.1 %
Table 6 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Net Cash Provided by Operating Activities and Free Cash Flow September 28, September 29, Fiscal Year 2019 (Guidance) Net cash provided by operating activities $ 117 $ 95 >$1,170 Less capital expenditures (31) (23) (170) Free cash flow $ 86 $ 72 >$1,000
Table 7 UNAUDITED SELECTED FY '18 and FY '17 SEGMENT FINANCIAL INFORMATION UNDER NEW REVENUE RECOGNITION STANDARD Effective fiscal 2019, Harris adopted the new revenue recognition standard, Accounting Standards Codification 606, Revenue from Contracts with Customers, using the full retrospective method. The following unaudited selected prior period segment financial information on the basis of the new revenue recognition standard is presented as supplemental information for comparability purposes and has been revised from the unaudited selected preliminary segment financial information furnished with our results for the fourth quarter of fiscal. September 29, December 29, March 30, AS RECAST June 29, June 29, Fiscal Year Ended June 30, % Inc/(Dec) Revenue Communication Systems $ 406 $ 492 $ 479 $ 527 $ 1,904 $ 1,754 8.6% Electronic Systems 541 582 606 636 2,365 2,245 5.3% Space and Intelligence Systems 466 462 482 503 1,913 1,904 0.5% Corporate eliminations (3) (1) (5) (5) (14) (6) *** $ 1,410 $ 1,535 $ 1,562 $ 1,661 $ 6,168 $ 5,897 4.6% Segment Income Communication Systems $ 115 $ 145 $ 144 $ 162 $ 566 $ 514 Electronic Systems 109 97 108 118 432 457 Space and Intelligence Systems 87 80 83 81 331 314 $ 311 $ 322 $ 335 $ 361 $ 1,329 $ 1,285 Segment Margin Communication Systems 28.3 % 29.5 % 30.1 % 30.7 % 29.7 % 29.3 % Electronic Systems 20.1 % 16.7 % 17.8 % 18.6 % 18.3 % 20.4 % Space and Intelligence Systems 18.7 % 17.3 % 17.2 % 16.1 % 17.3 % 16.5 % September 29, December 29, March 30, AS REPORTED June 29, June 29, Fiscal Year Ended June 30, % Inc/(Dec) Revenue Communication Systems $ 410 $ 489 $ 481 $ 523 $ 1,903 $ 1,753 8.6% Electronic Systems 540 584 609 640 2,373 2,251 5.4% Space and Intelligence Systems 466 465 482 508 1,921 1,902 1.0% Corporate eliminations (3) (3) (4) (5) (15) (6) *** $ 1,413 $ 1,535 $ 1,568 $ 1,666 $ 6,182 $ 5,900 4.8% Segment Income Communication Systems $ 118 $ 144 $ 147 $ 162 $ 571 $ 524 Electronic Systems 109 101 112 119 441 464 Space and Intelligence Systems 87 81 82 86 336 311 $ 314 $ 326 $ 341 $ 367 $ 1,348 $ 1,299 Segment Margin Communication Systems 28.8 % 29.4 % 30.6 % 31.0 % 30.0 % 29.9 % Electronic Systems 20.2 % 17.3 % 18.4 % 18.6 % 18.6 % 20.6 % Space and Intelligence Systems 18.7 % 17.4 % 17.0 % 16.9 % 17.5 % 16.4 % *** Not meaningful