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 | ¨ | |||
Emerging growth company | ¨ |
Page No. | ||
Part I: | ||
Part II: | ||
Part III: | ||
Part IV: | ||
ITEM 16. Form 10-K Summary | ||
Signatures |
ITEM 1. | BUSINESS. |
• | Communication Systems, serving markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks; |
• | Electronic Systems, providing electronic warfare, avionics, and command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”) solutions for defense and classified customers and mission-critical communication systems for civil and military aviation and other customers; and |
• | Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, positioning, navigation and timing (“PNT”), and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics. |
• | Our widely deployed Single Channel Ground and Airborne Radio System (“SINCGARS”) family of backpack, vehicle-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 (“VHF”) 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 and the U.S. military Joint Tactical Radio System (“JTRS”) Soldier Radio Waveform and Mobile User Objective System (“MUOS”) waveform, which provides connectivity to DoD’s next-generation MUOS satellite system; |
• | 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 (“HF”) manpack radios, the NSA Type-1-certified RF-300H for the U.S. military and the RF-7800H for international customers, which are wideband-capable tactical HF radios that are smaller, lighter and deliver data faster than prior generations of HF radios and can serve as an alternative for beyond-line-of-sight transmission of classified images, maps and other large data files in circumstances where satellite communication (“SATCOM”) is denied; |
• | 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 VHF 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 5-year, single-award Indefinite Delivery Indefinite Quantity (“IDIQ”) contract from the U.S. Navy in fiscal 2018 for HF and multiband handheld and manpack radio systems and accessories; |
• | A 5-year, sole source IDIQ contract from the U.S. Air Force in fiscal 2018 to develop and deliver Handheld Video Data-Link (“HH-VDL”) radios; |
• | A 5-year, single-award contract from the Australian Defence Forces in fiscal 2018 for integrated network modernization; |
• | A 6-year, single-award IDIQ contract from SOCOM in fiscal 2017 to supply next-generation multi-channel multiband manpack radios to enable superior communications for U.S. Special Operations Forces; |
• | A 5-year, single-award IDIQ contract from the U.S. Defense Logistics Agency in fiscal 2017 to provide tactical radio spare parts to the U.S. Army and Federal civilian agencies; |
• | A 10-year (5-year base, one 5-year option), multi-award IDIQ contract from the U.S. Air Force in fiscal 2017 for cryptographic and information assurance products; |
• | A 10-year (5-year base, one 5-year option), multi-award IDIQ contract from the U.S. Army in fiscal 2016 for multi-channel manpack radios under the HMS program; |
• | A 6-year, single-award IDIQ contract from SOCOM in fiscal 2016 for a new integrated 2-channel handheld tactical radio; |
• | A 5-year, single-award follow-on foreign military sales IDIQ contract from the U.S. Army Communications-Electronics Command (“CECOM”) in fiscal 2016 to supply secure tactical communication solutions; |
• | A 5-year, single-award foreign military sales IDIQ contract from CECOM in fiscal 2016 to supply SINCGARS tactical solutions; and |
• | A 10-year (5-year base, one 5-year option), multi-award IDIQ contract from the U.S. Army in fiscal 2015 for rifleman radios and associated services under the HMS program. |
• | Our AN/PVS-14 and AN/PVS-7 ground night vision goggles and spare image intensifier tubes; |
• | Our AN/AVS-6 and AN/AVS-9 aviation night vision goggles, which provide rotary- and fixed-wing aircraft pilots the ability to operate in extreme low-light situations; |
• | Our Enhanced Night Vision Goggles (“ENVG”), Spiral ENVG and Tactical Mobility Night Vision Goggles that use our sensor fusion technology to overlay image intensification imagery with thermal imagery, which enables users to effectively operate in extreme low-light and obscured battlefield conditions; and |
• | Our soldier system platform, which combines night vision, augmented reality, live video and broadcast capabilities into one system, enabling enhanced soldier situational awareness and connection to the battlefield network. |
• | Our advanced integrated defense electronic warfare systems (“AIDEWS”) that provide integrated and podded self-protection and jamming; |
• | Our integrated defensive electronic countermeasures (“IDECM”) system for the F/A 18; |
• | Our minesweeping systems and mine countermeasures that detect and neutralize subsurface threats; |
• | Our transducer arrays that are used in sonar and acoustic systems to support navigation and situational awareness as well as anti-submarine and torpedo self-defense; |
• | Our counter-radio controlled IED technology that protects ground forces in asymmetrical combat environments by continually scanning for threatening radio frequency signals and denying enemy use of those portions of the electromagnetic spectrum, without disrupting friendly signals and keeping lines of communication open; |
• | Our land-based surveillance radar that provides three-dimensional radar capability for airborne defensive surveillance for the U.S. Navy; and |
• | Our state-of-the-art wireless voice and data products and solutions. |
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, our customers or our employees, 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 general public. |
• | 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 for an upcoming government fiscal year prior to the year’s October 1 commencement and consequently 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, which 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; and |
• | 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 economic difficulties of our customers and prospective customers, including U.S. Federal, state and local governments. |
• | 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”); |
• | Import and export licensing requirements and regulations, as well as unforeseen changes in export controls and other trade regulations; |
• | Changes in regulatory requirements, including business or operating license requirements, imposition of tariffs or embargoes; |
• | Uncertainties and restrictions concerning the availability of funding, credit or guarantees; |
• | Risk of non-payment or delayed payment by foreign governments; |
• | Contractual obligations to non-U.S. customers may include specific in-country purchases, investments, manufacturing agreements or financial or other support arrangements or obligations, known as offset obligations, that may extend over several years, may require teaming with local companies and may result in significant penalties if not satisfied; |
• | 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; |
• | Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional requirements for onerous contract terms; |
• | 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 facilities or 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 or retain, or that companies we have acquired have assumed or retained or otherwise become subject to, significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties; |
• | Risk that indemnification related to businesses divested or spun off that we may be required to provide or otherwise bear may be significant and could negatively impact our business; |
• | Risk of exposure to potential liabilities arising out of applicable state and Federal fraudulent conveyance laws and legal distribution requirements from spin-offs in which Exelis was involved, particularly Exelis’ spin-off of Vectrus, Inc. (“Vectrus”) on September 27, 2014; |
• | Risk that we may be responsible for U.S. Federal income tax liabilities related to Exelis’ spin-off of Vectrus if the transaction were determined to be taxable or if, in certain circumstances, subsequent significant acquisitions |
• | Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions, including non-competition arrangements applicable to certain of our business lines, or within expected timeframes; |
• | Potential loss of key employees or customers of the businesses acquired or to be divested; 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 R&D 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 | 0.4 | 1.9 | |||||
Electronic Systems | 2.1 | 1.6 | 3.7 | |||||
Space and Intelligence Systems | 2.5 | 0.9 | 3.4 | |||||
Corporate | 0.4 | 0.1 | 0.5 | |||||
Total | 6.5 | 3.0 | 9.5 |
ITEM 3. | LEGAL PROCEEDINGS. |
ITEM 4. | MINE SAFETY DISCLOSURES. |
Name and Age | Position Currently Held and Past Business Experience | |
William M. Brown, 55 | 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. Mr. Brown joined Harris in 2011. | |
Robert L. Duffy, 51 | 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. Mr. Duffy joined Harris in 2012. | |
Sheldon J. Fox, 59 | Senior Vice President, Operations and Information Technology since August 2017. Senior Vice President, Integration and Engineering from July 2015 to August 2017. 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, 57 | 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, 46 | 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). Mr. Ghai joined Harris in 2015. | |
Dana A. Mehnert, 56 | 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. |
Name and Age | Position Currently Held and Past Business Experience | |
Scott T. Mikuen, 56 | 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, 45 | 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. Mr. Taylor joined Harris in 2015. | |
Christopher D. Young, 58 | 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, 53 | 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 2018 | Fiscal 2017 | |||||||||||||||||||||||
First Quarter | $ | 132.00 | $ | 109.08 | $ | 0.57 | First Quarter | $ | 94.09 | $ | 80.78 | $ | 0.53 | |||||||||||
Second Quarter | $ | 144.94 | $ | 131.52 | 0.57 | Second Quarter | $ | 107.54 | $ | 88.89 | 0.53 | |||||||||||||
Third Quarter | $ | 164.58 | $ | 140.84 | 0.57 | Third Quarter | $ | 113.00 | $ | 99.13 | 0.53 | |||||||||||||
Fourth Quarter | $ | 170.54 | $ | 142.50 | 0.57 | Fourth Quarter | $ | 114.32 | $ | 106.18 | 0.53 | |||||||||||||
$ | 2.28 | $ | 2.12 |
HARRIS FISCAL YEAR END | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||
Harris | $ | 100 | $ | 158 | $ | 166 | $ | 180 | $ | 243 | $ | 327 | ||||||
S&P 500 | $ | 100 | $ | 125 | $ | 135 | $ | 140 | $ | 164 | $ | 188 | ||||||
S&P 500 Aerospace & Defense | $ | 100 | $ | 131 | $ | 142 | $ | 159 | $ | 205 | $ | 257 |
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 | |||||||||||||
(March 31, 2018-April 27, 2018) | |||||||||||||
Repurchase program(1) | — | — | — | $776,343,512 | |||||||||
Employee transactions(2) | 2,273 | $ | 160.77 | — | — | ||||||||
Month No. 2 | |||||||||||||
(April 28, 2018-May 25, 2018) | |||||||||||||
Repurchase program(1) | 115,000 | $ | 152.60 | 115,000 | $758,794,323 | ||||||||
Employee transactions(2) | 21,425 | $ | 150.02 | — | — | ||||||||
Month No. 3 | |||||||||||||
(May 26, 2018-June 29, 2018) | |||||||||||||
Repurchase program(1) | 377,722 | $ | 152.25 | 377,722 | $701,284,313 | ||||||||
Employee transactions(2) | 28,373 | $ | 151.29 | — | — | ||||||||
Total | 544,793 | 492,722 | $701,284,313 |
(1) | On February 2, 2017, we announced that on January 26, 2017, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $1 billion in shares of our common stock through open-market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. As of June 29, 2018, $701,284,313 (as reflected in the table above) was the approximate dollar amount of our common stock that may yet be purchased under our repurchase program, which does not have a stated expiration date. |
(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 units, restricted units or restricted shares that vested during the quarter and (b) performance units, restricted 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 | |||||||||||||||||||
2018(1) | 2017(2) | 2016(3) | 2015(4) | 2014 | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Results of Operations: | |||||||||||||||||||
Revenue from product sales and services | $ | 6,182 | $ | 5,900 | $ | 5,992 | $ | 3,885 | $ | 3,622 | |||||||||
Cost of product sales and services(5) | 3,931 | 3,734 | 3,832 | 2,304 | 2,118 | ||||||||||||||
Interest expense | 170 | 172 | 183 | 130 | 94 | ||||||||||||||
Income from continuing operations before income taxes | 926 | 905 | 884 | 396 | 642 | ||||||||||||||
Income taxes | 205 | 267 | 273 | 109 | 202 | ||||||||||||||
Income from continuing operations | 721 | 638 | 611 | 287 | 440 | ||||||||||||||
Discontinued operations, net of income taxes | (3 | ) | (85 | ) | (287 | ) | 47 | 94 | |||||||||||
Net income | 718 | 553 | 324 | 334 | 534 | ||||||||||||||
Noncontrolling interests, net of income taxes | — | — | — | — | 1 | ||||||||||||||
Net income attributable to Harris Corporation | 718 | 553 | 324 | 334 | 535 | ||||||||||||||
Average shares outstanding (diluted) | 121.1 | 124.3 | 125.0 | 106.8 | 107.3 | ||||||||||||||
Per Share Data (Diluted): | |||||||||||||||||||
Income from continuing operations | $ | 5.94 | $ | 5.12 | $ | 4.87 | $ | 2.67 | $ | 4.08 | |||||||||
Income (loss) from discontinued operations, net of income taxes | (0.02 | ) | (0.68 | ) | (2.28 | ) | 0.44 | 0.87 | |||||||||||
Net income | 5.92 | 4.44 | 2.59 | 3.11 | 4.95 | ||||||||||||||
Cash dividends | 2.28 | 2.12 | 2.00 | 1.88 | 1.68 | ||||||||||||||
Financial Position at Fiscal Year-End: | |||||||||||||||||||
Net working capital(6) | $ | 435 | $ | 147 | $ | 643 | $ | 909 | $ | 877 | |||||||||
Net property, plant and equipment | 900 | 904 | 924 | 1,031 | 576 | ||||||||||||||
Long-term debt, net | 3,408 | 3,396 | 4,120 | 5,053 | 1,564 | ||||||||||||||
Total assets | 9,839 | 10,090 | 12,009 | 13,127 | 4,919 | ||||||||||||||
Equity | 3,322 | 2,928 | 3,057 | 3,402 | 1,825 | ||||||||||||||
Book value per share | 28.09 | 24.48 | 24.53 | 27.51 | 17.30 |
(1) | Results for fiscal 2018 included: (i) $47 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items; (ii) $27 million of losses and other costs related to debt refinancing; (iii) $14 million of charges related to non-cash adjustments for deferred compensation and the impact of tax reform; and (iv) a $5 million charge related to consolidation of certain Exelis facilities initiated in fiscal 2017. The net after-tax impact from these fiscal 2018 items was $68 million or $.56 per diluted common share. |
(2) | Results for fiscal 2017 included a $51 million after-tax ($.41 per diluted common share) charge for Exelis acquisition-related and other items. |
(3) | Results for fiscal 2016 included: (i) $121 million for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, including $11 million for amortization of a step-up in inventory; (ii) a net liability reduction of $101 million for certain post-employment benefit plans; (iii) $33 million of charges for restructuring and other items; and (iv) a $10 million net gain on the sale of Aerostructures. The net after-tax impact from these fiscal 2016 items was $34 million or $.27 per diluted common share. |
(4) | Results for fiscal 2015 included results of Exelis following the close of the acquisition on May 29, 2015 and a $205 million after-tax ($1.91 per diluted share) charge for transaction, financing, integration, restructuring and other costs, primarily related to our acquisition of Exelis. |
(5) | “Cost of products sales and services” from prior years have been adjusted to conform to current-year classifications. Reclassifications include certain human resources, information technology (“IT”), direct selling and bid and proposal costs that were previously included as “Cost of product sales and services” line items and are now reflected in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income |
(6) | Net working capital decreased in fiscal 2017 compared with fiscal 2016 primarily due to a $172 million increase in current portion of long-term debt and a $161 million decrease associated with net working capital of discontinued operations. |
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 2018 results of operations and liquidity and capital resources key indicators; and industry-wide opportunities, challenges and risks that are relevant to us in defense, government and commercial markets. |
• | Operations Review — an analysis of our consolidated results of operations and of the results in each of our 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. |
• | 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 condition, 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 products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks; |
• | Electronic Systems, providing electronic warfare, avionics, and C4ISR solutions for defense and classified customers and mission-critical communication systems for civil and military aviation and other customers; and |
• | Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, PNT, and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics. |
• | Accelerating revenue growth across all three business segments; |
• | Driving flawless execution while expanding margins through operational excellence; and |
• | Sustaining cash flow with shareholder friendly capital deployment. |
• | Revenue increased 5 percent to $6.2 billion in fiscal 2018 from $5.9 billion in fiscal 2017; |
• | Income from continuing operations increased 13 percent to $721 million in fiscal 2018 from $638 million in fiscal 2017; |
• | Income from continuing operations as a percentage of revenue increased to 12 percent in fiscal 2018 from 11 percent in fiscal 2017; and |
• | Income from continuing operations per diluted common share increased 16 percent to $5.94 in fiscal 2018 from $5.12 in fiscal 2017, reflecting both the increase in income from continuing operations as noted above and fewer diluted common shares outstanding due to repurchases of shares of common stock under our repurchase program during fiscal 2018. |
• | Net cash provided by operating activities increased to $751 million in fiscal 2018 from $569 million in fiscal 2017; |
• | 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) increased to 13 percent in fiscal 2018 from 11 percent in fiscal 2017; |
• | 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) increased to 23 percent in fiscal 2018 from 21 percent in fiscal 2017; |
• | Our consolidated total indebtedness to total capital ratio at June 29, 2018 was 53 percent, compared with our 65 percent covenant limitation under our senior unsecured revolving credit facility; and |
• | Our net unfunded defined benefit plans liability decreased $0.6 billion in fiscal 2018 to $0.7 billion at June 29, 2018 compared with $1.3 billion at June 30, 2017. |
Fiscal Years Ended | |||||||||||||||||
2018 | 2017 | 2018/2017 Percent Increase/ (Decrease) | 2016 | 2017/2016 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions, except per share amounts) | |||||||||||||||||
Revenue: | |||||||||||||||||
Communication Systems | $ | 1,903 | $ | 1,753 | 9 | % | $ | 1,864 | (6 | )% | |||||||
Electronic Systems | 2,373 | 2,251 | 5 | % | 2,233 | 1 | % | ||||||||||
Space and Intelligence Systems | 1,921 | 1,902 | 1 | % | 1,899 | — | |||||||||||
Corporate eliminations | (15 | ) | (6 | ) | * | (4 | ) | * | |||||||||
Total revenue | 6,182 | 5,900 | 5 | % | 5,992 | (2 | )% | ||||||||||
Cost of product sales and services: | |||||||||||||||||
Cost of product sales | (3,106 | ) | (2,964 | ) | 5 | % | (3,079 | ) | (4 | )% | |||||||
% of revenue from product sales | 61 | % | 64 | % | 64 | % | |||||||||||
Cost of services | (825 | ) | (770 | ) | 7 | % | (753 | ) | 2 | % | |||||||
% of revenue from services | 74 | % | 62 | % | 64 | % | |||||||||||
Total cost of product sales and services | (3,931 | ) | (3,734 | ) | 5 | % | (3,832 | ) | (3 | )% | |||||||
% of total revenue | 64 | % | 63 | % | 64 | % | |||||||||||
Gross margin | 2,251 | 2,166 | 4 | % | 2,160 | — | |||||||||||
% of total revenue | 36 | % | 37 | % | 36 | % | |||||||||||
Engineering, selling and administrative expenses | (1,129 | ) | (1,093 | ) | 3 | % | (1,105 | ) | (1 | )% | |||||||
% of total revenue | 18 | % | 19 | % | 18 | % | |||||||||||
Operating income | 1,122 | 1,073 | 5 | % | 1,055 | 2 | % | ||||||||||
% of total revenue | 18 | % | 18 | % | 18 | % | |||||||||||
Non-operating income (loss) | (28 | ) | 2 | * | 10 | * | |||||||||||
Net interest expense | (168 | ) | (170 | ) | (1 | )% | (181 | ) | (6 | )% | |||||||
Income from continuing operations before income taxes | 926 | 905 | 2 | % | 884 | 2 | % | ||||||||||
Income taxes | (205 | ) | (267 | ) | (23 | )% | (273 | ) | (2 | )% | |||||||
Effective tax rate | 22 | % | 30 | % | 31 | % | |||||||||||
Income from continuing operations | $ | 721 | $ | 638 | 13 | % | $ | 611 | 4 | % | |||||||
% of total revenue | 12 | % | 11 | % | 10 | % | |||||||||||
Income from continuing operations per diluted common share | $ | 5.94 | $ | 5.12 | 16 | % | $ | 4.87 | 5 | % |
• | The enactment of a lower U.S. statutory corporate income tax rate in fiscal 2018; |
• | Additional research credits claimed on our fiscal 2017 tax return compared with our recorded estimates at the end of fiscal 2017; and |
• | The favorable impact of releasing provisions for uncertain tax positions. |
• | The favorable impact of excess tax benefits related to equity-based compensation; |
• | Several differences between U.S. generally accepted accounting principles (“GAAP”) and tax accounting related to investments; and |
• | Additional deductions and additional research credits claimed on our fiscal 2016 tax return compared with our recorded estimates at the end of fiscal 2016. |
• | 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. |
2018 | 2017 | 2018/2017 Percent Increase/ (Decrease) | 2016 | 2017/2016 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions) | |||||||||||||||||
Revenue | $ | 1,903 | $ | 1,753 | 9 | % | $ | 1,864 | (6 | )% | |||||||
Cost of product sales and services | (992 | ) | (894 | ) | 11 | % | (941 | ) | (5 | )% | |||||||
Gross margin | 911 | 859 | 6 | % | 923 | (7 | )% | ||||||||||
% of revenue | 48 | % | 49 | % | 50 | % | |||||||||||
ESA expenses | (340 | ) | (335 | ) | 1 | % | (401 | ) | (16 | )% | |||||||
% of revenue | 18 | % | 19 | % | 22 | % | |||||||||||
Segment operating income | $ | 571 | $ | 524 | 9 | % | $ | 522 | — | ||||||||
% of revenue | 30 | % | 30 | % | 28 | % |
2018 | 2017 | 2018/2017 Percent Increase/ (Decrease) | 2016 | 2017/2016 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions) | |||||||||||||||||
Revenue | $ | 2,373 | $ | 2,251 | 5 | % | $ | 2,233 | 1 | % | |||||||
Cost of product sales and services | (1,651 | ) | (1,529 | ) | 8 | % | (1,539 | ) | (1 | )% | |||||||
Gross margin | 722 | 722 | — | 694 | 4 | % | |||||||||||
% of revenue | 30 | % | 32 | % | 31 | % | |||||||||||
ESA expenses | (281 | ) | (258 | ) | 9 | % | (264 | ) | (2 | )% | |||||||
% of revenue | 12 | % | 11 | % | 12 | % | |||||||||||
Segment operating income | $ | 441 | $ | 464 | (5 | )% | $ | 430 | 8 | % | |||||||
% of revenue | 19 | % | 21 | % | 19 | % |
2018 | 2017 | 2018/2017 Percent Increase/ (Decrease) | 2016 | 2017/2016 Percent Increase/ (Decrease) | |||||||||||||
(Dollars in millions) | |||||||||||||||||
Revenue | $ | 1,921 | $ | 1,902 | 1 | % | $ | 1,899 | — | ||||||||
Cost of product sales and services | (1,303 | ) | (1,317 | ) | (1 | )% | (1,355 | ) | (3 | )% | |||||||
Gross margin | 618 | 585 | 6 | % | 544 | 8 | % | ||||||||||
% of revenue | 32 | % | 31 | % | 29 | % | |||||||||||
ESA expenses | (282 | ) | (274 | ) | 3 | % | (256 | ) | 7 | % | |||||||
% of revenue | 15 | % | 14 | % | 13 | % | |||||||||||
Segment operating income | $ | 336 | $ | 311 | 8 | % | $ | 288 | 8 | % | |||||||
% of revenue | 17 | % | 16 | % | 15 | % |
2018 | 2017 | 2018/2017 Percent Increase/ (Decrease) | 2016 | 2017/2016 Percent Increase/ (Decrease) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Unallocated corporate expense and corporate eliminations | $ | 125 | $ | 117 | 7 | % | $ | 76 | 54 | % | ||||||||
Amortization of intangible assets from Exelis Inc. acquisition | 101 | 109 | (7 | %) | 109 | — | % | |||||||||||
Fiscal Years Ended | |||||||||||
2018 | 2017 | 2016 | |||||||||
(Dollars in millions) | |||||||||||
Net cash provided by operating activities | $ | 751 | $ | 569 | $ | 924 | |||||
Net cash provided by (used in) investing activities | (141 | ) | 870 | (1 | ) | ||||||
Net cash used in financing activities | (805 | ) | (1,438 | ) | (893 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (1 | ) | (4 | ) | (24 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (196 | ) | (3 | ) | 6 | ||||||
Cash and cash equivalents, beginning of year | 484 | 487 | 481 | ||||||||
Cash and cash equivalents, end of year | $ | 288 | $ | 484 | $ | 487 |
• | $751 million of net cash provided by operating activities, reflecting the impact of a $300 million voluntary pension contribution; and |
• | $34 million of proceeds from exercises of employee stock options; more than offset by |
• | $272 million used to pay cash dividends; |
• | $272 million used to repurchase shares of our common stock; |
• | $271 million used for net repayments of borrowings, including: |
◦ | $850 million in proceeds from the issuance of our 4.40% Notes due June 15, 2028, |
◦ | $300 million in proceeds from the issuance of our Floating Rate Notes due February 27, 2019, |
◦ | $250 million in proceeds from the issuance of our Floating Rate Notes due April 30, 2020, |
◦ | $500 million used for repayment at maturity of the entire outstanding aggregate principal amount of our 1.999% Notes due April 27, 2018, |
◦ | $415 million used for the optional redemption of our 4.40% Notes due December 15, 2020, |
◦ | $429 million used for the optional redemption of our 5.55% Notes due October 1, 2021, |
◦ | $269 million used for repayment of our remaining outstanding indebtedness under the 5-year tranche of our variable-rate term loans due May 29, 2020, and |
◦ | $36 million used for repayment of our remaining outstanding indebtedness under the 3-year tranche of our variable-rate term loans due May 29, 2018; |
• | $136 million used for net additions of property, plant and equipment; and |
• | $24 million used in other financing activities. |
• | $1,014 million of net proceeds from sales of businesses; |
• | $569 million of net cash provided by operating activities, reflecting the impact of a $400 million voluntary pension contribution; |
• | $85 million of net proceeds from borrowings; |
• | $54 million of proceeds from exercises of employee stock options; more than offset by |
• | $710 million used to repurchase shares of our common stock; |
• | $584 million of net repayment of borrowings, including: |
◦ | $313 million used for repayment of our variable-rate term loans, and |
◦ | $250 million used for repayment at maturity of the entire outstanding aggregate principal amount of our 4.25% notes due October 1, 2016; |
• | $262 million used to pay cash dividends; |
• | $119 million used for net additions of property, plant and equipment; |
• | $25 million for net adjustments to proceeds from the sale of a business; and |
• | $21 million used in other financing activities. |
Obligations Due by Fiscal Year | ||||||||||||||||||||
Total | 2019 | 2020 and 2021 | 2022 and 2023 | After 2023 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Long-term debt | $ | 3,740 | $ | 305 | $ | 658 | $ | 1 | $ | 2,776 | ||||||||||
Purchase obligations (1) | 1,224 | 932 | 259 | 32 | 1 | |||||||||||||||
Operating lease commitments | 280 | 58 | 100 | 68 | 54 | |||||||||||||||
Interest on long-term debt | 2,058 | 157 | 280 | 264 | 1,357 | |||||||||||||||
Minimum pension contributions (2) | 1 | 1 | — | — | — | |||||||||||||||
Total contractual cash obligations (3) | $ | 7,303 | $ | 1,453 | $ | 1,297 | $ | 365 | $ | 4,188 |
• | 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 in an unconsolidated entity that is held by, and material to, the registrant, where such entity provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or R&D services with the registrant. |
Expiration of Commitments by Fiscal Year | |||||||||||||||||||
Total | 2019 | 2020 | 2021 | After 2021 | |||||||||||||||
(Dollars in millions) | |||||||||||||||||||
Surety bonds used for: | |||||||||||||||||||
Bids | $ | 6 | $ | 5 | $ | 1 | $ | — | $ | — | |||||||||
Performance | 425 | 339 | 75 | 11 | — | ||||||||||||||
431 | 344 | 76 | 11 | — | |||||||||||||||
Standby letters of credit used for: | |||||||||||||||||||
Down payments | 124 | 108 | 6 | — | 10 | ||||||||||||||
Performance | 155 | 109 | 4 | 2 | 40 | ||||||||||||||
Warranty | 18 | 16 | 1 | — | 1 | ||||||||||||||
297 | 233 | 11 | 2 | 51 | |||||||||||||||
Total commitments | $ | 728 | $ | 577 | $ | 87 | $ | 13 | $ | 51 |
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Favorable adjustments | $ | 127 | $ | 118 | $ | 187 | |||||
Unfavorable adjustments | (125 | ) | (104 | ) | (119 | ) | |||||
Net operating income adjustments | $ | 2 | $ | 14 | $ | 68 |
Obligation assumptions as of: | June 29, 2018 | June 30, 2017 | |
Discount rate | 4.05% | 3.76% | |
Rate of future compensation increase | 2.76% | 2.76% | |
Cost assumptions for fiscal years: | 2018 | 2017 | |
Discount rate to determine service cost | 3.48% | 3.80% | |
Discount rate to determine interest cost | 3.28% | 2.94% | |
Expected return on plan assets | 7.66% | 7.65% | |
Rate of future compensation increase | 2.76% | 2.75% |
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 | $ | (12.3 | ) | $ | 12.2 | ||
Discount rate used to determine net periodic benefit cost | $ | 7.4 | $ | (7.8 | ) |
• | 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, insider threats or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers. |
• | The U.S. Government’s budget deficit, the national debt and sequestration, as well as any inability of the U.S. Government to complete its budget process for any government fiscal year and consequently having to operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution” or shut down, 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 financial condition, results of operations 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. |
• | Strategic transactions, including acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations and cash flows. |
• | Disputes with our subcontractors or the inability of our subcontractors to perform, or our key suppliers to timely deliver our components, parts or services, could cause our products, systems 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 defined benefit plans 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. |
• | 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 any failure to do so could seriously harm us. |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Page | |
Consolidated Statement of Income — Fiscal Years ended June 29, 2018; June 30, 2017; and July 1, 2016 | |
Consolidated Statement of Comprehensive Income (Loss) — Fiscal Years ended June 29, 2018; June 30, 2017; and July 1, 2016 | |
Consolidated Balance Sheet — June 29, 2018 and June 30, 2017 | |
Consolidated Statement of Cash Flows — Fiscal Years ended June 29, 2018; June 30, 2017; and July 1, 2016 | |
Consolidated Statement of Equity — Fiscal Years ended June 29, 2018; June 30, 2017; and July 1, 2016 | |
Schedule II — Valuation and Qualifying Accounts — Fiscal Years ended June 29, 2018; June 30, 2017; and July 1, 2016 |
Fiscal Years Ended | |||||||||||
2018 | 2017 | 2016 | |||||||||
(In millions, except per share amounts) | |||||||||||
Revenue from product sales and services | |||||||||||
Revenue from product sales | $ | 5,062 | $ | 4,667 | $ | 4,814 | |||||
Revenue from services | 1,120 | 1,233 | 1,178 | ||||||||
6,182 | 5,900 | 5,992 | |||||||||
Cost of product sales and services | |||||||||||
Cost of product sales | (3,106 | ) | (2,964 | ) | (3,079 | ) | |||||
Cost of services | (825 | ) | (770 | ) | (753 | ) | |||||
(3,931 | ) | (3,734 | ) | (3,832 | ) | ||||||
Engineering, selling and administrative expenses | (1,129 | ) | (1,093 | ) | (1,105 | ) | |||||
Operating income | 1,122 | 1,073 | 1,055 | ||||||||
Non-operating income (loss) | (28 | ) | 2 | 10 | |||||||
Interest income | 2 | 2 | 2 | ||||||||
Interest expense | (170 | ) | (172 | ) | (183 | ) | |||||
Income from continuing operations before income taxes | 926 | 905 | 884 | ||||||||
Income taxes | (205 | ) | (267 | ) | (273 | ) | |||||
Income from continuing operations | 721 | 638 | 611 | ||||||||
Discontinued operations, net of income taxes | (3 | ) | (85 | ) | (287 | ) | |||||
Net income | $ | 718 | $ | 553 | $ | 324 | |||||
Net income per common share | |||||||||||
Basic | |||||||||||
Continuing operations | $ | 6.06 | $ | 5.19 | $ | 4.91 | |||||
Discontinued operations | (0.02 | ) | (0.69 | ) | (2.30 | ) | |||||
$ | 6.04 | $ | 4.50 | $ | 2.61 | ||||||
Diluted | |||||||||||
Continuing operations | $ | 5.94 | $ | 5.12 | $ | 4.87 | |||||
Discontinued operations | (0.02 | ) | (0.68 | ) | (2.28 | ) | |||||
$ | 5.92 | $ | 4.44 | $ | 2.59 |
Fiscal Years Ended | |||||||||||
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Net income | $ | 718 | $ | 553 | $ | 324 | |||||
Other comprehensive income (loss): | |||||||||||
Foreign currency translation gain (loss), net of income taxes | 15 | (34 | ) | (69 | ) | ||||||
Net unrealized gain on hedging derivatives, net of income taxes | 1 | 1 | 1 | ||||||||
Net unrecognized gain (loss) on postretirement obligations, net of income taxes | 93 | 200 | (411 | ) | |||||||
Other comprehensive income (loss), net of income taxes | 109 | 167 | (479 | ) | |||||||
Total comprehensive income (loss) | $ | 827 | $ | 720 | $ | (155 | ) |
June 29, 2018 | June 30, 2017 | ||||||
(In millions, except shares) | |||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 288 | $ | 484 | |||
Receivables | 735 | 623 | |||||
Inventories | 925 | 841 | |||||
Income taxes receivable | 174 | 24 | |||||
Other current assets | 101 | 101 | |||||
Total current assets | 2,223 | 2,073 | |||||
Non-current Assets | |||||||
Property, plant and equipment | 900 | 904 | |||||
Goodwill | 5,372 | 5,366 | |||||
Other intangible assets | 989 | 1,104 | |||||
Non-current deferred income taxes | 116 | 409 | |||||
Other non-current assets | 239 | 234 | |||||
Total non-current assets | 7,616 | 8,017 | |||||
$ | 9,839 | $ | 10,090 | ||||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Short-term debt | $ | 78 | $ | 80 | |||
Accounts payable | 622 | 540 | |||||
Compensation and benefits | 142 | 140 | |||||
Other accrued items | 313 | 329 | |||||
Advance payments and unearned income | 314 | 252 | |||||
Income taxes payable | 15 | 31 | |||||
Current portion of long-term debt, net | 304 | 554 | |||||
Total current liabilities | 1,788 | 1,926 | |||||
Non-current Liabilities | |||||||
Defined benefit plans | 714 | 1,278 | |||||
Long-term debt, net | 3,408 | 3,396 | |||||
Non-current deferred income taxes | 90 | 34 | |||||
Other long-term liabilities | 517 | 528 | |||||
Total non-current liabilities | 4,729 | 5,236 | |||||
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 118,280,120 shares at June 29, 2018 and 119,628,884 shares at June 30, 2017 | 118 | 120 | |||||
Other capital | 1,714 | 1,741 | |||||
Retained earnings | 1,692 | 1,343 | |||||
Accumulated other comprehensive loss | (202 | ) | (276 | ) | |||
Total shareholders’ equity | 3,322 | 2,928 | |||||
$ | 9,839 | $ | 10,090 |
Fiscal Years Ended | |||||||||||
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Operating Activities | |||||||||||
Net income | $ | 718 | $ | 553 | $ | 324 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 158 | 183 | 229 | ||||||||
Amortization of intangible assets from Exelis Inc. acquisition | 101 | 128 | 132 | ||||||||
Share-based compensation | 82 | 42 | 39 | ||||||||
Qualified pension plan contributions | (301 | ) | (589 | ) | (174 | ) | |||||
Pension income | (135 | ) | (97 | ) | (26 | ) | |||||
Net liability reduction for certain post-employment benefit plans | — | — | (101 | ) | |||||||
Settlement of Exelis Inc. excess pension plan | — | — | (244 | ) | |||||||
Impairment of goodwill and other assets | — | 240 | 367 | ||||||||
(Gain) loss on sales of businesses, net | — | 14 | (10 | ) | |||||||
Adjustment to loss on sales of businesses, net | — | — | 20 | ||||||||
Loss on extinguishment of debt | 24 | — | — | ||||||||
(Increase) decrease in: | |||||||||||
Accounts receivable | (112 | ) | 111 | 192 | |||||||
Inventories | (84 | ) | 28 | (28 | ) | ||||||
Increase (decrease) in: | |||||||||||
Accounts payable | 82 | 18 | (10 | ) | |||||||
Advance payments and unearned income | 63 | (42 | ) | (96 | ) | ||||||
Income taxes | 202 | 131 | 199 | ||||||||
Other | (47 | ) | (151 | ) | 111 | ||||||
Net cash provided by operating activities | 751 | 569 | 924 | ||||||||
Investing Activities | |||||||||||
Cash paid for fixed income securities | — | — | (19 | ) | |||||||
Net additions of property, plant and equipment | (136 | ) | (119 | ) | (152 | ) | |||||
Proceeds from sales of businesses, net | — | 1,014 | 181 | ||||||||
Adjustment to proceeds from sales of businesses, net | (2 | ) | (25 | ) | (11 | ) | |||||
Other investing activities | (3 | ) | — | — | |||||||
Net cash provided by (used in) investing activities | (141 | ) | 870 | (1 | ) | ||||||
Financing Activities | |||||||||||
Net proceeds from borrowings | 1,387 | 85 | 61 | ||||||||
Repayments of borrowings | (1,658 | ) | (584 | ) | (730 | ) | |||||
Proceeds from exercises of employee stock options | 34 | 54 | 44 | ||||||||
Repurchases of common stock | (272 | ) | (710 | ) | — | ||||||
Cash dividends | (272 | ) | (262 | ) | (252 | ) | |||||
Other financing activities | (24 | ) | (21 | ) | (16 | ) | |||||
Net cash used in financing activities | (805 | ) | (1,438 | ) | (893 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (1 | ) | (4 | ) | (24 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (196 | ) | (3 | ) | 6 | ||||||
Cash and cash equivalents, beginning of year | 484 | 487 | 481 | ||||||||
Cash and cash equivalents, end of year | $ | 288 | $ | 484 | $ | 487 |
Common Stock | Other Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total Equity | ||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||
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 | ||||||||||||||||
Net income | — | — | 553 | — | — | 553 | |||||||||||||||||
Other comprehensive income | — | — | — | 167 | — | 167 | |||||||||||||||||
Net accumulated foreign currency loss reclassified to earnings | — | — | — | 52 | — | 52 | |||||||||||||||||
Shares issued under stock incentive plans | 1 | 53 | — | — | — | 54 | |||||||||||||||||
Share-based compensation expense | — | 40 | — | — | — | 40 | |||||||||||||||||
Repurchases and retirement of common stock | (6 | ) | (410 | ) | (278 | ) | — | — | (694 | ) | |||||||||||||
Forward contract component of accelerated share repurchase | — | (38 | ) | — | — | — | (38 | ) | |||||||||||||||
Cash dividends ($2.12 per share) | — | — | (262 | ) | — | — | (262 | ) | |||||||||||||||
Other activity related to noncontrolling interests | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||
Balance at June 30, 2017 | 120 | 1,741 | 1,343 | (276 | ) | — | 2,928 | ||||||||||||||||
Reclassifications due to adoption of accounting standards updates | — | — | 35 | (35 | ) | — | — | ||||||||||||||||
Net income | — | — | 718 | — | — | 718 | |||||||||||||||||
Other comprehensive income | — | — | — | 109 | — | 109 | |||||||||||||||||
Shares issued under stock incentive plans | — | 33 | — | — | — | 33 | |||||||||||||||||
Shares issued under defined contribution plans | — | 31 | — | — | — | 31 | |||||||||||||||||
Share-based compensation expense | — | 49 | — | — | — | 49 | |||||||||||||||||
Repurchases and retirement of common stock | (2 | ) | (178 | ) | (132 | ) | — | — | (312 | ) | |||||||||||||
Forward contract component of accelerated share repurchase | — | 38 | — | — | — | 38 | |||||||||||||||||
Cash dividends ($2.28 per share) | — | — | (272 | ) | — | — | (272 | ) | |||||||||||||||
Balance at June 29, 2018 | $ | 118 | $ | 1,714 | $ | 1,692 | $ | (202 | ) | $ | — | $ | 3,322 |
• | 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 |
• | 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 | |
Electronic Systems | One to two years | |
Space and Intelligence Systems | 60 days to two years |
AS ADJUSTED (PRELIMINARY) | AS REPORTED | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(In millions) | |||||||||||||||
Revenue from product sales and services | $ | 6,171 | $ | 5,897 | $ | 6,182 | $ | 5,900 | |||||||
Operating income | $ | 1,110 | $ | 1,066 | $ | 1,122 | $ | 1,073 |
Fiscal Years Ended | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(In millions) | ||||||||||||
Revenue from product sales and services | $ | — | $ | 1,039 | $ | 1,529 | ||||||
Cost of product sales and services | — | (885 | ) | (1,286 | ) | |||||||
Engineering, selling and administrative expenses | — | (91 | ) | (150 | ) | |||||||
Impairment of goodwill and other assets | — | (240 | ) | (367 | ) | |||||||
Non-operating loss, net(1) | (8 | ) | (7 | ) | (4 | ) | ||||||
Loss before income taxes | (8 | ) | (184 | ) | (278 | ) | ||||||
Loss on sale of discontinued operations, net (2) | — | (11 | ) | (21 | ) | |||||||
Income tax benefit(3) | 5 | 110 | 12 | |||||||||
Discontinued operations, net of income taxes | $ | (3 | ) | $ | (85 | ) | $ | (287 | ) |
Fiscal Years Ended | |||||||
2017 | 2016 | ||||||
(In millions) | |||||||
Depreciation and amortization | $ | 39 | $ | 78 | |||
Capital expenditures | 4 | 19 | |||||
Significant non-cash items: | |||||||
Impairment of goodwill and other assets | (240 | ) | (367 | ) | |||
Loss on sale of discontinued operations, net | (11 | ) | (21 | ) |
Fiscal Years Ended | |||||||||||
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Revenue from product sales and services | $ | — | $ | 895 | $ | 1,168 | |||||
Cost of product sales and services | — | (777 | ) | (1,002 | ) | ||||||
Engineering, selling and administrative expenses | — | (68 | ) | (84 | ) | ||||||
Impairment of goodwill and other assets | — | (240 | ) | — | |||||||
Non-operating loss | (4 | ) | (9 | ) | — | ||||||
Income (loss) before income taxes | (4 | ) | (199 | ) | 82 | ||||||
Loss on sale of discontinued operation | — | (28 | ) | — | |||||||
Income tax benefit (expense) | 5 | 69 | (30 | ) | |||||||
Discontinued operations, net of income taxes | $ | 1 | $ | (158 | ) | $ | 52 |
Fiscal Years Ended | |||||||||||
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Revenue from product sales and services | $ | — | $ | 144 | $ | 361 | |||||
Cost of product sales and services | — | (108 | ) | (284 | ) | ||||||
Engineering, selling and administrative expenses | — | (23 | ) | (66 | ) | ||||||
Impairment of goodwill and other assets | — | — | (367 | ) | |||||||
Non-operating income (loss) | (4 | ) | 4 | — | |||||||
Income (loss) before income taxes | (4 | ) | 17 | (356 | ) | ||||||
Gain on sale of discontinued operation | — | 14 | — | ||||||||
Income tax benefit | — | 41 | 38 | ||||||||
Discontinued operations, net of income taxes | $ | (4 | ) | $ | 72 | $ | (318 | ) |
Fiscal Year Ended | |||
2016 | |||
(In millions) | |||
Revenue from product sales and services | $ | 60 | |
Income before income taxes | 5 | ||
Net gain on sale of business | 10 |
2018 | 2017 | ||||||
(In millions) | |||||||
Accounts receivable | $ | 468 | $ | 368 | |||
Unbilled costs and accrued earnings on cost-plus contracts | 269 | 258 | |||||
737 | 626 | ||||||
Less allowances for collection losses | (2 | ) | (3 | ) | |||
$ | 735 | $ | 623 |
2018 | 2017 | ||||||
(In millions) | |||||||
Unbilled costs and accrued earnings on fixed-price contracts | $ | 531 | $ | 454 | |||
Finished products | 91 | 96 | |||||
Work in process | 104 | 96 | |||||
Raw materials and supplies | 199 | 195 | |||||
$ | 925 | $ | 841 |
2018 | 2017 | ||||||
(In millions) | |||||||
Land | $ | 43 | $ | 43 | |||
Software capitalized for internal use | 171 | 155 | |||||
Buildings | 620 | 617 | |||||
Machinery and equipment | 1,349 | 1,256 | |||||
2,183 | 2,071 | ||||||
Less accumulated depreciation and amortization | (1,283 | ) | (1,167 | ) | |||
$ | 900 | $ | 904 |
Communication Systems | Electronic Systems | Space and Intelligence Systems | Total | |||||||||||||
(In millions) | ||||||||||||||||
Balance at July 1, 2016 | $ | 781 | $ | 3,093 | $ | 1,478 | $ | 5,352 | ||||||||
Currency translation adjustments | 2 | (4 | ) | (1 | ) | (3 | ) | |||||||||
Other | 2 | 15 | — | 17 | ||||||||||||
Balance at June 30, 2017 | 785 | 3,104 | 1,477 | 5,366 | ||||||||||||
Currency translation adjustments | — | 3 | 3 | 6 | ||||||||||||
Balance at June 29, 2018 | $ | 785 | $ | 3,107 | $ | 1,480 | $ | 5,372 |
2018 | 2017 | ||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Customer relationships | $ | 1,206 | $ | 327 | $ | 879 | $ | 1,205 | $ | 233 | $ | 972 | |||||||||||
Developed technologies | 208 | 119 | 89 | 208 | 101 | 107 | |||||||||||||||||
Trade names | 43 | 22 | 21 | 58 | 34 | 24 | |||||||||||||||||
Other | 2 | 2 | — | 2 | 1 | 1 | |||||||||||||||||
Total intangible assets | $ | 1,459 | $ | 470 | $ | 989 | $ | 1,473 | $ | 369 | $ | 1,104 |
(In millions) | |||
Fiscal Years: | |||
2019 | $ | 115 | |
2020 | 102 | ||
2021 | 102 | ||
2022 | 101 | ||
2023 | 101 | ||
Thereafter | 468 | ||
Total | $ | 989 |
2018 | 2017 | ||||||
(In millions) | |||||||
Balance at beginning of fiscal year | $ | 26 | $ | 32 | |||
Warranty provision for sales | 13 | 14 | |||||
Settlements | (14 | ) | (16 | ) | |||
Other, including adjustments for acquisitions and foreign currency translation | (1 | ) | (4 | ) | |||
Balance at end of fiscal year | $ | 24 | $ | 26 |
2018 | 2017 | ||||||
(In millions) | |||||||
Variable-rate debt: | |||||||
Term loan, 3-year tranche, due May 29, 2018 | $ | — | $ | 36 | |||
Term loan, 5-year tranche, due May 29, 2020 | — | 269 | |||||
Floating rate notes, due February 27, 2019 | 300 | — | |||||
Floating rate notes, due April 30, 2020 | 250 | — | |||||
Total variable-rate debt | 550 | 305 | |||||
Fixed-rate debt: | |||||||
1.999% notes, due April 27, 2018 | — | 500 | |||||
2.7% notes, due April 27, 2020 | 400 | 400 | |||||
4.4% notes, due December 15, 2020 | — | 400 | |||||
5.55% notes, due October 1, 2021 | — | 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 | |||||
4.400% notes, due June 15, 2028 | 850 | — | |||||
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 | 14 | 14 | |||||
Total fixed-rate debt | 3,190 | 3,640 | |||||
Total debt | 3,740 | 3,945 | |||||
Plus: unamortized bond premium | — | 29 | |||||
Less: unamortized discounts and issuance costs | (28 | ) | (24 | ) | |||
Total debt, net | 3,712 | 3,950 | |||||
Less: current portion of long-term debt, net | (304 | ) | (554 | ) | |||
Total long-term debt, net | $ | 3,408 | $ | 3,396 |
• | $400 million in aggregate principal amount of 2.700% Notes due April 27, 2020 (the “2.700% 2020 Notes”), |
• | $600 million in aggregate principal amount of 3.832% Notes due April 27, 2025 (the “2025 Notes”), |
• | $400 million in aggregate principal amount of 4.854% Notes due April 27, 2035 (the “2035 Notes”), and |
• | $500 million in aggregate principal amount of 5.054% Notes due April 27, 2045 (the “2045 Notes” and collectively with the 2.700% 2020 Notes, 2025 Notes and 2035 Notes, the “Exelis Notes”). |
June 29, 2018 | June 30, 2017 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
Long-term debt (including current portion)(1) | $ | 3,712 | $ | 3,848 | $ | 3,950 | $ | 4,252 | ||||||||
(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. |
June 29, 2018 | June 30, 2017 | |||||||||||||||
Total | Level 1 | Total | Level 1 | |||||||||||||
(In millions) | ||||||||||||||||
Assets | ||||||||||||||||
Deferred compensation plan assets:(1) | ||||||||||||||||
Equity and fixed income securities | $ | 46 | $ | 46 | $ | 37 | $ | 37 | ||||||||
Investments measured at NAV: | ||||||||||||||||
Equity and fixed income funds | 63 | 50 | ||||||||||||||
Corporate-owned life insurance | 27 | 25 | ||||||||||||||
Total investments measured at NAV | 90 | 75 | ||||||||||||||
Total fair value of deferred compensation plan assets | $ | 136 | $ | 112 | ||||||||||||
Liabilities | ||||||||||||||||
Deferred compensation plan liabilities:(2) | ||||||||||||||||
Equity securities and mutual funds | $ | 38 | $ | 38 | $ | 46 | $ | 46 | ||||||||
Investments measured at NAV: | ||||||||||||||||
Common/collective trusts and guaranteed investment contracts | 111 | 80 | ||||||||||||||
Total fair value of deferred compensation plan liabilities | $ | 149 | $ | 126 | ||||||||||||
(1) | Represents diversified assets held in a “rabbi trust” associated with our non-qualified deferred compensation plans, which we include in the “Other current |
(2) | Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and |
June 29, 2018 | June 30, 2017 | ||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | ||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Fair value of plan assets | $ | 5,098 | $ | 207 | $ | 5,305 | $ | 4,921 | $ | 212 | $ | 5,133 | |||||||||||
Projected benefit obligation | (5,774 | ) | (233 | ) | (6,007 | ) | (6,140 | ) | (265 | ) | (6,405 | ) | |||||||||||
Funded status | $ | (676 | ) | $ | (26 | ) | $ | (702 | ) | $ | (1,219 | ) | $ | (53 | ) | $ | (1,272 | ) | |||||
Consolidated Balance Sheet line item amounts: | |||||||||||||||||||||||
Other non-current assets | $ | 15 | $ | — | $ | 15 | $ | 9 | $ | — | $ | 9 | |||||||||||
Compensation and benefits | (2 | ) | (1 | ) | (3 | ) | (2 | ) | (1 | ) | (3 | ) | |||||||||||
Defined benefit plans | (689 | ) | (25 | ) | (714 | ) | (1,226 | ) | (52 | ) | (1,278 | ) |
June 29, 2018 | June 30, 2017 | ||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | ||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Net actuarial loss (gain) | $ | 156 | $ | (46 | ) | $ | 110 | $ | 262 | $ | (28 | ) | $ | 234 | |||||||||
Net prior service cost (credit) | 4 | (1 | ) | 3 | 2 | (1 | ) | 1 | |||||||||||||||
$ | 160 | $ | (47 | ) | $ | 113 | $ | 264 | $ | (29 | ) | $ | 235 |
2018 | 2017 | |||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||
Benefit obligation at beginning of fiscal year | $ | 6,140 | $ | 265 | $ | 6,405 | $ | 6,471 | $ | 311 | $ | 6,782 | ||||||||||||
Service cost | 39 | 1 | 40 | 58 | 1 | 59 | ||||||||||||||||||
Interest cost | 195 | 7 | 202 | 184 | 8 | 192 | ||||||||||||||||||
Actuarial gain | (169 | ) | (22 | ) | (191 | ) | (160 | ) | (32 | ) | (192 | ) | ||||||||||||
Prior service cost | 2 | — | 2 | — | — | — | ||||||||||||||||||
Benefits paid | (402 | ) | (18 | ) | (420 | ) | (376 | ) | (22 | ) | (398 | ) | ||||||||||||
Expenses paid | (35 | ) | — | (35 | ) | (34 | ) | — | (34 | ) | ||||||||||||||
Curtailments(1) | — | — | — | — | (1 | ) | (1 | ) | ||||||||||||||||
Foreign exchange | 4 | — | 4 | (3 | ) | — | (3 | ) | ||||||||||||||||
Benefit obligation at end of fiscal year | $ | 5,774 | $ | 233 | $ | 6,007 | $ | 6,140 | $ | 265 | $ | 6,405 |
(1) | We divested IT Services during fiscal 2017, which resulted in a curtailment under the Salaried Retiree Medical Plan. |
2018 | 2017 | |||||||||||||||||||||||
Pension | Other Benefits | Total | Pension | Other Benefits | Total | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||
Plan assets at beginning of fiscal year | $ | 4,921 | $ | 212 | $ | 5,133 | $ | 4,273 | $ | 216 | $ | 4,489 | ||||||||||||
Actual return on plan assets | 307 | 14 | 321 | 470 | 22 | 492 | ||||||||||||||||||
Employer contributions | 303 | (1 | ) | 302 | 591 | (4 | ) | 587 | ||||||||||||||||
Benefits paid | (402 | ) | (18 | ) | (420 | ) | (376 | ) | (22 | ) | (398 | ) | ||||||||||||
Expenses paid | (35 | ) | — | (35 | ) | (34 | ) | — | (34 | ) | ||||||||||||||
Foreign exchange | 4 | — | 4 | (3 | ) | — | (3 | ) | ||||||||||||||||
Plan assets at end of fiscal year | $ | 5,098 | $ | 207 | $ | 5,305 | $ | 4,921 | $ | 212 | $ | 5,133 | ||||||||||||
Funded status at end of fiscal year | $ | (676 | ) | $ | (26 | ) | $ | (702 | ) | $ | (1,219 | ) | $ | (53 | ) | $ | (1,272 | ) |
June 29, 2018 | June 30, 2017 | ||||||
(In millions) | |||||||
Projected benefit obligation | $ | 5,694 | $ | 6,061 | |||
Accumulated benefit obligation | 5,694 | 6,061 | |||||
Fair value of plan assets | 5,004 | 4,833 |
Pension | Other Benefits | |||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Net periodic benefit income(1) | ||||||||||||||||||||||||
Service cost | $ | 39 | $ | 58 | $ | 75 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||
Interest cost | 195 | 184 | 245 | 7 | 8 | 13 | ||||||||||||||||||
Expected return on plan assets | (369 | ) | (340 | ) | (347 | ) | (16 | ) | (17 | ) | (18 | ) | ||||||||||||
Amortization of prior service credit | — | — | — | — | — | (5 | ) | |||||||||||||||||
Amortization of net actuarial loss (gain) | — | 1 | 1 | (1 | ) | — | 1 | |||||||||||||||||
Net periodic benefit income | (135 | ) | (97 | ) | (26 | ) | (9 | ) | (8 | ) | (8 | ) | ||||||||||||
Effect of curtailments or settlements(2) | — | — | 1 | — | — | (121 | ) | |||||||||||||||||
Total net periodic benefit income | $ | (135 | ) | $ | (97 | ) | $ | (25 | ) | $ | (9 | ) | $ | (8 | ) | $ | (129 | ) | ||||||
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) | ||||||||||||||||||||||||
Net actuarial loss (gain) | $ | (106 | ) | $ | (284 | ) | $ | 645 | $ | (20 | ) | $ | (38 | ) | $ | 15 | ||||||||
Prior service cost (credit)(2) | 2 | — | 3 | — | — | (121 | ) | |||||||||||||||||
Amortization of prior service credit | — | — | — | 1 | — | 126 | ||||||||||||||||||
Amortization of net actuarial loss | — | (1 | ) | (1 | ) | — | — | (2 | ) | |||||||||||||||
Total change recognized in other comprehensive loss (income) | (104 | ) | (285 | ) | 647 | (19 | ) | (38 | ) | 18 | ||||||||||||||
Total impact from net periodic benefit cost and changes in other comprehensive loss (income) | $ | (239 | ) | $ | (382 | ) | $ | 622 | $ | (28 | ) | $ | (46 | ) | $ | (111 | ) |
Pension | Other Benefits | Total | |||||||||
(In millions) | |||||||||||
Net actuarial gain | $ | — | $ | (6 | ) | $ | (6 | ) | |||
Prior service cost | 1 | — | 1 | ||||||||
$ | 1 | $ | (6 | ) | $ | (5 | ) |
Obligation assumptions as of: | June 29, 2018 | June 30, 2017 | ||||||
Discount rate | 4.05 | % | 3.76 | % | ||||
Rate of future compensation increase | 2.76 | % | 2.76 | % | ||||
Cost assumptions for fiscal years: | 2018 | 2017 | 2016 | |||||
Discount rate to determine service cost | 3.48 | % | 3.80 | % | 4.06 | % | ||
Discount rate to determine interest cost | 3.28 | % | 2.94 | % | 4.06 | % | ||
Expected return on plan assets | 7.66 | % | 7.65 | % | 7.91 | % | ||
Rate of future compensation increase | 2.76 | % | 2.75 | % | 2.76 | % |
Obligation assumptions as of: | June 29, 2018 | June 30, 2017 | ||||||
Discount rate | 3.99 | % | 3.63 | % | ||||
Rate of future compensation increase | N/A | N/A | ||||||
Cost assumptions for fiscal year: | 2018 | 2017 | 2016 | |||||
Discount rate to determine service cost | 3.62 | % | 3.52 | % | 3.86 | % | ||
Discount rate to determine interest cost | 3.04 | % | 2.60 | % | 3.86 | % | ||
Rate of future compensation increase | N/A | N/A | 2.75 | % |
Target Asset Allocation | ||||
Equity investments | 45 | % | — | 75% |
Fixed income investments | 20 | % | — | 42% |
Hedge funds | 5 | % | — | 15% |
Cash and cash equivalents | 0 | % | — | 10% |
• | Domestic and international equities, 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 categorized as Level 1 assets. |
• | Private equity funds, which include buy-out, mezzanine, venture capital, distressed asset and secondary funds, 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 funds are categorized as Level 3 assets. At June 29, 2018 and June 30, 2017, our defined benefit plans had future unfunded commitments totaling $246 million and $157 million, respectively, related to private equity fund investments. |
• | Hedge funds, which include equity long/short, event-driven and fixed-income arbitrage and global macro funds, 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 categorized as Level 2 assets. All other hedge funds are categorized as Level 3 assets. |
• | 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 generally categorized as Level 2 assets. |
• | 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 assets; cash equivalents, such as money market funds or short-term commingled funds, are categorized as Level 2 assets. |
• | Certain investments that are valued using the NAV per share (or its equivalent) as a practical expedient are not categorized in the fair value hierarchy and are included in the table to permit reconciliation of the fair value hierarchy to the aggregate postretirement benefit plan assets. |
June 29, 2018 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
(In millions) | |||||||||||||||
Asset Category | |||||||||||||||
Equities: | |||||||||||||||
Domestic equities | $ | 1,221 | $ | 1,189 | $ | 32 | $ | — | |||||||
International equities | 903 | 899 | 4 | — | |||||||||||
Alternative investments: | |||||||||||||||
Private equity funds | 401 | — | — | 401 | |||||||||||
Hedge funds | 187 | — | — | 187 | |||||||||||
Fixed income: | |||||||||||||||
Corporate bonds | 812 | — | 801 | 11 | |||||||||||
Government securities | 335 | — | 335 | — | |||||||||||
Other | 1 | — | — | 1 | |||||||||||
Cash and cash equivalents | 209 | 6 | 203 | — | |||||||||||
Total | 4,069 | $ | 2,094 | $ | 1,375 | $ | 600 | ||||||||
Investments Measured at NAV | |||||||||||||||
Equity funds | 714 | ||||||||||||||
Fixed Income funds | 318 | ||||||||||||||
Hedge Funds | 208 | ||||||||||||||
Total Investments Measured at NAV | 1,240 | ||||||||||||||
Payables, net | (4 | ) | |||||||||||||
Total fair value of plan assets | $ | 5,305 | |||||||||||||
June 30, 2017 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
(In millions) | |||||||||||||||
Asset Category | |||||||||||||||
Equities: | |||||||||||||||
Domestic equities | $ | 1,062 | $ | 1,032 | $ | 30 | $ | — | |||||||
International equities | 838 | 834 | 4 | — | |||||||||||
Alternative investments: | |||||||||||||||
Private equity funds | 522 | — | — | 522 | |||||||||||
Hedge funds | 242 | — | — | 242 | |||||||||||
Fixed income: | |||||||||||||||
Corporate bonds | 611 | — | 611 | — | |||||||||||
Government securities | 241 | — | 241 | — | |||||||||||
Other | 2 | — | — | 2 | |||||||||||
Cash and cash equivalents | 597 | 1 | 596 | — | |||||||||||
Total | 4,115 | $ | 1,867 | $ | 1,482 | $ | 766 | ||||||||
Investments Measured at NAV | |||||||||||||||
Equity funds | 632 | ||||||||||||||
Fixed Income funds | 288 | ||||||||||||||
Total Investments Measured at NAV | 920 | ||||||||||||||
Receivables, net | 98 | ||||||||||||||
Total fair value of plan assets | $ | 5,133 |
Private Equity Funds | Hedge Funds | Fixed Income | Other | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
Level 3 balance — July 1, 2016 | $ | 700 | $ | 282 | $ | — | $ | 2 | $ | 984 | |||||||||
Realized gains (losses), net | 78 | (23 | ) | — | — | 55 | |||||||||||||
Unrealized gains (losses), net | (71 | ) | 49 | — | — | (22 | ) | ||||||||||||
Sales, net | (185 | ) | (66 | ) | — | — | (251 | ) | |||||||||||
Level 3 balance — June 30, 2017 | 522 | 242 | — | 2 | 766 | ||||||||||||||
Realized gains (losses), net | 47 | 8 | — | — | 55 | ||||||||||||||
Unrealized gains (losses), net | (25 | ) | (4 | ) | — | — | (29 | ) | |||||||||||
Sales, net | (144 | ) | (59 | ) | 11 | — | (192 | ) | |||||||||||
Level 3 balance — June 29, 2018 | $ | 400 | $ | 187 | $ | 11 | $ | 2 | $ | 600 |
Pension | Other Benefits(1) | Total | ||||||||||
(In millions) | ||||||||||||
Fiscal Years: | ||||||||||||
2019 | $ | 400 | $ | 24 | $ | 424 | ||||||
2020 | 384 | 24 | 408 | |||||||||
2021 | 385 | 23 | 408 | |||||||||
2022 | 384 | 22 | 406 | |||||||||
2023 | 382 | 22 | 404 | |||||||||
2024 — 2028 | 1,854 | 89 | 1,943 |
(1) | Projected payments for Other Benefits reflect gross payments from the Company, excluding subsidies, which are expected to approximate 10 percent of gross payments. |
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Total expense | $ | 51 | $ | 42 | $ | 36 | |||||
Included in: | |||||||||||
Cost of product sales and services | $ | 8 | $ | 3 | $ | 4 | |||||
Engineering, selling and administrative expenses | 43 | 39 | 32 | ||||||||
Income from continuing operations | 51 | 42 | 36 | ||||||||
Tax effect on share-based compensation expense | (16 | ) | (16 | ) | (14 | ) | |||||
Total share-based compensation expense after-tax | $ | 35 | $ | 26 | $ | 22 |
2018 | 2017 | 2016 | ||||||
Expected dividends | 1.8 | % | 2.4 | % | 2.5 | % | ||
Expected volatility | 19.3 | % | 21.8 | % | 23.0 | % | ||
Risk-free interest rates | 1.8 | % | 1.2 | % | 1.5 | % | ||
Expected term (years) | 5.00 | 5.03 | 5.05 |
Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
(In years) | (In millions) | |||||||||||
Stock options outstanding June 30, 2017 | 4,910,142 | $ | 69.89 | |||||||||
Stock options forfeited or expired | (98,532 | ) | $ | 88.51 | ||||||||
Stock options granted | 412,285 | $ | 119.70 | |||||||||
Stock options exercised | (525,525 | ) | $ | 64.25 | ||||||||
Stock options outstanding June 29, 2018 | 4,698,370 | $ | 74.50 | 6.53 | $ | 329.05 | ||||||
Stock options exercisable June 29, 2018 | 3,084,969 | $ | 64.34 | 5.71 | $ | 247.42 |
Shares | Weighted-Average Grant-Date Fair Value Per Share | |||||
Nonvested stock options June 30, 2017 | 2,596,282 | $ | 13.23 | |||
Stock options granted | 412,285 | $ | 18.60 | |||
Stock options vested | (1,395,166 | ) | $ | 13.15 | ||
Nonvested stock options June 29, 2018 | 1,613,401 | $ | 14.66 |
Shares or Units | Weighted-Average Grant Price Per Share or Unit | |||||
Restricted stock and restricted stock units outstanding at June 30, 2017 | 260,964 | $ | 84.92 | |||
Restricted stock and restricted stock units granted | 312,247 | $ | 141.46 | |||
Restricted stock and restricted stock units vested | (138,659 | ) | $ | 80.44 | ||
Restricted stock and restricted stock units forfeited | (19,862 | ) | $ | 111.88 | ||
Restricted stock and restricted stock units outstanding at June 29, 2018 | 414,690 | $ | 127.70 |
Shares or Units | Weighted-Average Grant Price Per Share or Unit | |||||
Performance share units outstanding at June 30, 2017 | 633,735 | $ | 81.81 | |||
Performance share units granted | 193,321 | $ | 123.13 | |||
Performance share units vested | (173,505 | ) | $ | 66.48 | ||
Performance share units forfeited | (28,258 | ) | $ | 97.97 | ||
Performance share units outstanding at June 29, 2018 | 625,293 | $ | 98.11 |
2018 | 2017 | 2016 | |||||||||
(In millions, except per share amounts) | |||||||||||
Income from continuing operations | $ | 721 | $ | 638 | $ | 611 | |||||
Adjustments for participating securities outstanding | (2 | ) | (2 | ) | (2 | ) | |||||
Income from continuing operations used in per basic and diluted common share calculations (A) | $ | 719 | $ | 636 | $ | 609 | |||||
Basic weighted average common shares outstanding (B) | 118.6 | 122.6 | 123.8 | ||||||||
Impact of dilutive share-based awards | 2.5 | 1.7 | 1.2 | ||||||||
Diluted weighted average common shares outstanding (C) | 121.1 | 124.3 | 125.0 | ||||||||
Income from continuing operations per basic common share (A)/(B) | $ | 6.06 | $ | 5.19 | $ | 4.91 | |||||
Income from continuing operations per diluted common share (A)/(C) | $ | 5.94 | $ | 5.12 | $ | 4.87 |
2018 | 2017 | 2016 | ||||||||||
(In millions) | ||||||||||||
Losses on extinguishment of debt(1) | $ | (24 | ) | $ | — | $ | — | |||||
Gain on sales of businesses | — | — | 10 | |||||||||
Adjustment to gain on sale of business | — | 2 | — | |||||||||
Net income related to intellectual property matters | (1 | ) | — | — | ||||||||
Other | (3 | ) | — | — | ||||||||
$ | (28 | ) | $ | 2 | $ | 10 |
(1) | Losses associated with our optional redemption of the entire outstanding $400 million principal amount of our 4.4% 2020 Notes and $400 million principal amount of our 2021 Notes, the repayment in full of $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility and the termination of our 2015 Credit Agreement. See Note 11: Credit Arrangements and Note 12: Debt for additional information. |
2018(1) | 2017(2) | |||||||
(In millions) | ||||||||
Foreign currency translation, net of income taxes of $2 million and $1 million at June 29, 2018 and June 30, 2017, respectively | $ | (99 | ) | $ | (113 | ) | ||
Net unrealized loss on hedging derivatives, net of income taxes of $7 million and $11 million at June 29, 2018 and June 30, 2017, respectively | (20 | ) | (17 | ) | ||||
Unrecognized postretirement obligations, net of income taxes of $30 million and $89 million at June 29, 2018 and June 30, 2017, respectively | (83 | ) | (146 | ) | ||||
$ | (202 | ) | $ | (276 | ) |
(1) | Reclassifications to earnings from accumulated other comprehensive loss, other than the reclassification adjustment described in the paragraph below, were not material in fiscal 2018. |
(2) | Accumulated foreign currency translation losses of $52 million (net of income taxes of $14 million) were reclassified to earnings in fiscal 2017 as a result of the divestitures of CapRock and IT Services and are included in “Discontinued operations, net of income taxes” in our Consolidated Statement of Income. |
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Current: | |||||||||||
United States | $ | (141 | ) | $ | 117 | $ | (36 | ) | |||
International | 12 | 9 | 6 | ||||||||
State and local | (11 | ) | 6 | (11 | ) | ||||||
(140 | ) | 132 | (41 | ) | |||||||
Deferred: | |||||||||||
United States | 322 | 126 | 279 | ||||||||
International | (3 | ) | 1 | (3 | ) | ||||||
State and local | 26 | 8 | 38 | ||||||||
345 | 135 | 314 | |||||||||
$ | 205 | $ | 267 | $ | 273 |
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Continuing operations | $ | 205 | $ | 267 | $ | 273 | |||||
Discontinued operations | (5 | ) | (110 | ) | (12 | ) | |||||
Total income tax provision | $ | 200 | $ | 157 | $ | 261 |
2018 | 2017 | 2016 | ||||||
U.S. statutory income tax rate | 28.1 | % | 35.0 | % | 35.0 | % | ||
State taxes | 1.9 | 1.0 | 1.8 | |||||
International income | (0.5 | ) | (1.3 | ) | (1.2 | ) | ||
Nondeductible goodwill | — | — | 0.9 | |||||
Research and development tax credit | (2.9 | ) | (2.0 | ) | (2.3 | ) | ||
Change in valuation allowance | 0.2 | (0.2 | ) | (2.6 | ) | |||
U.S. production activity benefit | (0.9 | ) | (0.5 | ) | (0.4 | ) | ||
Excess tax benefits on equity-based compensation | (1.8 | ) | (2.6 | ) | — | |||
Settlement of tax audits | (2.2 | ) | — | (0.3 | ) | |||
U.S. tax reform | (0.2 | ) | — | — | ||||
Other items | 0.4 | 0.1 | — | |||||
Effective income tax rate | 22.1 | % | 29.5 | % | 30.9 | % |
• | $52 million ($.43 per diluted share) from estimated write-down of existing net deferred tax asset balances initially recognized in the second quarter of fiscal 2018; |
• | $33 million ($.27 per diluted share) of income tax benefit recognized in the third quarter of fiscal 2018 to adjust the provisional amount recorded in the second quarter of fiscal 2018. This adjustment was primarily due to revaluing our deferred tax asset related to our $300 million voluntary pension contribution made during the third quarter of fiscal 2018; and |
• | $17 million ($.15 per diluted share) of income tax benefit recognized in the fourth quarter of fiscal 2018 to adjust the provisional amount recorded previously through the third quarter of fiscal 2018. This adjustment was primarily due to revaluing our deferred tax assets based on changes in methods for tax recognition and the actual current year movement in our deferred balances. |
June 29, 2018 | June 30, 2017 | |||||||
(In millions) | ||||||||
Deferred tax assets: | ||||||||
Inventory valuations | $ | 21 | $ | 31 | ||||
Accruals | 176 | 292 | ||||||
Deferred revenue | 7 | 16 | ||||||
Domestic tax loss and credit carryforwards | 86 | 60 | ||||||
International tax loss and credit carryforwards | 33 | 35 | ||||||
Share-based compensation | 26 | 31 | ||||||
Capital loss carryforwards | 101 | 133 | ||||||
Long-term debt | — | 13 | ||||||
Pension and other post-employment benefits | 188 | 509 | ||||||
Unrealized loss on interest rate hedges | 7 | 10 | ||||||
Unrecognized tax benefits | 4 | 7 | ||||||
Other | 1 | (17 | ) | |||||
Total deferred tax assets | 650 | 1,120 | ||||||
Less: valuation allowance(1) | (181 | ) | (183 | ) | ||||
Total deferred tax assets, net of valuation allowance | 469 | 937 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment | (65 | ) | (51 | ) | ||||
Unbilled receivables | (86 | ) | (5 | ) | ||||
Acquired intangibles | (268 | ) | (459 | ) | ||||
Unremitted earnings of foreign subsidiaries | (24 | ) | (47 | ) | ||||
Total deferred tax liabilities | (443 | ) | (562 | ) | ||||
Total deferred tax assets, net of valuation allowance | $ | 26 | $ | 375 |
June 29, 2018 | June 30, 2017 | ||||||
(In millions) | |||||||
Non-current deferred income tax assets | $ | 116 | $ | 409 | |||
Non-current deferred income tax liabilities | (90 | ) | (34 | ) | |||
$ | 26 | $ | 375 |
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Balance at beginning of fiscal year | $ | 90 | $ | 63 | $ | 124 | |||||
Additions based on tax positions taken during current fiscal year | 17 | 52 | 7 | ||||||||
Additions based on tax positions taken during prior fiscal years | 23 | — | 9 | ||||||||
Decreases based on tax positions taken during prior fiscal years | (28 | ) | (25 | ) | (73 | ) | |||||
Decreases from lapse in statutes of limitations | — | — | (1 | ) | |||||||
Decreases from settlements | — | — | (3 | ) | |||||||
Balance at end of fiscal year | $ | 102 | $ | 90 | $ | 63 |
• | Communication Systems, serving markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks; |
• | Electronic Systems, providing electronic warfare, avionics, and command, control, communications, computers, intelligence, surveillance and reconnaissance solutions for defense and classified customers and mission-critical communication systems for civil and military aviation and other customers; and |
• | Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, positioning, navigation and timing, and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics. |
2018 | 2017 | |||||||
(In millions) | ||||||||
Total Assets | ||||||||
Communication Systems | $ | 1,548 | $ | 1,534 | ||||
Electronic Systems | 4,186 | 4,094 | ||||||
Space and Intelligence Systems | 2,192 | 2,117 | ||||||
Corporate(1) | 1,913 | 2,345 | ||||||
$ | 9,839 | $ | 10,090 |
(1) | Identifiable intangible 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 segment. Exelis identifiable intangible asset balances of continuing operations recorded as Corporate assets were approximately $1.0 billion and $1.1 billion as of June 29, 2018 and June 30, 2017, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment and identifiable intangibles, and also included any assets and liabilities from discontinued operations. See Note 3: Discontinued Operations and Divestitures for additional information regarding discontinued operations. |
2018 | 2017 | 2016 | |||||||||
(In millions) | |||||||||||
Capital Expenditures | |||||||||||
Communication Systems | $ | 26 | $ | 14 | $ | 16 | |||||
Electronic Systems | 57 | 40 | 40 | ||||||||
Space and Intelligence Systems | 33 | 34 | 38 | ||||||||
Corporate | 20 | 27 | 41 | ||||||||
Discontinued operations | — | 4 | 19 | ||||||||
$ | 136 | $ | 119 | $ | 154 | ||||||
Depreciation and Amortization | |||||||||||
Communication Systems | $ | 57 | $ | 64 | $ | 63 | |||||
Electronic Systems | 44 | 29 | 56 | ||||||||
Space and Intelligence Systems | 36 | 37 | 40 | ||||||||
Corporate | 122 | 142 | 124 | ||||||||
Discontinued operations | — | 39 | 78 | ||||||||
$ | 259 | $ | 311 | $ | 361 | ||||||
Geographical Information for Continuing Operations | |||||||||||
U.S. operations: | |||||||||||
Revenue | $ | 5,869 | $ | 5,639 | $ | 5,798 | |||||
Long-lived assets | $ | 892 | $ | 896 | $ | 917 | |||||
International operations: | |||||||||||
Revenue | $ | 313 | $ | 261 | $ | 194 | |||||
Long-lived assets | $ | 8 | $ | 8 | $ | 7 |
2018 | 2017 | 2016 | ||||||||||
(In millions) | ||||||||||||
Revenue | ||||||||||||
Communication Systems | $ | 1,903 | $ | 1,753 | $ | 1,864 | ||||||
Electronic Systems | 2,373 | 2,251 | 2,233 | |||||||||
Space and Intelligence Systems | 1,921 | 1,902 | 1,899 | |||||||||
Corporate eliminations | (15 | ) | (6 | ) | (4 | ) | ||||||
$ | 6,182 | $ | 5,900 | $ | 5,992 | |||||||
Income from Continuing Operations before Income Taxes | ||||||||||||
Segment Operating Income:(1) | ||||||||||||
Communication Systems(2) | $ | 571 | $ | 524 | $ | 522 | ||||||
Electronic Systems | 441 | 464 | 430 | |||||||||
Space and Intelligence Systems | 336 | 311 | 288 | |||||||||
Unallocated corporate expense and corporate eliminations(3) | (226 | ) | (226 | ) | (185 | ) | ||||||
Non-operating income (loss)(4) | (28 | ) | 2 | 10 | ||||||||
Net interest expense | (168 | ) | (170 | ) | (181 | ) | ||||||
Total | $ | 926 | $ | 905 | $ | 884 |
(1) | In fiscal 2017 and 2016, segment operating income included stranded costs and Financial Accounting Standards (“FAS”) pension income previously reported as part of our former Critical Networks segment but now re-allocated to our remaining three segments. |
(2) | Communication Systems operating income in fiscal 2016 included $20 million of 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 the accompanying Consolidated Statement of Income. |
(3) | Unallocated corporate expense and corporate eliminations includes: (i) the impact of a net liability reduction of $101 million in fiscal 2016 for certain post-employment benefit plans, (ii) $101 million, $109 million and $109 million in fiscal 2018, 2017 and 2016, respectively, for amortization of identifiable 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 segment, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense), (iii) $5 million, $58 million and $121 million of Exelis acquisition-related and other charges in fiscal 2018, 2017 and 2016, respectively, (iv) $47 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items in fiscal 2018, and (v) a $12 million non-cash adjustment for deferred compensation in fiscal 2018. |
(4) | Non-operating income (loss) in fiscal 2018 includes $27 million of losses and other costs related to debt refinancing. Additional information regarding non-operating income (loss) is set forth in Note 19: Non-Operating Income (Loss). |
Quarter Ended | Total Year | ||||||||||||||||||
9/29/2017 | 12/29/2017 | 3/30/2018 | 6/29/2018 | ||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Fiscal 2018 | |||||||||||||||||||
Revenue | $ | 1,413 | $ | 1,535 | $ | 1,568 | $ | 1,666 | $ | 6,182 | |||||||||
Gross profit(1) | 528 | 548 | 574 | 601 | 2,251 | ||||||||||||||
Income from continuing operations before income taxes | 231 | 229 | 215 | 251 | 926 | ||||||||||||||
Income from continuing operations(2) | 167 | 139 | 203 | 212 | 721 | ||||||||||||||
Discontinued operations, net of income taxes | (6 | ) | — | (2 | ) | 5 | (3 | ) | |||||||||||
Net income | 161 | 139 | 201 | 217 | 718 | ||||||||||||||
Per common share data: | |||||||||||||||||||
Basic | |||||||||||||||||||
Income from continuing operations | 1.40 | 1.17 | 1.71 | 1.78 | 6.06 | ||||||||||||||
Net income | 1.35 | 1.17 | 1.70 | 1.83 | 6.04 | ||||||||||||||
Diluted | |||||||||||||||||||
Income from continuing operations | 1.38 | 1.15 | 1.67 | 1.74 | 5.94 | ||||||||||||||
Net income | 1.32 | 1.15 | 1.66 | 1.79 | 5.92 | ||||||||||||||
Cash dividends | 0.57 | 0.57 | 0.57 | 0.57 | 2.28 | ||||||||||||||
Stock prices — High | 132.00 | 144.94 | 164.58 | 170.54 | |||||||||||||||
Low | 109.08 | 131.52 | 140.84 | 142.50 |
Quarter Ended | Total Year | |||||||||||||||||||
9/30/2016 | 12/30/2016 | 3/31/2017 | 6/30/2017 | |||||||||||||||||
(In millions, except per share amounts) | ||||||||||||||||||||
Fiscal 2017 | ||||||||||||||||||||
Revenue | $ | 1,420 | $ | 1,449 | $ | 1,489 | $ | 1,542 | $ | 5,900 | ||||||||||
Gross profit(1) | 534 | 542 | 544 | 546 | 2,166 | |||||||||||||||
Income from continuing operations before income taxes | 203 | 235 | 233 | 234 | 905 | |||||||||||||||
Income from continuing operations(3) | 145 | 163 | 164 | 166 | 638 | |||||||||||||||
Discontinued operations, net of income taxes | 15 | 14 | (79 | ) | (35 | ) | (85 | ) | ||||||||||||
Net income | 160 | 177 | 85 | 131 | 553 | |||||||||||||||
Per common share data: | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Income from continuing operations | 1.17 | 1.32 | 1.33 | 1.37 | 5.19 | |||||||||||||||
Net income | 1.29 | 1.42 | 0.70 | 1.09 | 4.50 | |||||||||||||||
Diluted | ||||||||||||||||||||
Income from continuing operations | 1.16 | 1.30 | 1.31 | 1.35 | 5.12 | |||||||||||||||
Net income | 1.27 | 1.40 | 0.69 | 1.07 | 4.44 | |||||||||||||||
Cash dividends | 0.53 | 0.53 | 0.53 | 0.53 | 2.12 | |||||||||||||||
Stock prices — High | 94.09 | 107.54 | 113.00 | 114.32 | ||||||||||||||||
Low | 80.78 | 88.89 | 99.13 | 106.18 |
(1) | “Gross profit” from prior periods have been adjusted to conform to current-period classifications. Reclassifications include certain human resources, information technology (“IT”), direct selling and bid and proposal costs that were previously included as “Cost of product sales and services” line items and are now reflected in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. |
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) | 5,712,451 | $74.50 | 26,913,981 | ||||
Equity compensation plans not approved by shareholders | — | — | — | ||||
Total | 5,712,451 | $74.50 | 26,913,981 |
(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 June 29, 2018, there were awards outstanding under those plans with respect to 1,039,983 shares, consisting of (i) awards of 25,902 shares of restricted stock, for which all 25,902 shares were issued and outstanding; and (ii) awards of 1,014,081 performance share units and restricted stock units, for which all 1,014,081 were payable in shares but for which no shares were yet issued and outstanding. The 5,712,451 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 4,698,370 outstanding options and in respect of awards of 1,014,081 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: | |
Consolidated Statement of Income — Fiscal Years ended June 29, 2018; June 30, 2017; July 1, 2016 | |
Consolidated Statement of Comprehensive Income (Loss) — Fiscal Years ended June 29, 2018; June 30, 2017; July 1, 2016 | |
Consolidated Balance Sheet — June 29, 2018; June 30, 2017 | |
Consolidated Statement of Cash Flows — Fiscal Years ended June 29, 2018; June 30, 2017; July 1, 2016 | |
Consolidated Statement of Equity — Fiscal Years ended June 29, 2018; June 30, 2017; July 1, 2016 | |
(2) Financial Statement Schedules: | |
Schedule II — Valuation and Qualifying Accounts — Fiscal Years ended June 29, 2018; June 30, 2017; July 1, 2016 |
ITEM 16. | FORM 10-K SUMMARY. |
HARRIS CORPORATION | ||||
(Registrant) | ||||
Date: August 27, 2018 | 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 27, 2018 | ||||
William M. Brown | ||||||
/s/ RAHUL GHAI | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | August 27, 2018 | ||||
Rahul Ghai | ||||||
/s/ TODD A. TAYLOR | Vice President, Principal Accounting Officer (Principal Accounting Officer) | August 27, 2018 | ||||
Todd A. Taylor | ||||||
/s/ JAMES F. ALBAUGH | Director | August 27, 2018 | ||||
James F. Albaugh | ||||||
/s/ SALLIE B. BAILEY | Director | August 27, 2018 | ||||
Sallie B. Bailey | ||||||
/s/ PETER W. CHIARELLI | Director | August 27, 2018 | ||||
Peter W. Chiarelli | ||||||
/s/ THOMAS A. DATTILO | Director | August 27, 2018 | ||||
Thomas A. Dattilo | ||||||
/s/ ROGER B. FRADIN | Director | August 27, 2018 | ||||
Roger B. Fradin | ||||||
/s/ TERRY D. GROWCOCK | Director | August 27, 2018 | ||||
Terry D. Growcock | ||||||
/s/ LEWIS HAY III | Director | August 27, 2018 | ||||
Lewis Hay III | ||||||
/s/ VYOMESH I. JOSHI | Director | August 27, 2018 | ||||
Vyomesh I. Joshi | ||||||
/s/ LESLIE F. KENNE | Director | August 27, 2018 | ||||
Leslie F. Kenne | ||||||
/s/ JAMES C. STOFFEL | Director | August 27, 2018 | ||||
James C. Stoffel | ||||||
/s/ GREGORY T. SWIENTON | Director | August 27, 2018 | ||||
Gregory T. Swienton | ||||||
/s/ HANSEL E. TOOKES II | Director | August 27, 2018 | ||||
Hansel E. Tookes II | ||||||
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 June 29, 2018 | ||||||||||||||||||||||
Amounts Deducted From | ||||||||||||||||||||||
Respective Asset Accounts: | ||||||||||||||||||||||
$ | 8 | (A) | ||||||||||||||||||||
435 | (B) | |||||||||||||||||||||
707 | (C) | |||||||||||||||||||||
Allowances for collection losses | $ | 2,815 | $ | 654 | $ | — | $ | 1,150 | $ | 2,319 | ||||||||||||
$ | (48 | ) | (E) | $ | (425 | ) | (A) | |||||||||||||||
Allowances for deferred tax assets | $ | 183,476 | $ | (2,848 | ) | $ | (48 | ) | $ | (425 | ) | $ | 181,005 | |||||||||
Year ended June 30, 2017 | ||||||||||||||||||||||
Amounts Deducted From | ||||||||||||||||||||||
Respective Asset Accounts: | ||||||||||||||||||||||
$ | 7 | (A) | ||||||||||||||||||||
551 | (B) | |||||||||||||||||||||
3,329 | (C) | |||||||||||||||||||||
3,247 | (D) | |||||||||||||||||||||
Allowances for collection losses | $ | 9,949 | $ | — | $ | — | $ | 7,134 | $ | 2,815 | ||||||||||||
$ | 1,865 | (A) | ||||||||||||||||||||
103,371 | (D) | |||||||||||||||||||||
354 | (E) | 175 | (F) | |||||||||||||||||||
Allowances for deferred tax assets | $ | 300,159 | $ | (11,626 | ) | $ | 354 | $ | 105,411 | $ | 183,476 | |||||||||||
Year ended July 1, 2016 | ||||||||||||||||||||||
Amounts Deducted From | ||||||||||||||||||||||
Respective Asset Accounts: | ||||||||||||||||||||||
$ | 960 | (A) | ||||||||||||||||||||
5,188 | (C) | |||||||||||||||||||||
Allowances for collection losses | $ | 12,169 | $ | 3,928 | $ | — | $ | 6,148 | $ | 9,949 | ||||||||||||
$ | 2,092 | (D) | $ | 4,648 | (A) | |||||||||||||||||
389 | (E) | 946 | (F) | |||||||||||||||||||
Allowances for deferred tax assets | $ | 71,866 | $ | 231,406 | $ | 2,481 | $ | 5,594 | $ | 300,159 |
1. | Section 4.20(g) of the Plan hereby is replaced in its entirety, to read as follows: |
2. | Section 4.20(h) of the Plan hereby is replaced in its entirety, to read as follows: |
Fiscal Year Ended | |||||||||||||||||||
June 29, 2018 | June 30, 2017 | July 1, 2016 | July 3, 2015 | June 27, 2014 | |||||||||||||||
(In millions, except ratios) | |||||||||||||||||||
Earnings: | |||||||||||||||||||
Income from continuing operations | $ | 721 | $ | 638 | $ | 611 | $ | 287 | $ | 440 | |||||||||
Plus: Income taxes | 205 | 267 | 273 | 109 | 202 | ||||||||||||||
Fixed charges | 181 | 179 | 188 | 135 | 99 | ||||||||||||||
Amortization of capitalized interest | — | — | 1 | — | — | ||||||||||||||
Less: Interest capitalized during the period | — | — | — | (2 | ) | (2 | ) | ||||||||||||
$ | 1,107 | $ | 1,084 | $ | 1,073 | $ | 529 | $ | 739 | ||||||||||
Fixed Charges: | |||||||||||||||||||
Interest expense | $ | 170 | $ | 172 | $ | 183 | $ | 130 | $ | 94 | |||||||||
Plus: Interest capitalized during the period | — | — | — | 2 | 2 | ||||||||||||||
Interest portion of rental expense | 11 | 7 | 5 | 3 | 3 | ||||||||||||||
$ | 181 | $ | 179 | $ | 188 | $ | 135 | $ | 99 | ||||||||||
Ratio of Earnings to Fixed Charges | 6.12 | 6.06 | 5.71 | 3.92 | 7.46 |
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 Cayman Ltd. | Cayman Island | |
Harris Communications (Australia) Pty. Ltd. | Australia | |
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 Limited | Hong Kong | |
Harris Communications Malaysia Sdn. Bhd. | Malaysia | |
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 Geospatial Solutions, Inc.* | Colorado | |
Harris Geospatial Solutions France SARL | France | |
Harris Geospatial Solutions GmbH | Germany | |
Harris Geospatial Solutions Italia SRL | Italy | |
Harris Geospatial Solutions UK Limited | United Kingdom | |
Harris Global Communications, Inc. | New York | |
Harris Holdco LLC | Delaware | |
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 Luxembourg SARL | Luxembourg | |
Harris NV | Belgium | |
Harris Pension Management Limited | United Kingdom | |
Harris Salam * | Qatar | |
Harris Solid-State (Malaysia) Sdn. Bhd. | Malaysia | |
Harris Systems Limited | United Kingdom | |
Applied Kilovolts Group Holdings Limited | United Kingdom | |
Applied Kilovolts Limited | United Kingdom | |
CR MSA, LLC | Delaware | |
Defence Investments Limited | United Kingdom | |
Eagle Technology, LLC | Delaware |
Name of Subsidiary | State or Other Jurisdiction of Incorporation | |
EDO (UK) Ltd. | United Kingdom | |
EDO LLC | Delaware | |
EDO MBM Technology Ltd. | United Kingdom | |
EDO Western Corporation | Utah | |
Exelis Arctic Services | Delaware | |
Exelis Australia Holdings Pty Ltd. | Australia | |
Exelis Australia Pty Ltd. | Australia | |
Harris C4i Pty Ltd. | Australia | |
Harris Defence Ltd. | United Kingdom | |
Exelis Holdings Inc. | Delaware | |
Exelis Luxembourg Sarl. | Luxembourg | |
Harris Orthogon GmbH | Germany | |
Exelis Visual Information Solutions BV | Netherlands | |
Felec Services, Inc. | Delaware | |
Hunan Carefx Information Technology, LLC | China | |
Manatee Investment, LLC | Delaware | |
Manu Kai, LLC * | Hawaii | |
Melbourne Leasing, LLC | Florida | |
NexGen Communication, LLC | Virginia | |
Nextgen Equipage Fund, LLC | Delaware | |
SARL Assured Communications | Algeria | |
S.C. Harris Assured Communications SRL | Romania | |
Sunshine General Services, LLC | Iraq |
Form S-3 ASR | No. 333-213408 | Harris Corporation Debt and Equity Securities | ||
Form S-8 | No. 333-222821 | Harris Corporation Retirement Plan | ||
Form S-8 | No. 333-192735 | Harris Corporation Retirement Plan | ||
Form S-8 | No. 333-163647 | Harris Corporation Retirement Plan | ||
Form S-8 | No. 333-75114 | 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 |
1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 29, 2018 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 27, 2018 | /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 June 29, 2018 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 27, 2018 | /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 27, 2018 | /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 27, 2018 | /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 | ||
---|---|---|---|
Jun. 29, 2018 |
Aug. 24, 2018 |
Dec. 29, 2017 |
|
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 | Jun. 29, 2018 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY | ||
Current Fiscal Year End Date | --06-29 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 16,750,877,977 | ||
Entity Common Stock, Shares Outstanding | 117,322,936 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Statement of Comprehensive Income [Abstract] | |||
Net income | $ 718 | $ 553 | $ 324 |
Other comprehensive income (loss): | |||
Foreign currency translation gain (loss), net of income taxes | 15 | (34) | (69) |
Net unrealized gain on hedging derivatives, net of income taxes | 1 | 1 | 1 |
Net unrecognized gain (loss) on postretirement obligations, net of income taxes | 93 | 200 | (411) |
Other comprehensive income (loss), net of income taxes | 109 | 167 | (479) |
Total comprehensive income (loss) | $ 827 | $ 720 | $ (155) |
CONSOLIDATED BALANCE SHEET (Parenthetical) - $ / shares |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Shareholders’ Equity: | ||
Preferred shares, without par value (in dollars per share) | ||
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) | $ 1.00 | $ 1.00 |
Common shares, authorized (in shares) | 500,000,000 | 500,000,000 |
Common shares, issued (in shares) | 118,280,120 | 119,628,884 |
Common shares, outstanding (in shares) | 118,280,120 | 119,628,884 |
CONSOLIDATED STATEMENT OF EQUITY (Parenthetical) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Common Stock | |||
Cash dividends (in dollars per share) | $ 2.28 | $ 2.12 | $ 2.00 |
SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 29, 2018 | |||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||
SIGNIFICANT ACCOUNTING POLICIES | NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Organization — Harris Corporation, together with its subsidiaries, is a leading technology innovator, solving customers’ toughest mission-critical challenges by providing solutions that connect, inform and protect. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products, systems and services have defense and civil government applications, as well as commercial applications. As of the end of fiscal 2018, we had approximately 17,500 employees, including approximately 7,900 engineers and scientists. 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. In connection with our divestitures in fiscal 2017 of two significant businesses that were part of our Critical Networks segment, our remaining operations that had been part of our former Critical Networks segment were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. The historical results, discussion and presentation of our business segments set forth in our Consolidated Financial Statements and these Notes reflect the impact of these changes 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 statement of cash flows resulting from these segment changes. See Note 3: Discontinued Operations and Divestitures for additional information related to divestitures, some of which were reported as discontinued operations in our Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in the accompanying Consolidated Financial Statements and these Notes relate solely to our continuing operations. Amounts contained in this Report may not always add to totals due to rounding. Reclassifications — The classification of certain prior-year amounts have been adjusted in our Consolidated Financial Statements to conform to current-year classifications. Reclassifications include certain human resources, information technology (“IT”), direct selling and bid and proposal costs that were previously included as “Cost of product sales and services” line items and are now reflected in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income and in these Notes. Use of Estimates — The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us 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 accompanying Consolidated Financial Statements and these Notes. 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. Each of our fiscal years 2018, 2017 and 2016 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 12: 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, we have 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 net realizable value. 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 — We follow the acquisition method of accounting to record the assets and liabilities of acquired businesses at their estimated fair value at the date of acquisition. We initially record goodwill for the amount costs exceed the acquisition-date fair value of net identifiable assets acquired. We test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Such events or circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business or the disposal of all or a portion of a reporting unit. We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business segment level, and, if and when applicable, one level below the business segment. We identify goodwill impairment and measure any loss from an impairment by comparing the fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and an impairment loss is recognized in an amount equal to that excess. See Note 3: Discontinued Operations and Divestitures and Note 8: Goodwill 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” or “Other non-current assets” line items in our Consolidated Balance Sheet exceeded 5 percent of our total current assets or total assets, respectively, as of June 29, 2018 or June 30, 2017. 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 June 29, 2018 or June 30, 2017. 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 21: Income Taxes for additional information regarding income taxes. Warranties — On development and production contract sales in our Electronic Systems and Space and Intelligence Systems 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 (“POC”) 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 our 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, with forfeitures recognized as they occur. It is our practice to issue shares when options are exercised. See Note 14: Stock Options and Other Share-Based Compensation for additional information regarding share-based compensation. Restructuring and Other Exit Costs — We record restructuring and other exit costs 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 costs are included as a component of the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. See Note 4: Restructuring and Other Exit Costs for additional information regarding restructuring and other exit 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 POC method, generally based on the ratio of costs incurred to estimated total costs at completion under the contract (i.e., the “cost-to-cost” 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 customers may be entitled to reclaim and receive previous award fee payments. Under the POC 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 a development and production fixed-price contract 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 we review 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 $2 million ($.01 per diluted share) in fiscal 2018, $14 million ($8 million after-tax or $.07 per diluted share) in fiscal 2017 and $68 million ($42 million after-tax or $.33 per diluted share) in fiscal 2016. 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 segment. 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 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 in 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 the “Accumulated other comprehensive loss” line item within equity in our Consolidated Balance Sheet, 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, the rate of future compensation increases, mortality, termination, and healthcare cost trend rates. We develop 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. Actual results that differ from our assumptions are accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active 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. Beginning in 2017, we changed 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 in determining the benefit obligation. Prior to fiscal 2017, 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 made 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 accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. This change resulted in approximately $46 million of lower service and interest costs for our U.S. defined benefit plans in fiscal 2017 compared with the single weighted-average discount rate method. See Note 13: 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 rate of future compensation increases, 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 June 29, 2018, we were named, and continue to be named, as a potentially responsible party at 60 sites where future liabilities could exist. These sites included 5 sites owned by us, 46 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 $103 million, consisting of approximately $97 million for environmental liabilities related to Exelis operations and approximately $6 million for other environmental liabilities. 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 June 29, 2018, we did not have material financial guarantees and 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 may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. 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 speculative trading purposes. See Note 18: 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 generally 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 15: Income From Continuing Operations Per Share for additional information. Business Segments — 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 Note 22: Business Segments represent the elimination of intersegment sales. The “Unallocated corporate expense and corporate eliminations” line item in Note 22: Business Segments represents the portion of corporate expenses not allocated to our business segments and elimination of intersegment profits. |
ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS |
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ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS | NOTE 2: ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS Adoption of New Accounting Standards In the first quarter of fiscal 2018, we adopted an accounting standards update issued by the Financial Accounting Standards Board (“FASB”) that requires recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. Consequently, this update eliminates the exception to the recognition of current and deferred income taxes for intra-entity transfers of assets other than for inventory until the assets have been sold to an outside party. This update requires entities to apply a modified retrospective approach with a cumulative catch-up adjustment to beginning retained earnings in the period of adoption. In addition, entities are required to record deferred tax balances with an offset to retained earnings for unrecognized amounts that will be recognized under this update. We applied all changes required by this update using the modified retrospective approach from the beginning of fiscal 2018. Adopting this update resulted in a $27 million reduction of prepaid income tax assets from the “Other current assets” and “Other non-current assets” line items and a $27 million increase in the “Non-current deferred income taxes” line item in our Condensed Consolidated Balance Sheet (Unaudited) as of September 29, 2017. In the fourth quarter of fiscal 2018, we adopted an accounting standards update issued by the FASB that allows companies to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), from accumulated other comprehensive loss to retained earnings. Stranded tax effects are the deferred tax amounts recorded through other comprehensive income, using a 35% statutory rate, that remained after we remeasured our net deferred tax assets and liabilities to reflect the lower enacted corporate tax rates. We elected to early adopt this accounting standards update and elected to reclassify, in the period of enactment, stranded tax effects totaling $35 million from the “Accumulated other comprehensive loss” line item to the “Retained earnings” line item in our Consolidated Balance Sheet. The reclassification amount primarily included income tax effects related to our pension and postretirement benefit plans. Income tax effects remaining in accumulated other comprehensive income will be released into earnings as the related pretax amounts are reclassified to earnings. 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 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 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. We adopted the new standard in fiscal 2019 using the full retrospective method, whereby the guidance in the new standard will be applied to each prior fiscal year presented and the cumulative effect of applying the guidance in the new standard will be recognized at the beginning of fiscal 2017. In preparation for the adoption of this standard, we formed a project team to assess customer contracts across our business segments and have periodically briefed our Audit Committee on the progress of our assessment. We designed and implemented controls over our assessment, including our calculation of the cumulative effect of adoption. We have also updated our accounting policies, redesigned certain business processes and systems, determined the extent of the expanded disclosure requirements and changed internal controls over financial reporting in connection with adopting the new standard. We have completed our preliminary assessment of the impact of adopting the new standard, and the following table presents adjusted and as reported selected financial data:
Although the adjusted selected results of operations presented above may not be indicative of our future results of operations, we do not expect the new standard to have a material impact on our financial condition, results of operations or cash flows after the period of adoption. In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This update requires that entities present components of net periodic pension cost and net periodic postretirement benefit cost other than the service cost component separately from the service cost component and outside the subtotal of income from operations. We will adopt the new standard in fiscal 2019, whereby the new guidance will be applied retrospectively to each prior fiscal year presented. Adopting this accounting standard will result in a decrease in operating income and an increase in the net non-operating components of income from continuing operations of $186 million, $184 million and $164 million for fiscal 2019, 2018 and 2017, respectively. Adopting this accounting standard will not have a material impact on our financial condition or cash flows. In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires, among other things, the recognition of right-of-use (“ROU”) assets and liabilities on the balance sheet for all leases longer than 12 months and disclosure of certain information about leasing arrangements. The standard currently allows two transition methods whereby companies may elect to use the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available, or to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. 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 continue to evaluate the impact this standard will have on our financial condition, results of operations and cash flows, which could be material, and we have not yet made a decision on the adoption method, as this determination is primarily dependent on the completion of our analysis. |
DISCONTINUED OPERATIONS AND DIVESTITURES |
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DISCONTINUED OPERATIONS AND DIVESTITURES | NOTE 3: DISCONTINUED OPERATIONS AND DIVESTITURES Discontinued Operations We completed two significant divestitures during fiscal 2017, the divestiture of our government information technology (“IT”) services business (“IT Services”) and the divestiture of our Harris CapRock Communications commercial business (“CapRock”), which are described in more detail below. These divestitures individually and collectively represented a strategic shift away from non-core markets (for example, energy, maritime and government IT services). The decision to divest these businesses was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses, and had a major effect on our operations and financial results. As a result, IT Services and CapRock are reported as discontinued operations in the accompanying Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in the accompanying Consolidated Financial Statements and these Notes relate solely to our continuing operations. The major components of discontinued operations in our Consolidated Statement of Income included the following:
_______________ (1) “Non-operating loss, net” included losses of $2 million in fiscal 2017 and $4 million in fiscal 2016 related to our former broadcast communications business (“Broadcast Communications”), which was divested in fiscal 2013. (2) “Loss on sale of discontinued operations, net” included a $3 million decrease and $21 million increase to the loss on the sale of Broadcast Communications in fiscal 2017 and 2016, respectively. (3) “Income tax benefit” included a $4 million income tax benefit in fiscal 2016 related to Broadcast Communications. Depreciation and amortization, capital expenditures and significant non-cash items of discontinued operations included the following:
IT Services On April 28, 2017, we completed the divestiture to an affiliate of Veritas Capital Fund Management, L.L.C. (“Veritas”) of IT Services, which primarily provided IT and engineering managed services to U.S. Government customers, for net cash proceeds of $646 million, and recognized a pre-tax loss of $28 million (an after-tax gain of $55 million after certain tax benefits related to the transaction or $.44 per diluted share) on the sale after transaction expenses. The decision to divest IT Services was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses. IT Services was part of our former Critical Networks segment and in connection with the definitive agreement to sell IT Services, as described above, the other remaining operations that had been apart of the Critical Networks segment, including our air traffic management (“ATM”) business, primarily serving the Federal Aviation Administration (“FAA”), were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. We agreed to provide various transition services to Veritas for a period of up to 18 months following the closing of the transaction pursuant to a separate agreement. Because the then-pending divestiture of IT Services represented the disposal of a portion of a reporting unit within our former Critical Networks segment, we assigned $487 million of goodwill to the IT Services disposal group on a relative fair value basis during the third quarter of fiscal 2017, when the held for sale criteria were met. The fair value of the IT Services disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses (which comprised the remaining portion of the reporting unit) was determined based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs. See Note 1: Significant Accounting Policies for additional information regarding the fair value hierarchy. In conjunction with the allocation, we tested goodwill assigned to the disposal group and goodwill allocated to the retained businesses for impairment. As a result, we concluded that goodwill and other assets related to IT Services were impaired as of March 31, 2017, and we recorded a non-cash impairment charge of $240 million in discontinued operations, $228 million of which related to goodwill. The goodwill impairment charge was non-deductible for tax purposes. The following table presents the key financial results of IT Services included in “Discontinued operations, net of income taxes” in our Consolidated Statement of Income:
CapRock On January 1, 2017, we completed the divestiture to SpeedCast International Ltd. (“SpeedCast”) of CapRock, which provided wireless, terrestrial and satellite communications services to energy and maritime customers, for net cash proceeds of $368 million, and recognized a pre-tax gain of $14 million ($61 million after certain tax benefits related to the transaction, including reversal of valuation allowances on capital losses and net operating losses, or $.49 per diluted share) on the sale after transaction expenses and purchase adjustments in respect of net cash and net working capital as set forth in the definitive sales agreement entered into November 1, 2016. The following table presents the key financial results of CapRock included in “Discontinued operations, net of income taxes” included in our Consolidated Statement of Income:
Indications of potential impairment of goodwill related to CapRock (which was part of our former Critical Networks segment) were present at the end of the second quarter of fiscal 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 CapRock. Consequently, in connection with the preparation of our financial statements for the second quarter of fiscal 2016, we performed an interim test of CapRock’s goodwill for impairment as of the end of the second quarter of fiscal 2016. To test for potential impairment of goodwill related to CapRock, we prepared an estimate of the fair value of the reporting unit based on projected discounted cash flows. The current carrying value of the CapRock reporting unit exceeded its estimated fair value, and accordingly, we allocated the estimated fair value to the assets and liabilities of the CapRock 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 CapRock, 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 CapRock 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 CapRock 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, which is included in the “Discontinued operations, net of income taxes” line item in our Consolidated Statement of Income for fiscal 2016. Most of the $367 million impairment charge was not deductible for tax purposes. Broadcast Communications On February 4, 2013, we completed the divestiture of Broadcast Communications, which provided digital media management solutions in support of broadcast customers, to an affiliate of The Gores Group, LLC (“Gores”) pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Broadcast Communications was recorded as discontinued operations in connection with the sale. Based on a dispute between us and Gores over the amount of the post-closing working capital adjustment, we and Gores 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 Gores’ favor. As a result of such determination, we recorded a loss in the second quarter of fiscal 2016 of $21 million ($17 million after-tax or $.14 per diluted share). Divestitures Aerostructures On April 8, 2016, we completed the divestiture of our composite aerostructures business (“Aerostructures”), which designed and manufactured technically advanced, lightweight composite aerospace assembly structures, sub-assemblies and components for defense and commercial industries, for $187 million in cash at closing and the assumption of a $23 million capitalized lease. The operating results of Aerostructures through the date of divestiture are reported 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. Summarized financial information for Aerostructures is as follows:
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RESTRUCTURING AND OTHER EXIT COSTS |
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Restructuring and Related Activities [Abstract] | |
RESTRUCTURING AND OTHER EXIT COSTS | NOTE 4: RESTRUCTURING AND OTHER EXIT COSTS We record charges for restructuring and other exit activities related to 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 services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. Restructuring, Exelis Acquisition-Related Integration and Other Charges In fiscal 2018, we recorded a $5 million charge for consolidation of certain Exelis Inc. (collectively with its subsidiaries, “Exelis”) facilities initiated in fiscal 2017. This charge is included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. In fiscal 2017, we recorded $58 million of charges for integration and other costs in connection with our acquisition of Exelis, substantially all of which were included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. In fiscal 2016, we recorded $33 million of restructuring charges for workforce reductions, facility consolidation and other costs and $121 million of charges at our corporate headquarters for integration and other costs (including $11 million for amortization for a step-up in inventory) in connection with our acquisition of Exelis. These charges are included as a component of the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. We had liabilities of $27 million and $43 million as of the end of fiscal 2018 and 2017, respectively, associated with these integration activities and previous restructuring actions. The majority of the remaining liabilities as of the end of fiscal 2018 will be paid within the next twelve months. Other Exit-Related Charges In fiscal 2018, we recorded $45 million of charges in connection with our decision to transition and exit a commercial line of business that had been developing an air-to-ground radio access network for the business aviation market based on the Long Term Evolution (“LTE”) standard operating in the unlicensed spectrum. These charges are included as a component of “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. We had a liability of $18 million at June 29, 2018 associated with this exit activity, which was paid on July 2, 2018. |
RECEIVABLES |
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RECEIVABLES | NOTE 5: RECEIVABLES Receivables are summarized below:
We expect to bill during fiscal 2019 the majority of unbilled costs and accrued earnings outstanding at June 29, 2018. We have a receivables sale agreement (“RSA”) with a third-party financial institution that permits us to sell, on a nonrecourse basis, up to $50 million of outstanding receivables at any given time. From time to time, we have sold certain customer receivables under the RSA, which we continue to service and collect on behalf of the third-party financial institution. Receivables sold pursuant to the RSA meet the requirements for sales accounting under Accounting Standards Codification 860, Transfers and Servicing, and accordingly, are derecognized from our Consolidated Balance Sheet at the time of sale. Outstanding accounts receivable sold pursuant to the RSA were not material as of the end of fiscal 2018, 2017 and 2016. |
INVENTORIES |
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INVENTORIES | NOTE 6: INVENTORIES Inventories are summarized below:
Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of $99 million and $90 million at June 29, 2018 and June 30, 2017, respectively. |
PROPERTY, PLANT AND EQUIPMENT |
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PROPERTY, PLANT AND EQUIPMENT | NOTE 7: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized below:
Depreciation and amortization expense related to property, plant and equipment was $143 million, $147 million and $160 million in fiscal 2018, 2017 and 2016, respectively. |
GOODWILL |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL | NOTE 8: GOODWILL The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the fiscal years ended June 29, 2018 and June 30, 2017, by business segment, were as follows:
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INTANGIBLE ASSETS |
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Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | NOTE 9: 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 $117 million, $126 million and $129 million in fiscal 2018, 2017 and 2016, respectively, including approximately $101 million, $109 million and $109 million, respectively, of amortization expense for intangible assets related to our acquisition of Exelis. Future estimated amortization expense for intangible assets is as follows:
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ACCRUED WARRANTIES |
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ACCRUED WARRANTIES | NOTE 10: 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 2018 and 2017, 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 June 29, 2018 and June 30, 2017 was $16 million and $23 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 | NOTE 11: CREDIT ARRANGEMENTS On June 26, 2018, we established a new $1 billion, 5-year senior unsecured revolving credit facility (the “2018 Credit Facility”) by entering into a Revolving Credit Agreement (the “2018 Credit Agreement”) with a syndicate of lenders. The 2018 Credit Facility replaced our prior $1 billion, 5-year senior unsecured revolving credit facility established under the Revolving Credit Agreement, dated as of July 1, 2015 (the “2015 Credit Agreement”). No loans or letters of credit under the 2015 Credit Agreement were outstanding at the time of, or were repaid in connection with, such termination, and we incurred no early termination penalties as a result of such termination. We recognized a $1 million extinguishment loss, which is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income, as a result of associated unamortized debt issuance costs. The 2018 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 2018 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 2018 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 foreign currency sub-limit of $200 million. The 2018 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 2018 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 2018 Credit Agreement exceed $1.5 billion. The proceeds of loans or letters of credit borrowings under the 2018 Credit Agreement are restricted from being used for hostile acquisitions (as defined in the 2018 Credit Agreement) or for any purpose in contravention of applicable laws. We are not otherwise restricted under the 2018 Credit Agreement from using the proceeds of loans or letters of credit borrowings under the 2018 Credit Agreement for working capital and other general corporate purposes or from using the 2018 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 2018 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 2018 Credit Agreement at any time during the term of the 2018 Credit Agreement. The 2018 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 2018 Credit Agreement. The obligations of any such subsidiary borrower shall be guaranteed by us. The 2018 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 2018 Credit Agreement do not apply in respect of such subsidiaries. At our election, borrowings under the 2018 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 for any day is a rate per annum equal to the greatest of (i) the prime lending rate published in the Wall Street Journal, (ii) the Federal Reserve Bank of New York (“NYFRB”) Rate (“NYFRB Rate”) plus 0.500% (the NYFRB Rate is the greater of (a) the federal funds rate and (b) the overnight bank funding rate published by the NYFRB, and (iii) the eurocurrency rate for a one month interest period (as defined in the 2018 Credit Agreement) plus 1.000%. 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 2018 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 2018 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 2018 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 2018 Credit Agreement contains certain representations and warranties for the benefit of the administrative agent and the lenders, including but not limited to representations relating to: due incorporation and good standing; due authorization of the 2018 Credit Agreement documentation; absence of any requirement for governmental or third party authorization for the due execution, delivery and performance of the 2018 Credit Agreement documentation; enforceability of the 2018 Credit Agreement documentation; accuracy of financial statements; no material adverse effect since June 30, 2017; absence of material undisclosed litigation on June 26, 2018; 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 2018 Credit Agreement contains certain affirmative covenants, including but not limited to 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; maintenance of accurate books and records; and visitation and inspection by the administrative agent and the lenders. The 2018 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; limiting certain investments in unrestricted subsidiaries; and limiting certain hedging arrangements. The 2018 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 2018 Credit Agreement, to be greater than 0.65:1.00. We were in compliance with the covenants in the 2018 Credit Agreement at June 29, 2018. The 2018 Credit Agreement contains certain events of default, including: failure to make payments under the 2018 Credit Agreement; failure to perform or observe terms, covenants or agreements contained in the 2018 Credit Agreement; material inaccuracy of any representation or warranty under the 2018 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 2018 Credit Agreement documentation; or a change of control (as defined in the 2018 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 2018 Credit Agreement are due on June 26, 2023, unless (i) the commitments are terminated earlier either at our request or if certain events of default described in the 2018 Credit Agreement occur or (ii) the maturity date is extended pursuant to provisions allowing us, from time to time after June 26, 2019, 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 2018 Credit Agreement), subject to approval by lenders holding a majority of the commitments under the 2018 Credit Agreement and satisfaction of certain conditions stated in the 2018 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 2018 Credit Agreement have not been replaced pursuant to customary replacement rights in our favor shall remain due and payable in full, and all commitments under the 2018 Credit Agreement of such declining lenders shall terminate, on the maturity date in effect prior to the requested extension. At June 29, 2018, we had no borrowings outstanding under the 2018 Credit Facility, but we had $75 million of short-term debt outstanding under our commercial paper program that was supported by the 2018 Credit Facility. |
DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | NOTE 12: 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 2018 and, in total, thereafter are: $305 million in fiscal 2019; $654 million in fiscal 2020; $4 million in fiscal 2021; $1 million in fiscal 2022; none in fiscal 2023; and $2,776 million thereafter. Long-Term Debt Repaid in Fiscal 2018 On June 22, 2018, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of our 4.4% Notes due December 15, 2020 (the “4.4% 2020 Notes”) and $400 million aggregate principal amount of our 5.55% Notes due October 1, 2021 (the “2021 Notes” and collectively with the 4.4% 2020 Notes, the “Redeemed Notes”) at a “make-whole” redemption price as set forth in the Redeemed Notes. The combined “make-whole” redemption price for the Redeemed Notes was $844 million, and after adjusting for the carrying value of our bond premium, discounts and issuance costs, we recorded a combined $22 million loss on the extinguishment of the Redeemed Notes in the fourth quarter of fiscal 2018, which is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income. During the fourth quarter of fiscal 2018, we also repaid at maturity the entire outstanding $500 million aggregate principal amount of our 1.999% Notes due April 27, 2018. During the second quarter of fiscal 2018, we repaid in full the $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility pursuant to our Term Loan Agreement, dated as of March 16, 2015, and recognized a $1 million extinguishment loss, which is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income, as a result of associated unamortized debt issuance costs. During the fourth quarter of fiscal 2018, we also repaid in full the $36 million in remaining indebtedness under the 3-year tranche (for a total of $305 million in term loan indebtedness repaid during fiscal 2018), and as a result, our $1.3 billion senior unsecured term loan facility pursuant to our Term Loan Agreement, dated as of March 16, 2015, was terminated. Long-Term Debt Repaid in Fiscal 2017 During the second quarter of fiscal 2017, we repaid at maturity the entire outstanding $250 million aggregate principal amount of our 4.25% Notes due October 1, 2016. We also repaid $313 million of the principal amount of our variable-rate term loans during fiscal 2017. Long-Term Debt Issued in Fiscal 2018 Variable-rate Debt: On February 27, 2018, we completed the issuance and sale of $300 million in aggregate principal amount of floating rate notes due February 27, 2019 (“Floating Rate Notes 2019”). We incurred $2 million of debt issuance costs related to the issuance of the Floating Rate Notes 2019, which are being amortized using the effective interest rate method over the life of the notes, and such amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income. The Floating Rate Notes 2019 bear interest at a floating rate, reset quarterly, equal to three-month LIBOR plus 0.475% per year. Interest is payable quarterly in arrears on May 27, 2018, August 27, 2018, November 27, 2018 and February 27, 2019, commencing May 27, 2018. The Floating Rate Notes 2019 are not redeemable at our option prior to maturity. 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 used the net proceeds from the sale of the Floating Rate Notes 2019 to make a voluntary contribution to our U.S. qualified pension plans during the third quarter of fiscal 2018. On November 6, 2017, we completed the issuance and sale of $250 million in aggregate principal amount of floating rate notes due April 30, 2020 (“Floating Rate Notes 2020”). We incurred $2 million of debt issuance costs related to the issuance of the Floating Rate Notes 2020, which are being amortized using the effective interest rate method over the life of the notes, and such amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income. The Floating Rate Notes 2020 bear interest at a floating rate, reset quarterly, equal to three-month LIBOR plus 0.48% per year. Interest is payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing January 30, 2018. The Floating Rate Notes 2020 are not redeemable at our option prior to maturity. 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 used the net proceeds, together with cash on hand, to repay in full the $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility as described above under “Long-Term Debt Repaid in Fiscal 2018”. Fixed-rate Debt: On June 4, 2018, in order to fund our optional redemption of the Redeemed Notes as described above under “Long-Term Debt Repaid in Fiscal 2018,” we completed the issuance of $850 million in aggregate principal amount of 4.400% Notes due June 15, 2028 (the “New 2028 Notes”). Interest on the New 2028 Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2018. At any time prior to March 15, 2028, we may redeem the New 2028 Notes, in whole or in part, at our option, at a “make-whole” redemption price equal to the greater of 100 percent of the principal amount of the New 2028 Notes 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 at the Treasury Rate, as defined, plus 25 basis points. We will pay accrued interest on the principal amount of notes being redeemed to, but not including, the redemption date. At any time on or after March 15, 2028, we may redeem the New 2028 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 change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the New 2028 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 $8 million of debt issuance costs related to the issuance of the New 2028 Notes, which are being amortized using the effective interest rate method over the life of the New 2028 Notes, and such amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income. Long-Term Debt From Prior to Fiscal 2018 That Remained Outstanding at June 29, 2018 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 issued long-term fixed-rate debt securities in an aggregate principal amount of $2.4 billion. The principal amounts, interest rates and maturity dates of these securities that remained outstanding at June 29, 2018 were as follows:
Interest on each series of the Exelis Notes is payable semi-annually in arrears on April 27 and October 27 of each year, commencing October 27, 2015. The Exelis Notes are redeemable at our option up to one month prior to the scheduled maturity date at a price 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, plus accrued interest, 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 2.700% 2020 Notes, (ii) 30 basis points in the case of the 2025 Notes, (iii) 35 basis points in the case of the 2035 Notes, and (v) 40 basis points in the case of the 2045 Notes. 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 Exelis 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, excluding the date of repurchase. On December 3, 2010, we completed the issuance of $300 million in aggregate principal amount of 6.15% Notes due December 15, 2040 (the “2040 Notes”). The 2040 Notes are redeemable at our option at a price 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, plus accrued interest, 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 35 basis points. 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. 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:
Short-Term Debt Our short-term debt at June 29, 2018 and June 30, 2017 was $78 million (including $75 million outstanding under our commercial paper program) and $80 million (including $75 million outstanding under our commercial paper program), respectively. Interest expense incurred on our short-term debt was not material in fiscal 2018, 2017 or 2016. Interest Paid Total interest paid was $175 million, $168 million and $177 million in fiscal 2018, 2017 and 2016, respectively. |
PENSION AND OTHER POSTRETIREMENT BENEFITS |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION AND OTHER POSTRETIREMENT BENEFITS | NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS Defined Contribution Plan We sponsor a defined contribution savings plan, which allows our eligible employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The plan includes several match contribution formulas which requires us to match a percentage of the employee contributions up to certain limits, generally totaling between 2.0% to 6.0% of employee eligible pay. Matching contributions charged to expense were $83 million, $80 million and $82 million for fiscal 2018, 2017 and 2016, respectively, including both continuing and discontinued operations, and in fiscal 2018 included the issuance of shares of our common stock. 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 of our deferred compensation plan investments and liabilities by category and by fair value hierarchy level:
assets” and “Other non-current assets” line items in our Consolidated Balance Sheet, and which are measured at fair value.
benefits” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Under these plans, participants designate investment options (including stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts. Defined Benefit Plans We sponsor numerous defined benefit pension plans for eligible employees. 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 voluntary 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 $4.6 billion and a projected benefit obligation of $5.2 billion as of June 29, 2018. Effective December 31, 2016, accruals under the U.S. SRP benefit formula were frozen for all employees and replaced with a 1% cash balance benefit formula for certain employees who were not highly compensated on December 31, 2016. 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:
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The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
The accumulated benefit obligation for all defined benefit pension plans was $5.8 billion at June 29, 2018. 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 income and other amounts recognized in other comprehensive income for fiscal 2018, 2017, and 2016 as they pertain to our defined benefit plans:
_______________ (1) Net periodic benefit income presented in this table includes both continuing and discontinued operations. $2 million and $4 million of the service cost component of net periodic benefit income is included as a component of the “Discontinued operations, net of income taxes” line item in our Consolidated Statement of Income for fiscal 2017 and fiscal 2016, respectively. (2) 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 fiscal 2016. The following table provides the estimated net actuarial gain and prior service cost that will be amortized from accumulated other comprehensive loss into net periodic benefit income during fiscal 2019:
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 discussions with our actuaries. We develop each assumption using relevant Company experience in conjunction with market-related data. Assumptions are reviewed annually and adjusted as appropriate. The following tables provide 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 90% of the total projected benefit obligation) included a discount rate for obligation assumptions of 4.07% and expected return on plan assets of 7.75% for fiscal 2018, which is being maintained at 7.75% for fiscal 2019. 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 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 2019 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 7.66% for fiscal 2019. In fiscal 2018, we adopted updated mortality tables, which resulted in a decrease in the defined benefit plans’ projected benefit obligation as of June 29, 2018 and estimated net periodic benefit cost beginning fiscal 2019. The assumed rate of future increases in the per capita cost of healthcare (the healthcare trend rate) for fiscal 2018 was 6.88% for both pre-age 65 and post-age 65 benefits, decreasing ratably to 4.75% in fiscal 2027. The corresponding assumed rate for fiscal 2019 is 7.35% for pre-age 65 benefits and 6.85% for post-age 65 benefits, decreasing ratably to 4.75% in fiscal 2028. Increasing or decreasing the healthcare cost 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 accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants. 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 made voluntary contributions of $300 million and $400 million to our U.S. qualified pension plans during fiscal 2018 and 2017, respectively. As a result, we currently do not anticipate making any contributions to our U.S. qualified pension plans during fiscal 2019. Estimated Future Benefit Payments The following table provides the projected timing of payments for benefits earned to date and benefits expected to be earned for future service by current active employees under 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 | NOTE 14: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION As of June 29, 2018, 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 compensation was outstanding). Grants of share-based awards after October 23, 2015 were made under our 2015 EIP. We believe that share-based 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 2018, 2017 and 2016 was not material. As of the end of fiscal 2018, a total of 26,913,981 shares of common stock remained available under our 2015 EIP for future issuance (excluding shares to be issued in respect of outstanding options and other share-based awards, and with each full-value award (e.g., restricted stock and restricted stock unit awards and performance share and performances share unit awards) counting as 4.6 shares against the total remaining for future issuance). In fiscal 2018, we issued an aggregate of 709,367 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 of 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 canceled, 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 June 29, 2018 and changes during fiscal 2018 is as follows:
The weighted-average grant-date fair value was $18.60 per share, $13.82 per share and $12.68 per share for options granted during fiscal 2018, 2017 and 2016, respectively. The total intrinsic value of options exercised during fiscal 2018, 2017 and 2016 was $39 million, $47 million and $20 million, respectively, at the time of exercise. A summary of the status of our nonvested stock options at June 29, 2018 and changes during fiscal 2018 is as follows:
As of June 29, 2018, there was $24 million of total unrecognized compensation expense related to nonvested stock options granted under our SIPs. This expense is expected to be recognized over a weighted-average period of 1.10 years. The total fair value of stock options that vested during fiscal 2018, 2017 and 2016 was approximately $18 million, $17 million and $15 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 June 29, 2018, there were 25,902 shares of restricted stock and 388,788 restricted stock units outstanding which were payable in shares. A summary of the status of these awards at June 29, 2018 and changes during fiscal 2018 is as follows:
As of June 29, 2018, there was $39 million of total unrecognized compensation expense related to these awards under our SIPs. This expense is expected to be recognized over a weighted-average period of 1.79 years. The weighted-average grant date price per share or per unit of these awards granted during fiscal 2018, 2017 and 2016 was $141.46, $94.60 and $81.53, respectively. The total fair value of these awards that vested during fiscal 2018, 2017 and 2016 was approximately $11 million, $14 million and $7 million, respectively. Performance Share Unit Awards The following information relates to awards of 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 (“TSR”)) 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 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 June 29, 2018, there were 625,293 performance share units outstanding which were payable in shares. A summary of the status of these awards at June 29, 2018 and changes during fiscal 2018 is as follows:
As of June 29, 2018, there was $23 million of total unrecognized compensation expense related to these awards under our SIPs. This expense is expected to be recognized over a weighted-average period of 1.05 years. The weighted-average grant date price per unit of these awards granted during fiscal 2018, 2017 and 2016 was $123.13, $84.40 and $73.32, respectively. The total fair value of these awards that vested during fiscal 2018, 2017 and 2016 was approximately $12 million, $21 million and $18 million, respectively. |
INCOME FROM CONTINUING OPERATIONS PER SHARE |
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Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME FROM CONTINUING OPERATIONS PER SHARE | NOTE 15: INCOME FROM CONTINUING OPERATIONS PER SHARE The computations of income from continuing operations per share are as follows:
Potential dilutive common shares primarily consist of employee stock options and restricted and performance unit awards. Income from continuing operations per diluted common share excludes the antidilutive impact of 48,590, 421,507 and 1,671,045 weighted average share-based awards outstanding in fiscal 2018, 2017 and 2016, respectively. |
RESEARCH AND DEVELOPMENT |
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Research and Development [Abstract] | |
RESEARCH AND DEVELOPMENT | NOTE 16: RESEARCH AND DEVELOPMENT Company-sponsored research and development costs are expensed as incurred. These costs were $311 million, $310 million and $305 million in fiscal 2018, 2017 and 2016, 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 POC method. Customer-sponsored research and development is included in our revenue and cost of product sales and services. |
LEASE COMMITMENTS |
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Contractual Obligation, Fiscal Year Maturity [Abstract] | |
LEASE COMMITMENTS | NOTE 17: LEASE COMMITMENTS Total rental expense amounted to $61 million, $65 million and $65 million in fiscal 2018, 2017 and 2016, 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 $280 million at June 29, 2018. These commitments for the five years following fiscal 2018 and, in total, thereafter are: fiscal 2019 — $58 million; fiscal 2020 — $53 million; fiscal 2021 — $47 million; fiscal 2022 — $40 million; fiscal 2023 — $28 million; and in total thereafter — $54 million. 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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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | NOTE 18: 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 may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. We recognize all derivatives in our Consolidated Balance Sheet at fair value. We do not hold or issue derivatives for speculative trading purposes. At June 29, 2018, we had open foreign currency forward contracts with an aggregate notional amount of $39 million, of which $4 million were classified as fair value hedges and $35 million were classified as cash flow hedges. This compares with open foreign currency forward contracts with an aggregate notional amount of $33 million at June 30, 2017, of which $2 million were classified as fair value hedges and $31 million were classified as cash flow hedges. At June 29, 2018, contract expiration dates ranged from 3 days to 6 months with a weighted average contract life of 1 month. Exchange Rate Risk — Balance Sheet Hedges To manage the exposure in our balance sheet to risks from changes in foreign currency exchange rates, we implement fair value hedges. More specifically, we use foreign currency forward contracts and options to hedge certain balance sheet items, including foreign currency denominated accounts receivable and inventory. Changes in the value of the derivatives and the related hedged items are reflected in earnings, in the “Cost of services” line item in our Consolidated Statement of Income. As of June 29, 2018, we had outstanding foreign currency forward contracts denominated in the Canadian Dollar to hedge certain balance sheet items. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in fiscal 2018, 2017 or 2016. In addition, no amounts were recognized in earnings in fiscal 2018, 2017 or 2016 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 June 29, 2018, we had outstanding foreign currency forward contracts denominated in the Euro and Australian Dollar to hedge certain forecasted transactions. These derivatives have only nominal intrinsic value at the time of purchase and have a high degree of correlation to the anticipated cash flows they are designated to hedge. Hedge effectiveness is determined by the correlation of the anticipated cash flows from the hedging instruments and the anticipated cash flows from the future foreign currency commitments through the maturity dates of the derivatives used to hedge these cash flows. These financial instruments are marked-to-market using forward prices and fair value quotes with the offset to 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 2018, 2017 or 2016. 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 June 29, 2018 that will be reclassified to earnings from accumulated other comprehensive income within the next 12 months to be material. Credit Risk We are exposed to the risk of credit losses from non-performance by counterparties to the financial instruments discussed above, but we do not expect any of the counterparties to fail to meet their obligations. To manage credit risks, we select counterparties based on credit ratings, limit our exposure to any single counterparty under defined guidelines and monitor the market position with each counterparty. The amount of assets and liabilities related to foreign currency forward contracts in our Consolidated Balance Sheet as of June 29, 2018 was immaterial. See our Consolidated Statement of Comprehensive Income (Loss) for additional information on changes in accumulated other comprehensive loss for the three fiscal years ended June 29, 2018. |
NON-OPERATING INCOME (LOSS) |
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NON-OPERATING INCOME (LOSS) | NOTE 19: NON-OPERATING INCOME (LOSS) The components of non-operating income (loss) were as follows:
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ACCUMULATED OTHER COMPRENSIVE LOSS |
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ACCUMULATED OTHER COMPRENSIVE LOSS | NOTE 20: ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss were as follows:
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Accumulated other comprehensive loss at June 29, 2018 reflects a reclassification to retained earnings of $35 million in stranded tax effects as a result of our adoption of an accounting standards update, including $30 million from “Unrecognized postretirement obligation, net of income taxes,” $4 million from “Net unrealized loss on hedging derivatives, net of income taxes” and $1 million from “Foreign currency translation, net of income taxes.” See Note 2: Accounting Changes or Recent Accounting Pronouncements for additional information regarding this accounting standards update. |
INCOME TAXES |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | NOTE 21: INCOME TAXES Income Tax Provision The provisions for current and deferred income taxes are summarized as follows:
The total income tax provision is summarized as follows:
A reconciliation of the U.S. 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. As of June 29, 2018, we have accumulated undistributed earnings of international subsidiaries of approximately $55 million. None of these earnings were subject to the one-time transition tax on foreign earnings as required by the Tax Act or have otherwise been previously taxed. Our intention is to reinvest these earnings indefinitely. Determination of unrecognized deferred U.S. tax liability on outside basis differences, other than what is provided below, is not practicable due to the complexity of laws and regulations issued under the Tax Act and the varying tax treatment of repatriation alternatives. Tax Law Changes On December 22, 2017, the Tax Act was signed into U.S. law. Among other provisions, the Tax Act reduced the U.S. statutory corporate income tax rate from a maximum 35 percent to a flat 21 percent, effective January 1, 2018. Based on our fiscal year end, our blended U.S. statutory corporate income tax rate for fiscal 2018 was 28.1 percent. This drop in the tax rate resulted in a one-time benefit of $26 million ($.21 per diluted share) at the date of enactment. As of the end of the fiscal year, we were able to reasonably estimate the impact to our existing net deferred income tax balances and recognized a $2 million expense during fiscal 2018 to revalue our deferred tax balances. This expense includes:
As of June 29, 2018, we have not fully completed our accounting for the income tax impact of enactment of the Tax Act. In accordance with SEC Staff Accounting Bulletin No.118, we have recognized provisional amounts for income tax effects of the Tax Act that we were able to reasonably estimate. We intend to adjust the tax effects for the relevant items during the allowed measurement period. We are still evaluating certain aspects of the Tax Act and refining our calculations, which could potentially affect our current estimated valuation of our net deferred income tax balances mentioned above and could give rise to new deferred tax amounts. We were also able to reasonably estimate the tax treatment of our earnings and profits as per the Tax Act related to foreign subsidiaries (“foreign E&P”). The Tax Act provides for a one-time transition tax on our post-1986 foreign E&P that was previously deferred from U.S. income tax expense. We have provisionally determined that we will not owe any one-time transition tax. However, we are still refining our calculations, including estimated foreign E&P layers for fiscal 2018, which could impact the amount of one-time transition tax we will owe. We are still in the process of evaluating the U.S. federal corporate income tax impacts of the Global Intangible Low Taxed Income (“GILTI”) and will continue to modify and update our evaluation as additional regulations are issued by the Department of Treasury. Although we do not expect GILTI to have a material impact on our financial statements, a reasonable provision cannot be completed at this time. In accordance with SEC Staff Accounting Bulletin No. 118, we will not adjust current or deferred taxes for GILTI until a reasonable estimate can be determined. Because of the potential impact of deficit allocations on the tax basis for netted foreign E&P of related foreign subsidiaries, we are maintaining a deferred tax liability of approximately $24 million in respect of potential cumulative tax basis differences of $116 million. New statutory or regulatory guidance, including guidance issued after our fiscal year end, requires further analysis and may result in a change in our conclusion as to the need for a deferred tax liability in respect of these cumulative tax basis differences. Other than this deferred tax liability, we have provided for no additional income taxes on any remaining undistributed foreign E&P not subject to the transition tax, or any outside tax basis differences inherent in our foreign subsidiaries, because all other amounts continue to be reinvested indefinitely. We anticipate any impact on our fiscal 2018 provision at a U.S. state and local tax level related to the Tax Act to be insignificant, but will further refine our calculations as the state and local conformity to the Tax Act becomes more certain. Deferred Income Tax Assets (Liabilities) The components of deferred income tax assets (liabilities) were as follows:
_______________ (1) The valuation allowance has been established to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize them in the future. Total deferred tax assets, net of valuation allowance, were classified as follows in our Consolidated Balance Sheet:
Tax loss and credit carryforwards as of June 29, 2018 have expiration dates ranging between two years and no expiration in certain instances. The amounts of federal, international, and state and local operating loss carryforwards as of June 29, 2018 were $25 million, $71 million and $543 million, respectively. The amount of U.S. capital loss carryforwards as of June 29, 2018 was $367 million. Income from continuing operations before income taxes of international subsidiaries was $43 million, $42 million and $42 million in fiscal 2018, 2017 and 2016, respectively. We received $8 million in income tax refunds, net of income taxes paid, in fiscal 2018 and we paid $51 million and $53 million, net of refunds received, in fiscal 2017 and 2016, respectively. Tax Uncertainties A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
As of June 29, 2018, we had $102 million of unrecognized tax benefits, of which $92 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. Upon recognition of a portion of these benefits, we also expect to recognize an additional $14 million of current expense which will offset the favorable rate impact from the unrecognized tax benefits. As of June 30, 2017, we had $90 million of unrecognized tax benefits, of which $74 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 $4 million for the potential payment of interest and penalties as of June 29, 2018 (and this amount was not included in the $102 million of unrecognized tax benefits balance at June 29, 2018 shown above) and $3 million of this total could favorably impact future tax rates. We had accrued $5 million for the potential payment of interest and penalties as of June 30, 2017 (and this amount was not included in the $90 million of unrecognized tax benefits balance at June 30, 2017 shown above) and $3 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 2014 through fiscal 2017. The Canadian Revenue Agency is currently examining our returns for fiscal 2014 through fiscal 2016, 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 2011 through 2017. 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. |
BUSINESS SEGMENTS |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS SEGMENTS | NOTE 22: BUSINESS SEGMENTS We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the following three reportable segments, which are also referred to as our business segments:
As described in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation” and in Note 3: Discontinued Operations and Divestitures, in connection with our divestiture of CapRock and entering into the definitive agreement to sell IT Services in the third quarter of fiscal 2017, our other remaining operations that had been part of our former Critical Networks segment, including our ATM business primarily serving the FAA, were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. 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 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 segment changes. Total assets by business segment is as follows:
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Other selected financial information by business segment and geographical area is summarized below:
In addition to depreciation and amortization expense related to property, plant and equipment, depreciation and amortization includes intangible asset amortization and debt premium, debt discount and debt issuance cost amortization of $116 million, $125 million and $120 million in fiscal 2018, 2017 and 2016, respectively. Our products and systems are produced principally in the U.S. with international revenue derived primarily from exports. No revenue earned from any individual foreign country exceeded 5 percent of our total revenue during fiscal 2018, 2017 or 2016. 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 75 percent, 74 percent and 77 percent in fiscal 2018, 2017 and 2016, respectively. Revenue from services in fiscal 2018 was approximately 10 percent, 29 percent and 13 percent of total revenue in our Communication Systems, Electronic Systems and Space and Intelligence Systems segments, respectively. Revenue from products and services exported from the U.S., including foreign military sales, or manufactured or rendered abroad in fiscal 2018, 2017 and 2016 was $1.3 billion (21 percent of our revenue), $1.3 billion (22 percent of our revenue) and $1.2 billion (20 percent of our revenue), respectively. Fiscal 2018 export revenue and revenue from international operations was principally from Europe, the Middle East, Asia, Australia, Africa and Canada. Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:
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LEGAL PROCEEDINGS AND CONTINGENCIES |
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Jun. 29, 2018 | |
Legal Proceedings And Contingencies [Abstract] | |
LEGAL PROCEEDINGS AND CONTINGENCIES | NOTE 23: LEGAL PROCEEDINGS AND CONTINGENCIES From time to time, as a normal incident of the nature and kind of businesses in which we are or 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 June 29, 2018, 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 June 29, 2018 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 or conducted 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 forth in Note 21: Income Taxes. 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 or companies we have acquired are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites. These sites are in various stages of investigation and/or remediation and in some cases our liability is considered de minimis. Notices from the U.S. Environmental Protection Agency (“EPA”) or equivalent state or international environmental agencies allege 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 of being 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, in June 2014, the Department of Justice (“DOJ”), Environment and Natural Resources Division, notified several potentially responsible parties, including Exelis, of potential responsibility for contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, in March 2016, the EPA notified over 100 potentially responsible parties, including Exelis, of potential liability for the cost of remediation for the 8.3-mile stretch of the Lower Passaic River, estimated by the EPA to be $1.38 billion, but the parties’ respective allocations have not been determined. Although it is not feasible to predict the outcome of environmental claims made against us, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims made against us in existence at June 29, 2018 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 QUALIFYING ACCOUNTS |
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SEC Schedule, 12-09, 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 — Disposals Note C — Uncollectible accounts charged off, less recoveries on accounts previously charged off Note D — Acquisitions and divestitures Note E — Uncertain income tax positions Note F — Accumulated other comprehensive income |
SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation | Amounts contained in this Report may not always add to totals due to rounding. 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. |
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Reclassifications | Reclassifications — The classification of certain prior-year amounts have been adjusted in our Consolidated Financial Statements to conform to current-year classifications. |
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Use of Estimates | Use of Estimates — The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us 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 accompanying Consolidated Financial Statements and these Notes. 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. Each of our fiscal years 2018, 2017 and 2016 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, we have 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 net realizable value. 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 — We follow the acquisition method of accounting to record the assets and liabilities of acquired businesses at their estimated fair value at the date of acquisition. We initially record goodwill for the amount costs exceed the acquisition-date fair value of net identifiable assets acquired. We test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Such events or circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business or the disposal of all or a portion of a reporting unit. We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business segment level, and, if and when applicable, one level below the business segment. We identify goodwill impairment and measure any loss from an impairment by comparing the fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and an impairment loss is recognized in an amount equal to that excess |
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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” or “Other non-current assets” line items in our Consolidated Balance Sheet exceeded 5 percent of our total current assets or total assets, respectively, as of June 29, 2018 or June 30, 2017. 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 June 29, 2018 or June 30, 2017. |
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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 Electronic Systems and Space and Intelligence Systems 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 (“POC”) 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 our 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, with forfeitures recognized as they occur. It is our practice to issue shares when options are exercised. |
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Restructuring and Other Exit Costs | Restructuring and Other Exit Costs — We record restructuring and other exit costs 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 costs are included as a component of the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. We record charges for restructuring and other exit activities related to 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 services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. |
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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 POC method, generally based on the ratio of costs incurred to estimated total costs at completion under the contract (i.e., the “cost-to-cost” 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 customers may be entitled to reclaim and receive previous award fee payments. Under the POC 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 a development and production fixed-price contract 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 we review 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 $2 million ($.01 per diluted share) in fiscal 2018, $14 million ($8 million after-tax or $.07 per diluted share) in fiscal 2017 and $68 million ($42 million after-tax or $.33 per diluted share) in fiscal 2016. 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 segment. 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 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 in 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 the “Accumulated other comprehensive loss” line item within equity in our Consolidated Balance Sheet, 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, the rate of future compensation increases, mortality, termination, and healthcare cost trend rates. We develop 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. Actual results that differ from our assumptions are accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active 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. Beginning in 2017, we changed 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 in determining the benefit obligation. Prior to fiscal 2017, 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 made 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 accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. This change resulted in approximately $46 million of lower service and interest costs for our U.S. defined benefit plans in fiscal 2017 compared with the single weighted-average discount rate method. See Note 13: 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 rate of future compensation increases, 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 June 29, 2018, we were named, and continue to be named, as a potentially responsible party at 60 sites where future liabilities could exist. These sites included 5 sites owned by us, 46 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 $103 million, consisting of approximately $97 million for environmental liabilities related to Exelis operations and approximately $6 million for other environmental liabilities. 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 June 29, 2018, we did not have material financial guarantees and 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 may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. 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 speculative 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 generally 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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Business Segments | Business Segments — 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 Note 22: Business Segments represent the elimination of intersegment sales. The “Unallocated corporate expense and corporate eliminations” line item in Note 22: Business Segments represents the portion of corporate expenses not allocated to our business segments and elimination of intersegment profits. We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the following three reportable segments, which are also referred to as our business segments:
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Adoption of New Accounting Standards and Accounting Standards Issued But Not Yet Effective | Adoption of New Accounting Standards In the first quarter of fiscal 2018, we adopted an accounting standards update issued by the Financial Accounting Standards Board (“FASB”) that requires recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. Consequently, this update eliminates the exception to the recognition of current and deferred income taxes for intra-entity transfers of assets other than for inventory until the assets have been sold to an outside party. This update requires entities to apply a modified retrospective approach with a cumulative catch-up adjustment to beginning retained earnings in the period of adoption. In addition, entities are required to record deferred tax balances with an offset to retained earnings for unrecognized amounts that will be recognized under this update. We applied all changes required by this update using the modified retrospective approach from the beginning of fiscal 2018. Adopting this update resulted in a $27 million reduction of prepaid income tax assets from the “Other current assets” and “Other non-current assets” line items and a $27 million increase in the “Non-current deferred income taxes” line item in our Condensed Consolidated Balance Sheet (Unaudited) as of September 29, 2017. In the fourth quarter of fiscal 2018, we adopted an accounting standards update issued by the FASB that allows companies to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), from accumulated other comprehensive loss to retained earnings. Stranded tax effects are the deferred tax amounts recorded through other comprehensive income, using a 35% statutory rate, that remained after we remeasured our net deferred tax assets and liabilities to reflect the lower enacted corporate tax rates. We elected to early adopt this accounting standards update and elected to reclassify, in the period of enactment, stranded tax effects totaling $35 million from the “Accumulated other comprehensive loss” line item to the “Retained earnings” line item in our Consolidated Balance Sheet. The reclassification amount primarily included income tax effects related to our pension and postretirement benefit plans. Income tax effects remaining in accumulated other comprehensive income will be released into earnings as the related pretax amounts are reclassified to earnings. 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 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 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. We adopted the new standard in fiscal 2019 using the full retrospective method, whereby the guidance in the new standard will be applied to each prior fiscal year presented and the cumulative effect of applying the guidance in the new standard will be recognized at the beginning of fiscal 2017. In preparation for the adoption of this standard, we formed a project team to assess customer contracts across our business segments and have periodically briefed our Audit Committee on the progress of our assessment. We designed and implemented controls over our assessment, including our calculation of the cumulative effect of adoption. We have also updated our accounting policies, redesigned certain business processes and systems, determined the extent of the expanded disclosure requirements and changed internal controls over financial reporting in connection with adopting the new standard. We have completed our preliminary assessment of the impact of adopting the new standard, and the following table presents adjusted and as reported selected financial data:
Although the adjusted selected results of operations presented above may not be indicative of our future results of operations, we do not expect the new standard to have a material impact on our financial condition, results of operations or cash flows after the period of adoption. In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This update requires that entities present components of net periodic pension cost and net periodic postretirement benefit cost other than the service cost component separately from the service cost component and outside the subtotal of income from operations. We will adopt the new standard in fiscal 2019, whereby the new guidance will be applied retrospectively to each prior fiscal year presented. Adopting this accounting standard will result in a decrease in operating income and an increase in the net non-operating components of income from continuing operations of $186 million, $184 million and $164 million for fiscal 2019, 2018 and 2017, respectively. Adopting this accounting standard will not have a material impact on our financial condition or cash flows. In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires, among other things, the recognition of right-of-use (“ROU”) assets and liabilities on the balance sheet for all leases longer than 12 months and disclosure of certain information about leasing arrangements. The standard currently allows two transition methods whereby companies may elect to use the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available, or to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. 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 continue to evaluate the impact this standard will have on our financial condition, results of operations and cash flows, which could be material, and we have not yet made a decision on the adoption method, as this determination is primarily dependent on the completion of our analysis |
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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 of 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 canceled, 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 June 29, 2018, there were 25,902 shares of restricted stock and 388,788 restricted stock units outstanding which were payable in shares. |
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Performance Share and Performance Share Unit Awards | Performance Share Unit Awards The following information relates to awards of 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 (“TSR”)) 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 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 June 29, 2018, there were 625,293 performance share units outstanding which were payable in shares. |
SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Schedule of Average Warranty Period of Products Sold by Segments | 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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ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS (Tables) |
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Schedule of Impact of New Standard on Results of Operations | We have completed our preliminary assessment of the impact of adopting the new standard, and the following table presents adjusted and as reported selected financial data:
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DISCONTINUED OPERATIONS AND DIVESTITURES (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Summarized Financial Information of Discontinued Operations | Depreciation and amortization, capital expenditures and significant non-cash items of discontinued operations included the following:
Summarized financial information for Aerostructures is as follows:
The following table presents the key financial results of IT Services included in “Discontinued operations, net of income taxes” in our Consolidated Statement of Income:
The following table presents the key financial results of CapRock included in “Discontinued operations, net of income taxes” included in our Consolidated Statement of Income:
The major components of discontinued operations in our Consolidated Statement of Income included the following:
_______________ (1) “Non-operating loss, net” included losses of $2 million in fiscal 2017 and $4 million in fiscal 2016 related to our former broadcast communications business (“Broadcast Communications”), which was divested in fiscal 2013. (2) “Loss on sale of discontinued operations, net” included a $3 million decrease and $21 million increase to the loss on the sale of Broadcast Communications in fiscal 2017 and 2016, respectively. (3) “Income tax benefit” included a $4 million income tax benefit in fiscal 2016 related to Broadcast Communications. |
RECEIVABLES (Tables) |
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Schedule of Receivables | Receivables are summarized below:
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INVENTORIES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories | Inventories are summarized below:
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PROPERTY, PLANT AND EQUIPMENT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property, Plant and Equipment | Property, plant and equipment are summarized below:
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GOODWILL (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Carrying Amounts of Goodwill by Business Segments | The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the fiscal years ended June 29, 2018 and June 30, 2017, by business segment, were as follows:
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INTANGIBLE ASSETS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Intangible Assets | Intangible assets are summarized below:
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Schedule of Future Estimated Amortization Expense of 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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Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Warranties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of 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 2018 and 2017, were as follows:
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DEBT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt | Long-term debt is summarized below:
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Schedule of Carrying Amounts and Estimated Fair Values of Long-term Debt | 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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Jun. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value of Deferred Compensation Plan Investments and Liabilities by Category and Fair Value Hierarchy Level | The following table provides the fair value of our deferred compensation plan investments and liabilities by category and by fair value hierarchy level:
assets” and “Other non-current assets” line items in our Consolidated Balance Sheet, and which are measured at fair value.
benefits” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Under these plans, participants designate investment options (including stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts. |
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Schedule of 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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Schedule of Estimated Net Defined Benefits Costs to be Amortized from AOCI | The following table provides the estimated net actuarial gain and prior service cost that will be amortized from accumulated other comprehensive loss into net periodic benefit income during fiscal 2019:
The following table provides a summary of pre-tax amounts recorded within accumulated other comprehensive loss:
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Schedule of Roll-forward of Projected Benefit Obligation | The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:
_______________
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Schedule of Roll-forward of Plan Assets | The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
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Schedule of Accumulated 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 income and other amounts recognized in other comprehensive income for fiscal 2018, 2017, and 2016 as they pertain to our defined benefit plans:
_______________ (1) Net periodic benefit income presented in this table includes both continuing and discontinued operations. $2 million and $4 million of the service cost component of net periodic benefit income is included as a component of the “Discontinued operations, net of income taxes” line item in our Consolidated Statement of Income for fiscal 2017 and fiscal 2016, respectively. (2) 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 fiscal 2016. |
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Schedule of Weighted-average Assumptions Used | The following tables provide the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our defined benefit pension 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 other postretirement defined benefit plans:
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Schedule of Strategic Target Asset Allocation and Fair Value of Plan Assets | 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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Schedule of Reconciliation of Defined Benefit Plan Assets Using Level 3 To Measure Fair Value | 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 benefits expected to be earned for future service by current active employees under our defined benefit plans:
_______________
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STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amounts and Classifications of Share-based Compensation | The following table summarizes the amounts and classification of share-based compensation expense:
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Schedule of Assumptions Used in Determining Fair Value of Stock Options | 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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Schedule of Stock Option Activity | A summary of stock option activity under our SIPs as of June 29, 2018 and changes during fiscal 2018 is as follows:
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Schedule of Nonvested Stock Options | A summary of the status of our nonvested stock options at June 29, 2018 and changes during fiscal 2018 is as follows:
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Schedule of Status of Restricted Stock Units | A summary of the status of these awards at June 29, 2018 and changes during fiscal 2018 is as follows:
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Schedule of Status of Performance Share Units | A summary of the status of these awards at June 29, 2018 and changes during fiscal 2018 is as follows:
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INCOME FROM CONTINUING OPERATIONS PER SHARE (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Computation of Income From Continuing Operations Per Share | The computations of income from continuing operations per share are as follows:
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NON-OPERATING INCOME (LOSS) (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nonoperating Income (Expense) [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Non-operating Income (Loss) | The components of non-operating income (loss) were as follows:
_______________
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ACCUMULATED OTHER COMPRENSIVE LOSS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of 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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Jun. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Provision for Current and Deferred Income Taxes | The provisions for current and deferred income taxes are summarized as follows:
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Schedule of Provision for Income Taxes | The total income tax provision is summarized as follows:
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Schedule of Reconciliation of the United States Statutory to Effective Income Tax Rate | A reconciliation of the U.S. statutory income tax rate to our effective income tax rate follows:
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Schedule of Components of Deferred Income Tax Assets (Liabilities) | The components of deferred income tax assets (liabilities) were as follows:
_______________ (1) The valuation allowance has been established to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize them in the future. |
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Schedule of Deferred Tax Assets, Net of Valuation Allowance | Total deferred tax assets, net of valuation allowance, were classified as follows in our Consolidated Balance Sheet:
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Schedule of Reconciliation of 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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Jun. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Selected Financial Information by Business Segments | Total assets by business segment is as follows:
_______________
Other selected financial information by business segment and geographical area is summarized below:
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Schedule of Revenue and Income Before Taxes by Business Segments | Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:
_______________
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SIGNIFICANT ACCOUNTING POLICIES - Long-Lived Assets (Details) |
12 Months Ended |
---|---|
Jun. 29, 2018 | |
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 |
---|---|
Jun. 29, 2018 | |
Minimum | Communication Systems | |
Warranty Period [Line Items] | |
Warranty Period | 1 year |
Minimum | Electronic Systems | |
Warranty Period [Line Items] | |
Warranty Period | 1 year |
Minimum | Space and Intelligence Systems | |
Warranty Period [Line Items] | |
Warranty Period | 60 days |
Maximum | Communication Systems | |
Warranty Period [Line Items] | |
Warranty Period | 5 years |
Maximum | Electronic Systems | |
Warranty Period [Line Items] | |
Warranty Period | 2 years |
Maximum | Space and Intelligence Systems | |
Warranty Period [Line Items] | |
Warranty Period | 2 years |
ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS - Impact of Adoption or New Standard on Results of Operations (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||
Operating income | $ 1,122 | $ 1,073 | $ 1,055 |
Accounting Standards Update 2014-09 | |||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||
Revenue from product sales and services | 6,171 | 5,897 | |
Operating income | 1,110 | 1,066 | |
AS REPORTED | Accounting Standards Update 2014-09 | |||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||
Revenue from product sales and services | 6,182 | 5,900 | |
Operating income | $ 1,122 | $ 1,073 |
DISCONTINUED OPERATIONS AND DIVESTITURES - Depreciation and Amortization, Capital Expenditures and Significant Non-cash Items (Details) - Discontinued Operations, Held-for-sale or Disposed of by Sale - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Depreciation and amortization | $ 39 | $ 78 | |
Capital expenditures | 4 | 19 | |
Significant non-cash items: | |||
Impairment of goodwill and other assets | $ 0 | (240) | (367) |
Loss on sale of discontinued operations, net | $ 0 | $ (11) | $ (21) |
RECEIVABLES (Details) - USD ($) |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Receivables, Gross | $ 737,000,000 | $ 626,000,000 |
Less allowances for collection losses | (2,000,000) | (3,000,000) |
Receivables, Net | 735,000,000 | 623,000,000 |
Trade Accounts Receivable | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Receivables, Gross | 468,000,000 | 368,000,000 |
Cost-Plus | Unbilled Revenues | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Receivables, Gross | 269,000,000 | $ 258,000,000 |
RSA | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Authorized amount of accounts receivables outstanding under agreement | $ 50,000,000 |
INVENTORIES (Details) - USD ($) $ in Millions |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Inventory [Line Items] | ||
Finished products | $ 91 | $ 96 |
Work in process | 104 | 96 |
Raw materials and supplies | 199 | 195 |
Inventories | 925 | 841 |
Progress payments | 99 | 90 |
Fixed Price Contract | ||
Inventory [Line Items] | ||
Unbilled costs and accrued earnings on fixed-price contracts | $ 531 | $ 454 |
PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Property, Plant and Equipment [Abstract] | |||
Land | $ 43 | $ 43 | |
Software capitalized for internal use | 171 | 155 | |
Buildings | 620 | 617 | |
Machinery and equipment | 1,349 | 1,256 | |
Property, plant and equipment, gross | 2,183 | 2,071 | |
Less accumulated depreciation and amortization | (1,283) | (1,167) | |
Property, plant and equipment | 900 | 904 | |
Depreciation and amortization expense related to property, plant and equipment | $ 143 | $ 147 | $ 160 |
GOODWILL (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
|
Goodwill [Roll Forward] | ||
Beginning Balance | $ 5,366 | $ 5,352 |
Other | 6 | (3) |
Other | 17 | |
Ending Balance | 5,372 | 5,366 |
Communication Systems | ||
Goodwill [Roll Forward] | ||
Beginning Balance | 785 | 781 |
Other | 0 | 2 |
Other | 2 | |
Ending Balance | 785 | 785 |
Electronic Systems | ||
Goodwill [Roll Forward] | ||
Beginning Balance | 3,104 | 3,093 |
Other | 3 | (4) |
Other | 15 | |
Ending Balance | 3,107 | 3,104 |
Space and Intelligence Systems | ||
Goodwill [Roll Forward] | ||
Beginning Balance | 1,477 | 1,478 |
Other | 3 | (1) |
Other | 0 | |
Ending Balance | $ 1,480 | $ 1,477 |
INTANGIBLE ASSETS (Details) - USD ($) $ in Millions |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 1,459 | $ 1,473 |
Accumulated Amortization | 470 | 369 |
Net | 989 | 1,104 |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 1,206 | 1,205 |
Accumulated Amortization | 327 | 233 |
Net | 879 | 972 |
Developed technologies | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 208 | 208 |
Accumulated Amortization | 119 | 101 |
Net | 89 | 107 |
Trade names | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 43 | 58 |
Accumulated Amortization | 22 | 34 |
Net | 21 | 24 |
Other | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 2 | 2 |
Accumulated Amortization | 2 | 1 |
Net | $ 0 | $ 1 |
INTANGIBLE ASSETS - Additional Information (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Finite-Lived Intangible Assets [Line Items] | |||
Amortization expense related to intangible assets | $ 117 | $ 126 | $ 129 |
Exelis | |||
Finite-Lived Intangible Assets [Line Items] | |||
Amortization expense related to intangible assets | $ 101 | $ 109 | $ 109 |
INTANGIBLE ASSETS - Future Estimated Amortization Expense (Details) - USD ($) $ in Millions |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Fiscal Years: | ||
2019 | $ 115 | |
2020 | 102 | |
2021 | 102 | |
2022 | 101 | |
2023 | 101 | |
Thereafter | 468 | |
Total | $ 989 | $ 1,104 |
ACCRUED WARRANTIES (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
|
Changes in warranty liability [Roll Forward] | ||
Balance at beginning of fiscal year | $ 26 | $ 32 |
Warranty provision for sales | 13 | 14 |
Settlements | (14) | (16) |
Other, including adjustments for acquisitions and foreign currency translation | (1) | (4) |
Balance at end of fiscal year | 24 | 26 |
Deferred revenue associated with extended warranties | $ 16 | $ 23 |
DEBT - Potential Maturities of Long-term Debt (Details) $ in Millions |
Jun. 29, 2018
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
Fiscal 2019 | $ 305 |
Fiscal 2020 | 654 |
Fiscal 2021 | 4 |
Fiscal 2022 | 1 |
Fiscal 2023 | 0 |
Thereafter | $ 2,776 |
DEBT - Fair Value of Long-Term Debt (Details) - USD ($) $ in Millions |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Carrying Amount | ||
Debt Instrument [Line Items] | ||
Long-term debt (including current portion) | $ 3,712 | $ 3,950 |
Fair Value | Level 2 | Valuation, Market Approach | ||
Debt Instrument [Line Items] | ||
Long-term debt (including current portion) | $ 3,848 | $ 4,252 |
DEBT - Additional Information (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Debt Disclosure [Abstract] | |||
Short-term debt | $ 78 | $ 80 | |
Commercial paper | 75 | 75 | |
Interest paid | $ 175 | $ 168 | $ 177 |
PENSION AND OTHER POSTRETIREMENT BENEFITS - Pre-tax Amounts Recorded in Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Defined Benefit Plan Disclosure [Line Items] | ||
Net actuarial loss (gain) | $ 110 | $ 234 |
Net prior service cost (credit) | 3 | 1 |
Defined benefit plan, accumulated comprehensive income (loss) | 113 | 235 |
Pension | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Net actuarial loss (gain) | 156 | 262 |
Net prior service cost (credit) | 4 | 2 |
Defined benefit plan, accumulated comprehensive income (loss) | 160 | 264 |
Other Benefits | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Net actuarial loss (gain) | (46) | (28) |
Net prior service cost (credit) | (1) | (1) |
Defined benefit plan, accumulated comprehensive income (loss) | $ (47) | $ (29) |
PENSION AND OTHER POSTRETIREMENT BENEFITS - Expected Amortization of Net Define Benefit Costs Included on AOCI During Next Fiscal Year (Details) $ in Millions |
Jun. 29, 2018
USD ($)
|
---|---|
Defined Benefit Plan Disclosure [Line Items] | |
Net actuarial gain | $ (6) |
Prior service cost | 1 |
Defined benefit plan, expected amortization next fiscal year | (5) |
Pension | |
Defined Benefit Plan Disclosure [Line Items] | |
Net actuarial gain | 0 |
Prior service cost | 1 |
Defined benefit plan, expected amortization next fiscal year | 1 |
Other Benefits | |
Defined Benefit Plan Disclosure [Line Items] | |
Net actuarial gain | (6) |
Prior service cost | 0 |
Defined benefit plan, expected amortization next fiscal year | $ (6) |
PENSION AND OTHER POSTRETIREMENT BENEFITS - Assumptions Used to Determine Projected Benefits and Periodic Costs (Details) |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Pension | |||
Obligation assumptions as of: | |||
Discount rate | 4.05% | 3.76% | |
Rate of future compensation increase | 2.76% | 2.76% | |
Cost assumptions for fiscal years: | |||
Discount rate to determine service cost | 3.48% | 3.80% | 4.06% |
Discount rate to determine interest cost | 3.28% | 2.94% | 4.06% |
Expected return on plan assets | 7.66% | 7.65% | 7.91% |
Rate of future compensation increase | 2.76% | 2.75% | 2.76% |
Other Benefits | |||
Obligation assumptions as of: | |||
Discount rate | 3.99% | 3.63% | |
Cost assumptions for fiscal years: | |||
Discount rate to determine service cost | 3.62% | 3.52% | 3.86% |
Discount rate to determine interest cost | 3.04% | 2.60% | 3.86% |
Rate of future compensation increase | 2.75% |
PENSION AND OTHER POSTRETIREMENT BENEFITS - Estimated Future Benefit Payments (Details) $ in Millions |
Jun. 29, 2018
USD ($)
|
---|---|
Fiscal Years: | |
2019 | $ 424 |
2020 | 408 |
2021 | 408 |
2022 | 406 |
2023 | 404 |
2024 — 2028 | 1,943 |
Pension | |
Fiscal Years: | |
2019 | 400 |
2020 | 384 |
2021 | 385 |
2022 | 384 |
2023 | 382 |
2024 — 2028 | 1,854 |
Other Benefits | |
Fiscal Years: | |
2019 | 24 |
2020 | 24 |
2021 | 23 |
2022 | 22 |
2023 | 22 |
2024 — 2028 | $ 89 |
Expected future benefit percentage of gross payments, excluding subsidiaries | 10.00% |
STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION - Share-based Compensation Expense (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Share-based Compensation [Abstract] | |||
Total expense | $ 51 | $ 42 | $ 36 |
Included In: | |||
Income from continuing operations | 51 | 42 | 36 |
Tax effect on share-based compensation expense | (16) | (16) | (14) |
Total share-based compensation expense after-tax | 35 | 26 | 22 |
Cost of product sales and services | |||
Share-based Compensation [Abstract] | |||
Total expense | 8 | 3 | 4 |
Included In: | |||
Income from continuing operations | 8 | 3 | 4 |
Engineering, selling and administrative expenses | |||
Share-based Compensation [Abstract] | |||
Total expense | 43 | 39 | 32 |
Included In: | |||
Income from continuing operations | $ 43 | $ 39 | $ 32 |
STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION - Significant Fair Value Assumptions (Details) |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Assumptions used in calculating fair value of stock option grants | |||
Expected dividends | 1.80% | 2.40% | 2.50% |
Expected volatility | 19.30% | 21.80% | 23.00% |
Risk-free interest rates | 1.80% | 1.20% | 1.50% |
Expected term (years) | 5 years | 5 years 11 days | 5 years 18 days |
RESEARCH AND DEVELOPMENT (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Research and Development [Abstract] | |||
Company-sponsored research and development costs | $ 311 | $ 310 | $ 305 |
LEASE COMMITMENTS (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Contractual Obligation, Fiscal Year Maturity [Abstract] | |||
Total rental expense | $ 61 | $ 65 | $ 65 |
Future minimum rental commitments under leases with an initial lease term in excess of one year | 280 | ||
Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |||
Fiscal 2019 | 58 | ||
Fiscal 2020 | 53 | ||
Fiscal 2021 | 47 | ||
Fiscal 2022 | 40 | ||
Fiscal 2023 | 28 | ||
Thereafter | $ 54 |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Derivative [Line Items] | |||
Amounts recognized in earnings related to hedging firm commitments no longer qualified as fair value hedges | $ 0 | $ 0 | $ 0 |
Foreign Exchange Forward | |||
Derivative [Line Items] | |||
Aggregate notional amounts | $ 39,000,000 | 33,000,000 | |
Weighted average contract life | 1 month | ||
Foreign Exchange Forward | Minimum | |||
Derivative [Line Items] | |||
Contract expiration date range | 3 days | ||
Foreign Exchange Forward | Maximum | |||
Derivative [Line Items] | |||
Contract expiration date range | 6 months | ||
Foreign Exchange Forward | Cash Flow Hedging | |||
Derivative [Line Items] | |||
Aggregate notional amounts | $ 35,000,000 | 31,000,000 | |
Foreign Exchange Forward | Fair Value Hedging | |||
Derivative [Line Items] | |||
Aggregate notional amounts | $ 4,000,000 | $ 2,000,000 |
INCOME TAXES - Provision for Current and Deferred Income Taxes (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Current: | |||
United States | $ (141) | $ 117 | $ (36) |
International | 12 | 9 | 6 |
State and local | (11) | 6 | (11) |
Total current provision for income taxes | (140) | 132 | (41) |
Deferred: | |||
United States | 322 | 126 | 279 |
International | (3) | 1 | (3) |
State and local | 26 | 8 | 38 |
Total deferred provision for income taxes | 345 | 135 | 314 |
Total provision for income tax | $ 205 | $ 267 | $ 273 |
INCOME TAXES - Total Income Tax Provision (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Total income tax provision summary | |||
Continuing operations | $ 205 | $ 267 | $ 273 |
Discontinued operations | (5) | (110) | (12) |
Total income tax provision | $ 200 | $ 157 | $ 261 |
INCOME TAXES - Reconciliation of Income Tax Rates (Details) |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Reconciliation of the United States statutory income tax rate to our effective income tax rate | |||
U.S. statutory income tax rate | 28.10% | 35.00% | 35.00% |
State taxes | 1.90% | 1.00% | 1.80% |
International income | (0.50%) | (1.30%) | (1.20%) |
Nondeductible goodwill | 0.00% | 0.00% | 0.90% |
Research and development tax credit | (2.90%) | (2.00%) | (2.30%) |
Change in valuation allowance | 0.20% | (0.20%) | (2.60%) |
U.S. production activity benefit | (0.90%) | (0.50%) | (0.40%) |
Excess tax benefits on equity-based compensation | (1.80%) | (2.60%) | (0.00%) |
Settlement of tax audits | (2.20%) | 0.00% | (0.30%) |
U.S. tax reform | (0.20%) | (0.00%) | (0.00%) |
Other items | 0.40% | 0.10% | 0.00% |
Effective income tax rate | 22.10% | 29.50% | 30.90% |
INCOME TAXES - Reconciliation of Unrecognized Tax Benefits (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Jun. 29, 2018 |
Jun. 30, 2017 |
Jul. 01, 2016 |
|
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward] | |||
Balance at beginning of fiscal year | $ 90 | $ 63 | $ 124 |
Additions based on tax positions taken during current fiscal year | 17 | 52 | 7 |
Additions based on tax positions taken during prior fiscal years | 23 | 0 | 9 |
Decreases based on tax positions taken during prior fiscal years | (28) | (25) | (73) |
Decreases from lapse in statutes of limitations | 0 | 0 | (1) |
Decreases from settlements | 0 | 0 | (3) |
Balance at end of fiscal year | $ 102 | $ 90 | $ 63 |
INCOME TAXES - Deferred Tax Assets, Net of Valuation Allowance (Details) - USD ($) $ in Millions |
Jun. 29, 2018 |
Jun. 30, 2017 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
Non-current deferred income tax assets | $ 116 | $ 409 |
Non-current deferred income tax liabilities | (90) | (34) |
Total deferred tax assets, net of valuation allowance | $ 26 | $ 375 |
LEGAL PROCEEDINGS AND CONTINGENCIES (Details) - Passaic River Alaska - Exelis $ in Millions |
12 Months Ended | |
---|---|---|
Mar. 31, 2016
party
|
Jun. 29, 2018
USD ($)
|
|
Site Contingency [Line Items] | ||
Estimated cost for all participating parties of EPA's preferred alternative | $ | $ 1,380 | |
Number of responsible parties notified | party | 100 |
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