þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 29, 2019 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to _ |
Delaware | 34-0276860 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1025 West NASA Boulevard Melbourne, Florida | 329l9 | |
(Address of principal executive offices) | (Zip Code) | |
(321) 727-9l00 | ||
(Registrant’s telephone number, including area code) | ||
No changes | ||
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $1.00 per share | HRS | New York Stock Exchange |
Large accelerated filer | þ | Accelerated filer | o | |||
Non-accelerated filer | o | Smaller reporting company | o | |||
Emerging growth company | o |
Page | |
Part I. Financial Information: | |
Item 1. Financial Statements (Unaudited): | |
Condensed Consolidated Statement of Income for the Quarter and Three Quarters Ended March 29, 2019 and March 30, 2018 | |
Condensed Consolidated Statement of Comprehensive Income for the Quarter and Three Quarters Ended March 29, 2019 and March 30, 2018 | |
Condensed Consolidated Balance Sheet at March 29, 2019 and June 29, 2018 | |
Condensed Consolidated Statement of Cash Flows for the Three Quarters Ended March 29, 2019 and March 30, 2018 | |
Condensed Consolidated Statement of Equity for the Quarter and Three Quarters Ended March 29, 2019 and March 30, 2018 | |
Notes to Condensed Consolidated Financial Statements | |
Report of Independent Registered Public Accounting Firm | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
Part II. Other Information: | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. Defaults Upon Senior Securities | |
Item 4. Mine Safety Disclosures | |
Item 5. Other Information | |
Item 6. Exhibits | |
Signature |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Revenue from product sales and services | $ | $ | $ | $ | |||||||||||
Cost of product sales and services | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Engineering, selling and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Non-operating income | |||||||||||||||
Interest income | |||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income from continuing operations before income taxes | |||||||||||||||
Income taxes | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income from continuing operations | |||||||||||||||
Discontinued operations, net of income taxes | ( | ) | ( | ) | ( | ) | |||||||||
Net income | $ | $ | $ | $ | |||||||||||
Net income per common share | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | $ | $ | $ | |||||||||||
Discontinued operations | ( | ) | ( | ) | ( | ) | |||||||||
$ | $ | $ | $ | ||||||||||||
Diluted | |||||||||||||||
Continuing operations | $ | $ | $ | $ | |||||||||||
Discontinued operations | ( | ) | ( | ) | ( | ) | |||||||||
$ | $ | $ | $ | ||||||||||||
Basic weighted average common shares outstanding | |||||||||||||||
Diluted weighted average common shares outstanding |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions) | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation gain (loss), net of income taxes | ( | ) | |||||||||||||
Net unrealized gain (loss) on hedging derivatives, net of income taxes | ( | ) | ( | ) | |||||||||||
Net unrecognized loss on postretirement obligations, net of income taxes | ( | ) | ( | ) | |||||||||||
Other comprehensive income (loss), net of income taxes | ( | ) | ( | ) | |||||||||||
Total comprehensive income | $ | $ | $ | $ |
March 29, 2019 | June 29, 2018 | ||||||
(In millions, except shares) | |||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | $ | |||||
Receivables | |||||||
Contract assets | |||||||
Inventories | |||||||
Income taxes receivable | |||||||
Other current assets | |||||||
Total current assets | |||||||
Non-current Assets | |||||||
Property, plant and equipment | |||||||
Goodwill | |||||||
Other intangible assets | |||||||
Non-current deferred income taxes | |||||||
Other non-current assets | |||||||
Total non-current assets | |||||||
$ | $ | ||||||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Short-term debt | $ | $ | |||||
Accounts payable | |||||||
Contract liabilities | |||||||
Compensation and benefits | |||||||
Other accrued items | |||||||
Income taxes payable | |||||||
Current portion of long-term debt, net | |||||||
Total current liabilities | |||||||
Non-current Liabilities | |||||||
Defined benefit plans | |||||||
Long-term debt, net | |||||||
Non-current deferred income taxes | |||||||
Other long-term liabilities | |||||||
Total non-current liabilities | |||||||
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 118,072,477 shares at March 29, 2019 and 118,280,120 shares at June 29, 2018 | |||||||
Other capital | |||||||
Retained earnings | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Total shareholders’ equity | |||||||
$ | $ |
Three Quarters Ended | |||||||
March 29, 2019 | March 30, 2018 | ||||||
(In millions) | |||||||
Operating Activities | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization of acquisition-related intangibles | |||||||
Depreciation and other amortization | |||||||
Share-based compensation | |||||||
Qualified pension plan contributions | ( | ) | |||||
Pension income | ( | ) | ( | ) | |||
(Increase) decrease in: | |||||||
Accounts receivable | ( | ) | |||||
Contract assets | ( | ) | ( | ) | |||
Inventories | ( | ) | ( | ) | |||
Increase (decrease) in: | |||||||
Accounts payable | ( | ) | ( | ) | |||
Contract liabilities | |||||||
Income taxes | |||||||
Other | ( | ) | ( | ) | |||
Net cash provided by operating activities | |||||||
Investing Activities | |||||||
Additions of property, plant and equipment | ( | ) | ( | ) | |||
Adjustment to proceeds from sale of business | ( | ) | |||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Financing Activities | |||||||
Proceeds from borrowings | |||||||
Repayments of borrowings | ( | ) | ( | ) | |||
Proceeds from exercises of employee stock options | |||||||
Repurchases of common stock | ( | ) | ( | ) | |||
Cash dividends | ( | ) | ( | ) | |||
Other financing activities | ( | ) | ( | ) | |||
Net cash used in financing activities | ( | ) | ( | ) | |||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | |||||
Net increase (decrease) in cash and cash equivalents | ( | ) | |||||
Cash and cash equivalents, beginning of year | |||||||
Cash and cash equivalents, end of quarter | $ | $ |
Common Stock | Other Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Balance at June 29, 2018 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
Net income | — | — | — | ||||||||||||||||
Shares issued under stock incentive plans | — | — | |||||||||||||||||
Shares issued under defined contribution plans | — | — | — | ||||||||||||||||
Share-based compensation expense | — | — | — | ||||||||||||||||
Repurchases and retirement of common stock | ( | ) | ( | ) | ( | ) | — | ( | ) | ||||||||||
Cash dividends ($.685 per share) | — | — | ( | ) | — | ( | ) | ||||||||||||
Balance at September 28, 2018 | ( | ) | |||||||||||||||||
Net income | — | — | — | ||||||||||||||||
Other comprehensive income | — | — | — | ( | ) | ( | ) | ||||||||||||
Shares issued under stock incentive plans | — | — | — | ||||||||||||||||
Shares issued under defined contribution plans | — | — | — | ||||||||||||||||
Share-based compensation expense | — | — | — | ||||||||||||||||
Repurchases and retirement of common stock | — | ( | ) | — | — | ( | ) | ||||||||||||
Cash dividends ($.685 per share) | — | — | ( | ) | — | ( | ) | ||||||||||||
Balance at December 28, 2018 | ( | ) | |||||||||||||||||
Net income | — | — | — | ||||||||||||||||
Other comprehensive income | — | — | — | ( | ) | ( | ) | ||||||||||||
Shares issued under stock incentive plans | — | — | — | ||||||||||||||||
Shares issued under defined contribution plans | — | — | — | ||||||||||||||||
Share-based compensation expense | — | — | — | ||||||||||||||||
Repurchases and retirement of common stock | — | ( | ) | — | — | ( | ) | ||||||||||||
Cash dividends ($.685 per share) | — | — | ( | ) | — | ( | ) | ||||||||||||
Balance at March 29, 2019 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
Balance at June 30, 2017 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
Net income | — | — | — | ||||||||||||||||
Other comprehensive income | — | — | — | ||||||||||||||||
Shares issued under stock incentive plans | — | — | — | ||||||||||||||||
Share-based compensation expense | — | — | — | ||||||||||||||||
Repurchases and retirement of common stock | ( | ) | ( | ) | ( | ) | — | ( | ) | ||||||||||
Forward contract component of accelerated share repurchase | — | — | — | ||||||||||||||||
Cash dividends ($.570 per share) | — | — | ( | ) | — | ( | ) | ||||||||||||
Balance at September 29, 2017 | ( | ) | |||||||||||||||||
Net income | — | — | — | ||||||||||||||||
Other comprehensive income | — | — | — | ( | ) | ( | ) | ||||||||||||
Shares issued under stock incentive plans | — | — | — | ||||||||||||||||
Share-based compensation expense | — | — | — | ||||||||||||||||
Repurchases and retirement of common stock | — | ( | ) | ( | ) | — | ( | ) | |||||||||||
Cash dividends ($.570 per share) | — | — | ( | ) | — | ( | ) | ||||||||||||
Balance at December 29, 2017 | ( | ) | |||||||||||||||||
Net income | — | — | — | ||||||||||||||||
Other comprehensive income | — | — | — | ||||||||||||||||
Shares issued under stock incentive plans | — | — | |||||||||||||||||
Shares issued under defined contribution plans | — | — | — | ||||||||||||||||
Share-based compensation expense | — | — | — | ||||||||||||||||
Repurchases and retirement of common stock | ( | ) | ( | ) | ( | ) | — | ( | ) | ||||||||||
Cash dividends ($.570 per share) | — | — | ( | ) | — | ( | ) | ||||||||||||
Balance at March 30, 2018 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
Quarter Ended March 30, 2018 | |||||||||||||||
Previously Reported | Effect of Adopting ASC 606 | Effect of Adopting ASU 2017-07 | Currently Reported | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Revenue from product sales and services | $ | $ | ( | ) | $ | $ | |||||||||
Cost of product sales and services | ( | ) | ( | ) | ( | ) | |||||||||
Engineering, selling and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Non-operating income | |||||||||||||||
Interest expense | ( | ) | ( | ) | |||||||||||
Income from continuing operations before income taxes | ( | ) | |||||||||||||
Income taxes | ( | ) | ( | ) | |||||||||||
Income from continuing operations | ( | ) | |||||||||||||
Discontinued operations, net of income taxes | ( | ) | ( | ) | |||||||||||
Net income | $ | $ | ( | ) | $ | $ | |||||||||
Net income per common share | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | $ | ( | ) | $ | $ | |||||||||
Discontinued operations | ( | ) | ( | ) | |||||||||||
$ | $ | ( | ) | $ | $ | ||||||||||
Diluted | |||||||||||||||
Continuing operations | $ | $ | ( | ) | $ | $ | |||||||||
Discontinued operations | ( | ) | ( | ) | |||||||||||
$ | $ | ( | ) | $ | $ |
Three Quarters Ended March 30, 2018 | |||||||||||||||
Previously Reported | Effect of Adopting ASC 606 | Effect of Adopting ASU 2017-07 | Currently Reported | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Revenue from product sales and services | $ | $ | ( | ) | $ | $ | |||||||||
Cost of product sales and services | ( | ) | ( | ) | ( | ) | |||||||||
Engineering, selling and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Non-operating income (loss) | ( | ) | |||||||||||||
Interest income | |||||||||||||||
Interest expense | ( | ) | ( | ) | |||||||||||
Income from continuing operations before income taxes | ( | ) | |||||||||||||
Income taxes | ( | ) | ( | ) | ( | ) | |||||||||
Income from continuing operations | ( | ) | |||||||||||||
Discontinued operations, net of income taxes | ( | ) | ( | ) | |||||||||||
Net income | $ | $ | ( | ) | $ | $ | |||||||||
Net income per common share | |||||||||||||||
Basic | |||||||||||||||
Continuing operations | $ | $ | ( | ) | $ | $ | |||||||||
Discontinued operations | ( | ) | ( | ) | |||||||||||
$ | $ | ( | ) | $ | $ | ||||||||||
Diluted | |||||||||||||||
Continuing operations | $ | $ | ( | ) | $ | $ | |||||||||
Discontinued operations | ( | ) | ( | ) | ( | ) | |||||||||
$ | $ | ( | ) | $ | $ |
Three Quarters Ended March 30, 2018 | |||||||||||
Previously Reported | Effect of Adopting ASC 606 | Currently Reported | |||||||||
(In millions, except shares) | |||||||||||
Net income | $ | $ | ( | ) | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Amortization of acquisition-related intangibles(1) | |||||||||||
Depreciation and other amortization(1) | |||||||||||
Share-based compensation | |||||||||||
Qualified pension plan contributions | ( | ) | ( | ) | |||||||
Pension income | ( | ) | ( | ) | |||||||
(Increase) decrease in: | |||||||||||
Accounts receivable | ( | ) | ( | ) | |||||||
Contract assets | ( | ) | ( | ) | |||||||
Inventories | ( | ) | ( | ) | |||||||
Increase (decrease) in: | |||||||||||
Accounts payable | ( | ) | ( | ) | |||||||
Advance payments and unearned income | ( | ) | |||||||||
Contract liabilities | |||||||||||
Income taxes | |||||||||||
Other | ( | ) | ( | ) | ( | ) | |||||
Net cash provided by operating activities | $ | $ | $ |
(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 Condensed Consolidated Statement of Cash Flows (Unaudited) in our Form 10-Q for the quarter ended March 30, 2018. |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Foreign currency translation, net of income taxes of $2 million at March 29, 2019 and June 29, 2018 | $ | ( | ) | $ | ( | ) | |
Net unrealized loss on hedging derivatives, net of income taxes of $9 million and $7 million at March 29, 2019 and June 29, 2018, respectively | ( | ) | ( | ) | |||
Unrecognized postretirement obligations, net of income taxes of $31 million at March 29, 2019 and $30 million at June 29, 2018, respectively | ( | ) | ( | ) | |||
$ | ( | ) | $ | ( | ) |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Accounts receivable | $ | $ | |||||
Less allowances for collection losses | ( | ) | ( | ) | |||
$ | $ |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Contract assets | $ | $ | |||||
Contract liabilities, current | ( | ) | ( | ) | |||
Contract liabilities, non-current(1) | ( | ) | ( | ) | |||
Net contract assets | $ | $ |
(1) | Represents the non-current portion of deferred revenue associated with extended product warranties, which is included as a component of the “Other long-term liabilities” line item in our Condensed Consolidated Balance Sheet (Unaudited). |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Unbilled contract receivables, gross | $ | $ | |||||
Progress payments | ( | ) | ( | ) | |||
$ | $ |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Finished products | $ | $ | |||||
Work in process | |||||||
Raw materials and supplies | |||||||
$ |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Land | $ | $ | |||||
Software capitalized for internal use | |||||||
Buildings | |||||||
Machinery and equipment | |||||||
Less accumulated depreciation and amortization | ( | ) | ( | ) | |||
$ | $ |
(In millions) | |||
Balance at June 29, 2018 | $ | ||
Warranty provision for sales | |||
Settlements | ( | ) | |
Other, including adjustments for foreign currency translation | ( | ) | |
Balance at March 29, 2019 | $ |
Quarter Ended March 29, 2019 | Three Quarters Ended March 29, 2019 | ||||||||||||||
Pension | Other Benefits | Pension | Other Benefits | ||||||||||||
(In millions) | |||||||||||||||
Net periodic benefit income | |||||||||||||||
Service cost | $ | $ | $ | $ | |||||||||||
Interest cost | |||||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Amortization of net actuarial gain | ( | ) | ( | ) | |||||||||||
Total net periodic benefit income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Quarter Ended March 30, 2018 | Three Quarters Ended March 30, 2018 | ||||||||||||||
Pension | Other Benefits | Pension | Other Benefits | ||||||||||||
(In millions) | |||||||||||||||
Net periodic benefit income | |||||||||||||||
Service cost | $ | $ | $ | $ | |||||||||||
Interest cost | |||||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Amortization of net actuarial gain | ( | ) | |||||||||||||
Total net periodic benefit income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions, except per share amounts) | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Adjustments for participating securities outstanding | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income from continuing operations used in per basic and diluted common share calculations (A) | $ | $ | $ | $ | |||||||||||
Basic weighted average common shares outstanding (B) | |||||||||||||||
Impact of dilutive share-based awards | |||||||||||||||
Diluted weighted average common shares outstanding (C) | |||||||||||||||
Income from continuing operations per basic common share (A)/(B) | $ | $ | $ | $ | |||||||||||
Income from continuing operations per diluted common share (A)/(C) | $ | $ | $ | $ |
• | 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 that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means. |
• | 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. |
March 29, 2019 | June 29, 2018 | ||||||||||||||||||||||
Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | ||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Deferred compensation plan assets:(1) | |||||||||||||||||||||||
Equity and fixed income securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Investments measured at NAV: | |||||||||||||||||||||||
Equity and fixed income funds | |||||||||||||||||||||||
Corporate-owned life insurance | |||||||||||||||||||||||
Total fair value of deferred compensation plan assets | $ | $ | |||||||||||||||||||||
Liabilities | |||||||||||||||||||||||
Deferred compensation plan liabilities:(2) | |||||||||||||||||||||||
Equity securities and mutual funds | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Investments measured at NAV: | |||||||||||||||||||||||
Common/collective trusts and guaranteed investment contracts | |||||||||||||||||||||||
Total fair value of deferred compensation plan liabilities | $ | $ | |||||||||||||||||||||
Derivative instruments:(3) | |||||||||||||||||||||||
Yield-based treasury lock | $ | $ | $ | $ | $ | $ |
(1) | Represents diversified assets held in a “rabbi trust” associated with our non-qualified deferred compensation plans, which we include in the “Other current assets” and “Other non-current assets” line items in our Condensed Consolidated Balance Sheet (Unaudited) and which are measured at fair value. |
(2) | Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and benefits” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet (Unaudited). 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. |
(3) |
March 29, 2019 | June 29, 2018 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
(In millions) | |||||||||||||||
Long-term debt (including current portion)(1) | $ | $ | $ | $ |
(1) |
• | 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 |
• |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions) | |||||||||||||||
Revenue | |||||||||||||||
Communication Systems | $ | $ | $ | $ | |||||||||||
Electronic Systems | |||||||||||||||
Space and Intelligence Systems | |||||||||||||||
Corporate eliminations | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
$ | $ | $ | $ | ||||||||||||
Income From Continuing Operations Before Income Taxes | |||||||||||||||
Segment Operating Income: | |||||||||||||||
Communication Systems | $ | $ | $ | $ | |||||||||||
Electronic Systems | |||||||||||||||
Space and Intelligence Systems | |||||||||||||||
Unallocated corporate expense and corporate eliminations(1) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Pension adjustment | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Non-operating income | |||||||||||||||
Net interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
$ | $ | $ | $ |
(1) |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions) | |||||||||||||||
Revenue By Geographical Region | |||||||||||||||
United States | $ | $ | $ | $ | |||||||||||
International | |||||||||||||||
$ | $ | $ | $ |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions) | |||||||||||||||
Revenue By Customer Relationship | |||||||||||||||
Prime contractor | $ | $ | $ | $ | |||||||||||
Subcontractor | |||||||||||||||
$ | $ | $ | $ | ||||||||||||
Revenue By Contract Type | |||||||||||||||
Fixed-price(1) | $ | $ | $ | $ | |||||||||||
Cost-reimbursable | |||||||||||||||
$ | $ | $ | $ | ||||||||||||
Revenue By Geographical Region | |||||||||||||||
United States | $ | $ | $ | $ | |||||||||||
International | |||||||||||||||
$ | $ | $ | $ |
(1) | Includes revenue derived from time-and-materials contracts. |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions) | |||||||||||||||
Revenue By Customer Relationship | |||||||||||||||
Prime contractor | $ | $ | $ | $ | |||||||||||
Subcontractor | |||||||||||||||
$ | $ | $ | $ | ||||||||||||
Revenue By Contract Type | |||||||||||||||
Fixed-price(1) | $ | $ | $ | $ | |||||||||||
Cost-reimbursable | |||||||||||||||
$ | $ | $ | $ | ||||||||||||
Revenue By Geographical Region | |||||||||||||||
United States | $ | $ | $ | $ | |||||||||||
International | |||||||||||||||
$ | $ | $ | $ |
(1) |
March 29, 2019 | June 29, 2018 | ||||||
(In millions) | |||||||
Total Assets | |||||||
Communication Systems | $ | $ | |||||
Electronic Systems | |||||||
Space and Intelligence Systems | |||||||
Corporate(1) | |||||||
$ | $ |
(1) |
• | Results of Operations — an analysis of our consolidated results of operations and the results in each of our business segments, to the extent the segment results are helpful to an understanding of our business as a whole, for the periods presented in our Condensed Consolidated Financial Statements (Unaudited). |
• | Liquidity, Capital Resources and Financial Strategies — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, off-balance sheet arrangements and commercial commitments and contractual obligations. |
• | Critical Accounting Policies and Estimates — information about accounting policies that require critical judgments and estimates and about accounting standards that have been issued, but are not yet effective for 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. |
• | Revenue increased 11 percent to $1.73 billion from $1.56 billion; |
• | Gross margin increased 10 percent to $589 million from $534 million; |
• | Income from continuing operations increased 23 percent to $243 million from $198 million; |
• | Income from continuing operations per diluted common share increased 24 percent to $2.02 from $1.63; |
• | Communication Systems segment revenue increased 19 percent to $568 million from $479 million and operating income increased 19 percent to $172 million from $144 million; |
• | Electronic Systems segment revenue increased 7 percent to $649 million from $606 million and operating income increased 14 percent to $123 million from $108 million; and |
• | Space and Intelligence Systems segment revenue increased 7 percent to $514 million from $482 million and operating income increased 5 percent to $87 million from $83 million. |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
March 29, 2019 | March 30, 2018 | % Inc/(Dec) | March 29, 2019 | March 30, 2018 | % Inc/(Dec) | ||||||||||||||||
(Dollars in millions, except per share amounts) | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Communication Systems | $ | 568 | $ | 479 | 19 | % | $ | 1,577 | $ | 1,377 | 15 | % | |||||||||
Electronic Systems | 649 | 606 | 7 | % | 1,855 | 1,729 | 7 | % | |||||||||||||
Space and Intelligence Systems | 514 | 482 | 7 | % | 1,515 | 1,410 | 7 | % | |||||||||||||
Corporate eliminations | (3 | ) | (5 | ) | * | (11 | ) | (9 | ) | * | |||||||||||
Total revenue | 1,728 | 1,562 | 11 | % | 4,936 | 4,507 | 10 | % | |||||||||||||
Cost of product sales and services | (1,139 | ) | (1,028 | ) | 11 | % | (3,244 | ) | (2,969 | ) | 9 | % | |||||||||
Gross margin | 589 | 534 | 10 | % | 1,692 | 1,538 | 10 | % | |||||||||||||
% of total revenue | 34 | % | 34 | % | 34 | % | 34 | % | |||||||||||||
Engineering, selling and administrative expenses | (310 | ) | (331 | ) | (6 | )% | (893 | ) | (890 | ) | — | ||||||||||
% of total revenue | 18 | % | 21 | % | 18 | % | 20 | % | |||||||||||||
Non-operating income | 46 | 46 | — | 140 | 136 | 3 | % | ||||||||||||||
Net interest expense | (42 | ) | (41 | ) | 2 | % | (128 | ) | (123 | ) | 4 | % | |||||||||
Income from continuing operations before income taxes | 283 | 208 | 36 | % | 811 | 661 | 23 | % | |||||||||||||
Income taxes | (40 | ) | (10 | ) | 300 | % | (127 | ) | (167 | ) | (24 | )% | |||||||||
Effective tax rate | 14 | % | 5 | % | 16 | % | 25 | % | |||||||||||||
Income from continuing operations | $ | 243 | $ | 198 | 23 | % | $ | 684 | $ | 494 | 38 | % | |||||||||
% of total revenue | 14 | % | 13 | % | 14 | % | 11 | % | |||||||||||||
Income from continuing operations per diluted common share | $ | 2.02 | $ | 1.63 | 24 | % | $ | 5.67 | $ | 4.07 | 39 | % | |||||||||
* Not meaningful |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
March 29, 2019 | March 30, 2018 | % Inc/(Dec) | March 29, 2019 | March 30, 2018 | % Inc/(Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Revenue | $ | 568 | $ | 479 | 19 | % | $ | 1,577 | $ | 1,377 | 15 | % | |||||||||
Cost of product sales and services | (310 | ) | (246 | ) | 26 | % | (837 | ) | (706 | ) | 19 | % | |||||||||
Gross margin | 258 | 233 | 11 | % | 740 | 671 | 10 | % | |||||||||||||
% of revenue | 45 | % | 49 | % | 47 | % | 49 | % | |||||||||||||
ESA expenses | (86 | ) | (89 | ) | (3 | )% | (266 | ) | (267 | ) | — | % | |||||||||
% of revenue | 15 | % | 19 | % | 17 | % | 19 | % | |||||||||||||
Segment operating income | $ | 172 | $ | 144 | 19 | % | $ | 474 | $ | 404 | 17 | % | |||||||||
% of revenue | 30 | % | 30 | % | 30 | % | 29 | % |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
March 29, 2019 | March 30, 2018 | % Inc/(Dec) | March 29, 2019 | March 30, 2018 | % Inc/(Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Revenue | $ | 649 | $ | 606 | 7 | % | $ | 1,855 | $ | 1,729 | 7 | % | |||||||||
Cost of product sales and services | (449 | ) | (424 | ) | 6 | % | (1,284 | ) | (1,207 | ) | 6 | % | |||||||||
Gross margin | 200 | 182 | 10 | % | 571 | 522 | 9 | % | |||||||||||||
% of revenue | 31 | % | 30 | % | 31 | % | 30 | % | |||||||||||||
ESA expenses | (77 | ) | (74 | ) | 4 | % | (216 | ) | (208 | ) | 4 | % | |||||||||
% of revenue | 12 | % | 12 | % | 12 | % | 12 | % | |||||||||||||
Segment operating income | $ | 123 | $ | 108 | 14 | % | $ | 355 | $ | 314 | 13 | % | |||||||||
% of revenue | 19 | % | 18 | % | 19 | % | 18 | % |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
March 29, 2019 | March 30, 2018 | % Inc/(Dec) | March 29, 2019 | March 30, 2018 | % Inc/(Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Revenue | $ | 514 | $ | 482 | 7 | % | $ | 1,515 | $ | 1,410 | 7 | % | |||||||||
Cost of product sales and services | (345 | ) | (326 | ) | 6 | % | (1,021 | ) | (955 | ) | 7 | % | |||||||||
Gross margin | 169 | 156 | 8 | % | 494 | 455 | 9 | % | |||||||||||||
% of revenue | 33 | % | 32 | % | 33 | % | 32 | % | |||||||||||||
ESA expenses | (82 | ) | (73 | ) | 12 | % | (229 | ) | (205 | ) | 12 | % | |||||||||
% of revenue | 16 | % | 15 | % | 15 | % | 15 | % | |||||||||||||
Segment operating income | $ | 87 | $ | 83 | 5 | % | $ | 265 | $ | 250 | 6 | % | |||||||||
% of revenue | 17 | % | 17 | % | 17 | % | 18 | % |
Quarter Ended | Three Quarters Ended | ||||||||||||||||||||
March 29, 2019 | March 30, 2018 | % Inc/(Dec) | March 29, 2019 | March 30, 2018 | % Inc/(Dec) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Unallocated corporate expense and corporate eliminations | $ | 31 | $ | 61 | (49 | )% | $ | 79 | $ | 107 | (26 | )% | |||||||||
Amortization of intangible assets from Exelis acquisition | 25 | 25 | — | % | 76 | 75 | 1 | % |
Three Quarters Ended | |||||||
March 29, 2019 | March 30, 2018 | ||||||
(In millions) | |||||||
Net cash provided by operating activities | $ | $ | |||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Net cash used in financing activities | ( | ) | ( | ) | |||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | |||||
Net increase (decrease) in cash and cash equivalents | ( | ) | |||||
Cash and cash equivalents, beginning of year | |||||||
Cash and cash equivalents, end of quarter | $ | $ |
• | $874 million of net cash provided by operating activities; partially offset by |
• | $278 million of net repayments of borrowings, including $300 million used for repayment at maturity of the entire principal amount of our Floating Rate Notes due February 27, 2019; |
• | $244 million used to pay cash dividends; |
• | $200 million used to repurchase shares of our common stock; and |
• | $104 million used for additions of property, plant and equipment. |
• | $230 million of net cash provided by operating activities, reflecting the impact of a $300 million voluntary pension contribution; |
• | $185 million of net proceeds from borrowings, including $250 million in proceeds from the issuance of the Floating Rate Notes due April 2020, $300 million in proceeds from the issuance of the Floating Rate Notes due February 2019, $253 million used for repayment of our remaining outstanding indebtedness under the 5-year tranche of our variable-rate term loans due May 29, 2020, $16 million used for repayment of outstanding indebtedness under the 3-year tranche of our variable-rate term loans due May 29, 2018 and $75 million used for repayment of short-term debt outstanding under our commercial paper program; and |
• | $31 million of proceeds from exercises of employee stock options; more than offset by |
• | $205 million used to pay cash dividends; |
• | $197 million used to repurchase shares of our common stock; and |
• | $79 million used for additions of property, plant and equipment. |
• | 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. |
Quarter Ended | Three Quarters Ended | ||||||||||||||
March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
(In millions) | |||||||||||||||
Favorable adjustments | $ | 32 | $ | 26 | $ | 100 | $ | 90 | |||||||
Unfavorable adjustments | (26 | ) | (30 | ) | (95 | ) | (105 | ) | |||||||
Net operating income adjustments | $ | 6 | $ | (4 | ) | $ | 5 | $ | (15 | ) |
• | 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. |
• | Because the exchange ratio is fixed and will not be adjusted in the event of any change in either our or L3’s stock price, the value of the shares of the combined company is uncertain. |
• | The market price for shares of common stock of the combined company following the completion of the merger may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market prices of shares of our common stock and L3 common stock. |
• | The shares of common stock of the combined company to be received by L3 stockholders as a result of the merger will have rights different from the shares of L3 common stock. |
• | Our stockholders and L3 stockholders will each have reduced ownership and voting interest in and will exercise less influence over management of the combined company. |
• | Until the completion of the merger or the termination of the merger agreement in accordance with its terms, we and L3 are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to us or L3 and our respective stockholders. |
• | Obtaining required approvals and satisfying closing conditions may prevent or delay completion of the merger. |
• | We and L3 must obtain certain regulatory approvals and clearances to consummate the merger, which, if delayed, not granted or granted with unacceptable conditions, could prevent, substantially delay or impair consummation of the merger, result in additional expenditures of money and resources or reduce the anticipated benefits of the merger. |
• | Failure to attract, motivate and retain executives and other key employees could diminish the anticipated benefits of the merger. |
• | The merger, including uncertainty regarding the merger, may cause customers, suppliers or strategic partners to delay or defer decisions concerning us and L3 and adversely affect each company’s ability to effectively manage their respective businesses. |
• | The opinions rendered to us and L3 from our respective financial advisors will not reflect changes in circumstances between the dates of such opinions and the completion of the merger. |
• | Whether or not the merger is completed, the announcement and pendency of the merger could cause disruptions in the businesses of us and L3, which could have an adverse effect on our respective businesses and financial results. |
• | The merger agreement may be terminated in accordance with its terms and the merger may not be consummated. |
• | The termination of the merger agreement could negatively impact us or L3. |
• | The directors and executive officers of us and L3 have interests and arrangements that may be different from, or in addition to, those of our and L3 stockholders generally. |
• | We or L3 may waive one or more of the closing conditions without re-soliciting stockholder approval. |
• | The merger agreement contains provisions that could discourage a potential competing acquirer that might be willing to pay more to acquire or merge with either us or L3. |
• | We and L3 each will incur significant transaction, merger-related and restructuring costs in connection with the merger. |
• | Our stockholders and L3 stockholders will not be entitled to appraisal rights in the merger. |
• | Litigation filed against the L3 Parties and the Harris Parties could prevent or delay the consummation of the merger or result in the payment of damages following completion of the merger. |
• | The failure to successfully combine the businesses of us and L3 may adversely affect the combined company’s future results. |
• | The combined company may not be able to retain customers or suppliers or customers or suppliers may seek to modify contractual obligations with the combined company, which could have an adverse effect on the combined company’s business and operations. |
• | The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations. |
• | Combining the businesses of us and L3 may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the merger, which may adversely affect the combined company’s business results and negatively affect the value of the common stock of the combined company following the merger. |
• | The failure to integrate successfully the businesses and operations of us and L3 in the expected time frame may adversely affect the combined company’s future results. |
• | Our and L3’s unaudited prospective financial information is inherently subject to uncertainties, the unaudited pro forma financial data included in our Form S-4 registration statement related to the proposed merger is preliminary and the combined company’s actual financial position and results of operations after the merger may differ materially from those estimates and the unaudited pro forma financial data included in such registration statement. Specifically, the unaudited pro forma combined financial data does not reflect the effect of any divestitures that may be required in connection with the merger. |
• | The revenue of the combined company will depend on our and L3’s ability to maintain certain levels of government business. The loss of contracts with U.S. and non-U.S. government agencies could adversely affect the combined company’s revenue. |
• | Third parties may terminate or alter existing contracts or relationships with us or L3. |
• | The combined company may be unable to retain our and L3 personnel successfully after the merger is completed. |
• | The combined company’s debt may limit its financial flexibility. |
• | Declaration, payment and amounts of dividends, if any, distributed to stockholders of the combined company will be uncertain. |
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 | ||||||||||||||
(December 29, 2018-January 25, 2019) | ||||||||||||||
Repurchase program(1) | — | — | — | $ | 501,279,637 | |||||||||
Employee transactions(2) | 9,802 | $ | 139.56 | — | — | |||||||||
Month No. 2 | ||||||||||||||
(January 26, 2019-February 22, 2019) | ||||||||||||||
Repurchase program(1) | — | — | — | $ | 501,279,637 | |||||||||
Employee transactions(2) | 1,218 | $ | 157.64 | — | — | |||||||||
Month No. 3 | ||||||||||||||
(February 23, 2019-March 29, 2019) | ||||||||||||||
Repurchase program(1) | — | — | — | $ | 501,279,637 | |||||||||
Employee transactions(2) | 29,995 | $ | 160.51 | — | — | |||||||||
Total | 41,015 | — | $ | 501,279,637 | ||||||||||
* | Periods represent our fiscal months. |
(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 March 29, 2019, $501,279,637 (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. |
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(12 | ) | ||
(15 | ) | ||
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(31.2 | ) | ||
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(101.SCH) | XBRL Taxonomy Extension Schema Document. | ||
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document. | ||
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document. |
* | Management contract or compensatory plan or arrangement. |
HARRIS CORPORATION | ||||||
(Registrant) | ||||||
Date: May 2, 2019 | By: | /s/ Rahul Ghai | ||||
Rahul Ghai | ||||||
Senior Vice President and Chief Financial Officer | ||||||
(principal financial officer and duly authorized officer) |
Three Quarters Ended | Fiscal Year Ended | ||||||||||||||||||||||||||
March 29, 2019 | March 30, 2018 | June 29, 2018 | June 30, 2017 | July 1, 2016 | July 3, 2015 | June 27, 2014 | |||||||||||||||||||||
(In millions, except ratios) | |||||||||||||||||||||||||||
Earnings: | |||||||||||||||||||||||||||
Income from continuing operations | $ | 684 | $ | 494 | $ | 702 | $ | 628 | $ | 611 | $ | 287 | $ | 440 | |||||||||||||
Plus: Income taxes | 127 | 167 | 206 | 261 | 273 | 109 | 202 | ||||||||||||||||||||
Fixed charges | $ | 138 | 129 | 181 | 179 | 188 | 135 | 99 | |||||||||||||||||||
Amortization of capitalized interest | — | — | — | — | 1 | — | — | ||||||||||||||||||||
Less: Interest capitalized during the period | — | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||||
$ | 949 | $ | 790 | $ | 1,089 | $ | 1,068 | $ | 1,073 | $ | 529 | $ | 739 | ||||||||||||||
Fixed Charges: | |||||||||||||||||||||||||||
Interest expense | $ | 130 | $ | 124 | $ | 170 | $ | 172 | $ | 183 | $ | 130 | $ | 94 | |||||||||||||
Plus: Interest capitalized during the period | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||
Interest portion of rental expense | 8 | 5 | 11 | 7 | 5 | 3 | 3 | ||||||||||||||||||||
$ | 138 | $ | 129 | $ | 181 | $ | 179 | $ | 188 | $ | 135 | $ | 99 | ||||||||||||||
Ratio of Earnings to Fixed Charges | 6.88 | 6.12 | 6.02 | 5.97 | 5.71 | 3.92 | 7.46 |
Form S-3 ASR | No. 333-213408 | Harris Corporation Debt and Equity Securities | ||
Form S-4 | No. 333-228829 | Harris Corporation Shares of Common Stock | ||
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 |
/s/ Ernst & Young LLP |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 29, 2019 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: May 2, 2019 | /s/ William M. Brown | |||||
Name: | William M. Brown | |||||
Title: | Chairman, President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 29, 2019 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: May 2, 2019 | /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: May 2, 2019 | /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: May 2, 2019 | /s/ Rahul Ghai | |||||
Name: | Rahul Ghai | |||||
Title: | Senior Vice President and Chief Financial Officer |
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Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Mar. 29, 2019 |
Apr. 26, 2019 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | HARRIS CORP /DE/ | |
Trading Symbol | HRS | |
Entity Central Index Key | 0000202058 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 29, 2019 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --06-28 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity Common Stock, Shares Outstanding | 118,125,597 |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 29, 2019 |
Mar. 30, 2018 |
Mar. 29, 2019 |
Mar. 30, 2018 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 243 | $ 196 | $ 681 | $ 486 |
Other comprehensive income (loss): | ||||
Foreign currency translation gain (loss), net of income taxes | 3 | 5 | (5) | 26 |
Net unrealized gain (loss) on hedging derivatives, net of income taxes | (8) | 0 | (7) | 1 |
Net unrecognized loss on postretirement obligations, net of income taxes | (1) | 0 | (3) | 0 |
Other comprehensive income (loss), net of income taxes | (6) | 5 | (15) | 27 |
Total comprehensive income | $ 237 | $ 201 | $ 666 | $ 513 |
CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) - $ / shares |
Mar. 29, 2019 |
Jun. 29, 2018 |
---|---|---|
Shareholders’ Equity: | ||
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 | $ 1 |
Common shares, authorized (in shares) | 500,000,000 | 500,000,000 |
Common shares, issued (in shares) | 118,072,477 | 118,280,120 |
Common shares, outstanding (in shares) | 118,072,477 | 118,280,120 |
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Parenthetical) - $ / shares |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 29, 2019 |
Dec. 28, 2018 |
Sep. 28, 2018 |
Mar. 30, 2018 |
Dec. 29, 2017 |
Sep. 29, 2017 |
|
Statement of Stockholders' Equity [Abstract] | ||||||
Cash dividends (in dollars per share) | $ 0.685 | $ 0.685 | $ 0.685 | $ 0.570 | $ 0.570 | $ 0.570 |
Significant Accounting Policies and Recent Accounting Standards |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies and Recent Accounting Standards | Note A — Significant Accounting Policies and Recent Accounting Standards Basis of Presentation The accompanying Condensed Consolidated Financial Statements (Unaudited) include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) (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 consolidation. The accompanying Condensed Consolidated Financial Statements (Unaudited) have been prepared by Harris, without an audit, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial condition, results of operations, cash flows and equity in conformity with GAAP for annual financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations and cash flows for the periods presented therein. The results for the quarter and three quarters ended March 29, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at June 29, 2018 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. We provide complete, audited financial statements in our Annual Report on Form 10-K, which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 29, 2018 (our “Fiscal 2018 Form 10-K”) and in our Current Report on Form 8-K filed with the SEC on December 13, 2018 (our “Fiscal 2017-2018 Update 8-K”), which updated and superseded historical fiscal 2018 and fiscal 2017 financial information contained in Item 7, Item 8 and certain other Items in our Fiscal 2018 Form 10-K to reflect the impact for those two fiscal years of retrospective application of Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), as amended (“ASC 606”), and ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), each of which we adopted effective June 30, 2018. See “Adoption of New Accounting Standards” below in this Note A for additional information. Amounts contained in this Report may not always add to totals due to rounding. Reclassifications The classification of certain prior-period amounts has been adjusted in our Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications. Reclassifications include certain direct selling and bid and proposal costs from the “Cost of product sales and services” line item to the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited) and in these Notes. Use of Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes. Materially different results can occur as circumstances change and additional information becomes known. Adoption of New Accounting Standards As discussed above, we adopted ASC 606 effective June 30, 2018. 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 adopted the requirements of the new standard using the full retrospective transition method. We opted for this transition 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 and 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. Retrospective application of 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. 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 “Advance payments and unearned income” line items in our Condensed Consolidated Balance Sheet. See Note 2: “Accounting Changes or Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K for a table summarizing the effect of adopting ASC 606 on our previously reported Consolidated Balance Sheet as of June 29, 2018. Total net cash provided by operating activities and total net cash provided by or used in investing activities and financing activities in our previously reported Condensed Consolidated Statements of Cash Flows (Unaudited) were not impacted by our adoption of ASC 606. We also adopted ASU 2017-07 effective June 30, 2018, as discussed above. This update requires that entities present components of net periodic pension and postretirement benefit costs other than the service cost component (“non-service cost amounts”) separately from the service cost component. We adopted this update retrospectively by recasting each prior period presented, using as our estimation basis for recasting prior periods the amounts disclosed in Note 13: “Pension and Other Postretirement Benefits” in our Notes to Consolidated Financial Statements in our Fiscal 2018 Form 10-K. Retrospective application of this update resulted in reclassification to the “Non-operating income” line item of non-service cost amounts that were included in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Income (Unaudited) prior to adopting ASU 2017-07. The following table summarizes the effect of adopting ASC 606 and ASU 2017-07 on our previously reported Condensed Consolidated Statement of Income (Unaudited) for the quarter and three quarters ended March 30, 2018:
The following table presents the effect of adopting ASC 606 on our previously reported Condensed Consolidated Statement of Cash Flows (Unaudited) for the three quarters ended March 30, 2018:
_______________
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. 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 expect to adopt the new lease standard on 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 also intend 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 majority of our current lease arrangements are classified as operating leases under existing GAAP lease guidance, and we expect they will continue to be classified as operating leases under the new standard. We have made progress in executing our implementation plan, including identifying our lease population. We are in the process of implementing a new lease management software tool as well as new processes and controls. Once we have configured the new lease management tool and have accumulated compatible lease data, we expect to measure the right-of-use assets and liabilities for leases in effect at the adoption date, which could be material. We do not expect that the adoption of this standard will have a material impact on our results of operations or cash flows.
|
Stock Options and Other Share-Based Compensation |
9 Months Ended |
---|---|
Mar. 29, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock Options and Other Share-Based Compensation | Note B — Stock Options and Other Share-Based Compensation During the three quarters ended March 29, 2019, 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”). 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). The compensation cost related to our share-based awards that was charged against income was $14 million and $43 million for the quarter and three quarters ended March 29, 2019, respectively, and $13 million and $37 million for the quarter and three quarters ended March 30, 2018, respectively. The aggregate number of shares of our common stock that we issued under the terms of our SIPs, net of shares withheld for tax purposes and inclusive of both continuing and discontinued operations, was 147,176 and 596,868 for the quarter and three quarters ended March 29, 2019, respectively, and 207,506 and 606,438 for the quarter and three quarters ended March 30, 2018, respectively. Awards granted to participants under our 2015 EIP during the quarter ended March 29, 2019 consisted of 1,044 restricted shares and restricted units. There were no stock options or performance units granted during the quarter ended March 29, 2019. Awards granted to participants under our 2015 EIP during the three quarters ended March 29, 2019 consisted of 270,963 stock options, 93,802 restricted shares and restricted units and 135,629 performance 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 1.61 percent; expected volatility of 19.87 percent; risk-free interest rates averaging 2.72 percent; and expected term of 5.03 years. The fair value as of the grant date of each restricted share award and restricted 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 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, less a discount to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting.
|
Restructuring and Other Exit Costs |
9 Months Ended |
---|---|
Mar. 29, 2019 | |
Restructuring and Related Activities [Abstract] | |
Restructuring and Other Exit Costs | Note C — 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 Condensed Consolidated Statement of Income (Unaudited). In the fourth quarter of 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 our Fiscal 2017-2018 Update 8-K. We had liabilities of $16 million and $27 million at March 29, 2019 and June 29, 2018, respectively, associated with this integration activity and with previous restructuring actions. The majority of the remaining liabilities at March 29, 2019 represent lease obligations associated with exited facilities with remaining terms of five years or less.
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Accumulated Other Comprehensive Loss |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | Note D — Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are summarized below:
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 obligations, 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” in our Fiscal 2017-2018 Update 8-K for additional information regarding this accounting standards update.
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Receivables |
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Mar. 29, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables | Note E — Receivables Receivables are summarized below:
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Contract Assets and Contract Liabilities |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Assets and Contract Liabilities | Note F — Contract Assets and Contract Liabilities Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the percentage of completion (“POC”) cost-to-cost revenue recognition method. We bill customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. The increase in contract liabilities in the three quarters ended March 29, 2019 was primarily due to an increase in the receipt of advance payments and the timing of contractual billing milestones. Changes in contract assets and contract liabilities balances during the quarter and three quarters ended March 29, 2019 were not materially impacted by any factors other than those described above. Contract assets and contract liabilities are summarized below:
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The components of contract assets are summarized below:
Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite delivery, indefinite quantity contracts. At March 29, 2019, our ending backlog was $8.5 billion. We expect to recognize approximately half of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next 3 years.
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Inventories |
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Mar. 29, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Note G — Inventories Inventories are summarized below:
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Property, Plant and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | Note H — Property, Plant and Equipment Property, plant and equipment are summarized below:
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Accrued Warranties |
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Mar. 29, 2019 | |||||||||||||||||||||||||||||||||
Product Warranties Disclosures [Abstract] | |||||||||||||||||||||||||||||||||
Accrued Warranties | Note I — 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 Condensed Consolidated Balance Sheet (Unaudited), during the three quarters ended March 29, 2019 were as follows:
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Postretirement Benefit Plans |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Postretirement Benefit Plans | Note J — Postretirement Benefit Plans The following tables provide the components of our net periodic benefit income for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:
The service cost component of net periodic benefit income is included in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Income (Unaudited). The non-service cost components of net periodic pension income are included in the “Non-operating income” line item in our Condensed Consolidated Statement of Income (Unaudited). We contributed $301 million to our qualified defined benefit pensions plans during the quarter and three quarters ended March 30, 2018, including a $300 million voluntary contribution to our U.S. qualified defined benefit pension plans in the quarter ended March 30, 2018. As a result of this voluntary contribution as well as a $400 million voluntary contribution made during fiscal 2017, we made no contributions to our U.S. qualified defined benefit pension plans during the quarter and three quarters ended March 29, 2019, and we currently anticipate making no contributions to our U.S. qualified defined benefit pension plans and minor contributions to a non-U.S. pension plan during the remainder of fiscal 2019. The U.S. Salaried Retirement Plan (“U.S. SRP”), a U.S. qualified pension plan, 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.
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Income From Continuing Operations Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income From Continuing Operations Per Share | Note K — Income From Continuing Operations Per Share The computations of income from continuing operations per common share are as follows:
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Income Taxes |
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Mar. 29, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Note L — Income Taxes On December 22, 2017, H.R.1, also known as the “Tax Cuts and Jobs Act,” was signed into U.S. law (“Tax Act”). 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. During the quarter ended December 28, 2018, we completed our accounting for the income tax impact of enactment of the Tax Act, based on prevailing regulations and available information as of December 28, 2018, and there were no material changes from the estimates reported in our Fiscal 2017-2018 Update 8-K. We will continue to monitor additional guidance issued by the Internal Revenue Service. Effective Tax Rate Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 14.1 percent in the quarter ended March 29, 2019 compared with 4.8 percent in the quarter ended March 30, 2018. In the quarter ended March 29, 2019, our effective tax rate benefited from the favorable impact of excess tax benefits related to equity-based compensation and from favorable adjustments recorded upon the filing of our Federal tax returns. In the quarter ended March 30, 2018, our effective tax rate benefited from a $33 million ($.27 per diluted share) adjustment to the provisional amount recorded in the second quarter of fiscal 2018 to revalue our net deferred tax balances as a result of the Tax Act. Additionally, our effective tax rate for the quarter ended March 30, 2018 benefited from the favorable impact of excess tax benefits related to equity-based compensation. Our effective tax rate was 15.7 percent in the three quarters ended March 29, 2019 compared with 25.3 percent in the three quarters ended March 30, 2018. In addition to the items noted above for the quarter ended March 29, 2019, our effective tax rate for the three quarters ended March 29, 2019 benefited from a reduction in the deferred tax liability maintained on the basis differences related to the unremitted foreign earnings and an increase in the research and development (“R&D”) credit. Our effective tax rate for the three quarters ended March 30, 2018 was impacted by a $25 million ($.20 per diluted share) write-down of existing net deferred tax asset balances based on the lower tax rates and other tax law changes from the Tax Act, $26 million ($.21 per diluted share) of benefit from the associated impact of our lower estimated fiscal 2018 tax rate, $22 million ( $.18 per diluted share) favorable impact of releasing provisions for uncertain tax positions, the favorable impact of differences in GAAP and tax accounting related to investments and the favorable impact of excess tax benefits related to equity-based compensation.
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Note M — 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 external pricing services, 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. The following table presents assets and liabilities measured at fair value on a recurring basis (at least annually) at March 29, 2019 and June 29, 2018:
_______________
The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):
_______________ (1) 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.
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Derivative Instruments and Hedging Activities |
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Mar. 29, 2019 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Instruments and Hedging Activities | Note N — 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. Additionally, during January 2019, we entered into a yield-based treasury lock agreement with a third-party financial institution counterparty (“treasury lock”) to hedge against fluctuations in interest payments due to changes in the benchmark interest rate (10-year U.S. Treasury rate) associated with our anticipated issuance of long-term fixed-rate notes (“New Notes”) to redeem or repay at maturity the entire $400 million outstanding principal amount of our 2.7% Notes due April 27, 2020 (“2020 Notes”). 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 also may enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. We recognize all derivatives in our Condensed Consolidated Balance Sheet (Unaudited) at fair value. We do not hold or issue derivatives for speculative trading purposes. At March 29, 2019, we had open foreign currency forward contracts with an aggregate notional amount of $9 million, of which $5 million were classified as cash flow hedges and $4 million was classified as a fair value hedge. This compares with open foreign currency forward contracts with an aggregate notional amount of $39 million at June 29, 2018, of which $35 million were classified as cash flow hedges and $4 million was classified as a fair value hedge. At March 29, 2019, contract expiration dates ranged from 17 days to approximately 3 months with a weighted average contract life of 2 months. At March 29, 2019, we also had an open treasury lock agreement with a notional amount of $400 million that was classified as a cash flow hedge. Exchange-Rate Risk — Fair Value Hedges 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 product sales and services” line item in our Condensed Consolidated Statement of Income (Unaudited). At March 29, 2019, we had an outstanding foreign currency forward contract denominated in the Canadian Dollar to hedge a certain balance sheet item. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in the quarter or three quarters ended March 29, 2019 or in the quarter or three quarters ended March 30, 2018. In addition, no amounts were recognized in earnings in the quarter or three quarters ended March 29, 2019 or in the quarter or three quarters ended March 30, 2018 related to hedged firm commitments that no longer qualify as fair value hedges. Exchange-Rate Risk — Cash Flow Hedges We use foreign currency forward contracts and options to hedge off-balance sheet future foreign currency commitments and also have hedged U.S. Dollar payments to suppliers to maintain our anticipated profit margins in our international operations. At March 29, 2019, we had outstanding foreign currency forward contracts denominated in British Pounds and the Australian Dollar to hedge certain forecasted transactions. 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 the quarter or three quarters ended March 29, 2019 or in the quarter or three quarters ended March 30, 2018. Interest-Rate Risk — Cash Flow Hedges As noted above, in anticipation of the issuance of the New Notes to redeem or repay at maturity the 2020 Notes, we entered into a treasury lock with a notional value of $400 million. We designated the treasury lock as a cash flow hedge against fluctuations in interest payments on the New Notes due to changes in the benchmark interest rate prior to issuance, which we expect to occur between August 2019 and April 2020. If the benchmark interest rate increases during the period of the agreement, the treasury lock position will become an asset and we will receive a cash payment from the counterparty when we terminate the treasury lock upon issuance of the New Notes. Conversely, if the benchmark interest rate decreases, the treasury lock position will become a liability and we will make a cash payment to the counterparty when we terminate the treasury lock upon issuance of the New Notes. The fair value of the treasury lock is measured using a pricing model that utilizes observable market data such as the benchmark interest rate. See Note M — Fair Value Measurements in these Notes for additional information. At March 29, 2019, the fair value of the treasury lock was a liability of $11 million, which we recorded in the “Other accrued items” line item in our Condensed Consolidated Balance Sheet (Unaudited) with a corresponding unrealized after-tax loss of $8 million in the “Accumulated other comprehensive loss” line item in our Condensed Consolidated Balance Sheet (Unaudited) representing the effective portion of the treasury lock’s change in fair value during the quarter ended March 29, 2019. The ineffective portion of the treasury lock’s change in fair value was immaterial during the quarter ended March 29, 2019.
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Changes in Estimates |
9 Months Ended |
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Mar. 29, 2019 | |
Change in Accounting Estimate [Abstract] | |
Changes in Estimates | Note O — Changes in Estimates Contract Estimates Under the POC cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the long-term nature of many of our contracts, developing the estimated total cost at completion and total transaction price 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 and the risk and impact of delayed performance. Factors that must be considered in estimating the total transaction price include contractual cost or performance incentives (such as incentive fees, award fees and penalties) and other forms of variable consideration as well as our historical experience and expectation for performance on the contract. 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 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, as the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we receive award fees that are higher or lower than expected. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on 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. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident. Net EAC adjustments resulting from changes in estimates impacted our operating income favorably by $6 million ($4 million after-tax or $.03 per diluted share) and $5 million ($4 million after-tax or $.03 per diluted share) for the quarter and three quarters ended March 29, 2019, respectively, and unfavorably by $4 million ($3 million after-tax or $.02 per diluted share) and $15 million ($11 million after-tax or $.09 per diluted share) for the quarter and three quarters ended March 30, 2018, respectively. Revenue recognized from performance obligations satisfied in prior periods was $18 million and $34 million for the quarter and three quarters ended March 29, 2019, respectively, and $5 million and $35 million for the quarter and three quarters ended March 30, 2018, respectively. Income Taxes See Note L — Income Taxes in these Notes for changes in estimates disclosures associated with our accounting for income taxes.
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Backlog |
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Backlog | Note F — Contract Assets and Contract Liabilities Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the percentage of completion (“POC”) cost-to-cost revenue recognition method. We bill customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. The increase in contract liabilities in the three quarters ended March 29, 2019 was primarily due to an increase in the receipt of advance payments and the timing of contractual billing milestones. Changes in contract assets and contract liabilities balances during the quarter and three quarters ended March 29, 2019 were not materially impacted by any factors other than those described above. Contract assets and contract liabilities are summarized below:
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The components of contract assets are summarized below:
Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite delivery, indefinite quantity contracts. At March 29, 2019, our ending backlog was $8.5 billion. We expect to recognize approximately half of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next 3 years.
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Business Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information | Note Q — Business Segment Information 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 discussed in more detail in Note A — Significant Accounting Policies and Recent Accounting Standards in these Notes and in Note 1: “Significant Accounting Policies” and Note 2: “Accounting Changes or Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K, effective June 30, 2018, we adopted ASC 606 and ASU 2017-07 using the full retrospective method. The historical results, discussion and presentation of our business segments as set forth in our Condensed Consolidated Financial Statements (Unaudited) and these Notes reflect the impact of our adoption of ASC 606 and ASU 2017-07 for all periods presented in order to present all segment information on a comparable basis. The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K. We evaluate each segment’s performance based on segment operating income or loss, which we define as profit or loss from operations before income taxes, including pension income and 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 item in the table below represents the elimination of intersegment sales. The “Unallocated corporate expense and corporate eliminations” line item in the table below represents the portion of corporate expenses not allocated to our business segments and the elimination of intersegment profits. The “Pension adjustment” line item in the table below represents the reconciliation of the non-service components of net periodic pension and postretirement benefit costs, which are a component of segment operating income but are included in the “Non-operating income” line item in our Condensed Consolidated Statement of Income (Unaudited) as a result of our adoption of ASU 2017-07 as discussed in Note A — Significant Accounting Policies and Recent Accounting Standards in these Notes. The non-service components of net periodic pension and postretirement benefit costs include interest cost, expected return on plan assets and amortization of net actuarial gain. 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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Disaggregation of Revenue Communication Systems: Communication Systems operates principally on a “commercial” market-driven business model through which the business segment provides ready-to-ship commercial off-the-shelf products to customers in the U.S. and internationally. Communication Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when the product is received and accepted by the customer. We disaggregate Communication Systems revenue by geographical region, as we believe this category best depicts how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:
Electronic Systems: Electronic Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost method. We disaggregate Electronic Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Electronic Systems revenue and cash flows are affected by economic factors:
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Space and Intelligence Systems: Space and Intelligence Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost method. We disaggregate Space and Intelligence Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Space and Intelligence Systems revenue and cash flows are affected by economic factors:
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Total assets by business segment are summarized below:
_______________ (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 recorded as Corporate assets were $898 million and $974 million at March 29, 2019 and June 29, 2018, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan assets and buildings and equipment.
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Legal Proceedings and Contingencies |
9 Months Ended |
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Mar. 29, 2019 | |
Legal Proceedings And Contingencies [Abstract] | |
Legal Proceedings and Contingencies | Note R — 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 March 29, 2019, 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, that are considered probable of being rendered against us in litigation or arbitration in existence at March 29, 2019 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows. Merger Litigation In connection with our pending merger with L3 (see Note S — Pending Merger in these Notes for additional information), two putative class action lawsuits and one individual lawsuit were filed against L3 and its directors (together, the “L3 Parties”) in the U.S. District Court for the Southern District of New York between December 19, 2018 and January 15, 2019, and a third putative class action lawsuit, Kent v. L3 Technologies, Inc., et al., was filed against the L3 Parties and Harris Corporation and its wholly owned subsidiary, Leopard Merger Sub Inc. (Harris Corporation and Leopard Merger Sub Inc., the “Harris Parties”), in the U.S. District Court for the District of Delaware on January 4, 2019. The complaints in the lawsuits contained substantially similar allegations contending, among other things, that the registration statement on Form S-4 in support of the pending merger misstated or failed to disclose certain allegedly material information in violation of federal securities laws. The complaint in the Kent lawsuit further alleged that the Harris Parties were liable for these violations as “controlling persons” of L3 within the meaning of federal securities laws. On March 12, 2019, the parties to the actions entered into an agreement to settle all claims that were or could have been alleged in the action subject to, among other things, the supplementation by L3 of certain disclosures contained in the registration statement, which were reflected in a Current Report on Form 8-K filed by L3 with the SEC on March 13, 2019, and the dismissal of the four lawsuits, all of which were dismissed by March 18, 2019. 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 U.S. Department of Justice (the “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 these 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 March 29, 2019 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.
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Pending Merger |
9 Months Ended |
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Mar. 29, 2019 | |
Business Combinations [Abstract] | |
Pending Merger | Note S — Pending Merger On October 14, 2018, we announced that on October 12, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), with L3 and Leopard Merger Sub Inc., our wholly owned subsidiary (“Merger Sub”), pursuant to which we and L3 have agreed to combine in an all-stock merger of equals. Under the terms and subject to the conditions set forth in the Merger Agreement, L3 shareholders will receive a fixed exchange ratio of 1.30 shares of Harris common stock for each share of L3 common stock. Upon closing of the transactions contemplated by the Merger Agreement, Harris Corporation will be re-named “L3 Harris Technologies, Inc.” and Merger Sub will merge with and into L3, with L3 being the surviving corporation and becoming a wholly-owned subsidiary of L3 Harris Technologies, Inc. (“L3 Harris”), which will be owned on a fully diluted basis approximately 54 percent by Harris shareholders and 46 percent by L3 shareholders. Upon closing, the merger will be accounted for using the acquisition method of accounting, and Harris will be treated as the accounting acquirer. The Merger Agreement has been unanimously approved by the Board of Directors of each company. The consummation of the merger is subject to the satisfaction or waiver of certain conditions, including, among others, the expiration or earlier termination of any applicable waiting period and the receipt of approvals under domestic and certain foreign antitrust and competition laws, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). In connection with the proposed merger, we and L3 each filed a Notification and Report Form under the HSR Act (an “HSR Notification”) with the U.S. Federal Trade Commission and the DOJ on November 9, 2018. We voluntarily withdrew our HSR Notification effective as of December 10, 2018 and re-filed our HSR Notification on December 11, 2018. As part of the DOJ’s review of the merger, we and L3 each received on January 10, 2019 a request for additional information and documentary materials (the “Second Request”) from the DOJ, which extends the waiting period under the HSR Act until 30 days after both we and L3 have complied with the Second Request or such later time as the parties may agree with the DOJ, unless the waiting period is terminated earlier. We and L3 continue to work cooperatively with the DOJ on its review of the merger. We and L3 continue to expect the merger to close in the previously announced time frame of mid-calendar year 2019, although we can give no assurances regarding the timing or occurrence of closing. See Note T — Subsequent Events in these Notes for subsequent events disclosures associated with the merger. L3 is a prime contractor in intelligence, surveillance and reconnaissance (“ISR”) systems, aircraft sustainment (including modifications and fleet management of special mission aircraft), simulation and training, night vision and image intensification equipment and security and detection systems headquartered in New York, New York. L3 is also a provider of a broad range of communication, electronic and sensor systems used on military, homeland security and commercial platforms. L3 employs approximately 31,000 employees and its customers include the U.S. Department of Defense and its prime contractors, U.S. government intelligence agencies, the U.S. Department of Homeland Security, foreign governments and domestic and commercial customers. L3 generated calendar 2018 revenue of approximately $10 billion. The foregoing description of the Merger Agreement and the transactions contemplated thereby is not complete and is subject to, and qualified in its entirety by reference to, the Agreement and Plan of Merger, dated as of October 12, 2018, by and among L3, us, and Merger Sub, a copy of which was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on October 16, 2018.
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Subsequent Events |
9 Months Ended |
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Mar. 29, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note T — Subsequent Events On April 4, 2019, at our and L3’s respective special meetings of stockholders to vote on the proposals identified in the definitive joint proxy statement/prospectus filed with the SEC on February 25, 2019 in connection with the Merger Agreement, our and L3’s respective stockholders voted to approve all proposals necessary to complete the transactions contemplated by the Merger Agreement. Also on April 4, 2019, we entered into a definitive agreement under which we will sell our Night Vision business to Elbit Systems of America, LLC, a subsidiary of Elbit Systems Ltd., for $350 million in cash, subject to customary purchase price adjustments as set forth in the definitive agreement. The sale transaction is conditioned on completion of our pending merger with L3 pursuant to the Merger Agreement, as well as customary closing conditions, including receipt of regulatory approvals. We expect to use the proceeds from the sale of our Night Vision business to pre-fund L3 Harris pension plans and return cash to shareholders. Our Night Vision business is a global supplier of high-performance, vision-enhancing products for U.S. and allied military and security forces and commercial customers. Because the sale transaction is conditioned on completion of our pending merger with L3, the assets and liabilities of our Night Vision business were not classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at March 29, 2019.
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Significant Accounting Policies and Recent Accounting Standards (Policies) |
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Mar. 29, 2019 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
Basis of Presentation | Basis of Presentation The accompanying Condensed Consolidated Financial Statements (Unaudited) include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) (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 consolidation. The accompanying Condensed Consolidated Financial Statements (Unaudited) have been prepared by Harris, without an audit, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial condition, results of operations, cash flows and equity in conformity with GAAP for annual financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations and cash flows for the periods presented therein. The results for the quarter and three quarters ended March 29, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at June 29, 2018 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. We provide complete, audited financial statements in our Annual Report on Form 10-K, which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 29, 2018 (our “Fiscal 2018 Form 10-K”) and in our Current Report on Form 8-K filed with the SEC on December 13, 2018 (our “Fiscal 2017-2018 Update 8-K”), which updated and superseded historical fiscal 2018 and fiscal 2017 financial information contained in Item 7, Item 8 and certain other Items in our Fiscal 2018 Form 10-K to reflect the impact for those two fiscal years of retrospective application of Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), as amended (“ASC 606”), and ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), each of which we adopted effective June 30, 2018. See “Adoption of New Accounting Standards” below in this Note A for additional information. Amounts contained in this Report may not always add to totals due to rounding.
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Reclassifications | ReclassificationsThe classification of certain prior-period amounts has been adjusted in our Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications. Reclassifications include certain direct selling and bid and proposal costs from the “Cost of product sales and services” line item to the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited) and in these Notes. | ||||||||||||
Use of Estimates | Use of EstimatesThe preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes. Materially different results can occur as circumstances change and additional information becomes known. | ||||||||||||
Adoption of New Accounting Standards and Accounting Standards Issued But Not Yet Effective | Adoption of New Accounting Standards As discussed above, we adopted ASC 606 effective June 30, 2018. 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 adopted the requirements of the new standard using the full retrospective transition method. We opted for this transition 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 and 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. Retrospective application of 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. 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 “Advance payments and unearned income” line items in our Condensed Consolidated Balance Sheet. See Note 2: “Accounting Changes or Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K for a table summarizing the effect of adopting ASC 606 on our previously reported Consolidated Balance Sheet as of June 29, 2018. Total net cash provided by operating activities and total net cash provided by or used in investing activities and financing activities in our previously reported Condensed Consolidated Statements of Cash Flows (Unaudited) were not impacted by our adoption of ASC 606. We also adopted ASU 2017-07 effective June 30, 2018, as discussed above. This update requires that entities present components of net periodic pension and postretirement benefit costs other than the service cost component (“non-service cost amounts”) separately from the service cost component. We adopted this update retrospectively by recasting each prior period presented, using as our estimation basis for recasting prior periods the amounts disclosed in Note 13: “Pension and Other Postretirement Benefits” in our Notes to Consolidated Financial Statements in our Fiscal 2018 Form 10-K. Retrospective application of this update resulted in reclassification to the “Non-operating income” line item of non-service cost amounts that were included in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Income (Unaudited) prior to adopting ASU 2017-07. Accounting Standards Issued But Not Yet EffectiveIn 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. 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 expect to adopt the new lease standard on 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 also intend 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 majority of our current lease arrangements are classified as operating leases under existing GAAP lease guidance, and we expect they will continue to be classified as operating leases under the new standard. We have made progress in executing our implementation plan, including identifying our lease population. We are in the process of implementing a new lease management software tool as well as new processes and controls. Once we have configured the new lease management tool and have accumulated compatible lease data, we expect to measure the right-of-use assets and liabilities for leases in effect at the adoption date, which could be material. We do not expect that the adoption of this standard will have a material impact on our results of operations or cash flows.
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Stock Options and Other Share-Based Compensation | The fair value as of the grant date of each performance 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, less a discount to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting. | ||||||||||||
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 Condensed Consolidated Statement of Income (Unaudited). | ||||||||||||
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:
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Business Segment Information | We evaluate each segment’s performance based on segment operating income or loss, which we define as profit or loss from operations before income taxes, including pension income and 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 item in the table below represents the elimination of intersegment sales.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:
• 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.
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Significant Accounting Policies and Recent Accounting Standards (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effect of Adopting ASC 606 and ASU 2017-07 on Condensed Consolidated Financial Statements (Unaudited) | The following table summarizes the effect of adopting ASC 606 and ASU 2017-07 on our previously reported Condensed Consolidated Statement of Income (Unaudited) for the quarter and three quarters ended March 30, 2018:
The following table presents the effect of adopting ASC 606 on our previously reported Condensed Consolidated Statement of Cash Flows (Unaudited) for the three quarters ended March 30, 2018:
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Accumulated Other Comprehensive Loss (Tables) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Accumulated Other Comprehensive Loss | The components of accumulated other comprehensive loss are summarized below:
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Receivables (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Receivables | Receivables are summarized below:
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Contract Assets and Contract Liabilities (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Contract Assets and Contract Liabilities | Contract assets and contract liabilities are summarized below:
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The components of contract assets are summarized below:
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Inventories (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories | Inventories are summarized below:
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Property Plant and Equipment (Tables) |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property, Plant and Equipment | Property, plant and equipment are summarized below:
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Accrued Warranties (Tables) |
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Product Warranties Disclosures [Abstract] | |||||||||||||||||||||||||||||||||
Schedule of 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 Condensed Consolidated Balance Sheet (Unaudited), during the three quarters ended March 29, 2019 were as follows:
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Postretirement Benefit Plans (Tables) |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Net Periodic Benefit Cost | The following tables provide the components of our net periodic benefit income for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:
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Income From Continuing Operations Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Computation of Net Income Per Common Share | The computations of income from continuing operations per common share are as follows:
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Fair Value Measurements (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis | The following table presents assets and liabilities measured at fair value on a recurring basis (at least annually) at March 29, 2019 and June 29, 2018:
_______________
(3) See Note N — Derivative Instruments and Hedging Activities in these Notes for additional information.
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Schedule of Carrying Amounts and Estimated Fair Values of Financial Instruments Not Measured at Fair Value | The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):
_______________ (1) 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
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Business Segment Information (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Revenue and Reconciliation of Segment Income to Total Income From Continuing Operations Before Taxes | Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:
_______________ (1) Unallocated corporate expense and corporate eliminations included: (i) $16 million and $29 million of L3 Technologies, Inc. (“L3”) merger-related transaction and integration costs for the quarter and three quarters ended March 29, 2019, respectively; (ii) $45 million of charges related to our decision to transition and exit a commercial air-to-ground long term evolution (“LTE”) radio communications line of business in the quarter and three quarters ended March 30, 2018; (iii) a $12 million adjustment for deferred compensation in the three quarters ended March 30, 2018; and (iv) $25 million and $76 million of expense in the quarter and three quarters ended March 29, 2019, respectively, compared with $25 million and $75 million of expense in the quarter and three quarters ended March 30, 2018, 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. Corporate eliminations of intersegment profits were not material in the quarter or three quarters ended March 29, 2019 or the quarter or three quarters ended March 30, 2018.
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Schedule of Disaggregation of Revenue by Segment | Disaggregation of Revenue Communication Systems: Communication Systems operates principally on a “commercial” market-driven business model through which the business segment provides ready-to-ship commercial off-the-shelf products to customers in the U.S. and internationally. Communication Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when the product is received and accepted by the customer. We disaggregate Communication Systems revenue by geographical region, as we believe this category best depicts how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:
Electronic Systems: Electronic Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost method. We disaggregate Electronic Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Electronic Systems revenue and cash flows are affected by economic factors:
_______________
Space and Intelligence Systems: Space and Intelligence Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost method. We disaggregate Space and Intelligence Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Space and Intelligence Systems revenue and cash flows are affected by economic factors:
_______________ (1) Includes revenue derived from time-and-materials contracts.
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Schedule of Total Segment Assets Reconciliation | Total assets by business segment are summarized below:
_______________ (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 recorded as Corporate assets were $898 million and $974 million at March 29, 2019 and June 29, 2018, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan assets and buildings and equipment.
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Significant Accounting Policies and Recent Accounting Standards (Details) $ in Millions |
Jul. 02, 2016
USD ($)
|
---|---|
Retained Earnings | Effect of Adopting ASU 2014-09 | |
Business Combination, Separately Recognized Transactions [Line Items] | |
Cumulative effect adjustment as reduction of opening balance of retained earnings | $ 15 |
Restructuring and Other Exit Costs (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Jun. 29, 2018 |
Mar. 29, 2019 |
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Restructuring Cost and Reserve [Line Items] | ||
Restructuring reserve | $ 27 | $ 16 |
Remaining lease term of exited facilities | 5 years | |
Exelis | Engineering, selling and administrative expenses | ||
Restructuring Cost and Reserve [Line Items] | ||
Charges for integration and other costs | $ 5 |
Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended |
---|---|---|
Mar. 29, 2019 |
Jun. 29, 2018 |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||
Foreign currency translation, net of income taxes of $2 million at March 29, 2019 and June 29, 2018 | $ (104) | $ (99) |
Net unrealized loss on hedging derivatives, net of income taxes of $9 million and $7 million at March 29, 2019 and June 29, 2018, respectively | (27) | (20) |
Unrecognized postretirement obligations, net of income taxes of $31 million at March 29, 2019 and $30 million at June 29, 2018, respectively | (86) | (83) |
Accumulated other comprehensive loss | (217) | (202) |
Tax effect on foreign currency translation | 2 | 2 |
Tax effect on unrealized loss on hedging derivatives | 9 | 7 |
Tax effect on unrecognized post-retirement obligations | $ 31 | $ 30 |
Receivables (Details) - USD ($) |
Mar. 29, 2019 |
Jun. 29, 2018 |
---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts receivable | $ 455,000,000 | $ 468,000,000 |
Less allowances for collection losses | (2,000,000) | (2,000,000) |
Receivables | 453,000,000 | $ 466,000,000 |
RSA | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Authorized amount of accounts receivables outstanding under agreement | $ 50,000,000 |
Contract Assets and Contract Liabilities (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Mar. 29, 2019 |
Mar. 30, 2018 |
Mar. 29, 2019 |
Mar. 30, 2018 |
Jun. 29, 2018 |
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Revenue from Contract with Customer [Abstract] | |||||
Contract assets | $ 881 | $ 881 | $ 782 | ||
Contract liabilities, current | (466) | (466) | (372) | ||
Contract liabilities, non-current | (12) | (12) | (7) | ||
Net contract assets | 403 | 403 | 403 | ||
Components of Contract Assets: | |||||
Unbilled contract receivables, gross | 989 | 989 | 881 | ||
Progress payments | (108) | (108) | (99) | ||
Contract assets | 881 | 881 | $ 782 | ||
Recognized sales on contract liabilities | $ 52 | $ 24 | $ 259 | $ 187 |
Inventories (Details) - USD ($) $ in Millions |
Mar. 29, 2019 |
Jun. 29, 2018 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Finished products | $ 89 | $ 91 |
Work in process | 113 | 121 |
Raw materials and supplies | 231 | 199 |
Inventories | $ 433 | $ 411 |
Property, Plant and Equipment (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Mar. 29, 2019 |
Mar. 30, 2018 |
Mar. 29, 2019 |
Mar. 30, 2018 |
Jun. 29, 2018 |
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Property, Plant and Equipment | |||||
Land | $ 43 | $ 43 | $ 43 | ||
Software capitalized for internal use | 182 | 182 | 171 | ||
Buildings | 630 | 630 | 620 | ||
Machinery and equipment | 1,425 | 1,425 | 1,349 | ||
Property, plant and equipment, gross | 2,280 | 2,280 | 2,183 | ||
Less accumulated depreciation and amortization | (1,376) | (1,376) | (1,283) | ||
Property, plant and equipment | 904 | 904 | $ 900 | ||
Depreciation and amortization expense related to property, plant and equipment | $ 34 | $ 33 | $ 102 | $ 106 |
Accrued Warranties - Changes in Liabilities for Standard Warranties (Details) $ in Millions |
9 Months Ended |
---|---|
Mar. 29, 2019
USD ($)
| |
Changes in warranty liability | |
Balance at June 29, 2018 | $ 24 |
Warranty provision for sales | 11 |
Settlements | (8) |
Other, including adjustments for foreign currency translation | (1) |
Balance at March 29, 2019 | $ 26 |
Accrued Warranties - Additional Information (Details) - USD ($) $ in Millions |
Mar. 29, 2019 |
Jun. 29, 2018 |
---|---|---|
Contract Liabilities and Other Long-term Liabilities | ||
Product Warranty Liability [Line Items] | ||
Extended product warranty accrual | $ 24 | $ 16 |
Postretirement Benefit Plans - Components of Net Periodic Benefit Costs (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 29, 2019 |
Mar. 30, 2018 |
Mar. 29, 2019 |
Mar. 30, 2018 |
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Pension | ||||
Net periodic benefit income | ||||
Service cost | $ 9 | $ 10 | $ 27 | $ 29 |
Interest cost | 52 | 49 | 157 | 146 |
Expected return on plan assets | (95) | (92) | (286) | (276) |
Amortization of net actuarial gain | 0 | 0 | 0 | 0 |
Total net periodic benefit income | (34) | (33) | (102) | (101) |
Other Benefits | ||||
Net periodic benefit income | ||||
Service cost | 1 | 0 | 1 | 1 |
Interest cost | 2 | 1 | 6 | 5 |
Expected return on plan assets | (4) | (4) | (12) | (12) |
Amortization of net actuarial gain | (2) | 0 | (5) | (1) |
Total net periodic benefit income | $ (3) | $ (3) | $ (10) | $ (7) |
Fair Value Measurements - Significant Financial Instruments Not Measured at Fair Value (Details) - USD ($) $ in Millions |
Mar. 29, 2019 |
Jun. 29, 2018 |
---|---|---|
Carrying Amount | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term debt (including current portion) | $ 3,418 | $ 3,712 |
Fair Value | Level 2 | Market Approach | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term debt (including current portion) | $ 3,673 | $ 3,848 |
Changes in Estimates (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 29, 2019 |
Mar. 30, 2018 |
Mar. 29, 2019 |
Mar. 30, 2018 |
|
Change in Accounting Estimate [Line Items] | ||||
Revenue recognized from performance obligations satisfied in prior periods | $ 18 | $ 5 | $ 34 | $ 35 |
Contracts Accounted for under Percentage of Completion | ||||
Change in Accounting Estimate [Line Items] | ||||
Operating income (loss) | 6 | (4) | 5 | (15) |
Operating income (loss), net of tax | $ 4 | $ (3) | $ 4 | $ (11) |
Operating income (loss), per diluted share (in dollars per share) | $ 0.03 | $ (0.02) | $ 0.03 | $ (0.09) |
Business Segment Information - Additional Information (Details) |
9 Months Ended |
---|---|
Mar. 29, 2019
segment
| |
Segment Reporting [Abstract] | |
Number of reportable segments | 3 |
Number of business segments | 3 |
Business Segment Information - Assets by Segment (Details) - USD ($) $ in Millions |
Mar. 29, 2019 |
Jun. 29, 2018 |
---|---|---|
Segment Reporting Information [Line Items] | ||
Assets | $ 9,792 | $ 9,851 |
Identifiable intangible assets | 902 | 989 |
Operating Segments | Communication Systems | ||
Segment Reporting Information [Line Items] | ||
Assets | 1,562 | 1,567 |
Operating Segments | Electronic Systems | ||
Segment Reporting Information [Line Items] | ||
Assets | 4,251 | 4,174 |
Operating Segments | Space and Intelligence Systems | ||
Segment Reporting Information [Line Items] | ||
Assets | 2,216 | 2,193 |
Corporate | ||
Segment Reporting Information [Line Items] | ||
Assets | 1,763 | 1,917 |
Corporate | Exelis | ||
Segment Reporting Information [Line Items] | ||
Identifiable intangible assets | $ 898 | $ 974 |
Legal Proceedings and Contingencies (Details) $ in Millions |
1 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Mar. 18, 2019
claim
|
Jan. 04, 2019
claim
|
Mar. 31, 2016
party
|
Jan. 15, 2019
claim
|
Mar. 29, 2019
USD ($)
|
|
Exelis | Passaic River Alaska | |||||
Loss Contingencies [Line Items] | |||||
Number of potentially responsible parties notified (over 100) | party | 100 | ||||
Estimated cost for all participating parties of EPA's preferred alternative | $ | $ 1,380 | ||||
L3 Harris Technologies, Inc. | Pending Litigation | Putative Class Action Lawsuit | L3 Parties | |||||
Loss Contingencies [Line Items] | |||||
Number of lawsuits filed | 2 | ||||
L3 Harris Technologies, Inc. | Pending Litigation | Putative Class Action Lawsuit | Kent v. L3 Technologies, Inc. | |||||
Loss Contingencies [Line Items] | |||||
Number of lawsuits filed | 1 | ||||
L3 Harris Technologies, Inc. | Pending Litigation | Individual Lawsuit | L3 Parties | |||||
Loss Contingencies [Line Items] | |||||
Number of lawsuits filed | 1 | ||||
L3 Harris Technologies, Inc. | Dismissed Litigation | |||||
Loss Contingencies [Line Items] | |||||
Number of lawsuits filed | 4 |
Pending Merger (Details) - L3 Harris Technologies, Inc. employee in Thousands, $ in Billions |
12 Months Ended | |
---|---|---|
Jun. 30, 2019 |
Dec. 31, 2018
USD ($)
employee
|
|
L3 Technologies, Inc. | ||
Business Acquisition [Line Items] | ||
Entity number of employees | employee | 31 | |
Revenue | $ | $ 10 | |
Subsequent Event | Scenario, Forecast | ||
Business Acquisition [Line Items] | ||
Fixed exchange conversion ratio per share | 1.30 | |
Subsequent Event | Scenario, Forecast | Former Harris Shareholders | ||
Business Acquisition [Line Items] | ||
Percentage of voting interests acquired | 54.00% | |
Subsequent Event | Scenario, Forecast | Former L3 Shareholders | ||
Business Acquisition [Line Items] | ||
Percentage of voting interests acquired | 46.00% |
Subsequent Events (Details) $ in Millions |
Apr. 04, 2019
USD ($)
|
---|---|
Subsequent Event | Scenario, Forecast | |
Subsequent Event [Line Items] | |
Proceeds from divestiture of business | $ 350 |
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