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Harris Corporation Reports Strong Fourth Quarter and Fiscal 2018 Results...Well Positioned to Accelerate Growth

July 31, 2018

MELBOURNE, Fla.--(BUSINESS WIRE)--Jul 31, 2018--Harris Corporation (NYSE:HRS) reported fiscal 2018 fourth quarter revenue of $1.7 billion, up 8% compared with the prior year. Earnings per diluted share (EPS) from continuing operations increased to $1.74 (GAAP) and $1.78 (non-GAAP 1 ), up 29% and 19%, respectively, versus prior year. GAAP operating margin expanded 150 basis points to 19.3% and non-GAAP operating margin expanded 50 basis points to 19.6%.

“We ended the year on a high note with strong fourth quarter results capping a successful 2018,” said William M. Brown, chairman, president and chief executive officer. “We achieved our highest revenue growth in the last seven years with all three segments up year over year, high teens EPS growth, record free cash flow and more than half a billion dollars returned to shareholders. With a well-funded budget, solid backlog growth, strong customer relationships and a culture of operational excellence, we are well positioned to accelerate growth, increase margins and generate free cash flow in excess of $1 billion.”

Revenue increased 8% for the quarter and 5% for the year, led by growth in Communication Systems and Electronic Systems. GAAP and non-GAAP EPS grew double digits for the quarter and the year driven by higher volume, operational excellence, higher pension income, lower share count and tax gains, partially offset for the year by a $36 million unfavorable impact from the ADS-B program transition in the first half of fiscal 2018. GAAP EPS growth also reflected, for the quarter, debt refinancing and other charges partially offset by adjustments related to tax reform, and for the year, other prior period items reconciled in the attached financial tables. Non-GAAP operating margin expanded 50 basis points to 19.6% for the quarter and remained strong at 19.2% for the year. Orders increased 18% for the quarter and 23% for the year, resulting in a book-to-bill of 1.1 and 1.2, respectively.

Fourth quarter segment revenue increased 16% from growth in all three businesses. Tactical Communications revenue grew 21%, with DoD up 46% on strong readiness and modernization demand and International up 10% from solid growth in the Middle East and Asia Pacific. Night Vision revenue grew double digits on increased U.S. Army demand. Operating income grew 11% to $162 million on increased volume and operational efficiencies.

Orders strength for the segment continued in the quarter, marking its eighth straight quarter of year-over-year orders growth.

Tactical Communications received several significant awards to meet U.S. DoD readiness demand, support U.S Army modernization, extend Harris ground-based radio expertise into adjacent markets and combat evolving international threats:

1,129 HMS Manpack initial production radios for the U.S. Army, a key milestone in a multi-year modernization 1,014 handheld radios for the U.S. Air Force Special Operations Command $31 million from the U.S. Marine Corps for 117G Manpack radios with MUOS capability and MUOS software upgrades $130 million, 5-year, sole source IDIQ contract from the U.S. Air Force to develop and deliver Handheld Video Data Link radios that enable information to be distributed from airborne assets to ground warfighters More than $150 million from countries in Europe, Asia Pacific and the Middle East supporting counter-terrorism, border control programs and security force modernization

Public Safety was awarded $26 million in contracts from U.S. Customs and Border Protection for advanced digital handheld radios, as it continues to diversify its customer base from state and local governments to federal agencies and public utilities.

Full year segment revenue increased 9% from 35% growth in DoD Tactical and double-digit growth in Night Vision. Operating margins expanded 10 basis points to 30.0%. Orders grew 28%, resulting in a book-to-bill of 1.25 and greater than 1.0 in all three businesses. Tactical Communications backlog increased more than 80% compared with the prior year.

Fourth quarter segment revenue increased 8% from growth in Avionics on increased F-35 production, in Electronic Warfare (EW) from F-16 and F/A-18 platforms and in C4ISR from the ramp of the U.K. robotics and UAE battle management programs. Operating income grew 14% to $119 million and margin expanded 100 basis points on higher volume and productivity.

Segment orders grew double digits for the fifth consecutive quarter led by strength in EW and Mission Networks. New awards continued to strengthen Harris’ strategic position in EW on long-term platforms and included a $400 million, multi-year, sole source IDIQ contract to support international F-16s, with an initial order of $58 million from Turkey. In addition, Harris received a $44 million, follow-on development contract from the U.S. Air Force supporting B-52 countermeasure systems.

Harris also leveraged its highly successful FAA managed services model to capture a 15-year, $141 million systems integration contract to modernize India’s air traffic management communications infrastructure, supporting growth in one of the world’s largest aviation markets.

Full year segment revenue was up 5% with strong operating margin of 18.6% despite the unfavorable impact of ADS-B in the first half of the year. Orders were up 33% to $3.1 billion, including $1.1 billion on F-35, F/A-18 and F-16 platforms, resulting in a book-to-bill of 1.3.

Fourth quarter segment revenue was flat, as higher volume in Classified programs, driven by small satellites and space superiority programs, was offset by expected lower revenue from environmental programs. Operating income grew 8% to $86 million and margin expanded 110 basis points from strong program execution and incremental pension income.

In Classified programs, order momentum remained strong, with funding received for an exquisite space system program award announced in the third quarter and for U.S. missile warning, missile defense and space surveillance missions under the SENSOR program.

In addition, extending a 20-year partnership with the National Geospatial-Intelligence Agency, Harris received three, 10-year, multi-award IDIQ contracts totaling $1.5 billion to create, manage and disseminate high-quality geospatial-intelligence information.

Full year segment revenue was up 1% as growth in Classified programs was partially offset by the expected headwind from environmental programs. Operating income increased 8% and operating margin expanded 110 basis points on productivity and higher pension income. Orders increased 6%, resulting in a book-to-bill of greater than 1.0.

In fiscal 2018, Harris generated $915 million in adjusted free cash flow, excluding a $300 million voluntary pension contribution in the third quarter, and returned $544 million to shareholders through dividends and share repurchases.

Guidance

As a result of strong momentum and performance in fiscal 2018, Harris initiated the following guidance 4 for fiscal 2019:

Revenue in a range of $6.53 - 6.65 billion, up 6 - 8% from fiscal 2018 EPS from continuing operations in a range of $7.65 - $7.85 Free cash flow ≥ $1 billion Tax rate of ~17.0%

Conference Call and Webcast

Harris will host a conference call today, July 31, at 8:30 a.m. Eastern Time (ET) to discuss its fiscal 2018 fourth quarter financial results. The dial-in numbers for the teleconference are (U.S.) (877) 407-6184 and (International) (201) 389-0877, and participants will be directed to an operator. 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 https://www.harris.com/investors/financial-reports. A recording of the call will be available on the Harris website beginning at approximately 12 p.m. ET on July 31.

About Harris Corporation

Harris Corporation is a leading technology innovator, solving customers’ toughest mission-critical challenges by providing solutions that connect, inform and protect. Harris supports government and commercial customers in more than 100 countries and has approximately $6 billion in annual revenue. The company is organized into three business segments: Communication Systems, Electronic Systems and Space and Intelligence Systems. Learn more at harris.com.

Non-GAAP Financial Measures

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