Stock Options and Other Share-Based Compensation

3 Months Ended

Sep. 27, 2019

Share-based Payment Arrangement [Abstract]

Stock Options and Other Share-Based Compensation

Note D — Stock Options and Other Share-Based Compensation

As of September 27, 2019, we had options or other share-based compensation outstanding under two Harris 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”), as well as under employee stock incentive plans of L3 assumed by L3Harris (collectively, “L3Harris SIPs”).

Harris equity awards granted prior to October 12, 2018, in accordance with the terms and conditions that were applicable to such awards prior to the L3Harris Merger, generally automatically vested upon closing of the L3Harris Merger and settled in L3Harris Common Stock, except stock options which automatically vested and remained outstanding. Harris equity awards granted on or after October 12, 2018 did not automatically vest upon closing of the L3Harris Merger, and instead remained outstanding as an award with respect to L3Harris Common Stock in accordance with the terms that were applicable to such award prior to the L3Harris Merger.

L3’s equity awards granted prior to October 12, 2018, in accordance with the terms and conditions that were applicable to such awards prior to the L3Harris Merger, generally automatically vested upon closing of the L3Harris Merger and settled in L3Harris Common Stock (except stock options automatically converted into stock options with respect to L3Harris Common Stock and remained outstanding), in each case, after giving effect to the Exchange Ratio and appropriate adjustments to reflect the consummation of the L3Harris Merger and the terms and conditions applicable to such awards prior to the L3Harris Merger. Any L3 restricted stock unit or L3 restricted stock award granted on or after October 12, 2018 was converted into a corresponding award with respect to L3Harris Common Stock, with the number of shares underlying such award adjusted based on the Exchange Ratio, and remained outstanding in accordance with the terms that were applicable to such award prior to the L3Harris Merger. Pursuant to the Merger Agreement, L3Harris assumed the converted L3 equity awards.

The compensation cost related to our share-based awards that was charged against income was $95 million, including acceleration expense recognized in connection with the L3Harris Merger, and $14 million for the quarters ended September 27, 2019 and September 28, 2018, respectively.

The aggregate number of shares of our common stock that we issued under the terms of L3Harris SIPs (including shares issued as merger consideration to settle pre-merger L3 share-based awards), net of shares withheld for tax purposes, was 2,837,153 and 403,953 for the quarters ended September 27, 2019 and September 28, 2018, respectively.

Awards granted to participants under L3Harris SIPs during the quarter ended September 27, 2019 consisted of 245,991 restricted stock units, 738,956 stock options and 55,020 performance stock units. The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model and the following assumptions: expected dividend yield of 1.70 percent; expected volatility of 22.18 percent; risk-free interest rates averaging 1.68 percent; and expected term of 5.65 years.

The fair value as of the grant date of each restricted stock unit award and performance stock unit award was based on the closing price of our common stock on the grant date.