2Q17 EPS from continuing operations $1.33 GAAP, down 16%; $1.42 non-GAAP, down 3%2Q17 CapRock current and prior period results reported as discontinued operations
2Q17 operating cash flow $252 million; free cash flow $224 million
3Q17 announcement of definitive agreement to sell government IT services business for $690 million and approval of new $1.0 billion share repurchase authorization
Fiscal 2017 guidance updated to reflect both CapRock and government IT services in discontinued operations
Harris Corporation (NYSE:HRS) reported revenue in the second quarter of fiscal 2017 of $1.70 billion compared with $1.75 billion in the prior year, down 3 percent. GAAP income from continuing operations was $168 million, or $1.33 per diluted share, compared with $197 million, or $1.58 per diluted share, in the prior year. Non-GAAP income from continuing operations, excluding Exelis acquisition-related items, was $178 million, or $1.42 per diluted share, compared with $184 million, or $1.47 per diluted share, excluding Exelis acquisition-related items, restructuring and other charges in the prior year. A reconciliation of GAAP to non-GAAP financial measures is provided in the tables.
Beginning with the second quarter of fiscal 2017, CapRock's current and prior period financial results are reported as discontinued operations. In connection with Harris' recently announced agreement to sell its government IT services business, current and prior period financial results for government IT services will be reported as discontinued operations beginning in the third quarter of fiscal 2017.
Second quarter performance was highlighted by operating margin expansion, continued growth in long-cycle program businesses, and another quarter of rising legacy tactical radio backlog, said William M. Brown, chairman, president and chief executive officer.
In January, we completed the sale of CapRock and announced our latest portfolio shaping action, the sale of government IT services. These divestitures further sharpen our focus on growing Harris' core franchises where we have a technology advantage to deliver compelling value to our customers. Proceeds from the transactions will be used to support our capital allocation strategy, including paying down debt, pre-funding pension and returning cash to shareholders.
Also following the close of the quarter, the Harris board approved a new $1.0 billion share repurchase authorization. This new authorization is in addition to the remaining unused authorization of $584 million under the company's existing repurchase program. The company now expects fiscal 2017 share repurchases to total $700 million.
Communication Systems
Communication Systems segment revenue in the second quarter was $413 million, down 16 percent compared with the prior year. Tactical Communications revenue was $310 million, down 19 percent due to expected lower international tactical sales, but strong international orders drove legacy tactical backlog higher. Public Safety revenue was $103 million, down 5 percent on weak orders. Segment operating income was $121 million compared with $121 million GAAP and $138 million non-GAAP, excluding restructuring and other charges, in the prior year. The decline primarily resulted from lower volume, but operating margin trended higher due to lower costs.
Tactical radio orders in the quarter included $75 million from a country in Eastern Europe, $19 million from Iraq, $16 million from a country in the Middle East, $10 million from the UAE, and $18 million from a country in Central Asia. Public Safety orders included $12 million from Consumers Energy, a large public utility in Michigan.
Following the close of the quarter, Harris was awarded a $56 million tactical radio order from a country in Northern Africa and a 5-year, $403 million, single-award IDIQ contract from the U.S. Defense Logistics Agency to provide tactical radio spares to the U.S. Army and federal civilian agencies.
Space and Intelligence Systems
Space and Intelligence Systems segment revenue in the second quarter was $468 million, up 5 percent compared with the prior year, primarily driven by higher revenue from intelligence community customers. Segment operating income was $77 million compared with $68 million in the prior year, reflecting continued strong program performance and higher pension income.
Harris was awarded follow-on contracts, including $53 million and $29 million from a classified customer to provide counter-communication capabilities and situational awareness to support space asset protection. Harris also received a 3 -year, $90 million follow-on contract to provide navigation payloads for the Air Force's ninth and tenth GPS III satellites and a contract from an undisclosed customer to provide unfurlable antenna reflectors for commercial satellites.
Following the close of the quarter, Harris was awarded a 1 -year, $80 million contract from a new classified customer in an adjacent mission area.
Electronic Systems
Electronic Systems segment revenue in the second quarter was $384 million, up 1 percent compared with the prior year. Revenue was up 6 percent on an organic basis, excluding $18 million of prior-year revenue attributable to the divested Aerostructures business. On an organic basis, higher revenue from electronic warfare solutions and the recent integrated battle management system win in the Middle East was partially offset by lower wireless products sales. Segment operating income was $79 million compared with $63 million GAAP and $69 million non-GAAP, excluding restructuring and other charges, in the prior year, reflecting continued strong program performance and higher pension income.
Harris was awarded a 2-year, $91 million, single-award IDIQ contract from the U.S. Air Force to deliver electronic warfare pods on Moroccan F-16 aircraft
