Stock Options and Other Share-Based Compensation

9 Months Ended

Oct. 02, 2020

Share-based Payment Arrangement [Abstract]

Stock Options and Other Share-Based Compensation

Note D — Stock Options and Other Share-Based Compensation

As of October 2, 2020, we had options or other share-based compensation outstanding under two Harris shareholder-approved stock incentive plans, the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) and the Harris Corporation 2015 Equity Incentive Plan (As Amended and Restated Effective as of August 28, 2020), as well as under employee stock incentive plans of L3 assumed by L3Harris (collectively, “L3Harris SIPs”).

The compensation cost related to our share-based awards that was charged against income was $31 million and $71 million, respectively, for the quarter and three quarters ended October 2, 2020, and $95 million and $124 million, respectively, for the quarter and three quarters ended September 27, 2019, including acceleration expense recognized in connection with the L3Harris Merger. The aggregate number of shares of our common stock that we issued under the terms of L3Harris SIPs, net of shares withheld for tax purposes, was not material for the quarter ended October 2, 2020 and was 0.5 million for the three quarters ended October 2, 2020, and 2.8 million and 3.4 million for the quarter and three quarters ended September 27, 2019, respectively, including shares issued as merger consideration to settle pre-merger L3 share-based awards.

Awards granted to participants under L3Harris SIPs during the quarter ended October 2, 2020 were not material. Awards granted to participants under L3Harris SIPs during the three quarters ended October 2, 2020 consisted of 0.3 million restricted stock units, 0.6 million stock options and 0.2 million 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 1.55 percent; expected volatility of 22.74 percent; risk-free interest rates averaging 0.89 percent; and expected term of 5.04 years. The fair value as of the grant date of each restricted stock unit award was based on the closing price of our common stock on the grant date. The fair value as of the grant date of each performance stock unit award was determined based on the fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to companies in our TSR peer group.