Stock Options and Other Share-Based Compensation

3 Months Ended

Apr. 02, 2021

Share-based Payment Arrangement [Abstract]

Stock Options and Other Share-Based Compensation

Note C — Stock Options and Other Share-Based Compensation

As of April 2, 2021, we had options or other share-based compensation outstanding under two Harris shareholder-approved stock incentive plans (“SIPs”), the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) and the L3Harris Technologies, Inc. 2015 Equity Incentive Plan (As Amended and Restated Effective as of August 28, 2020) (the “2015 EIP”), as well as under employee stock incentive plans of L3 assumed by L3Harris (collectively, “L3Harris SIPs”). We believe that share-based awards more closely align the interests of participants with those of shareholders.

The compensation cost related to our share-based awards that was charged against income was $33 million and $17 million for the quarters ended April 2, 2021 and April 3, 2020, respectively. 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 0.1 million and 0.5 million for the quarters ended April 2, 2021 and April 3, 2020, respectively.

Awards granted to participants under L3Harris SIPs during the quarter ended April 2, 2021 consisted of 0.5 million stock options, 0.2 million performance stock units and 0.1 million restricted 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 1.99 percent; expected volatility of 31.71 percent; risk-free interest rates averaging 0.75 percent; and expected term of 5.05 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.