þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Delaware (State or other jurisdiction of incorporation or organization) | 34-0276860 (I.R.S. Employer Identification No.) | |
1025 West NASA Boulevard Melbourne, Florida | 32919 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class Common Stock, par value $1.00 per share | Name of each exchange on which registered New York Stock Exchange |
Large accelerated filer | þ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Page No. | ||
Part I: | ||
Part II: | ||
Part III: | ||
Part IV: | ||
Signatures |
ITEM 1. | BUSINESS. |
• | Communication Systems, serving markets in tactical communications 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”) and undersea systems; 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. |
• | Our widely deployed Single Channel Ground and Airborne Radio System (“SINCGARS”) family of backpack, vehicular-mounted, handheld and airborne radios currently used by U.S. and allied military forces — these Combat Net Radios, over 600,000 of which have been purchased and deployed worldwide, operate in the very high frequency band, have single-frequency and frequency-hopping modes, handle voice and data communications and are designed to be reliable, secure and easily maintained. |
• | Our multiband manpack radio, the AN/PRC-117G, which is National Security Agency (“NSA”) Type-1-certified for narrowband communications, as well as for wideband communications using our Harris-developed Adaptive Networking Wideband Waveform for high bandwidth data operation and the U.S. military Joint Tactical Radio System (“JTRS”) Soldier Radio Waveform; |
• | Our 2-channel vehicular radio system, the AN/VRC-118, which uses the DoD-developed Wideband Networking Waveform and was selected as the U.S. Army’s solution for its JTRS Mid-Tier Networking Vehicular Radio program; |
• | Our multiband handheld radios, the AN/PRC-152, which is a widely fielded JTRS-approved software-defined handheld radio, and the AN/PRC-152A, which adds wideband, networked communications capability and supports both a full range of narrowband legacy waveforms and wideband networking waveforms in a handheld platform; |
• | Our multi-channel manpack radio, the AN/PRC-158, which is a commercially developed, NSA Type-1-certified radio offering two channels integrated into the same chassis; |
• | Our wideband rifleman team radio, the RF-330E, which is the commercially developed U.S. variant of our widely fielded international soldier personal radio; |
• | Our wideband ground radio family for international customers, the RF-7850x, which covers all echelons of the battlefield with soldier handheld, vehicular and fixed-site radio products; |
• | Our wideband high frequency manpack radio, the RF-7800H, which is a wideband-capable tactical high frequency radio available to customers worldwide; |
• | Our single-channel airborne radios, which include the NSA Type-1-certified RF-300M-DL Small Secure Data Link multiband radio for integration in size, weight and power-constrained environments, as well as the ARC-201D and ARC-201E radios for DoD and international very high frequency network interoperability; and |
• | Our multi-channel airborne radios, which include the RF-7850A for interoperability with our RF-7800 family of international ground radios, as well as a 2-channel airborne radio platform we provide to ViaSat, Inc. to be built into the KOR-24A multi-channel, Link-16 Small Tactical Terminal. |
• | A 10-year (5-year base, 5 option years), multi-award Indefinite Delivery Indefinite Quantity (“IDIQ”) contract from the U.S. Army awarded in fiscal 2015 for rifleman radios and associated services under the JTRS HMS program; |
• | A 10-year (5-year base, one 5-year option), multi-award IDIQ contract from the U.S. Army awarded in fiscal 2016 for multi-channel manpack radios under the JTRS HMS program; |
• | A 6-year, single-award IDIQ contract from the U.S. Special Operations Command awarded in fiscal 2016 for a new integrated 2-channel handheld tactical radio; |
• | An increase in fiscal 2016 in the ceiling value of a previously awarded single-source IDIQ contract with the U.S. Defense Logistics Agency to provide tactical radio spare parts to the U.S. Army and federal civilian agencies; |
• | A 5-year, single-award follow-on foreign military sales IDIQ contract from U.S. Army Communications-Electronics Command (“CECOM”) awarded in fiscal 2016 to supply tactical communications solutions; and |
• | A 5-year, single-award foreign military sales IDIQ contract to supply SINCGARS tactical solutions. |
• | Deploying digital trunked, statewide, multi-agency systems for the State of Florida, the Commonwealth of Pennsylvania and the State of Nevada; |
• | Deploying large, wide-area and multi-state LMR systems for some of the largest utility companies in the U.S.; |
• | Deploying for the DoD-National Capitol Region network in the Washington, D.C. area a wide-area, IP-based P25 network that links nearly 20 military bases, providing the U.S. Army, Navy, Air Force and Marine Corps with wireless communications on base and throughout the National Capitol Region, and that allows interoperability with local public safety agencies to provide one integrated regional network; |
• | Designing and building the Alberta First Responders Radio Communications System that will provide public safety communications within the 256,000 square-mile Province of Alberta, Canada; |
• | Designing and deploying a VIDA network system for the Trinidad and Tobago Ministry of National Security that will improve voice and data communications and provide interoperability among first responders and the Ministry’s agencies; and |
• | Designing, deploying and maintaining an APCO P25 system for the New York Metropolitan Transportation Authority Police to connect their police operations throughout 14 counties in New York and Connecticut and help them support more than 14 million daily commuters. |
• | Our ENVI® image analysis software that analyzes virtually any geospatial data type; |
• | Our Geiger-mode light detection and ranging (“LiDAR”) sensor, which measures distance by illuminating a target with a laser light, that makes large-scale and high-density data collections possible at affordable prices; |
• | Our Jagwire™ web-based geospatial data management software that helps quickly discover data, transform it into information and deliver it to decision makers, even in low bandwidth environments; |
• | Our imagery products for two of three regions for the Foundation GEOINT Content Management (“FGCM”) program under two 5-year, single-award IDIQ contracts awarded in fiscal 2014 by the National Geospatial-Intelligence Agency (“NGA”); |
• | Our geospatial marketplace that offers online access to geospatial imagery and data, off-the-shelf data products such as digital elevation models and orthomosaics, and customized geospatial products for visual simulation databases or to meet customer-specific project requirements; and |
• | Tracking maritime vessels and delivering robust global shipping information through access to Satellite Automated Identification System data. |
• | Transforming voice-based air traffic control to automated air traffic management under the Data Communications Integrated Services (“Datacomm”) program (including the Data Communications Network Service component); |
• | Delivering systems for modern Voice Over Internet Protocol (“VoIP”) communications among air traffic controllers, pilots and ground personnel under the National Airspace System (“NAS”) Voice System contract; |
• | Designing and implementing a system that provides real-time weather information across the NAS under the Common Support Services Weather program; |
• | Providing enterprise-wide data sharing for a variety of critical information such as flight planning, traffic flow, surface radar and weather under a NAS Enterprise Messaging Service IDIQ contract for the Systems Wide Information Management program; and |
• | Designing, building and operating a nationwide system of radio communications, telecommunications networks, IT and software to deliver highly accurate, networked, real-time surveillance data to the automated systems of the FAA, as the prime contractor on the ADS-B program to modernize from a ground-based to a satellite-based system of air traffic management. |
• | For the Deep Space Network (“DSN”) at the Jet Propulsion Laboratory (“JPL”) and NASA, we operate and maintain the large antennas for the DSN, as well as multiple network and communication systems, several network operations centers and facilities for testing, logistics and maintenance and repair; and we provide maintenance, operations and engineering support for JPL’s Goldstone, California complex. The DSN is an international communication network that supports interplanetary, robotic spacecraft missions conducting radio, radar and astronomy observations of the solar system and beyond and that provides connectivity with the spacecraft and their data-gathering instruments. |
• | We provide near-Earth spacecraft connectivity for NASA as the prime contractor on the Space Communications Network Services (“SCNS”) program for the Goddard Space Flight Center, which provides most of the communications and tracking services for a wide range of Earth-orbiting spacecraft, such as the International Space Station, the Hubble Space Telescope and the Earth Observing System satellites. |
• | Satellite communication services, including all shipboard equipment, onboard IT system integration and satellite bandwidth, under multi-year agreements covering over 1,000 sites operating worldwide for energy customers; |
• | Data, voice and networking services to drilling ships operating in offshore Brazil and satellite communications to drilling ships operating in offshore Norway; |
• | Turnkey managed satellite communications to over 450 offshore supply and commercial shipping and service vessels worldwide; and |
• | Managed global satellite communication services for a major cruise line across its fleet of more than 100 cruise ships and managed global communication services for more than 30 cruise ships for another major cruise line to improve overall communications performance and enhance guest and crew experiences. |
• | Comprehensive operational and system maintenance support and engineering and technology enhancements for the Defense Information Systems Agency (“DISA”) Crisis Management System; |
• | Enterprise IT support services to the North American Air Defense Command and the U.S. Northern Command; |
• | IT integration of installation, training, help desk, passport and configuration management services for the U.S. Department of State under the Consular Affairs Support Services Contract in support of U.S. embassies and consulates around the world; |
• | Serving enduring missions in military and national intelligence, strategic deterrence and defense against chemical, biological, radiological, nuclear and explosive threats, and other core defense programs; and |
• | Operations and maintenance of a series of airborne radar platforms and associated infrastructure and communications under the Tethered Aerostat Radar System (“TARS”) program to provide persistent, long-range detection and monitoring (radar surveillance) capability along the United States-Mexico border, the Florida Straits and a portion of the Caribbean. |
ITEM 1A. | RISK FACTORS. |
• | Disrupt the proper functioning of these networks and systems and therefore our operations and/or those of certain of our customers; |
• | Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; |
• | Compromise national security and other sensitive government functions; |
• | Require significant management attention and resources to remedy the damages that result; |
• | Subject us to claims for contract breach, damages, credits, penalties or termination; and |
• | Damage our reputation with our customers (particularly agencies of the U.S. Government) and the public generally. |
• | The U.S. Government could reduce or delay its spending on, or reprioritize its spending away from, the government programs in which we participate; |
• | The U.S. Government may be unable to complete its budget process before the end of its fiscal year on September 30 and thus would be required either to shut down or be funded pursuant to a “continuing resolution” that authorizes agencies of the U.S. Government to continue operations but does not authorize new spending initiatives, either of which could result in reduced or delayed orders or payments for products and services we provide. If the U.S. Government budget process results in a shutdown or prolonged operation under a continuing resolution, it may decrease our revenue, profitability or cash flows or otherwise have a material adverse effect on our business, financial condition and results of operations; |
• | U.S. Government spending could be impacted by sequestration or alternate arrangements, which increases the uncertainty as to, and the difficulty in predicting, U.S. Government spending priorities and levels; |
• | We may experience declines in revenue, profitability and cash flows as a result of reduced or delayed orders or payments or other factors caused by the economic problems of our customers and prospective customers, including U.S. Federal, state and local governments; |
• | We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and subcontractors; and |
• | We may incur increased costs or experience difficulty with future borrowings under our commercial paper program or credit facilities or in the debt markets, or otherwise with financing our operating, investing (including any future acquisitions) or financing activities. |
• | Currency exchange controls, fluctuations of currency and currency revaluations; |
• | The laws, regulations and policies of foreign governments relating to investments and operations, as well as U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act (“FCPA”); |
• | Changes in regulatory requirements, including business or operating license requirements, imposition of tariffs or embargoes, export controls and other trade restrictions; |
• | Uncertainties and restrictions concerning the availability of funding, credit or guarantees; |
• | The complexity and necessity of using, and disruptions involving our, international dealers, distributors, sales representatives and consultants; |
• | The difficulties of managing a geographically dispersed organization and culturally diverse workforces, including compliance with local laws and practices; |
• | Difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner and changes in tax laws; |
• | Import and export licensing requirements and regulations, as well as unforeseen changes in export regulations; |
• | Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional requirements for onerous contract clauses; |
• | Rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation; and |
• | Increased risk of an incident resulting in damage or destruction to our products or resulting in injury or loss of life to our employees, subcontractors or other third parties. |
• | Identify emerging technological trends in our current and target markets; |
• | Develop and maintain competitive products, systems, services and technologies; |
• | Enhance our offerings by adding innovative hardware, software or other features that differentiate our products, systems, services and technologies from those of our competitors; and |
• | Develop, manufacture and bring to market cost-effective offerings quickly. |
• | Difficulty in identifying and evaluating potential acquisitions, including the risk that our due diligence does not identify or fully assess valuation issues, potential liabilities or other acquisition risks; |
• | Difficulty and expense in integrating newly acquired businesses and operations, including combining product and service offerings, and in entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures, and the risk that we encounter significant unanticipated costs or other problems associated with integration; |
• | Difficulty and expense in consolidating and rationalizing IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code; |
• | Challenges in achieving strategic objectives, cost savings and other benefits expected from acquisitions; |
• | Risk that our markets do not evolve as anticipated and that the strategic acquisitions and divestitures do not prove to be those needed to be successful in those markets; |
• | Risk that we assume significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties; |
• | Potential loss of key employees or customers of the businesses acquired or to be divested; |
• | Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions or within expected timeframes; and |
• | Risk of diverting the attention of senior management from our existing operations. |
• | The jurisdictions in which profits are determined to be earned and taxed; |
• | Adjustments to estimated taxes upon finalization of various tax returns; |
• | Increases in expenses not fully deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill or other long-term assets in connection with acquisitions; |
• | Changes in available tax credits; |
• | Changes in share-based compensation expense; |
• | Changes in the valuation of our deferred tax assets and liabilities; |
• | Changes in domestic or international tax laws or the interpretation of such tax laws; and |
• | The resolution of issues arising from tax audits with various tax authorities. |
ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
ITEM 2. | PROPERTIES. |
Segment | Approximate Total Sq. Ft. Owned | Approximate Total Sq. Ft. Leased | Approximate Total Sq. Ft. | |||||
(In millions) | ||||||||
Communication Systems | 1.5 | 0.7 | 2.2 | |||||
Space and Intelligence Systems | 2.4 | 0.9 | 3.3 | |||||
Electronic Systems | 1.5 | 1.3 | 2.8 | |||||
Critical Networks | 0.8 | 1.6 | 2.4 | |||||
Corporate | 0.3 | 0.1 | 0.4 | |||||
Total | 6.5 | 4.6 | 11.1 |
ITEM 3. | LEGAL PROCEEDINGS. |
ITEM 4. | MINE SAFETY DISCLOSURES. |
Name and Age | Position Currently Held and Past Business Experience | |
William M. Brown, 53 | Chairman, President and Chief Executive Officer since April 2014. President and Chief Executive Officer from November 2011 to April 2014. Formerly with United Technologies Corporation (“UTC”), as Senior Vice President, Corporate Strategy and Development from April 2011 to October 2011; as President of UTC’s Fire & Security division from 2006 to 2011; and in U.S. and international roles at UTC’s Carrier Corporation from 2000 to 2006, including President of the Carrier Asia Pacific Operations; and as Director, Corporate Strategy and Business Development from 1997 to 2000. Before joining UTC in 1997, Mr. Brown worked for McKinsey & Company as a senior engagement manager, and prior to that, at Air Products and Chemicals, Inc. as a project engineer. | |
Carl D. D’Alessandro, 53 | President, Critical Networks since July 2015. Vice President and General Manager, Civil Programs, Government Communications Systems from June 2013 to July 2015. Vice President, Advanced Programs and Technology, Government Communications Systems from August 2010 to June 2013. Vice President, Technology and Government Communications Systems Growth Programs from July 2008 to August 2010. Mr. D’Alessandro joined Harris in 1984. | |
Robert L. Duffy, 49 | Senior Vice President, Human Resources and Administration since July 2012. Formerly with UTC, as Vice President, Human Resources for UTC’s Sikorsky aircraft operation from 2010 to 2011; and in similar roles within UTC’s Fire & Security, Carrier, Hamilton Sundstrand and Pratt & Whitney operations from 1998 to 2009. Before joining UTC in 1998, Mr. Duffy held human resource management positions with Royal Dutch Shell and James River Corporation. | |
Sheldon J. Fox, 57 | Senior Vice President, Integration and Engineering since July 2015. Group President, Government Communications Systems from June 2010 to July 2015. President, National Intelligence Programs, Government Communications Systems from December 2007 to May 2010. President, Defense Programs, Government Communications Systems from May 2007 to December 2007. Vice President and General Manager, Department of Defense Programs, Government Communications Systems Division from July 2006 to April 2007. Vice President of Programs, Department of Defense Communications Systems, Government Communications Systems Division from July 2005 to June 2006. Mr. Fox joined Harris in 1984. | |
William H. Gattle, 55 | President, Space and Intelligence Systems since July 2015. Vice President and General Manager, National Intelligence Programs, Government Communications Systems from June 2013 to July 2015. Vice President, Aerospace Systems, Government Communications Systems from June 2012 to June 2013. Vice President, Space Communication Systems, Government Communications Systems from January 2009 to June 2012. Mr. Gattle joined Harris in 1987. | |
Rahul Ghai, 44 | Senior Vice President and Chief Financial Officer since February 2016. Vice President, Finance-Integration from March 2015 to February 2016. Formerly with Aetna Inc., as Vice President, Financial Planning and Integration from August 2013 to February 2015; and Chief Financial Officer for Aetna International from May 2012 to August 2013. Before joining Aetna, Mr. Ghai held positions at UTC from 2000 to 2012, including as Vice President-Financial Planning and Analysis and Treasury for UTC’s Hamilton Sundstrand division (January 2012 to May 2012); Vice President-Financial Planning and Analysis and Operations Finance for UTC’s Fire & Security division (2009-2011); Chief Financial Officer, Americas, Fire & Security Services (2007-2009); and Director, Global Operations Finance, Fire & Security (2005-2007). |
Name and Age | Position Currently Held and Past Business Experience | |
Dana A. Mehnert, 54 | Senior Vice President, Chief Global Business Development Officer since July 2015. Group President, RF Communications from May 2009 to July 2015. President, RF Communications from July 2006 to May 2009. Vice President and General Manager — Government Products Business, RF Communications from July 2005 to July 2006. Vice President and General Manager — Business Development and Operations, RF Communications from January 2005 to July 2005. Vice President — Defense Operations, RF Communications from January 2004 to January 2005. Vice President — International Operations, RF Communications from November 2001 to January 2004. Vice President/Managing Director — International Government Sales Operations for Harris’ regional sales organization from September 1999 to November 2001. Vice President — Marketing and International Sales, RF Communications from August 1997 to September 1999. Vice President — Worldwide Marketing, RF Communications from July 1996 to July 1997. Vice President — International Sales, RF Communications from November 1995 to June 1996. Mr. Mehnert joined Harris in 1984. | |
Scott T. Mikuen, 54 | Senior Vice President, General Counsel and Secretary since February 2013. Vice President, General Counsel and Secretary from October 2010 to February 2013. Vice President, Associate General Counsel and Secretary from October 2004 to October 2010. Vice President — Counsel, Corporate and Commercial Operations and Assistant Secretary from November 2000 to October 2004. Mr. Mikuen joined Harris in 1996 as Finance Counsel. | |
Todd A. Taylor, 43 | Vice President, Principal Accounting Officer since May 2015. Vice President from April 2015 to May 2015. Formerly with Molex, Inc., as Vice President, Chief Accounting Officer and Corporate Controller from September 2012 to April 2015, Director of Finance and Corporate Controller from September 2010 to September 2012 and Director of Accounting from June 2008 to September 2010; with PricewaterhouseCoopers, as Internal Audit Advisory Director from March 2003 to June 2008; and with Wells Fargo, as Internal Controls Manager from September 1999 to February 2003. Mr. Taylor began his career in public accounting with RSM McGladrey in 1996. | |
Christopher D. Young, 56 | President, Communication Systems since July 2015. Previously with Exelis (formerly known as ITT Defense and Information Solutions) as President, Geospatial Systems and Executive Vice President, Exelis from October 2011 to July 2015 and President and General Manager of ITT Space Systems Division from April 2006 to October 2011. Mr. Young first joined ITT Defense and Information Solutions in 1982 where he assumed positions of increasing responsibility. | |
Edward J. Zoiss, 51 | President, Electronic Systems since July 2015. Vice President and General Manager, Defense Programs, Government Communications Systems from June 2013 to July 2015. Vice President, C4ISR Electronics, Government Communications Systems from June 2012 to June 2013; Vice President, Advanced Programs and Technology, Government Communications Systems from July 2010 to June 2012. Mr. Zoiss joined Harris in 1995. |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
High | Low | Cash Dividends | High | Low | Cash Dividends | |||||||||||||||||||
Fiscal 2016 | Fiscal 2015 | |||||||||||||||||||||||
First Quarter | $ | 84.78 | $ | 70.10 | $ | 0.50 | First Quarter | $ | 76.50 | $ | 66.85 | $ | 0.47 | |||||||||||
Second Quarter | $ | 89.78 | $ | 73.72 | 0.50 | Second Quarter | $ | 74.27 | $ | 60.78 | 0.47 | |||||||||||||
Third Quarter | $ | 89.35 | $ | 70.97 | 0.50 | Third Quarter | $ | 79.52 | $ | 66.15 | 0.47 | |||||||||||||
Fourth Quarter | $ | 84.75 | $ | 73.32 | 0.50 | Fourth Quarter | $ | 82.79 | $ | 76.35 | 0.47 | |||||||||||||
$ | 2.00 | $ | 1.88 |
HARRIS FISCAL YEAR END | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||
Harris | $ | 100 | $ | 95 | $ | 115 | $ | 181 | $ | 190 | $ | 207 | ||||||
S&P 500 | $ | 100 | $ | 104 | $ | 125 | $ | 156 | $ | 169 | $ | 175 | ||||||
S&P 500 Aerospace & Defense | $ | 100 | $ | 96 | $ | 128 | $ | 167 | $ | 181 | $ | 203 |
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 | ||||||||||
(April 2, 2016-April 29, 2016) | ||||||||||
Repurchase Program (1) | — | — | — | $683,544,295 | ||||||
Employee Transactions (2) | 34,493 | $77.33 | — | — | ||||||
Month No. 2 | ||||||||||
(April 30, 2016-May 27, 2016) | ||||||||||
Repurchase Program (1) | — | — | — | $683,544,295 | ||||||
Employee Transactions (2) | 6,261 | $77.74 | — | — | ||||||
Month No. 3 | ||||||||||
(May 28, 2016-July 1, 2016) | ||||||||||
Repurchase Program (1) | — | — | — | $683,544,295 | ||||||
Employee Transactions (2) | 5,296 | $81.12 | — | — | ||||||
Total | 46,050 | $77.82 | — | $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 July 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. |
ITEM 6. | SELECTED FINANCIAL DATA. |
Fiscal Years Ended | |||||||||||||||||||
2016 (1) | 2015 (2) | 2014 | 2013 (3) | 2012 (4) | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Results of Operations: | |||||||||||||||||||
Revenue from product sales and services | $ | 7,467 | $ | 5,083 | $ | 5,012 | $ | 5,112 | $ | 5,451 | |||||||||
Cost of product sales and services | 5,132 | 3,348 | 3,310 | 3,385 | 3,569 | ||||||||||||||
Interest expense | 183 | 130 | 94 | 109 | 113 | ||||||||||||||
Income from continuing operations before income taxes | 611 | 477 | 795 | 665 | 842 | ||||||||||||||
Income taxes | 266 | 143 | 256 | 203 | 286 | ||||||||||||||
Income from continuing operations | 345 | 334 | 539 | 462 | 556 | ||||||||||||||
Discontinued operations, net of income taxes | (21 | ) | — | (5 | ) | (353 | ) | (528 | ) | ||||||||||
Net income | 324 | 334 | 534 | 109 | 28 | ||||||||||||||
Noncontrolling interests, net of income taxes | — | — | 1 | 4 | 3 | ||||||||||||||
Net income attributable to Harris Corporation | 324 | 334 | 535 | 113 | 31 | ||||||||||||||
Average shares outstanding (diluted) | 125.0 | 106.8 | 107.3 | 111.2 | 114.8 | ||||||||||||||
Per Share Data (Diluted) Attributable to Harris Corporation Common Shareholders: | |||||||||||||||||||
Income from continuing operations | $ | 2.75 | $ | 3.11 | $ | 5.00 | $ | 4.16 | $ | 4.80 | |||||||||
Loss from discontinued operations, net of income taxes | (0.16 | ) | — | (0.05 | ) | (3.15 | ) | (4.54 | ) | ||||||||||
Net income | 2.59 | 3.11 | 4.95 | 1.01 | 0.26 | ||||||||||||||
Cash dividends | 2.00 | 1.88 | 1.68 | 1.48 | 1.22 | ||||||||||||||
Financial Position at Fiscal Year-End: | |||||||||||||||||||
Net working capital | $ | 644 | $ | 909 | $ | 877 | $ | 651 | $ | 1,186 | |||||||||
Net property, plant and equipment | 1,015 | 1,165 | 728 | 653 | 659 | ||||||||||||||
Long-term debt, net | 4,120 | 5,053 | 1,564 | 1,564 | 1,867 | ||||||||||||||
Total assets | 11,996 | 13,127 | 4,919 | 4,845 | 5,576 | ||||||||||||||
Equity | 3,057 | 3,402 | 1,825 | 1,561 | 1,946 | ||||||||||||||
Book value per share | 24.53 | 27.51 | 17.30 | 14.60 | 17.35 |
(1) | Results for fiscal 2016 included: (i) a $367 million non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications due to the downturn in the energy market and its impact on customer operations, (ii) $104 million for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, (iii) $11 million for amortization of a step-up in inventory, (iv) $48 million of charges primarily related to workforce reductions, facility consolidation and other items, (v) a net liability reduction of $101 million for certain post-employment benefit plans, and (vi) a $10 million net gain on the sale of Aerostructures. Income taxes on the above items were $49 million. Income from continuing operations included an after-tax impact of $370 million or $2.95 per diluted common share from the above items. |
(2) | Results for fiscal 2015 included results of Exelis following the close of the acquisition on May 29, 2015 and a $217 million after-tax ($2.03 per diluted share) charge for transaction, financing, integration, restructuring and other costs, primarily related to our acquisition of Exelis. |
(3) | Results for fiscal 2013 included an $83 million after-tax ($.74 per diluted share) charge, net of government cost reimbursement, for Company-wide restructuring and other actions, including prepayment of long-term debt, asset impairments, a write-off of capitalized software, facility consolidation, workforce reductions and other associated costs. |
(4) | Results for fiscal 2012 included a $46 million after-tax ($.40 per diluted share) charge for integration and other costs in our Critical Networks segment associated with our acquisitions of CapRock Holdings, Inc. and its subsidiaries, including CapRock Communications, Inc. (collectively, “CapRock”), Schlumberger group’s Global Connectivity Services business (“Schlumberger GCS”) and Carefx. |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
• | Business Considerations — a general description of our business; the value drivers of our business; fiscal 2016 results of operations and liquidity and capital resources key indicators; and industry-wide opportunities, challenges and risks that are relevant to us in the defense, government and commercial markets. In this section of this MD&A, “income from continuing operations” refers to income from continuing operations attributable to Harris Corporation common shareholders. |
• | Operations Review — 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 three years presented in our financial statements. In this section of this MD&A, “income from continuing operations” refers to income from continuing operations attributable to Harris Corporation common shareholders. |
• | Liquidity, Capital Resources and Financial Strategies — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, contractual obligations, off-balance sheet arrangements, commercial commitments, financial risk management, impact of foreign exchange and impact of inflation. |
• | Critical Accounting Policies and Estimates — a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by 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 communications 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 and undersea systems; 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 47 percent to $7.5 billion in fiscal 2016 from $5.1 billion in fiscal 2015, benefiting from our acquisition of Exelis; |
• | Income from continuing operations increased 3 percent to $345 million in fiscal 2016 from $334 million in fiscal 2015, primarily due to the inclusion in our operating results of Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015. |
• | Income from continuing operations also reflected (i) a $367 million non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications due to the downturn in the energy market and its impact on customer operations, (ii) $104 million for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, (iii) $11 million for amortization of a step-up in inventory, (iv) $48 million of charges primarily related to workforce reductions, facility consolidation and other items, (v) a net liability reduction of $101 million for certain post-employment benefit plans, and (vi) a $10 million net gain on the sale of Aerostructures. Income taxes on the above items were $49 million. Income from continuing operations included an after-tax impact of $370 million or $2.95 per diluted common share from the above items. |
• | Income from continuing operations per diluted common share decreased 12 percent to $2.75 in fiscal 2016 from $3.11 in fiscal 2015, primarily due to the increase in the diluted common shares outstanding from shares issued in connection with our acquisition of Exelis and recording in the second quarter of fiscal 2016 the non-cash impairment charge related to Harris CapRock Communications as noted above; and |
• | Income from continuing operations as a percentage of revenue decreased to 5 percent in fiscal 2016 from 7 percent in fiscal 2015, primarily due to recording in the second quarter of fiscal 2016 the non-cash impairment charge related to Harris CapRock Communications as noted above. |
• | Net cash provided by operating activities increased to $924 million in fiscal 2016 from $854 million in fiscal 2015; |
• | Return on invested capital (defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the fiscal year, where invested capital equals equity plus debt, less cash and cash equivalents) decreased to 6 percent in fiscal 2016 from 9 percent in fiscal 2015, primarily due to recording in the second quarter of fiscal 2016 the non-cash impairment charge related to Harris CapRock Communications as noted above and an increase in the denominator from debt and equity issued in connection with our acquisition of Exelis in the fourth quarter of fiscal 2015; |
• | Return on average equity (defined as income from continuing operations divided by the two-point average of equity at the beginning and end of the fiscal year) decreased to 11 percent in fiscal 2016 from 13 percent in fiscal 2015, primarily due to higher average equity from shares issued in connection with our acquisition of Exelis in the fourth quarter of fiscal 2015; |
• | Our consolidated total indebtedness to total capital ratio at July 1, 2016 was 60 percent, compared to our 65 percent covenant limitation under our senior unsecured revolving credit facility; and |
• | Net cash used to repay borrowings decreased to $730 million in fiscal 2016 from fiscal 2015 when $954 million of net cash was used to repay borrowings including the redemption of two series of our notes. |
Fiscal Years Ended | |||||||||||||||||
2016 | 2015(A) | 2016/2015 Percent Increase/ (Decrease) | 2014 | 2015/2014 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions, except per share amounts) | |||||||||||||||||
Revenue: | |||||||||||||||||
Communication Systems | $ | 1,864 | $ | 1,836 | 2 | % | $ | 1,855 | (1 | )% | |||||||
Space and Intelligence Systems | 1,899 | 1,007 | 89 | % | 966 | 4 | % | ||||||||||
Electronic Systems | 1,530 | 584 | 162 | % | 420 | 39 | % | ||||||||||
Critical Networks | 2,233 | 1,680 | 33 | % | 1,786 | (6 | )% | ||||||||||
Corporate eliminations | (59 | ) | (24 | ) | 146 | % | (15 | ) | 60 | % | |||||||
Total revenue | 7,467 | 5,083 | 47 | % | 5,012 | 1 | % | ||||||||||
Cost of product sales and services: | |||||||||||||||||
Cost of product sales | (3,141 | ) | (1,963 | ) | 60 | % | (1,857 | ) | 6 | % | |||||||
% of revenue from product sales | 65 | % | 59 | % | 58 | % | |||||||||||
Cost of services | (1,991 | ) | (1,385 | ) | 44 | % | (1,453 | ) | (5 | )% | |||||||
% of revenue from services | 75 | % | 78 | % | 80 | % | |||||||||||
Total cost of product sales and services | (5,132 | ) | (3,348 | ) | 53 | % | (3,310 | ) | 1 | % | |||||||
% of total revenue | 69 | % | 66 | % | 66 | % | |||||||||||
Gross margin | 2,335 | 1,735 | 35 | % | 1,702 | 2 | % | ||||||||||
% of total revenue | 31 | % | 34 | % | 34 | % | |||||||||||
Engineering, selling and administrative expenses | (1,186 | ) | (976 | ) | 22 | % | (820 | ) | 19 | % | |||||||
% of total revenue | 16 | % | 19 | % | 16 | % | |||||||||||
Impairment of goodwill and other assets | (367 | ) | (46 | ) | * | — | * | ||||||||||
Non-operating income (loss) | 10 | (108 | ) | * | 4 | * | |||||||||||
Net interest expense | (181 | ) | (128 | ) | 41 | % | (91 | ) | 41 | % | |||||||
Income from continuing operations before income taxes | 611 | 477 | 28 | % | 795 | (40 | )% | ||||||||||
Income taxes | (266 | ) | (143 | ) | 86 | % | (256 | ) | (44 | )% | |||||||
Effective tax rate | 44 | % | 30 | % | 32 | % | |||||||||||
Income from continuing operations | 345 | 334 | 3 | % | 539 | (38 | )% | ||||||||||
Noncontrolling interests, net of income taxes | — | — | * | 1 | (100 | )% | |||||||||||
Income from continuing operations attributable to | |||||||||||||||||
Harris Corporation common shareholders | 345 | 334 | 3 | % | 540 | (38 | )% | ||||||||||
% of total revenue | 5 | % | 7 | % | 11 | % | |||||||||||
Discontinued operations, net of income taxes | (21 | ) | — | * | (5 | ) | (100 | )% | |||||||||
Net income attributable to Harris Corporation common shareholders | $ | 324 | $ | 334 | (3 | )% | $ | 535 | (38 | )% | |||||||
Income from continuing operations per diluted common share attributable to Harris Corporation common shareholders | $ | 2.75 | $ | 3.11 | (12 | )% | $ | 5.00 | (38 | )% |
• | Settlement of several items for amounts that were lower than previously recorded estimates; |
• | Legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015; |
• | Recognition of a tax loss, net of valuation allowances, upon the divestiture of Aerostructures; |
• | State tax reductions resulting from our integration of Exelis operations; and |
• | Several differences between GAAP and tax accounting related to investments. |
2016 | 2015 | 2016/2015 Percent Increase/ (Decrease) | 2014 | 2015/2014 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions) | |||||||||||||||||
Revenue | $ | 1,864 | $ | 1,836 | 2 | % | $ | 1,855 | (1 | )% | |||||||
Cost of product sales and services | (941 | ) | (890 | ) | 6 | % | (902 | ) | (1 | )% | |||||||
Gross margin | 923 | 946 | (2 | )% | 953 | (1 | )% | ||||||||||
% of revenue | 50 | % | 52 | % | 51 | % | |||||||||||
ESA expenses | (393 | ) | (383 | ) | 3 | % | (379 | ) | 1 | % | |||||||
% of revenue | 21 | % | 21 | % | 20 | % | |||||||||||
Segment operating income | $ | 530 | $ | 563 | (6 | )% | $ | 574 | (2 | )% | |||||||
% of revenue | 28 | % | 31 | % | 31 | % |
2016 | 2015 | 2016/2015 Percent Increase/ (Decrease) | 2014 | 2015/2014 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions) | |||||||||||||||||
Revenue | $ | 1,899 | $ | 1,007 | 89 | % | $ | 966 | 4 | % | |||||||
Cost of product sales and services | (1,397 | ) | (715 | ) | 95 | % | (704 | ) | 2 | % | |||||||
Gross margin | 502 | 292 | 72 | % | 262 | 11 | % | ||||||||||
% of revenue | 26 | % | 29 | % | 27 | % | |||||||||||
ESA expenses | (208 | ) | (150 | ) | 39 | % | (134 | ) | 12 | % | |||||||
% of revenue | 11 | % | 15 | % | 14 | % | |||||||||||
Segment operating income | $ | 294 | $ | 142 | 107 | % | $ | 128 | 11 | % | |||||||
% of revenue | 15 | % | 14 | % | 13 | % |
2016 | 2015 | 2016/2015 Percent Increase/ (Decrease) | 2014 | 2015/2014 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions) | |||||||||||||||||
Revenue | $ | 1,530 | $ | 584 | 162 | % | $ | 420 | 39 | % | |||||||
Cost of product sales and services | (1,097 | ) | (426 | ) | 158 | % | (309 | ) | 38 | % | |||||||
Gross margin | 433 | 158 | 174 | % | 111 | 42 | % | ||||||||||
% of revenue | 28 | % | 27 | % | 26 | % | |||||||||||
ESA expenses | (156 | ) | (61 | ) | 156 | % | (39 | ) | 56 | % | |||||||
% of revenue | 10 | % | 10 | % | 9 | % | |||||||||||
Segment operating income | $ | 277 | $ | 97 | 186 | % | $ | 72 | 35 | % | |||||||
% of revenue | 18 | % | 17 | % | 17 | % |
2016 | 2015 | 2016/2015 Percent Increase/ (Decrease) | 2014 | 2015/2014 Percent Increase/ (Decrease) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Revenue | $ | 2,233 | $ | 1,680 | 33 | % | $ | 1,786 | (6 | )% | ||||||||
Cost of product sales and services | (1,756 | ) | (1,341 | ) | 31 | % | (1,418 | ) | (5 | )% | ||||||||
Gross margin | 477 | 339 | 41 | % | 368 | (8 | )% | |||||||||||
% of revenue | 21 | % | 20 | % | 21 | % | ||||||||||||
ESA expenses | (216 | ) | (173 | ) | 25 | % | (170 | ) | 2 | % | ||||||||
% of revenue | 10 | % | 10 | % | 10 | % | ||||||||||||
Impairment of goodwill and other assets | (367 | ) | (35 | ) | * | — | * | |||||||||||
Segment operating income (loss) | $ | (106 | ) | $ | 131 | * | $ | 198 | (34 | )% | ||||||||
% of revenue | (5 | )% | 8 | % | 11 | % | ||||||||||||
2016 | 2015 | 2016/2015 Percent Increase/ (Decrease) | 2014 | 2015/2014 Percent Increase/ (Decrease) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Unallocated corporate expense | $ | 78 | $ | 199 | (61 | )% | $ | 77 | 158 | % | ||||||||
Amortization of intangible assets from Exelis Inc. acquisition | 132 | 11 | * | — | * | |||||||||||||
Corporate eliminations | 3 | 10 | (70 | )% | 13 | (23 | )% | |||||||||||
Fiscal Years Ended | |||||||||||
2016 | 2015 | 2014 | |||||||||
(Dollars in millions) | |||||||||||
Net cash provided by operating activities | $ | 924 | $ | 854 | $ | 849 | |||||
Net cash used in investing activities | (1 | ) | (3,284 | ) | (162 | ) | |||||
Net cash provided by (used in) financing activities | (893 | ) | 2,373 | (448 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (24 | ) | (23 | ) | 1 | ||||||
Net increase (decrease) in cash and cash equivalents | 6 | (80 | ) | 240 | |||||||
Cash and cash equivalents, beginning of year | 481 | 561 | 321 | ||||||||
Cash and cash equivalents, end of year | $ | 487 | $ | 481 | $ | 561 |
• | $650 million in a 3-year tranche due May 29, 2018 and |
• | $650 million in a 5-year tranche due May 29, 2020. |
• | $500 million of 1.999% Notes due April 27, 2018, |
• | $400 million of 2.700% Notes due April 27, 2020, |
• | $600 million of 3.832% Notes due April 27, 2025, |
• | $400 million of 4.854% Notes due April 27, 2035, and |
• | $500 million of 5.054% Notes due April 27, 2045. |
Obligations Due by Fiscal Year | |||||||||||||||||||
Total | 2017 | 2018 and 2019 | 2020 and 2021 | After 2021 | |||||||||||||||
(Dollars in millions) | |||||||||||||||||||
Long-term debt | $ | 4,494 | $ | 380 | $ | 865 | $ | 923 | $ | 2,326 | |||||||||
Purchase obligations (1),(2) | 1,417 | 1,188 | 199 | 29 | 1 | ||||||||||||||
Operating lease commitments | 331 | 81 | 119 | 67 | 64 | ||||||||||||||
Interest on long-term debt | 2,113 | 169 | 311 | 270 | 1,363 | ||||||||||||||
Minimum pension contributions (3) | 189 | 189 | — | — | — | ||||||||||||||
Total contractual cash obligations | $ | 8,544 | $ | 2,007 | $ | 1,494 | $ | 1,289 | $ | 3,754 |
• | 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. |
Expiration of Commitments by Fiscal Year | |||||||||||||||||||
Total | 2017 | 2018 | 2019 | After 2019 | |||||||||||||||
(Dollars in millions) | |||||||||||||||||||
Surety bonds used for: | |||||||||||||||||||
Bids | $ | 9 | $ | 9 | $ | — | $ | — | $ | — | |||||||||
Performance | 501 | 362 | 37 | 41 | 61 | ||||||||||||||
510 | 371 | 37 | 41 | 61 | |||||||||||||||
Standby letters of credit used for: | |||||||||||||||||||
Down payments | 18 | 12 | — | — | 6 | ||||||||||||||
Performance | 138 | 81 | 22 | — | 35 | ||||||||||||||
Warranty | 19 | 18 | 1 | — | — | ||||||||||||||
175 | 111 | 23 | — | 41 | |||||||||||||||
Total commitments | $ | 685 | $ | 482 | $ | 60 | $ | 41 | $ | 102 |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Favorable adjustments | $ | 199 | $ | 119 | $ | 91 | |||||
Unfavorable adjustments | (132 | ) | (62 | ) | (38 | ) | |||||
Net operating income adjustments | $ | 67 | $ | 57 | $ | 53 |
Obligation assumptions as of: | July 1, 2016 | July 3, 2015 | |
Discount rate | 3.62% | 4.06% | |
Rate of future compensation increase | 2.75% | 2.76% | |
Cost assumptions for fiscal years: | 2016 | 2015 | |
Discount rate | 4.06% | 3.77% | |
Expected return on plan assets | 7.91% | 7.93% | |
Rate of future compensation increase | 2.76% | 2.76% |
Increase/(Decrease) in Pension Expense | |||||||
25 Basis Point Increase | 25 Basis Point Decrease | ||||||
(In millions) | |||||||
Long-term rate of return on assets used to determine net periodic benefit cost | $ | (10.9 | ) | $ | 10.9 | ||
Discount rate used to determine net periodic benefit cost | 6.6 | (7.9 | ) |
• | 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 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. |
• | 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. |
• | 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 from time to time 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 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 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 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. |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Page | |
Fiscal Years Ended | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In millions, except per share amounts) | |||||||||||
Revenue from product sales and services | |||||||||||
Revenue from product sales | $ | 4,827 | $ | 3,311 | $ | 3,189 | |||||
Revenue from services | 2,640 | 1,772 | 1,823 | ||||||||
7,467 | 5,083 | 5,012 | |||||||||
Cost of product sales and services | |||||||||||
Cost of product sales | (3,141 | ) | (1,963 | ) | (1,857 | ) | |||||
Cost of services | (1,991 | ) | (1,385 | ) | (1,453 | ) | |||||
(5,132 | ) | (3,348 | ) | (3,310 | ) | ||||||
Engineering, selling and administrative expenses | (1,186 | ) | (976 | ) | (820 | ) | |||||
Impairment of goodwill and other assets | (367 | ) | (46 | ) | — | ||||||
Non-operating income (loss) | 10 | (108 | ) | 4 | |||||||
Interest income | 2 | 2 | 3 | ||||||||
Interest expense | (183 | ) | (130 | ) | (94 | ) | |||||
Income from continuing operations before income taxes | 611 | 477 | 795 | ||||||||
Income taxes | (266 | ) | (143 | ) | (256 | ) | |||||
Income from continuing operations | 345 | 334 | 539 | ||||||||
Discontinued operations, net of income taxes | (21 | ) | — | (5 | ) | ||||||
Net income | 324 | 334 | 534 | ||||||||
Noncontrolling interests, net of income taxes | — | — | 1 | ||||||||
Net income attributable to Harris Corporation | $ | 324 | $ | 334 | $ | 535 | |||||
Amounts attributable to Harris Corporation common shareholders | |||||||||||
Income from continuing operations | $ | 345 | $ | 334 | $ | 540 | |||||
Discontinued operations, net of income taxes | (21 | ) | — | (5 | ) | ||||||
Net income | $ | 324 | $ | 334 | $ | 535 | |||||
Net income per common share attributable to Harris Corporation common shareholders | |||||||||||
Basic net income per common share attributable to Harris Corporation common shareholders | |||||||||||
Continuing operations | $ | 2.77 | $ | 3.15 | $ | 5.05 | |||||
Discontinued operations | (0.16 | ) | — | (0.05 | ) | ||||||
$ | 2.61 | $ | 3.15 | $ | 5.00 | ||||||
Diluted net income per common share attributable to Harris Corporation common shareholders | |||||||||||
Continuing operations | $ | 2.75 | $ | 3.11 | $ | 5.00 | |||||
Discontinued operations | (0.16 | ) | — | (0.05 | ) | ||||||
$ | 2.59 | $ | 3.11 | $ | 4.95 |
Fiscal Years Ended | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Net income | $ | 324 | $ | 334 | $ | 534 | |||||
Other comprehensive income (loss): | |||||||||||
Foreign currency translation gain (loss), net of income taxes | (69 | ) | (69 | ) | 34 | ||||||
Net unrealized gain (loss) on hedging derivatives, net of income taxes | 1 | (19 | ) | (1 | ) | ||||||
Amortization of gain on treasury lock, net of income taxes | — | 2 | 1 | ||||||||
Net unrecognized gain (loss) on postretirement obligations, net of income taxes | (411 | ) | 85 | 10 | |||||||
Other comprehensive income (loss), net of income taxes | (479 | ) | (1 | ) | 44 | ||||||
Total comprehensive income (loss) | (155 | ) | 333 | 578 | |||||||
Comprehensive income attributable to noncontrolling interests | — | — | 1 | ||||||||
Total comprehensive income (loss) attributable to Harris Corporation | $ | (155 | ) | $ | 333 | $ | 579 |
July 1, 2016 | July 3, 2015 | ||||||
(In millions, except shares) | |||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 487 | $ | 481 | |||
Receivables | 937 | 1,168 | |||||
Inventories | 964 | 1,015 | |||||
Income taxes receivable | 62 | 87 | |||||
Deferred compensation plan investments | 14 | 267 | |||||
Other current assets | 144 | 165 | |||||
Total current assets | 2,608 | 3,183 | |||||
Non-current Assets | |||||||
Property, plant and equipment | 1,015 | 1,165 | |||||
Goodwill | 5,975 | 6,348 | |||||
Other intangible assets | 1,542 | 1,775 | |||||
Non-current deferred income taxes | 598 | 502 | |||||
Other non-current assets | 258 | 154 | |||||
Total non-current assets | 9,388 | 9,944 | |||||
$ | 11,996 | $ | 13,127 | ||||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Short-term debt | $ | 15 | $ | 33 | |||
Accounts payable | 602 | 581 | |||||
Compensation and benefits | 169 | 255 | |||||
Other accrued items | 428 | 490 | |||||
Advance payments and unearned income | 319 | 433 | |||||
Income taxes payable | 11 | 57 | |||||
Deferred compensation plan liabilities | 8 | 267 | |||||
Current portion of long-term debt | 382 | 130 | |||||
Liabilities of discontinued operations | 30 | 28 | |||||
Total current liabilities | 1,964 | 2,274 | |||||
Non-current Liabilities | |||||||
Defined benefit plans | 2,296 | 1,943 | |||||
Long-term debt, net | 4,120 | 5,053 | |||||
Non-current deferred income taxes | 9 | 12 | |||||
Other long-term liabilities | 550 | 443 | |||||
Total non-current liabilities | 6,975 | 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 124,643,407 shares at July 1, 2016 and 123,675,756 shares at July 3, 2015 | 125 | 124 | |||||
Other capital | 2,096 | 2,031 | |||||
Retained earnings | 1,330 | 1,258 | |||||
Accumulated other comprehensive loss | (495 | ) | (16 | ) | |||
Total shareholders’ equity | 3,056 | 3,397 | |||||
Noncontrolling interests | 1 | 5 | |||||
Total equity | 3,057 | 3,402 | |||||
$ | 11,996 | $ | 13,127 |
Fiscal Years Ended | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Operating Activities | |||||||||||
Net income | $ | 324 | $ | 334 | $ | 534 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 229 | 233 | 204 | ||||||||
Amortization of intangible assets from Exelis Inc. acquisition | 132 | 11 | — | ||||||||
Share-based compensation | 39 | 37 | 35 | ||||||||
Qualified pension plan contributions | (174 | ) | (1 | ) | — | ||||||
Pension income | (26 | ) | (1 | ) | — | ||||||
Net liability reduction for certain post-employment plans | (101 | ) | — | — | |||||||
Impairment of goodwill and other assets | 367 | 46 | — | ||||||||
Gain on sale of businesses, net | (10 | ) | (9 | ) | — | ||||||
Adjustment to loss on sales of business, net | 20 | — | — | ||||||||
Loss on prepayment of long-term debt | — | 118 | — | ||||||||
(Increase) decrease in: | |||||||||||
Accounts and notes receivable | 192 | (17 | ) | 116 | |||||||
Inventories | (28 | ) | 20 | 50 | |||||||
Increase (decrease) in: | |||||||||||
Accounts payable and accrued expenses | 82 | 33 | (50 | ) | |||||||
Advance payments and unearned income | (96 | ) | (48 | ) | (42 | ) | |||||
Income taxes | (53 | ) | 45 | 49 | |||||||
Other | 27 | 53 | (47 | ) | |||||||
Net cash provided by operating activities | 924 | 854 | 849 | ||||||||
Investing Activities | |||||||||||
Net cash paid for acquired businesses | — | (3,186 | ) | — | |||||||
Cash paid for fixed income securities | (19 | ) | — | — | |||||||
Cash paid for intangible assets | — | — | (3 | ) | |||||||
Net additions of property, plant and equipment | (152 | ) | (148 | ) | (201 | ) | |||||
Proceeds from sale of businesses, net | 181 | 43 | — | ||||||||
Proceeds from sale of discontinued operations | — | 7 | 42 | ||||||||
Adjustment to proceeds from sales of businesses, net | (11 | ) | — | — | |||||||
Net cash used in investing activities | (1 | ) | (3,284 | ) | (162 | ) | |||||
Financing Activities | |||||||||||
Proceeds from borrowings, net of issuance costs | 61 | 3,683 | 34 | ||||||||
Repayments of borrowings | (730 | ) | (954 | ) | (134 | ) | |||||
Proceeds from exercises of employee stock options | 44 | 47 | 141 | ||||||||
Repurchases of common stock | — | (150 | ) | (300 | ) | ||||||
Cash dividends | (252 | ) | (198 | ) | (180 | ) | |||||
Other financing activities | (16 | ) | (55 | ) | (9 | ) | |||||
Net cash provided by (used in) financing activities | (893 | ) | 2,373 | (448 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (24 | ) | (23 | ) | 1 | ||||||
Net increase (decrease) in cash and cash equivalents | 6 | (80 | ) | 240 | |||||||
Cash and cash equivalents, beginning of year | 481 | 561 | 321 | ||||||||
Cash and cash equivalents, end of year | $ | 487 | $ | 481 | $ | 561 |
Common Stock | Other Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total Equity | ||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||
Balance at June 28, 2013 | $ | 107 | $ | 433 | $ | 1,080 | $ | (59 | ) | $ | — | $ | 1,561 | ||||||||||
Net income (loss) | — | — | 535 | — | (1 | ) | 534 | ||||||||||||||||
Other comprehensive income | — | — | — | 44 | — | 44 | |||||||||||||||||
Shares issued under stock incentive plans | 3 | 138 | — | — | — | 141 | |||||||||||||||||
Share-based compensation expense | — | 35 | — | — | — | 35 | |||||||||||||||||
Repurchases and retirement of common stock | (4 | ) | (97 | ) | (209 | ) | — | — | (310 | ) | |||||||||||||
Cash dividends ($1.68 per share) | — | — | (180 | ) | — | — | (180 | ) | |||||||||||||||
Balance at June 27, 2014 | 106 | 509 | 1,226 | (15 | ) | (1 | ) | 1,825 | |||||||||||||||
Net income | — | — | 334 | — | — | 334 | |||||||||||||||||
Other comprehensive loss | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||
Shares issued under stock incentive plans | 1 | 46 | — | — | — | 47 | |||||||||||||||||
Shares issued to acquire new businesses | 19 | 1,508 | — | — | — | 1,527 | |||||||||||||||||
Share-based compensation expense | — | 37 | — | — | — | 37 | |||||||||||||||||
Equity issuance costs | — | (9 | ) | — | — | — | (9 | ) | |||||||||||||||
Repurchases and retirement of common stock | (2 | ) | (60 | ) | (104 | ) | — | — | (166 | ) | |||||||||||||
Cash dividends ($1.88 per share) | — | — | (198 | ) | — | — | (198 | ) | |||||||||||||||
Other activity related to noncontrolling interests | — | — | — | — | 6 | 6 | |||||||||||||||||
Balance at July 3, 2015 | 124 | 2,031 | 1,258 | (16 | ) | 5 | 3,402 | ||||||||||||||||
Net income | — | — | 324 | — | — | 324 | |||||||||||||||||
Other comprehensive loss | — | — | (479 | ) | — | (479 | ) | ||||||||||||||||
Shares issued under stock incentive plans | 1 | 43 | — | — | — | 44 | |||||||||||||||||
Share-based compensation expense | — | 37 | — | — | — | 37 | |||||||||||||||||
Repurchases and retirement of common stock | — | (15 | ) | — | — | — | (15 | ) | |||||||||||||||
Cash dividends ($2.00 per share) | — | — | (252 | ) | — | — | (252 | ) | |||||||||||||||
Other activity related to noncontrolling interests | — | — | — | — | (4 | ) | (4 | ) | |||||||||||||||
Balance at July 1, 2016 | $ | 125 | $ | 2,096 | $ | 1,330 | $ | (495 | ) | $ | 1 | $ | 3,057 |
• | 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. |
Segment | Average Warranty Period | |
Communication Systems | One to five years | |
Space and Intelligence Systems | One to two years | |
Electronic Systems | One to two years | |
Critical Networks | One to five years |
• | $146 million of financing costs, primarily consisting of $118 million of charges associated with our optional redemption on May 27, 2015 of our 5.95% Notes due December 1, 2017 and 6.375% Notes due June 15, 2019 (see Note 21: Non-Operating Income (Loss) for additional information) and $18 million of debt issuance costs related to financing commitments for a senior unsecured bridge loan facility (see Note 18: Interest Expense for additional information); |
• | $65 million of restructuring costs as discussed in the “Restructuring Charges” section above; |
• | $34 million of integration costs, recognized as incurred; |
• | $23 million of transaction costs, recognized as incurred; and |
• | $13 million of other costs, including impairments of capitalized software (see “Long-Lived Assets, Including Finite-Lived Intangible Assets” in this Note above for additional information). |
• | For fiscal 2015 in our Consolidated Balance Sheet, 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. |
• | For fiscal 2015 and fiscal 2014 in our Consolidated Statement of Cash Flows, we reclassified $39 million and $32 million, respectively, from the “Non-current deferred income taxes” line item to the “Income taxes” line item in the operating activities section. |
2016 | 2015 | ||||||
(In millions) | |||||||
Revenue from product sales and services | $ | 60 | $ | 8 | |||
Income before income taxes | 5 | — | |||||
Net gain on sale of business | 10 | — | |||||
Receivables | $ | — | $ | 7 | |||
Inventories | — | 36 | |||||
Property, plant and equipment | — | 65 | |||||
Goodwill | — | 57 | |||||
Intangible assets | — | 25 | |||||
Other assets | — | 3 | |||||
Total assets | — | 193 | |||||
Accounts payable | — | 7 | |||||
Other liabilities | — | 5 | |||||
Net assets | $ | — | $ | 181 |
Date of acquisition | May 29, 2015 | ||||
Cash consideration paid for Exelis outstanding common stock | $ | 3,128 | |||
Cash consideration paid for Exelis outstanding stock options | 125 | ||||
Cash consideration paid for Exelis outstanding restricted stock units | 38 | ||||
Cash consideration paid for dividends to Exelis shareholders | 21 | ||||
Total cash consideration paid | 3,312 | ||||
Less cash acquired | (130 | ) | |||
Net cash consideration paid | 3,182 | ||||
Fair value of Harris common stock issued for Exelis common stock | 1,527 | ||||
Total net purchase price paid | $ | 4,709 | |||
Fair value of assets acquired and liabilities assumed: | Preliminary | Measurement period adjustments, net | Final | ||||||||
(In millions) | |||||||||||
Receivables | $ | 592 | $ | (24 | ) | $ | 568 | ||||
Inventories | 438 | (38 | ) | 400 | |||||||
Other current assets | 587 | 15 | 602 | ||||||||
Property, plant and equipment | 458 | 33 | 491 | ||||||||
Goodwill | 4,690 | 40 | 4,730 | ||||||||
Identifiable intangible assets | 1,606 | 12 | 1,618 | ||||||||
Other non-current assets | 173 | 116 | 289 | ||||||||
Total assets acquired | 8,544 | 154 | 8,698 | ||||||||
Accounts payable and accrued expenses | 489 | 133 | 622 | ||||||||
Advance payments and unearned income | 225 | (18 | ) | 207 | |||||||
Defined benefit plans | 2,311 | — | 2,311 | ||||||||
Long-term debt | 726 | — | 726 | ||||||||
Other long-term liabilities | 84 | 39 | 123 | ||||||||
Total liabilities assumed | 3,835 | 154 | 3,989 | ||||||||
Net assets acquired | $ | 4,709 | $ | — | $ | 4,709 | |||||
Exelis | |||||
Weighted Average Amortization Period | Total | ||||
(In years) | (In millions) | ||||
Identifiable Intangible Assets: | |||||
Customer relationships | 13 | $ | 1,413 | ||
Developed technology | 11 | 150 | |||
Trade names and trademarks — Exelis | 2 | 15 | |||
Trade names and trademarks — Product | 10 | 40 | |||
Weighted average amortization period and total | 13 | $ | 1,618 |
2015 | 2014 | ||||||
(In millions) | |||||||
Revenue from product sales and services — as reported | $ | 5,083 | $ | 5,012 | |||
Revenue from product sales and services — pro forma | $ | 8,085 | $ | 8,287 | |||
Income from continuing operations — as reported | $ | 334 | $ | 540 | |||
Income from continuing operations — pro forma | $ | 455 | $ | 707 |
2016 | 2015 | ||||||
(In millions) | |||||||
Accounts receivable | $ | 602 | $ | 837 | |||
Unbilled costs and accrued earnings on cost-plus contracts | 345 | 343 | |||||
947 | 1,180 | ||||||
Less allowances for collection losses | (10 | ) | (12 | ) | |||
$ | 937 | $ | 1,168 |
2016 | 2015 | ||||||
(In millions) | |||||||
Unbilled costs and accrued earnings on fixed-price contracts | $ | 512 | $ | 463 | |||
Finished products | 129 | 100 | |||||
Work in process | 123 | 256 | |||||
Raw materials and supplies | 200 | 196 | |||||
$ | 964 | $ | 1,015 |
2016 | 2015 | ||||||
(In millions) | |||||||
Land | $ | 45 | $ | 45 | |||
Software capitalized for internal use | 131 | 155 | |||||
Buildings | 612 | 587 | |||||
Machinery and equipment | 1,364 | 1,526 | |||||
2,152 | 2,313 | ||||||
Less accumulated depreciation and amortization | (1,137 | ) | (1,148 | ) | |||
$ | 1,015 | $ | 1,165 |
Communication Systems | Space and Intelligence Systems | Electronic Systems | Critical Networks | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
Balance at June 27, 2014 | $ | 439 | $ | 131 | $ | 85 | $ | 1,056 | $ | 1,711 | |||||||||
Goodwill acquired | 326 | 1,313 | 1,632 | 1,424 | 4,695 | ||||||||||||||
Goodwill decrease from divestitures | — | — | — | (24 | ) | (24 | ) | ||||||||||||
Currency translation adjustments | (5 | ) | 2 | 1 | (32 | ) | (34 | ) | |||||||||||
Balance at July 3, 2015 | 760 | 1,446 | 1,718 | 2,424 | 6,348 | ||||||||||||||
Impairment of goodwill | — | — | — | (290 | ) | (290 | ) | ||||||||||||
Goodwill decrease from divestitures (1) | — | — | (61 | ) | — | (61 | ) | ||||||||||||
Currency translation adjustments | 7 | (1 | ) | (28 | ) | (40 | ) | (62 | ) | ||||||||||
Other (including adjustments to previously estimated fair value of assets acquired and liabilities assumed) | 14 | 33 | 21 | (28 | ) | 40 | |||||||||||||
Balance at July 1, 2016 | $ | 781 | $ | 1,478 | $ | 1,650 | $ | 2,066 | $ | 5,975 |
2016 | 2015 | ||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Customer relationships | $ | 1,527 | $ | 195 | $ | 1,332 | $ | 1,718 | $ | 203 | $ | 1,515 | |||||||||||
Developed technologies | 244 | 86 | 158 | 253 | 67 | 186 | |||||||||||||||||
Contract backlog | 55 | 55 | — | 49 | 48 | 1 | |||||||||||||||||
Trade names | 64 | 20 | 44 | 81 | 22 | 59 | |||||||||||||||||
Other | 40 | 32 | 8 | 37 | 23 | 14 | |||||||||||||||||
Total intangible assets | $ | 1,930 | $ | 388 | $ | 1,542 | $ | 2,138 | $ | 363 | $ | 1,775 |
Total | |||
(In millions) | |||
Fiscal Years: | |||
2017 | $ | 161 | |
2018 | 148 | ||
2019 | 144 | ||
2020 | 130 | ||
2021 | 130 | ||
Thereafter | 829 | ||
Total | $ | 1,542 | |
2016 | 2015 | ||||||
(In millions) | |||||||
Balance at beginning of fiscal year | $ | 36 | $ | 33 | |||
Warranty provision for sales | 20 | 16 | |||||
Settlements | (19 | ) | (15 | ) | |||
Other, including adjustments for acquisitions and foreign currency translation | (5 | ) | 2 | ||||
Balance at end of fiscal year | $ | 32 | $ | 36 |
2016 | 2015 | ||||||
(In millions) | |||||||
Variable-rate term loans: | |||||||
3-year tranche, due May 29, 2018 | $ | 300 | $ | 634 | |||
5-year tranche, due May 29, 2020 | 318 | 634 | |||||
Total variable-rate term loans | 618 | 1,268 | |||||
Fixed-rate debt: | |||||||
4.25% notes, due October 1, 2016 | 250 | 250 | |||||
1.999% notes, due April 27, 2018 | 500 | 500 | |||||
2.7% notes, due April 27, 2020 | 400 | 400 | |||||
4.4% notes, due December 15, 2020 | 400 | 400 | |||||
5.55% notes, due October 1, 2021 | 400 | 400 | |||||
3.832% notes, due April 27, 2025 | 600 | 600 | |||||
7.0% debentures, due January 15, 2026 | 100 | 100 | |||||
6.35% debentures, due February 1, 2028 | 26 | 26 | |||||
4.854% notes, due April 27, 2035 | 400 | 400 | |||||
6.15% notes, due December 15, 2040 | 300 | 300 | |||||
5.054% notes, due April 27, 2045 | 500 | 500 | |||||
Other | — | 24 | |||||
Total fixed-rate debt | 3,876 | 3,900 | |||||
Total debt | 4,494 | 5,168 | |||||
Less: current portion of long-term debt | (382 | ) | (130 | ) | |||
Total long-term debt | 4,112 | 5,038 | |||||
Plus: unamortized bond premium | 38 | 51 | |||||
Less: unamortized discounts | (3 | ) | (3 | ) | |||
Less: unamortized debt issuance costs | (27 | ) | (33 | ) | |||
Total long-term debt, net | $ | 4,120 | $ | 5,053 |
• | $500 million in aggregate principal amount of 1.999% Notes due April 27, 2018 (the “New 2018 Notes”), |
• | $400 million in aggregate principal amount of 2.700% Notes due April 27, 2020 (the “New 2020 Notes”), |
• | $600 million in aggregate principal amount of 3.832% Notes due April 27, 2025 (the “New 2025 Notes”), |
• | $400 million in aggregate principal amount of 4.854% Notes due April 27, 2035 (the “New 2035 Notes”), and |
• | $500 million in aggregate principal amount of 5.054% Notes due April 27, 2045 (the “New 2045 Notes” and collectively with the New 2018 Notes, the New 2020 Notes, the New 2025 Notes and the New 2035 Notes, the “New Notes”). |
July 1, 2016 | July 3, 2015 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
(In millions) | |||||||||||||||
Long-term debt (including current portion) (1) | $ | 4,502 | $ | 4,873 | $ | 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. |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Deferred compensation plan investments: (1) | |||||||||||||||
Corporate-owned life insurance | $ | — | $ | 23 | $ | — | $ | 23 | |||||||
Stock fund | 44 | — | — | 44 | |||||||||||
Equity security | 38 | — | — | 38 | |||||||||||
Liabilities | |||||||||||||||
Deferred compensation plans (2) | 44 | 72 | — | 116 |
(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 our Consolidated Balance Sheet. |
(2) | 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 our Consolidated Balance Sheet. 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. |
July 1, 2016 | July 3, 2015 | ||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | ||||||||||||||||||
(In millions) | (In millions) | ||||||||||||||||||||||
Fair value of plan assets | $ | 4,273 | $ | 216 | $ | 4,489 | $ | 4,500 | $ | 257 | $ | 4,757 | |||||||||||
Projected benefit obligation | (6,471 | ) | (311 | ) | (6,782 | ) | (6,493 | ) | (445 | ) | (6,938 | ) | |||||||||||
Funded status | (2,198 | ) | (95 | ) | (2,293 | ) | (1,993 | ) | (188 | ) | (2,181 | ) | |||||||||||
Amounts reported within: | |||||||||||||||||||||||
Other non-current assets | 5 | — | 5 | 7 | — | 7 | |||||||||||||||||
Deferred compensation plan liabilities | (2 | ) | — | (2 | ) | (245 | ) | — | (245 | ) | |||||||||||||
Defined benefit plans | $ | (2,201 | ) | $ | (95 | ) | $ | (2,296 | ) | $ | (1,755 | ) | $ | (188 | ) | $ | (1,943 | ) |
July 1, 2016 | July 3, 2015 | ||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | ||||||||||||||||||
(In millions) | (In millions) | ||||||||||||||||||||||
Net actuarial loss (gain) | $ | 546 | $ | 11 | $ | 557 | $ | (98 | ) | $ | (2 | ) | $ | (100 | ) | ||||||||
Net prior service cost (credit) | 3 | (1 | ) | 2 | — | (6 | ) | (6 | ) | ||||||||||||||
$ | 549 | $ | 10 | $ | 559 | $ | (98 | ) | $ | (8 | ) | $ | (106 | ) |
2016 | 2015 | |||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||
Benefit obligation at beginning of fiscal year | $ | 6,493 | $ | 445 | $ | 6,938 | $ | 83 | $ | 21 | $ | 104 | ||||||||||||
Liabilities assumed through acquisition | — | — | — | 6,619 | 460 | 7,079 | ||||||||||||||||||
Service cost | 75 | 1 | 76 | 7 | 1 | 8 | ||||||||||||||||||
Interest cost | 245 | 13 | 258 | 23 | 2 | 25 | ||||||||||||||||||
Actuarial loss (gain) | 303 | (2 | ) | 301 | (201 | ) | (13 | ) | (214 | ) | ||||||||||||||
Prior service cost (credit)(1) | 3 | (121 | ) | (118 | ) | — | (19 | ) | (19 | ) | ||||||||||||||
Benefits paid | (358 | ) | (24 | ) | (382 | ) | (32 | ) | (4 | ) | (36 | ) | ||||||||||||
Settlements(2) | (244 | ) | — | (244 | ) | — | — | — | ||||||||||||||||
Special termination benefits | 1 | — | 1 | — | — | — | ||||||||||||||||||
Expenses paid | (30 | ) | — | (30 | ) | — | — | — | ||||||||||||||||
Curtailments(3) | (2 | ) | (1 | ) | (3 | ) | — | — | — | |||||||||||||||
Foreign Exchange | (15 | ) | — | (15 | ) | (6 | ) | — | (6 | ) | ||||||||||||||
Other | — | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||
Benefit obligation at end of fiscal year | $ | 6,471 | $ | 311 | $ | 6,782 | $ | 6,493 | $ | 445 | $ | 6,938 | ||||||||||||
2016 | 2015 | |||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||
Plan assets at beginning of fiscal year | $ | 4,500 | $ | 257 | $ | 4,757 | $ | 91 | $ | — | $ | 91 | ||||||||||||
Assets acquired through acquisition | — | — | — | 4,499 | 269 | 4,768 | ||||||||||||||||||
Actual return on plan assets | 1 | (1 | ) | — | (52 | ) | (4 | ) | (56 | ) | ||||||||||||||
Employer contributions | 420 | 1 | 421 | 1 | — | 1 | ||||||||||||||||||
Benefits paid | (358 | ) | (25 | ) | (383 | ) | (32 | ) | (8 | ) | (40 | ) | ||||||||||||
Settlements | (244 | ) | — | (244 | ) | — | — | — | ||||||||||||||||
Expenses paid | (30 | ) | — | (30 | ) | — | — | — | ||||||||||||||||
Foreign exchange loss | (16 | ) | — | (16 | ) | (7 | ) | — | (7 | ) | ||||||||||||||
Other(1) | — | (16 | ) | (16 | ) | — | — | — | ||||||||||||||||
Plan assets at end of fiscal year | $ | 4,273 | $ | 216 | $ | 4,489 | $ | 4,500 | $ | 257 | $ | 4,757 | ||||||||||||
Funded status at end of fiscal year | $ | (2,198 | ) | $ | (95 | ) | $ | (2,293 | ) | $ | (1,993 | ) | $ | (188 | ) | $ | (2,181 | ) | ||||||
July 1, 2016 | July 3, 2015 | ||||||
(In millions) | (In millions) | ||||||
Projected benefit obligation | $ | 6,390 | $ | 6,407 | |||
Accumulated benefit obligation | 6,379 | 6,387 | |||||
Fair value of plan assets | 4,187 | 4,407 |
2016 | 2015 | |||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Net periodic benefit income | ||||||||||||||||||||||||
Service cost | $ | 75 | $ | 1 | $ | 76 | $ | 7 | $ | 1 | $ | 8 | ||||||||||||
Interest cost | 245 | 13 | 258 | 23 | 2 | 25 | ||||||||||||||||||
Expected return on plan assets | (347 | ) | (18 | ) | (365 | ) | (32 | ) | (2 | ) | (34 | ) | ||||||||||||
Amortization of prior service credit | — | (5 | ) | (5 | ) | — | (13 | ) | (13 | ) | ||||||||||||||
Amortization of net actuarial loss | 1 | 1 | 2 | 1 | 6 | 7 | ||||||||||||||||||
Net periodic benefit income | (26 | ) | (8 | ) | (34 | ) | (1 | ) | (6 | ) | (7 | ) | ||||||||||||
Effect of curtailments, settlements or special termination benefits(1) | 1 | (121 | ) | (120 | ) | — | — | — | ||||||||||||||||
Total net periodic benefit income | (25 | ) | (129 | ) | (154 | ) | (1 | ) | (6 | ) | (7 | ) | ||||||||||||
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) | ||||||||||||||||||||||||
Net actuarial loss (gain) | 645 | 15 | 660 | (117 | ) | (5 | ) | (122 | ) | |||||||||||||||
Prior service cost (credit)(1) | 3 | (121 | ) | (118 | ) | — | (19 | ) | (19 | ) | ||||||||||||||
Amortization of prior service credit(1) | — | 126 | 126 | — | 13 | 13 | ||||||||||||||||||
Amortization of net actuarial loss | (1 | ) | (2 | ) | (3 | ) | (1 | ) | (6 | ) | (7 | ) | ||||||||||||
Total change recognized in other comprehensive loss (income) | 647 | 18 | 665 | (118 | ) | (17 | ) | (135 | ) | |||||||||||||||
Total impact from net periodic benefit cost and changes in other comprehensive loss (income) | $ | 622 | $ | (111 | ) | $ | 511 | $ | (119 | ) | $ | (23 | ) | $ | (142 | ) | ||||||||
Pension | Other Benefits | Total | |||||||||
(In millions) | |||||||||||
Net actuarial loss | $ | 1 | $ | — | $ | 1 | |||||
Prior service cost | — | — | — | ||||||||
$ | 1 | $ | — | $ | 1 |
Obligation assumptions as of: | July 1, 2016 | July 3, 2015 | |||
Discount rate | 3.62 | % | 4.06 | % | |
Rate of future compensation increase | 2.75 | % | 2.76 | % | |
Cost assumptions for fiscal years: | 2016 | 2015 | |||
Discount rate | 4.06 | % | 3.77 | % | |
Expected return on plan assets | 7.91 | % | 7.93 | % | |
Rate of future compensation increase | 2.76 | % | 2.76 | % |
Obligation assumptions as of: | July 1, 2016 | July 3, 2015 | |||
Discount rate | 3.41 | % | 3.86 | % | |
Rate of future compensation increase | N/A | 2.75 | % | ||
Cost assumptions for fiscal year: | 2016 | 2015 | |||
Discount rate | 3.86 | % | 3.57 | % | |
Rate of future compensation increase | 2.75 | % | 2.75 | % |
Target Asset Allocation | ||||||
Equity investments | 50 | % | — | 75 | % | |
Fixed income investments | 20 | % | — | 42 | % | |
Hedge funds | 5 | % | — | 12 | % | |
Cash and cash equivalents | 0 | % | — | 10 | % |
• | Domestic and international equity, which include common and preferred shares, domestic listed and foreign listed equity securities, open-ended and closed-ended mutual funds and exchange traded funds, are generally valued at the closing price reported on the major market exchanges on which the individual securities are traded at the measurement date. Because these assets are traded predominantly on liquid, widely traded public exchanges, equity securities are treated as Level 1 assets. |
• | Private equity funds, which include buy-outs, mezzanine, venture capital, distressed assets and secondaries are typically limited partnership investment structures. Private equity valuations are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows and market-based comparable data. Private equity funds generally have liquidity restrictions that extend for ten or more years. Valuations are largely based on unobservable inputs and short-term liquidity is restricted; consequently, private equity is categorized as Level 3. At July 1, 2016 and July 3, 2015, our defined benefit plans had future unfunded commitments totaling $178 million and $198 million, respectively, related to private equity fund investments. |
• | Hedge funds, which include equity long/short, event driven and fixed income arbitrage and global macro, are typically limited partnership investment structures. Limited partnership interests in hedge funds are primarily valued using a market approach based on NAV calculated by the funds and are not publicly available. Hedge funds that permit redemption on a quarterly or more frequent basis with 90 or fewer days notice are generally classified within Level 2 of the fair value hierarchy. All other hedge funds are classified as Level 3. |
• | Fixed income investments, which include U.S. Government securities and investment and non-investment grade corporate bonds, are generally valued using pricing models that use verifiable, observable market data such as interest rates, benchmark yield curves and credit spreads, bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Fixed income investments are categorized as Level 2. |
• | Other is primarily comprised of guaranteed insurance contracts valued at book value, which approximates fair value, calculated using the prior year balance adjusted for investment returns and changes in cash flows. |
• | Cash and cash equivalents are primarily comprised of short-term money market funds valued at cost, which approximates fair value, or valued at quoted market prices of identical instruments. Cash and currency are categorized as Level 1; cash equivalents, such as money market funds or short-term commingled funds, are assigned to Level 2. |
July 1, 2016 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
(In millions) | |||||||||||||||
Asset Category | |||||||||||||||
Equities: | |||||||||||||||
Domestic equities | $ | 1,410 | $ | 1,070 | $ | 340 | $ | — | |||||||
International equities | 724 | 452 | 272 | — | |||||||||||
Alternative investments: | |||||||||||||||
Private equity | 664 | — | — | 664 | |||||||||||
Hedge funds | 329 | — | 47 | 282 | |||||||||||
Commodities and real estate | 36 | — | — | 36 | |||||||||||
Fixed income: | |||||||||||||||
Corporate bonds | 557 | — | 557 | — | |||||||||||
Government securities | 571 | — | 571 | — | |||||||||||
Other | 2 | — | — | 2 | |||||||||||
Cash and cash equivalents | 197 | 31 | 166 | — | |||||||||||
Total | 4,490 | $ | 1,553 | $ | 1,953 | $ | 984 | ||||||||
Payables, net | (1 | ) | |||||||||||||
Total fair value of plan assets | $ | 4,489 | |||||||||||||
July 3, 2015 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
(In millions) | |||||||||||||||
Asset Category | |||||||||||||||
Equities: | |||||||||||||||
Domestic equities | $ | 1,560 | $ | 1,216 | $ | 344 | $ | — | |||||||
International equities | 801 | 352 | 304 | 145 | |||||||||||
Alternative investments: | |||||||||||||||
Private equity | 886 | — | — | 886 | |||||||||||
Hedge funds | 420 | 33 | 49 | 338 | |||||||||||
Commodities and real estate | 45 | — | — | 45 | |||||||||||
Fixed income: | |||||||||||||||
Corporate bonds | 363 | — | 363 | — | |||||||||||
Government securities | 366 | — | 366 | — | |||||||||||
Other | 84 | — | 71 | 13 | |||||||||||
Cash and cash equivalents | 236 | 30 | 206 | — | |||||||||||
Total | 4,761 | $ | 1,631 | $ | 1,703 | $ | 1,427 | ||||||||
Payables, net | (4 | ) | |||||||||||||
Total fair value of plan assets | $ | 4,757 |
Private Equity, Commodities and Real Estate | Hedge Funds | Equity | Other | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
Level 3 balance — June 27, 2014 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Transfers in via acquisition | 932 | 352 | 148 | 13 | 1,445 | ||||||||||||||
Realized gains, net | 9 | — | — | — | 9 | ||||||||||||||
Unrealized gains (losses), net | 14 | (10 | ) | (3 | ) | — | 1 | ||||||||||||
Sales, net | (24 | ) | (4 | ) | — | — | (28 | ) | |||||||||||
Level 3 balance — July 3, 2015 | 931 | 338 | 145 | 13 | 1,427 | ||||||||||||||
Realized gains (losses), net | 109 | (8 | ) | 127 | 1 | 229 | |||||||||||||
Unrealized losses, net | (121 | ) | (20 | ) | (137 | ) | (3 | ) | (281 | ) | |||||||||
Sales, net | (219 | ) | (28 | ) | (135 | ) | (9 | ) | (391 | ) | |||||||||
Level 3 balance — July 1, 2016 | $ | 700 | $ | 282 | $ | — | $ | 2 | $ | 984 |
Pension | Other Benefits | Total | |||||||||
(In millions) | |||||||||||
Fiscal Years: | |||||||||||
2017 | $ | 393 | $ | 29 | $ | 422 | |||||
2018 | 378 | 28 | 406 | ||||||||
2019 | 380 | 28 | 408 | ||||||||
2020 | 383 | 28 | 411 | ||||||||
2021 | 384 | 27 | 411 | ||||||||
2022 — 2026 | 1,914 | 119 | 2,033 |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Total expense | $ | 39 | $ | 37 | $ | 35 | |||||
Included in: | |||||||||||
Cost of product sales and services | $ | 4 | $ | 4 | $ | 4 | |||||
Engineering, selling and administrative expenses | 35 | 33 | 31 | ||||||||
Income from continuing operations | 39 | 37 | 35 | ||||||||
Tax effect on share-based compensation expense | (15 | ) | (11 | ) | (11 | ) | |||||
Total share-based compensation expense after-tax | $ | 24 | $ | 26 | $ | 24 |
2016 | 2015 | 2014 | ||||||
Expected dividends | 2.5 | % | 2.7 | % | 2.8 | % | ||
Expected volatility | 23.0 | % | 24.3 | % | 30.7 | % | ||
Risk-free interest rates | 1.5 | % | 1.7 | % | 1.7 | % | ||
Expected term (years) | 5.05 | 5.02 | 5.10 |
Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
(In years) | (In millions) | |||||||||||
Stock options outstanding at July 3, 2015 | 4,228,123 | $ | 54.99 | |||||||||
Stock options forfeited or expired | (287,507 | ) | $ | 72.91 | ||||||||
Stock options granted | 1,658,000 | $ | 77.57 | |||||||||
Stock options exercised | (662,771 | ) | $ | 49.38 | ||||||||
Stock options outstanding at July 1, 2016 | 4,935,845 | $ | 62.28 | 7.50 | $ | 100.25 | ||||||
Stock options exercisable at July 1, 2016 | 2,252,136 | $ | 48.19 | 6.09 | $ | 77.47 |
Shares | Weighted- Average Grant-Date Fair Value Per Share | |||||
Nonvested stock options at July 3, 2015 | 2,318,908 | $ | 12.16 | |||
Stock options granted | 1,658,000 | $ | 12.68 | |||
Stock options vested | (1,293,199 | ) | $ | 11.83 | ||
Nonvested stock options at July 1, 2016 | 2,683,709 | $ | 12.64 |
Shares | Weighted- Average Grant Price Per Share | |||||
Restricted stock and restricted stock units outstanding at July 3, 2015 | 462,448 | $ | 63.48 | |||
Restricted stock and restricted stock units granted | 125,900 | $ | 81.53 | |||
Restricted stock and restricted stock units vested | (127,443 | ) | $ | 51.23 | ||
Restricted stock and restricted stock units forfeited | (49,030 | ) | $ | 77.95 | ||
Restricted stock and restricted stock units outstanding at July 1, 2016 | 411,875 | $ | 71.07 |
Shares | Weighted- Average Grant Price Per Share | |||||
Performance share units outstanding at July 3, 2015 | 763,356 | $ | 56.33 | |||
Performance share units granted | 356,666 | $ | 73.32 | |||
Performance share units vested | (376,103 | ) | $ | 47.51 | ||
Performance share units forfeited | (62,188 | ) | $ | 68.92 | ||
Performance share units outstanding at July 1, 2016 | 681,731 | $ | 68.94 |
2016 | 2015 | 2014 | |||||||||
(In millions, except per share amounts) | |||||||||||
Income from continuing operations | $ | 345 | $ | 334 | $ | 540 | |||||
Adjustments for participating securities outstanding | (1 | ) | (1 | ) | (4 | ) | |||||
Income from continuing operations used in per basic and diluted common share calculations (A) | $ | 344 | $ | 333 | $ | 536 | |||||
Basic weighted average common shares outstanding (B) | 123.8 | 105.7 | 106.1 | ||||||||
Impact of dilutive share-based awards | 1.2 | 1.1 | 1.2 | ||||||||
Diluted weighted average common shares outstanding (C) | 125.0 | 106.8 | 107.3 | ||||||||
Income from continuing operations per basic common share (A)/(B) | $ | 2.77 | $ | 3.15 | $ | 5.05 | |||||
Income from continuing operations per diluted common share (A)/(C) | $ | 2.75 | $ | 3.11 | $ | 5.00 |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Loss on prepayment of long-term debt (1) | $ | — | $ | (118 | ) | $ | — | ||||
Gain on sales of businesses | 10 | 9 | — | ||||||||
Net income related to intellectual property matters | — | 1 | 4 | ||||||||
$ | 10 | $ | (108 | ) | $ | 4 |
(1) | The loss in fiscal 2015 reflected charges associated with our optional redemption on May 27, 2015 of the entire outstanding $400 million principal amount of our 5.95% Notes due December 1, 2017 and the entire outstanding $350 million principal amount of our 6.375% Notes due June 15, 2019. |
2016(1) | 2015(1) | ||||||
(In millions) | |||||||
Foreign currency translation, net of income taxes of $29 million and $15 million at July 1, 2016 and July 3, 2015, respectively | $ | (131 | ) | $ | (62 | ) | |
Net unrealized loss on hedging derivatives, net of income taxes of $11 million and $12 million at July 1, 2016 and July 3, 2015, respectively | (18 | ) | (19 | ) | |||
Unrecognized postretirement obligations, net of income taxes of $213 million and $42 million at July 1, 2016 and July 3, 2015, respectively | (346 | ) | 65 | ||||
$ | (495 | ) | $ | (16 | ) |
(1) | Reclassifications out of accumulated other comprehensive loss to earnings were not material for fiscal 2016 or 2015. |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Current: | |||||||||||
United States | $ | (27 | ) | $ | 150 | $ | 213 | ||||
International | 19 | 8 | 11 | ||||||||
State and local | (11 | ) | 13 | 12 | |||||||
(19 | ) | 171 | 236 | ||||||||
Deferred: | |||||||||||
United States | 271 | (30 | ) | 5 | |||||||
International | (22 | ) | 4 | — | |||||||
State and local | 36 | (2 | ) | 15 | |||||||
285 | (28 | ) | 20 | ||||||||
$ | 266 | $ | 143 | $ | 256 |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Continuing operations | $ | 266 | $ | 143 | $ | 256 | |||||
Discontinued operations | (4 | ) | — | (10 | ) | ||||||
Total income tax provision | $ | 262 | $ | 143 | $ | 246 |
July 1, 2016 | July 3, 2015 | |||||||
(In millions) | ||||||||
Inventory valuations | $ | 32 | $ | 46 | ||||
Accruals | 280 | 299 | ||||||
Deferred revenue | 24 | 38 | ||||||
Depreciation | (53 | ) | (75 | ) | ||||
Unbilled receivables | (31 | ) | (34 | ) | ||||
Domestic tax loss and credit carryforwards | 42 | 28 | ||||||
International tax loss and credit carryforwards | 68 | 42 | ||||||
International research and development expense deferrals | 4 | 12 | ||||||
Acquired intangibles | (564 | ) | (641 | ) | ||||
Share-based compensation | 32 | 32 | ||||||
Capital loss carryforwards | 212 | — | ||||||
Long-term debt | 16 | 22 | ||||||
Unremitted earnings of foreign subsidiaries | (52 | ) | (59 | ) | ||||
Pension and other post-employment benefits | 852 | 820 | ||||||
Unrealized loss on interest rate hedges | 11 | 12 | ||||||
Unrecognized tax benefits | 14 | 17 | ||||||
All other — net | 2 | 3 | ||||||
889 | 562 | |||||||
Valuation allowance | (300 | ) | (72 | ) | ||||
$ | 589 | $ | 490 |
2016 | 2015 | 2014 | ||||||
U.S. statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
State taxes | 2.4 | 0.9 | 2.0 | |||||
International income | (0.3 | ) | (1.7 | ) | (1.1 | ) | ||
Nondeductible goodwill | 14.9 | 1.8 | — | |||||
Research and development tax credit | (3.3 | ) | (1.7 | ) | (0.9 | ) | ||
Capital loss | (3.8 | ) | — | — | ||||
U.S. production activity benefit | (0.6 | ) | (3.7 | ) | (2.7 | ) | ||
Cash repatriation | — | 1.4 | — | |||||
Settlement of tax audits | (0.4 | ) | (1.8 | ) | (0.6 | ) | ||
Other items | (0.4 | ) | (0.3 | ) | 0.5 | |||
Effective income tax rate | 43.5 | % | 29.9 | % | 32.2 | % |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Balance at beginning of fiscal year | $ | 124 | $ | 72 | $ | 74 | |||||
Additions based on tax positions taken during current fiscal year | 7 | 5 | 7 | ||||||||
Additions based on tax positions taken during prior fiscal years | 9 | 5 | 18 | ||||||||
Additions for tax positions related to acquired entities | — | 68 | — | ||||||||
Decreases based on tax positions taken during prior fiscal years | (73 | ) | (8 | ) | (12 | ) | |||||
Decreases from lapse in statutes of limitations | (1 | ) | (1 | ) | — | ||||||
Decreases from settlements | (3 | ) | (17 | ) | (15 | ) | |||||
Balance at end of fiscal year | $ | 63 | $ | 124 | $ | 72 |
• | Communication Systems, serving markets in tactical communications 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”) and undersea systems; 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. |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Total Assets | |||||||||||
Communication Systems | $ | 1,667 | $ | 1,917 | $ | 1,274 | |||||
Space and Intelligence Systems | 2,149 | 2,092 | 523 | ||||||||
Electronic Systems | 2,253 | 2,508 | 278 | ||||||||
Critical Networks | 3,001 | 3,490 | 1,901 | ||||||||
Corporate(1) | 2,926 | 3,120 | 943 | ||||||||
$ | 11,996 | $ | 13,127 | $ | 4,919 | ||||||
Capital Expenditures | |||||||||||
Communication Systems | $ | 16 | $ | 26 | $ | 43 | |||||
Space and Intelligence Systems | 38 | 52 | 70 | ||||||||
Electronic Systems | 22 | 14 | 21 | ||||||||
Critical Networks | 37 | 49 | 70 | ||||||||
Corporate | 41 | 7 | 5 | ||||||||
$ | 154 | $ | 148 | $ | 209 | ||||||
Depreciation and Amortization | |||||||||||
Communication Systems | $ | 63 | $ | 65 | $ | 61 | |||||
Space and Intelligence Systems | 40 | 32 | 27 | ||||||||
Electronic Systems | 28 | 15 | 8 | ||||||||
Critical Networks | 83 | 103 | 101 | ||||||||
Corporate | 147 | 29 | 7 | ||||||||
$ | 361 | $ | 244 | $ | 204 | ||||||
Geographical Information for Continuing Operations | |||||||||||
U.S. operations: | |||||||||||
Revenue | $ | 7,046 | $ | 4,659 | $ | 4,590 | |||||
Long-lived assets | $ | 977 | $ | 1,099 | $ | 648 | |||||
International operations: | |||||||||||
Revenue | $ | 421 | $ | 424 | $ | 422 | |||||
Long-lived assets | $ | 38 | $ | 66 | $ | 80 |
2016 | 2015 | 2014 | |||||||||
(In millions) | |||||||||||
Communication Systems | $ | 1,864 | $ | 1,836 | $ | 1,855 | |||||
Space and Intelligence Systems | 1,899 | 1,007 | 966 | ||||||||
Electronic Systems | 1,530 | 584 | 420 | ||||||||
Critical Networks | 2,233 | 1,680 | 1,786 | ||||||||
Corporate eliminations | (59 | ) | (24 | ) | (15 | ) | |||||
$ | 7,467 | $ | 5,083 | $ | 5,012 |
2016 | 2015(4) | 2014 | |||||||||
(In millions) | |||||||||||
Segment Operating Income (Loss): | |||||||||||
Communication Systems (1) | $ | 530 | $ | 563 | $ | 574 | |||||
Space and Intelligence Systems | 294 | 142 | 128 | ||||||||
Electronic Systems | 277 | 97 | 72 | ||||||||
Critical Networks (2) | (106 | ) | 131 | 198 | |||||||
Unallocated corporate expense (3) | (210 | ) | (210 | ) | (77 | ) | |||||
Corporate eliminations | (3 | ) | (10 | ) | (13 | ) | |||||
Non-operating income (loss) | 10 | (108 | ) | 4 | |||||||
Net interest expense | (181 | ) | (128 | ) | (91 | ) | |||||
$ | 611 | $ | 477 | $ | 795 |
(1) | Communication Systems operating income in fiscal 2016 included $20 million of restructuring charges 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 $6 million of these charges in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. |
(2) | Critical Networks operating loss in fiscal 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 our Consolidated Statement of Income. Additionally, operating loss in fiscal 2016 included $13 million of restructuring charges primarily related to workforce reductions and facility consolidation. We recorded $7 million of these charges in the “Cost of product sales and services” line item and the remaining $6 million of these charges in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. |
(3) | Unallocated corporate expense in fiscal 2016 included: (i) the impact of a net liability reduction of $101 million for certain post-employment benefit plans, (ii) charges of $104 million for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, (iii) $11 million for amortization of a step up in inventory, and (iv) $132 million of expense 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. |
(4) | “Non-operating income (loss)” includes loss on prepayment of long-term debt. Additional information regarding non-operating income (loss) is set forth in Note 21: Non-Operating Income (Loss). |
Quarter Ended | Total Year | ||||||||||||||||||
10/2/2015 | 1/1/2016(2) | 4/1/2016 | 7/1/2016 | ||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Fiscal 2016 | |||||||||||||||||||
Revenue | $ | 1,811 | $ | 1,843 | $ | 1,909 | $ | 1,904 | $ | 7,467 | |||||||||
Gross profit | 591 | 562 | 597 | 585 | 2,335 | ||||||||||||||
Income from continuing operations before income taxes | 216 | (89 | ) | 241 | 243 | 611 | |||||||||||||
Income from continuing operations | 148 | (135 | ) | 170 | 162 | 345 | |||||||||||||
Discontinued operations, net of income taxes | — | (17 | ) | (2 | ) | (2 | ) | (21 | ) | ||||||||||
Net income | 148 | (152 | ) | 168 | 160 | 324 | |||||||||||||
Per share data: | |||||||||||||||||||
Basic | |||||||||||||||||||
Income from continuing operations | 1.20 | (1.09 | ) | 1.37 | 1.30 | 2.77 | |||||||||||||
Net income | 1.20 | (1.23 | ) | 1.35 | 1.29 | 2.61 | |||||||||||||
Diluted | |||||||||||||||||||
Income from continuing operations | 1.18 | (1.09 | ) | 1.36 | 1.29 | 2.75 | |||||||||||||
Net income | 1.18 | (1.23 | ) | 1.34 | 1.28 | 2.59 | |||||||||||||
Cash dividends | 0.50 | 0.50 | 0.50 | 0.50 | 2.00 | ||||||||||||||
Stock prices — High | 84.78 | 89.78 | 89.35 | 84.75 | |||||||||||||||
Low | 70.10 | 73.72 | 70.97 | 73.32 |
Quarter Ended | Total Year | ||||||||||||||||||
9/26/2014 | 1/2/2015 | 4/3/2015 | 7/3/2015(3) | ||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Fiscal 2015 | |||||||||||||||||||
Revenue | $ | 1,155 | $ | 1,206 | $ | 1,187 | $ | 1,535 | $ | 5,083 | |||||||||
Gross profit | 393 | 398 | 433 | 511 | 1,735 | ||||||||||||||
Income from continuing operations before income taxes | 176 | 189 | 179 | (67 | ) | 477 | |||||||||||||
Income from continuing operations | 125 | 139 | 126 | (56 | ) | 334 | |||||||||||||
Net income (1) | 125 | 139 | 126 | (56 | ) | 334 | |||||||||||||
Per share data: | |||||||||||||||||||
Basic | |||||||||||||||||||
Income from continuing operations | 1.19 | 1.34 | 1.21 | (0.51 | ) | 3.15 | |||||||||||||
Net income (1) | 1.19 | 1.34 | 1.21 | (0.51 | ) | 3.15 | |||||||||||||
Diluted | |||||||||||||||||||
Income from continuing operations | 1.18 | 1.32 | 1.20 | (0.51 | ) | 3.11 | |||||||||||||
Net income (1) | 1.18 | 1.32 | 1.20 | (0.51 | ) | 3.11 | |||||||||||||
Cash dividends | 0.47 | 0.47 | 0.47 | 0.47 | 1.88 | ||||||||||||||
Stock prices — High | 76.50 | 74.27 | 79.52 | 82.79 | |||||||||||||||
Low | 66.85 | 60.78 | 66.15 | 76.35 |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
ITEM 9A. | CONTROLS AND PROCEDURES. |
ITEM 9B. | OTHER INFORMATION. |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
ITEM 11. | EXECUTIVE COMPENSATION. |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(2) | Weighted-average exercise price of outstanding options, warrants and rights (b)(2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||
Equity compensation plans approved by shareholders(1) | 5,830,703 | $62.28 | 31,817,456 | ||||
Equity compensation plans not approved by shareholders | — | N/A | — | ||||
Total | 5,830,703 | $62.28 | 31,817,456 |
(1) Consists of the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) (the “2005 Equity Incentive Plan”) and the Harris Corporation 2015 Equity Incentive Plan. No additional awards may be granted under the 2005 Equity Incentive Plan. |
(2) Under the 2005 Equity Incentive Plan and the Harris Corporation 2015 Equity Incentive Plan, in addition to options, we have granted share-based compensation awards in the form of performance shares, shares of restricted stock, performance share units, restricted stock units, shares of immediately vested common stock and other similar types of share-based awards. As of July 1, 2016, there were awards outstanding under those plans with respect to 1,093,606 shares, consisting of (i) awards of 198,748 shares of restricted stock, for which all 198,749 shares were issued and outstanding; and (ii) awards of 894,858 performance share units and restricted stock units, for which all 894,858 were payable in shares but for which no shares were yet issued and outstanding. The 5,830,703 shares to be issued upon exercise of outstanding options, warrants and rights as listed in column (a) consisted of shares to be issued in respect of the exercise of 4,935,845 outstanding options and in respect of awards of 894,858 performance share units and restricted stock units payable in shares. Because there is no exercise price associated with awards of shares of restricted stock, performance share units or restricted stock units, all of which are granted to employees at no cost, such awards are not included in the weighted-average exercise price calculation in column (b). |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
Page | |
(1) List of Financial Statements Filed as Part of this Report: | |
The following financial statements and reports of Harris Corporation and its consolidated subsidiaries are included in Item 8. of this Report at the page numbers referenced below: | |
(2) Financial Statement Schedules: | |
* | Management contract or compensatory plan or arrangement. |
HARRIS CORPORATION | ||||
(Registrant) | ||||
Date: August 29, 2016 | By: | /S/ WILLIAM M. BROWN | ||
William M. Brown | ||||
Chairman, President and Chief Executive Officer |
Signature | Title | Date | ||||
/s/ WILLIAM M. BROWN | Chairman, President and Chief Executive Officer (Principal Executive Officer) | August 29, 2016 | ||||
William M. Brown | ||||||
/s/ RAHUL GHAI | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | August 29, 2016 | ||||
Rahul Ghai | ||||||
/s/ TODD A. TAYLOR | Vice President, Principal Accounting Officer (Principal Accounting Officer) | August 29, 2016 | ||||
Todd A. Taylor | ||||||
/s/ PETER W. CHIARELLI* | Director | August 29, 2016 | ||||
Peter W. Chiarelli | ||||||
/s/ THOMAS A. DATTILO* | Director | August 29, 2016 | ||||
Thomas A. Dattilo | ||||||
/s/ TERRY D. GROWCOCK* | Director | August 29, 2016 | ||||
Terry D. Growcock | ||||||
/s/ LEWIS HAY III* | Director | August 29, 2016 | ||||
Lewis Hay III | ||||||
/s/ VYOMESH I. JOSHI* | Director | August 29, 2016 | ||||
Vyomesh I. Joshi | ||||||
/s/ KAREN KATEN* | Director | August 29, 2016 | ||||
Karen Katen | ||||||
/s/ LESLIE F. KENNE* | Director | August 29, 2016 | ||||
Leslie F. Kenne | ||||||
/s/ DAVID B. RICKARD* | Director | August 29, 2016 | ||||
David B. Rickard | ||||||
/s/ JAMES C. STOFFEL* | Director | August 29, 2016 | ||||
James C. Stoffel | ||||||
/s/ GREGORY T. SWIENTON* | Director | August 29, 2016 | ||||
Gregory T. Swienton | ||||||
/s/ HANSEL E. TOOKES II* | Director | August 29, 2016 | ||||
Hansel E. Tookes II | ||||||
*By: | /s/ SCOTT T. MIKUEN | |||||
Scott T. Mikuen | ||||||
Attorney-in-Fact | ||||||
pursuant to a power of attorney |
Col. A | Col. B | Col. C | Col. D | Col. E | |||||||||||||||||
Additions | |||||||||||||||||||||
Description | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts — Describe | Deductions — Describe | Balance at End of Period | ||||||||||||||||
Year ended July 1, 2016 | |||||||||||||||||||||
Amounts Deducted From | |||||||||||||||||||||
Respective Asset Accounts: | |||||||||||||||||||||
$ | 960 | (A) | |||||||||||||||||||
5,188 | (B) | ||||||||||||||||||||
Allowances for collection losses | $ | 12,169 | $ | 3,928 | $ | — | $ | 6,148 | $ | 9,949 | |||||||||||
2,092 | (C) | 4,648 | (A) | ||||||||||||||||||
389 | (D) | 946 | (E) | ||||||||||||||||||
Allowances for deferred tax assets | $ | 71,866 | $ | 231,406 | $ | 2,481 | $ | 5,594 | $ | 300,159 | |||||||||||
Year ended July 3, 2015 | |||||||||||||||||||||
Amounts Deducted From | |||||||||||||||||||||
Respective Asset Accounts: | |||||||||||||||||||||
$ | 621 | (A) | |||||||||||||||||||
2,249 | (B) | ||||||||||||||||||||
181 | (C) | ||||||||||||||||||||
Allowances for collection losses | $ | 7,252 | $ | 2,154 | $ | 5,814 | (C) | $ | 3,051 | $ | 12,169 | ||||||||||
10,029 | (C) | ||||||||||||||||||||
7,009 | (D) | ||||||||||||||||||||
Allowances for deferred tax assets | $ | 68,163 | $ | (12,036 | ) | $ | 17,038 | $ | 1,299 | (A) | $ | 71,866 | |||||||||
Year ended June 27, 2014 | |||||||||||||||||||||
Amounts Deducted From | |||||||||||||||||||||
Respective Asset Accounts: | |||||||||||||||||||||
$ | 217 | (A) | |||||||||||||||||||
1,682 | (B) | ||||||||||||||||||||
Allowances for collection losses | $ | 8,529 | $ | 622 | $ | — | $ | 1,899 | $ | 7,252 | |||||||||||
Allowances for deferred tax assets | $ | 74,112 | $ | (8,054 | ) | $ | 1,600 | (D) | $ | (505 | ) | (A) | $ | 68,163 |
Exhibit 12 | |
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES |
Fiscal Years Ended | |||||||||||
July 1, 2016 | July 3, 2015 | June 27, 2014 | |||||||||
(In millions, except ratios) | |||||||||||
Earnings: | |||||||||||
Income from continuing operations | $ | 345 | $ | 334 | $ | 539 | |||||
Plus: Income taxes | 266 | 143 | 256 | ||||||||
Fixed charges | 191 | 137 | 101 | ||||||||
Amortization of capitalized interest | 1 | — | — | ||||||||
Less: Interest capitalized during the period | — | (2 | ) | (2 | ) | ||||||
Undistributed earnings in equity investments | — | — | — | ||||||||
$ | 803 | $ | 612 | $ | 894 | ||||||
Fixed Charges: | |||||||||||
Interest expense | $ | 183 | $ | 130 | $ | 94 | |||||
Plus: Interest capitalized during the period | — | 2 | 2 | ||||||||
Interest portion of rental expense | 8 | 5 | 5 | ||||||||
$ | 191 | $ | 137 | $ | 101 | ||||||
Ratio of Earnings to Fixed Charges | 4.2 | 4.5 | 8.9 |
Name of Subsidiary | State or Other Jurisdiction of Incorporation | |
Harris Atlas Systems LLC * | Abu Dhabi, UAE | |
Harris Asia Pacific Sdn. Bhd. | Malaysia | |
Harris Canada Systems, Inc. | Canada | |
Harris CapRock Communications, Inc. | Texas | |
Harris Cayman Ltd. | Cayman Island | |
Harris Communications (Australia) Pty. Ltd. | Australia | |
Harris Communications Egypt, LLC | Egypt | |
Harris Communications Bahrain Co. W.L.L. | Bahrain | |
Harris Communications Congo SARL | Congo | |
Harris Communications MH Spain, S.L. | Spain | |
Harris Communications FZCO | Dubai, UAE | |
Harris Communications GmbH | Germany | |
Harris Communications Honduras S.A. de C.V. | Honduras | |
Harris Communications Korea Ltd. | Korea | |
Harris Communications Limited | Hong Kong | |
Harris Communications Malaysia Sdn. Bhd. | Malaysia | |
Harris Communications de Mexico, S.de R.L. de C.V. | Mexico | |
Harris Communications Services Sdn. Bhd. | Malaysia | |
Harris Communications Servicios de Mexico S. de R.L. de C.V. | Mexico | |
Harris Communications Pakistan (Private) Limited. | Pakistan | |
Harris Comunicaçoes Participaçoes do Brasil Ltda. | Brazil | |
Harris Communications (Spain), S.L. | Spain | |
Harris Communications Systems India Private Limited | India | |
Harris Denmark ApS | Denmark | |
Harris Denmark Holding ApS | Denmark | |
Harris EG SARL * | Equatorial Guinea | |
Harris Global Communications Solutions Limited | Nigeria | |
Harris International Inc. | Afghanistan | |
Harris International, Inc. | Delaware | |
Harris International Chile Limitada | Chile | |
Harris International Holdings, LLC | Delaware | |
Harris International Saudi Communications | Saudi Arabia | |
Harris International Venezuela, C.A. | Venezuela | |
Harris IT Services Corporation | Maryland | |
Harris Norge AS | Norway | |
Harris NV | Belgium | |
Harris Patriot Healthcare Solutions, LLC | Pennsylvania | |
Harris Pension Management Limited | United Kingdom | |
Harris PNG Ltd. | Papua New Guinea | |
Harris Salam * | Qatar | |
Harris Solid-State (Malaysia) Sdn. Bhd. | Malaysia | |
Harris Solutions NY, Inc. | New York | |
Harris Systems Limited | United Kingdom | |
Applied Kilovolts Group Holdings Limited | United Kingdom |
Name of Subsidiary | State or Other Jurisdiction of Incorporation | |
Applied Kilovolts Limited | United Kingdom | |
CapRock Communications (Australia) Pty. Ltd. | Australia | |
CapRock Communications International, Inc. | Delaware | |
CapRock Communications International Limited | Scotland | |
CapRock Communications Norway AS | Norway | |
CapRock Communications Pte. Ltd. | Singapore | |
CapRock Comunicações Angola, Lda. | Angola | |
CapRock Comunicações do Brasil Ltda. | Brazil | |
CapRock Government Solutions, Inc. | Virginia | |
CapRock International Holdings, Ltd. | Bermuda | |
CapRock UK, Ltd. | Scotland | |
CCI Services Corp. | Delaware | |
CR Communications, Inc. | Texas | |
CR MSA, LLC | Delaware | |
CR Shared Services, LLC | Delaware | |
Defence Investments Limited | United Kingdom | |
Eagle Technology, LLC | Delaware | |
EDO (UK) Ltd. | United Kingdom | |
EDO Corporation | New York | |
EDO MBM Technology Ltd. | United Kingdom | |
EDO Rugged Systems Ltd. | United Kingdom | |
EDO Western Corporation | Utah | |
Exelis Arctic Services | Delaware | |
Exelis Australia Holdings Pty Ltd. | Australia | |
Exelis Australia Pty Ltd. | Australia | |
Exelis C4i Pty Ltd. | Australia | |
Harris Defence Ltd. | United Kingdom | |
Exelis International, Inc. | Delaware | |
Exelis Luxembourg Sarl. | Luxembourg | |
Harris Orthogon GmbH | Germany | |
Exelis Visual Information Solutions BV | Netherlands | |
Exelis Visual Information Solutions GmbH | Germany | |
Exelis VIS KK | Japan | |
Exelis Visual Information Solutions France SARL | France | |
Exelis Visual Information Solutions SRL | Italy | |
Exelis Visual Information Solutions UK Limited | United Kingdom | |
Exelis Visual Information Solutions, Inc. * | Colorado | |
Felec Services, Inc. | Delaware | |
GCS Limited | Cayman Islands | |
HAL Technologies, LLC. | Delaware | |
Hunan Carefx Information Technology, LLC | China | |
Impact Science & Technology, Inc. | New Hampshire | |
Manatee Investment, LLC | Delaware |
Name of Subsidiary | State or Other Jurisdiction of Incorporation | |
Manu Kai, LLC * | Hawaii | |
Maritime Communication Services, Inc. | Delaware | |
Melbourne Leasing, LLC | Florida | |
NexGen Communication, LLC | Virginia | |
Nextgen Equipage Fund, LLC | Delaware | |
Pine Valley Investments, LLC | Delaware | |
PT CapRock Communications Indonesia * | Indonesia | |
SARL Assured Communications | Algeria | |
S.C. Harris Assured Communications SRL | Romania | |
SpaceLink Systems, Inc. | Texas | |
SpaceLink Systems, LLC | Delaware | |
Sunshine General Services, LLC | Iraq |
* | Subsidiary of Harris Corporation less than 100% directly or indirectly owned by Harris Corporation. |
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/ WILLIAM M. BROWN | /s/ VYOMESH I. JOSHI | |
William M. Brown | Vyomesh I. Joshi | |
Chairman, President and Chief Executive Officer | Director | |
/s/ RAHUL GHAI | /s/ KAREN KATEN | |
Rahul Ghai | Karen Katen | |
Senior Vice President and Chief Financial Officer | Director | |
/s/ TODD A. TAYLOR | /s/ LESLIE F. KENNE | |
Todd A. Taylor | Leslie F. Kenne | |
Vice President, Principal Accounting Officer | Director | |
/s/ PETER W. CHIARELLI | /s/ DAVID B. RICKARD | |
Peter W. Chiarelli | David B. Rickard | |
Director | Director | |
/s/ THOMAS A. DATTILO | /s/ JAMES C. STOFFEL | |
Thomas A. Dattilo | James C. Stoffel | |
Director | Director | |
/s/ TERRY D. GROWCOCK | /s/ GREGORY T. SWIENTON | |
Terry D. Growcock | Gregory T. Swienton | |
Director | Director | |
/s/ LEWIS HAY III | /s/ HANSEL E. TOOKES II | |
Lewis Hay III | Hansel E. Tookes II | |
Director | Director |
1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended July 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: August 29, 2016 | /s/ William M. Brown | |||||
Name: | William M. Brown | |||||
Title: | Chairman, President and Chief Executive Officer |
1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended July 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: August 29, 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: August 29, 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: August 29, 2016 | /s/ Rahul Ghai | |||||
Name: | Rahul Ghai | |||||
Title: | Senior Vice President and Chief Financial Officer |
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Aug. 26, 2016 |
Dec. 31, 2015 |
|
Document and Entity Information [Abstract] | |||
Entity Registrant Name | HARRIS CORP /DE/ | ||
Trading Symbol | HRS | ||
Entity Central Index Key | 0000202058 | ||
Document Type | 10-K | ||
Document Period End Date | Jul. 01, 2016 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2016 | ||
Document Fiscal Period Focus | FY | ||
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 Public Float | $ 10,799,250,443 | ||
Entity Common Stock, Shares Outstanding (in shares) | 124,220,236 |
Consolidated Statement of Comprehensive Income (Loss) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Statement of Comprehensive Income [Abstract] | |||
Net income | $ 324 | $ 334 | $ 534 |
Other comprehensive income (loss): | |||
Foreign currency translation gain (loss), net of income taxes | (69) | (69) | 34 |
Net unrealized gain (loss) on hedging derivatives, net of income taxes | 1 | (19) | (1) |
Amortization of gain on treasury lock, net of income taxes | 0 | 2 | 1 |
Net unrecognized gain (loss) on postretirement obligations, net of income taxes | (411) | 85 | 10 |
Other comprehensive income (loss), net of income taxes | (479) | (1) | 44 |
Total comprehensive income (loss) | (155) | 333 | 578 |
Comprehensive income attributable to noncontrolling interests | 0 | 0 | 1 |
Total comprehensive income (loss) attributable to Harris Corporation | $ (155) | $ 333 | $ 579 |
Consolidated Balance Sheet (Parenthetical) - $ / shares |
Jul. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Shareholders’ Equity: | ||
Preferred shares, par value (in dollars 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 dollars per share) | $ 1 | $ 1 |
Common shares, authorized (in shares) | 500,000,000 | 500,000,000 |
Common shares, issued (in shares) | 124,643,407 | 123,675,756 |
Common shares, outstanding (in shares) | 124,643,407 | 123,675,756 |
Consolidated Statement of Equity (Parenthetical) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Common Stock | |||
Cash dividends per share (in dollars per share) | $ 2.00 | $ 1.88 | $ 1.68 |
Significant Accounting Policies |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 01, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation — Our Consolidated Financial Statements include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Consolidated Financial Statements (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. We implemented a new organizational structure 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. The historical results, discussion and presentation of our business segments as set forth in our Consolidated Financial Statements and these Notes reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these changes. On April 8, 2016, we completed the divestiture of our composite aerostructures business (“Aerostructures”). Aerostructures was a part of our company as a result of our acquisition of Exelis Inc. (collectively with its subsidiaries, “Exelis”) in May 2015. The operating results of Aerostructures through the date of divestiture are reported as part of our Electronic Systems segment. See Note 3: Discontinued Operations and Divestitures for more information regarding divestitures, as well as information regarding discontinued operations. As further discussed therein, we recorded a loss in discontinued operations in 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 fiscal 2015 as 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 — Our Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the amounts reported in the accompanying Consolidated Financial Statements and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the Consolidated Financial Statements. Materially different results can occur as circumstances change and additional information becomes known. Fiscal Year — Our fiscal year ends on the Friday nearest June 30. Fiscal 2016 included 52 weeks, fiscal 2015 included 53 weeks and fiscal 2014 included 52 weeks. Cash and Cash Equivalents — Cash equivalents are temporary cash investments with a maturity of three or fewer months when purchased. These investments include accrued interest and are carried at the lower of cost or market. Fair Value of Financial Instruments — The carrying amounts reflected in our Consolidated Balance Sheet for cash and cash equivalents, accounts receivable, non-current receivables, notes receivable, accounts payable, short-term debt and long-term variable-rate debt approximate their fair values. Fair values for long-term fixed-rate debt are primarily based on quoted market prices for those or similar instruments. See Note 13: Long-Term Debt for additional information regarding fair values for our long-term fixed-rate debt. A discussion of fair values for our derivative financial instruments is included under the caption “Financial Instruments and Risk Management” in this Note 1: Significant Accounting Policies. 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:
In certain instances, fair value is estimated using quoted market prices obtained from external pricing services. In obtaining such data from the pricing service, the Company has evaluated the methodologies used to develop the estimate of fair value in order to assess whether such valuations are representative of fair value, including net asset value (“NAV”). Additionally, in certain circumstances, the NAV reported by an asset manager may be adjusted when sufficient evidence indicates NAV is not representative of fair value. Accounts Receivable — We record receivables at net realizable value and they generally do not bear interest. This value includes an allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances which is charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and economic status of the customers. We consider a receivable delinquent if it is unpaid after the term of the related invoice has expired. Write-offs are recorded at the time a customer receivable is deemed uncollectible. See Note 5: Receivables for additional information regarding accounts receivable. Inventories — Inventories are valued at the lower of cost (determined by average and first-in, first-out methods) or market. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements. See Note 6: Inventories for additional information regarding inventories. Property, Plant and Equipment — Property, plant and equipment are carried on the basis of cost and include software capitalized for internal use. Depreciation of buildings, machinery and equipment is computed by the straight-line and accelerated methods. The estimated useful lives of buildings, including leasehold improvements, generally range between 2 and 45 years. The estimated useful lives of machinery and equipment generally range between 2 and 10 years. Amortization of internal-use software begins when the software is put into service and is based on the expected useful life of the software. The useful lives over which we amortize internal-use software generally range between 3 and 10 years. See Note 7: Property, Plant and Equipment for additional information regarding property, plant and equipment. Goodwill — Goodwill is not amortized. We perform annual (or under certain circumstances, more frequent) impairment tests of our goodwill using a two-step process. The first step is to identify potential impairment by comparing the fair value of each of our reporting units with its net book value, including goodwill, adjusted for allocations of corporate assets and liabilities as appropriate. If the fair value of a reporting unit exceeds its adjusted net book value, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the adjusted net book value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. See Note 8: Goodwill and Note 4: Business Combinations for additional information regarding goodwill. Long-Lived Assets, Including Finite-Lived Intangible Assets — Long-lived assets, including finite-lived intangible assets, are amortized on a straight-line basis over their useful lives. We assess the recoverability of the carrying value of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. We evaluate the recoverability of such assets based on the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount. See Note 7: Property, Plant and Equipment and Note 9: Intangible Assets for additional information regarding long-lived assets and intangible assets. Other Assets and Liabilities — No assets within the “Other current assets” line item in our Consolidated Balance Sheet exceeded 5 percent of our total current assets as of July 1, 2016 or July 3, 2015. No assets within the “Other non-current assets” line item in our Consolidated Balance Sheet exceeded 5 percent of our total assets as of July 1, 2016 or July 3, 2015. No accrued liabilities or expenses within the “Other accrued items” or “Other long-term liabilities” line items in our Consolidated Balance Sheet exceeded 5 percent of our total current liabilities or total liabilities, respectively, as of July 1, 2016 or July 3, 2015. Income Taxes — We follow the liability method of accounting for income taxes. We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in our Consolidated Balance Sheet, as well as operating loss and tax credit carryforwards. We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. See Note 23: Income Taxes for additional information regarding income taxes. Warranties — On development and production contract sales in our Space and Intelligence Systems, Electronic Systems and Critical Networks segments, the value or price of our warranty is generally included in the contract and funded by the customer. A provision for warranties is built into the estimated program costs when determining the profit rate to accrue when applying the cost-to-cost percentage-of-completion revenue recognition method. Warranty costs, as incurred, are charged to the specific program’s cost, and both revenue and cost are recognized at that time. Factors that affect the estimated program cost for warranties include terms of the contract, complexity of the delivered product or service, number of installed units, historical experience and management’s assumptions regarding anticipated rates of warranty claims and cost per claim. On product sales in all our segments, we provide for future standard warranty costs upon product delivery. The specific terms and conditions of those warranties vary depending on the product sold, customer and country in which we do business. In the case of products sold by us, our warranties start from the shipment, delivery or customer acceptance date and continue as follows:
Because our products are manufactured, in many cases, to customer specifications and their acceptance is based on meeting those specifications, we historically have experienced minimal warranty costs. Factors that affect our warranty liability include the number of installed units, historical experience, anticipated delays in delivery of products to end customers, in-country support for international sales and management’s assumptions regarding anticipated rates of warranty claims and cost per claim. We assess the adequacy of our recorded warranty liabilities every quarter and make adjustments to the liability as necessary. See Note 10: Accrued Warranties for additional information regarding warranties. Foreign Currency Translation — The functional currency for most international subsidiaries is the local currency. Assets and liabilities are translated at current rates of exchange and income and expense items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity. Stock Options and Other Share-Based Compensation — We measure compensation cost for all share-based payments (including employee stock options) at fair value and recognize cost over the vesting period. It is our practice to issue shares when options are exercised. See Note 15: Stock Options and Other Share-Based Compensation for additional information regarding share-based compensation. Restructuring Charges — We record restructuring charges for sales or terminations of product lines, closures or relocations of business activities, changes in management structure, and fundamental reorganizations that affect the nature and focus of operations. Such charges include termination benefits, contract termination costs and costs to consolidate facilities or relocate employees. We record these charges at their fair value when incurred. In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period. These charges are included as a component of the “Cost of product sales” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. In fiscal 2016, we recorded restructuring charges of $48 million for workforce reductions, facility consolidation and other costs, substantially all of which were included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. As of the end of fiscal 2016, we had recorded liabilities of $57 million associated with these restructuring actions, of which the majority will be paid within the next twelve months. In fiscal 2015, in connection with the acquisition of Exelis, we incurred restructuring charges of $57 million for workforce reductions (including severance and other employee-related exit costs) and $14 million for facility consolidation and contract terminations, substantially all of which were included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. This resulted in charges of $65 million recorded at our corporate headquarters (related to the Exelis acquisition), $3 million in our Communication Systems segment, and $3 million in our Critical Networks segment. Acquisition-Related Charges — In fiscal 2016, in connection with the acquisition of Exelis, we recorded $115 million of charges at our corporate headquarters for integration and other costs (including $11 million for amortization of a step up in inventory), which were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. In fiscal 2015, in connection with the acquisition of Exelis, we recorded $281 million of charges at our corporate headquarters, consisting of financing, restructuring, integration, transaction and other costs as follows:
All of the costs above were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for the $146 million of financing costs. Revenue Recognition — Our segments have the following revenue recognition policies: Development and Production Contracts: 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. Revenue and profits on cost-reimbursable development and production contracts are recognized as allowable costs are incurred on the contract, and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs. 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. We are party to certain contracts with incentive provisions or award fees that are subject to uncertainty until the conclusion of the contract and our customer may be entitled to reclaim and receive previous award fee payments. 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 estimate of total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimates of 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 $67 million ($.33 per diluted share) in fiscal 2016, $57 million ($.37 per diluted share) in fiscal 2015 and $53 million ($.33 per diluted share) in fiscal 2014. Products and Services Other Than Development and Production Contracts: Revenue from product sales other than development and production contracts and revenue from service arrangements are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectibility is reasonably assured, and delivery of a product has occurred and title has transferred or services have been rendered. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Also, if contractual obligations related to customer acceptance exist, revenue is not recognized for a product or service unless these obligations are satisfied. Multiple-Element Arrangements: We have entered into arrangements other than development and production contracts that require the delivery or performance of multiple deliverables or elements under a bundled sale. These arrangements are most prevalent in our Communication Systems and Critical Networks segments. For example, in our Communication Systems segment, in addition to delivering secure tactical radios and accessories, we may be required to perform or provide installation, design and development solutions for custom communication infrastructures, and extended warranties. For arrangements with multiple elements, judgment is required to determine the appropriate accounting, including whether the individual deliverables represent separate units of accounting for revenue recognition purposes, and the timing of revenue recognition for each deliverable. We recognize revenue for contractual deliverables as separate units of accounting when the delivered items have value to the customer on a standalone basis (i.e., if they are sold separately by any vendor or the customer could resell the delivered items on a standalone basis) and, if the arrangement includes a general right of return relative to the delivered items, we consider delivery or performance of the undelivered items as probable and substantially in our control. Deliverables that are not separable are accounted for as a combined unit of accounting, and revenue generally is recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectibility is reasonably assured, and delivery of a product has occurred and title has transferred or services have been rendered. If we determine that the deliverables represent separate units of accounting, we recognize the revenue associated with each unit of accounting separately, and contract revenue is allocated among the separate units of accounting at the inception of the arrangement based on relative selling price. If options or change orders materially change the scope of work or price of the contract subsequent to inception, we reevaluate and adjust our prior conclusions regarding units of accounting and allocation of contract revenue as necessary. The allocation of selling price among the separate units of accounting may impact the timing of revenue recognition, but will not change the total revenue recognized on the arrangement. We establish the selling price used for each deliverable based on the vendor-specific objective evidence (“VSOE”) of selling price, or third-party evidence (“TPE”) of selling price if VSOE of selling price is not available, or best estimate of selling price (“BESP”) if neither VSOE of selling price nor TPE of selling price is available. In determining VSOE of selling price, a substantial majority of the recent standalone sales of the deliverable must be priced within a relatively narrow range. In determining TPE of selling price, we evaluate competitor prices for similar deliverables when sold separately. Generally, comparable pricing of our products to those of our competitors with similar functionality cannot be obtained. In determining BESP, we consider both market data and entity-specific factors, including market conditions, the geographies in which our products are sold, our competitive position and strategy, and our profit objectives. Bill-and-Hold Arrangements: Certain contracts include terms and conditions through which we recognize revenue upon completion of equipment production, which is subsequently stored at our location at the customer’s request. Revenue is recognized on such contracts upon the customer’s assumption of title and risk of ownership and when collectibility is reasonably assured. At the time of revenue recognition, there is a schedule of delivery of the product consistent with the customer’s business practices, the product has been separated from our inventory, and we do not have any remaining performance obligations such that the earnings process is not complete. Other: Net income or expense related to intellectual property matters is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income and is recognized on the basis of terms specified in contractual agreements. Shipping and handling fees billed to customers are included in the “Revenue from product sales” line item in our Consolidated Statement of Income and the associated costs are included in the “Cost of product sales” line item in our Consolidated Statement of Income. Also, we record taxes collected from customers and remitted to governmental authorities on a net basis in that they are excluded from revenue. Retirement and Post-Employment Benefits — Defined benefit plans that we sponsor are accounted for as defined benefit pension and other postretirement defined benefit plans (collectively referred to as “defined benefit plans”). Accordingly, the funded or unfunded position of each defined benefit plan is recorded on our Consolidated Balance Sheet. Actuarial gains and losses and prior service costs or credits that have not yet been recognized through income are recorded in “accumulated other comprehensive loss” within equity, net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to defined benefit plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality, termination and healthcare inflation trend rates. Management develops each assumption using relevant company experience in conjunction with market-related data. Actuarial assumptions are reviewed annually with third-party consultants and adjusted as appropriate. For the recognition of net periodic benefit cost, the calculation of the long-term expected return on plan assets is generally derived using a market-related value of plan assets based on yearly average asset values at the measurement date over the last five years, to be phased in over five years from June 30, 2015. Actual results that differ from our assumptions are accumulated and generally amortized over the estimated future lives or service periods of the participants. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement date. The measurement date for valuing defined benefit plan assets and obligations is the end of the month closest to our fiscal year end. For fiscal 2017, we will be changing the approach used to estimate the service and interest components of net periodic benefit cost of the U.S. defined benefit plans. The new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates derived from the yield curve used to discount the cash flows used to measure the benefit obligation. Historically, we estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We are making this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. Although the benefit obligation measured under this approach is unchanged, the more granular application of the spot rates is expected to reduce the fiscal 2017 service and interest costs for the U.S. defined benefit plans by approximately $46 million as a result of this change. In tandem with our change to the alternative spot rate approach to estimate service cost and interest cost for fiscal 2017 expense, we changed, as of July 1, 2016, the underlying yield curve from a published median yield curve to our actuaries’ above median yield curve to improve our ability to make such estimates. We believe we will be better able to explain changes of individual spot rates between periods with details from our actuaries supporting the underlying yield curve. If we had continued to use a median yield curve, our projected benefit obligation would have been approximately $339 million, or 5 percent higher as of July 1, 2016. See Note 14: Pension and Other Postretirement Benefits for additional information regarding our defined benefit plans. We also provide retirement benefits to many of our U.S.-based employees through defined contribution retirement plans, including 401(k) plans and certain non-qualified deferred compensation plans. The defined contribution retirement plans have matching and savings elements. Company contributions to the retirement plans are based on employees’ savings with no other funding requirements. We may make additional contributions to the retirement plans at our discretion. Retirement and postretirement benefits also include unfunded limited healthcare plans for U.S.-based retirees and employees on long-term disability. We estimate benefits for these plans using actuarial valuations that are based in part on certain key assumptions we make, including the discount rate, the expected long-term rate of return on plan assets, the rates of increase in future compensation levels, healthcare cost trend rates and employee turnover and mortality, each appropriately based on the nature of the plans. We accrue the cost of these benefits during an employee’s active service life, except in the case of our healthcare plans for disabled employees, the costs of which we accrue when the disabling event occurs. Environmental Expenditures — We capitalize environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. We accrue environmental expenses resulting from existing conditions that relate to past or current operations. Our accruals for environmental expenses are recorded on a site-by-site basis when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies available to us. Our accruals for environmental expenses represent the best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees, and are reviewed periodically, at least annually at the year-end balance sheet date, and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. If the timing and amount of future cash payments for environmental liabilities are fixed or reliably determinable, we generally discount such cash flows in estimating our accrual. As of July 1, 2016, we were named, and continue to be named, as a potentially responsible party at 61 sites where future liabilities could exist. These sites included 4 sites owned by us, 48 sites associated with our former locations or operations and 9 hazardous waste treatment, storage or disposal facility sites not owned by us that contain hazardous substances allegedly attributable to us from past operations. Based on an assessment of relevant factors, we estimated that our liability under applicable environmental statutes and regulations for identified sites was approximately $106 million, consisting of (1) approximately $99 million for environmental liabilities related to Exelis operations; and (2) approximately $7 million for other environmental liabilities, which we recorded on a discounted basis, using a 1.46 percent discount rate, because the associated payment stream is relatively certain, and for which the estimated aggregate undiscounted amount that will be incurred over the next 10 years is approximately $8 million, with estimated payments for the next five years of approximately $0.7 million per year and an aggregate amount thereafter of approximately $4 million. In each case, the current portion of our estimated environmental liability is included in the “Other accrued items” line item and the non-current portion is included in the “Other long-term liabilities” line item in our Consolidated Balance Sheet. The relevant factors we considered in estimating our potential liabilities under applicable environmental statutes and regulations included some or all of the following as to each site: incomplete information regarding particular sites and other potentially responsible parties; uncertainty regarding the extent of investigation or remediation; our share, if any, of liability for such conditions; the selection of alternative remedial approaches; changes in environmental standards and regulatory requirements; potential insurance proceeds; cost-sharing agreements with other parties and potential indemnification from successor and predecessor owners of these sites. We do not believe that any uncertainties regarding these relevant factors will materially affect our potential liability under applicable environmental statutes and regulations. We believe the total amount accrued is appropriate based on existing facts and circumstances, although we note the total amount accrued may increase or decrease in future years. Financial Guarantees and Commercial Commitments — Financial guarantees are contingent commitments issued to guarantee the performance of a customer to a third party in borrowing arrangements, such as commercial paper issuances, bond financings and similar transactions. As of July 1, 2016, there were no such contingent commitments accrued for in our Consolidated Balance Sheet. We have entered into commercial commitments in the normal course of business including surety bonds, standby letter of credit agreements and other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers and to obtain insurance policies with our insurance carriers. Financial Instruments and Risk Management — In the normal course of 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 our Consolidated Balance Sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. We do not hold or issue derivatives for trading purposes. See Note 20: Derivative Instruments and Hedging Activities for additional information regarding our use of derivative instruments. Income From Continuing Operations Per Share — For all periods presented in our Consolidated Financial Statements and these Notes, income from continuing operations per share is computed using the two-class method. The two-class method of computing income from continuing operations per share is an earnings allocation formula that determines income from continuing operations per share for common stock and any participating securities according to dividends paid and participation rights in undistributed earnings. Our restricted stock awards and restricted stock unit awards meet the definition of participating securities and are included in the computations of income from continuing operations per basic and diluted common share. Our performance share awards and performance share unit awards do not meet the definition of participating securities because they do not contain rights to receive nonforfeitable dividends and, therefore, are excluded from the computations of income from continuing operations per basic and diluted common share. Under the two-class method, income from continuing operations per common share is computed by dividing the sum of earnings distributed to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. Income from continuing operations per diluted common share is computed using the more dilutive of the two-class method or the treasury stock method. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. See Note 16: Income From Continuing Operations Per Share for additional information. Reclassifications — Certain prior-year amounts have been reclassified in our Consolidated Financial Statements to conform to current-year classifications. |
Accounting Changes or Recent Accounting Pronouncements |
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Jul. 01, 2016 | |||||||||
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||
ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS | ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS 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 our Consolidated Financial Statements 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 than 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, April 2016 and May 2016, the FASB issued several 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 |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISCONTINUED OPERATIONS AND DIVESTITURES | DISCONTINUED OPERATIONS AND DIVESTITURES Discontinued Operations Pursuant to a plan approved by our Board of Directors we completed the sale of the remaining assets of our cyber integrated solutions operation (“CIS”) on August 27, 2013 for $35 million, including $28 million in cash and a $7 million subordinated promissory note, which we collected in the first quarter of fiscal 2015. On February 4, 2013, we completed the sale of Broadcast Communications to an affiliate of The Gores Group, LLC (“the Buyer”) 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 and related third-party costs, we recorded a loss in discontinued operations in fiscal 2016 of $24 million ($21 million after-tax or $0.16 per diluted share) and adjusted current liabilities of discontinued operations to $30 million. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for fiscal 2015 as presented in this Report because the amounts were not material. Unless otherwise specified, disclosures in these Notes, other than this Note 3: Discontinued Operations and Divestitures, relate solely to our continuing operations. We did not record any amounts in discontinued operations in fiscal 2015. Discontinued operations in fiscal 2014 consisted of an $18 million ($7 million after-tax) increase in the loss on sale of Broadcast Communications from miscellaneous adjustments for contingencies related to the disposition, and a $3 million ($2 million after-tax) gain on sale of the remaining assets of CIS. Divestitures On April 8, 2016, we completed the divestiture of Aerostructures for $187 million in cash at closing and the assumption of a $23 million capitalized lease. We continued to report the results of Aerostructures through the date of divestiture as part of our Electronic Systems segment. We recognized a net gain of $10 million on the sale which is included in the “Non-operating income (loss)” line item in our Consolidated Statement of Income. Aerostructures was not strategic to our business and was part of our company as a result of our acquisition of Exelis in May 2015. Summarized financial information for Aerostructures is as follows:
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Business Combinations |
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BUSINESS COMBINATIONS | BUSINESS COMBINATIONS During fiscal 2015 we made one significant acquisition. On May 29, 2015, we acquired Exelis, a diversified, top-tier global aerospace, defense, information and services company leveraging its deep customer knowledge and technical expertise to deliver affordable, mission-critical solutions for global customers. We acquired 100 percent of Exelis in a cash and stock transaction. The total net purchase price was approximately $4.7 billion, including approximately $1.5 billion in Harris common stock and $3.2 billion in cash, net of cash acquired. Upon closing, our shareholders owned approximately 84 percent of the combined company, and Exelis shareholders owned approximately 16 percent of the combined company. The source of funds for the cash payment was cash on hand and third-party debt financing, including a combination of borrowings under an unsecured term loan facility in an aggregate amount of $1.3 billion and a portion of the proceeds from the issuance of debt securities in an aggregate principal amount of $2.4 billion. See Note 13: Long-term Debt for additional information. The following table provides further detail of the fair value of consideration paid related to the Exelis acquisition in fiscal 2015 (dollars in millions):
Our preliminary fair value estimates for the assets acquired and liabilities assumed related to the Exelis acquisition were based on preliminary calculations. Our preliminary estimates and assumptions were subject to change as we obtained additional information during the measurement period (up to one year from the acquisition date). Determination of the fair value of assets acquired and liabilities assumed related to the Exelis acquisition is now final. The following table summarizes the final fair value of assets acquired and liabilities assumed at the date of the acquisition, as well as adjustments made during the measurement period:
During fiscal 2016, we recorded several measurement period adjustments, which netted to a $40 million increase to goodwill. The measurement period adjustments were primarily due to finalization of the valuation related to favorable/unfavorable contracts, inventory, insurance recovery receivable, environmental liabilities, contingencies and the tax effect of the above items. Measurement period adjustments recorded to our Consolidated Statement of Income were not material in fiscal 2016. All intangible assets acquired related to the Exelis acquisition are subject to amortization. The following table provides further detail of the final fair value and weighted-average amortization period of intangible assets acquired by major intangible asset class:
In connection with the acquisition of Exelis, we assumed severance payment obligations for Exelis employees under Exelis’ preexisting enhanced severance plans. These obligations were principally due to the change in control resulting from the acquisition. We evaluated the severance payment obligations for certain Exelis senior executives and determined that, in substance, they resulted from a single event (the change in control) and consequently, we accounted for such severance payment obligations as an assumed liability in connection with the acquisition. These costs totaled approximately $21 million. Additionally, we recorded approximately $32 million of severance costs as post-acquisition expense for the remaining Exelis non-executive employees covered by Exelis’ preexisting enhanced severance plans. Pro Forma Results (Unaudited) The following summary, prepared on a pro forma basis, presents our unaudited consolidated results of operations for fiscal 2015 and 2014 as if the acquisition of Exelis had been completed as of the beginning of fiscal 2014, after including in fiscal 2014 any post-acquisition adjustments directly attributable to the acquisition, and after including the impact of adjustments such as amortization of intangible assets, interest expense on related borrowings and new shares issued and, in each case, the related income tax effects. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our results of operations had we owned Exelis for the entire periods presented. In the following table, “income from continuing operations” refers to income from continuing operations attributable to Harris Corporation common shareholders.
The goodwill resulting from the Exelis acquisition was primarily associated with Exelis’ market presence and leading positions, growth opportunities in the markets in which it operated, experienced work force and established operating infrastructures. Most of the goodwill related to the Exelis acquisition is nondeductible for tax purposes. The goodwill related to the Exelis acquisition was allocated to our new reporting units in fiscal 2016. See Note 8: Goodwill for additional information. |
Receivables |
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RECEIVABLES | RECEIVABLES Receivables are summarized below:
We expect to bill during fiscal 2017 substantially all unbilled costs outstanding at July 1, 2016. |
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INVENTORIES | INVENTORIES Inventories are summarized below:
Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of $91 million at July 1, 2016 and $85 million at July 3, 2015. |
Property, Plant and Equipment |
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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 $200 million, $155 million and $142 million in fiscal 2016, 2015 and 2014, respectively. In the second quarter of fiscal 2016, we recorded a non-cash impairment charge of $19 million related to property, plant and equipment, related to Harris CapRock Communications (which is part of our Critical Networks segment) due to the downturn in the energy market and its impact on customer operations. This non-cash charge is presented in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income. |
Goodwill |
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GOODWILL | GOODWILL As discussed in Note 1: Significant Accounting Policies and Note 24: Business Segments, we implemented a new organizational structure 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 reassigned goodwill using a relative fair value approach. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new reporting structure and determined that no impairment existed. 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 23: Income Taxes 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. The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the fiscal years ended July 1, 2016 and July 3, 2015, by business segment, were as follows:
(1) During the fourth quarter of fiscal 2016, we completed the divestiture of Aerostructures. In accordance with GAAP, we determined $61 million of goodwill to be a part of the carrying value of Aerostructures in determining the gain or loss on divestiture. See Note 3: Discontinued Operations and Divestitures for additional information. See Note 4: Business Combinations for additional information regarding adjustments to previously estimated fair value of assets acquired and liabilities assumed. |
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Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | INTANGIBLE ASSETS We assess the recoverability of the carrying value of our long-lived assets, including intangible assets with finite useful lives, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Intangible assets are summarized below:
Amortization expense related to intangible assets was $167 million, $68 million and $59 million in fiscal 2016, 2015 and 2014, respectively. Fiscal 2016 and fiscal 2015 include approximately $132 million and $11 million, respectively, of amortization expense for intangible assets related to our acquisition of Exelis. In the second quarter of fiscal 2016, we recorded a non-cash impairment charge of $44 million related to intangible assets, related to Harris CapRock Communications (which is part of our Critical Networks segment) due to the downturn in the energy market and its impact on customer operations. This non-cash charge is presented in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income. In the fourth quarter of fiscal 2015, we recorded impairment charges totaling $38 million related to long-lived assets included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income. These charges included impairments in our former Integrated Network Solutions segment and what is now our Critical Networks segment related to an intangible asset associated with the Navy/Marine Corps Intranet (“NMCI”) program due to the loss of the contract and the inability to obtain replacement work on the successor program to the NMCI program (the Next Generation Enterprise Network program); and related to fixed assets in Harris CapRock Communications due to a combination of soft market conditions and obsolescence; and impairments of capitalized software acquired in connection with our acquisition of Exelis based on our decision to use alternative software. Future estimated amortization expense for intangible assets is as follows:
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Accrued Warranties |
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Accrued Warranties [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 our Consolidated Balance Sheet, during fiscal 2016 and 2015, 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 at July 1, 2016 and July 3, 2015 was $37 million and $36 million, respectively, and is included as a component of the “Advance payments and unearned income” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. |
Credit Arrangements |
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Line of Credit Facility [Abstract] | |
CREDIT ARRANGEMENTS | CREDIT ARRANGEMENTS 2015 Credit Agreement On July 1, 2015, we established a new $1 billion 5-year senior unsecured revolving credit facility (the “2015 Credit Facility”) by entering into a Revolving Credit Agreement (the “2015 Credit Agreement”) with a syndicate of lenders. The 2015 Credit Facility replaced our prior $1 billion 5-year senior unsecured revolving credit facility established under the Revolving Credit Agreement, dated as of September 28, 2012, as amended by Amendment No. 1 thereto dated as of February 25, 2015 (as so amended, the “2012 Credit Agreement”). No loans or letters of credit under the 2012 Credit Agreement were outstanding at the time of, or were repaid in connection with, such termination. The 2012 Credit Agreement was scheduled to terminate on September 28, 2017, and we incurred no early termination penalties as a result of such termination. The 2015 Credit Agreement provides for the extension of credit to us in the form of revolving loans, including swingline loans and letters of credit, at any time and from time to time during the term of the 2015 Credit Agreement, in an aggregate principal amount at any time outstanding not to exceed $1 billion for both revolving loans and letters of credit, with a sub-limit of $70 million for swingline loans and a sub-limit of $175 million for letters of credit. Borrowings under the 2015 Credit Agreement may be denominated in U.S. Dollars, Euros, Sterling and any other currency acceptable to the administrative agent and the lenders, with a non-U.S. currency sub-limit of $200 million. The 2015 Credit Agreement includes a provision pursuant to which, from time to time, we may request that the lenders in their discretion increase the maximum amount of commitments under the 2015 Credit Agreement by an amount not to exceed $500 million. Only consenting lenders (including new lenders reasonably acceptable to the administrative agent) will participate in any increase. In no event will the maximum amount of credit extensions available under the 2015 Credit Agreement exceed $1.5 billion. The proceeds of loans or letters of credit borrowings under the 2015 Credit Agreement are restricted from being used for hostile acquisitions (as defined in the 2015 Credit Agreement) or for any purpose in contravention of applicable laws. We are not otherwise restricted under the 2015 Credit Agreement from using the proceeds of loans or letters of credit borrowings under the 2015 Credit Agreement for working capital and other general corporate purposes or from using the 2015 Credit Facility to refinance existing debt and to repay maturing commercial paper issued by us from time to time. Subject to certain conditions stated in the 2015 Credit Agreement (including the absence of any default and the accuracy of certain representations and warranties), we may borrow, prepay and re-borrow amounts under the 2015 Credit Agreement at any time during the term of the 2015 Credit Agreement. The 2015 Credit Agreement provides that we may designate wholly-owned subsidiaries organized in the United States, Canada or the United Kingdom (or such other jurisdictions as all lenders shall approve) as borrowers under the 2015 Credit Agreement. The obligations of any such subsidiary borrower shall be guaranteed by us. The 2015 Credit Agreement provides that we may from time to time designate certain of our subsidiaries as unrestricted subsidiaries, which means certain of the representations and covenants in the 2015 Credit Agreement do not apply in respect of such subsidiaries. At our election, borrowings under the 2015 Credit Agreement denominated in U.S. Dollars will bear interest either at (i) the eurocurrency rate for the applicable interest period plus an applicable margin, or (ii) the base rate plus an applicable margin. The eurocurrency rate for an interest period is the rate per annum equal to (a) the London interbank offered rate (“LIBOR”) for such interest period, divided by (b) a percentage equal to 1.00 minus the daily average eurocurrency reserve rate for such interest period. The applicable interest rate margin over the eurocurrency rate is initially equal to 1.500%, but may increase (to a maximum amount of 2.000%) or decrease (to a minimum amount of 1.125%) based on changes in the ratings of our senior unsecured long-term debt securities (“Senior Debt Ratings”). The base rate is a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 0.50%, (ii) SunTrust Bank’s publicly announced prime lending rate for U.S. Dollars, or (iii) the eurocurrency rate determined on a daily basis for a one-month interest period plus 100 basis points. The applicable interest rate margin over the base rate is initially equal to 0.500%, but may increase (to a maximum amount of 1.000%) or decrease (to a minimum amount of 0.125%) based on changes in our Senior Debt Ratings. Borrowings under the 2015 Credit Agreement denominated in a currency other than U.S. Dollars will bear interest at the eurocurrency rate for the applicable interest period plus an applicable margin, as described above, plus, in some cases, additional costs. Letter of credit fees are also determined based on our Senior Debt Ratings. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the 2015 Credit Agreement and letter of credit fees, we are required to pay a quarterly unused commitment fee, which shall accrue at an applicable rate per annum multiplied by the actual daily amount of the lenders’ aggregate unused commitments under the 2015 Credit Agreement. The applicable rate per annum for the unused commitment fee is initially equal to 0.200%, but may increase (to a maximum amount of 0.300%) or decrease (to a minimum amount of 0.125%) based on changes in our Senior Debt Ratings. The 2015 Credit Agreement contains certain representations and warranties for the benefit of the administrative agent and the lenders, including representations relating to: due incorporation and good standing; due authorization of the 2015 Credit Agreement documentation; absence of any requirement for governmental or third party authorization for the due execution, delivery and performance of the 2015 Credit Agreement documentation; enforceability of the 2015 Credit Agreement documentation; accuracy of financial statements; no material adverse effect since June 27, 2014; absence of material undisclosed litigation on July 1, 2015; compliance with the Employee Retirement Income Security Act of 1974 (“ERISA”) and environmental, anti-money laundering, sanctions, anti-corruption and certain other laws; payment of taxes; and solvency. The 2015 Credit Agreement contains certain affirmative covenants, including covenants relating to: reporting obligations; maintenance of corporate existence and good standing; compliance with laws; maintenance of properties and insurance; payment of taxes; compliance with ERISA and environmental, anti-money laundering, sanctions, export controls, anti-corruption and certain other laws; visitation and inspection by the administrative agent and the lenders; and subsidiary guarantees. The 2015 Credit Agreement also contains certain negative covenants, including covenants: limiting certain liens on assets; limiting certain mergers, consolidations or sales of assets; limiting certain sale and leaseback transactions; limiting certain vendor financing investments; and limiting certain investments in unrestricted subsidiaries. The 2015 Credit Agreement also requires that we not permit our ratio of consolidated total indebtedness (excluding defined benefit plan liabilities) to total capital, each as defined in the 2015 Credit Agreement, to be greater than 0.65:1.00. We were in compliance with the covenants in the 2015 Credit Agreement at July 1, 2016. The 2015 Credit Agreement contains certain events of default, including: failure to make payments under the 2015 Credit Agreement; failure to perform or observe terms, covenants or agreements contained in the 2015 Credit Agreement; material inaccuracy of any representation or warranty under the 2015 Credit Agreement; payment default by us or certain of our subsidiaries under other indebtedness with a principal amount in excess of $100 million or acceleration of or ability to accelerate such other indebtedness; occurrence of one or more final judgments or orders for the payment by us or certain of our subsidiaries of money in excess of $100 million that remain unsatisfied; incurrence by us or certain of our subsidiaries of certain ERISA liability in excess of $100 million; any bankruptcy or insolvency of Harris or any material subsidiary; invalidity of 2015 Credit Agreement documentation; or a change of control (as defined in the 2015 Credit Agreement) of Harris. If an event of default occurs, then the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. All principal amounts borrowed or outstanding under the 2015 Credit Agreement are due on July 1, 2020, unless (i) the commitments are terminated earlier either at the request of us or if certain events of default described in the 2015 Credit Agreement occur or (ii) the maturity date is extended pursuant to provisions allowing us, from time to time after July 1, 2016, but at least 45 days prior to the scheduled maturity date then in effect, to request that the scheduled maturity date then in effect be extended by one calendar year (with no more than one such extension permitted in any calendar year and no more than two such extensions during the term of the 2015 Credit Agreement), subject to approval by lenders holding a majority of the commitments under the 2015 Credit Agreement and satisfaction of certain conditions stated in the 2015 Credit Agreement (including the absence of any default and the accuracy of certain representations and warranties); provided, however, that all revolving loans of those lenders declining to participate in the requested extension and whose commitments under the 2015 Credit Agreement have not been replaced pursuant to customary replacement rights in favor of us shall remain due and payable in full, and all commitments under the 2015 Credit Agreement of such declining lenders shall terminate, on the maturity date in effect prior to the requested extension. At July 1, 2016, we had no borrowings outstanding under the 2015 Credit Agreement and no short-term debt outstanding under our commercial paper program that was supported by the 2015 Credit Facility. |
Short-Term Debt |
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Jul. 01, 2016 | |
Short-term Debt [Abstract] | |
SHORT-TERM DEBT | SHORT-TERM DEBT Our short-term debt at July 1, 2016 and July 3, 2015 was $15 million and $33 million, respectively. Interest expense incurred on our short-term debt was not material at July 1, 2016 or July 3, 2015. |
Long-Term Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT | LONG-TERM DEBT Long-term debt is summarized below:
The potential maturities of long-term debt, including the current portion, for the five years following fiscal 2016 and, in total, thereafter are: $380 million in fiscal 2017; $800 million in fiscal 2018; $65 million in fiscal 2019; $523 million in fiscal 2020; $400 million in fiscal 2021; and $2.326 billion thereafter. In connection with our acquisition of Exelis in May 2015, 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”). 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. 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. New Long-Term Debt in Fiscal 2015 Variable-rate Term Loans: On May 29, 2015, in connection with the closing of our acquisition of Exelis, we borrowed $1.3 billion under our Term Loan Agreement (the “Term Loan Agreement”), dated as of March 16, 2015, with a syndicate of lenders. The Term Loan Agreement provides for total term loan commitments of $650 million in a 3-year tranche and $650 million in a 5-year tranche, for an aggregate principal amount of $1.3 billion. The proceeds of the term loans were used for consummating our acquisition of Exelis and other transactions and payments related thereto. At our election, borrowings under the Term Loan Agreement will bear interest either at (i) the eurodollar rate plus an applicable margin, or (ii) the base rate plus an applicable margin. The eurodollar rate for an interest period is the rate per annum equal to (a) LIBOR for such interest period, divided by (b) a percentage equal to 1.00 minus the daily average eurodollar reserve rate for such interest period. For both tranches of term loans, the applicable interest rate margin over the eurodollar rate may range from a minimum of 1.125% to a maximum of 2.00% based on our Senior Debt Ratings. The base rate is a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime lending rate published in The Wall Street Journal, and (iii) the eurodollar rate determined on a daily basis for a one-month interest period plus 100 basis points. For both tranches of term loans, the applicable interest rate margin over the base rate may range from a minimum of 0.125% to a maximum of 1.00% based on our Senior Debt Ratings. Borrowings under the Term Loan Agreement are denominated in U.S. Dollars. Under the Term Loan Agreement, we may, at any time or from time to time, voluntarily prepay term loans of either tranche in whole or in part without premium or penalty, but we may not re-borrow amounts thereunder. The Term Loan Agreement contains certain representations and warranties for the benefit of the administrative agent and the lenders, including representations relating to: due incorporation and good standing; due authorization of the Term Loan Agreement documentation; absence of any requirement for governmental or third party authorization for the due execution, delivery and performance of any Term Loan Agreement documentation; enforceability of the Term Loan Agreement documentation; accuracy of financial statements; no material adverse effect since June 27, 2014; absence of material undisclosed litigation on March 16, 2015; compliance with ERISA and certain other laws; payment of taxes; and solvency. The Term Loan Agreement contains certain affirmative covenants, including covenants relating to: reporting obligations; maintenance of corporate existence and good standing; compliance with laws; maintenance of properties and insurance; payment of taxes; compliance with environmental laws and ERISA; and visitation and inspection by the administrative agent and the lenders. The Term Loan Agreement also requires that certain of our subsidiaries that incur, borrow or guarantee debt in a principal amount exceeding $100 million become guarantors under the Term Loan Agreement. The Term Loan Agreement also contains certain negative covenants, including covenants: limiting certain liens on assets; limiting certain mergers, consolidations or sales of assets; limiting certain sale and leaseback transactions; limiting certain vendor financing investments; and limiting certain investments in unrestricted subsidiaries. The Term Loan Agreement also requires that we not permit at any time our ratio of consolidated total indebtedness to total capital, each as defined in the Term Loan Agreement, to be greater than 0.65:1.00. We were in compliance with the covenants in the Term Loan Agreement at July 1, 2016. The Term Loan Agreement contains certain events of default, including: failure to make payments under the Term Loan Agreement; failure to perform or observe terms, covenants or agreements contained in the Term Loan Agreement; material inaccuracy of any representation or warranty under the Term Loan Agreement; payment default by us or certain of our subsidiaries under other indebtedness with a principal amount in excess of $100 million or acceleration of or ability to accelerate such other indebtedness; occurrence of one or more final judgments or orders for the payment by us of money in excess of $100 million that remain unsatisfied; incurrence by us or certain of our subsidiaries of certain ERISA liabilities in excess of $100 million; any bankruptcy or insolvency of Harris or any material subsidiary; invalidity of Term Loan Agreement documentation; or a change of control (as defined in the Term Loan Agreement). If any event of default occurs, then the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The Term Loan Agreement requires, for each tranche of term loans, quarterly principal amortization payments equal to 2.50% of the initial principal amount of the term loans in such tranche on May 29, 2015, with the balance of the term loans payable in full on May 29, 2018 for loans in the 3-year tranche and on May 29, 2020 for loans in the 5-year tranche, unless the commitments are terminated earlier either at our request or if certain events of default described in the Term Loan Agreement occur. We incurred $6 million of debt issuance costs related to the issuance of the term loans, which are being amortized using the effective interest rate method over the respective lives of the two tranches, and such amortization is reflected as a portion of interest expense in our Consolidated Statement of Income. Fixed-rate Debt: On April 27, 2015, in connection with the then-pending acquisition of Exelis, to fund a portion of the cash consideration and other amounts payable under the terms of the merger agreement and to redeem certain of our existing notes, we completed the issuance of new long-term fixed-rate debt securities in an aggregate principal amount of $2.4 billion, comprised of five tranches with principal amounts, interest rates and maturity dates as follows:
Interest on each series of the New Notes is payable semi-annually in arrears on April 27 and October 27 of each year, commencing October 27, 2015. At any time and from time to time prior to April 27, 2018 (in the case of the New 2018 Notes), March 27, 2020 (in the case of the New 2020 Notes), January 27, 2025 (in the case of the New 2025 Notes), October 27, 2034 (in the case of the New 2035 Notes) and October 27, 2044 (in the case of the New 2045 Notes), we may redeem the applicable series of notes, in whole or in part, at our option, at the applicable “make-whole” redemption price. The applicable “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the notes being redeemed or the sum of the present values of the remaining scheduled payments of the principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as defined, plus (i) 20 basis points in the case of the New 2018 Notes, (ii) 20 basis points in the case of the New 2020 Notes, (iii) 30 basis points in the case of the New 2025 Notes, (iv) 35 basis points in the case of the New 2035 Notes, and (v) 40 basis points in the case of the New 2045 Notes. In each case, we will pay accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. Except as set forth above, the New 2018 Notes are not redeemable prior to maturity. At any time and from time to time on or after March 27, 2020 (in the case of the New 2020 Notes), January 27, 2025 (in the case of the New 2025 Notes), October 27, 2034 (in the case of the New 2035 Notes) and October 27, 2044 (in the case of the New 2044 Notes), we may redeem the applicable series of notes, in whole or in part, at our option, at a redemption price equal to 100 percent of the principal amount of the notes being redeemed, plus accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. In addition, upon a change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the New Notes at a price equal to 101 percent of the aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not including, the date of repurchase. We incurred $23 million of debt issuance costs related to the issuance of the New Notes, respectively, which are being amortized on a straight-line basis over the respective lives of the notes, which approximates the effective interest rate method, and such amortization is reflected as a portion of interest expense in our Consolidated Statement of Income. Exelis Fixed-rate Debt Outstanding at Time of Acquisition: Our long-term debt includes long-term fixed-rate debt securities issued by Exelis Inc. that were outstanding when we acquired Exelis on May 29, 2015, which consisted 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”), and were assumed by Harris Corporation after Exelis Inc. merged with and into Harris Corporation on December 31, 2015. As part of our purchase accounting, the Exelis Notes were recorded at fair value ($702 million on a combined basis, representing a premium of $52 million), and unamortized debt issuance costs related to the Exelis Notes were written off as of May 29, 2015. This premium will be amortized to interest expense over the lives of the related Exelis Notes on a straight-line basis which approximates the effective interest rate method, and such amortization is reflected as a reduction of interest expense in our Consolidated Statement of Income. Accrued interest payable on the Exelis Notes is payable on April 1 and October 1 of each year. The Exelis Notes are subject to the terms of an indenture with Union Bank, N.A., as trustee (the “Exelis Indenture”). The Exelis Indenture includes covenants that restrict our ability, subject to exceptions, to incur indebtedness secured by liens or engage in sale and leaseback transactions. The Exelis Indenture also provides for customary events of default, including but not limited to: failure to pay interest for 30 days; failure to pay principal when due; failure to perform any other covenant in the Exelis Indenture for 90 days after receipt of notice from the trustee or from holders of 25 percent of the outstanding principal amount; and certain events of bankruptcy, insolvency or reorganization of Exelis Inc. We may redeem the Exelis Notes at any time in whole or, from time to time, in part at the applicable “make-whole” redemption price. The applicable “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the Exelis Notes being redeemed or the sum of the present values of the remaining scheduled payments of principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis at the Treasury Rate, as defined, plus 50 basis points, plus in each case accrued and unpaid interest to the date of redemption. Long-Term Debt Redeemed in Fiscal 2015 On May 27, 2015, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of our 5.95% Notes due December 1, 2017, which we issued on December 5, 2007, at a “make-whole” redemption price as set forth in the notes. The “make-whole” redemption price was $448 million, and after adjusting for the carrying value of our debt issuance costs and discounts, we recorded a $51 million loss on prepayment of long-term debt in the fourth quarter of fiscal 2015, which we included in the “Non-operating income (loss)” line item in our Consolidated Statement of Income. On May 27, 2015, we completed our optional redemption of the entire outstanding $350 million aggregate principal amount of our 6.375% Notes due June 15, 2019, which we issued on June 9, 2009, at a “make-whole” redemption price as set forth in the notes. The “make-whole” redemption price was $415 million, and after adjusting for the carrying value of our debt issuance costs and discounts, we recorded a $67 million loss on prepayment of long-term debt in the fourth quarter of fiscal 2015, which we included in the “Non-operating income (loss)” line item in our Consolidated Statement of Income. Long-Term Debt From Prior to Fiscal 2015 That Remained Outstanding at July 1, 2016 On December 3, 2010, we completed the issuance of $400 million in aggregate principal amount of 4.4% Notes due December 15, 2020 (the “2020 Notes”) and $300 million in aggregate principal amount of 6.15% Notes due December 15, 2040 (the “2040 Notes”). Interest on each of the 2020 Notes and the 2040 Notes is payable semi-annually in arrears on June 15 and December 15 of each year. We may redeem the 2020 Notes and/or the 2040 Notes at any time in whole or, from time to time, in part at the applicable “make-whole” redemption price. The applicable “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the notes being redeemed or the sum of the present values of the remaining scheduled payments of the principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as defined, plus 25 basis points in the case of the 2020 Notes and 35 basis points in the case of the 2040 Notes. In each case, we will pay accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. In addition, upon a change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the notes at a price equal to 101 percent of the aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not including, the date of repurchase. We incurred $6 million and $5 million in debt issuance costs and discounts related to the issuance of the 2020 Notes and 2040 Notes, respectively, which are being amortized on a straight-line basis over the respective lives of the notes, which approximates the effective interest rate method, and are reflected as a portion of interest expense in our Consolidated Statement of Income. In January 1996, we completed the issuance of $100 million in aggregate principal amount of 7.0% Debentures due January 15, 2026. The debentures are not redeemable prior to maturity. In February 1998, we completed the issuance of $150 million in aggregate principal amount of 6.35% Debentures due February 1, 2028. On December 5, 2007, we repurchased and retired $25 million in aggregate principal amount of the debentures. On February 1, 2008, we redeemed $99 million in aggregate principal amount of the debentures pursuant to the procedures for redemption at the option of the holders of the debentures. We may redeem the remaining $26 million in aggregate principal amount of the debentures in whole, or in part, at any time at a pre-determined redemption price. The following table presents the carrying amounts and estimated fair values of our long-term debt:
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Pension and Other Postretirement Benefits |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION AND OTHER POSTRETIREMENT BENEFITS | PENSION AND OTHER POSTRETIREMENT BENEFITS Defined Contribution Plans We sponsor numerous defined contribution savings plans, which allow our eligible employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. Several of the plans require us to match a percentage of the employee contributions up to certain limits and make base contributions, generally totaling between 2.0% to 7.5% of employee eligible pay. Matching contributions and base contributions charged to expense were $82 million, $58 million and $55 million for fiscal 2016, 2015 and 2014, respectively. Deferred Compensation Plan We also sponsor a supplemental executive retirement plan, which is a nonqualified deferred compensation arrangement for highly compensated employees (within the meaning of section 201(2) of ERISA). The plan obligations are funded by investments held in a Rabbi Trust. The following table provides the fair value our deferred compensation plan investments and liabilities by category and by fair value hierarchy level as of July 1, 2016:
Defined Benefit Plans Some of our employees participate in numerous defined benefit pension plans and benefits for most participants under the terms of these plans are based on the employee’s years of service and compensation. We fund these plans as required by statutory regulations and through discretionary contributions. Some of our employees also participate in other postretirement defined benefit plans such as health care and life insurance plans. The U.S. Salaried Retirement Plan (“U.S. SRP”) is our largest defined benefit pension plan, with assets valued at $3.8 billion and a projected benefit obligation of $5.9 billion as of July 1, 2016. Effective December 31, 2016, future benefit accruals under the U.S. SRP will be frozen. Balance Sheet Information Amounts recognized in our Consolidated Balance Sheet for defined benefit pension plans and other postretirement defined benefit plans (collectively, “defined benefit plans”) reflect the funded status of our plans. The following table provides a summary of the funded status of our defined benefit plans and the presentation of such balances within our Consolidated Balance Sheet:
A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense (or reductions of expense) in our results of operations. Such amounts are recorded within accumulated other comprehensive loss until they are amortized as a component of net periodic benefit cost. The following table provides a summary of pre-tax amounts recorded within accumulated other comprehensive loss:
The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment, curtailment and settlement during the year. (2) We made lump sum distributions to participants covered under one of the Exelis Inc. excess pension plans that became payable within 90 days from the close of the acquisition on May 29, 2015. These distributions resulted in a settlement during the quarter ended October 2, 2015 and a net liability reduction of $244 million. (3) We discontinued operations at one of our facilities during fiscal 2016, with the facility consolidation completing during the quarter ended July 1, 2016. Under GAAP, this resulted in a curtailment during the quarter ended January 1, 2016, and a net pension liability reduction of $2 million. Additionally, see note (1) above for information about the other benefits curtailment. The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. As a result, the remaining assets of the Employee Benefit Trust were designated for other employee benefit costs. The accumulated benefit obligation for all defined benefit pension plans was $6.5 billion at July 1, 2016. The following table provides information for defined benefit pension plans with an accumulated benefit obligation in excess of plan assets:
Income Statement Information The following table provides the components of net periodic benefit cost and other amounts recognized in other comprehensive income for fiscal 2016 and 2015, as they pertain to our defined benefit plans:
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment, curtailment and settlement during the year. The following table provides the estimated net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive loss into net periodic cost during fiscal 2017:
Defined Benefit Plan Assumptions The determination of the assumptions related to defined benefit plans are based on the provisions of the applicable accounting pronouncements, review of various market data and discussion with our actuaries. Management develops each assumption using relevant company experience in conjunction with market-related data. Assumptions are reviewed annually and adjusted as appropriate. For fiscal 2017, we will be changing the approach used to determine the service and interest components of net periodic benefit cost of the U.S. defined benefit plans. The new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost by applying the applicable spot rates derived from the yield curve used to discount the cash flows in determining the benefit obligation. Historically, the service and interest cost components were determined by a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We are making this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. Although the benefit obligation measured under this approach is unchanged, the more granular application of the spot rates is expected to reduce the fiscal 2017 service and interest costs for the U.S. defined benefit plans by approximately $46 million. In tandem with our decision to use the alternative spot rate approach to estimate service cost and interest cost for fiscal 2017 expense, we decided to change, as of July 1, 2016, the underlying yield curve from a published median yield curve to our actuaries’ above median yield curve to improve our ability to make such estimates. We believe we will be better able to explain changes of individual spot rates between periods with details from our actuaries supporting the underlying yield curve. If we had continued to use a median yield curve, our projected benefit obligation would have been approximately $339 million, or 5 percent higher as of July 1, 2016. The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our defined benefit pension plans:
Key assumptions for the U.S. SRP (our largest defined benefit pension plan with approximately 91% of the total projected benefit obligation) included a discount rate for obligation assumptions of 3.63% and expected return on plan assets of 8.00% for fiscal 2016 which is being reduced to 7.75% for fiscal 2017. The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our other postretirement defined benefit plans:
The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plans invest, the weight of each asset class in the strategic allocation, the correlations among asset classes and their expected volatilities. Our expected rate of return on plan assets is estimated by evaluating both historical returns and estimates of future returns. Specifically, the determination of the expected long-term rate of return takes into consideration: (1) the plan’s actual historical annual return on assets, net of fees, over the past 15, 20 and 25 year time periods, (2) historical broad market returns over long-term timeframes weighted by the plan’s strategic allocation, and (3) independent estimates of future long-term asset class returns, weighted by the plan’s strategic allocation. Based on this approach, the long-term annual rate of return on assets is estimated at 7.75% for fiscal 2017 for the U.S. defined benefit plans. The weighted average long-term annual rate of return on assets for all defined benefit pension plans is estimated at 7.65% for fiscal 2017. The assumed rate of future increases in the per capita cost of healthcare (the healthcare trend rate) is 7.25% for fiscal 2017, decreasing ratably to 4.75% in fiscal 2027, and was 6.83% for fiscal 2016, decreasing ratably to 5.00% in fiscal 2022. Increasing or decreasing the healthcare trend rates by one percent per year would not have a material effect on the benefit obligation or the aggregate annual service and interest cost components. To the extent that actual experience differs from these assumptions, the effect will be amortized over the average future service period of the covered active employees. Investment Policy The investment strategy for managing defined benefit plan assets is to seek an optimal rate of return relative to an appropriate level of risk. We manage substantially all defined benefit plan assets on a commingled basis in a master investment trust. In making these asset allocation decisions, we take into account recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, we diversify our investments by strategy, asset class, geography and sector and engage a large number of managers to gain broad exposure to the markets. The following table provides the current strategic target asset allocation ranges by asset category:
Fair Value of Plan Assets The following is a description of the valuation techniques and inputs used to measure fair value for major categories of investments as reflected in the table that follows such description:
The following table provides the fair value of plan assets held by our defined benefit plans by asset category and by fair value hierarchy level:
The following table presents a reconciliation of the beginning and ending defined benefit plan asset balances that use significant unobservable inputs (Level 3) to measure fair value:
Contributions Funding requirements under Internal Revenue Service (“IRS”) rules are a major consideration in making contributions to our postretirement benefit plans. With respect to U.S. qualified pension plans, we intend to contribute annually not less than the required minimum funding thresholds. The Highway and Transportation Funding Act of 2014 (“HATFA”) and the Bipartisan Budget Act of 2015 (“BBA 2015”) further extended the interest rate stabilization provision of MAP-21 until 2020. We currently anticipate making total contributions to our U.S. qualified pension plans in the range of $185 million to $195 million during fiscal 2017. Estimated Future Benefit Payments The following table provides the projected timing of payments for benefits earned to date and the expectation that certain future service will be earned by current active employees for our defined benefit plans:
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Stock Options and Other Share-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION | STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION As of July 1, 2016, we had options or other share-based compensation outstanding under two shareholder-approved employee 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 (the “2015 EIP”) (prior to July 3, 2015, we had an additional shareholder approved SIP under which options or other share-based compensations was outstanding). We have granted the following types of share-based awards under our 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). Summary of Share-Based Compensation Expense The following table summarizes the amounts and classification of share-based compensation expense:
Compensation cost related to share-based compensation arrangements that was capitalized as part of inventory or fixed assets in fiscal 2016, 2015 and 2014 was not material. Shares of common stock remaining available for future issuance under our 2015 EIP totaled 31,817,456 as of July 1, 2016. In fiscal 2016, we issued an aggregate of 967,659 shares of common stock under the terms of our SIPs, which is net of shares withheld for tax purposes. Stock Options The following information relates to stock options, including performance stock options, that have been granted under shareholder-approved SIPs. Option exercise prices are equal to or greater than the fair market value of our common stock on the date the options are granted, using the closing stock price of our common stock. Options may be exercised for a period set at the time of grant, which generally ranges from seven to ten years after the date of grant, and options, other than performance stock options, generally become exercisable in installments, which are typically 33.3 percent one year from the grant date, 33.3 percent two years from the grant date and 33.3 percent three years from the grant date. In certain instances, vesting and exercisability are also subject to performance criteria. The fair value as of the grant date of each option award was determined using the Black-Scholes-Merton option-pricing model which uses assumptions noted in the following table. Expected volatility over the expected term of the options is based on implied volatility from traded options on our common stock and the historical volatility of our stock price. The expected term of the options is based on historical observations of our common stock, considering average years to exercise for all options exercised and average years to cancellation for all options cancelled, as well as average years remaining for vested outstanding options, which is calculated based on the weighted-average of these three inputs. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. A summary of the significant assumptions used in determining the fair value of stock option grants under our SIPs is as follows:
A summary of stock option activity under our SIPs as of July 1, 2016 and changes during fiscal 2016 is as follows:
The weighted-average grant-date fair value was $12.68 per share, $12.51 per share and $12.40 per share for options granted during fiscal 2016, 2015 and 2014, respectively. The total intrinsic value of options exercised during fiscal 2016, 2015 and 2014 was $20 million, $20 million and $51 million, respectively, at the time of exercise. A summary of the status of our nonvested stock options at July 1, 2016 and changes during fiscal 2016 is as follows:
As of July 1, 2016, there was $34 million of total unrecognized compensation cost related to nonvested stock options granted under our SIPs. This cost is expected to be recognized over a weighted-average period of 1.69 years. The total fair value of stock options that vested during fiscal 2016, 2015 and 2014 was approximately $15 million, $16 million and $16 million, respectively. Restricted Stock and Restricted Stock Unit Awards The following information relates to awards of restricted stock and restricted stock units that have been granted to employees under our SIPs. These awards are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment over a specified time period. The fair value as of the grant date of these awards was based on the closing price of our common stock on the grant date and is amortized to compensation expense over the vesting period. At July 1, 2016, there were 198,748 shares of restricted stock and 213,127 restricted stock units outstanding, substantially all of which were payable in shares. A summary of the status of these awards at July 1, 2016 and changes during fiscal 2016 is as follows:
As of July 1, 2016, there was $12 million of total unrecognized compensation cost related to these awards under our SIPs. This cost is expected to be recognized over a weighted-average period of 1.21 years. The weighted-average grant date price per share or per unit of these awards granted during fiscal 2016, 2015 and 2014 was $81.53, $78.05 and $61.39, respectively. The total fair value of these awards that vested during fiscal 2016, 2015 and 2014 was approximately $7 million, $14 million and $12 million, respectively. Performance Share and Performance Share Unit Awards The following information relates to awards of performance shares and performance share units that have been granted to employees under our SIPs. Generally, these awards are subject to performance criteria, such as meeting predetermined operating income or earnings per share and return on invested capital targets (and market conditions, such as total shareholder return) for a 3-year performance period. These awards also generally vest at the expiration of the same 3-year period. The final determination of the number of shares to be issued in respect of an award is made by our Board of Directors or a committee of our Board of Directors. The fair value as of the grant date of these awards was determined based on a 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. The fair value of these awards is amortized to compensation expense over the vesting period if achievement of the performance measures is considered probable. At July 1, 2016, there were no performance shares outstanding, and there were 681,731 performance share units outstanding, all of which were payable in shares. A summary of the status of these awards at July 1, 2016 and changes during fiscal 2016 is as follows:
As of July 1, 2016, there was $19 million of total unrecognized compensation cost related to these awards under our SIPs. This cost is expected to be recognized over a weighted-average period of 1.20 years. The weighted-average grant date price per share or per unit of these awards granted during fiscal 2016, 2015 and 2014 was $73.32, $64.23 and $59.17, respectively. The total fair value of these awards that vested during fiscal 2016, 2015 and 2014 was approximately $18 million, $7 million and $4 million, respectively. |
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Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME FROM CONTINUING OPERATIONS PER SHARE | INCOME FROM CONTINUING OPERATIONS PER SHARE The computations of income from continuing operations per share are as follows (in this Note 16, “income from continuing operations” refers to income from continuing operations attributable to Harris Corporation common shareholders):
Potential dilutive common shares primarily consist of employee stock options and performance share unit awards. Employee stock options to purchase approximately 1,671,045, 605,419 and 651,904 shares of our common stock were outstanding at the end of fiscal 2016, 2015 and 2014, 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. |
Research And Development |
12 Months Ended |
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Jul. 01, 2016 | |
Research and Development [Abstract] | |
RESEARCH AND DEVELOPMENT | RESEARCH AND DEVELOPMENT Company-sponsored research and development costs are expensed as incurred. These costs were $309 million, $277 million and $264 million in fiscal 2016, 2015 and 2014, respectively, and are included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. Customer-sponsored research and development costs are incurred pursuant to contractual arrangements, principally U.S. Government-sponsored contracts requiring us to provide a product or service meeting certain defined performance or other specifications (such as designs), and are accounted for principally by the cost-to-cost percentage-of-completion method. Customer-sponsored research and development is included in our revenue and cost of product sales and services. |
Interest Expense |
12 Months Ended |
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Jul. 01, 2016 | |
Interest Expense [Abstract] | |
INTEREST EXPENSE | INTEREST EXPENSE Total interest expense was $183 million, $130 million and $94 million in fiscal 2016, 2015 and 2014, respectively. Fiscal 2015 interest expense included $18 million of debt issuance costs related to financing commitments for a senior unsecured bridge loan facility established (and subsequently terminated when we secured permanent financing) in connection with our acquisition of Exelis. Interest paid was $146 million, $89 million and $93 million in fiscal 2016, 2015 and 2014, respectively. |
Lease Commitments |
12 Months Ended |
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Jul. 01, 2016 | |
Contractual Obligation, Fiscal Year Maturity [Abstract] | |
LEASE COMMITMENTS | LEASE COMMITMENTS Total rental expense amounted to $88 million, $57 million and $48 million in fiscal 2016, 2015 and 2014, respectively. Future minimum rental commitments under leases with an initial lease term in excess of one year, primarily for land and buildings, amounted to approximately $331 million at July 1, 2016. These commitments for the five years following fiscal 2016 and, in total, thereafter are: fiscal 2017 — $81 million; fiscal 2018 — $66 million; fiscal 2019 — $53 million; fiscal 2020 — $38 million; fiscal 2021 — $29 million; and $64 million thereafter. These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions. We do not consider any of these individual leases material to our operations. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the current lease term, or estimated life, if shorter. |
Derivative Instruments and Hedging Activities |
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Jul. 01, 2016 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the normal course of 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 our Consolidated Balance Sheet at fair value. We do not hold or issue derivatives for speculative purposes. At July 1, 2016, we had open foreign currency forward contracts with an aggregate notional amount of $53 million, which were classified as fair value 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 July 1, 2016, contract expiration dates ranged from 14 days to 20 months with a weighted average contract life of 1 month. Additionally, as described below in the “Interest Rate Risk” sections, during the third quarter of fiscal 2015, we entered into interest-rate swap agreements to hedge against interest-rate risk related to the anticipated issuance of long-term fixed-rate debt to redeem certain of our long-term debt securities and to fund a portion of the cash consideration payable under the merger agreement with Exelis, which were terminated during the fourth quarter of fiscal 2015. See Note 4: Business Combinations and Note 13: Long-Term Debt for additional information. 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 services” line item in our Consolidated Statement of Income. As of July 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound, Australian Dollar, Singapore Dollar, Mexican Peso, Norwegian Krone, Canadian Dollar and Brazilian Real 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 fiscal 2016, 2015 or 2014. In addition, no amounts were recognized in earnings in fiscal 2016, 2015 or 2014 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 July 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound 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 other comprehensive income, net of hedge ineffectiveness. Gains and losses in accumulated other comprehensive income 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 our Consolidated Statement of Cash Flows 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 income, including gains or losses related to hedge ineffectiveness, were not material in fiscal 2016, 2015 or 2014. We do not expect the net gains or losses recognized in the “Accumulated other comprehensive loss” line item in our Consolidated Balance Sheet as of July 1, 2016 that will be reclassified to earnings from accumulated other comprehensive income within the next 12 months to be material. Interest Rate Risk — Cash Flow Hedges As noted above, fixed-rate long-term debt issued in fiscal 2015 was to be used to redeem certain of our fixed-rate long-term debt securities and to fund a portion of the cash consideration payable under the merger agreement with Exelis. More specifically, in the fourth quarter of fiscal 2015, we issued new 10-year and 30-year fixed-rate debt, $800 million of which we used to fund the redemption of the entire outstanding $400 million principal amount of our 5.95% notes, due December 1, 2017 and the entire outstanding $350 million principal amount of our 6.375% notes, due June 15, 2019 at the “make-whole” redemption prices determined as set forth in those notes (see Note 13: Long-Term Debt for additional information). The issuance of this debt was not dependent on the closing of the Exelis acquisition. Prior to the issuance of this debt, on March 5, 2015 and March 10, 2015, we entered into six interest-rate swap agreements (“swaps”) with a notional value of $1 billion. We designated four of these swaps, with a notional value of $800 million, as cash flow hedges to mitigate the risk attributable to the benchmark interest rate’s effect on the probable cash flows of 10-year and 30-year fixed-rate debt to be issued. These swaps were terminated as planned in connection with the related debt issuance during the fourth quarter of fiscal 2015, and because interest rates decreased during the period of the swaps, we made cash payments to our counterparties and recorded after-tax losses totaling $24 million in the “Accumulated other comprehensive loss” line in our Consolidated Balance Sheet. The accumulated other comprehensive income balances will be amortized to interest expense over the lives of the related fixed-rate debt securities. The ineffective portion of these swaps’ change in fair value was immediately recognized in earnings in the “Interest expense” line item in our Consolidated Statement of Income, and this amount was immaterial. We classified the debt issuance proceeds, together with the cash outflow from the termination of these swaps, as financing cash flows in fiscal 2015 in our Consolidated Statement of Cash Flows. Interest Rate Risk — Economic Hedges As noted above, on March 5, 2015 and March 10, 2015, we entered into six swaps with a notional value of $1 billion. We entered into two of these swaps, with a notional value of $200 million, to mitigate the risk attributable to the benchmark interest rate’s effect on the cash flows of 10-year and 20-year fixed-rate debt anticipated to be issued to fund a portion of the cash consideration payable under the merger agreement with Exelis. These swaps (economic hedges) were not designated to receive hedge accounting treatment. These swaps were terminated as planned in the fourth quarter of fiscal 2015, and as a result, an immaterial gain was recorded in interest expense. We classified the debt issuance proceeds, together with the cash inflow from the termination of these swaps, as financing cash flows in fiscal 2015 in our Consolidated Statement of Cash Flows. 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 our Consolidated Balance Sheet as of July 1, 2016 was immaterial. See our Consolidated Statement of Comprehensive Income for additional information on changes in accumulated other comprehensive loss for the three fiscal years ended July 1, 2016. |
Non-Operating Income (Loss) |
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Nonoperating Income (Expense) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NON-OPERATING INCOME (LOSS) | NON-OPERATING INCOME (LOSS) The components of non-operating income (loss) were as follows:
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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 were as follows:
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Income Taxes |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES The provisions for current and deferred income taxes are summarized as follows:
The total income tax provision is summarized as follows:
The components of deferred income tax assets (liabilities) were as follows:
A reconciliation of the United States statutory income tax rate to our effective income tax rate follows:
State and local income taxes allocable to certain U.S. Government contracts are included in our operating expenses and, therefore, are not included in our provision for income taxes. We have made no provision for U.S. income taxes on $255 million of undistributed earnings of international subsidiaries because of our intention to reinvest those earnings indefinitely. Determination of unrecognized deferred U.S. tax liability for the undistributed earnings of international subsidiaries is not practicable. Tax loss and credit carryforwards as of July 1, 2016 have expiration dates ranging between one year and no expiration in certain instances. The amounts of Federal, international, and state and local net operating loss carryforwards as of July 1, 2016 were $29 million, $253 million and $216 million, respectively. The amount of U.S. capital loss carryforwards as of July 1, 2016 were $552 million. Income (loss) from continuing operations before income taxes of international subsidiaries was ($195) million, $21 million and $59 million in fiscal 2016, 2015 and 2014, respectively. Income taxes paid were $53 million, $131 million and $194 million in fiscal 2016, 2015 and 2014, respectively. The valuation allowance increased $228 million from $72 million at the end of fiscal 2015 to $300 million at the end of fiscal 2016. The valuation allowance has been established for financial reporting purposes to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize them in the future. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
As of July 1, 2016, we had $63 million of unrecognized tax benefits, of which $39 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. As of July 3, 2015, we had $124 million of unrecognized tax benefits, of which $46 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. We had accrued $13 million for the potential payment of interest and penalties as of July 1, 2016 (and this amount was not included in the $63 million of unrecognized tax benefits balance at July 1, 2016 shown above) and $11 million of this total could favorably impact future tax rates. We had accrued $20 million for the potential payment of interest and penalties as of July 3, 2015 (and this amount was not included in the $124 million of unrecognized tax benefits balance at July 3, 2015 shown above) and $13 million of this total could favorably impact future tax rates. We file numerous separate and consolidated income tax returns reporting our financial results and, where appropriate, those of our subsidiaries and affiliates, in the U.S. Federal jurisdiction and various state, local and foreign jurisdictions. Pursuant to the Compliance Assurance Process, the IRS is examining our returns for fiscal 2010 through fiscal 2014 and fiscal 2016 through fiscal 2017. The Canadian Revenue Agency is currently examining our returns for fiscal 2007 through fiscal 2010, and we are appealing portions of a Canadian assessment relating to fiscal 2000 through fiscal 2006. We are currently under examination or contesting proposed adjustments by various state and international tax authorities for fiscal years ranging from 2006 through 2015. It is reasonably possible that there could be a significant decrease or increase to our unrecognized tax benefit balance during the course of the next twelve months as these examinations continue, other tax examinations commence or various statutes of limitations expire. An estimate of the range of possible changes cannot be made for remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business and the number of open tax periods. |
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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 our Consolidated Financial Statements and these Notes reflect the impact of these adjustments for all periods presented in order to present all segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these adjustments. Each business segment is comprised of multiple program areas and product and service lines that aggregate into such segment. See Note 3: Discontinued Operations and Divestitures for information regarding discontinued operations and divestitures. Unless otherwise specified, disclosures in our Consolidated Financial Statements and these Notes relate solely to our continuing operations. The accounting policies of our business segments are the same as those described in Note 1: Significant Accounting Policies. 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. Our products and systems are produced principally in the United States with international revenue derived primarily from exports. No revenue earned from any individual foreign country exceeded 5 percent of our total revenue during fiscal 2016, 2015 or 2014. Sales made to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, by all segments as a percentage of total revenue were 76 percent, 64 percent and 67 percent in fiscal 2016, 2015 and 2014, respectively. Revenue from services in fiscal 2016 was approximately 11 percent, 13 percent, 10 percent and 93 percent of total revenue in our Communication Systems, Space and Intelligence Systems, Electronic Systems and Critical Networks segments, respectively. Selected information by business segment and geographical area is summarized below:
(1) Identifiable intangibles assets acquired in connection with our acquisition of Exelis in the fourth quarter of fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segments. Exelis identifiable asset balances recorded as Corporate assets were approximately $1.4 billion and $1.6 billion as of July 1, 2016 and July 3, 2015, respectively. Corporate assets consisted primarily of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment and identifiable intangibles. Depreciation and amortization included intangible asset and capitalized software amortization and debt premium, debt discount, and debt issuance costs amortization of $181 million, $89 million and $62 million in fiscal 2016, 2015 and 2014, respectively. Export revenue was $1.2 billion, $1.2 billion and $1.1 billion in fiscal 2016, 2015 and 2014, respectively. Fiscal 2016 export revenue and revenue from international operations was principally from Europe, Asia, the Middle East, Africa, Australia and Canada. Segment revenue, segment operating income (loss) and a reconciliation of segment operating income to total income from continuing operations before income taxes follow: Revenue
Income From Continuing Operations Before Income Taxes
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Legal Proceedings and Contingencies |
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Jul. 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 July 1, 2016, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us was 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 July 1, 2016 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows. Our tax filings are subject to audit by taxing authorities in jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or ultimately through legal proceedings. We believe we have adequately accrued for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be different from the amounts recorded in our Consolidated Financial Statements. Additional information regarding audits and examinations by taxing authorities of our tax filings is set in Note 23: Income Taxes. Legal Proceedings On February 4, 2013, we completed the sale of Broadcast Communications to the Buyer 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 3: Discontinued Operations and Divestitures, as a result of such determination and related third-party costs, we recorded a loss in discontinued operations of $24 million ($21 million after-tax) in 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 (“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 DOJ, 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 July 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. |
Schedule II - Valuation and Qualified Accounts |
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Valuation and Qualifying Accounts [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS HARRIS CORPORATION AND SUBSIDIARIES (In thousands)
Note A — Foreign currency translation gains and losses Note B — Uncollectible accounts charged off, less recoveries on accounts previously charged off Note C — Acquisitions and divestitures Note D — Uncertain income tax positions Note E — Accumulated other comprehensive income |
Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||
Principles of Consolidation | Principles of Consolidation — Our Consolidated Financial Statements include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Consolidated Financial Statements (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. We implemented a new organizational structure 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. The historical results, discussion and presentation of our business segments as set forth in our Consolidated Financial Statements and these Notes reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these changes. On April 8, 2016, we completed the divestiture of our composite aerostructures business (“Aerostructures”). Aerostructures was a part of our company as a result of our acquisition of Exelis Inc. (collectively with its subsidiaries, “Exelis”) in May 2015. The operating results of Aerostructures through the date of divestiture are reported as part of our Electronic Systems segment. See Note 3: Discontinued Operations and Divestitures for more information regarding divestitures, as well as information regarding discontinued operations. As further discussed therein, we recorded a loss in discontinued operations in 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 fiscal 2015 as 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 — Our Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the amounts reported in the accompanying Consolidated Financial Statements and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the Consolidated Financial Statements. Materially different results can occur as circumstances change and additional information becomes known. |
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Fiscal Year | Fiscal Year — Our fiscal year ends on the Friday nearest June 30. Fiscal 2016 included 52 weeks, fiscal 2015 included 53 weeks and fiscal 2014 included 52 weeks. |
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Cash and Cash Equivalents | Cash and Cash Equivalents — Cash equivalents are temporary cash investments with a maturity of three or fewer months when purchased. These investments include accrued interest and are carried at the lower of cost or market. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments — The carrying amounts reflected in our Consolidated Balance Sheet for cash and cash equivalents, accounts receivable, non-current receivables, notes receivable, accounts payable, short-term debt and long-term variable-rate debt approximate their fair values. Fair values for long-term fixed-rate debt are primarily based on quoted market prices for those or similar instruments. |
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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:
In certain instances, fair value is estimated using quoted market prices obtained from external pricing services. In obtaining such data from the pricing service, the Company has evaluated the methodologies used to develop the estimate of fair value in order to assess whether such valuations are representative of fair value, including net asset value (“NAV”). Additionally, in certain circumstances, the NAV reported by an asset manager may be adjusted when sufficient evidence indicates NAV is not representative of fair value. |
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Accounts Receivable | Accounts Receivable — We record receivables at net realizable value and they generally do not bear interest. This value includes an allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances which is charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and economic status of the customers. We consider a receivable delinquent if it is unpaid after the term of the related invoice has expired. Write-offs are recorded at the time a customer receivable is deemed uncollectible. |
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Inventories | Inventories — Inventories are valued at the lower of cost (determined by average and first-in, first-out methods) or market. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements. |
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Property, Plant and Equipment | Property, Plant and Equipment — Property, plant and equipment are carried on the basis of cost and include software capitalized for internal use. Depreciation of buildings, machinery and equipment is computed by the straight-line and accelerated methods. The estimated useful lives of buildings, including leasehold improvements, generally range between 2 and 45 years. The estimated useful lives of machinery and equipment generally range between 2 and 10 years. Amortization of internal-use software begins when the software is put into service and is based on the expected useful life of the software. The useful lives over which we amortize internal-use software generally range between 3 and 10 years. |
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Goodwill | Goodwill — Goodwill is not amortized. We perform annual (or under certain circumstances, more frequent) impairment tests of our goodwill using a two-step process. The first step is to identify potential impairment by comparing the fair value of each of our reporting units with its net book value, including goodwill, adjusted for allocations of corporate assets and liabilities as appropriate. If the fair value of a reporting unit exceeds its adjusted net book value, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the adjusted net book value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. |
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Long-Lived Assets, Including Finite-Lived Intangible Assets | Long-Lived Assets, Including Finite-Lived Intangible Assets — Long-lived assets, including finite-lived intangible assets, are amortized on a straight-line basis over their useful lives. We assess the recoverability of the carrying value of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. We evaluate the recoverability of such assets based on the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount. |
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Other Assets and Liabilities | Other Assets and Liabilities — No assets within the “Other current assets” line item in our Consolidated Balance Sheet exceeded 5 percent of our total current assets as of July 1, 2016 or July 3, 2015. No assets within the “Other non-current assets” line item in our Consolidated Balance Sheet exceeded 5 percent of our total assets as of July 1, 2016 or July 3, 2015. No accrued liabilities or expenses within the “Other accrued items” or “Other long-term liabilities” line items in our Consolidated Balance Sheet exceeded 5 percent of our total current liabilities or total liabilities, respectively, as of July 1, 2016 or July 3, 2015 |
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Income Taxes | Income Taxes — We follow the liability method of accounting for income taxes. We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in our Consolidated Balance Sheet, as well as operating loss and tax credit carryforwards. We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. |
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Warranties | Warranties — On development and production contract sales in our Space and Intelligence Systems, Electronic Systems and Critical Networks segments, the value or price of our warranty is generally included in the contract and funded by the customer. A provision for warranties is built into the estimated program costs when determining the profit rate to accrue when applying the cost-to-cost percentage-of-completion revenue recognition method. Warranty costs, as incurred, are charged to the specific program’s cost, and both revenue and cost are recognized at that time. Factors that affect the estimated program cost for warranties include terms of the contract, complexity of the delivered product or service, number of installed units, historical experience and management’s assumptions regarding anticipated rates of warranty claims and cost per claim. On product sales in all our segments, we provide for future standard warranty costs upon product delivery. The specific terms and conditions of those warranties vary depending on the product sold, customer and country in which we do business. In the case of products sold by us, our warranties start from the shipment, delivery or customer acceptance date and continue as follows:
Because our products are manufactured, in many cases, to customer specifications and their acceptance is based on meeting those specifications, we historically have experienced minimal warranty costs. Factors that affect our warranty liability include the number of installed units, historical experience, anticipated delays in delivery of products to end customers, in-country support for international sales and management’s assumptions regarding anticipated rates of warranty claims and cost per claim. We assess the adequacy of our recorded warranty liabilities every quarter and make adjustments to the liability as necessary. |
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Foreign Currency Translation | Foreign Currency Translation — The functional currency for most international subsidiaries is the local currency. Assets and liabilities are translated at current rates of exchange and income and expense items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity. |
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Stock Options and Other Share-Based Compensation | Stock Options and Other Share-Based Compensation — We measure compensation cost for all share-based payments (including employee stock options) at fair value and recognize cost over the vesting period. It is our practice to issue shares when options are exercised. |
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Stock Options | Stock Options The following information relates to stock options, including performance stock options, that have been granted under shareholder-approved SIPs. Option exercise prices are equal to or greater than the fair market value of our common stock on the date the options are granted, using the closing stock price of our common stock. Options may be exercised for a period set at the time of grant, which generally ranges from seven to ten years after the date of grant, and options, other than performance stock options, generally become exercisable in installments, which are typically 33.3 percent one year from the grant date, 33.3 percent two years from the grant date and 33.3 percent three years from the grant date. In certain instances, vesting and exercisability are also subject to performance criteria. The fair value as of the grant date of each option award was determined using the Black-Scholes-Merton option-pricing model which uses assumptions noted in the following table. Expected volatility over the expected term of the options is based on implied volatility from traded options on our common stock and the historical volatility of our stock price. The expected term of the options is based on historical observations of our common stock, considering average years to exercise for all options exercised and average years to cancellation for all options cancelled, as well as average years remaining for vested outstanding options, which is calculated based on the weighted-average of these three inputs. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. |
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Restricted Stock and Restricted Stock Unit Awards | Restricted Stock and Restricted Stock Unit Awards The following information relates to awards of restricted stock and restricted stock units that have been granted to employees under our SIPs. These awards are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment over a specified time period. The fair value as of the grant date of these awards was based on the closing price of our common stock on the grant date and is amortized to compensation expense over the vesting period. At July 1, 2016, there were 198,748 shares of restricted stock and 213,127 restricted stock units outstanding, substantially all of which were payable in shares. |
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Performance Share and Performance Share Unit Awards | Performance Share and Performance Share Unit Awards The following information relates to awards of performance shares and performance share units that have been granted to employees under our SIPs. Generally, these awards are subject to performance criteria, such as meeting predetermined operating income or earnings per share and return on invested capital targets (and market conditions, such as total shareholder return) for a 3-year performance period. These awards also generally vest at the expiration of the same 3-year period. The final determination of the number of shares to be issued in respect of an award is made by our Board of Directors or a committee of our Board of Directors. The fair value as of the grant date of these awards was determined based on a 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. The fair value of these awards is amortized to compensation expense over the vesting period if achievement of the performance measures is considered probable. At July 1, 2016, there were no performance shares outstanding, and there were 681,731 performance share units outstanding, all of which were payable in shares. |
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Restructuring Charges | Restructuring Charges — We record restructuring charges for sales or terminations of product lines, closures or relocations of business activities, changes in management structure, and fundamental reorganizations that affect the nature and focus of operations. Such charges include termination benefits, contract termination costs and costs to consolidate facilities or relocate employees. We record these charges at their fair value when incurred. In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period. These charges are included as a component of the “Cost of product sales” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. |
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Acquisition-Related Charges | Acquisition-Related Charges — In fiscal 2016, in connection with the acquisition of Exelis, we recorded $115 million of charges at our corporate headquarters for integration and other costs (including $11 million for amortization of a step up in inventory), which were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. In fiscal 2015, in connection with the acquisition of Exelis, we recorded $281 million of charges at our corporate headquarters, consisting of financing, restructuring, integration, transaction and other costs as follows:
All of the costs above were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for the $146 million of financing costs. |
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Revenue Recognition | Revenue Recognition — Our segments have the following revenue recognition policies: Development and Production Contracts: 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. Revenue and profits on cost-reimbursable development and production contracts are recognized as allowable costs are incurred on the contract, and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs. 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. We are party to certain contracts with incentive provisions or award fees that are subject to uncertainty until the conclusion of the contract and our customer may be entitled to reclaim and receive previous award fee payments. 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 estimate of total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimates of 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 $67 million ($.33 per diluted share) in fiscal 2016, $57 million ($.37 per diluted share) in fiscal 2015 and $53 million ($.33 per diluted share) in fiscal 2014. Products and Services Other Than Development and Production Contracts: Revenue from product sales other than development and production contracts and revenue from service arrangements are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectibility is reasonably assured, and delivery of a product has occurred and title has transferred or services have been rendered. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Also, if contractual obligations related to customer acceptance exist, revenue is not recognized for a product or service unless these obligations are satisfied. Multiple-Element Arrangements: We have entered into arrangements other than development and production contracts that require the delivery or performance of multiple deliverables or elements under a bundled sale. These arrangements are most prevalent in our Communication Systems and Critical Networks segments. For example, in our Communication Systems segment, in addition to delivering secure tactical radios and accessories, we may be required to perform or provide installation, design and development solutions for custom communication infrastructures, and extended warranties. For arrangements with multiple elements, judgment is required to determine the appropriate accounting, including whether the individual deliverables represent separate units of accounting for revenue recognition purposes, and the timing of revenue recognition for each deliverable. We recognize revenue for contractual deliverables as separate units of accounting when the delivered items have value to the customer on a standalone basis (i.e., if they are sold separately by any vendor or the customer could resell the delivered items on a standalone basis) and, if the arrangement includes a general right of return relative to the delivered items, we consider delivery or performance of the undelivered items as probable and substantially in our control. Deliverables that are not separable are accounted for as a combined unit of accounting, and revenue generally is recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectibility is reasonably assured, and delivery of a product has occurred and title has transferred or services have been rendered. If we determine that the deliverables represent separate units of accounting, we recognize the revenue associated with each unit of accounting separately, and contract revenue is allocated among the separate units of accounting at the inception of the arrangement based on relative selling price. If options or change orders materially change the scope of work or price of the contract subsequent to inception, we reevaluate and adjust our prior conclusions regarding units of accounting and allocation of contract revenue as necessary. The allocation of selling price among the separate units of accounting may impact the timing of revenue recognition, but will not change the total revenue recognized on the arrangement. We establish the selling price used for each deliverable based on the vendor-specific objective evidence (“VSOE”) of selling price, or third-party evidence (“TPE”) of selling price if VSOE of selling price is not available, or best estimate of selling price (“BESP”) if neither VSOE of selling price nor TPE of selling price is available. In determining VSOE of selling price, a substantial majority of the recent standalone sales of the deliverable must be priced within a relatively narrow range. In determining TPE of selling price, we evaluate competitor prices for similar deliverables when sold separately. Generally, comparable pricing of our products to those of our competitors with similar functionality cannot be obtained. In determining BESP, we consider both market data and entity-specific factors, including market conditions, the geographies in which our products are sold, our competitive position and strategy, and our profit objectives. Bill-and-Hold Arrangements: Certain contracts include terms and conditions through which we recognize revenue upon completion of equipment production, which is subsequently stored at our location at the customer’s request. Revenue is recognized on such contracts upon the customer’s assumption of title and risk of ownership and when collectibility is reasonably assured. At the time of revenue recognition, there is a schedule of delivery of the product consistent with the customer’s business practices, the product has been separated from our inventory, and we do not have any remaining performance obligations such that the earnings process is not complete. Other: Net income or expense related to intellectual property matters is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income and is recognized on the basis of terms specified in contractual agreements. Shipping and handling fees billed to customers are included in the “Revenue from product sales” line item in our Consolidated Statement of Income and the associated costs are included in the “Cost of product sales” line item in our Consolidated Statement of Income. Also, we record taxes collected from customers and remitted to governmental authorities on a net basis in that they are excluded from revenue. |
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Retirement and Post-Employment Benefits | Retirement and Post-Employment Benefits — Defined benefit plans that we sponsor are accounted for as defined benefit pension and other postretirement defined benefit plans (collectively referred to as “defined benefit plans”). Accordingly, the funded or unfunded position of each defined benefit plan is recorded on our Consolidated Balance Sheet. Actuarial gains and losses and prior service costs or credits that have not yet been recognized through income are recorded in “accumulated other comprehensive loss” within equity, net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to defined benefit plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality, termination and healthcare inflation trend rates. Management develops each assumption using relevant company experience in conjunction with market-related data. Actuarial assumptions are reviewed annually with third-party consultants and adjusted as appropriate. For the recognition of net periodic benefit cost, the calculation of the long-term expected return on plan assets is generally derived using a market-related value of plan assets based on yearly average asset values at the measurement date over the last five years, to be phased in over five years from June 30, 2015. Actual results that differ from our assumptions are accumulated and generally amortized over the estimated future lives or service periods of the participants. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement date. The measurement date for valuing defined benefit plan assets and obligations is the end of the month closest to our fiscal year end. For fiscal 2017, we will be changing the approach used to estimate the service and interest components of net periodic benefit cost of the U.S. defined benefit plans. The new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates derived from the yield curve used to discount the cash flows used to measure the benefit obligation. Historically, we estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We are making this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. Although the benefit obligation measured under this approach is unchanged, the more granular application of the spot rates is expected to reduce the fiscal 2017 service and interest costs for the U.S. defined benefit plans by approximately $46 million as a result of this change. In tandem with our change to the alternative spot rate approach to estimate service cost and interest cost for fiscal 2017 expense, we changed, as of July 1, 2016, the underlying yield curve from a published median yield curve to our actuaries’ above median yield curve to improve our ability to make such estimates. We believe we will be better able to explain changes of individual spot rates between periods with details from our actuaries supporting the underlying yield curve. If we had continued to use a median yield curve, our projected benefit obligation would have been approximately $339 million, or 5 percent higher as of July 1, 2016. See Note 14: Pension and Other Postretirement Benefits for additional information regarding our defined benefit plans. We also provide retirement benefits to many of our U.S.-based employees through defined contribution retirement plans, including 401(k) plans and certain non-qualified deferred compensation plans. The defined contribution retirement plans have matching and savings elements. Company contributions to the retirement plans are based on employees’ savings with no other funding requirements. We may make additional contributions to the retirement plans at our discretion. Retirement and postretirement benefits also include unfunded limited healthcare plans for U.S.-based retirees and employees on long-term disability. We estimate benefits for these plans using actuarial valuations that are based in part on certain key assumptions we make, including the discount rate, the expected long-term rate of return on plan assets, the rates of increase in future compensation levels, healthcare cost trend rates and employee turnover and mortality, each appropriately based on the nature of the plans. We accrue the cost of these benefits during an employee’s active service life, except in the case of our healthcare plans for disabled employees, the costs of which we accrue when the disabling event occurs. |
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Environmental Expenditures | Environmental Expenditures — We capitalize environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. We accrue environmental expenses resulting from existing conditions that relate to past or current operations. Our accruals for environmental expenses are recorded on a site-by-site basis when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies available to us. Our accruals for environmental expenses represent the best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees, and are reviewed periodically, at least annually at the year-end balance sheet date, and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. If the timing and amount of future cash payments for environmental liabilities are fixed or reliably determinable, we generally discount such cash flows in estimating our accrual. As of July 1, 2016, we were named, and continue to be named, as a potentially responsible party at 61 sites where future liabilities could exist. These sites included 4 sites owned by us, 48 sites associated with our former locations or operations and 9 hazardous waste treatment, storage or disposal facility sites not owned by us that contain hazardous substances allegedly attributable to us from past operations. Based on an assessment of relevant factors, we estimated that our liability under applicable environmental statutes and regulations for identified sites was approximately $106 million, consisting of (1) approximately $99 million for environmental liabilities related to Exelis operations; and (2) approximately $7 million for other environmental liabilities, which we recorded on a discounted basis, using a 1.46 percent discount rate, because the associated payment stream is relatively certain, and for which the estimated aggregate undiscounted amount that will be incurred over the next 10 years is approximately $8 million, with estimated payments for the next five years of approximately $0.7 million per year and an aggregate amount thereafter of approximately $4 million. In each case, the current portion of our estimated environmental liability is included in the “Other accrued items” line item and the non-current portion is included in the “Other long-term liabilities” line item in our Consolidated Balance Sheet. The relevant factors we considered in estimating our potential liabilities under applicable environmental statutes and regulations included some or all of the following as to each site: incomplete information regarding particular sites and other potentially responsible parties; uncertainty regarding the extent of investigation or remediation; our share, if any, of liability for such conditions; the selection of alternative remedial approaches; changes in environmental standards and regulatory requirements; potential insurance proceeds; cost-sharing agreements with other parties and potential indemnification from successor and predecessor owners of these sites. We do not believe that any uncertainties regarding these relevant factors will materially affect our potential liability under applicable environmental statutes and regulations. We believe the total amount accrued is appropriate based on existing facts and circumstances, although we note the total amount accrued may increase or decrease in future years. |
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Financial Guarantees and Commercial Commitments | Financial Guarantees and Commercial Commitments — Financial guarantees are contingent commitments issued to guarantee the performance of a customer to a third party in borrowing arrangements, such as commercial paper issuances, bond financings and similar transactions. As of July 1, 2016, there were no such contingent commitments accrued for in our Consolidated Balance Sheet. We have entered into commercial commitments in the normal course of business including surety bonds, standby letter of credit agreements and other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers and to obtain insurance policies with our insurance carriers. |
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Financial Instruments and Risk Management | Financial Instruments and Risk Management — In the normal course of 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 our Consolidated Balance Sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. We do not hold or issue derivatives for trading purposes. |
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Income From Continuing Operations Per Share | Income From Continuing Operations Per Share — For all periods presented in our Consolidated Financial Statements and these Notes, income from continuing operations per share is computed using the two-class method. The two-class method of computing income from continuing operations per share is an earnings allocation formula that determines income from continuing operations per share for common stock and any participating securities according to dividends paid and participation rights in undistributed earnings. Our restricted stock awards and restricted stock unit awards meet the definition of participating securities and are included in the computations of income from continuing operations per basic and diluted common share. Our performance share awards and performance share unit awards do not meet the definition of participating securities because they do not contain rights to receive nonforfeitable dividends and, therefore, are excluded from the computations of income from continuing operations per basic and diluted common share. Under the two-class method, income from continuing operations per common share is computed by dividing the sum of earnings distributed to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. Income from continuing operations per diluted common share is computed using the more dilutive of the two-class method or the treasury stock method. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. |
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Reclassifications | Reclassifications — Certain prior-year amounts have been reclassified in our Consolidated Financial Statements to conform to current-year classifications. |
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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 our Consolidated Financial Statements 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 than 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, April 2016 and May 2016, the FASB issued several 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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Segment Reporting | The accounting policies of our business segments are the same as those described in Note 1: Significant Accounting Policies. 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. |
Significant Accounting Policies (Tables) |
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Product sales in different segments warranty period | On product sales in all our segments, we provide for future standard warranty costs upon product delivery. The specific terms and conditions of those warranties vary depending on the product sold, customer and country in which we do business. In the case of products sold by us, our warranties start from the shipment, delivery or customer acceptance date and continue as follows:
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Discontinued Operations and Divestitutures Discontinued Operations and Divestitures (Tables) |
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Sumarized Financial Information for Aerostructures | Summarized financial information for Aerostructures is as follows:
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Business Combinations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consideration Paid for Exelis Acquisition | The following table provides further detail of the fair value of consideration paid related to the Exelis acquisition in fiscal 2015 (dollars in millions):
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Fair Value of Assets Acquired and Liabilities Assumed | The following table summarizes the final fair value of assets acquired and liabilities assumed at the date of the acquisition, as well as adjustments made during the measurement period:
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Identifiable Intangible Assets Acquired | The following table provides further detail of the final fair value and weighted-average amortization period of intangible assets acquired by major intangible asset class:
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Pro Forma results (Unaudited) | In the following table, “income from continuing operations” refers to income from continuing operations attributable to Harris Corporation common shareholders.
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Receivables (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables | Receivables are summarized below:
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Inventories (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories are summarized below:
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Property Plant and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | Property, plant and equipment are summarized below:
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Goodwill (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in the carrying amount | The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the fiscal years ended July 1, 2016 and July 3, 2015, by business segment, were as follows:
(1) During the fourth quarter of fiscal 2016, we completed the divestiture of Aerostructures. In accordance with GAAP, we determined $61 million of goodwill to be a part of the carrying value of Aerostructures in determining the gain or loss on divestiture. See Note 3: Discontinued Operations and Divestitures for additional information. |
Intangible Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets subject to amortization and not subject to amortization | Intangible assets are summarized below:
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Future estimated amortization expense for intangible assets | Future estimated amortization expense for intangible assets is as follows:
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Accrued Warranties (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Warranties [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 our Consolidated Balance Sheet, during fiscal 2016 and 2015, were as follows:
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Long-Term Debt (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | Long-term debt is summarized below:
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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 long-term debt:
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Pension and Other Postretirement Benefits (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value of deferred compensation plan investments and liabilities by category and by fair value hierarchy level | The following table provides the fair value our deferred compensation plan investments and liabilities by category and by fair value hierarchy level as of July 1, 2016:
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Summary of the funded status of defined benefit plans | The following table provides a summary of the funded status of our defined benefit plans and the presentation of such balances within our Consolidated Balance Sheet:
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Summary of amounts recorded within accumulated other comprehensive loss | The following table provides a summary of pre-tax amounts recorded within accumulated other comprehensive loss:
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Schedule of changes in benefit obligation | The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment, curtailment and settlement during the year. (2) We made lump sum distributions to participants covered under one of the Exelis Inc. excess pension plans that became payable within 90 days from the close of the acquisition on May 29, 2015. These distributions resulted in a settlement during the quarter ended October 2, 2015 and a net liability reduction of $244 million. (3) We discontinued operations at one of our facilities during fiscal 2016, with the facility consolidation completing during the quarter ended July 1, 2016. Under GAAP, this resulted in a curtailment during the quarter ended January 1, 2016, and a net pension liability reduction of $2 million. Additionally, see note (1) above for information about the other benefits curtailment. |
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Schedule of change in plan assets | The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. As a result, the remaining assets of the Employee Benefit Trust were designated for other employee benefit costs. |
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Schedule of accumulated and projected benefit obligations | The following table provides information for defined benefit pension plans with an accumulated benefit obligation in excess of plan assets:
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Schedule of net benefit costs | The following table provides the components of net periodic benefit cost and other amounts recognized in other comprehensive income for fiscal 2016 and 2015, as they pertain to our defined benefit plans:
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment, curtailment and settlement during the year. |
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Estimated net actuarial loss and prior service cost to be amortized from AOCL | The following table provides the estimated net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive loss into net periodic cost during fiscal 2017:
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Schedule of assumptions used | The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our other postretirement defined benefit plans:
The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our defined benefit pension plans:
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Schedule of the strategic target asset allocation ranges | The following table provides the current strategic target asset allocation ranges by asset category:
The following table provides the fair value of plan assets held by our defined benefit plans by asset category and by fair value hierarchy level:
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Reconciliation of defined benefit plan asset balances that use significant unobservable inputs | The following table presents a reconciliation of the beginning and ending defined benefit plan asset balances that use significant unobservable inputs (Level 3) to measure fair value:
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Schedule of estimated future benefit payments | The following table provides the projected timing of payments for benefits earned to date and the expectation that certain future service will be earned by current active employees for our defined benefit plans:
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Stock Options and Other Share-Based Compensation (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of amounts and classifications of share-based compensation expense | The following table summarizes the amounts and classification of share-based compensation expense:
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Assumptions used in calculating fair value of stock option grants | A summary of the significant assumptions used in determining the fair value of stock option grants under our SIPs is as follows:
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Summary of stock option activity | A summary of stock option activity under our SIPs as of July 1, 2016 and changes during fiscal 2016 is as follows:
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Nonvested stock options | A summary of the status of our nonvested stock options at July 1, 2016 and changes during fiscal 2016 is as follows:
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Summary of restricted stock and restricted stock units | A summary of the status of these awards at July 1, 2016 and changes during fiscal 2016 is as follows:
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Summary of performance shares and performance share units | A summary of the status of these awards at July 1, 2016 and changes during fiscal 2016 is as follows:
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Income From Continuing Operations Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations per share | The computations of income from continuing operations per share are as follows (in this Note 16, “income from continuing operations” refers to income from continuing operations attributable to Harris Corporation common shareholders):
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Non-Operating Income (Loss) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nonoperating Income (Expense) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of non-operating income (loss) | The components of non-operating income (loss) were as follows:
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Accumulated Other Comprehensive Loss (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accumulated Other Comprehensive Loss | The components of accumulated other comprehensive loss were as follows:
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions for income taxes | The provisions for current and deferred income taxes are summarized as follows:
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Total Income tax provision summary | The total income tax provision is summarized as follows:
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Components of deferred income tax assets (liabilities) | The components of deferred income tax assets (liabilities) were as follows:
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Reconciliation of the United States statutory income tax rate to our effective income tax rate | A reconciliation of the United States statutory income tax rate to our effective income tax rate follows:
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Reconciliation of the beginning and ending amounts of unrecognized tax benefits | A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
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Business Segments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of total assets by business segment | Selected information by business segment and geographical area is summarized below:
(1) Identifiable intangibles assets acquired in connection with our acquisition of Exelis in the fourth quarter of fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segments. Exelis identifiable asset balances recorded as Corporate assets were approximately $1.4 billion and $1.6 billion as of July 1, 2016 and July 3, 2015, respectively. Corporate assets consisted primarily of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment and identifiable intangibles. |
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Revenue and income before income taxes by segment | Segment revenue, segment operating income (loss) and a reconciliation of segment operating income to total income from continuing operations before income taxes follow: Revenue
Income From Continuing Operations Before Income Taxes
|
Significant Accounting Policies Significant Accounting Policies - Long-Lived Assets (Details) |
12 Months Ended |
---|---|
Jul. 01, 2016 | |
Property, Plant and Equipment [Line Items] | |
Internal use software, useful life minimum | 3 years |
Internal use software, useful life maximum | 10 years |
Building | Minimum | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 2 years |
Building | Maximum | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 45 years |
Machinery and Equipment | Minimum | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 2 years |
Machinery and Equipment | Maximum | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 10 years |
Significant Accounting Policies - Warranty Period by Segment (Details) |
12 Months Ended |
---|---|
Jul. 01, 2016 | |
Minimum | Communication Systems | |
Warranty Period [Line Items] | |
Warranty Period | 1 year |
Minimum | Space and Intelligence Systems | |
Warranty Period [Line Items] | |
Warranty Period | 1 year |
Minimum | Electronic Systems | |
Warranty Period [Line Items] | |
Warranty Period | 1 year |
Minimum | Critical Networks | |
Warranty Period [Line Items] | |
Warranty Period | 1 year |
Maximum | Communication Systems | |
Warranty Period [Line Items] | |
Warranty Period | 5 years |
Maximum | Space and Intelligence Systems | |
Warranty Period [Line Items] | |
Warranty Period | 2 years |
Maximum | Electronic Systems | |
Warranty Period [Line Items] | |
Warranty Period | 2 years |
Maximum | Critical Networks | |
Warranty Period [Line Items] | |
Warranty Period | 5 years |
Accounting Changes or Recent Accounting Pronouncements Accounting Changes or Recent Accounting Pronouncements (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 03, 2015 |
Jun. 27, 2014 |
Jul. 01, 2016 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Non-current deferred income taxes, assets | $ 502 | $ 598 | |
Tax reclassifications related to adoption of accounting standard | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Current deferred income tax, assets | 341 | ||
Deferred income taxes, liabilities | 7 | ||
Non-current deferred income taxes, assets | 339 | ||
Non-current deferred income taxes, liabilities | 5 | ||
Non-current deferred income taxes | $ 39 | $ 32 |
Discontinued Operations and Divestitutures - Divestitures (Details) - Electronic Systems - Disposal Group, Disposed of by Sale, Not Discontinued Operations - Aerostructures - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Apr. 08, 2016 |
Jul. 01, 2016 |
Jul. 03, 2015 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Asset sale agreement cash | $ 187 | ||
Capital leased assets disposal group | $ 23 | ||
Summarized financial information for our discontinued operations | |||
Revenue from product sales and services | $ 60 | $ 8 | |
Income before income taxes | 5 | 0 | |
Net gain on sale of business | 10 | 0 | |
Receivables | 0 | 7 | |
Inventories | 0 | 36 | |
Property, plant and equipment | 0 | 65 | |
Goodwill | 0 | 57 | |
Intangible assets | 0 | 25 | |
Other assets | 0 | 3 | |
Total assets | 0 | 193 | |
Accounts payable | 0 | 7 | |
Other liabilities | 0 | 5 | |
Net assets | $ 0 | $ 181 |
Business Combinations - Consideration Paid for Exelis (Details) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
May 29, 2015 |
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Business Acquisition [Line Items] | ||||
Net cash consideration paid | $ 0 | $ 3,186 | $ 0 | |
Exelis | ||||
Business Acquisition [Line Items] | ||||
Cash consideration paid for Exelis outstanding common stock | $ 3,128 | |||
Cash consideration paid for Exelis outstanding stock options | 125 | |||
Cash consideration paid for Exelis outstanding restricted stock units | 38 | |||
Cash consideration paid for dividends to Exelis shareholders | 21 | |||
Total cash consideration paid | 3,312 | |||
Less cash acquired | (130) | |||
Net cash consideration paid | 3,182 | |||
Fair value of Harris common stock issued for Exelis common stock | 1,527 | |||
Total net purchase price paid | $ 4,709 |
Business Combinations - Intangible Assets Acquired (Details) - Exelis - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
May 29, 2016 |
May 29, 2015 |
|
Identifiable intangible assets | |||
Weighted average amortization period (in years) | 13 years | ||
Identifiable intangible assets | $ 1,618 | $ 1,618 | $ 1,606 |
Customer Relationships | |||
Identifiable intangible assets | |||
Weighted average amortization period (in years) | 13 years | ||
Identifiable intangible assets | $ 1,413 | ||
Developed Technology | |||
Identifiable intangible assets | |||
Weighted average amortization period (in years) | 11 years | ||
Identifiable intangible assets | $ 150 | ||
Trade names and trademarks - Exelis | |||
Identifiable intangible assets | |||
Weighted average amortization period (in years) | 2 years | ||
Identifiable intangible assets | $ 15 | ||
Trade names and trademarks - Product | |||
Identifiable intangible assets | |||
Weighted average amortization period (in years) | 10 years | ||
Identifiable intangible assets | $ 40 |
Business Combinations - Pro Forma Results (Unaudited) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Business Acquisition [Line Items] | |||
Revenue from product sales and services - as reported | $ 7,467 | $ 5,083 | $ 5,012 |
Income from continuing operations - as reported | $ 345 | 334 | 540 |
Exelis | As Reported | |||
Business Acquisition [Line Items] | |||
Revenue from product sales and services - as reported | 5,083 | 5,012 | |
Income from continuing operations - as reported | 334 | 540 | |
Exelis | Pro Forma | |||
Business Acquisition [Line Items] | |||
Revenue from product sale and services - pro forma | 8,085 | 8,287 | |
Income from continuing operations - pro forma | $ 455 | $ 707 |
Receivables (Details) - USD ($) $ in Millions |
Jul. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Receivables | ||
Accounts receivable | $ 602 | $ 837 |
Unbilled costs and accrued earnings on cost-plus contracts | 345 | 343 |
Receivables, gross | 947 | 1,180 |
Less allowances for collection losses | (10) | (12) |
Receivables | $ 937 | $ 1,168 |
Inventories (Details) - USD ($) $ in Millions |
Jul. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Inventories | ||
Unbilled costs and accrued earnings on fixed-price contracts | $ 512 | $ 463 |
Finished products | 129 | 100 |
Work in process | 123 | 256 |
Raw materials and supplies | 200 | 196 |
Inventories | 964 | 1,015 |
Inventories (Textuals) | ||
Progress payments | $ 91 | $ 85 |
Property, Plant and Equipment (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jan. 01, 2016 |
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Property, Plant and Equipment [Line Items] | ||||
Depreciation and amortization expense related to property, plant and equipment | $ 200 | $ 155 | $ 142 | |
Property, Plant and Equipment | ||||
Land | 45 | 45 | ||
Software capitalized for internal use | 131 | 155 | ||
Buildings | 612 | 587 | ||
Machinery and equipment | 1,364 | 1,526 | ||
Property, plant and equipment, gross | 2,152 | 2,313 | ||
Less accumulated depreciation and amortization | (1,137) | (1,148) | ||
Property, plant and equipment | $ 1,015 | $ 1,165 | ||
Impairment of goodwill and others assets | Critical Networks | ||||
Property, Plant and Equipment [Line Items] | ||||
Non-cash impairment charges related to property, plant and equipment | $ 19 |
Accrued Warranties (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
|
Changes in warranty liability [Roll Forward] | ||
Balance at beginning of fiscal year | $ 36 | $ 33 |
Warranty provision for sales | 20 | 16 |
Settlements | (19) | (15) |
Other, including adjustments for acquisitions and foreign currency translation | (5) | 2 |
Balance at end of fiscal year | 32 | 36 |
Deferred revenue associated with extended warranties | $ 37 | $ 36 |
Short-Term Debt (Details) - USD ($) $ in Millions |
Jul. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Shot-Term Debt (Textuals) (Abstract) | ||
Short-term debt | $ 15 | $ 33 |
Long-Term Debt - Fair Value of Long-Term Debt (Details) - USD ($) $ in Millions |
Jul. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Debt Instrument [Line Items] | ||
Financial Liabilities, Long-term debt (including current portion), Carrying amount | $ 4,502 | $ 5,183 |
Estimate of Fair Value Measurement | Level 2 | ||
Debt Instrument [Line Items] | ||
Financial Liabilities, Long-term debt (including current portion), Fair value | $ 4,873 | $ 5,230 |
Pension and Other Postretirement Benefits - Defined Contribution Plans (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Defined Contribution Pension and Other Postretirement Plans Disclosure [Abstract] | |||
Percentage match of the employee contribution - Low end of range (percent) | 2.00% | ||
Percentage match of the employee contribution - High end of range (percent) | 7.50% | ||
Contributions charged to expense | $ 82 | $ 58 | $ 55 |
Pension and Other Postretirement Benefits - Defined Benefit Plans (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Jan. 01, 2016 |
Oct. 02, 2015 |
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Defined Benefit Plan Disclosure [Line Items] | |||||
Fair value of plan assets | $ 4,489 | $ 4,757 | $ 91 | ||
Projected benefit obligation | 6,782 | 6,938 | 104 | ||
Settlement and net liability reduction | $ 244 | 244 | 0 | ||
Curtailment and net pension liability reduction | 3 | 0 | |||
U.S. SRP | |||||
Defined Benefit Plan Disclosure [Line Items] | |||||
Fair value of plan assets | 3,800 | ||||
Projected benefit obligation | 5,900 | ||||
Pension | |||||
Defined Benefit Plan Disclosure [Line Items] | |||||
Fair value of plan assets | 4,273 | 4,500 | 91 | ||
Projected benefit obligation | 6,471 | 6,493 | $ 83 | ||
Settlement and net liability reduction | 244 | 0 | |||
Curtailment and net pension liability reduction | $ 2 | $ 2 | $ 0 |
Pension and Other Postretirement Benefits - Pre-tax Amounts Recorded in Other Comprehensive Loss (Details) - USD ($) $ in Millions |
Jul. 01, 2016 |
Jul. 03, 2015 |
---|---|---|
Defined Benefit Plan Disclosure [Line Items] | ||
Net actuarial loss (gain) | $ 557 | $ (100) |
Net prior service cost (credit) | 2 | (6) |
Pre-tax amounts recorded within accumulated other comprehensive loss | 559 | (106) |
Pension | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Net actuarial loss (gain) | 546 | (98) |
Net prior service cost (credit) | 3 | 0 |
Pre-tax amounts recorded within accumulated other comprehensive loss | 549 | (98) |
Other benefits | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Net actuarial loss (gain) | 11 | (2) |
Net prior service cost (credit) | (1) | (6) |
Pre-tax amounts recorded within accumulated other comprehensive loss | $ 10 | $ (8) |
Pension and Other Postretirement Benefits - Estimated Net Actuarial Loss and Prior Service Cost (Details) $ in Millions |
12 Months Ended |
---|---|
Jul. 01, 2016
USD ($)
| |
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | |
Net actuarial loss | $ 1 |
Prior service cost | 0 |
Estimated net actuarial loss and prior service cost to be amortized from AOCL next fiscal year | 1 |
Pension | |
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | |
Net actuarial loss | 1 |
Prior service cost | 0 |
Estimated net actuarial loss and prior service cost to be amortized from AOCL next fiscal year | 1 |
Other benefits | |
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | |
Net actuarial loss | 0 |
Prior service cost | 0 |
Estimated net actuarial loss and prior service cost to be amortized from AOCL next fiscal year | $ 0 |
Pension and Other Postretirement Benefits - Assumptions to Determine Projected Benefit Obligations and Net Periodic Cost (Details) |
12 Months Ended | |
---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
|
Cost assumptions: | ||
Rate of future compensation increase (percent) | 2.75% | |
Pension | ||
Obligation assumptions: | ||
Discount rate (percent) | 3.62% | 4.06% |
Rate of future compensation increase (percent) | 2.75% | 2.76% |
Cost assumptions: | ||
Discount rate (percent) | 4.06% | 3.77% |
Expected return on plan assets (percent) | 7.91% | 7.93% |
Rate of future compensation increase (percent) | 2.76% | 2.76% |
Other benefits | ||
Obligation assumptions: | ||
Discount rate (percent) | 3.41% | 3.86% |
Cost assumptions: | ||
Discount rate (percent) | 3.86% | 3.57% |
Rate of future compensation increase (percent) | 2.75% | 2.75% |
Pension and Other Postretirement Benefits - Strategic Target Asset Allocation (Details) |
12 Months Ended |
---|---|
Jul. 01, 2016 | |
Equity investments | |
Defined Benefit Plan Disclosure [Line Items] | |
Target asset allocation range minimum (percent) | 50.00% |
Target asset allocation range maximum (percent) | 75.00% |
Fixed income investments | |
Defined Benefit Plan Disclosure [Line Items] | |
Target asset allocation range minimum (percent) | 20.00% |
Target asset allocation range maximum (percent) | 42.00% |
Hedge funds | |
Defined Benefit Plan Disclosure [Line Items] | |
Target asset allocation range minimum (percent) | 5.00% |
Target asset allocation range maximum (percent) | 12.00% |
Cash and cash equivalents | |
Defined Benefit Plan Disclosure [Line Items] | |
Target asset allocation range minimum (percent) | 0.00% |
Target asset allocation range maximum (percent) | 10.00% |
Pension and Other Postretirement Benefits - Projected Benefit Payment Obligations (Details) $ in Millions |
12 Months Ended |
---|---|
Jul. 01, 2016
USD ($)
| |
Defined Benefit Plan, Expected Future Benefit Payments, Fiscal Year Maturity [Abstract] | |
2017 | $ 422 |
2018 | 406 |
2019 | 408 |
2020 | 411 |
2021 | 411 |
2022-2026 | 2,033 |
Pension | |
Defined Benefit Plan, Expected Future Benefit Payments, Fiscal Year Maturity [Abstract] | |
2017 | 393 |
2018 | 378 |
2019 | 380 |
2020 | 383 |
2021 | 384 |
2022-2026 | 1,914 |
Other benefits | |
Defined Benefit Plan, Expected Future Benefit Payments, Fiscal Year Maturity [Abstract] | |
2017 | 29 |
2018 | 28 |
2019 | 28 |
2020 | 28 |
2021 | 27 |
2022-2026 | 119 |
Minimum | |
Defined Benefit Plan Disclosure [Line Items] | |
Total contributions expected to be made in next fiscal year | 185 |
Maximum | |
Defined Benefit Plan Disclosure [Line Items] | |
Total contributions expected to be made in next fiscal year | $ 195 |
Stock Options and Other Share-Based Compensation - Share-Based Compensation Expense (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Share-based Compensation [Abstract] | |||
Total expense | $ 39 | $ 37 | $ 35 |
Included In: | |||
Income from continuing operations | 39 | 37 | 35 |
Tax effect on share based compensation expense | (15) | (11) | (11) |
Total share-based compensation expense after-tax | 24 | 26 | 24 |
Cost of product sales and services | |||
Share-based Compensation [Abstract] | |||
Total expense | 4 | 4 | 4 |
Included In: | |||
Income from continuing operations | 4 | 4 | 4 |
Engineering, selling and administrative expenses | |||
Share-based Compensation [Abstract] | |||
Total expense | 35 | 33 | 31 |
Included In: | |||
Income from continuing operations | $ 35 | $ 33 | $ 31 |
Stock Options and Other Share-Based Compensation - Significant Fair Value Assumptions (Details) |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Assumptions used in calculating fair value of stock option grants | |||
Expected dividends | 2.50% | 2.70% | 2.80% |
Expected volatility | 23.00% | 24.30% | 30.70% |
Risk-free interest rates | 1.50% | 1.70% | 1.70% |
Expected term (years) | 5 years 18 days | 5 years 7 days | 5 years 1 month 6 days |
Research And Development (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Research and Development [Abstract] | |||
Company-sponsored research and development costs | $ 309 | $ 277 | $ 264 |
Interest Expense (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Interest Expense (Textuals) [Abstract] | |||
Interest expense | $ 183 | $ 130 | $ 94 |
Interest paid | $ 146 | 89 | $ 93 |
Debt Issuance Costs | |||
Interest Expense (Textuals) [Abstract] | |||
Interest expense | $ 18 |
Lease Commitments (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Contractual Obligation, Fiscal Year Maturity [Abstract] | |||
Total rental expense | $ 88 | $ 57 | $ 48 |
Future minimum rental commitments under leases with an initial lease term in excess of one year | 331 | ||
Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |||
Future minimum rental commitments due in 2017 | 81 | ||
Future minimum rental commitments due in 2018 | 66 | ||
Future minimum rental commitments due in 2019 | 53 | ||
Future minimum rental commitments due in 2020 | 38 | ||
Future minimum rental commitments due in 2021 | 29 | ||
Future minimum rental commitments due thereafter | $ 64 |
Non-Operating Income (Loss) (Details) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
May 27, 2015 |
|
Nonoperating Income (Expense) [Abstract] | ||||
Loss on prepayment of long-term debt | $ 0 | $ (118) | $ 0 | |
Gain on sales of businesses | 10 | 9 | 0 | |
Net income related to intellectual property matters | 0 | 1 | 4 | |
Non-operating income (loss) | 10 | (108) | $ 4 | |
Debt Instrument [Line Items] | ||||
Notes payable | $ 618 | 1,268 | ||
5.95% notes, due December 1, 2017 | Notes Payable | ||||
Debt Instrument [Line Items] | ||||
Notes payable | $ 400 | $ 400 | ||
Interest rate on fixed rate debt (percent) | 5.95% | 5.95% | ||
6.375% notes, due June 15, 2019 | Notes Payable | ||||
Debt Instrument [Line Items] | ||||
Notes payable | $ 350 | $ 350 | ||
Interest rate on fixed rate debt (percent) | 6.375% | 6.375% |
Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Jul. 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 July 1, 2016 and July 3, 2015, respectively | $ (131) | $ (62) |
Net unrealized loss on hedging derivatives, net of income taxes of $11 million and $12 million at July 1, 2016 and July 3, 2015, respectively | (18) | (19) |
Unrecognized postretirement obligations, net of income taxes of $213 million and $42 million at July 1, 2016 and July 3, 2015, respectively | (346) | 65 |
Accumulated other comprehensive loss | (495) | (16) |
Foreign currency translation, net of income taxes | 29 | 15 |
Net unrealized loss on hedging derivatives, net of income taxes | 11 | 12 |
Unrecognized postretirement obligations, net of income taxes | $ 213 | $ 42 |
Income Taxes - Provision for Current and Deferred Income Taxes (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Current: | |||
United States | $ (27) | $ 150 | $ 213 |
International | 19 | 8 | 11 |
State and local | (11) | 13 | 12 |
Total current provision for income taxes | (19) | 171 | 236 |
Deferred: | |||
United States | 271 | (30) | 5 |
International | (22) | 4 | 0 |
State and local | 36 | (2) | 15 |
Total deferred provision for income taxes | 285 | (28) | 20 |
Total provision for income tax | $ 266 | $ 143 | $ 256 |
Income Taxes - Total Income Tax Provision (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Total income tax provision summary | |||
Continuing operations | $ 266 | $ 143 | $ 256 |
Discontinued operations | (4) | 0 | (10) |
Total income tax provision | $ 262 | $ 143 | $ 246 |
Income Taxes - Reconciliation of Income Tax Rates (Details) |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Reconciliation of the United States statutory income tax rate to our effective income tax rate | |||
U.S. statutory income tax rate | 35.00% | 35.00% | 35.00% |
State taxes | 2.40% | 0.90% | 2.00% |
International income | (0.30%) | (1.70%) | (1.10%) |
Nondeductible goodwill | 14.90% | 1.80% | 0.00% |
Research and development tax credit | (3.30%) | (1.70%) | (0.90%) |
Capital loss | (3.80%) | (0.00%) | (0.00%) |
U.S. production activity benefit | (0.60%) | (3.70%) | (2.70%) |
Cash repatriation | 0.00% | 1.40% | 0.00% |
Settlement of tax audits | (0.40%) | (1.80%) | (0.60%) |
Other items | (0.40%) | (0.30%) | 0.50% |
Effective income tax rate | 43.50% | 29.90% | 32.20% |
Income Taxes - Reconciliation of Unrecognized Tax Benefits (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2016 |
Jul. 03, 2015 |
Jun. 27, 2014 |
|
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward] | |||
Balance at beginning of fiscal year | $ 124 | $ 72 | $ 74 |
Additions based on tax positions taken during current fiscal year | 7 | 5 | 7 |
Additions based on tax positions taken during prior fiscal years | 9 | 5 | 18 |
Additions for tax positions related to acquired entities | 0 | 68 | 0 |
Decreases based on tax positions taken during prior fiscal years | (73) | (8) | (12) |
Decreases from lapse in statutes of limitations | (1) | (1) | 0 |
Decreases from settlements | (3) | (17) | (15) |
Balance at end of fiscal year | $ 63 | $ 124 | $ 72 |
Legal proceedings and contingencies (Details) |
6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Mar. 31, 2016
party
|
Feb. 04, 2013
USD ($)
|
Jan. 01, 2016
USD ($)
|
Jul. 01, 2016
USD ($)
|
Jul. 03, 2015
USD ($)
|
Jun. 27, 2014
USD ($)
|
|
Site Contingency [Line Items] | ||||||
Loss on disposal of discontinued operation, before income tax | $ 20,000,000 | $ 0 | $ 0 | |||
Broadcast Communications | ||||||
Site Contingency [Line Items] | ||||||
Asset sale agreement | $ 225,000,000 | |||||
Asset sale agreement cash | 160,000,000 | |||||
Asset sale agreement promissory note | 15,000,000 | |||||
Asset sale agreement earnout | $ 50,000,000 | |||||
Loss on disposal of discontinued operation, before income tax | 24,000,000 | |||||
Loss on disposal of discontinued operation, net of tax | $ 21,000,000 | |||||
Passaic River Alaska | Exelis | ||||||
Site Contingency [Line Items] | ||||||
Estimated cost for all participating parties of EPA's preferred alternative | $ 1,380,000,000 | |||||
Number of responsible parties notified | party | 100 |
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