þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 1, 2016 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Delaware | 34-0276860 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1025 West NASA Boulevard Melbourne, Florida | 329l9 | |
(Address of principal executive offices) | (Zip Code) | |
(321) 727-9l00 | ||
(Registrant’s telephone number, including area code) | ||
No changes | ||
(Former name, former address and former fiscal year, if changed since last report) |
Large accelerated filer | þ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Page | ||
Part I. Financial Information: | ||
Item 1. Financial Statements (Unaudited): | ||
Condensed Consolidated Statement of Income for the Quarter and Three Quarters ended April 1, 2016 and April 3, 2015 | ||
Condensed Consolidated Statement of Comprehensive Income for the Quarter and Three Quarters ended April 1, 2016 and April 3, 2015 | ||
Condensed Consolidated Balance Sheet at April 1, 2016 and July 3, 2015 | ||
Condensed Consolidated Statement of Cash Flows for the Three Quarters ended April 1, 2016 and April 3, 2015 | ||
Notes to Condensed Consolidated Financial Statements | ||
Review Report of Independent Registered Certified Public Accounting Firm | 21 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 37 | |
Item 4. Controls and Procedures | 38 | |
Part II. Other Information: | ||
Item 1. Legal Proceedings | 39 | |
Item 1A. Risk Factors | 39 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 39 | |
Item 3. Defaults Upon Senior Securities | 40 | |
Item 4. Mine Safety Disclosures | ||
Item 5. Other Information | ||
Item 6. Exhibits | 41 | |
Signature | 42 | |
Exhibit Index |
Quarter Ended | Three Quarters Ended | ||||||||||||||
April 1, 2016 | April 3, 2015 | April 1, 2016 | April 3, 2015 | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Revenue from product sales and services | $ | 1,909 | $ | 1,187 | $ | 5,563 | $ | 3,548 | |||||||
Cost of product sales and services | (1,312 | ) | (754 | ) | (3,813 | ) | (2,324 | ) | |||||||
Engineering, selling and administrative expenses | (309 | ) | (220 | ) | (877 | ) | (603 | ) | |||||||
Impairment of goodwill and other assets | — | — | (367 | ) | — | ||||||||||
Non-operating loss | (1 | ) | — | — | — | ||||||||||
Interest income | — | — | 1 | 2 | |||||||||||
Interest expense | (46 | ) | (34 | ) | (139 | ) | (79 | ) | |||||||
Income from continuing operations before income taxes | 241 | 179 | 368 | 544 | |||||||||||
Income taxes | (71 | ) | (53 | ) | (185 | ) | (154 | ) | |||||||
Income from continuing operations | 170 | 126 | 183 | 390 | |||||||||||
Discontinued operations, net of income taxes | (2 | ) | — | (19 | ) | — | |||||||||
Net income | $ | 168 | $ | 126 | $ | 164 | $ | 390 | |||||||
Net income per common share | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | 1.37 | $ | 1.21 | $ | 1.47 | $ | 3.73 | |||||||
Discontinued operations | (0.02 | ) | — | (0.15 | ) | — | |||||||||
$ | 1.35 | $ | 1.21 | $ | 1.32 | $ | 3.73 | ||||||||
Diluted | |||||||||||||||
Continuing operations | $ | 1.36 | $ | 1.20 | $ | 1.46 | $ | 3.69 | |||||||
Discontinued operations | (0.02 | ) | — | (0.15 | ) | — | |||||||||
$ | 1.34 | $ | 1.20 | $ | 1.31 | $ | 3.69 | ||||||||
Cash dividends paid per common share | $ | 0.50 | $ | 0.47 | $ | 1.50 | $ | 1.41 | |||||||
Basic weighted average common shares outstanding | 124.0 | 103.7 | 123.7 | 104.1 | |||||||||||
Diluted weighted average common shares outstanding | 125.1 | 104.8 | 124.8 | 105.2 |
Quarter Ended | Three Quarters Ended | ||||||||||||||
April 1, 2016 | April 3, 2015 | April 1, 2016 | April 3, 2015 | ||||||||||||
(In millions) | |||||||||||||||
Net income | $ | 168 | $ | 126 | $ | 164 | $ | 390 | |||||||
Other comprehensive loss: | |||||||||||||||
Foreign currency translation loss, net of income taxes | (5 | ) | (37 | ) | (52 | ) | (111 | ) | |||||||
Net unrealized gain (loss) on hedging derivatives, net of income taxes | — | (24 | ) | 1 | (25 | ) | |||||||||
Net unrecognized gain (loss) on postretirement obligations, net of income taxes | 1 | — | (3 | ) | 12 | ||||||||||
Other comprehensive loss, net of income taxes | (4 | ) | (61 | ) | (54 | ) | (124 | ) | |||||||
Total comprehensive income | $ | 164 | $ | 65 | $ | 110 | $ | 266 |
April 1, 2016 | July 3, 2015 | ||||||
(In millions, except shares) | |||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 302 | $ | 481 | |||
Receivables | 1,054 | 1,168 | |||||
Inventories | 992 | 1,015 | |||||
Income taxes receivable | 144 | 87 | |||||
Deferred compensation plan investments | 14 | 267 | |||||
Other current assets | 139 | 165 | |||||
Assets of disposal group held for sale | 221 | — | |||||
Total current assets | 2,866 | 3,183 | |||||
Non-current Assets | |||||||
Property, plant and equipment | 1,007 | 1,165 | |||||
Goodwill | 5,940 | 6,348 | |||||
Other intangible assets | 1,576 | 1,775 | |||||
Non-current deferred income taxes | 362 | 502 | |||||
Other non-current assets | 149 | 154 | |||||
Total non-current assets | 9,034 | 9,944 | |||||
$ | 11,900 | $ | 13,127 | ||||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Short-term debt | $ | 91 | $ | 33 | |||
Accounts payable | 529 | 581 | |||||
Compensation and benefits | 187 | 255 | |||||
Other accrued items | 387 | 490 | |||||
Advance payments and unearned income | 328 | 433 | |||||
Income taxes payable | 14 | 57 | |||||
Deferred compensation plan liabilities | 7 | 267 | |||||
Current portion of long-term debt | 383 | 130 | |||||
Liabilities of discontinued operations | 30 | 28 | |||||
Liabilities of disposal group held for sale | 56 | — | |||||
Total current liabilities | 2,012 | 2,274 | |||||
Non-current Liabilities | |||||||
Defined benefit plans | 1,716 | 1,943 | |||||
Long-term debt | 4,319 | 5,053 | |||||
Non-current deferred income taxes | 8 | 12 | |||||
Other long-term liabilities | 478 | 443 | |||||
Total non-current liabilities | 6,521 | 7,451 | |||||
Equity | |||||||
Shareholders’ Equity: | |||||||
Preferred stock, without par value; 1,000,000 shares authorized; none issued | — | — | |||||
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 124,481,216 shares at April 1, 2016 and 123,675,756 shares at July 3, 2015 | 124 | 124 | |||||
Other capital | 2,080 | 2,031 | |||||
Retained earnings | 1,232 | 1,258 | |||||
Accumulated other comprehensive loss | (70 | ) | (16 | ) | |||
Total shareholders’ equity | 3,366 | 3,397 | |||||
Noncontrolling interests | 1 | 5 | |||||
Total equity | 3,367 | 3,402 | |||||
$ | 11,900 | $ | 13,127 |
Three Quarters Ended | |||||||
April 1, 2016 | April 3, 2015 | ||||||
(In millions) | |||||||
Operating Activities | |||||||
Net income | $ | 164 | $ | 390 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 163 | 164 | |||||
Amortization of intangible assets from Exelis Inc. acquisition | 99 | — | |||||
Share-based compensation | 29 | 26 | |||||
Pension contributions | (134 | ) | — | ||||
Pension income | (17 | ) | — | ||||
Net liability reduction for certain post-employment benefit plans | (101 | ) | — | ||||
Impairment of goodwill and other assets | 367 | — | |||||
Adjustment to loss on sales of businesses, net | 20 | — | |||||
(Increase) decrease in: | |||||||
Accounts receivable | 102 | (87 | ) | ||||
Inventories | (22 | ) | (17 | ) | |||
Increase (decrease) in: | |||||||
Accounts payable and accrued expenses | (175 | ) | (111 | ) | |||
Advance payments and unearned income | (87 | ) | (25 | ) | |||
Income taxes | 70 | 46 | |||||
Other | 29 | 9 | |||||
Net cash provided by operating activities | 507 | 395 | |||||
Investing Activities | |||||||
Cash paid for fixed income securities | (19 | ) | — | ||||
Additions of property, plant and equipment | (84 | ) | (102 | ) | |||
Proceeds from sale of property, plant and equipment | 2 | — | |||||
Proceeds from sale of Cyber Integration Center | — | 7 | |||||
Adjustment to proceeds from sales of businesses, net | (11 | ) | — | ||||
Net cash used in investing activities | (112 | ) | (95 | ) | |||
Financing Activities | |||||||
Proceeds from borrowings | 118 | 14 | |||||
Repayments of borrowings | (510 | ) | (46 | ) | |||
Proceeds from exercises of employee stock options | 36 | 34 | |||||
Repurchases of common stock | — | (150 | ) | ||||
Cash dividends | (189 | ) | (149 | ) | |||
Other financing activities | (15 | ) | (39 | ) | |||
Net cash used in financing activities | (560 | ) | (336 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (14 | ) | (37 | ) | |||
Net decrease in cash and cash equivalents | (179 | ) | (73 | ) | |||
Cash and cash equivalents, beginning of year | 481 | 561 | |||||
Cash and cash equivalents, end of quarter | $ | 302 | $ | 488 |
• | In the accompanying Condensed Consolidated Balance Sheet (Unaudited), we reclassified $341 million of current deferred income tax assets from the “Current deferred income taxes” line item in the assets section and $7 million of current deferred income tax liabilities from the "Current deferred income taxes" line item in the liabilities and equity section, which resulted in an increase of $339 million to the “Non-current deferred income taxes” line item in the assets section and a net increase of $5 million to the "Non-current deferred income taxes" line item in the liabilities and equity section. |
• | In the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited), we reclassified $20 million from the “Non-current deferred income taxes” line item to the “Income taxes” line item in the operating activities section. |
April 1, 2016 | ||||
(In millions) | ||||
Receivables | $ | 12 | ||
Inventories | 35 | |||
Other current assets | 1 | |||
Total current assets | 48 | |||
Property, plant and equipment | 84 | |||
Goodwill | 61 | |||
Other intangible assets | 24 | |||
Other non-current assets | 4 | |||
Total non-current assets | 173 | |||
Assets of disposal group held for sale | $ | 221 | ||
Current liabilities | $ | 12 | ||
Non-current liabilities | 44 | |||
Liabilities of disposal group held for sale | $ | 56 | ||
April 1, 2016 (1) | July 3, 2015 (1) | |||||||
(In millions) | ||||||||
Foreign currency translation, net of income taxes of $29 million and $15 million at April 1, 2016 and July 3, 2015, respectively | $ | (114 | ) | $ | (62 | ) | ||
Net unrealized loss on hedging derivatives, net of income taxes of $11 million and $12 million at April 1, 2016 and July 3, 2015, respectively | (18 | ) | (19 | ) | ||||
Unrecognized postretirement obligations, net of income taxes of $41 million and $42 million at April 1, 2016 and July 3, 2015, respectively | 62 | 65 | ||||||
$ | (70 | ) | $ | (16 | ) | |||
(1) | Reclassifications out of accumulated other comprehensive loss to earnings were not material for the three quarters ended April 1, 2016 or April 3, 2015. |
April 1, 2016 | July 3, 2015 | ||||||
(In millions) | |||||||
Accounts receivable | $ | 732 | $ | 837 | |||
Unbilled costs and accrued earnings on cost-plus contracts | 331 | 343 | |||||
1,063 | 1,180 | ||||||
Less allowances for collection losses | (9 | ) | (12 | ) | |||
$ | 1,054 | $ | 1,168 |
April 1, 2016 | July 3, 2015 | ||||||
(In millions) | |||||||
Unbilled costs and accrued earnings on fixed-price contracts | $ | 524 | $ | 463 | |||
Finished products | 119 | 100 | |||||
Work in process | 154 | 256 | |||||
Raw materials and supplies | 195 | 196 | |||||
$ | 992 | $ | 1,015 |
April 1, 2016 | July 3, 2015 | ||||||
(In millions) | |||||||
Land | $ | 45 | $ | 45 | |||
Software capitalized for internal use | 138 | 155 | |||||
Buildings | 608 | 587 | |||||
Machinery and equipment | 1,336 | 1,526 | |||||
2,127 | 2,313 | ||||||
Less accumulated depreciation and amortization | (1,120 | ) | (1,148 | ) | |||
$ | 1,007 | $ | 1,165 |
Communication Systems | Space and Intelligence Systems | Electronic Systems | Critical Networks | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
Balance at July 3, 2015 | $ | 760 | $ | 1,446 | $ | 1,718 | $ | 2,424 | $ | 6,348 | |||||||||
Impairment of goodwill | — | — | — | (290 | ) | (290 | ) | ||||||||||||
Decrease from reclassification to held for sale asset (1) | — | — | (61 | ) | — | (61 | ) | ||||||||||||
Currency translation adjustments | — | (7 | ) | (2 | ) | (39 | ) | (48 | ) | ||||||||||
Other (including true-ups of previously estimated purchase price allocations) (2) | 17 | (12 | ) | 26 | (40 | ) | (9 | ) | |||||||||||
Balance at April 1, 2016 | $ | 777 | $ | 1,427 | $ | 1,681 | $ | 2,055 | $ | 5,940 |
(1) | During the third quarter of fiscal 2016, we determined Aerostructures met the held for sale criteria and reclassified Aerostructures' assets to current assets in accordance with GAAP. We included Aerostructures' assets in the "Assets of disposal group held for sale" line item in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of April 1, 2016. See Note B — Discontinued Operations and Divestitures and Note T — Subsequent Events in these Notes for additional information. |
(2) | Our accounting for the Exelis acquisition is still preliminary. The fair value estimates for the assets acquired and liabilities assumed were based on preliminary calculations, and our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of these preliminary estimates that are not yet finalized relate to certain tangible assets, liabilities acquired (including environmental reserves), and tax-related items. During the three quarters ended April 1, 2016, we recorded several purchase price adjustments which impacted goodwill, the largest of which reduced current liabilities by $82 million related to previously unrecognized tax benefits and to deferred revenue based on the fair value of a customer contract. |
(In millions) | |||
Balance at July 3, 2015 | $ | 36 | |
Warranty provision for sales | 15 | ||
Settlements | (14 | ) | |
Other adjustments to warranty liability, including those for foreign currency translation | (2 | ) | |
Balance at April 1, 2016 | $ | 35 |
Quarter Ended April 1, 2016 | Three Quarters Ended April 1, 2016 | |||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Net periodic benefit cost (income) | ||||||||||||||||||||||||
Service cost | $ | 18 | $ | 1 | $ | 19 | $ | 56 | $ | 4 | $ | 60 | ||||||||||||
Interest cost | 63 | 3 | 66 | 186 | 10 | 196 | ||||||||||||||||||
Expected return on plan assets | (87 | ) | (4 | ) | (91 | ) | (258 | ) | (13 | ) | (271 | ) | ||||||||||||
Amortization of net actuarial loss | — | — | — | — | 2 | 2 | ||||||||||||||||||
Amortization of prior service cost | — | — | — | — | (7 | ) | (7 | ) | ||||||||||||||||
Net periodic benefit income | $ | (6 | ) | $ | — | $ | (6 | ) | $ | (16 | ) | $ | (4 | ) | $ | (20 | ) | |||||||
Effect of curtailments or settlements (1) | — | — | — | — | (121 | ) | (121 | ) | ||||||||||||||||
Total net periodic benefit income | $ | (6 | ) | $ | — | $ | (6 | ) | $ | (16 | ) | $ | (125 | ) | $ | (141 | ) | |||||||
(1) | We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment and curtailment during the quarter ended January 1, 2016, a settlement as of December 31, 2015, and a net liability reduction of $101 million. |
Quarter Ended | Three Quarters Ended | ||||||||||||||
April 1, 2016 | April 3, 2015 | April 1, 2016 | April 3, 2015 | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Income from continuing operations | $ | 170 | $ | 126 | $ | 183 | $ | 390 | |||||||
Adjustments for participating securities outstanding | — | (1 | ) | (1 | ) | (2 | ) | ||||||||
Income from continuing operations used in per basic and diluted common share calculations (A) | $ | 170 | $ | 125 | $ | 182 | $ | 388 | |||||||
Basic weighted average common shares outstanding (B) | 124.0 | 103.7 | 123.7 | 104.1 | |||||||||||
Impact of dilutive share-based awards | 1.1 | 1.1 | 1.1 | 1.1 | |||||||||||
Diluted weighted average common shares outstanding (C) | 125.1 | 104.8 | 124.8 | 105.2 | |||||||||||
Income from continuing operations per basic common share (A)/(B) | $ | 1.37 | $ | 1.21 | $ | 1.47 | $ | 3.73 | |||||||
Income from continuing operations per diluted common share (A)/(C) | $ | 1.36 | $ | 1.20 | $ | 1.46 | $ | 3.69 |
• | Amounts recorded in respect of our expected near-term recognition of a tax loss for the divestiture of Aerostructures, net of valuation allowance, following our classification of Aerostructures as held for sale as of the end of the third quarter of fiscal 2016; |
• | Additional deductions and additional research credits claimed on our fiscal 2015 tax return compared with our recorded estimates at the end of fiscal 2015; and |
• | State tax reductions resulting from our integration of Exelis operations. |
• | The discrete items noted above favorably impacting the third quarter of fiscal 2016; |
• | The effect of legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying research and development (“R&D”) expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015; |
• | The settlement of a state tax issue for an amount lower than the previously recorded estimate; and |
• | Several differences between GAAP and tax accounting for investments. |
• | The discrete items noted above favorably impacting the third quarter of fiscal 2015; |
• | The effect of legislation enacted in the second quarter of fiscal 2015 that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2014; |
• | Finalizing issues with Canadian and U.S. tax authorities for amounts lower than previously recorded estimates; and |
• | The recognition of foreign tax credits resulting from a dividend paid by a foreign subsidiary during fiscal 2013 that exceeded the U.S. tax liability in respect of the dividend. |
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
• | Level 2 — Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means. |
• | Level 3 — Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities, and reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed using the best information available in the circumstances. |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In millions) | ||||||||||||||||
Assets | ||||||||||||||||
Deferred compensation plan investments: (1) | ||||||||||||||||
Corporate-owned life insurance | $ | — | $ | 17 | $ | — | $ | 17 | ||||||||
Stock fund | 56 | — | — | 56 | ||||||||||||
Equity security | 36 | — | — | 36 | ||||||||||||
Fixed income securities (2) | 19 | — | — | 19 | ||||||||||||
Liabilities | ||||||||||||||||
Deferred compensation plans (3) | 42 | 71 | — | 113 | ||||||||||||
(1) | Represents investments held in a “Rabbi Trust” associated with our non-qualified deferred compensation plans, which we include in the “Deferred compensation plan investments” and “Other non-current assets” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited). |
(2) | Represents an investment in sovereign bonds, which we include in the "Other current assets" line item in the accompanying Condensed Consolidated Balance Sheet (Unaudited). |
(3) | Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Deferred compensation plan liabilities” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited). Under these plans, participants designate investment options (including money market, stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts. |
April 1, 2016 | July 3, 2015 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
Financial Liabilities | ||||||||||||||||
Long-term debt (including current portion) (1) | $ | 4,702 | $ | 4,940 | $ | 5,183 | $ | 5,230 | ||||||||
(1) | The fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If our long-term debt in our balance sheet were measured at fair value, it would be categorized in Level 2 of the fair value hierarchy. |
• | Communication Systems, serving markets in tactical and airborne radios, night vision technology, and defense and public safety networks; |
• | Space and Intelligence Systems, providing complete earth observation, environmental, geospatial, space protection, and intelligence solutions from advanced sensors and payloads, as well as ground processing and information analytics; |
• | Electronic Systems, offering an extensive portfolio of solutions in electronic warfare, avionics, wireless technology, command, control, communications, computers and intelligence (“C4I”), undersea systems and aerostructures (this business was classified as held for sale as of the end of the third quarter of fiscal 2016); and |
• | Critical Networks, providing managed services supporting air traffic management, energy and maritime communications, and ground network operation and sustainment, as well as high-value information technology (“IT”) and engineering services. |
April 1, 2016 | July 3, 2015 | |||||||
(In millions) | ||||||||
Total Assets | ||||||||
Communication Systems | $ | 1,757 | $ | 1,906 | ||||
Space and Intelligence Systems | 2,114 | 2,096 | ||||||
Electronic Systems | 2,549 | 2,513 | ||||||
Critical Networks | 2,972 | 3,492 | ||||||
Corporate (1) | 2,508 | 3,120 | ||||||
$ | 11,900 | $ | 13,127 | |||||
(1) | Identifiable intangible assets acquired in connection with acquisition of Exelis in the fourth quarter of fiscal 2015 were recorded as Corporate assets because they benefit the entire Company as opposed to any individual segments. Exelis identifiable intangible asset balances recorded as Corporate assets were $1.5 billion and $1.6 billion as of April 1, 2016 and July 3, 2015, respectively. |
Quarter Ended | Three Quarters Ended | |||||||||||||||
April 1, 2016 | April 3, 2015 | April 1, 2016 | April 3, 2015 | |||||||||||||
(In millions) | ||||||||||||||||
Revenue | ||||||||||||||||
Communication Systems | $ | 485 | $ | 458 | $ | 1,428 | $ | 1,282 | ||||||||
Space and Intelligence Systems | 489 | 228 | 1,370 | 702 | ||||||||||||
Electronic Systems | 393 | 126 | 1,149 | 363 | ||||||||||||
Critical Networks | 551 | 379 | 1,658 | 1,209 | ||||||||||||
Corporate eliminations | (9 | ) | (4 | ) | (42 | ) | (8 | ) | ||||||||
$ | 1,909 | $ | 1,187 | $ | 5,563 | $ | 3,548 | |||||||||
Income From Continuing Operations Before Income Taxes | ||||||||||||||||
Segment Operating Income (Loss): | ||||||||||||||||
Communication Systems (1) | $ | 154 | $ | 153 | $ | 413 | $ | 395 | ||||||||
Space and Intelligence Systems | 76 | 36 | 211 | 107 | ||||||||||||
Electronic Systems | 75 | 26 | 207 | 72 | ||||||||||||
Critical Networks (2) | 59 | 29 | (186 | ) | 121 | |||||||||||
Unallocated corporate expense (3) | (75 | ) | (29 | ) | (136 | ) | (67 | ) | ||||||||
Corporate eliminations | (1 | ) | (2 | ) | (3 | ) | (7 | ) | ||||||||
Non-operating loss | (1 | ) | — | — | — | |||||||||||
Net interest expense | (46 | ) | (34 | ) | (138 | ) | (77 | ) | ||||||||
$ | 241 | $ | 179 | $ | 368 | $ | 544 | |||||||||
(1) | Communication Systems operating income in the three quarters ended April 1, 2016 included $17 million of charges recorded in the quarter ended January 1, 2016, primarily related to workforce reductions, facility consolidation and other items. We recorded $14 million of these charges in the “Cost of product sales and services” line item and the remaining $3 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). |
(2) | Critical Networks operating loss in the three quarters ended April 1, 2016 was primarily due to a $367 million non-cash impairment charge recorded in the quarter ended January 1, 2016 to write down goodwill and other assets related to Harris CapRock Communications. We recorded this charge in the “Impairment of goodwill and other assets” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). Additionally, operating loss in the three quarters ended April 1, 2016 included $12 million of charges in the quarter ended January 1, 2016, primarily related to workforce reductions and facility consolidation. We recorded these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). |
(3) | Unallocated corporate expense included: (i) the impact of a net liability reduction of $101 million in the three quarters ended April 1, 2016 for certain post-employment benefit plans, (ii) charges of $23 million and $92 million in the quarter and three quarters ended April 1, 2016, respectively, for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015 (which included charges of $3 million and $8 million in the quarter and three quarters ended April 1, 2016, respectively, for amortization of a step up in inventory), and (iii) $33 million and $99 million of expense in the quarter and three quarters ended April 1, 2016, respectively, for amortization of intangible assets acquired as a result of our acquisition of Exelis. Because the acquisition of Exelis benefited the entire Company as opposed to any individual segments, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense. |
• | Results of Operations — an analysis of our consolidated results of operations and of the results in each of our four business segments, to the extent the segment operating results are helpful to an understanding of our business as a whole, for the periods presented in our Condensed Consolidated Financial Statements (Unaudited). |
• | Liquidity and Capital Resources — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, off-balance sheet arrangements and commercial commitments and contractual obligations. |
• | Critical Accounting Policies and Estimates — information about accounting policies that require critical judgments and estimates and about accounting standards that have been issued, but are not yet effective for us, and their potential impact on our financial position, results of operations and cash flows. |
• | Forward-Looking Statements and Factors that May Affect Future Results — cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations or projections. |
• | Communication Systems, serving markets in tactical and airborne radios, night vision technology, and defense and public safety networks; |
• | Space and Intelligence Systems, providing complete earth observation, environmental, geospatial, space protection, and intelligence solutions from advanced sensors and payloads, as well as ground processing and information analytics; |
• | Electronic Systems, offering an extensive portfolio of solutions in electronic warfare, avionics, wireless technology, C4I, undersea systems and aerostructures (this business was classified as held for sale as of the end of the third quarter of fiscal 2016); and |
• | Critical Networks, providing managed services supporting air traffic management, energy and maritime communications, and ground network operation and sustainment, as well as high-value IT and engineering services. |
• | Revenue increased 60.8 percent to $1.909 billion in the third quarter of fiscal 2016 from $1.187 billion in the third quarter of fiscal 2015; |
• | Income from continuing operations increased 34.9 percent to $170 million in the third quarter of fiscal 2016 from $126 million in the third quarter of fiscal 2015; |
• | Income from continuing operations per diluted share increased 13.3 percent to $1.36 in the third quarter of fiscal 2016 from $1.20 in the third quarter of fiscal 2015; |
• | Communication Systems revenue increased 5.9 percent to $485 million and operating income increased 0.7 percent to $154 million in the third quarter of fiscal 2016 compared with the third quarter of fiscal 2015; |
• | Space and Intelligence Systems revenue increased 114.5 percent to $489 million and operating income increased 111.1 percent to $76 million in the third quarter of fiscal 2016 compared with the third quarter of fiscal 2015; |
• | Electronic Systems revenue increased 211.9 percent to $393 million and operating income increased 188.5 percent to $75 million in the third quarter of fiscal 2016 compared with the third quarter of fiscal 2015; |
• | Critical Networks revenue increased 45.4 percent to $551 million and operating income increased 103.4 percent to $59 million in the third quarter of fiscal 2016 compared with the third quarter of fiscal 2015; and |
• | Net cash provided by operating activities increased 28.4 percent to $507 million in the first three quarters of fiscal 2016 from $395 million in the first three quarters of fiscal 2015. |
Quarter Ended | Three Quarters Ended | |||||||||||||||||||||
April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | |||||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Communication Systems | $ | 485 | $ | 458 | 5.9 | % | $ | 1,428 | $ | 1,282 | 11.4 | % | ||||||||||
Space and Intelligence Systems | 489 | 228 | 114.5 | % | 1,370 | 702 | 95.2 | % | ||||||||||||||
Electronic Systems | 393 | 126 | 211.9 | % | 1,149 | 363 | 216.5 | % | ||||||||||||||
Critical Networks | 551 | 379 | 45.4 | % | 1,658 | 1,209 | 37.1 | % | ||||||||||||||
Corporate eliminations | (9 | ) | (4 | ) | 125.0 | % | (42 | ) | (8 | ) | 425.0 | % | ||||||||||
Total revenue | 1,909 | 1,187 | 60.8 | % | 5,563 | 3,548 | 56.8 | % | ||||||||||||||
Cost of product sales and services | (1,312 | ) | (754 | ) | 74.0 | % | (3,813 | ) | (2,324 | ) | 64.1 | % | ||||||||||
Gross margin | 597 | 433 | 37.9 | % | 1,750 | 1,224 | 43.0 | % | ||||||||||||||
% of total revenue | 31.3 | % | 36.5 | % | 31.5 | % | 34.5 | % | ||||||||||||||
Engineering, selling and administrative expenses | (309 | ) | (220 | ) | 40.5 | % | (877 | ) | (603 | ) | 45.4 | % | ||||||||||
% of total revenue | 16.2 | % | 18.5 | % | 15.8 | % | 17.0 | % | ||||||||||||||
Impairment of goodwill and other assets | — | — | * | (367 | ) | — | * | |||||||||||||||
Non-operating loss | (1 | ) | — | * | — | — | * | |||||||||||||||
Net interest expense | (46 | ) | (34 | ) | 35.3 | % | (138 | ) | (77 | ) | 79.2 | % | ||||||||||
Income from continuing operations before income taxes | 241 | 179 | 34.6 | % | 368 | 544 | (32.4 | )% | ||||||||||||||
Income taxes | (71 | ) | (53 | ) | 34.0 | % | (185 | ) | (154 | ) | 20.1 | % | ||||||||||
Effective tax rate | 29.5 | % | 29.6 | % | 50.3 | % | 28.3 | % | ||||||||||||||
Income from continuing operations | $ | 170 | $ | 126 | 34.9 | % | $ | 183 | $ | 390 | (53.1 | )% | ||||||||||
% of total revenue | 8.9 | % | 10.6 | % | 3.3 | % | 11.0 | % | ||||||||||||||
Income from continuing operations per diluted common share | $ | 1.36 | $ | 1.20 | 13.3 | % | $ | 1.46 | $ | 3.69 | (60.4 | )% | ||||||||||
• | Amounts recorded in respect of our expected near-term recognition of a tax loss for the divestiture of Aerostructures, net of valuation allowance, following our classification of Aerostructures as held for sale as of the end of the third quarter of fiscal 2016; |
• | Additional deductions and additional research credits claimed on our fiscal 2015 tax return compared with our recorded estimates at the end of fiscal 2015; and |
• | State tax reductions resulting from our integration of Exelis operations. |
• | The discrete items noted above favorably impacting the third quarter of fiscal 2016; |
• | The effect of legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying research and development (“R&D”) expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015; |
• | The settlement of a state tax issue for an amount lower than the previously recorded estimate; and |
• | Several differences between GAAP and tax accounting for investments. |
• | The discrete items noted above favorably impacitng the third quarter of fiscal 2015; |
• | The effect of legislation enacted in the second quarter of fiscal 2015 that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2014; |
• | Finalizing issues with Canadian and U.S. tax authorities for amounts lower than previously recorded estimates; and |
• | The recognition of foreign tax credits resulting from a dividend paid by a foreign subsidiary during fiscal 2013 that exceeded the U.S. tax liability in respect of the dividend. |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Revenue | $ | 485 | $ | 458 | 5.9 | % | $ | 1,428 | $ | 1,282 | 11.4 | % | |||||||||
Cost of product sales and services | (233 | ) | (207 | ) | 12.6 | % | (713 | ) | (612 | ) | 16.5 | % | |||||||||
Gross margin | 252 | 251 | 0.4 | % | 715 | 670 | 6.7 | % | |||||||||||||
% of revenue | 52.0 | % | 54.8 | % | 50.1 | % | 52.3 | % | |||||||||||||
ESA expenses | (98 | ) | (98 | ) | — | % | (302 | ) | (275 | ) | 9.8 | % | |||||||||
% of revenue | 20.2 | % | 21.4 | % | 21.1 | % | 21.5 | % | |||||||||||||
Segment operating income | $ | 154 | $ | 153 | 0.7 | % | $ | 413 | $ | 395 | 4.6 | % | |||||||||
% of revenue | 31.8 | % | 33.4 | % | 28.9 | % | 30.8 | % |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Revenue | $ | 489 | $ | 228 | 114.5 | % | $ | 1,370 | $ | 702 | 95.2 | % | |||||||||
Cost of product sales and services | (362 | ) | (157 | ) | 130.6 | % | (1,006 | ) | (496 | ) | 102.8 | % | |||||||||
Gross margin | 127 | 71 | 78.9 | % | 364 | 206 | 76.7 | % | |||||||||||||
% of revenue | 26.0 | % | 31.1 | % | 26.6 | % | 29.3 | % | |||||||||||||
ESA expenses | (51 | ) | (35 | ) | 45.7 | % | (153 | ) | (99 | ) | 54.5 | % | |||||||||
% of revenue | 10.4 | % | 15.4 | % | 11.2 | % | 14.1 | % | |||||||||||||
Segment operating income | $ | 76 | $ | 36 | 111.1 | % | $ | 211 | $ | 107 | 97.2 | % | |||||||||
% of revenue | 15.5 | % | 15.8 | % | 15.4 | % | 15.2 | % |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Revenue | $ | 393 | $ | 126 | 211.9 | % | $ | 1,149 | $ | 363 | 216.5 | % | |||||||||
Cost of product sales and services | (283 | ) | (88 | ) | 221.6 | % | (826 | ) | (258 | ) | 220.2 | % | |||||||||
Gross margin | 110 | 38 | 189.5 | % | 323 | 105 | 207.6 | % | |||||||||||||
% of revenue | 28.0 | % | 30.2 | % | 28.1 | % | 28.9 | % | |||||||||||||
ESA expenses | (35 | ) | (12 | ) | 191.7 | % | (116 | ) | (33 | ) | 251.5 | % | |||||||||
% of revenue | 8.9 | % | 9.5 | % | 10.1 | % | 9.1 | % | |||||||||||||
Segment operating income | $ | 75 | $ | 26 | 188.5 | % | $ | 207 | $ | 72 | 187.5 | % | |||||||||
% of revenue | 19.1 | % | 20.6 | % | 18.0 | % | 19.8 | % |
Quarter Ended | Three Quarters Ended | |||||||||||||||||||||
April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | |||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||
Revenue | $ | 551 | $ | 379 | 45.4 | % | $ | 1,658 | $ | 1,209 | 37.1 | % | ||||||||||
Cost of product sales and services | (444 | ) | (306 | ) | 45.1 | % | (1,310 | ) | (968 | ) | 35.3 | % | ||||||||||
Gross margin | 107 | 73 | 46.6 | % | 348 | 241 | 44.4 | % | ||||||||||||||
% of revenue | 19.4 | % | 19.3 | % | 21.0 | % | 19.9 | % | ||||||||||||||
ESA expenses | (48 | ) | (44 | ) | 9.1 | % | (167 | ) | (120 | ) | 39.2 | % | ||||||||||
% of revenue | 8.7 | % | 11.6 | % | 10.1 | % | 9.9 | % | ||||||||||||||
Impairment of goodwill and other assets | — | — | * | (367 | ) | — | * | |||||||||||||||
Segment operating income (loss) | $ | 59 | $ | 29 | 103.4 | % | $ | (186 | ) | $ | 121 | * | ||||||||||
% of revenue | 10.7 | % | 7.7 | % | (11.2 | )% | 10.0 | % | ||||||||||||||
Quarter Ended | Three Quarters Ended | |||||||||||||||||||||
April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | April 1, 2016 | April 3, 2015 | % Inc/ (Dec) | |||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||
Unallocated corporate expense | $ | 42 | $ | 29 | 44.8 | % | $ | 37 | $ | 67 | (44.8 | )% | ||||||||||
Amortization of intangible assets from Exelis Inc. acquisition | 33 | — | * | 99 | — | * | ||||||||||||||||
Total unallocated corporate expense | $ | 75 | $ | 29 | 158.6 | % | $ | 136 | $ | 67 | 103.0 | % | ||||||||||
Three Quarters Ended | |||||||
April 1, 2016 | April 3, 2015 | ||||||
(In millions) | |||||||
Net cash provided by operating activities | $ | 507 | $ | 395 | |||
Net cash used in investing activities | (112 | ) | (95 | ) | |||
Net cash used in financing activities | (560 | ) | (336 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (14 | ) | (37 | ) | |||
Net decrease in cash and cash equivalents | (179 | ) | (73 | ) | |||
Cash and cash equivalents, beginning of year | 481 | 561 | |||||
Cash and cash equivalents, end of quarter | $ | 302 | $ | 488 |
• | Any obligation under certain guarantee contracts; |
• | A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; |
• | Any obligation, including a contingent obligation, under certain derivative instruments; and |
• | Any obligation, including a contingent obligation, under a material variable interest held by the registrant in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant. |
Quarter Ended | Three Quarters Ended | ||||||||||||||
April 1, 2016 | April 3, 2015 | April 1, 2016 | April 3, 2015 | ||||||||||||
(In millions) | |||||||||||||||
Favorable adjustments | $ | 52 | $ | 30 | $ | 148 | $ | 94 | |||||||
Unfavorable adjustments | (41 | ) | (19 | ) | (96 | ) | (45 | ) | |||||||
Net operating income adjustments | $ | 11 | $ | 11 | $ | 52 | $ | 49 |
• | We depend on U.S. Government customers for a significant portion of our revenue, and the loss of these relationships, a reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an adverse impact on our business, financial condition, results of operations and cash flows. |
• | We depend significantly on U.S. Government contracts, which often are only partially funded, subject to immediate termination, and heavily regulated and audited. The termination or failure to fund, or negative audit findings for, one or more of these contracts could have an adverse impact on our business, financial condition, results of operations and cash flows. |
• | We could be negatively impacted by a security breach, through cyber attack, cyber intrusion or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers. |
• | The level of returns on defined benefit plan assets, changes in interest rates and other factors could affect our earnings and cash flows in future periods. |
• | We enter into fixed-price contracts that could subject us to losses in the event of cost overruns or a significant increase in inflation. |
• | We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our future financial results. |
• | We derive a significant portion of our revenue from international operations and are subject to the risks of doing business internationally, including fluctuations in currency exchange rates. |
• | Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners. |
• | We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments. |
• | The continued effects of the general weakness in the global economy and the U.S. Government’s budget deficits and national debt and sequestration could have an adverse impact on our business, financial condition, results of operations and cash flows. |
• | Our future success will depend on our ability to develop new products, systems, services and technologies that achieve market acceptance in our current and future markets. |
• | We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures. |
• | We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our profitability. |
• | We have made, and may continue to make, strategic acquisitions and divestitures that involve significant risks and uncertainties. |
• | Disputes with our subcontractors and the inability of our subcontractors to perform, or our key suppliers to timely deliver our components, parts or services, could cause our products or services to be produced or delivered in an untimely or unsatisfactory manner. |
• | Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights. |
• | The outcome of litigation or arbitration in which we are involved is unpredictable and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations and cash flows. |
• | We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity. |
• | Changes in our effective tax rate may have an adverse effect on our results of operations. |
• | Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded pension liability may adversely affect our financial and operating activities or our ability to incur additional debt. |
• | A downgrade in our credit ratings could materially adversely affect our business. |
• | Unforeseen environmental issues could have a material adverse effect on our business, financial condition, results of operations and cash flows. |
• | We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption. |
• | Sustained weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, could adversely affect demand for our managed satellite and terrestrial communications solutions or other products, which could adversely affect our business, financial condition, results of operations and cash flows. |
• | Changes in the regulatory framework under which our managed satellite and terrestrial communications solutions operations are operated could adversely affect our business, financial condition, results of operations and cash flows. |
• | We rely on third parties to provide satellite bandwidth for our managed satellite and terrestrial communications solutions, and any bandwidth constraints could harm our business, financial condition, results of operations and cash flows. |
• | Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other long-term assets to become impaired, resulting in substantial losses and write-downs that would adversely affect our results of operations. |
• | Some of our workforce is represented by labor unions, so our business could be harmed in the event of a prolonged work stoppage. |
• | We must attract and retain key employees, and failure to do so could seriously harm us. |
• | We may be responsible for U.S. Federal income tax liabilities that relate to the spin-off of Vectrus, Inc. (“Vectrus”) completed by Exelis. |
• | In connection with the Vectrus spin-off, Vectrus indemnified Exelis for certain liabilities and Exelis indemnified Vectrus for certain liabilities. This indemnity may not be sufficient to insure us against the full amount of the liabilities assumed by Vectrus and Vectrus may be unable to satisfy its indemnification obligations to us in the future. |
• | The Vectrus spin-off may expose us to potential liabilities arising out of state and Federal fraudulent conveyance laws and legal distribution requirements. |
• | The ITT Corporation (“ITT”) spin-off of Exelis may expose us to potential liabilities arising out of state and Federal fraudulent conveyance laws and legal distribution requirements. |
• | If we are required to indemnify ITT or Xylem, Inc. (“Xylem”) in connection with the ITT spin-off of Exelis, we may need to divert cash to meet those obligations and our financial results could be negatively impacted. |
Period* | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs (1) | Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (1) | ||||||||||
Month No. 1 | ||||||||||||||
(January 2, 2016-January 29, 2016) | ||||||||||||||
Repurchase Programs (1) | — | — | — | $ | 683,544,295 | |||||||||
Employee Transactions (2) | 1,720 | $ | 86.78 | — | — | |||||||||
Month No. 2 | ||||||||||||||
(January 30, 2016-February 26, 2016) | ||||||||||||||
Repurchase Programs (1) | — | — | — | $ | 683,544,295 | |||||||||
Employee Transactions (2) | 26,142 | $ | 72.62 | — | — | |||||||||
Month No. 3 | ||||||||||||||
(February 27, 2016-April 1, 2016) | ||||||||||||||
Repurchase Programs (1) | — | — | — | $ | 683,544,295 | |||||||||
Employee Transactions (2) | 3,308 | $ | 79.02 | — | — | |||||||||
Total | 31,170 | $ | 74.08 | — | $ | 683,544,295 | ||||||||
* | Periods represent our fiscal months. |
(1) | On August 26, 2013, we announced that on August 23, 2013, our Board of Directors approved a new share repurchase program (our “2013 Repurchase Program”) authorizing us to repurchase up to $1 billion in shares of our common stock through open-market transactions, private transactions, transactions structured through investment banking institutions or any combination thereof. As of April 1, 2016, $683,544,295 (as reflected in the table above) was the approximate dollar amount of our common stock that may yet be purchased under our 2013 Repurchase Program, which does not have a stated expiration date. The level of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. |
(2) | Represents a combination of (a) shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance share units, restricted stock units or restricted shares that vested during the quarter or (b) performance share units, restricted stock units or restricted shares returned to us upon retirement or employment termination of employees. Our equity incentive plans provide that the value of shares delivered to us to pay the exercise price of options or to cover tax withholding obligations shall be the closing price of our common stock on the date the relevant transaction occurs. |
(3 | ) | (a) Restated Certificate of Incorporation of Harris Corporation (1995), as amended, incorporated herein by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2012. (Commission File Number 1-3863) | |
(b) By-Laws of Harris Corporation, as amended and restated effective December 5, 2014, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2014. (Commission File Number 1-3863) | |||
(10 | ) | *(a) Offer Letter Agreement, dated December 17, 2014, between Harris Corporation and Rahul Ghai. | |
*(b) Amendment to Offer Letter Agreement, dated January 29, 2016, between Harris Corporation and Rahul Ghai. | |||
*(c) Separation Agreement and Release of All Claims, dated January 29, 2016, between Harris Corporation and Miguel A. Lopez. | |||
(12 | ) | Computation of Ratio of Earnings to Fixed Charges. | |
(15 | ) | Letter Regarding Unaudited Interim Financial Information. | |
(31.1 | ) | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
(31.2 | ) | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
(32.1 | ) | Section 1350 Certification of Chief Executive Officer. | |
(32.2 | ) | Section 1350 Certification of Chief Financial Officer. | |
(101.INS) | XBRL Instance Document. | ||
(101.SCH) | XBRL Taxonomy Extension Schema Document. | ||
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document. | ||
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document. | ||
* | Management contract or compensatory plan or arrangement |
HARRIS CORPORATION | ||||||
(Registrant) | ||||||
Date: May 4, 2016 | By: | /s/ Rahul Ghai | ||||
Rahul Ghai | ||||||
Senior Vice President and Chief Financial Officer | ||||||
(principal financial officer and duly authorized officer) |
Exhibit No. Under Reg. S-K, Item 601 | Description | |
(3) | (a) Restated Certificate of Incorporation of Harris Corporation (1995), as amended, incorporated herein by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2012. (Commission File Number 1-3863) (b) By-Laws of Harris Corporation, as amended and restated effective December 5, 2014, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2014. (Commission File Number 1-3863) | |
(10) | *(a) Offer Letter Agreement, dated December 17, 2014, between Harris Corporation and Rahul Ghai. *(b) Amendment to Offer Letter Agreement, dated January 29, 2016, between Harris Corporation and Rahul Ghai. *(c) Separation Agreement and Release of All Claims, dated January 29, 2016, between Harris Corporation and Miguel A. Lopez. | |
(12) | Computation of Ratio of Earnings to Fixed Charges. | |
(15) | Letter Regarding Unaudited Interim Financial Information. | |
(31.1) | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
(31.2) | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
(32.1) | Section 1350 Certification of Chief Executive Officer. | |
(32.2) | Section 1350 Certification of Chief Financial Officer. | |
(101.INS) | XBRL Instance Document. | |
(101.SCH) | XBRL Taxonomy Extension Schema Document. | |
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document. | |
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document. | |
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document. | |
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document. | |
* | Management contract or compensatory plan or arrangement |
HARRIS CORPORATION | |
1025 West NASA Boulevard | |
Melbourne, FL USA 32919 | |
phone 1-321-727-9100 | |
www.harris.com |
1) | An annual base salary of $325,000 payable bi-weekly. Base salaries are reviewed annually, with adjustments made (generally effective in September) subject to both business and personal performance. |
2) | A one-time Restricted Stock Award (RSA) of 14,600 RSA’s with an approximate grant value of $1,000,000 to offset foregone equity from your current employer and as an incentive to join Harris. This award will be granted on the first New York Stock Exchange trading day during the month following your start date (if that trading day occurs within a Quiet Period as defined by Harris’ equity grant policy, the grant date will be the first trading day following the end of the Quiet Period). Assuming continued employment with the company, this award will vest ratably over three years, in equal amounts on the grant date anniversary. |
3) | A one-time sign-on bonus of $150,000 less applicable taxes and other withholdings, payable within forty-five (45) days of hire to offset your current employer’s forgone annual incentive and as an incentive to join Harris. Should you voluntarily terminate your employment with Harris within twenty-four (24) months of hire, you will be required to repay this bonus. |
4) | As a Harris executive, you will participate in the Harris Annual Incentive Plan (“AIP”). Your FY15 target opportunity will be 60% of base salary. Incentive awards are paid based on the achievement of pre-established, annual business operating metrics and the successful completion of personal performance objectives set during the annual performance management cycle. Incentive awards may range from 0% to 200% of target based on business and personal performance. Your participation in AIP will begin on your start date and be pro-rated for the year. To the extent earned, payouts are made in September following the fiscal year end, net of applicable withholdings and deductions. |
5) | Eligibility to accept annual equity awards granted by Harris Corporation under the Harris Corporation 2005 Equity Incentive Plan (the “Plan”), with a target value of $300,000. These awards are typically delivered in the form of stock options and performance share units and are granted in late August following the Board of Directors approval of annual equity awards to other Harris executives. Once approved, the awards are subject to the applicable terms and conditions in effect at the time of the grant. Annual equity grants are performance based and the amount awarded may vary. Your FY16 grant, scheduled to be granted in August 2015, will not be prorated in any way, as related to your mid-fiscal year hire date. |
6) | Eligibility to participate in the Harris Corporation Retirement Plan 401(k) with a company match equivalent to 100% of the first 6% of employee contributions. While you will be immediately eligible to participate in the plan up to individual plan contribution limits, company match contributions will only be made after one year of service. |
7) | Eligibility to participate in the Harris Corporation Supplemental Executive Retirement Plan (“SERP”) during the next annual open enrollment period. This IRS non-qualified retirement plan preserves your ability to make pre-tax contributions, and receive employer match contributions (after one year of service) above the qualified IRS limits and in accordance with the plan terms. |
8) | Eligibility to participate in the Harris Performance Reward Plan (“PRP”) with a target of 2% of total cash compensation after one year of service. PRP awards are paid based on the achievement of pre-established, annual business operating metrics, and may range from 0% to 200% of target. |
9) | Participation in Harris health and welfare benefit plans, including qualified dependents as applicable. These plans include medical, prescription, dental, vision, life and short and long-term disability benefits. Coverage under these programs is effective, should you choose to participate, as soon as day one of employment with Harris Corporation. |
10) | One hundred twenty (120) hours of vacation annually under the Harris Paid Time Off Program. The use of additional personal time is at the discretion of your supervisor. |
11) | Relocation benefits to assist with your move from Fairfield, CT to the Herndon, VA area. Benefits will include, but not be limited to the Harris Home Buyout Option; loss on home sale assistance not to exceed $100,000; home purchase assistance; ninety (90) days of temporary living accommodations; the packing and shipment of household goods; and a disruption bonus equivalent to one month of base salary less applicable taxes and other withholdings. Additional details regarding your relocation benefits will be provided under separate cover. |
12) | In the event that your employment is involuntarily terminated within twenty-four (24) months following your date of hire and the termination is a Qualifying Termination, the company will provide you with a cash severance amount equal to your then current base salary. Payment of this severance is conditioned on you executing a release of all claims against Harris and its affiliates in a form satisfactory to Harris within 45 days following your separation and not revoking such release. This severance amount will be subject to appropriate withholdings and deductions. This severance amount will be paid to you in a lump sum within sixty (60) days following your separation from service; provided, however, that if such sixty (60) day payment period begins in one calendar year and ends in a second calendar year, then payment shall occur in the second calendar year. After the expiration of twenty-four (24) months following your date of hire, your separation/severance pay eligibility will be solely pursuant to Harris’ Severance Pay Plan. |
i. | a material diminution of your employment duties (a change in your title shall not, itself, constitute a diminution of duties); |
ii. | a material reduction in your base salary; |
iii. | a material reduction in the target value of your annual cash incentive; or |
iv. | a requirement that your place of employment be more than fifty (50) miles from Herndon, VA. |
i. | a willful breach or failure to satisfy any material provision or condition of this offer letter, including without limitation, those set forth under “Conditional Offer” below; |
ii. | your substantial and continuing failure or refusal to perform your material duties as Vice President, Finance or to perform specific directives of the Board or of the officer to whom you report that are consistent with your position; |
iii. | any failure by you to devote your full working time to the Company or any unexcused, repeated or prolonged absence from work by you (other than as a result of, or in connection with, sickness, injury or disability) during a period of ninety (90) consecutive days; |
iv. | any reckless or willful misconduct (including action or failures to act) by you that causes material harm to the business or reputation of the Company or its subsidiaries; |
v. | any willful or reckless breach of a statutory or common law duty of loyalty to the Company or its subsidiaries; |
vi. | any act of fraud, dishonesty, embezzlement, theft or unethical business conduct by you in connection with your duties or in the course of your employment, or your admission or conviction of a felony or of any crime involving moral turpitude, fraud, dishonesty, embezzlement, theft, or misrepresentation; |
vii. | your willful violation of a material Company policy that is generally applicable to all employees of the Company (including the Company’s Standards of Business Conduct); or |
viii. | a failure by you to cooperate in an internal Company investigation after being instructed by the Board or the officer to whom you report to cooperate. |
13) | Conditional Offer. You understand and agree that this employment offer is conditional and expressly subject to your complying with the following pre-conditions of employment: |
a. | You complete your relocation to the Herndon, VA area within twenty-four (24) months of your start date. |
b. | You accurately completed Harris’ Disclosure of Potential Employment Conflicts form and fully disclosed, and provided copies where applicable, of any written or other agreements or understandings to which you are a party that relate to the protection of confidential, trade secret or proprietary information; non-competition restrictions; non-solicitation or no-hire prohibitions (employees or customers); and/or ownership of invention provisions. You affirm that your employment with Harris will not violate any such agreements or understandings. |
c. | You pass a drug test prior to commencing employment. A failed drug test will cause you to be ineligible for hire by Harris for at least twelve months. |
d. | You undergo background and reference checks with results that are satisfactory to Harris. |
e. | You execute Harris’ standard Employee Agreement (copy enclosed) at orientation. |
f. | You execute and timely return all forms and other documents required for Harris to complete the employment process. |
/s/ Rahul Ghai | Date: | 1/15/2015 | ||
Signature: Rahul Ghai |
HARRIS CORPORATION | |
1025 West NASA Boulevard | |
Melbourne, FL USA 32919 | |
phone 1-321-727-9100 | |
www.harris.com |
1) | An annual base salary of $450,000 payable bi-weekly. |
2) | Participation in the Harris Annual Incentive Plan (“AIP”) with a target value of 75% of base salary. Incentive awards are paid based on the achievement of pre-established annual business operating metrics and the successful completion of personal performance objectives set during the annual performance management cycle. Incentive awards may range from 0% to 200% of target based on business and personal performance. Your participation in the FY16 AIP will be pro-rated, with respect to your current target, based on the effective date of your promotion. To the extent earned, payouts are made in September following the fiscal year end, net of applicable withholdings and deductions. |
3) | Eligibility to receive annual equity awards granted by Harris Corporation under its 2015 Equity Incentive Plan (the “Plan”), with a target value of $1,000,000. The awards are typically delivered in the form of stock options (“Options”) and performance share units (“PSUs”) and are granted in late August following the Board of Directors approval of annual equity awards to Harris executives. Once approved and accepted by you, the awards are subject to the applicable terms and conditions in effect at the time of the grant. Annual equity grants are performance-based and the award amount may vary from year-to-year. Your new target value will be effective during the next award planning cycle. |
4) | Severance, relocation and other benefits will continue per the terms and conditions of your original offer letter, dated December 27, 2014. However, rather than a relocation to the Washington, DC area, you must relocate to the Melbourne, FL area. |
/s/ Robert L. Duffy |
/s/ Rahul Ghai | Date: | 2/1/2016 | ||
Signature: Rahul Ghai |
1. | Separation Date. Your employment with Harris will end at close of business on February 11, 2016 (your “Separation Date”). |
2. | Separation Pay. As a result of your separation from Harris, you will receive a lump sum amount equal to your current annual base salary of $540,800 (the “Separation Pay”). As set forth in Section 7, you will also be entitled to a Fiscal Year 2016 Annual Incentive Plan (“AIP”) payment at target pro-rated for the portion of Fiscal 2016 prior to your Separation Date (rather than subject to Harris’ financial results and your individual performance goals against established goals). But for the application of the six-month delay under Section 409A of the Internal Revenue Code (“Section 409A”) due to your status as a Specified Employee (the “Specified Employee Requirement”), your Separation Pay would have been paid to you within sixty (60) days following your separation from service. Due to the Specified Employee Requirement, no separation pay may be paid to you during the period beginning on the date of your separation from service and ending on the date that is six months following the date of your separation from service (or if earlier, on the date of your death). Accordingly, your Separation Pay will be paid to you in a lump sum on August 12, 2016 (or if earlier, within ninety (90) days following your death) and will be subject to withholdings and deductions. You acknowledge and agree that the payment described in this Section 2 is conditional on your timely executing and delivering this Agreement to Harris and not revoking the Release of All Claims set forth herein. |
3. | Benefits Coverage; Relocation Reimbursement. (a) Effective as of the close of business on the Separation Date, you will cease to be eligible for the employee benefit plans, programs and arrangements maintained by Harris in accordance with the applicable terms thereof. If you participate in the Medical, Dental, or Vision Care Plans or the Health Care Spending Accounts, you will be offered the opportunity to elect continued coverage for yourself and your qualifying dependents in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). Harris will pay all premiums otherwise due under the Medical, Dental or Vision Care Plans (but not Health Care Spending Accounts) for a period of up to the shorter of (A) twelve (12) months following your Separation Date or (B) the time when you are eligible for group medical plans maintained by another employer. Following such twelve (12) month period, you may continue coverage for the remainder of the COBRA period at the full monthly cost plus a 2% administrative fee. If you do not elect COBRA within thirty (30) days of the receipt of applicable enrollment documents, your healthcare benefits and Health Care Spending Account participation will end on your Separation Date. (b) You will be reimbursed in the amount of $50,000 in respect of a partial offset of your relocation expenses. |
4. | Vacation Pay Deferred Payment. You will be paid $31,760, which is the value of your deferred compensation account attributable to certain vacation and/or paid time off that was converted into non-qualified deferred compensation. But for the application of the Specified Employee Requirement, your account would have been paid to you within thirty (30) days following your Separation Date. Due to the Specified Employee Requirement, your account may not be paid to you during the period beginning on your Separation Date and ending on the date that six (6) months following your Separation Date (or if earlier, on the date of your death). Accordingly, your account will be paid to you in a lump sum on August 12, 2016 (or if earlier, within ninety (90) days following your death). The payment will be subject to applicable taxes and withholdings (FICA deductions have already been taken from this amount). |
5. | Retirement Plan Participation. Benefit accruals and contributions under the Retirement Plan and Supplemental Executive Retirement Plan, including matching contributions, will end as of your Separation Date; provided however, that your deferral elections, if any, with respect to any compensation payable to you pursuant to the Fiscal Year 2016 AIP shall remain in full force and effect. |
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6. | Performance Reward Plan (PRP). Under the terms of the PRP, you will not be eligible for any PRP payment in respect of Fiscal Year 2016. |
7. | Annual Incentive Plan. In lieu of a pro-rated Fiscal Year 2016 AIP payout subject to Harris’ financial results and your individual performance against established goals, you will receive a Fiscal Year 2016 AIP payment of $253,800, which is equal to your pro-rated Fiscal Year 2016 AIP at target. The timing of such payment will be governed by the terms and conditions of the AIP. You acknowledge and agree that the payment described in this Section 7 is conditional on your timely executing and delivering this Agreement to Harris and not revoking the Release of All Claims set forth herein. |
8. | Stock Options. The stock options you hold as of the Separation Date will be governed by the terms of the applicable Harris Equity Incentive Plan(s) and terms and conditions thereunder in effect at the time of the grant. You will have ninety (90) days from the Separation Date to exercise vested options. Options not vested as of the Separation Date will be immediately cancelled and forfeited. |
9. | Performance Unit Awards. Your outstanding performance unit awards which you hold as of the Separation Date will be governed by the terms of the applicable Harris Equity Incentive Plan(s) and terms and conditions thereunder in effect at the time of grant. The performance unit awards for the Fiscal 2015-2017 and Fiscal 2016-2018 cycles granted to you will be immediately cancelled and forfeited on the Separation Date. |
10. | Restricted Unit and Stock Awards. Your outstanding restricted unit award which you hold as of the Separation Date will be governed by the terms of the applicable Harris Equity Incentive Plan(s) and terms and conditions thereunder in effect at the time of the grant, it being agreed that your separation shall be treated as an involuntary separation for purposes of the restricted unit award of 12,500 units granted to you on March 3, 2014, with such award being pro-rated through your Separation Date and paid in shares as soon as administratively practicable following the Separation Date or if applicable, following the applicable six-month delay under Section 409A. The restricted stock award granted to you on June 1, 2015, will not satisfy the minimum one year vesting period and will be immediately cancelled and forfeited on the Separation Date. |
11. | Outplacement Assistance. You will be eligible for a six (6) month executive outplacement program (the “Program”) administered by Right Management Associates. Participation in the Program is voluntary, but must be elected by March 11, 2016. If you do not elect to participate in the Program, you will not receive cash in lieu thereof. |
12. | No Further Benefits. Unless otherwise expressly provided herein or pursuant to applicable employee compensation or benefit arrangements, you will not be entitled to any pay, compensation, severance, insurance, or employment benefits from Harris after your Separation Date. You acknowledge and agree that the payments and benefits specified under this Agreement satisfy in their entirety any and all obligations of Harris to you under your Offer Letter dated February 4, 2014, the Harris Corporation Severance Pay Plan, or any other severance program, policy or arrangement maintained by Harris or otherwise. |
13. | Executive Change in Control Severance and Indemnification Agreements; Resignation from Office. You acknowledge that effective as of the Separation Date, based on this Agreement and the consideration you receive pursuant hereto, and notwithstanding any provision therein to the contrary, the Executive Change in Control Severance Agreement between you and Harris dated February 28, 2014 (the “Change in Control Severance Agreement”) and the Indemnification Agreement between you and Harris dated February 28, 2014 (the “Indemnification Agreement”) are terminated in their entirety by mutual agreement and no longer have any force or effect. Notwithstanding the foregoing, obligations of Harris under the Indemnification Agreement with respect to your activity prior to the Separation Date shall continue in accordance with Section 26 of the Indemnification Agreement. You agree that no later than the Separation Date you will resign from any offices, directorships, trusteeships, committee memberships or other positions you hold with Harris or any of its affiliates. You agree to execute any documents provided by Harris to effectuate your resignation from such offices, directorships, trusteeships, committee memberships or other positions. |
14. | Releasees. For purposes of this Agreement, “Releasees” include Harris and its subsidiaries and affiliated companies and their officers, directors, shareholders, employees, agents, representatives, plans, trusts, administrators, fiduciaries, insurance companies, successors, and assigns. |
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15. | Release of All Claims. You, on behalf of yourself and your personal and legal representatives, heirs, executors, successors and assigns, hereby acknowledge full and complete satisfaction of, and fully and forever waive, release, and discharge Releasees from, any and all claims, causes of action, demands, liabilities, damages, obligations, and debts (collectively referenced as “Claims”), of every kind and nature, whether known or unknown, suspected or unsuspected, that you hold as of the date you sign this Agreement, or at any time previously held, against any Releasee, arising out of any matter whatsoever (except for breach of this Agreement). This release specifically includes, but is not limited to, any and all Claims: |
a. | Arising out of or in any way related to your employment with or separation from Harris, or any contract or agreement between you and Harris; |
b. | Arising under or based on the Equal Pay Act of 1963 (EPA); Title VII of the Civil Rights Act of 1964 (Title VII); Section 1981 of the Civil Rights Act of 1866 (42 U.S.C. §1981); the Civil Rights Act of 1991 (42 U.S.C. §1981a); the Americans with Disabilities Act of 1990 (ADA); the Family and Medical Leave Act of 1993 (FMLA); the Genetic Information Nondiscrimination Act of 2008 (GINA); the National Labor Relations Act (NLRA); the Worker Adjustment and Retraining Notification Act of 1988 (WARN); the Uniform Services Employment and Reemployment Rights Act (USERRA); the Rehabilitation Act of 1973; the Occupational Safety and Health Act (OSHA); the Employee Retirement Income Security Act of 1974 (ERISA) (except claims for vested benefits, if any, to which you are legally entitled); the False Claims Act; Title VIII of the Corporate and Criminal Fraud and Accountability Act (18 U.S.C. §1514A) (Sarbanes-Oxley Act); the federal Whistleblower Protection Act and any state whistleblower protection statute(s); the Florida Civil Rights Act or any other fair employment practice statute(s) of any state, in each case as amended from time to time; |
c. | Arising under or based on any other federal, state, county or local law, statute, ordinance, decision, order, policy or regulation prohibiting employment discrimination; providing for the payment of wages or benefits (including overtime and workers’ compensation); or otherwise creating rights or claims for employees, including, but not limited to, any and all claims alleging breach of public policy; the implied obligation of good faith and fair dealing; or any express, implied, oral or written contract, handbook, manual, policy statement or employment practice; or alleging misrepresentation; defamation; libel; slander; interference with contractual relations; intentional or negligent infliction of emotional distress; invasion of privacy; assault; battery; fraud; negligence; harassment; retaliation; or wrongful discharge; and |
d. | Arising under or based on the Age Discrimination in Employment Act of 1967 (“ADEA”), as amended by the Older Workers Benefit Protection Act (“OWBPA”), and alleging a violation thereof by any Releasee, at any time on or prior to the date this Agreement is executed. |
16. | Filing an Action Despite Release. You agree that you will not file a civil action, lawsuit or administrative proceeding against any Releasee with respect to any of the Claims released herein (this does not include claims which, by law, cannot be waived). This provision prohibits you from recovering monetary or other relief in any legal proceeding brought by you or on your behalf, but does not apply to or limit your right to initiate or participate in an EEOC or other administrative proceeding in which you do not seek personal relief. This provision also does not preclude you from bringing suit to challenge the validity or enforceability of this Agreement under the ADEA, as amended by the OWBPA. |
17. | Return of Property. You agree that, no later than your Separation Date, you will return to Harris all company information and property, in whatever form, including but not limited to laptop, phone, tablets, documents, records, reports, notebooks, drawings, photographs, technical data, credit cards, keys, equipment, computer software, supplies, or other information or property containing confidential or proprietary information of Harris or its subsidiaries and affiliates, and you agree that you will not retain copies of same. You further certify that, no later than your Separation Date, you will permanently delete from your personal computers, tablets or storage devices any and all confidential or proprietary documents and/or information relating to Harris and its subsidiaries and affiliates. |
18. | Confidentiality. In addition to your agreement to return company information and property to Harris, you acknowledge that, while employed by Harris, you had access to, acquired and/or assisted in the development of confidential or proprietary information, inventions, and trade secrets relating to the present and anticipated business and operations of Harris or its subsidiaries and affiliates, including without limitation: research projects; manufacturing processes; sales and marketing |
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19. | Standards of Business Conduct. You acknowledge that you have read and understand Harris’ Code of Conduct and that you do not have any information or knowledge as to non‑compliance with, or violation of, the policies and standards set forth therein. |
20. | Non-Solicitation. In consideration of the benefits and payments to be made to you under this Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, commencing on the date hereof and continuing through February 11, 2017, you agree that you will not, directly or indirectly, individually or on behalf of any other employer or any other business, person or entity: (i) recruit, induce, solicit or attempt to recruit, induce or solicit any individual employed by Harris or any of its subsidiaries to terminate, abandon or otherwise leave or discontinue employment with Harris or any of its subsidiaries; or (ii) hire or cause or assist any individual employed by Harris or any of its subsidiaries to become employed by or provide services to any other business, person or entity whether as an employee, consultant, contactor or otherwise. You also agree that this restriction is reasonable and necessary for the protection of Harris’ legitimate business interests and that a violation of this restriction will cause irreparable harm to Harris. The provisions of this Section 20 are separate from and in addition to any other non-solicit agreement between you and Harris or its subsidiaries or affiliates, including but not limited to: (i) your Employee Agreement, which you signed on February 4, 2014, and (ii) the terms and conditions of equity awards granted to you. Any breach of the above-described additional non-solicitation provisions will constitute a violation and breach of this Agreement. |
21. | Non-Disparagement. In consideration of the benefits and payments to be made to you under this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which you hereby acknowledge, you agree that you will not criticize, disparage, defame, or otherwise attempt to impugn the character, integrity or reputation of Releasees or the products or services of Harris and its subsidiaries or affiliates (verbally, in writing or otherwise), nor will you unlawfully interfere with any of the business relationships of Harris and its subsidiaries or affiliates. The provisions of this Section 21 are separate from and in addition to any other non-disparagement agreement between you and Harris or its subsidiaries or affiliates, including but not limited to, the non-disparagement restrictions contained in the equity awards granted to you by Harris. Any breach of the above-described additional non-disparagement provisions will also constitute a violation and breach of this Agreement. |
22. | Non-Competition. In consideration of the benefits and payments to be made to you under this Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, you agree that from your Separation Date through February 11, 2017, you shall not, directly or indirectly, as an employee, independent contractor, consultant, officer, director, principal, lender or investor engage or otherwise participate in any activities with, or provide services to, a Competitive Business, without the prior written consent of the Senior Vice President, Human Resources or other designated executive officer of Harris (which consent shall be at such officer’s discretion to give or withhold). Nothing in this section shall preclude you from owning up to 1% of the equity in any publicly traded company. For purposes of this Agreement, “Competitive Business” means any business, person or entity that is engaged, or planning or contemplating to engage within a period of twelve (12) months, in any business activity that is competitive with the business and business activities engaged in by a business unit of Harris at the Separation Date. The provisions of this Section 22 are separate from and in addition to any other non-competition agreement between you and Harris or its subsidiaries or affiliates, including but not limited to the non-competition restrictions contained in the equity awards granted to you by Harris. Any breach of the above-described additional non-competition provisions will constitute a violation and breach of this Agreement. |
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23. | Customer and Potential Customer Non-Interference. In consideration of the benefits and payments to be made to you under this Agreement and for other good and valuable consideration, the receipt and sufficiency of which you hereby acknowledge, you agree that from your Separation Date through February 11, 2017, you shall not, directly or indirectly, individually or: (i) on behalf of any other employer or any other business, person or entity, entice, induce, solicit or attempt or participate in enticing, inducing or soliciting, any Customer or Potential Customer of Harris or its subsidiaries to cease or reduce or refrain from doing business with Harris or its subsidiaries; or (ii) on behalf of any Competitive Business, entice, induce, solicit, or attempt or participate in enticing, inducing or soliciting or accept or attempt or participate in accepting, business from any Customer or Potential Customer of Harris or its subsidiaries. For purposes of this Agreement: (a) “Customer” means any business, person or entity who purchased any products, goods, systems or services from Harris or its subsidiaries at any time during the preceding twenty-four months; and (b) “Potential Customer” means any business, person or entity targeted during the preceding twelve (12) months as a customer to purchase any products, goods, systems or services from Harris or its subsidiaries. The provisions of this Section 23 are separate from and in addition to any other customer non-solicit agreement between you and Harris or its subsidiaries or affiliates, including but not limited to, the customer non-solicit restrictions contained in the equity awards granted to you by Harris. Any breach of the above-described additional customer non-solicit provisions will constitute a violation and breach of this Agreement. |
24. | Breach of Agreement. If you file or permit to be filed any civil action, lawsuit, or administrative proceeding against any Releasee seeking personal legal or equitable relief in connection with any matter relating to your employment with or separation from Harris, breach the restrictive covenants applicable to you under this Agreement or otherwise breach a provision of this Agreement, in addition to any other rights, remedies, or defenses Harris or the other Releasees may have, Harris may: (1) immediately terminate this Agreement, if still in effect, without further obligation or liability to you of any kind; (2) recover from you the aggregate dollar value of all pay, insurance, and other benefits provided to you following the Separation Date; and (3) recover from you all damages, costs and expenses, including reasonable attorneys’ fees and costs, incurred by Harris or the other Releasee(s) in defending such civil action, lawsuit or administrative proceeding or in connection with such breach. You further agree that any breach or threatened breach by you, intentional or otherwise, of the non-solicitation, non-competition or other provisions of this Agreement, including Sections 20, 21, 22 and 23, will entitle Harris, in addition to other available remedies, to a temporary or permanent injunction or any other appropriate degree of specific performance (without bond or security being required) in order to enjoin such breach or threatened breach. |
25. | No Admission of Liability. By entering into this Agreement, Harris does not admit to, and expressly denies, any liability or wrongdoing. In addition, you acknowledge and agree that this Agreement may not be used as evidence to claim or prove any alleged wrongdoing by Harris, other than failure to comply with the terms of this Agreement. |
26. | Acknowledgement of ADEA Rights. You acknowledge as follows: |
a. | You are advised to consult with an attorney or other representative of your choice prior to signing this Agreement; |
b. | By executing this Agreement, you waive all rights or claims, if any, that you have or may have against any Releasee under the ADEA, as amended by the OWBPA, and under any state or local laws prohibiting age discrimination; |
c. | You are waiving rights and claims that you may have under the ADEA in exchange for consideration that is additional to anything of value to which you are already entitled; |
d. | You are not waiving rights and claims that you may have under the ADEA that may arise after the date this Agreement is signed; |
e. | You fully understand this Agreement and are signing it voluntarily and of your own free will; |
f. | You received this Agreement on or prior to your Separation Date, and you have up to 45 calendar days from that date to consider whether to sign it; |
g. | If you wish to sign this Agreement prior to the expiration of the 45-day period explained above, you may do so; |
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h. | You have 7 calendar days following the date you sign this Agreement to revoke your release of claims under the ADEA, and your release of such claims will not become effective until the revocation period has expired without your revoking it (at which time it will become fully enforceable and irrevocable); and |
i. | To revoke your release of claims under the ADEA, you must deliver to Harris (via both U.S. mail and facsimile), within the 7-day revocation period, a signed written statement that you revoke your release of claims under the ADEA. The revocation must be postmarked within the period stated above and addressed to: |
27. | Section 409A. This Agreement will be interpreted and construed in a manner that avoids the imposition of taxes and other penalties under Section 409A (“409A Penalties”). In the event that the terms of this Agreement provide deferred compensation within the meaning of Section 409A and do not comply with such section and regulations promulgated thereunder, the parties will cooperate diligently to amend the terms of this Agreement to avoid 409A Penalties, to the extent possible. In addition, in the event that the terms of this Agreement provide deferred compensation within the meaning of Section 409A, each payment of separation pay or other amount, or provision of benefits, pursuant to this Agreement will constitute a “separately identified” amount within the meaning of Treasury Reg. §1.409A-2(b)(2). Notwithstanding the foregoing, no particular tax result with respect to any income recognized in connection with this Agreement is guaranteed, and under no circumstances will Harris be responsible for any taxes, penalties, interest or other losses or expenses incurred by you due to any failure to comply with Section 409A. |
28. | Entire Understanding. This Agreement constitutes the entire agreement between you and Harris with respect to the subjects addressed herein. However, this Agreement is not intended to supersede the provisions of your Harris Employee Agreement dated February 4, 2014, a copy of which has been provided to you, or any other obligations you may have regarding confidentiality, non-disclosure, intellectual property, ownership of inventions, non-competition and/or non-solicitation pursuant to any agreement with Harris or its subsidiaries or affiliates. You acknowledge and agree that the terms of your Offer Letter dated February 4, 2014 providing for severance in the event of your termination of employment under certain circumstances is no longer in force or effect and that you have no rights to any payment of severance or any other amounts pursuant to such Offer Letter. |
29. | Withholding. Notwithstanding any other provision of this Agreement, Harris may withhold from amounts payable under this Agreement all amounts that are required or authorized to be withheld, including, but not limited to, federal, state, local and foreign taxes to be withheld by applicable laws or regulations. |
30. | Successors and Assigns. This Agreement will be binding in all respects upon, and will inure to the benefit of, the parties’ representatives, heirs, executors, successors, and assigns. |
31. | Governing Law. The validity and interpretation of this Agreement will be governed by Florida law without giving effect to principles of conflicts of law. The parties stipulate that jurisdiction and venue will lie exclusively in Brevard County, Florida or the United States District Court for the Middle District of Florida for any action involving the validity, interpretation and enforcement of this Agreement, for any claim for breach of this Agreement, and for damages or any other relief sought under this Agreement. |
32. | Severability. In the event that any provision of this Agreement is found to be partially or wholly invalid, illegal or unenforceable, the parties agree that such provision shall be modified or restricted as necessary to render it valid, legal and enforceable. It is expressly understood and agreed that such modification or restriction may be accomplished by mutual |
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33. | Preparation of Agreement. This Agreement will be interpreted in accordance with the plain meaning of its terms and not strictly for or against any of the parties hereto. Regardless of which party initially drafted this Agreement, it will not be construed against any one party, and will be construed and enforced as a mutually-prepared document. |
34. | Burden of Proof. Any party contesting the validity or enforceability of any term of this Agreement will be required to prove by clear and convincing evidence fraud, concealment, failure to disclose material information, unconscionability, misrepresentation, or mistake of fact or law. |
35. | Counterparts. This Agreement may be executed in counterparts or by copies transmitted electronically, all of which have the same force and effect as the original. |
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Employee: | Harris Corporation | |||||
/s/ Miguel Lopez | By: | /s/ Robert L. Duffy | ||||
Signature | Name: | Robert L. Duffy | ||||
Title: | Senior Vice President | |||||
Human Resources and Administration | ||||||
Miguel Lopez | ||||||
Print Name | Date: | 1/29/2016 | ||||
Date: | 1/29/2016 |
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Three Quarters Ended | |||||||
April 1, 2016 | April 3, 2015 | ||||||
(In millions, except ratios) | |||||||
Earnings: | |||||||
Income from continuing operations | $ | 183 | $ | 390 | |||
Plus: Income taxes | 185 | 154 | |||||
Fixed charges | 142 | 86 | |||||
Amortization of capitalized interest | — | — | |||||
Less: Interest capitalized during the period | — | (3 | ) | ||||
Undistributed earnings in equity investments | — | — | |||||
$ | 510 | $ | 627 | ||||
Fixed Charges: | |||||||
Interest expense | $ | 139 | $ | 79 | |||
Plus: Interest capitalized during the period | — | 3 | |||||
Interest portion of rental expense | 3 | 4 | |||||
$ | 142 | $ | 86 | ||||
Ratio of Earnings to Fixed Charges | 3.59 | 7.29 |
Form S-4 | No. 333-202539 | Harris Corporation Shares of Common Stock | ||
Form S-8 | No. 333-192735 | Harris Corporation Retirement Plan | ||
Form S-8 | No. 333-130124 | Harris Corporation 2005 Equity Incentive Plan | ||
Form S-8 | No. 333-207774 | Harris Corporation 2015 Equity Incentive Plan |
/s/ Ernst & Young LLP |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended April 1, 2016 of Harris Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 4, 2016 | /s/ William M. Brown | |||||
Name: | William M. Brown | |||||
Title: | Chairman, President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended April 1, 2016 of Harris Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 4, 2016 | /s/ Rahul Ghai | |||||
Name: | Rahul Ghai | |||||
Title: | Senior Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Harris as of the dates and for the periods expressed in the Report. |
Date: May 4, 2016 | /s/ William M. Brown | |||||
Name: | William M. Brown | |||||
Title: | Chairman, President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Harris as of the dates and for the periods expressed in the Report. |
Date: May 4, 2016 | /s/ Rahul Ghai | |||||
Name: | Rahul Ghai | |||||
Title: | Senior Vice President and Chief Financial Officer |
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Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Apr. 01, 2016 |
Apr. 29, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | HARRIS CORP /DE/ | |
Trading Symbol | HRS | |
Entity Central Index Key | 0000202058 | |
Document Type | 10-Q | |
Document Period End Date | Apr. 01, 2016 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --07-01 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 124,725,874 |
Condensed Consolidated Statement of Comprehensive Income (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2016 |
Apr. 03, 2015 |
Apr. 01, 2016 |
Apr. 03, 2015 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 168 | $ 126 | $ 164 | $ 390 |
Other comprehensive loss: | ||||
Foreign currency translation loss, net of income taxes | (5) | (37) | (52) | (111) |
Net unrealized gain (loss) on hedging derivatives, net of income taxes | 0 | (24) | 1 | (25) |
Net unrecognized gain (loss) on postretirement obligations, net of income taxes | 1 | 0 | (3) | 12 |
Other comprehensive loss, net of income taxes | (4) | (61) | (54) | (124) |
Total comprehensive income | $ 164 | $ 65 | $ 110 | $ 266 |
Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - $ / shares |
Apr. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Shareholders’ Equity: | ||
Preferred shares, par value (in usd per share) | $ 0 | $ 0 |
Preferred shares, authorized (in shares) | 1,000,000 | 1,000,000 |
Preferred shares, issued (in shares) | 0 | 0 |
Common shares, par value (in usd per share) | $ 1 | $ 1 |
Common shares, authorized (in shares) | 500,000,000 | 500,000,000 |
Common shares, issued (in shares) | 124,481,216 | 123,675,756 |
Common shares, outstanding (in shares) | 124,481,216 | 123,675,756 |
Significant Accounting Policies and Recent Accounting Standards |
9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
Apr. 01, 2016 | |||||||||
Significant Accounting Policies and Recent Accounting Standards [Abstract] | |||||||||
Significant Accounting Policies and Recent Accounting Standards | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Significant Accounting Policies and Recent Accounting Standards Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) (these “Notes”), the terms “Harris,” “Company,” “we,” “our” and “us” refer to Harris Corporation and its consolidated subsidiaries. Intracompany transactions and accounts have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared by Harris, without an audit, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with GAAP for annual financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented therein. The results for the third quarter and first three quarters of fiscal 2016 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at July 3, 2015 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. We provide complete, audited financial statements in our Annual Report on Form 10-K, which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2015 (our “Fiscal 2015 Form 10-K”). As further discussed in Note B — Discontinued Operations and Divestitures in these Notes, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 based on a final determination rendered in a dispute over the amount of the post-closing working capital adjustment to the purchase price for our former broadcast communications operation (“Broadcast Communications”), which we sold on February 4, 2013. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material. Unless otherwise specified, disclosures in these Notes relate solely to our continuing operations. Use of Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and these Notes. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying condensed consolidated financial statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known. Reclassifications Certain prior year amounts have been reclassified in our Condensed Consolidated Financial Statements (Unaudited) to conform to current year classifications. Adoption of New Accounting Standards In the first quarter of fiscal 2016, we adopted an accounting standard issued by the Financial Accounting Standards Board (“FASB”) that eliminates the requirement for an acquirer in a business combination to retrospectively account for measurement-period adjustments. Instead, the new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This standard is to be applied prospectively. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows. In the second quarter of fiscal 2016, we adopted an accounting standard issued by the FASB that simplifies the presentation of deferred income taxes by requiring entities to classify all deferred tax assets and liabilities as non-current in a classified statement of financial position instead of separating deferred tax assets and liabilities into current and non-current amounts. Consequently, entities may no longer allocate valuation allowances between current and non-current deferred tax assets because those allowances also will be classified as non-current. This standard was applied retrospectively, and as a result, we reclassified certain prior-period amounts in the accompanying Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications as follows:
Other than those reclassifications, the adoption of this standard did not have any impact on our financial position, results of operations or cash flows. Accounting Standards Issued But Not Yet Effective In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP and International Financial Reporting Standards and supersedes some cost guidance for construction-type and production-type contracts. The guidance in this standard is principles-based, and consequently, entities will be required to use more judgment and make more estimates than under prior guidance, including identifying contract performance obligations, estimating variable consideration to include in the contract price and allocating the transaction price to separate performance obligations. The guidance in this standard is applicable to all contracts with customers, regardless of industry-specific or transaction-specific fact patterns. Additionally, this standard provides guidance for transactions that were not previously addressed comprehensively (e.g., service revenue, contract modifications and licenses of intellectual property) and modifies guidance for multiple-element arrangements. The core principle of this standard is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To help financial statement users better understand the nature, amount, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures. This standard allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to only the most current period presented in the financial statements, as well as certain additional required footnote disclosures). In August 2015, the FASB issued an accounting standards update that defers the effective date of this standard by one year, while permitting entities to elect to adopt one year earlier on the original effective date. As a result, this standard is now effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which for us is our fiscal 2019. In March 2016 and April 2016, the FASB issued two accounting standards updates that clarify its new revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations as well as principal versus agent guidance. We are currently evaluating the impact the new revenue recognition standard will have on our financial position, results of operations and cash flows. In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to existing lease guidance under GAAP. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with the option to use certain relief. Full retrospective application is prohibited. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows. In March 2016, the FASB issued an accounting standards update making final targeted amendments to the accounting for employee share-based payments. These amendments will require entities to recognize the income tax effects of awards when the awards vest or are settled, will change an employer's accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation and will require entities to elect whether to account for forfeitures of share-based payments by either recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited as is currently required. The required method of adoption varies by amendment. This accounting standards update is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016, which for us is our fiscal 2018. Early adoption is permitted in any annual or interim period, but all of the guidance is required to be adopted in the same period and any adjustments must be reflected as of the beginning of the fiscal year. We are currently evaluating the impact this accounting standards update will have on our financial position, results of operations and cash flows. |
Discontinued Operations and Divestitures |
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Apr. 01, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Divestitures | Discontinued Operations and Divestitures In the third quarter of fiscal 2016, we entered into a definitive agreement for the divestiture of our composite aerostructures business ("Aerostructures"), which is part of our Electronic Systems segment, for $187 million in cash at closing and the assumption of a $23 million capitalized lease, and determined the business met the held for sale criteria under GAAP. Aerostructures had income before income taxes of $3 million and $4 million for the quarter and three quarters ended April 1, 2016, respectively, and is not strategic to our business. We acquired Aerostructures as part of our acquisition of Exelis Inc. and its subsidiaries (collectively, "Exelis") in May 2015. We completed the divestiture on April 8, 2016, during the fourth quarter of fiscal 2016. Summarized balance sheet information for Aerostructures is as follows:
On February 4, 2013, we completed the sale of Broadcast Communications to an affiliate of The Gores Group, LLC (the “Buyer”) pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Broadcast Communications was recorded as discontinued operations in connection with the sale. Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer’s favor. As a result of such determination, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 of $21 million ($17 million after-tax or $0.14 per diluted share) and adjusted current liabilities of discontinued operations to $43 million. In the third quarter of fiscal 2016, discontinued operations consisted of a $2 million ($2 million after-tax) increase in the loss on discontinued operations due to third-party costs related to the dispute. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material. Unless otherwise specified, the information set forth in these Notes, other than this Note B — Discontinued Operations and Divestitures, relates solely to our continuing operations. |
Stock Options and Other Share-Based Compensation |
9 Months Ended |
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Apr. 01, 2016 | |
Stock Options and Other Share Based Compensation (Details) [Abstract] | |
Stock Options and Other Share-Based Compensation | Stock Options and Other Share-Based Compensation During the three quarters ended April 1, 2016, we had options or other share-based compensation outstanding under two shareholder-approved stock incentive plans (“SIPs”), the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) and the Harris Corporation 2015 Equity Incentive Plan. We have granted the following types of share-based awards under these SIPs: stock options, restricted stock awards, restricted stock unit awards, performance share awards, performance share unit awards and awards of immediately vested shares of our common stock. We believe that such awards more closely align the interests of participants with those of shareholders. Certain share-based awards provide for accelerated vesting if there is a change in control (as defined under our SIPs). The compensation cost related to our share-based awards that was charged against income was $10 million and $29 million for the quarter and three quarters ended April 1, 2016, respectively. The compensation cost related to our share-based awards that was charged against income was $9 million and $26 million for the quarter and three quarters ended April 3, 2015, respectively. Grants to participants under our SIPs during the third quarter ended April 1, 2016 consisted of 14,000 restricted stock awards. Grants to participants under our SIPs during the three quarters ended April 1, 2016 consisted of 1,658,000 stock options, 114,270 restricted stock awards and 292,665 performance share unit awards. The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model, which used the following assumptions: expected dividend yield of 2.50 percent; expected volatility of 23.01 percent; risk-free interest rates averaging 1.52 percent; and expected term in years of 5.05. The fair value as of the grant date of each restricted stock award was based on the closing price of our common stock on the grant date. The fair value as of the grant date of each performance share unit award was determined based on the fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to other companies in our TSR peer group, less a discount to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting. |
Accumulated Other Comprehensive Loss |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are summarized below:
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Receivables |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables | Receivables Receivables are summarized below:
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Inventories |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories Inventories are summarized below:
Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of $65 million at April 1, 2016 and $85 million at July 3, 2015. |
Property, Plant and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | Property, Plant and Equipment Property, plant and equipment are summarized below:
Depreciation and amortization expense related to property, plant and equipment was $42 million and $141 million for the quarter and three quarters ended April 1, 2016, respectively. Depreciation and amortization expense related to property, plant and equipment was $36 million and $109 million for the quarter and three quarters ended April 3, 2015, respectively. |
Goodwill |
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Goodwill [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | Goodwill As discussed in Note R — Business Segments, we adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016, which resulted in changes to our operating segments, which are also our reportable segments and are referred to as our business segments. In accordance with GAAP, we have reassigned goodwill using a relative fair value approach. Because our accounting for our acquisition of Exelis in the fourth quarter of fiscal 2015 is still preliminary, we assigned the goodwill acquired as a result of the acquisition on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed. In addition, we test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be an impairment. See Note N — Impairment of Goodwill and Other Assets in these Notes for information regarding a non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications recorded in the second quarter of fiscal 2016 in our Critical Networks segment. The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the three quarters ended April 1, 2016 by business segment, were as follows:
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Accrued Warranties |
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Product Warranties Disclosures [Abstract] | |||||||||||||||||||||||||||||||||
Accrued Warranties | Accrued Warranties Changes in our liability for standard product warranties, which is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited), during the three quarters ended April 1, 2016 were as follows:
We also sell extended product warranties and recognize revenue from these arrangements over the warranty period. Costs of warranty services under these arrangements are recognized as incurred. Deferred revenue associated with extended product warranties was $28 million at April 1, 2016 and $36 million at July 3, 2015 and is included as a component of the “Advance payments and unearned income” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited). |
Long-Term Debt |
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Apr. 01, 2016 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | Long-Term Debt As disclosed in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K, in connection with our acquisition of Exelis, Harris Corporation fully and unconditionally guaranteed all of the long-term fixed-rate debt securities issued by Exelis Inc. outstanding at the time of the acquisition, consisting of $250 million in aggregate principal amount of 4.25% senior notes due October 1, 2016 and $400 million in aggregate principal amount of 5.55% senior notes due October 1, 2021 (together, the “Exelis Notes”), as indicated in the table in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. In addition, Exelis Inc. fully and unconditionally guaranteed all of the long-term fixed-rate debt securities issued by Harris Corporation outstanding at the time of the acquisition, consisting of the nine other series of fixed-rate debt securities listed in the “2015” column in the table in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K, in an aggregate principal amount of $3.226 billion. On December 31, 2015, Exelis Inc. merged with and into Harris Corporation, with Harris Corporation being the surviving corporation in the merger, the separate existence of Exelis Inc. ceased, Harris Corporation assumed the obligations of Exelis Inc. under the Exelis Notes, and the cross guarantees of our outstanding long-term fixed-rate debt securities as described above terminated. |
Postretirement Benefit Plans |
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Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Postretirement Benefit Plans | Postretirement Benefit Plans The following table provides the components of our net periodic benefit cost (income) for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:
We contributed $134 million to our qualified defined benefit pension plans during the three quarters ended April 1, 2016. We currently anticipate making additional contributions to our qualified defined benefit pension plans of approximately $40 million during the remainder of fiscal 2016. |
Income From Continuing Operations Per Common Share |
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Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income per common share | Income From Continuing Operations Per Common Share The computations of income from continuing operations per common share are as follows:
Potential dilutive common shares primarily consist of employee stock options and performance share unit awards. Employee stock options to purchase approximately 1,618,558 and 765,438 shares of our common stock were outstanding at April 1, 2016 and April 3, 2015, respectively, but were not included as dilutive stock options in the computations of income from continuing operations per diluted common share because the effect would have been antidilutive. |
Income Taxes |
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Income Taxes | Income Taxes Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 29.5 percent in the third quarter of fiscal 2016 compared with 29.6 percent in the third quarter of fiscal 2015. In the third quarter of fiscal 2016, our effective tax rate benefited from the favorable impact of:
This favorable impact was partially offset by the non-deductibility for tax purposes of additional portions of the impairment charge recorded in the second quarter of fiscal 2016 described in Note N — Impairment of Goodwill and Other Assets in these Notes, as that charge was finalized during the third quarter of fiscal 2016. In the third quarter of fiscal 2015, our effective tax rate benefited from additional deductions (primarily related to manufacturing) and additional research credits claimed on our fiscal 2014 tax return compared with our recorded estimates at the end of fiscal 2014, as well as from finalizing issues with tax authorities. Our effective tax rate was 50.3 percent in the first three quarters of fiscal 2016 compared with 28.3 percent in the first three quarters of fiscal 2015. In the first three quarters of fiscal 2016, our effective tax rate was negatively impacted by the non-deductibility for tax purposes of portions of the impairment charge recorded in the second quarter of fiscal 2016 described in Note N — Impairment of Goodwill and Other Assets in these Notes. This negative impact was partially offset by the favorable impact of:
In the first three quarters of fiscal 2015, our effective tax rate benefited from:
See Note B — Discontinued Operations and Divestitures and Note T — Subsequent Events in these Notes for additional information. |
Impairment of Goodwill and Other Assets |
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Apr. 01, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Impairment of Goodwill and Other Assets | Impairment of Goodwill and Other Assets We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Indications of potential impairment of goodwill related to Harris CapRock Communications (which is part of our Critical Networks segment) were present at the end of the quarter ended January 1, 2016 due to the downturn in the energy market and its impact on customer operations, which also resulted in a decrease in the fiscal 2016 outlook for Harris CapRock Communications. Consequently, in connection with the preparation of our financial statements for the quarter ended January 1, 2016, we performed an interim test of Harris CapRock Communications’ goodwill for impairment as of the end of the quarter ended January 1, 2016. To test for potential impairment of goodwill related to Harris CapRock Communications, we prepared an estimate of the fair value of the reporting unit based on projected discounted cash flows. The current carrying value of the Harris CapRock Communications reporting unit exceeded its estimated fair value, and accordingly, we allocated the estimated fair value to the assets and liabilities of the Harris CapRock Communications reporting unit to estimate the implied fair value of goodwill. In conjunction with the above-described impairment test, we also conducted a test for impairment of other assets related to Harris CapRock Communications, including amortizable intangible assets and fixed assets, and impairment of these assets was considered prior to the conclusion of the goodwill impairment test. The estimated fair value of these other assets related to Harris CapRock Communications was determined based, in part, on an analysis of projected cash flows. As a result of these impairment tests, we concluded that goodwill and other assets related to Harris CapRock Communications were impaired as of January 1, 2016, and we recorded an estimated non-cash impairment charge of $367 million, of which $290 million related to goodwill, in the quarter ended January 1, 2016. Due to the length of time necessary to measure the impairment of goodwill and other assets, our impairment analysis as of January 1, 2016 was preliminary. During the quarter ended April 1, 2016, we completed our impairment analysis which indicated that no adjustment was necessary to the impairment charge recorded during the quarter ended January 1, 2016. Most of the $367 million impairment charge is not deductible for tax purposes. See Note M — Income Taxes in these Notes for the tax impact related to this impairment charge. The impairment does not cause us to be in noncompliance with the covenants under our credit arrangements, and we do not expect the impairment to impact our ongoing financial performance, although no assurances can be given. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value, and to utilize a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
The following table presents the fair value hierarchy of our assets and liabilities measured at fair value on a recurring basis (at least annually) as of April 1, 2016:
We had certain assets measured and recorded at fair value on a nonrecurring basis using level 3 inputs during the three quarters ended April 1, 2016. Goodwill and other assets held and used related to Harris CapRock Communications with a carrying amount of $714 million were written down to their fair value of $347 million, resulting in a $367 million non-cash impairment charge, which was included in income (loss) from continuing operations for the quarter and two quarters ended January 1, 2016. See Note N — Impairment of Goodwill and Other Assets in these Notes for additional information. The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):
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Derivative Instruments and Hedging Activities |
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Apr. 01, 2016 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities In the normal course of doing business, we are exposed to global market risks, including the effect of changes in foreign currency exchange rates. We use derivative instruments to manage our exposure to such risks and formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions. We recognize all derivatives in the accompanying Condensed Consolidated Balance Sheet (Unaudited) at fair value. We do not hold or issue derivatives for speculative trading purposes. At April 1, 2016, we had open foreign currency forward contracts with an aggregate notional amount of $72 million, of which $68 million were classified as fair value hedges and $4 million were classified as cash flow hedges. This compares with open foreign currency forward contracts with an aggregate notional amount of $74 million at July 3, 2015, of which $73 million were classified as fair value hedges and $1 million were classified as cash flow hedges. At April 1, 2016, contract expiration dates ranged from less than 1 month to 23 months with a weighted average contract life of 1 month. Exchange-Rate Risk — Balance Sheet Hedges To manage the exposure in our balance sheet to risks from changes in foreign currency exchange rates, we implement fair value hedges. More specifically, we use foreign currency forward contracts and options to hedge certain balance sheet items, including foreign currency denominated accounts receivable and inventory. Changes in the value of the derivatives and the related hedged items are reflected in earnings in the “Cost of product sales and services” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). As of April 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound, Australian Dollar, Singapore Dollar, Norwegian Krone, Brazilian Real, Mexican Peso and Canadian Dollar to hedge certain balance sheet items. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in the quarter and three quarters ended April 1, 2016 or in the quarter and three quarters ended April 3, 2015. In addition, no amounts were recognized in earnings in the quarter and three quarters ended April 1, 2016 or in the quarter and three quarters ended April 3, 2015 related to hedged firm commitments that no longer qualify as fair value hedges. Exchange-Rate Risk — Cash Flow Hedges To manage our exposure to currency risk and market fluctuation risk associated with anticipated cash flows that are probable of occurring in the future, we implement cash flow hedges. More specifically, we use foreign currency forward contracts and options to hedge off-balance sheet future foreign currency commitments, including purchase commitments to suppliers, future committed sales to customers and intersegment transactions. These derivatives are being used to hedge currency exposures from cash flows anticipated across our business segments. We also have hedged U.S. Dollar payments to suppliers to maintain our anticipated profit margins in our international operations. As of April 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound and Australian Dollar to hedge certain forecasted transactions. These derivatives have only nominal intrinsic value at the time of purchase and have a high degree of correlation to the anticipated cash flows they are designated to hedge. Hedge effectiveness is determined by the correlation of the anticipated cash flows from the hedging instruments and the anticipated cash flows from the future foreign currency commitments through the maturity dates of the derivatives used to hedge these cash flows. These financial instruments are marked-to-market using forward prices and fair value quotes with the offset to accumulated other comprehensive loss, net of hedge ineffectiveness. Gains and losses from other comprehensive loss are reclassified to earnings when the related hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. The cash flow impact of our derivatives is included in the same category in the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited) as the cash flows of the related hedged items. The net gains or losses from cash flow hedges recognized in earnings or recorded in other comprehensive loss, including gains or losses related to hedge ineffectiveness, were not material in the quarter and three quarters ended April 1, 2016 or in the quarter and three quarters ended April 3, 2015. We do not expect the net gains or losses included in the “Accumulated other comprehensive loss” line item in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of April 1, 2016 that will be reclassified to earnings within the next 12 months to be material. Credit Risk We are exposed to the risk of credit losses from non-performance by counterparties to the financial instruments discussed above, but we do not expect any of the counterparties to fail to meet their obligations. To manage credit risks, we select counterparties based on credit ratings, limit our exposure to any single counterparty under defined guidelines and monitor the market position with each counterparty. The amount of assets and liabilities related to foreign currency forward contracts in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of April 1, 2016 was not material. |
Changes in Estimates |
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Change in Accounting Estimate [Abstract] | |
Changes in Estimates | Changes in Estimates Estimates and assumptions, and changes therein, are important in connection with, among others, our segments’ revenue recognition policies related to development and production contracts. Revenue and profits related to development and production contracts are recognized using the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total costs at completion (i.e., the “cost-to-cost” method) or the ratio of actual units delivered to estimated total units to be delivered under the contract (i.e., the “units-of-delivery” method) with consideration given for risk of performance and estimated profit. Development and production contracts are combined when specific aggregation criteria are met. Criteria generally include closely interrelated activities performed for a single customer within the same economic environment. Development and production contracts are generally not segmented. If development and production contracts are segmented, we have determined that they meet specific segmenting criteria. Change orders, claims or other items that may change the scope of a development and production contract are included in contract value only when the value can be reliably estimated and realization is probable. Possible incentives or penalties and award fees applicable to performance on development and production contracts are considered in estimating contract value and profit rates and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions that increase earnings based solely on a single significant event are generally not recognized until the event occurs. Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each development and production contract over its period of performance. Recognition of profit on development and production fixed-price contracts requires estimates of the total cost at completion and the measurement of progress toward completion. The estimated profit or loss on a development and production contract is equal to the difference between the estimated contract value and the estimated total cost at completion. Due to the long-term nature of many of our programs, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance, the risk and impact of delayed performance, availability and timing of funding from the customer and the recoverability of any claims outside the original development and production contract included in the estimate to complete. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which management reviews the progress and performance on our ongoing development and production contracts at least quarterly and, in many cases, more frequently. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, at the outset of a cost-reimbursable contract (for example, contracts containing award or incentive fees), we establish an estimated total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimated total contract value may increase or decrease if, for example, we receive higher or lower than expected award fees. When adjustments in estimated total costs at completion or in estimated total contract value are determined, the related impact to operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Anticipated losses on development and production contracts or programs in progress are charged to operating income when identified. Net EAC adjustments resulting from changes in estimates favorably impacted our operating income by $11 million ($0.05 per diluted share) and $52 million ($0.25 per diluted share) in the quarter and three quarters ended April 1, 2016, respectively, and by $11 million ($0.07 per diluted share) and $49 million ($0.33 per diluted share) in the quarter and three quarters ended April 3, 2015, respectively. |
Business Segments |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segments | Business Segments We adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016. We structure our operations primarily around the products and services we sell and the markets we serve, and commencing with the first quarter of fiscal 2016, we report the financial results of our operations in the following four operating segments, which are also our reportable segments and are referred to as our business segments:
The historical results, discussion and presentation of our business segments as set forth in this Report reflect the impact of these adjustments for all periods presented. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these adjustments. The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. We evaluate each segment’s performance based on its operating income or loss, which we define as profit or loss from operations before income taxes excluding interest income and expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment recognizes a profit that is eliminated. The “Corporate eliminations” line items in the tables below represent the elimination of intersegment sales and their related profits. The “Unallocated corporate expense” line item in the tables below represents the portion of corporate expenses not allocated to our business segments. Total assets by business segment are summarized below:
Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes follow:
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Legal Proceedings and Contingencies |
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Apr. 01, 2016 | |
Legal Proceedings And Contingencies [Abstract] | |
Legal Proceedings and Contingencies | Legal Proceedings and Contingencies From time to time, as a normal incident of the nature and kind of businesses in which we are, and were, engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. At April 1, 2016, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us is not material. Although it is not feasible to predict the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be disposed of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in litigation or arbitration in existence at April 1, 2016 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows. Legal Proceedings On February 4, 2013, we completed the sale of Broadcast Communications to the Buyer pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer’s favor. As further discussed in Note B — Discontinued Operations and Divestitures in these Notes, as a result of such determination we recorded a loss in discontinued operations of $21 million ($17 million after-tax) in the second quarter of fiscal 2016. International As an international company, we are, from time to time, the subject of investigations relating to our international operations, including under U.S. export control laws and the Foreign Corrupt Practices Act (“FCPA”) and other similar U.S. and international laws. On April 4, 2011, we completed the acquisition of Carefx Corporation (“Carefx”) and thereby also acquired its subsidiaries, including in China (“Carefx China”). Following the closing, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, we initiated an internal investigation and learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers, potential customers, consultants, and government regulators, after which we took certain remedial actions. The results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and voluntarily to the U.S. Department of Justice (“DOJ”) and the SEC. The SEC and DOJ initiated investigations with respect to this matter. During the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter. The DOJ further advised us that its decision was based on its overall view of the evidence as to our level of acquisition due diligence and integration efforts, our voluntary disclosure to the DOJ and SEC, our remediation efforts and our cooperation throughout the investigation, which is continuing. At this time we also are continuing to cooperate with the SEC regarding its investigation. We cannot predict at this time the duration or scope of, developments in, results of, or any regulatory action or other potential consequences from, such investigation or otherwise in connection with this matter. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows. Environmental Matters We are subject to numerous U.S. Federal, state, local and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of multiple sites, including as a result of our acquisition of Exelis. These sites are in various stages of investigation and/or remediation and in some of these proceedings our liability is considered de minimis. We have received notices from the U.S. Environmental Protection Agency (the “EPA”) or equivalent state or international environmental agencies that a number of sites formerly or currently owned and/or operated by us or companies we have acquired, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent state and international laws. For example, Exelis received notice in June 2014 from the Department of Justice, Environment and Natural Resources Division, that it may be potentially responsible for contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, the EPA issued on March 4, 2016, a record of decision selecting a remedy for the lower 8.3 miles stretch of the Lower Passaic River. The EPA’s selected remedy includes dredging the river bank to bank, installing an engineered cap and long-term monitoring. The EPA estimates the cost of the cleanup project will be $1.38 billion. On March 31, 2016, the EPA notified over 100 potentially responsible parties, including Exelis, of their potential liability for the cost of the cleanup project but their respective allocations have not been determined. We have found no evidence that Exelis contributed any of the primary contaminants of concern to the Passaic River. We intend to vigorously defend ourselves in this matter and we believe our ultimate costs will not be material. Although it is not feasible to predict the outcome of these environmental claims, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims in existence at April 1, 2016 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows. |
Subsequent Events |
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Apr. 01, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events As further discussed in Note B - Discontinued Operations and Divestitures in these Notes, we completed the divestiture of Aerostructures on April 8, 2016 for $187 million in cash at closing and the assumption of a $23 million capitalized lease. Aerostructures was classified as held for sale as of the end of the third quarter of fiscal 2016. |
Significant Accounting Policies and Recent Accounting Standards (Policies) |
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Significant Accounting Policies and Recent Accounting Standards [Abstract] | |||||||||||||
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) (these “Notes”), the terms “Harris,” “Company,” “we,” “our” and “us” refer to Harris Corporation and its consolidated subsidiaries. Intracompany transactions and accounts have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared by Harris, without an audit, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with GAAP for annual financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented therein. The results for the third quarter and first three quarters of fiscal 2016 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at July 3, 2015 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. We provide complete, audited financial statements in our Annual Report on Form 10-K, which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2015 (our “Fiscal 2015 Form 10-K”). As further discussed in Note B — Discontinued Operations and Divestitures in these Notes, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 based on a final determination rendered in a dispute over the amount of the post-closing working capital adjustment to the purchase price for our former broadcast communications operation (“Broadcast Communications”), which we sold on February 4, 2013. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material. Unless otherwise specified, disclosures in these Notes relate solely to our continuing operations. |
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Use of Estimates | Use of Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and these Notes. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying condensed consolidated financial statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known. |
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Adoption of New Accounting Standards | Adoption of New Accounting Standards In the first quarter of fiscal 2016, we adopted an accounting standard issued by the Financial Accounting Standards Board (“FASB”) that eliminates the requirement for an acquirer in a business combination to retrospectively account for measurement-period adjustments. Instead, the new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This standard is to be applied prospectively. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows. In the second quarter of fiscal 2016, we adopted an accounting standard issued by the FASB that simplifies the presentation of deferred income taxes by requiring entities to classify all deferred tax assets and liabilities as non-current in a classified statement of financial position instead of separating deferred tax assets and liabilities into current and non-current amounts. Consequently, entities may no longer allocate valuation allowances between current and non-current deferred tax assets because those allowances also will be classified as non-current. This standard was applied retrospectively, and as a result, we reclassified certain prior-period amounts in the accompanying Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications as follows:
Other than those reclassifications, the adoption of this standard did not have any impact on our financial position, results of operations or cash flows. Accounting Standards Issued But Not Yet Effective In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP and International Financial Reporting Standards and supersedes some cost guidance for construction-type and production-type contracts. The guidance in this standard is principles-based, and consequently, entities will be required to use more judgment and make more estimates than under prior guidance, including identifying contract performance obligations, estimating variable consideration to include in the contract price and allocating the transaction price to separate performance obligations. The guidance in this standard is applicable to all contracts with customers, regardless of industry-specific or transaction-specific fact patterns. Additionally, this standard provides guidance for transactions that were not previously addressed comprehensively (e.g., service revenue, contract modifications and licenses of intellectual property) and modifies guidance for multiple-element arrangements. The core principle of this standard is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To help financial statement users better understand the nature, amount, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures. This standard allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to only the most current period presented in the financial statements, as well as certain additional required footnote disclosures). In August 2015, the FASB issued an accounting standards update that defers the effective date of this standard by one year, while permitting entities to elect to adopt one year earlier on the original effective date. As a result, this standard is now effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which for us is our fiscal 2019. In March 2016 and April 2016, the FASB issued two accounting standards updates that clarify its new revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations as well as principal versus agent guidance. We are currently evaluating the impact the new revenue recognition standard will have on our financial position, results of operations and cash flows. In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to existing lease guidance under GAAP. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with the option to use certain relief. Full retrospective application is prohibited. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows. In March 2016, the FASB issued an accounting standards update making final targeted amendments to the accounting for employee share-based payments. These amendments will require entities to recognize the income tax effects of awards when the awards vest or are settled, will change an employer's accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation and will require entities to elect whether to account for forfeitures of share-based payments by either recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited as is currently required. The required method of adoption varies by amendment. This accounting standards update is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016, which for us is our fiscal 2018. Early adoption is permitted in any annual or interim period, but all of the guidance is required to be adopted in the same period and any adjustments must be reflected as of the beginning of the fiscal year. We are currently evaluating the impact this accounting standards update will have on our financial position, results of operations and cash flows. |
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Stock Options and Other Share-Based Compensation | The fair value as of the grant date of each performance share unit award was determined based on the fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to other companies in our TSR peer group, less a discount to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting. |
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Goodwill | In accordance with GAAP, we have reassigned goodwill using a relative fair value approach. Because our accounting for our acquisition of Exelis in the fourth quarter of fiscal 2015 is still preliminary, we assigned the goodwill acquired as a result of the acquisition on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed. |
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Extended Product Warranty | We also sell extended product warranties and recognize revenue from these arrangements over the warranty period. Costs of warranty services under these arrangements are recognized as incurred. |
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Impairment of Goodwill and Other Assets | We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. |
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Fair Value Measurements | Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value, and to utilize a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
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Changes in Estimates | Estimates and assumptions, and changes therein, are important in connection with, among others, our segments’ revenue recognition policies related to development and production contracts. Revenue and profits related to development and production contracts are recognized using the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total costs at completion (i.e., the “cost-to-cost” method) or the ratio of actual units delivered to estimated total units to be delivered under the contract (i.e., the “units-of-delivery” method) with consideration given for risk of performance and estimated profit. Development and production contracts are combined when specific aggregation criteria are met. Criteria generally include closely interrelated activities performed for a single customer within the same economic environment. Development and production contracts are generally not segmented. If development and production contracts are segmented, we have determined that they meet specific segmenting criteria. Change orders, claims or other items that may change the scope of a development and production contract are included in contract value only when the value can be reliably estimated and realization is probable. Possible incentives or penalties and award fees applicable to performance on development and production contracts are considered in estimating contract value and profit rates and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions that increase earnings based solely on a single significant event are generally not recognized until the event occurs. Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each development and production contract over its period of performance. Recognition of profit on development and production fixed-price contracts requires estimates of the total cost at completion and the measurement of progress toward completion. The estimated profit or loss on a development and production contract is equal to the difference between the estimated contract value and the estimated total cost at completion. Due to the long-term nature of many of our programs, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance, the risk and impact of delayed performance, availability and timing of funding from the customer and the recoverability of any claims outside the original development and production contract included in the estimate to complete. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which management reviews the progress and performance on our ongoing development and production contracts at least quarterly and, in many cases, more frequently. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, at the outset of a cost-reimbursable contract (for example, contracts containing award or incentive fees), we establish an estimated total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimated total contract value may increase or decrease if, for example, we receive higher or lower than expected award fees. When adjustments in estimated total costs at completion or in estimated total contract value are determined, the related impact to operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Anticipated losses on development and production contracts or programs in progress are charged to operating income when identified. |
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Evaluation of Performance and Intersegment Sales Policy | We evaluate each segment’s performance based on its operating income or loss, which we define as profit or loss from operations before income taxes excluding interest income and expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment recognizes a profit that is eliminated. The “Corporate eliminations” line items in the tables below represent the elimination of intersegment sales and their related profits. |
Discontinued Operations and Divestitures Discountinued Operations and Divestitures (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summarized Balance Sheet for Aerostructures | Summarized balance sheet information for Aerostructures is as follows:
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Accumulated Other Comprehensive Loss (Tables) |
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Components of accumulated other comprehensive loss | The components of accumulated other comprehensive loss are summarized below:
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Receivables (Tables) |
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Receivables | Receivables are summarized below:
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Inventories (Tables) |
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Inventories | Inventories are summarized below:
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Property Plant and Equipment (Tables) |
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Property, Plant and Equipment | Property, plant and equipment are summarized below:
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Goodwill (Tables) |
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Goodwill [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in carrying amount of Goodwill | The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the three quarters ended April 1, 2016 by business segment, were as follows:
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Accrued Warranties (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||
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Apr. 01, 2016 | |||||||||||||||||||||||||||||||||
Product Warranties Disclosures [Abstract] | |||||||||||||||||||||||||||||||||
Changes in warranty liability | Changes in our liability for standard product warranties, which is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited), during the three quarters ended April 1, 2016 were as follows:
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Postretirement Benefit Plans (Tables) |
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Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic Benefit Cost | The following table provides the components of our net periodic benefit cost (income) for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:
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Income From Continuing Operations Per Common Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income per common share | The computations of income from continuing operations per common share are as follows:
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Fair Value Measurements (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and liabilities measured at fair value on a recurring basis | The following table presents the fair value hierarchy of our assets and liabilities measured at fair value on a recurring basis (at least annually) as of April 1, 2016:
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Carrying amounts and estimated fair values of financial instruments not measured at fair value | The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):
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Business Segments (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of total assets by business segment | Total assets by business segment are summarized below:
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Revenue and income from continuing operations before income taxes by segment | Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes follow:
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Significant Accounting Policies and Recent Accounting Standards (Details) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Jan. 01, 2016 |
Apr. 01, 2016 |
Jul. 03, 2015 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Non-current deferred income taxes, assets | $ 362 | $ 502 | |
Non-current deferred income taxes, liabilities | $ 8 | $ 12 | |
Tax reclassifications related to adoption of accounting standard | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Current deferred income taxes, assets | $ 341 | ||
Current deferred income taxes, liabilities | 7 | ||
Non-current deferred income taxes, assets | 339 | ||
Non-current deferred income taxes, liabilities | 5 | ||
Non-current deferred income taxes | $ 20 |
Stock Options and Other Share-Based Compensation (Details) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2016
USD ($)
plan
shares
|
Apr. 03, 2015
USD ($)
|
Apr. 01, 2016
USD ($)
plan
shares
|
Apr. 03, 2015
USD ($)
|
|
Stock Options and Other Share Based Compensation (Textuals) | ||||
Number of shareholder approved employee stock incentive plans | plan | 2 | 2 | ||
Compensation cost for share-based awards | $ | $ 10 | $ 9 | $ 29 | $ 26 |
Stock options granted, shares | 1,658,000 | |||
Expected dividend yield | 2.50% | |||
Expected volatility | 23.01% | |||
Risk free interest rates | 1.52% | |||
Expected term (years) | 5 years 18 days | |||
Restricted Stock Awards | ||||
Share-based awards | ||||
Share-based awards | 14,000 | 114,270 | ||
Performance Share And Performance Share Unit | ||||
Share-based awards | ||||
Share-based awards | 292,665 |
Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended |
---|---|---|
Apr. 01, 2016 |
Jul. 03, 2015 |
|
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||
Foreign currency translation, net of income taxes of $29 million and $15 million at April 1, 2016 and July 3, 2015, respectively | $ (114) | $ (62) |
Net unrealized loss on hedging derivatives, net of income taxes of $11 million and $12 million at April 1, 2016 and July 3, 2015, respectively | (18) | (19) |
Unrecognized postretirement obligations, net of income taxes of $41 million and $42 million at April 1, 2016 and July 3, 2015, respectively | 62 | 65 |
Accumulated other comprehensive loss | (70) | (16) |
Tax effect on foreign currency translation | 29 | 15 |
Tax effect on unrealized loss on hedging derivatives | 11 | 12 |
Tax effect on unrecognized post-retirement obligations | $ 41 | $ 42 |
Receivables (Details) - USD ($) $ in Millions |
Apr. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Receivables | ||
Accounts receivable | $ 732 | $ 837 |
Unbilled costs and accrued earnings on cost-plus contracts | 331 | 343 |
Receivables, gross | 1,063 | 1,180 |
Less allowances for collection losses | (9) | (12) |
Receivables, net | $ 1,054 | $ 1,168 |
Inventories (Details) - USD ($) $ in Millions |
Apr. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Inventories | ||
Unbilled costs and accrued earnings on fixed-price contracts | $ 524 | $ 463 |
Finished products | 119 | 100 |
Work in process | 154 | 256 |
Raw materials and supplies | 195 | 196 |
Inventories | 992 | 1,015 |
Inventories (Textuals) | ||
Progress payments | $ 65 | $ 85 |
Property, Plant and Equipment (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Apr. 01, 2016 |
Apr. 03, 2015 |
Apr. 01, 2016 |
Apr. 03, 2015 |
Jul. 03, 2015 |
|
Property, Plant and Equipment | |||||
Land | $ 45 | $ 45 | $ 45 | ||
Software capitalized for internal use | 138 | 138 | 155 | ||
Buildings | 608 | 608 | 587 | ||
Machinery and equipment | 1,336 | 1,336 | 1,526 | ||
Property, plant and equipment, gross | 2,127 | 2,127 | 2,313 | ||
Less accumulated depreciation and amortization | (1,120) | (1,120) | (1,148) | ||
Property, plant and equipment | 1,007 | 1,007 | $ 1,165 | ||
Property Plant and Equipment (Textuals) | |||||
Depreciation and amortization expense related to property, plant and equipment | $ 42 | $ 36 | $ 141 | $ 109 |
Accrued Warranties (Details) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Apr. 01, 2016 |
Jul. 03, 2015 |
|
Changes in warranty liability | ||
Balance at July 3, 2015 | $ 36 | |
Warranty provision for sales | 15 | |
Settlements | (14) | |
Other adjustments to warranty liability, including those for foreign currency translation | (2) | |
Balance at April 1, 2016 | 35 | |
Extended Product Warranty Disclosure [Abstract] | ||
Extended Product Warranty Accrual | $ 28 | $ 36 |
Postretirement Benefit Plans (Details) $ in Millions |
9 Months Ended |
---|---|
Apr. 01, 2016
USD ($)
| |
Compensation and Retirement Disclosure [Abstract] | |
Defined benefit plan, contributions by employer during period | $ 134 |
Defined benefit plan, estimated future employer contributions in remaining fiscal year | $ 40 |
Income Taxes (Details) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2016 |
Apr. 03, 2015 |
Apr. 01, 2016 |
Apr. 03, 2015 |
|
Income Taxes (Textuals) [Abstract] | ||||
Effective tax rate | 29.50% | 29.60% | 50.30% | 28.30% |
Impairment of Goodwill and Other Assets (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Apr. 01, 2016 |
Jan. 01, 2016 |
Apr. 03, 2015 |
Apr. 01, 2016 |
Apr. 03, 2015 |
|
Impairment of goodwill and other assets | $ 0 | $ 367 | $ 0 | $ 367 | $ 0 |
Impairment of goodwill | $ 290 | ||||
Harris CapRock Communications | |||||
Impairment of goodwill and other assets | 367 | ||||
Impairment of goodwill | $ 290 |
Fair Value Measurements - Assets and Liabilities Not Measured at Fair Value (Details) - USD ($) $ in Millions |
Apr. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Long-term debt (including current portion), carrying amount | $ 4,702 | $ 5,183 |
Long-term debt (including current portion), fair value | $ 4,940 | $ 5,230 |
Derivative Instruments and Hedging Activities (Details) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Apr. 01, 2016 |
Jul. 03, 2015 |
|
Derivative Instruments and Hedging Activities (Textuals) | ||
Weighted average contract life | 1 month | |
Minimum | ||
Derivative Instruments and Hedging Activities (Textuals) | ||
Contract expiration dates lower range | 1 month | |
Maximum | ||
Derivative Instruments and Hedging Activities (Textuals) | ||
Contract expiration dates lower range | 23 months | |
Foreign Exchange Forward | ||
Derivative Instruments and Hedging Activities (Textuals) | ||
Derivative, Notional Amount | $ 72 | $ 74 |
Foreign Exchange Forward | Fair Value Hedging | ||
Derivative Instruments and Hedging Activities (Textuals) | ||
Derivative, Notional Amount | 68 | 73 |
Foreign Exchange Forward | Cash Flow Hedging | ||
Derivative Instruments and Hedging Activities (Textuals) | ||
Derivative, Notional Amount | $ 4 | $ 1 |
Changes in Estimate (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2016 |
Apr. 03, 2015 |
Apr. 01, 2016 |
Apr. 03, 2015 |
|
Change in Accounting Estimate [Line Items] | ||||
Earnings per diluted share (in usd per share) | $ 1.34 | $ 1.20 | $ 1.31 | $ 3.69 |
Contracts Accounted for under Percentage of Completion | ||||
Change in Accounting Estimate [Line Items] | ||||
Operating Income (Loss) | $ 11 | $ 11 | $ 52 | $ 49 |
Earnings per diluted share (in usd per share) | $ 0.05 | $ 0.07 | $ 0.25 | $ 0.33 |
Legal proceedings and contingencies (Details) $ in Millions |
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Mar. 31, 2016
party
|
Apr. 01, 2016
USD ($)
|
Jan. 01, 2016
USD ($)
|
Apr. 03, 2015
USD ($)
|
Dec. 28, 2012
USD ($)
|
Apr. 01, 2016
USD ($)
|
Apr. 03, 2015
USD ($)
|
|
Loss Contingencies [Line Items] | |||||||
Adjustment to loss on sales of businesses, net | $ 20 | $ 0 | |||||
Gain on sale of discontinued operations after-tax | $ (2) | $ 0 | (19) | $ 0 | |||
Broadcast Communications | |||||||
Loss Contingencies [Line Items] | |||||||
Asset sale agreement | $ 225 | ||||||
Asset sale agreement, cash | 160 | ||||||
Asset sale agreement, promissory note | 15 | ||||||
Asset sale agreement, earnout | $ 50 | ||||||
Adjustment to loss on sales of businesses, net | $ 21 | ||||||
Gain on sale of discontinued operations after-tax | $ (17) | ||||||
Exelis | Passaic River Alaska | |||||||
Loss Contingencies [Line Items] | |||||||
Estimated cost for all participating parties of EPA's preferred alternative | $ 1,380 | ||||||
Number of Responsible Parties Notified | party | 100 |
Subsequent Events (Details) - Subsequent Event - Aerostructures $ in Millions |
Apr. 08, 2016
USD ($)
|
---|---|
Subsequent Event [Line Items] | |
Gain on sale of discontinued operations, after-tax | $ 187 |
Disposal Group, Not Discontinued Operations [Member] | |
Subsequent Event [Line Items] | |
Capital lease liability assumed on sale of discontinued operations | $ 23 |
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