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ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
 12 Months Ended
Jun. 28, 2019
Accounting Changes and Error Corrections [Abstract]  
ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
NOTE 2: ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
As previously reported, effective June 30, 2018 we adopted ASC 606. This standard supersedes nearly all revenue recognition guidance under GAAP and International Financial Reporting Standards and supersedes some cost guidance for construction-type and production-type contracts. The guidance in this standard is principles-based, and, consequently, entities are 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 and cash flows, this standard requires significantly more interim and annual disclosures. We have adopted the requirements of the new standard using the full retrospective method, which means that we have restated each prior reporting period presented and recognized the cumulative effect of applying the standard at the earliest period presented. We opted for this adoption method because we believe it provides enhanced comparability and transparency across periods. We elected to apply the practical expedient related to backlog disclosures for prior reporting periods. We also elected to apply the practical expedient related to evaluating the effects of contract modifications that occurred prior to the earliest period presented. No other transition practical expedients were applied.
Adopting this standard resulted in the recognition of a cumulative-effect adjustment of $15 million to reduce the opening balance of retained earnings at July 2, 2016. Our fiscal 2017 revenue from product sales and services decreased by $3 million and our income from continuing operations decreased by $10 million ($.08 per share). Our fiscal 2018 revenue from product sales and services decreased by $14 million and our income from continuing operations decreased by $19 million ($.15 per share). This standard also resulted in the establishment of “Contract assets” and “Contract liabilities” line items and the reclassification to these line items of amounts previously presented in the “Receivables,” “Inventories” and “Advanced payments and unearned income” line items in our Consolidated Balance Sheet. Total net cash provided by operating activities and total net cash provided by or used in investing activities and financing activities in our Consolidated Statements of Cash Flows were not impacted by the adoption of ASC 606. These amounts are reflected in the tables below and are updated from the preliminary assessment of the impacts of adopting ASC 606 included in our Fiscal 2018 Annual Report on Form 10-K.
We also adopted ASU 2017-07 effective June 30, 2018. This standard requires that entities present components of net periodic pension and postretirement benefit costs other than the service cost component (“other components of net benefit cost”) separately from the service cost component. The other components of net benefit cost may be presented as a separate line item or items, or if a separate line item is not used, the line item used to present the other components of net benefit cost must be disclosed. Previously, we included each component of net benefit cost within the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. In accordance with this update, we present the other components of net benefit cost as part of the “Non-operating income” line item in our Consolidated Statement of Income. We adopted this update retrospectively by recasting each prior period presented, using as our estimation basis for recasting prior periods the amounts disclosed in the postretirement benefit plan footnote to our previously issued financial statements. Adopting this update resulted in a $147 million increase in cost of sales and services, a $37 million increase in engineering, selling and administrative expenses and a corresponding $184 million increase in non-operating income for fiscal 2018, with no impact to net income, and a $132 million increase in cost of sales and services, a $32 million increase in engineering, selling and administrative expenses and a corresponding $164 million increase in non-operating income for fiscal 2017, with no impact to net income. Adopting this accounting standard did not impact our financial position or cash flows.
The following tables summarize the effect of adopting ASC 606 and ASU 2017-07 on our Consolidated Statement of Income for fiscal 2018 and 2017:
 
Fiscal Year Ended June 29, 2018
 
As Previously Reported
 
Effect of Adopting ASC 606
 
Effect of Adopting ASU 2017-07
 
As Recast
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Revenue from product sales and services
 
 
 
 
 
 
 
Revenue from product sales
$
5,062

 
$
(24
)
 
$
—

 
$
5,038

Revenue from services
1,120

 
10

 
—

 
1,130

 
6,182

 
(14
)
 
—

 
6,168

Cost of product sales and services
 
 
 
 
 
 
 
Cost of product sales
(3,106
)
 
14

 
(147
)
 
(3,239
)
Cost of services
(825
)
 
(2
)
 
—

 
(827
)
 
(3,931
)
 
12

 
(147
)
 
(4,066
)
Engineering, selling and administrative expenses
(1,129
)
 
(16
)
 
(37
)
 
(1,182
)
Non-operating income (loss)
(28
)
 
—

 
184

 
156

Interest income
2

 
—

 
—

 
2

Interest expense
(170
)
 
—

 
—

 
(170
)
Income from continuing operations before income taxes
926

 
(18
)
 
—

 
908

Income taxes
(205
)
 
(1
)
 
—

 
(206
)
Income from continuing operations
721

 
(19
)
 
—

 
702

Discontinued operations, net of income taxes
(3
)
 
—

 
—

 
(3
)
Net income
$
718

 
$
(19
)
 
$
—

 
$
699

 
 
 
 
 
 
 
 
Net income per common share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Continuing operations
$
6.06

 
$
(0.16
)
 
$
—

 
$
5.90

Discontinued operations
(0.02
)
 
—

 
—

 
(0.02
)
 
$
6.04

 
$
(0.16
)
 
$
—

 
$
5.88

Diluted
 
 
 
 
 
 
 
Continuing operations
$
5.94

 
$
(0.16
)
 
$
—

 
$
5.78

Discontinued operations
(0.02
)
 
—

 
—

 
(0.02
)
 
$
5.92

 
$
(0.16
)
 
$
—

 
$
5.76

 
Fiscal Year Ended June 30, 2017
 
As Previously Reported
 
Effect of Adopting ASC 606
 
Effect of Adopting ASU 2017-07
 
As Recast
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Revenue from product sales and services
 
 
 
 
 
 
 
Revenue from product sales
$
4,667

 
$
—

 
$
—

 
$
4,667

Revenue from services
1,233

 
(3
)
 
—

 
1,230

 
5,900

 
(3
)
 
—

 
5,897

Cost of product sales and services
 
 
 
 
 
 
 
Cost of product sales
(2,964
)
 
10

 
(104
)
 
(3,058
)
Cost of services
(770
)
 
2

 
(28
)
 
(796
)
 
(3,734
)
 
12

 
(132
)
 
(3,854
)
Engineering, selling and administrative expenses
(1,093
)
 
(25
)
 
(32
)
 
(1,150
)
Non-operating income
2

 
—

 
164

 
166

Interest income
2

 
—

 
—

 
2

Interest expense
(172
)
 
—

 
—

 
(172
)
Income from continuing operations before income taxes
905

 
(16
)
 
—

 
889

Income taxes
(267
)
 
6

 
—

 
(261
)
Income from continuing operations
638

 
(10
)
 
—

 
628

Discontinued operations, net of income taxes
(85
)
 
—

 
—

 
(85
)
Net income
$
553

 
$
(10
)
 
$
—

 
$
543

 
 
 
 
 
 
 
 
Net income per common share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Continuing operations
$
5.19

 
$
(0.08
)
 
$
—

 
$
5.11

Discontinued operations
(0.69
)
 
—

 
—

 
(0.69
)
 
$
4.50

 
$
(0.08
)
 
$
—

 
$
4.42

Diluted
 
 
 
 
 
 
 
Continuing operations
$
5.12

 
$
(0.08
)
 
$
—

 
$
5.04

Discontinued operations
(0.68
)
 
—

 
—

 
(0.68
)
 
$
4.44

 
$
(0.08
)
 
$
—

 
$
4.36



The following table summarizes the effect of the adoption of ASC 606 on our Consolidated Balance Sheet at June 29, 2018 and June 30, 2017:
 
June 29, 2018
 
June 30, 2017
 
As Previously Reported
 
Effect of Adopting ASC 606
 
As Recast
 
As Previously Reported
 
Effect of adopting ASC 606
 
As Recast
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
288

 
$
—

 
$
288

 
$
484

 
$
—

 
$
484

Receivables
735

 
(269
)
 
466

 
623

 
(258
)
 
365

Contract assets
—

 
782

 
782

 
—

 
706

 
706

Inventories
925

 
(514
)
 
411

 
841

 
(449
)
 
392

Income taxes receivable
174

 
—

 
174

 
24

 
—

 
24

Other current assets
101

 
2

 
103

 
101

 
—

 
101

Total current assets
2,223

 
1

 
2,224

 
2,073

 
(1
)
 
2,072

Non-current Assets
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
900

 
—

 
900

 
904

 
—

 
904

Goodwill
5,372

 
—

 
5,372

 
5,366

 
—

 
5,366

Other intangible assets
989

 
—

 
989

 
1,104

 
—

 
1,104

Non-current deferred income taxes
116

 
3

 
119

 
409

 
15

 
424

Other non-current assets
239

 
8

 
247

 
234

 
8

 
242

Total non-current assets
7,616

 
11

 
7,627

 
8,017

 
23

 
8,040

 
$
9,839

 
$
12

 
$
9,851

 
$
10,090

 
$
22

 
$
10,112

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
$
78

 
$
—

 
$
78

 
$
80

 
$
—

 
$
80

Accounts payable
622

 
—

 
622

 
540

 
—

 
540

Advanced payments and unearned income
314

 
(314
)
 
—

 
252

 
(252
)
 
$
—

Contract liabilities
—

 
372

 
372

 
—

 
291

 
291

Compensation and benefits
142

 
—

 
142

 
140

 
—

 
140

Other accrued items
313

 
4

 
317

 
329

 
3

 
332

Income taxes payable
15

 
—

 
15

 
31

 
(1
)
 
30

Current portion of long-term debt, net
304

 
—

 
304

 
554

 
—

 
554

Total current liabilities
1,788

 
62

 
1,850

 
1,926

 
41

 
1,967

Non-current Liabilities
 
 
 
 
 
 
 
 
 
 
 
Defined benefit plans
714

 
—

 
714

 
1,278

 
—

 
1,278

Long-term debt, net
3,408

 
—

 
3,408

 
3,396

 
—

 
3,396

Non-current deferred income taxes
90

 
(11
)
 
79

 
34

 
—

 
34

Other long-term liabilities
517

 
5

 
522

 
528

 
6

 
534

Total non-current liabilities
4,729

 
(6
)
 
4,723

 
5,236

 
6

 
5,242

Equity
 
 
 
 
 
 
 
 
 
 


Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 

Common stock
118

 
—

 
118

 
120

 
—

 
120

Other capital
1,714

 
—

 
1,714

 
1,741

 
—

 
1,741

Retained earnings
1,692

 
(44
)
 
1,648

 
1,343

 
(25
)
 
1,318

Accumulated other comprehensive loss
(202
)
 
—

 
(202
)
 
(276
)
 
—

 
(276
)
Total equity
3,322

 
(44
)
 
3,278

 
2,928

 
(25
)
 
2,903

 
$
9,839

 
$
12

 
$
9,851

 
$
10,090

 
$
22

 
$
10,112



The following table presents the effect of the adoption of ASC 606 on our Consolidated Statement of Cash Flows for fiscal 2018 and 2017:
 
Fiscal Year Ended
 
June 29, 2018
 
June 30, 2017
 
As Previously Reported
 
Effect of Adopting ASC 606
 
As Recast
 
As Previously Reported
 
Effect of Adopting ASC 606
 
As Recast
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net income
$
718

 
(19
)
 
$
699

 
$
553

 
$
(10
)
 
$
543

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
Amortization of acquisition-related intangibles(1)
117

 
—

 
117

 
151

 
—

 
151

Depreciation and other amortization(1)
142

 
—

 
142

 
160

 
—

 
160

Share-based compensation
82

 
—

 
82

 
42

 
—

 
42

Qualified pension plan contributions
(301
)
 
—

 
(301
)
 
(589
)
 
—

 
(589
)
Pension income
(135
)
 
—

 
(135
)
 
(97
)
 
—

 
(97
)
Impairment of goodwill and other assets
—

 
—

 
—

 
240

 
—

 
240

Los on sales of businesses, net
—

 
—

 
—

 
14

 
—

 
14

Loss on extinguishment of debt
24

 
—

 
24

 
—

 
—

 
—

(Increase) decrease in:
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
(112
)
 
11

 
(101
)
 
111

 
(87
)
 
24

Contract assets
—

 
(76
)
 
(76
)
 
—

 
156

 
156

Inventories
(84
)
 
65

 
(19
)
 
28

 
(60
)
 
(32
)
Increase (decrease) in:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
82

 
—

 
82

 
18

 
—

 
18

Advance payments and unearned income
63

 
(63
)
 
—

 
(42
)
 
42

 
—

Contract liabilities
—

 
81

 
81

 
—

 
(31
)
 
(31
)
Income taxes
202

 
—

 
202

 
131

 
(20
)
 
111

Other
(47
)
 
1

 
(46
)
 
(151
)
 
10

 
(141
)
Net cash provided by operating activities
$
751

 
$
—

 
$
751

 
$
569

 
$
—

 
$
569

_______________
(1)
“Amortization of acquisition-related intangibles” includes amortization of non-Exelis Inc. acquisition-related intangibles, which was previously included in the “Depreciation and amortization” line item in our Consolidated Statement of Cash Flows in our Fiscal 2018 Annual Report on Form 10-K.
Accounting Standards Issued But Not Yet Effective
In February 2016, the Financial Accounting Standards Board issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires, among other things, the recognition of right-of-use assets and liabilities on the balance sheet for most lease arrangements and disclosure of certain information about leasing arrangements. The new standard currently allows two transition methods with certain practical expedients available. 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 or to initially apply this standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
We are adopting the new standard effective June 29, 2019 by applying the standard at the adoption date and recognizing a cumulative-effect adjustment to the opening balance of retained earnings. We plan to elect the package of practical expedients permitted by the standard, which, among other things, allows us to carry forward the historical lease classification. The substantial majority of our current lease arrangements are classified as operating leases under existing GAAP lease guidance, and they will continue to be classified as operating leases under the new standard. We have made substantial progress in executing our implementation plan, including identifying our lease population. We are in the process of implementing a new lease management software tool, a new accounting policy, as well as new processes and internal controls. We expect to record right-of-use assets and liabilities of $200 million to $300 million on our Consolidated Balance Sheet for historical Harris’ leases. This quantification does not take into account any potential impact that may result from the L3Harris Merger. We do not expect that the adoption of this standard will have a material impact on our results of operations or cash flows.