UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
|
|
(Mark One)
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the fiscal year ended July
3, 2009
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
|
|
For the transition period
from
to
|
Commission File Number 1-3863
HARRIS
CORPORATION
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
34-0276860
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
1025 West NASA Boulevard
Melbourne, Florida
|
|
32919
|
(Address of principal executive
offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code:
(321) 727-9100
Securities Registered Pursuant to Section 12(b) of the
Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered
|
|
Common Stock, par value $1.00 per share
|
|
New York Stock Exchange
|
Securities Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
ü
No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
ü
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
ü
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
ü
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
|
|
|
Large accelerated
filer
ü
|
|
Accelerated
filer
|
Non-accelerated
filer
(Do not
check if a smaller reporting company)
|
|
Smaller reporting
company
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
No
ü
The aggregate market value of the voting common equity held by
non-affiliates of the registrant was $5,416,808,799 (based upon
the quoted closing sale price per share of the stock on the New
York Stock Exchange) on the last business day of the
registrants most recently completed second fiscal quarter
(January 2, 2009). For purposes of this calculation, the
registrant has assumed that its directors and executive officers
as of January 2, 2009 are affiliates.
The number of outstanding shares of the registrants common
stock as of August 28, 2009 was 131,069,790.
Documents
Incorporated by Reference:
Portions of the registrants definitive Proxy Statement for
the 2009 Annual Meeting of Shareholders scheduled to be held on
October 23, 2009, which will be filed with the Securities
and Exchange Commission within 120 days after the end of
the registrants fiscal year ended July 3, 2009, are
incorporated by reference into Part III of this Annual
Report on
Form 10-K
to the extent described therein.
HARRIS
CORPORATION
ANNUAL
REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 3, 2009
TABLE OF
CONTENTS
Exhibits
This Annual Report on
Form 10-K
contains trademarks, service marks and registered marks of
Harris Corporation and its subsidiaries. HD
Radio
®
is a registered trademark of iBiquity Digital Corporation LLC.
All other trademarks are the property of their respective owners.
Cautionary
Statement Regarding Forward-Looking Statements
This Annual Report on
Form 10-K
(this Report), including Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations, contains forward-looking
statements that involve risks and uncertainties, as well as
assumptions that, if they do not materialize or prove correct,
could cause our results to differ materially from those
expressed in or implied by such forward-looking statements. All
statements other than statements of historical fact are
statements that could be deemed forward-looking statements,
including statements concerning: our plans, strategies and
objectives for future operations; new products, services or
developments; future economic conditions, performance or
outlook; the outcome of contingencies; the potential level of
share repurchases; the value of our contract awards and
programs; expected cash flows or capital expenditures; our
beliefs or expectations; activities, events or developments that
we intend, expect, project, believe or anticipate will or may
occur in the future; and assumptions underlying any of the
foregoing. Forward-looking statements may be identified by their
use of forward-looking terminology, such as
believes, expects, may,
should, would, will,
intends, plans, estimates,
anticipates, projects and similar words
or expressions. You should not place undue reliance on these
forward-looking statements, which reflect our managements
opinions only as of the date of the filing of this Report and
are not guarantees of future performance or actual results.
Factors that might cause our results to differ materially from
those expressed in or implied by these forward-looking
statements include, but are not limited to, those discussed in
Item 1A. Risk Factors of this Report. All
forward-looking statements are qualified by, and should be read
in conjunction with, those risk factors. Forward-looking
statements are made in reliance upon the safe harbor provisions
of Section 27A of the Securities Act of 1933, as amended
(the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and we undertake no obligation, other than imposed
by law, to update forward-looking statements to reflect further
developments or information obtained after the date of filing of
this Report or, in the case of any document incorporated by
reference, the date of that document, and disclaim any
obligation to do so.
PART I
HARRIS
Harris Corporation, together with its subsidiaries, is an
international communications and information technology company
serving government and commercial markets in more than 150
countries. We are dedicated to developing
best-in-class
assured
communications
®
products, systems and services for global markets, including
RF communications, government communications and broadcast
communications.
Harris Corporation was incorporated in Delaware in 1926 as the
successor to three companies founded in the 1890s. Our principal
executive offices are located at 1025 West NASA Boulevard,
Melbourne, Florida 32919, and our telephone number is
(321) 727-9100.
Our common stock is listed on the New York Stock Exchange under
the symbol HRS. On August 28, 2009, we employed
approximately 15,300 people. Unless the context otherwise
requires, the terms we, our,
us, Company and Harris as
used in this Report refer to Harris Corporation and its
subsidiaries.
General
We structure our operations primarily around the products and
services we sell and the markets we serve, and we report our
financial results in the following three business segments:
|
|
|
|
|
Our RF Communications segment, comprised of our
(i) Tactical Radio Communications and (ii) Public
Safety and Professional Communications businesses;
|
|
|
Our Government Communications Systems segment, comprised of our
(i) Defense Programs, (ii) National Intelligence
Programs, (iii) Civil Programs and (iv) IT Services
businesses; and
|
|
|
Our Broadcast Communications segment, comprised of our
(i) Infrastructure and Networking Solutions,
(ii) Media and Workflow and (iii) Transmission Systems
businesses.
|
As previously reported and as discussed further in
Note 25: Business Segments
in the Notes to
Consolidated Financial Statements in this Report (the
Notes), our segment reporting structure for fiscal
2009 reflects that, effective upon the commencement of fiscal
2009, our RF Communications business (part of our Defense
Communications and Electronics segment for fiscal 2008) is
reported as its own separate segment, and our Defense Programs
business (the other part of our Defense Communications and
Electronics segment for fiscal 2008) is reported as part of
our Government Communications Systems segment. Our Broadcast
Communications segment did not change as a result of those
adjustments to our segment reporting structure. The historical
results, discussion and presentation of our business segments as
set forth in this Report reflect the impact of those adjustments
to our segment reporting structure for all periods presented in
this Report.
1
Additionally, in the fourth quarter of fiscal 2009, in
connection with the May 27, 2009 spin-off (the
Spin-off) in the form of a taxable pro rata dividend
to our shareholders of all the shares of Harris Stratex
Networks, Inc. (HSTX) common stock owned by us, we
eliminated as a reporting segment our former HSTX segment.
Accordingly, our historical financial results have been restated
to account for HSTX as discontinued operations for all periods
presented in this Report, and unless otherwise specified,
disclosures in this Report relate solely to our continuing
operations. See
Note 3: Discontinued Operations
in
the Notes for additional information regarding discontinued
operations.
Financial information with respect to all of our other
activities, including corporate costs not allocated to the
business segments or discontinued operations, is reported as
part of the Unallocated corporate expense or
Non-operating income (loss) line items in our
Consolidated Financial Statements.
Recent
Acquisitions
Acquisition of Crucial Security, Inc.
On
April 15, 2009, we acquired Crucial Security, Inc.
(CSI), a privately held 110-employee
Washington, D.C.-area provider of mission-enabling
engineering solutions that address both offensive and defensive
information technology (IT) security challenges for
Federal law enforcement and other U.S. Government agencies.
We operate CSI within our Government Communications Systems
segment as part of the National Intelligence Programs business.
The acquisition expands our capabilities, customer footprint and
current initiatives in the cyber security market.
Acquisition of Tyco Electronics Wireless Systems
Business.
On May 29, 2009, we acquired
substantially all of the assets of the Tyco Electronics wireless
systems business (Wireless Systems) (formerly known
as M/A-COM), an established provider of mission-critical
wireless communications systems for law enforcement, fire and
rescue, public service, utility and transportation markets. In
connection with the acquisition, we assumed liabilities
primarily related to Wireless Systems. We did not assume the
State of New York wireless network contract awarded to Wireless
Systems in December 2004. The purchase price for Wireless
Systems was $665 million in cash, subject to further
post-closing adjustments. We operate Wireless Systems, which we
now call the Public Safety and Professional Communications
business, within our RF Communications segment. We believe the
acquisition creates a powerful supplier of
end-to-end
wireless network solutions to the growing $9 billion global
land mobile radio systems market and greatly accelerates our
entry into that market.
Acquisition of SolaCom Technologies ATC
Business.
On June 19, 2009, we acquired the
50-employee Air Traffic Control business unit (SolaCom
ATC) of SolaCom Technologies Inc., a privately held
company headquartered in Gatineau, Quebec, Canada. SolaCom ATC
provides voice and data communications systems and solutions for
air traffic facilities and radio communications between aircraft
in flight and air traffic controllers. These next-generation
radio control equipment solutions provide extremely reliable
voice switching and conferencing capabilities used by more than
100 customers on six continents. We operate SolaCom ATC within
our Government Communications Systems segment as part of the
Civil Programs business. We believe the acquisition provides our
Civil Programs Mission Critical Networks business, a
leader in air traffic control communications networks and
telecommunications infrastructure, with an immediate ability to
address additional segments of the air traffic control
voice/data systems market and further positions us to support
the anticipated Next Generation Air Transportation System
(NextGen) program of the Federal Aviation
Administration (FAA).
Financial
Information About Our Business Segments
Financial information with respect to our business segments,
including revenue, operating income or loss and total assets,
and with respect to our operations outside the United States, is
contained in
Note 25: Business Segments
in the Notes
and is incorporated herein by reference.
Description
of Business by Segment
RF
Communications
RF Communications is a global supplier of secure tactical radio
communications and embedded high-grade encryption solutions for
military and government organizations and also of secure
communications systems and equipment for public safety, utility
and transportation markets. RF Communications is comprised of
our (i) Tactical Radio Communications and (ii) Public
Safety and Professional Communications businesses.
Tactical Radio Communications:
We design,
develop and manufacture a comprehensive line of secure radio
communications products and systems for manpack, handheld,
soldier-worn, vehicular, strategic fixed-site and shipboard
applications that operate in various radio frequency
bands high-frequency (HF), very
high-frequency (VHF) and ultra high-frequency
(UHF) over satellite communications
(SATCOM) and in multiband mode.
2
These radio systems are highly flexible, interoperable and
capable of supporting diverse mission requirements. Our
Falcon
®
family of tactical radios is built on a software-defined radio
platform that is reprogrammable to add features or software
upgrades. Our Falcon radios also have the highest grade embedded
encryption and provide highly mobile, secure and reliable
network communications capability without relying on a fixed
infrastructure. This capability allows warfighters, for example,
to remain connected with each other, their command structures
and support organizations, and gives them the ability to
communicate information and maintain situational awareness of
both friendly and opposing forces, which are critical to both
the safety and success of their missions.
Unlike many of our competitors in the U.S. Government
market, we operate this business on a commercial
customer and market-driven business model, as opposed to a
government programs-driven business model. This means that we
anticipate market needs, invest our internal research and
development resources to develop products sooner than
government-funded programs, build to our internal forecast, and
provide
ready-to-ship,
commercial,
off-the-shelf
(COTS) products to customers more quickly than
customers can typically obtain similar products under
government-funded programs.
Our Falcon
III
®
family of radios is the next generation of multiband,
multi-mission tactical radios, which supports the
U.S. militarys Joint Tactical Radio System
(JTRS) requirements as well as network-centric
operations worldwide. Our Falcon III radios address the
full range of current mission and interoperability requirements
and are fully upgradeable to address changing technical
standards and mission requirements of the future. Advances in
our Falcon III radios include extended frequency range,
significant reductions in weight and size compared with previous
generations and programmable encryption. We have shipped more
than 75,000
JTRS-approved
Falcon III radios.
Our Falcon III multiband handheld radio, the AN/PRC-152(C)
(152C), is the worlds most widely deployed
JTRS-approved software-defined handheld radio and was our first
Falcon III radio to be fielded. It has been widely fielded
by all branches of the U.S. Department of Defense
(DoD) and many allies worldwide, and is also used by
U.S. Federal agencies. The 152C offers users a wide range
of capabilities such as legacy Single Channel Ground and
Airborne System (SINCGARS) interoperability; UHF
ground-to-ground
line-of-sight
communications;
close-air
support; tactical SATCOM; and the Association of Public Safety
Communications Officials International
(APCO) P25 waveform to provide direct communications
with first responders. The 152C also serves as the
handheld-based transceiver of our Falcon III AN/VRC-110, a
high-performance, multiband vehicular system that offers the
added feature of easy vehicle dismount a
grab-and-go
feature that delivers continuous communications when removed
from the vehicle, an important capability in urban environments.
Our new Falcon III multiband manpack radio, the AN/PRC-117G
(117G), is the only JTRS-approved and National
Security Agency (NSA) Type-1 certified radio
providing wideband networking capability. It has been deployed
to all branches of the DoD and is enabling the transition to a
networked battlefield communications environment. High-bandwidth
applications include simultaneous voice, data and streaming
video for situational awareness, reconnaissance information and
biometrics. The radio delivers Internet Protocol
(IP) data to the tactical Internet at on-air rates
of up to 5 megabits per second. The 117G currently runs our
Advanced Networking Wideband Waveform (ANW2) and is
designed for future upgrade to the Soldier Radio Waveform
(SRW). Both waveforms provide advanced networking
capability to the battlefield. The 117G features an extended
frequency range from 30 megahertz to 2 gigahertz and is
significantly lighter and consumes less power than previous
generations of manpack radios. It is certified by the Joint
Interoperability Test Command (JITC) as compliant
with Demand Assigned Multiple Access (DAMA) military
standards and is upgradeable to access the Mobile User Objective
System (MUOS), both of which are used for
transmitting high-bandwidth voice and data over tactical
military satellites. The 117G includes a Remote Operated Video
Enhanced Receiver (ROVER) interoperable mode that
provides warfighters on the battlefield with the ability to
receive live video directly from unmanned aerial vehicles
(UAVs). This capability allows users to receive a
video feed directly from the UAV without an intermediary or
having to pass that information from a base station, which
enables a dismounted warfighter to carry only one radio in
situations where two radios were previously required.
Our cryptographic solutions encompass NSA-certified products and
systems that range from single integrated circuits to major
communications systems, including our
Sierra
®
and
Citadel
®
embedded encryption solutions and our SecNet
11
®
and SecNet
54
tm
IP communications families of communications security
(COMSEC) terminals.
In the international market, our tactical radios are the
standard of NATO and Partnership for Peace countries and are
sold to more than 100 countries through our strong international
distribution channels consisting of regional sales offices and a
broad dealer network. International tactical radio demand is
being driven by continuing tactical communications modernization
and standardization programs to provide more sophisticated
communications capabilities to address traditional and emerging
threats and to provide interoperability. In fiscal 2009, we
received
3
tactical radio orders from,
and/or
made
deliveries to, a wide range of international customers including
Afghanistan, Albania, Algeria, Belgium, Belize, Brunei, Canada,
the Czech Republic, Djibouti, Egypt, El Salvador, Estonia,
Ethiopia, France, Hungary, Indonesia, Iraq, Kazakhstan, Kenya,
Kyrgyzstan, Macedonia, Mexico, Mozambique, Niger, Norway,
Pakistan, the Philippines, Poland, the Republic of Georgia,
Romania, Saudi Arabia, Singapore, Uganda, Ukraine, the United
Arab Emirates and the United Kingdom.
Additionally, we are increasing our focus on providing
integrated communications systems for the international market.
Our integrated systems offerings are largely based on our
products, but include other companies products, as well as
a wide variety of applications, in order to implement integrated
command, control, communications, computers, intelligence,
surveillance and reconnaissance (C4ISR) systems for
many different types of platforms, including command post and
transit case systems, vehicular and shelter communications
systems and specialized airborne applications, which are
frequently used in border security and surveillance systems. For
example, we are providing for the United Arab Emirates Ministry
of Defense a mobile, airborne and fixed-secure command, control
and communications (C3) nationwide system with 40
ground sites connected by an
IP-based
radio communications network, integrating
Falcon II
®
HF, VHF and multiband radios and Falcon III high capacity
data radios and tactical broadband global area network
(BGAN) terminals for SATCOM. We are providing the
Pakistan Frontier Corps with a complete turnkey secure,
high-speed communications infrastructure system, including
Falcon II HF and VHF radios, wideband high capacity line of
sight (HCLOS) radios and Falcon
Watch
tm
unmanned ground sensors, in fixed, mobile and shelterized
installations. In addition, we are providing to Brunei a
nationwide complete integrated communications military system
covering 18 static sites, 4 repeater sites and 288 vehicle
installations, with Falcon II HF and VHF radios and
Falcon III secure personal radios.
Public Safety and Professional
Communications:
We supply assured communications
systems and equipment for public safety, utility and
transportation markets, with products ranging from complete
end-to-end
wireless network infrastructure solutions, including advanced IP
voice and data networks, supporting multiple platforms and
providing interoperability among disparate systems, to portable
and mobile single-band and multiband radios.
We acquired Wireless Systems on May 29, 2009, as described
under Item 1. Business Recent
Acquisitions of this Report. As a result of that
acquisition, we conduct a worldwide wireless network systems
business which designs, builds, distributes, maintains and
supplies wireless communications systems, including land mobile
radio and broadband equipment, systems and networks for the
public safety, utility and transportation markets. We offer our
Voice, Interoperability, Data and Access (VIDA)
network solution, which is a unique, cost-effective
IP-based
network that is flexible, responsive, expandable and easily
upgradeable, and which supports a full line of communications
systems, including OpenSky, NetworkFirst,
P25
IP
and
Enhanced Digital Access Communication System
(EDACS), allowing seamless interconnection of
diverse systems. Our VIDA network solutions currently serve as
the backbone in some of the largest and most advanced statewide
and regional communications networks in North America, including
the Commonwealth of Pennsylvania.
In addition to a full range of single-band land mobile radio
terminals from the Wireless Systems acquisition, we offer our
multiband portable radio, the
Unity
tm
XG-100. The Unity XG-100 covers all portable land mobile radio
frequency bands in a single radio; operates on APCO Digital P25
conventional and trunked systems; is backwards compatible with
analog FM systems; and includes advanced capabilities, such as
an internal Global Positioning System (GPS) receiver
for situational awareness, internal secure
Bluetooth
®
wireless technology, and background noise suppression features.
Our Unity multiband radio is designed to allow Federal agencies
to talk with each other as well as their counterparts at the
state and local level, thus providing a significant improvement
over most current radio systems for U.S. public safety,
which are not interoperable, requiring emergency personnel to
carry multiple radios or route transmissions through ad-hoc
network bridges, often configured at the time of an emergency,
and creating instances where agencies responding to a common
incident cannot talk to each other.
Revenue, Operating Income and Backlog:
Revenue
for the RF Communications segment increased 17 percent to
$1,761 million in fiscal 2009 compared with
$1,507 million in fiscal 2008, and was $1,179 million
in fiscal 2007. Segment operating income increased
9 percent to $571.5 million in fiscal 2009 compared
with $525.5 million in fiscal 2008, and was
$403.2 million in fiscal 2007. The RF Communications
segment contributed 35 percent of our total revenue in
fiscal 2009 compared with 32 percent in fiscal 2008 and
31 percent in fiscal 2007. The percentage of this
segments revenue that was derived outside of the United
States was 39 percent in fiscal 2009 compared with
27 percent in fiscal 2008 and 28 percent in fiscal
2007. U.S. Government customers, including the DoD and
intelligence and civilian agencies, as well as foreign military
sales through the U.S. Government, whether directly or through
prime contractors, accounted for approximately 79 percent
of this segments total revenue in fiscal 2009 compared
with approximately 82 percent in fiscal 2008 and
76 percent in fiscal 2007. For a general description of our
U.S. Government contracts and subcontracts, including a
discussion of revenue generated from cost-
4
reimbursement versus fixed-price contracts, see
Item 1. Business Principal Customers;
Government Contracts of this Report.
In general, this segments domestic products are sold and
serviced directly to customers through its sales organization
and through established distribution channels. Internationally,
this segment markets and sells its products and services through
regional sales offices and established distribution channels.
See Item 1. Business International
Business of this Report.
The funded backlog of unfilled orders for this segment was
$922 million at July 3, 2009 compared with
$982 million at June 27, 2008 and $797 million at
June 29, 2007. We expect to fill approximately
67 percent of this funded backlog during fiscal 2010, but
we can give no assurance of such fulfillment. Additional
information regarding this segments funded backlog is
provided under Item 1. Business Funded
and Unfunded Backlog of this Report. For a discussion of
certain risks affecting this segment, including risks relating
to our U.S. Government contracts and subcontracts, see
Item 1. Business Principal Customers;
Government Contracts, Item 1A. Risk
Factors and Item 3. Legal Proceedings of
this Report.
Government
Communications Systems
Government Communications Systems conducts advanced research
studies and produces, integrates and supports highly reliable,
net-centric communications and information technology that solve
the mission-critical challenges of our defense, intelligence and
civilian U.S. Government customers, and is comprised of our
(i) Defense Programs, (ii) National Intelligence
Programs, (iii) Civil Programs and (iv) IT Services
businesses.
Defense Programs:
We develop, supply and
integrate communications and information processing products,
systems and networks for a diverse base of aerospace,
terrestrial and maritime applications supporting DoD missions,
and we are committed to delivering leading-edge technologies
that support the militarys ongoing transformation to
network-centric communications. Our technologies are providing
advanced battlespace networking capabilities to assure timely
and secure network-centric capabilities across strategic,
operational and tactical boundaries in support of the DoDs
full spectrum of warfighting, intelligence and logistics
missions. Our major technology capabilities include SATCOM
terminals for transportable ground, fixed-site and shipboard
applications; flat-panel and phased-array antennas; aviation
electronics for military jets and helicopters, including radios,
digital maps, modems, sensors, data buses, fiber optics and
microelectronics; high-speed data links and data networks for
wireless communications and smart weapons; and advanced ground
control systems. For example, our mobile ad hoc networking
capability allows the military to take its communications
infrastructure with it, creating mobile, self-forming and
self-healing networks across the battlefield. Our Highband
Networking
Radio
tm
(HNR), released in fiscal 2007, provides secure,
wireless, high-bandwidth (30 megabits per second),
on-the-move
communications among users of widely dispersed local area
networks (LANs) by establishing
line-of-sight
connectivity using a Harris-developed waveform that
automatically selects the best communications path available,
allowing seamless communication of voice, video and data to all
levels of command. We announced in fiscal 2009 that our HNR
system was deployed to the U.S. Army 101st Airborne
Division (Air Assault) 2nd Brigade Combat Team in Iraq,
which was the first combat deployment of the HNR system.
Examples of ongoing programs for us include the following:
|
|
|
|
|
The F-35 Joint Strike Fighter (F-35), F-22 Raptor
and
F/A-18E/F
Super Hornet aircraft platform programs, for which we provide
high-performance, advanced avionics such as high-speed fiber
optic networking and switching, intra-flight data links, image
processing, digital map software and other electronic
components, including Multifunction Advanced Data Link
(MADL) communications subsystems primarily intended
for stealth platform
air-to-air
communications and which allow F-35s to communicate in a stealth
fashion with other network nodes without revealing their
positions;
|
|
|
The Warfighter Information Network-Tactical (WIN-T)
program for the U.S. Army, for which we are designing and
testing the wireless transmission system architecture, applying
our proven enabling technologies for wireless
on-the-move
communications, including phased arrays and high-speed secure
wireless network solutions such as our HNR system;
|
|
|
The Multiple Launch Rocket System (MLRS) Improved
Fire Control System (IFCS) program for the
U.S. Army, for which we provide the launcher interface
unit, power switching unit and weapon interface unit;
|
5
|
|
|
|
|
The Multiband Shipboard Satellite Communications Terminal
(MSSCT) program for the U.S. Navy, for which we
are providing wideband SATCOM terminal systems. During fiscal
2009, we were awarded a contract modification, potentially worth
$37 million, to supply MSSCTs for the Arleigh Burke class
of guided missile destroyers; and
|
|
|
The Commercial Broadband Satellite Program (CBSP)
for the U.S. Navy, for which we supply broadband multiband
SATCOM terminals that support essential mission requirements and
provide enhanced
morale-related
communications services such as high-speed Internet access and
video communications.
|
During fiscal 2009, we were awarded a
ten-year
contract, potentially worth $600 million, for the
U.S. Army Modernization of Enterprise Terminals
(MET) program, under which the next-generation large
satellite earth stations we develop will provide the worldwide
backbone for high-priority military communications and missile
defense systems and support IP and Dedicated Circuit
Connectivity within the Global Information Grid
(GIG), providing critical reach-back capability for
the warfighter.
National Intelligence Programs:
A significant
portion of this business involves classified programs. While
classified programs generally are not discussed in this Report,
the operating results relating to classified programs are
included in our Consolidated Financial Statements. We believe
that the business risks associated with those programs do not
differ materially from the business risks of other
U.S. Government programs.
We are a major developer, supplier and integrator of
communications and information processing products, systems and
networks for a diverse base of U.S. Intelligence Community
programs, and we support the ongoing transformation of the
Intelligence Community into a more collaborative enterprise.
Serving primarily national intelligence and security agency
customers, including NSA and the National
Geospatial-Intelligence Agency (NGA), we provide
intelligence, surveillance and reconnaissance (ISR)
solutions that improve situational awareness, data collection
accuracy and product analysis by correlating near real-time
mission data and intelligence reference data for display and
analysis by strategic and tactical planners and decision makers.
Our ISR systems help to integrate information across the analyst
workflow, accelerating the movement of information that has been
collected and processed. We strive to produce innovative ISR
solutions that provide our customers with information dominance
for battle-space superiority.
For example, our image processing capabilities extend from
algorithm development through delivery of operations systems,
and we are providing advanced image exploitation and
dissemination solutions for ISR applications by advancing image
processing, image data fusion, display technologies and digital
product generation techniques. Those technologies range from new
techniques for merging and displaying imagery to automated
techniques for image screening, cueing and remote visualization.
Also, our mapping and visualization capabilities provide
complete, accurate and timely knowledge about the threat, the
terrain, the status and the location of single or multiple foe
and friendly forces and their support by utilizing data,
pictures, voice and video drawn from vast storage banks or from
real-time input which can be transmitted around the world in
fractions of a second. In addition, we have industry-leading
capabilities in the architecture, design and development of
highly specialized satellite antennas, structures, phased arrays
and on-board processors, which are used to enable
next-generation satellite systems to provide the
U.S. military and intelligence communities with strategic
and tactical advantages. We are also a leader in the design and
development of antenna and reflector technologies for commercial
space telecommunications applications. Further, our capabilities
include developing and supplying
state-of-the-art
wireless voice and data products and solutions spanning
vehicular, man-portable, airborne, remote/unattended and
system-level
applications for both passive and active missions, including
surveillance and tracking equipment, for the
U.S. Intelligence Community and law enforcement community.
During fiscal 2009, we were awarded a number of new contracts
and follow-on contracts under classified programs. In fiscal
2009, we also expanded our capabilities, customer footprint and
current initiatives in the cyber security market through our
April 15, 2009 acquisition of CSI, as described under
Item 1. Business Recent
Acquisitions of this Report. As an industry-leader in
cyber security, we have been using
state-of-the-art
technology assessment techniques and architecture engineering
for decades to define and operate secure networks supporting
nationally critical programs. We currently support three of the
nations largest secure networks: (i) the FAA
Telecommunications Infrastructure (FTI) program
network, (ii) the global communications and information
systems (Patriot program) network for the National
Reconnaissance Office (NRO), and (iii) the
Navy/Marine Corps Intranet (NMCI) program network.
Our technology countermeasures and monitoring capabilities
proactively safeguard vital information assets supporting the
missions of U.S. military, intelligence, transportation and
commerce customers. In addition, in the second quarter of fiscal
2009, we signed an agreement with McAfee, Inc., a large
dedicated enterprise security technology company, to resell its
products and technical services to the U.S. Government.
6
Civil Programs:
We provide highly reliable,
mission-critical communications and information processing
systems that meet the most demanding needs of customers in the
U.S. civilian Federal market, including the FAA, Census
Bureau, National Oceanic and Atmospheric Administration
(NOAA) and Department of Health and Human Services
(HHS). We use our ability to implement and manage
large, complex programs that integrate secure, advanced
communications and information processing technologies in order
to improve productivity and information processing and to
achieve cost savings for our customers. Our networks and
information systems for large-scale, geographically dispersed
enterprises offer advanced capabilities for collecting,
processing, analyzing, interpreting, displaying, distributing,
storing and retrieving data.
For example, we are the prime contractor under a
15-year
contract, awarded in July 2002 that is potentially worth
$3.5 billion, for the FTI program to integrate, modernize,
operate and maintain the communications infrastructure for the
U.S. air traffic control system. FTI is a modern, secure
and efficient network providing voice, data and video
communications deployed at more than 4,500 sites across the
U.S., to enhance network efficiency, reliability and security
and improve service while reducing operating costs. We designed
and deployed the FTI network and it is fully operational. The
FTI network consists of the Operations Network, the Mission
Support Network and the Satellite Network. The supporting
infrastructure includes the Network Operations Control Centers
(NOCCs) and Security Operations Control Centers
(SOCCs). The FTI program expanded in the third
quarter of fiscal 2009 to include the FTI Microwave program,
which will provide replacement of the FAAs legacy low
density radio control link (LDRCL) network. Our
acquisition of SolaCom ATC on June 19, 2009 as described
under Item 1. Business Recent
Acquisitions of this Report provides us with an immediate
ability to address additional segments of the air traffic
control voice/data systems market and further positions us to
support the FAAs anticipated NextGen program.
The U.S. Census Bureau is also a significant customer.
Under the Master Address File/Topologically Integrated
Geographic Encoding and Referencing Accuracy Improvement Project
(MTAIP), which was completed in fiscal 2008, we were
the prime contractor modernizing two key census databases
containing 175 million addresses for all
U.S. residences and businesses and a database linking
U.S. streets, rivers, railroads and other geographic
features to GPS coordinates. The Field Data Collection
Automation (FDCA) program was awarded to us during
fiscal 2006 in support of the 2010 census. We are the prime
contractor integrating multiple automated systems, and we also
developed a wireless handheld device with integrated GPS and
secure communications capabilities designed to enable census
takers to input data in real time and securely transmit the
information back to the Census Bureau. The FDCA program is
nearing completion, and revenue from the program will decline
significantly in fiscal 2010.
In the fourth quarter of fiscal 2009, we were awarded a ten-year
contract, potentially worth $736 million, to provide a
complete,
end-to-end
solution for NOAAs Geostationary Operational Environmental
Satellite Series R Ground Segment (GOES-R
GS) program, under which we will design, develop, deploy
and operate the ground segment system, which will receive and
process satellite data and generate and distribute weather data
to more than 10,000 direct users. We will also provide the
command and control of operational satellites under the GOES-R
GS program.
In a new growth initiative for us Healthcare
Solutions we are focusing on delivering
standards-based interoperable healthcare solutions for
government and commercial clients with security, privacy and
patients in control of how their information is shared. For
example, we are developing and integrating, under a contract
from HHS, an open-source National Health Information Network
(NHIN) CONNECT Gateway solution designed to enable
seamless health information sharing among multiple Federal
agencies and regional healthcare providers. We are developing a
multi-hospital military health network with image-sharing
capabilities under the DoD Military Health System global
Healthcare Artifact and Image Management Solution
(HAIMS) program. We also are providing Health First,
Inc. (Health First), a Florida-based healthcare
provider, with network management and IT services for its
enterprise-wide operations under a significant ten-year contract.
IT Services:
We use our engineering and
integration expertise to rapidly design, build and support
mission-critical
communications and IT solutions, as both a prime contractor and
a subcontractor, for U.S. Government defense, civilian and
national intelligence customers and for commercial customers in
cyberspace, healthcare and new media markets. With approximately
3,000 highly specialized, highly trained and appropriately
certified employees at approximately 300 locations worldwide, we
support large-scale, mission-critical networks, which often
require the highest level of availability and security, with
technical expertise and strong customer commitment through the
full technology lifecycle, including network design, deployment,
operations and ongoing support. Our operational footprint in the
U.S. offers a physical presence in all 50 states and
provides support to more than 9,000 customer sites in the 200
largest cities. Our capabilities and services comprise three
main solution areas, namely IT transformation, managed services
and information assurance.
7
Our IT transformation solutions use a holistic approach built on
proven methodologies in order to design, implement and manage
enterprise-wide architectures that align IT goals with
customers business and mission goals. Our standards-based,
repeatable IT transformation solutions unify, streamline and
modernize unwieldy and disparate networks and systems across
distributed environments, resulting in highly simplified,
flexible, secure and manageable network infrastructures.
Our managed services solutions include outsourced staffing and
infrastructure, sustained by comprehensive operations and
maintenance offerings, and are based on a flexible, scalable and
repeatable service level agreement (SLA)
performance-driven business model, frequently in a fixed-price
environment. Our managed services solutions use an Information
Technology Infrastructure Library (ITIL)-based
best-practices approach for optimizing and supporting IT and
communications environments, improving efficiencies, lowering
operational costs and allowing customers to focus on mission
performance.
Our information assurance solutions include architecture
analysis; attack warning and defense; identity management;
security assessments; certification and accreditation process
support; forensics analysis and vulnerability remediation;
system anomaly monitoring, detection and management; and
physical security countermeasures. Our information assurance
solutions safeguard the confidentiality, integrity and
availability of enterprise infrastructures, systems and critical
business data over the full IT lifecycle, from infrastructure
design to integration and testing to operations and maintenance.
Those solutions meet widely used certification and accreditation
standards, including the Federal Information Security Management
Act (FISMA), the National Security Agency/Center
Security Services Information System Certification and
Accreditation Process (NISCAP) and the Department of
Defense Information Assurance Certification and Accreditation
Process (DIACAP).
As examples, for NRO, which designs, builds and operates U.S.
reconnaissance satellites, we provide operations, maintenance
and support services for its Patriot program network in space
and on the ground under a ten-year contract awarded in August
2004, potentially worth $1 billion, in support of
NROs global analyst community. We are providing the
U.S. Navy with comprehensive,
end-to-end
support for data, video and voice communications for over
700,000 users as a Tier One subcontractor under the NMCI
program awarded in October 2000 and potentially worth
$1.1 billion. The NMCI program is the largest IT
outsourcing managed services contract ever awarded by the
U.S. Government. Under a
five-year
contract awarded by the U.S. Department of State, Bureau of
Consular Affairs (the State 6 program) in August
2008, potentially worth $217 million, we provide IT
integration of installation, training, help desk, passport and
configuration management services in support of more than
230 U.S. embassies and consulates around the world. We
also provide system maintenance and engineering for the Defense
Information Systems Agencys (DISA) Crisis
Management System, and we provide ongoing mission operations and
support services under the FTI program.
Additionally, under the Network and Space Operations and
Maintenance (NSOM) program contract awarded to us in
January 2008 for a six-month base period with six one-year
options, potentially worth $410 million in aggregate, we
provide operations and maintenance support at locations around
the world for the communications functions for the U.S. Air
Force 50th Space Wings Satellite Control Network
(AFSCN), a global, continuously operational network
of ground stations, operational control nodes and communications
links that support launch and command and control of various
space programs managed by the DoD and other national security
space organizations.
We also have key positions on a number of Indefinite
Delivery/Indefinite Quantity (IDIQ) contracts. We
are a prime contractor under the U.S. Air Force Network
Centric Solutions (NETCENTS) contract, which
provides IT installation, integration and operations and
maintenance services for networks and systems and offers IT
products for networks. Our NETCENTS task orders include the
Maxwell Air Force Base and the Overseas Navy Enterprise Network
(ONE-NET).
We are also a prime contractor under the U.S. Army ITES-2S
contract, which provides IT installation, integration,
infrastructure and operations and maintenance services for
networks and systems. Our ITES-2S task orders include the
Fort Bliss Department of Information Management
(DOIM), the Army G-1 support and the Army.mil
website and content support. We are one of 59 prime contractor
awardees under the ALLIANT Government-Wide Acquisition Contract
(GWAC) for the General Services Administration
(GSA), which is an IT procurement contract broadly
accessible to all U.S. Government agencies.
In a new growth initiative for us Commercial Managed
Services we are providing
end-to-end
solutions and services across our vertical commercial markets,
including cyberspace, healthcare and new media
broadcast markets. For example, we are providing Health First
with managed services for back office infrastructure and
networks. We also are collaborating with the Broadcast
Communications segment to design and manage systems that manage,
monitor and play out video content for a branded TV channel for
the McDonalds fast food chain and systems that combine IP
television (IPTV) and digital signage and IT
infrastructure to create an advanced media workflow for an
in-arena network for the Orlando Magics new basketball
arena, as described in more detail below under
Item 1. Business Description of Business
by Segment Broadcast Communications of this
Report.
8
Revenue, Operating Income and Backlog:
Revenue
for the Government Communications Systems segment increased
9 percent to $2,710 million in fiscal 2009 compared
with $2,478 million in fiscal 2008, and was
$1,997 million in fiscal 2007. Segment operating income
increased 34 percent to $302.8 million in fiscal 2009
compared with $226.0 million in fiscal 2008, and was
$225.6 million in fiscal 2007. This segment contributed
54 percent of our total revenue in fiscal 2009 compared
with 54 percent in fiscal 2008 and 53 percent in
fiscal 2007. In fiscal 2009, approximately 28 percent of
the revenue for this segment was under contracts with prime
contractors and approximately 72 percent of revenue was
under direct contracts with customers, compared with
approximately 26 percent of revenue under contracts with
prime contractors and approximately 74 percent of revenue
under direct contracts with customers in fiscal 2008 and
approximately 29 percent of revenue under contracts with
prime contractors and approximately 71 percent of revenue
under direct contracts with customers in fiscal 2007. Some of
this segments more significant programs in fiscal 2009
included the FDCA program, the FTI program, the Patriot program,
the NETCENTS program, the NMCI program and various classified
programs. The largest program by revenue for fiscal 2009
represented approximately 13 percent of this segments
revenue in fiscal 2009, compared with approximately
9 percent in fiscal 2008 and approximately 12 percent
in fiscal 2007. The 10 largest programs by revenue for fiscal
2009 represented approximately 46 percent of this
segments revenue in fiscal 2009, approximately
45 percent in fiscal 2008 and approximately 38 percent
in fiscal 2007. In fiscal 2009, this segment had a diverse
portfolio of over 300 programs. Historically, that diversity has
provided a stable backlog and reduced potential risks that come
from reductions in funding or changes in customer priorities,
and we expect that program diversity will continue to provide
similar benefits in the future, although we can give no
assurance. In fiscal 2009, U.S. Government customers,
including the DoD and intelligence and civilian agencies, as
well as foreign military sales through the U.S. Government,
whether directly or through prime contractors, accounted for
approximately 96 percent of this segments total
revenue compared with approximately 96 percent in fiscal
2008 and 95 percent in fiscal 2007. For a general
description of our U.S. Government contracts and
subcontracts, including a discussion of revenue generated from
cost-reimbursement versus fixed-price contracts, see
Item 1. Business Principal Customers;
Government Contracts of this Report.
The funded backlog of unfilled orders for this segment was
$398 million at July 3, 2009 compared with
$371 million at June 27, 2008 and $372 million at
June 29, 2007. Unfunded backlog for this segment was
$4,750 million at July 3, 2009 compared with
$4,225 million at June 27, 2008 and
$4,265 million at June 29, 2007. We expect to fill
approximately 95 percent of this funded backlog during
fiscal 2010, but we can give no assurance of such fulfillment.
Additional information regarding funded and unfunded backlog for
this segment is provided under Item 1.
Business Funded and Unfunded Backlog of this
Report. For a discussion of certain risks affecting this
segment, including risks relating to our U.S. Government
contracts and subcontracts, see Item 1.
Business Principal Customers; Government
Contracts, Item 1A. Risk Factors and
Item 3. Legal Proceedings of this Report.
Broadcast
Communications
Broadcast Communications supplies technology and service
solutions to consumers of rich media, including TV stations
and networks and cable, satellite, telecommunications and other
media content providers. Recently, our efforts have expanded to
include government customers, sports and entertainment
organizations, restaurants, casinos and theme parks, that use
broadcast and digital signage technologies to drive messaging
and advertising to their customers. Those solutions are designed
to receive content in any format and then manage, move and
reformat that content for any delivery network to any viewing
device. Broadcast Communications hardware and software
products, systems and services offer a comprehensive,
single-source approach to delivering interoperable workflow
capabilities and solutions spanning the entire broadcast value
chain, including content creation, management, distribution and
delivery. The Harris
ONE
tm
solution for interoperable workflows that depend on IT-centric
systems, integrated infrastructure and enterprise software
brings together highly integrated and cost-effective products
suited for emerging media business models and for customers
upgrading media operations to digital and high definition
(HD) services from analog and standard definition
(SD) services. This segment serves the global
digital and analog media markets, providing infrastructure and
networking products and solutions, media and workflow solutions,
and television and radio transmission equipment and systems.
The current trend and future of broadcast media involves
digitizing content and transporting it simultaneously over many
different networks to many types of devices. The need to create,
manage and ultimately deliver digital media content is driving
an infrastructure upgrade cycle for the media industry. However,
the global recession, particularly the weak economic conditions
in North America, has prompted many broadcast and media
customers to postpone capital spending projects, and we expect
the North America market to remain weak for at least the next
several quarters. We also expect the impact of lower revenue on
this segments operating performance to be mitigated by its
ongoing cost-reduction and margin improvement actions. We are
supporting customers as they
9
expand services for HD television (HDTV), IPTV,
video-on-demand
and interactive TV. The introduction of several new products has
established Broadcast Communications as a provider of
end-to-end
solutions for the worldwide transition to digital and HD
technologies and infrastructure, including three gigabit per
second (3 Gb/s) solutions for the 1080p HD format.
Infrastructure and Networking Solutions:
Our
infrastructure and networking solutions offerings include
SD and HD products and systems that enable media companies
to streamline workflow from production through transmission. We
provide a comprehensive, next-generation portfolio of signal
processors, routers, master control and branding systems,
network monitoring and control software, and test and
measurement instruments that support content throughout the
workflow application chain. We also provide advanced multi-image
display processors and
state-of-the-art
broadcast graphics that change the way broadcasters view and
manage content and provide broadcasters with options for
presenting their brands. We also provide highly differentiated
network access and multiplex platforms through our
NetVX
tm
solution, which offers customized integrated management and
distribution applications for any content across any connection
to support television, government video and public safety
applications. Our infrastructure and networking products also
include our
X85
tm
up/down/cross converter and frame synchronizer multiple
application video and audio processing platform;
Opto+
tm
fiber optic signal processing products offering 3 Gb/s
electrical-to-optical
and
optical-to-electrical
conversion capabilities;
Platinum
tm
large router for mixed video and audio signal routing;
IconMaster
tm
digital master control system;
Videotek
®
line of precision test and measurement instruments; compact,
scalable Predator
II
tm
and larger-format multi-image display processors, or
multiviewers; and
Inscriber
®
line of graphics and titling products.
Media and Workflow:
Our media and workflow
solutions offerings enable customers to manage their digital
media workflow through a portfolio of software solutions for
advertising, media management (traffic, billing and program
scheduling), digital signage, broadband, digital asset
management, and play-out automation, and to transition into an
IT workflow by using servers to manage content flow, storage and
other key facets of an increasingly file-based broadcast
environment. We offer modular, standards-based solutions
generally with open application programming interfaces
(APIs) for ease of integration and future
scalability. Our media and workflow solutions products include
the Harris media software suite, our OSi
Traffic
tm
software and our
Invenio
tm
Digital Asset Management solution. The Harris media software
suite is a unified system of interoperable broadcast and media
applications based on open standards, with a network-, content-
and service-agnostic approach, which supports customers
core services and business operations, makes data exchange and
workflow more efficient and facilitates adding services that can
lead to new revenue streams. Our products also include our NEXIO
AMP
tm
HD/SD
video
server advanced media platform, part of our
NEXIO
tm
family of scalable, interoperable video servers;
Velocity
tm
family of editing controllers that employ open standards to
accelerate
time-to-air
and reduce the costs associated with content acquisition,
production, distribution and media management;
Punctuate
tm
out-of-home advertising and digital signage traffic, scheduling
and ad sales advanced software solution; and Infocaster line of
digital signage systems.
Transmission Systems:
We develop, manufacture
and supply digital and analog television and radio transmission
systems for delivery of rich media over wireless broadcast
terrestrial networks on a worldwide basis, including mobile TV
applications. We can provide single products or
end-to-end
systems, including nationwide networks with hundreds of
transmitters. Our television and radio transmission systems
solutions are scalable to meet the needs of broadcasters of all
sizes. We are a leader in televisions transition from
analog to digital technology and in technology for the
U.S. digital standard known as ATSC and the
European digital standard DVB-T. We continue to play
a leading role in assisting local television broadcasters and
network operators to implement transmission solutions, including
solutions based on ATSC and DVB-T and other digital standards
and all major approaches to broadcast mobile TV. In fiscal 2007,
we introduced with LG Electronics Inc. the jointly developed
Mobile Handheld in-band mobile digital TV system
(M/H), a new technology capable of providing digital
TV (DTV) signals and extending
over-the-air
broadcast TV signals beyond customary TV viewing at home to
mobile, pedestrian and other handheld devices (such as mobile
phones or laptop computers). Our products also include our
Maxiva
tm
line of UHF multimedia transmitters, comprised of our Maxiva ULX
Series of liquid-cooled transmitters for high-power UHF
multimedia broadcasters and our Maxiva UAX Series of air-cooled,
solid-state transmitters for low-power UHF transmission.
We are also a leader in the transition from analog to digital
radio. Our product offerings address the U.S. digital
standard called IBOC (In-Band/On-Channel), which is
referred to in the market as HD
Radio
®
,
as well as international digital standards including
DAB and DRM. Our radio transmission
products include our
Intraplex
®
line of audio transport products, including
studio-to-transmitter
links, and our
FLEXSTAR
tm
family, which provides a bandwidth-efficient bitstream so
broadcasters can offer supplemental audio and data capability
along with the main program stream, offering listeners 5.1
surround sound, on-demand traffic, weather and sports reports,
store-and-play
capabilities and real-time navigation.
10
This segment has several new growth initiatives underway. We
offer digital transmitters, encoding equipment and the ability
to launch new channels with an overall solution consisting of ad
sales, automation, servers, master control and branding for
mobile TV applications. We are collaborating with the Government
Communications Systems segments IT Services business to
design and manage (i) systems featuring digital signage
solutions with IT infrastructure to manage, monitor and play out
digital broadcast-quality video content for the McDonalds
fast food chains branded TV channel under a field trial
including 20 restaurants around the U.S. and
(ii) systems that combine IPTV and digital signage
solutions that merge broadcast technology with IT infrastructure
in order to create an innovative file-based advanced media
workflow for an in-arena network for the Orlando Magics
new basketball arena. We also offer, for U.S. Government
customers, our Full-Motion Video Asset Management Engine
(FAME
tm
)
capability. FAME is a COTS-based solution developed based on our
digital asset management technologies, input from intelligence
analysts and our Government Communications Systems
segments image processing, system integration and security
capabilities.
Revenue, Operating Income and Backlog:
Revenue
for the Broadcast Communications segment decreased
9 percent to $584 million in fiscal 2009 compared with
$643 million in fiscal 2008, and was $600 million in
fiscal 2007. The segment had an operating loss of
$238.0 million in fiscal 2009, which included a
$255.5 million non-cash charge for impairment of goodwill
and other long-lived assets, compared with operating income of
$33.8 million in fiscal 2008 and $11.9 million in
fiscal 2007. The Broadcast Communications segment contributed
11 percent of our total revenue in fiscal 2009 compared
with 14 percent in fiscal 2008 and 16 percent in
fiscal 2007. The percentage of this segments revenue that
was derived outside of the United States was approximately
47 percent in fiscal 2009 compared with 47 percent in
fiscal 2008 and 46 percent in fiscal 2007. No single
customer accounted for more than 3 percent of fiscal 2009
revenue for the Broadcast Communications segment.
In general, this segments domestic products are sold and
serviced directly to customers through its sales organization
and through established distribution channels. Internationally,
this segment markets and sells its products and services through
regional sales offices and established distribution channels.
See Item 1. Business International
Business of this Report.
The funded backlog of unfilled orders for this segment was
$247 million at July 3, 2009 compared with
$305 million at June 27, 2008 and $298 million at
June 29, 2007. We expect to fill approximately
50 percent of this backlog during fiscal 2010, but we can
give no assurance of such fulfillment. For a discussion of
certain risks affecting this segment, see Item 1A.
Risk Factors and Item 3. Legal
Proceedings of this Report.
International
Business
Revenue from products exported from the United States (including
foreign military sales) or manufactured abroad was
$1,016.6 million (20 percent of our total revenue) in
fiscal 2009 compared with $759.7 million (17 percent
of our total revenue) in fiscal 2008 and $629.6 million
(17 percent of our total revenue) in fiscal 2007. Our
international sales include both direct exports from the United
States and sales from foreign subsidiaries. Essentially all of
the international sales are derived from the RF Communications
and Broadcast Communications segments. Direct export sales are
primarily denominated in U.S. Dollars, whereas sales from
foreign subsidiaries are generally denominated in the local
currency of the subsidiary. Exports from the United States,
principally to Europe, Africa, Canada, Latin America, the Middle
East and Asia, totaled $766.0 million (approximately
75 percent of our international revenue) in fiscal 2009
compared with $530.5 million (approximately 70 percent
of our international revenue) in fiscal 2008 and
$404.0 million (approximately 64 percent of our
international revenue) in fiscal 2007. The percentage of revenue
represented by foreign operations was 5 percent in fiscal
2009 compared with 5 percent in fiscal 2008 and
6 percent in fiscal 2007. The percentage of long-lived
assets represented by foreign operations was 12 percent as
of July 3, 2009 compared with 19 percent as of
June 27, 2008 and 19 percent as of June 29, 2007.
Financial information regarding our domestic and international
operations is contained in
Note 25: Business
Segments
in the Notes and is incorporated herein by
reference.
Our principal international manufacturing facilities are located
in Canada and the United Kingdom. The majority of our
international marketing activities are conducted through
subsidiaries which operate in Canada, Europe, Central and South
America, and Asia. We have also established international
marketing organizations and several regional sales offices.
Reference is made to Exhibit 21 Subsidiaries of the
Registrant of this Report for further information
regarding our international subsidiaries.
We utilize indirect sales channels, including dealers,
distributors and sales representatives, in the marketing and
sale of some lines of products and equipment, both domestically
and internationally. These independent representatives may buy
for resale or, in some cases, solicit orders from commercial or
governmental customers for direct sales by us. Prices to the
ultimate customer in many instances may be recommended or
established by the
11
independent representative and may be above or below our list
prices. Our dealers and distributors generally receive a
discount from our list prices and may mark up those prices in
setting the final sales prices paid by the customer. Revenue
from indirect sales channels in fiscal 2009 represented
11 percent of our total revenue and approximately
55 percent of our international revenue, compared with
revenue from indirect sales channels in fiscal 2008 representing
7 percent of our total revenue and approximately
44 percent of our international revenue, and revenue from
indirect sales channels in fiscal 2007 representing
8 percent of our total revenue and 40 percent of our
international revenue.
Fiscal 2009 international revenue came from a large number of
countries, and no such single country accounted for more than
3 percent of our total revenue. Some of our exports are
paid for by letters of credit, with the balance carried either
on an open account or installment note basis. Advance payments,
progress payments or other similar payments received prior to or
upon shipment often cover most of the related costs incurred.
Significant foreign government contracts generally require us to
provide performance guarantees. In order to stay competitive in
international markets, we also sometimes enter into recourse and
vendor financing arrangements to facilitate sales to certain
customers.
The particular economic, social and political conditions for
business conducted outside the U.S. differ from those
encountered by domestic businesses. Our management believes that
the overall business risk for the international business as a
whole is somewhat greater than that faced by our domestic
operations as a whole. A description of the types of risks to
which we are subject in international business is contained in
Item 1A. Risk Factors of this Report.
Nevertheless, in the opinion of our management, these risks are
mitigated by the diversification of the international business
and the protection provided by letters of credit and advance
payments.
Competition
We operate in highly competitive markets that are sensitive to
technological advances. Although successful product and systems
development is not necessarily dependent on substantial
financial resources, many of our competitors in each of our
businesses are larger than we are and can maintain higher levels
of expenditures for research and development. In each of our
businesses we concentrate on the market opportunities that our
management believes are compatible with our resources, overall
technological capabilities and objectives. Principal competitive
factors in these businesses are product quality and reliability;
technological capabilities; service; past performance; ability
to develop and implement complex, integrated solutions; ability
to meet delivery schedules; the effectiveness of third-party
sales channels in international markets; and cost-effectiveness.
Within the IT services market, there is intense competition
among many companies. The ability to compete in the IT services
market depends on a number of factors, including the capability
to deploy skilled professionals at competitive prices across the
diverse spectrum of the IT services market.
In the RF Communications segment, principal competitors include
European Aeronautic Defence and Space Company N.V.
(EADS), General Dynamics, ITT Industries, Motorola,
Raytheon, Rohde & Schwarz, Selex, Tadiran and Thales.
In the Government Communications Systems segment, principal
competitors include Boeing, CACI, General Dynamics, GTSI, L-3
Communications, Lockheed Martin, ManTech, NCI, Northrop Grumman,
Raytheon, Rockwell Collins, SRA, Stanley and SAIC. Consolidation
among U.S. defense and aerospace companies has resulted in
a reduction in the number of principal prime contractors. As a
result of this consolidation, we frequently partner
or are involved in subcontracting and teaming relationships with
companies that are, from time to time, competitors on other
programs.
In the Broadcast Communications segment, principal competitors
include Avid, Broadcast Electronics, Chyron, Evertz, Harmonic,
Miranda, Nautel, NEC, Omneon, Omnibus, Pilat Media,
Rohde & Schwarz, Sony Broadcast, Tektronix, Thomson
and Wide Orbit, as well as other smaller companies and divisions
of large companies. We believe that our broad product offering
and total content delivery solutions are key competitive
strengths for this segment.
Principal
Customers; Government Contracts
Sales to U.S. Government customers, including the DoD and
intelligence and civilian agencies, as well as foreign military
sales through the U.S. Government, whether directly or through
prime contractors, were 79 percent of our total revenue in
fiscal 2009 compared with 79 percent in fiscal 2008 and
75 percent in fiscal 2007. No other customer accounted for
more than 1 percent of our total revenue in fiscal 2009.
Additional information regarding customers for each of our
segments is provided under Item 1.
Business Description of Business by Segment of
this Report. Our U.S. Government sales are predominantly
derived from contracts with agencies of, and prime contractors
to, the U.S. Government. Most of the sales of the
Government Communications Systems segment are made directly or
indirectly to the U.S. Government under contracts or
subcontracts containing standard government contract clauses
providing for redetermination of profits, if applicable, and for
termination for the convenience of the U.S. Government or
for default based upon performance.
12
These U.S. Government contracts and subcontracts include
both cost-reimbursement and fixed-price contracts. Our
cost-reimbursement contracts provide for the reimbursement of
allowable costs plus the payment of a fee. Our
cost-reimbursement contracts fall into three basic types:
(i) cost-plus fixed-fee contracts, which provide for the
payment of a fixed fee irrespective of the final cost of
performance; (ii) cost-plus incentive-fee contracts, which
provide for increases or decreases in the fee, within specified
limits, based upon actual results compared with contractual
targets relating to factors such as cost, performance and
delivery schedule; and (iii) cost-plus award-fee contracts,
which provide for the payment of an award fee determined at the
discretion of the customer based upon the performance of the
contractor against pre-established performance criteria. Under
cost-reimbursement contracts, we are reimbursed periodically for
allowable costs and are paid a portion of the fee based on
contract progress. Some overhead costs have been made partially
or wholly unallowable for reimbursement by statute or
regulation. Examples are certain merger and acquisition costs,
lobbying costs, charitable contributions and certain litigation
defense costs.
Our fixed-price contracts are either firm fixed-price contracts
or fixed-price incentive contracts. Under firm fixed-price
contracts, we agree to perform a specific scope of work for a
fixed price and, as a result, benefit from cost savings and
carry the burden of cost overruns. Under fixed-price incentive
contracts, we share with the U.S. Government both savings
accrued from contracts performed for less than target costs as
well as costs incurred in excess of targets up to a negotiated
ceiling price (which is higher than the target cost), but carry
the entire burden of costs exceeding the negotiated ceiling
price. Accordingly, under such incentive contracts, profit may
also be adjusted up or down depending upon whether specified
performance objectives are met. Under firm fixed-price and
fixed-price incentive contracts, we usually receive either
milestone payments equaling 100 percent of the contract
price or monthly progress payments from the U.S. Government
in amounts equaling 80 percent of costs incurred under the
contract. The remaining amounts, including profits or incentive
fees, are billed upon delivery and final acceptance of end items
and deliverables under the contract. Fixed-price contracts
generally have higher profit margins than cost-reimbursement
contracts. Production contracts are mainly fixed-price
contracts, and development contracts are generally
cost-reimbursement contracts.
In fiscal 2009, fiscal 2008 and fiscal 2007, approximately
36 percent, 35 percent and 33 percent,
respectively, of the total combined revenue of our RF
Communications and Government Communications Systems segments
was from fixed-price contracts. GWAC and IDIQ contracts, which
can include task orders for each contract type, require us to
compete both for the initial contract and then for individual
task or delivery orders under such contracts.
As stated above, U.S. Government contracts are terminable
for the convenience of the U.S. Government, as well as for
default based on performance. Companies supplying goods and
services to the U.S. Government are dependent on
Congressional appropriations and administrative allotment of
funds and may be affected by changes in U.S. Government
policies resulting from various military, political and
international developments. Long-term government contracts and
related orders are subject to cancellation if appropriations for
subsequent performance periods become unavailable. Under
contracts terminable for the convenience of the
U.S. Government, a contractor is entitled to receive
payments for its allowable costs and, in general, the
proportionate share of fees or earnings for the work done.
Contracts that are terminable for default generally provide that
the U.S. Government pays only for the work it has accepted
and may require the contractor to pay for the incremental cost
of reprocurement and may hold the contractor liable for damages.
In many cases, there is also uncertainty relating to the
complexity of designs, necessity for design improvements and
difficulty in forecasting costs and schedules when bidding on
developmental and highly sophisticated technical work. Under
many U.S. Government contracts, we are required to maintain
facility and personnel security clearances complying with DoD
and other Federal agency requirements. For further discussion of
risks relating to U.S. Government contracts, see
Item 1A. Risk Factors and Item 3.
Legal Proceedings of this Report.
Funded
and Unfunded Backlog
Our total company-wide funded and unfunded backlog was
approximately $6,317 million at July 3, 2009 compared
with approximately $5,883 million at June 27, 2008 and
$5,732 million at June 29, 2007. The funded portion of
this backlog was approximately $1,567 million at
July 3, 2009 compared with approximately
$1,658 million at June 27, 2008 and
$1,467 million at June 29, 2007. The determination of
backlog involves substantial estimating, particularly with
respect to customer requirements contracts and development and
production contracts of a cost-reimbursement or incentive nature.
We define funded backlog as unfilled firm orders for products
and services for which funding has been authorized and, in the
case of U.S. Government agencies, appropriated. Unfunded
backlog is primarily unfilled firm and expected follow-on orders
that have not yet met our established funding criteria. Our
established funding criteria require both authorization by the
customer as well as our managements determination that
there is little or no risk
13
of the authorized funding being rescinded. We do not include
potential task or delivery orders under IDIQ contracts in our
backlog. In fiscal 2010, we expect to fill approximately
71 percent of our total funded backlog as of July 3,
2009. However, we can give no assurance of such fulfillment or
that our funded backlog will become revenue in any particular
period, if at all. Backlog is subject to delivery delays and
program cancellations, which are beyond our control. Additional
information with regard to the backlog of each of our segments
is provided under Item 1. Business
Description of Business by Segment of this Report.
Research,
Development and Engineering
Research, development and engineering expenditures totaled
approximately $1,003 million in fiscal 2009,
$980 million in fiscal 2008 and $884 million in fiscal
2007. Company-sponsored research and product development costs,
which included research and development for commercial products
and independent research and development related to government
products and services, as well as concept formulation studies
and bid and proposal efforts, were approximately
$244 million in fiscal 2009, $248 million in fiscal
2008 and $195 million in fiscal 2007. A portion of our
independent research and development costs are allocated among
contracts and programs in process under U.S. Government
contractual arrangements. Company-sponsored research and product
development costs not otherwise allocable are charged to expense
when incurred. The portion of total research, development and
engineering expenditures that was not company-sponsored was
funded by the U.S. Government and is included in our
revenue. Customer-sponsored research and development was
$759 million in fiscal 2009, $732 million in fiscal
2008 and $689 million in fiscal 2007. Company-sponsored
research is directed to the development of new products and to
building technological capability in selected communications and
electronic systems markets. U.S. Government-funded research
helps strengthen and broaden our technical capabilities. All of
our segments maintain their own engineering and new product
development departments, with scientific assistance provided by
advanced-technology departments. As of July 3, 2009, we
employed approximately 6,500 engineers and scientists and are
continuing efforts to make the technologies developed in any of
our business segments available for all other business segments.
Patents
and Other Intellectual Property
We consider our patents and other intellectual property, in the
aggregate, to constitute an important asset. We own a large and
valuable portfolio of patents, trade secrets, know-how,
confidential information, trademarks, copyrights and other
intellectual property. We also license intellectual property to
and from third parties. As of July 3, 2009, we held
approximately 1,000 U.S. patents and 550 foreign patents,
and had approximately 575 U.S. patent applications
pending and 1,450 foreign patent applications pending.
Unpatented research, development and engineering skills also
make an important contribution to our business. While our
intellectual property rights in the aggregate are important to
our business and the operations of our business segments, we do
not consider our business or any business segment to be
materially dependent upon any single patent, license or other
intellectual property right, or any group of related patents,
licenses or other intellectual property rights. We are engaged
in a proactive patent licensing program and have entered into a
number of licenses and cross-license agreements, some of which
generate royalty income. Although existing license agreements
have generated income in past years and may do so in the future,
there can be no assurances we will enter into additional
income-producing license agreements. From time to time we engage
in litigation to protect our patents and other intellectual
property. Any of our patents, trade secrets, trademarks,
copyrights and other proprietary rights could be challenged,
invalidated or circumvented, or may not provide competitive
advantages. For further discussion of risks relating to
intellectual property, see Item 1A. Risk
Factors of this Report. With regard to patents relating to
our Government Communications Systems segment, the
U.S. Government often has an irrevocable, non-exclusive,
royalty-free license, pursuant to which the U.S. Government
may use or authorize others to use the inventions covered by
such patents. Pursuant to similar arrangements, the
U.S. Government may consent to our use of inventions
covered by patents owned by other persons. Numerous trademarks
used on or in connection with our products are also considered
to be a valuable asset.
Environmental
and Other Regulations
Our facilities and operations are subject to numerous domestic
and international laws and regulations designed to protect the
environment, particularly with regard to wastes and emissions.
The applicable environmental laws and regulations are common
within the industries and markets in which we operate and serve.
We believe that we have complied with these requirements and
that such compliance has not had a material adverse effect on
our results of operations, financial condition or cash flows.
Based upon currently available information, we do not expect
expenditures to protect the environment and to comply with
current environmental laws and regulations over the next several
years to have a material impact on our competitive position or
financial condition, but we can give no assurance that such
expenditures will not exceed current expectations. If future
laws and regulations contain more stringent requirements than
14
presently anticipated, actual expenditures may be higher than
our present estimates of those expenditures. We have installed
waste treatment facilities and pollution control equipment to
satisfy legal requirements and to achieve our waste minimization
and prevention goals. We did not spend material amounts on
environmental capital projects in fiscal 2009, fiscal 2008 or
fiscal 2007. A portion of our environmental expenditures relates
to discontinued operations for which we have retained certain
environmental liabilities. We currently expect that amounts to
be spent for environmental-related capital projects will not be
material in fiscal 2010. These amounts may increase in future
years. Additional information regarding environmental and
regulatory matters is set forth in Item 3. Legal
Proceedings of this Report and in
Note 1:
Significant Accounting Policies
in the Notes.
Electronic products are subject to governmental environmental
regulation in a number of jurisdictions. Equipment produced by
our Broadcast Communications segment, in particular, is subject
to domestic and international requirements requiring
end-of-life
management
and/or
restricting materials in products delivered to customers,
including the European Unions Directive 2002/96/EC on
Waste Electrical and Electronic Equipment (WEEE) and
Directive 2002/95/EC on the Restriction of the use of certain
Hazardous Substances in Electrical and Electronic Equipment
(RoHS), as amended. Other jurisdictions have adopted
similar legislation. Such requirements typically are not
applicable to most equipment produced by our Government
Communications Systems and RF Communications segments. We
believe that we have complied with such rules and regulations,
where applicable, with respect to our existing products sold
into such jurisdictions. We intend to comply with such rules and
regulations with respect to our future products.
Broadcast and wireless communications (whether TV, radio or
telecommunications) are also subject to governmental regulation.
Equipment produced by our Broadcast Communications and RF
Communications segments, in particular, is subject to domestic
and international requirements to avoid interference among users
of radio and television frequencies and to permit
interconnection of telecommunications equipment. We believe that
we have complied with such rules and regulations with respect to
our existing products, and we intend to comply with such rules
and regulations with respect to our future products.
Governmental reallocation of the frequency spectrum also could
impact our business, financial condition and results of
operations.
Raw
Materials and Supplies
Because of the diversity of our products and services, as well
as the wide geographic dispersion of our facilities, we use
numerous sources for the wide array of raw materials (such as
electronic components, printed circuit boards, metals and
plastics) needed for our operations and for our products. We are
dependent upon suppliers and subcontractors for a large number
of components and subsystems and the ability of our suppliers
and subcontractors to adhere to customer or regulatory materials
restrictions and to meet performance and quality specifications
and delivery schedules. In some instances, we are dependent upon
one or a few sources, either because of the specialized nature
of a particular item or because of local content preference
requirements pursuant to which we operate on a given project.
While we have been affected by financial and performance issues
of some of our suppliers and subcontractors, we have not been
materially adversely affected by the inability to obtain raw
materials or products. On occasion, we have experienced
component shortages from vendors as a result of the RoHS
environmental regulations in the European Union or similar
regulations in other jurisdictions. These regulations may cause
a spike in demand for certain electronic components (such as
lead-free components), resulting in industry-wide supply chain
shortages. To date, these component shortages have not had a
material adverse effect on our business. For further discussion
of risks relating to subcontractors and suppliers, see
Item 1A. Risk Factors of this Report.
Seasonality
We do not consider any material portion of our business to be
seasonal. Various factors can affect the distribution of our
revenue between accounting periods, including the timing of
contract awards and the timing and availability of U.S.
Government funding, as well as the timing of product deliveries
and customer acceptance.
Employees
We employed approximately 15,400 employees at the end of
fiscal 2009 compared with approximately 14,700 employees at
the end of fiscal 2008. Approximately 92 percent of our
employees as of the end of fiscal 2009 were located in the
United States. A significant number of employees in our
Government Communications Systems segment possess a security
clearance. We also utilize a number of independent contractors.
None of our employees in the United States is represented by a
labor union. In certain international subsidiaries, our
employees are represented by workers councils or statutory
labor unions. In general, we believe that our relations with our
employees are good.
15
Website
Access to Harris Reports; Available Information
General.
We maintain an Internet website at
http://www.harris.com
.
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, are available
free of charge on our website as soon as reasonably practicable
after these reports are electronically filed with or furnished
to the SEC. We also will provide the reports in electronic or
paper form free of charge upon request. We also make available
free of charge on our website our annual report to shareholders
and proxy statement. Our website and the information posted
thereon are not incorporated into this Report or any current or
other periodic report that we file with or furnish to the SEC.
All reports we file with or furnish to the SEC also are
available free of charge via the SECs electronic data
gathering and retrieval (EDGAR) system available
through the SECs website at
http://www.sec.gov
.
Additional information relating to our businesses, including our
operating segments, is set forth in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations of this Report.
Corporate Governance Principles and Committee
Charters.
We previously adopted Corporate
Governance Principles, which are available on the Corporate
Governance section of our website at
www.harris.com/harris/cg/
. In addition, the charters of
each of the committees of our Board, namely, the Audit
Committee, Business Conduct and Corporate Responsibility
Committee, Corporate Governance Committee, Finance Committee and
Management Development and Compensation Committee, are also
available on the Corporate Governance section of our website. A
copy of the charters is also available free of charge upon
written request to our Secretary at Harris Corporation,
1025 West NASA Boulevard, Melbourne, Florida 32919.
Certifications.
We have filed with the SEC the
certifications required by Section 302 of the
Sarbanes-Oxley Act of 2002 as exhibits to this Report. In
addition, an annual CEO certification was submitted by our Chief
Executive Officer to the New York Stock Exchange
(NYSE) in November 2008 in accordance with the
NYSEs listing standards, which included a certification
that he was not aware of any violation by Harris of the
NYSEs corporate governance listing standards.
We have described many of the trends and other factors that
could impact our business and future results in
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations of this
Report. In addition, our business, operating results, cash flows
and financial condition are subject to, and could be materially
adversely affected by, various risks and uncertainties,
including, without limitation, those set forth below, any one of
which could cause our actual results to vary materially from
recent results or our anticipated future results.
We
depend on U.S. Government customers for a significant portion of
our revenue, and the loss of this relationship or a shift in
U.S. Government funding priorities could have adverse
consequences on our future business.
We are highly dependent on sales to U.S. Government
customers. The percentage of our net revenue that was derived
from sales to U.S. Government customers, including the DoD
and intelligence and civilian agencies, as well as foreign
military sales through the U.S. Government, whether directly or
through prime contractors, was approximately 79 percent in
fiscal 2009, 79 percent in fiscal 2008 and 75 percent
in fiscal 2007. Therefore, any significant disruption or
deterioration of our relationship with the U.S. Government
would significantly reduce our revenue. Our U.S. Government
programs must compete with programs managed by other government
contractors for limited resources and for uncertain levels of
funding. Our competitors continuously engage in efforts to
expand their business relationships with the
U.S. Government and will continue these efforts in the
future, and the U.S. Government may choose to use other
contractors. We expect that a majority of the business that we
seek in the foreseeable future will be awarded through
competitive bidding. The U.S. Government has increasingly
relied on certain types of contracts that are subject to a
competitive bidding process, including IDIQ, GWAC, GSA Schedule
and other multi-award contracts, which has resulted in greater
competition and increased pricing pressure. We operate in highly
competitive markets and our competitors may have more extensive
or more specialized engineering, manufacturing and marketing
capabilities than we do in some areas, and we may not be able to
continue to win competitively awarded contracts or to obtain
task orders under multi-award contracts. Further, the
competitive bidding process involves substantial costs, the
significant cost and managerial time to prepare bids and
proposals for contracts that may not be awarded to us, and the
risk that we may fail to accurately estimate the resources and
costs required to fulfill any contract awarded to us. Following
any contract award, we may experience significant expense or
delay, contract modification or contract rescission as a result
of our competitors protesting or challenging contracts awarded
to us in competitive bidding. We also compete with the
U.S. Governments own capabilities and federal
non-profit contract research centers. Budget decisions made by
the U.S. Government are
16
outside of our control and have long-term consequences for our
business. A shift in U.S. Government spending priorities or
an increase in non-procurement spending at the expense of our
programs, or a reduction in total U.S. Government spending,
could have material adverse consequences on our future business.
We
depend significantly on our 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 one or more of these contracts could have an
adverse impact on our business.
Over its lifetime, a U.S. Government program may be
implemented by the award of many different individual contracts
and subcontracts. The funding of U.S. Government programs
is subject to Congressional appropriations. Although multi-year
contracts may be authorized and appropriated in connection with
major procurements, Congress generally appropriates funds on a
fiscal year basis. Procurement funds are typically made
available for obligation over the course of three years.
Consequently, programs often receive only partial funding
initially, and additional funds are obligated only as Congress
authorizes further appropriations. The termination of funding
for a U.S. Government program would result in a loss of
anticipated future revenue attributable to that program, which
could have an adverse impact on our operations. In addition, the
termination of a program or the failure to commit additional
funds to a program that already has been started could result in
lost revenue and increase our overall costs of doing business.
Generally, U.S. Government contracts are subject to
oversight audits by U.S. Government representatives. Such
audits could result in adjustments to our contract costs. Any
costs found to be improperly allocated to a specific contract
will not be reimbursed, and such costs already reimbursed must
be refunded. We have recorded contract revenues based upon costs
we expect to realize upon final audit. However, we do not know
the outcome of any future audits and adjustments and we may be
required to materially reduce our revenues or profits upon
completion and final negotiation of audits. Negative audit
findings could also result in termination of a contract,
forfeiture of profits, suspension of payments, fines and
suspension or prohibition from doing business with the
U.S. Government.
In addition, U.S. Government contracts generally contain
provisions permitting termination, in whole or in part, without
prior notice at the U.S. Governments convenience upon
the payment only for work done and commitments made at the time
of termination. We can give no assurance that one or more of our
U.S. Government contracts will not be terminated under
these circumstances. Also, we can give no assurance that we
would be able to procure new contracts to offset the revenue or
backlog lost as a result of any termination of our
U.S. Government contracts. Because a significant portion of
our revenue is dependent on our performance and payment under
our U.S. Government contracts, the loss of one or more
large contracts could have a material adverse impact on our
financial condition.
Our government business also is subject to specific procurement
regulations and a variety of socio-economic and other
requirements. These requirements, although customary in
U.S. Government contracts, increase our performance and
compliance costs. These costs might increase in the future,
thereby reducing our margins, which could have an adverse effect
on our financial condition. Failure to comply with these
regulations and requirements could lead to suspension or
debarment from U.S. Government contracting or
subcontracting for a period of time. Among the causes for
debarment are violations of various laws, including those
related to procurement integrity, export control,
U.S. Government security regulations, employment practices,
protection of the environment, accuracy of records, proper
recording of costs and foreign corruption. The termination of a
U.S. Government contract or relationship as a result of any
of these acts would have an adverse impact on our operations and
could have an adverse effect on our standing and eligibility for
future U.S. Government contracts.
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 have a number of firm fixed-price contracts. In fiscal 2009
and fiscal 2008, approximately 36 percent and
35 percent, respectively, of the total combined revenue of
our RF Communications and Government Communications Systems
segments was from fixed-price contracts. These contracts allow
us to benefit from cost savings, but they carry the risk of
potential cost overruns because we assume all of the cost
burden. If our initial estimates are incorrect, we can lose
money on these contracts. U.S. Government contracts can
expose us to potentially large losses because the
U.S. Government can hold us responsible for completing a
project or, in certain circumstances, paying the entire cost of
its replacement by another provider regardless of the size or
foreseeability of any cost overruns that occur over the life of
the contract. Because many of these contracts involve new
technologies and applications and can last for years, unforeseen
events, such as technological difficulties, fluctuations in the
price of raw materials, problems with our suppliers and cost
overruns, can result in the contractual price becoming less
favorable or even unprofitable to us over time. The United
States also may experience a significant increase in inflation.
A significant increase in inflation rates could have a
significant
17
adverse impact on the profitability of these contracts.
Furthermore, if we do not meet contract deadlines or
specifications, we may need to renegotiate contracts on less
favorable terms, be forced to pay penalties or liquidated
damages or suffer major losses if the customer exercises its
right to terminate. In addition, some of our contracts have
provisions relating to cost controls and audit rights, and if we
fail to meet the terms specified in those contracts we may not
realize their full benefits. Our results of operations are
dependent on our ability to maximize our earnings from our
contracts. Cost overruns could have an adverse impact on our
financial results. Furthermore, the potential impact of this
risk on our financial results would increase if the mix of our
contracts and programs shifted toward a greater percentage of
firm fixed-price contracts.
We
derive a substantial portion of our revenue from international
operations and are subject to the risks of doing business
internationally, including fluctuations in currency exchange
rates.
We are dependent on sales to customers outside the United
States. In fiscal 2009, fiscal 2008 and fiscal 2007, revenue
from products exported from the U.S. or manufactured abroad
was 20 percent, 17 percent and 17 percent,
respectively, of our total revenue. Approximately
25 percent of our international business in fiscal 2009 was
transacted in local currency environments. Losses resulting from
currency rate fluctuations can adversely affect our results. We
expect that international revenue will continue to account for a
significant portion of our total revenue. Also, a significant
portion of our international revenue is in less-developed
countries. We are subject to risks of doing business
internationally, including:
|
|
|
|
|
Currency exchange controls, fluctuations of currency and
currency revaluations;
|
|
|
The laws, regulations and policies of foreign governments
relating to investments and operations, as well as
U.S. laws affecting the activities of U.S. companies
abroad;
|
|
|
Changes in regulatory requirements, including imposition of
tariffs or embargoes, export controls and other trade
restrictions;
|
|
|
Uncertainties and restrictions concerning the availability of
funding, credit or guarantees;
|
|
|
The complexity and necessity of using international dealers,
distributors, sales representatives and consultants;
|
|
|
The difficulty of managing an organization doing business in
many countries;
|
|
|
Import and export licensing requirements and regulations, as
well as unforeseen changes in export regulations;
|
|
|
Uncertainties as to local laws and enforcement of contract and
intellectual property rights and occasional requirements for
onerous contract clauses; and
|
|
|
Rapid changes in government, economic and political policies,
political or civil unrest, acts of terrorism or the threat of
international boycotts or U.S. anti-boycott legislation.
|
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.
We must first obtain export and other licenses and
authorizations from various U.S. Government agencies before
we are permitted to sell certain products and technologies
outside of the United States. For example, the
U.S. Department of State must notify Congress at least
15-60 days,
depending on the size and location of the sale, prior to
authorizing certain sales of defense equipment and services to
foreign governments. During that time, Congress may take action
to block the proposed sale. We can give no assurance that we
will continue to be successful in obtaining the necessary
licenses or authorizations or that Congress will not prevent or
delay certain sales. Any significant impairment of our ability
to sell products or technologies outside of the United States
could negatively impact our results of operations and financial
condition.
Our
future success will depend on our ability to develop new
products and technologies that achieve market acceptance in our
current and future markets.
Both our commercial and government businesses are characterized
by rapidly changing technologies and evolving industry
standards. Accordingly, our performance depends on a number of
factors, including our ability to:
|
|
|
|
|
Identify emerging technological trends in our current and target
markets;
|
|
|
Develop and maintain competitive products;
|
|
|
Enhance our offerings by adding innovative hardware, software or
other features that differentiate our products from those of our
competitors; and
|
|
|
Develop, manufacture and bring cost-effective offerings to
market quickly.
|
We believe that, in order to remain competitive in the future,
we will need to continue to develop new products and
technologies, requiring the investment of significant financial
resources. The need to make these expenditures
18
could divert our attention and resources from other projects,
and we cannot be sure that these expenditures ultimately will
lead to the timely development of new products or technologies.
Due to the design complexity of some of our products and
technologies, we may experience delays in completing development
and introducing new products or technologies in the future. Any
delays could result in increased costs of development or
redirect resources from other projects. In addition, we cannot
provide assurances that the markets for our products or
technologies will develop as we currently anticipate. The
failure of our products or technologies to gain market
acceptance could significantly reduce our revenue and harm our
business. Furthermore, we cannot be sure that our competitors
will not develop competing products or technologies that gain
market acceptance in advance of our products or technologies, or
that our competitors will not develop new products or
technologies that cause our existing products or technologies to
become non-competitive or obsolete, which could adversely affect
our results of operations. The future direction of the domestic
and global economies also will have a significant impact on our
overall performance.
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 participate in U.S. and international markets that are
subject to uncertain economic conditions. As a result, it is
difficult to estimate the level of growth in some of the markets
in which we participate. Because all components of our budgeting
and forecasting are dependent upon estimates of growth in the
markets we serve, the uncertainty renders estimates of future
income and expenditures even more difficult. As a result, we may
make significant investments and expenditures but never realize
the anticipated benefits.
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.
Ongoing instability and current conflicts in the Middle East and
the potential for further conflicts and future terrorist
activities and other recent geo-political events have created
economic and political uncertainties that could have a material
adverse effect on our business, operations and profitability.
These matters cause uncertainty in the worlds financial
and insurance markets and may increase significantly the
political, economic and social instability in the geographic
areas in which we operate. These matters also have caused the
premiums charged for our insurance coverages to increase and may
cause further increases or some coverages to be unavailable
altogether.
We
have made, and may continue to make, strategic acquisitions that
involve significant risks and uncertainties.
We have made, and we may continue to make, strategic
acquisitions that involve significant risks and uncertainties.
These risks and uncertainties include:
|
|
|
|
|
Difficulty in identifying and evaluating potential acquisitions,
including the risk that our due diligence does not identify or
fully assess valuation issues, potential liabilities or other
acquisition risks;
|
|
|
Difficulty in integrating newly acquired businesses and
operations in an efficient and cost-effective manner and the
risk that we encounter significant unanticipated costs or other
problems associated with integration;
|
|
|
Challenges in achieving strategic objectives, cost savings and
other benefits expected from acquisitions;
|
|
|
Risk that our markets do not evolve as anticipated and that the
strategic acquisitions do not prove to be those needed to be
successful in those markets;
|
|
|
Risk that we assume significant liabilities that exceed the
limitations of any applicable indemnification provisions or the
financial resources of any indemnifying parties;
|
|
|
Potential loss of key employees of the acquired
businesses; and
|
|
|
Risk of diverting the attention of senior management from our
existing operations.
|
Disputes
with our subcontractors and the inability of our subcontractors
to perform, or our key suppliers to timely deliver our
components or parts, could cause our products to be produced in
an untimely or unsatisfactory manner.
On many of our contracts, we engage subcontractors. We may have
disputes with our subcontractors, including disputes regarding
the quality and timeliness of work performed by the
subcontractor, customer concerns about the subcontract, our
failure to extend existing task orders or issue new task orders
under a subcontract, our hiring of the personnel of a
subcontractor or vice versa or the subcontractors failure
to comply with applicable law. In addition, there are certain
parts or components for many of our products which we source
from other manufacturers or vendors. Some of our suppliers, from
time to time, experience financial and operational difficulties,
which may impact their ability to supply the materials,
components and subsystems that we require. Any inability to
develop alternative sources of supply on a cost-effective and
timely basis could materially impair our ability to manufacture
and deliver products to our customers. We can give no assurances
that we will be free from disputes with our subcontractors,
material supply problems or component or subsystems problems in
the future. Also, our
19
subcontractors and other suppliers may not be able to maintain
the quality of the materials, components and subsystems they
supply, which might result in greater product returns and
warranty claims and could harm our business, financial condition
and results of operations.
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.
Many of the markets we serve are characterized by vigorous
protection and pursuit of intellectual property rights, which
often has resulted in protracted and expensive litigation. 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 we may be found to be
infringing or to have infringed directly or indirectly upon
those intellectual property rights. Claims of intellectual
property infringement might also require us to enter into costly
royalty or license agreements. Moreover, we may not be able to
obtain royalty or license agreements on terms acceptable to us,
or at all. We also may be subject to significant damages or
injunctions against development and sale of certain of our
products. Our success depends in large part on our proprietary
technology. We rely on a combination of patents, copyrights,
trademarks, trade secrets, know-how, confidentiality provisions
and licensing arrangements to establish and protect our
intellectual property rights. If we fail to successfully protect
and enforce these rights, our competitive position could suffer.
Our pending patent and trademark registration applications may
not be allowed, or competitors may challenge the validity or
scope of our patents or trademark registrations. In addition,
our patents may not provide us a significant competitive
advantage. We may be required to spend significant resources to
monitor and police our intellectual property rights. We may not
be able to detect infringement and our competitive position may
be harmed before we do so. In addition, competitors may design
around our technology or develop competing technologies.
The
outcome of litigation or arbitration in which we are involved is
unpredictable and an adverse decision in any such matter could
have a material adverse effect on our financial condition and
results of operations.
We are defendants in a number of litigation matters and are
involved in a number of arbitrations. These actions may divert
financial and management resources that would otherwise be used
to benefit our operations. No assurances can be given that the
results of these or new matters will be favorable to us. An
adverse resolution of lawsuits or arbitrations could have a
material adverse effect on our financial condition and results
of operations.
We are
subject to customer credit risk.
We sometimes provide medium-term and long-term customer
financing. Customer financing arrangements may include all or a
portion of the purchase price for our products and services, as
well as working capital. We also may assist customers in
obtaining financing from banks and other sources on a recourse
or non-recourse basis. While we generally have been able to
place a portion of our customer financings with third-party
lenders, or to otherwise insure a portion of this risk, a
portion of these financings is provided directly by us. There
can be higher risks associated with some of these financings,
particularly when provided to
start-up
operations such as local network providers, to customers in
developing countries or to customers in specific
financing-intensive areas of the telecommunications industry. If
customers fail to meet their obligations, losses could be
incurred and such losses could have an adverse effect on us. Our
losses could be much greater if it becomes more difficult to
place or insure against these risks with third parties. These
risks may increase when the availability of credit decreases.
We
face certain significant risk exposures and potential
liabilities that may not be covered adequately by insurance or
indemnity.
We are exposed to liabilities that are unique to the products
and services we provide. A significant portion of our business
relates to designing, developing and manufacturing advanced
defense and technology systems and products. New technologies
associated with these systems and products may be untested or
unproven. Components of certain of the defense systems and
products we develop are inherently dangerous. Failures of
satellites, missile systems, air traffic control systems,
homeland security applications and aircraft have the potential
to cause loss of life and extensive property damage. In most
circumstances, we may receive indemnification from the
U.S. Government. While we maintain insurance for certain
risks, the amount of our insurance coverage may not be adequate
to cover all claims or liabilities, and we may be forced to bear
substantial costs from an accident or incident. It also is not
possible to obtain insurance to protect against all operational
risks and liabilities. Substantial claims resulting from an
incident in excess of U.S. Government indemnity and our
insurance coverage could harm our financial condition, operating
results and cash flows. Moreover, any accident or incident for
which we are liable, even if fully insured, could negatively
affect our standing among our customers and the public, thereby
making it more difficult for us to compete effectively, and
could significantly impact the cost and availability of adequate
insurance in the future.
20
Changes
in our effective tax rate may have an adverse effect on our
results of operations.
Our future effective tax rate may be adversely affected by a
number of factors including:
|
|
|
|
|
The jurisdictions in which profits are determined to be earned
and taxed;
|
|
|
Adjustments to estimated taxes upon finalization of various tax
returns;
|
|
|
Increases in expenses not fully deductible for tax purposes,
including write-offs of acquired in-process research and
development and impairment of goodwill in connection with
acquisitions;
|
|
|
Changes in available tax credits;
|
|
|
Changes in share-based compensation expense;
|
|
|
Changes in the valuation of our deferred tax assets and
liabilities;
|
|
|
Changes in domestic or international tax laws or the
interpretation of such tax laws; and
|
|
|
The resolution of issues arising from tax audits with various
tax authorities.
|
Any significant increase in our future effective tax rates could
adversely impact our results of operations for future periods.
The
effects of the recession in the United States and general
downturn in the global economy could have an adverse impact on
our business, operating results or financial
condition.
The United States economy is in recession and there has been a
general downturn in the global economy. Although governments
worldwide, including the U.S. Government, have initiated
sweeping economic plans, we are unable to predict the impact,
severity and duration of these economic events, which could have
an adverse impact on our business, operating results or
financial condition in a number of ways. Possible effects of
these economic events include the following:
|
|
|
|
|
The U.S. Government could reprioritize its spending away
from the government contracts in which we participate.
|
|
|
|
|
|
We may experience declines in revenues, profitability and cash
flows as a result of reduced orders, payment delays or other
factors caused by the economic problems of our customers and
prospective customers.
|
|
|
We may experience supply chain delays, disruptions or other
problems associated with financial constraints faced by our
suppliers and subcontractors.
|
|
|
We may incur increased costs or experience difficulty with
future borrowings under our commercial paper program or credit
facilities or in the debt markets, or otherwise with financing
our operating, investing (including any future acquisitions) or
financing activities.
|
We
have significant operations in Florida and other locations that
could be materially and adversely impacted in the event of a
natural disaster or other significant disruption.
Our corporate headquarters and significant operations of our
Government Communications Systems segment are located in
Florida, where major hurricanes have occurred. Our worldwide
operations could be subject to natural disasters or other
significant disruptions, including hurricanes, typhoons,
tsunamis, floods, earthquakes, fires, water shortages, other
extreme weather conditions, medical epidemics, acts of
terrorism, power shortages and blackouts, telecommunications
failures, cyber attacks and other natural and manmade disasters
or disruptions. In the event of such a natural disaster or other
disruption, we could experience disruptions or interruptions to
our operations or the operations of our suppliers,
subcontractors, distributors, resellers or customers;
destruction of facilities;
and/or
loss
of life, all of which could materially increase our costs and
expenses and materially adversely affect our business, revenue
and financial condition.
Changes
in future business conditions could cause business investments
and/or recorded goodwill to become impaired, resulting in
substantial losses and write-downs that would reduce our results
of operations.
As part of our overall strategy, we will, from time to time,
acquire a minority or majority interest in a business. These
investments are made upon careful target analysis and due
diligence procedures designed to achieve a desired return or
strategic objective. These procedures often involve certain
assumptions and judgment in determining acquisition price. After
acquisition, unforeseen issues could arise which adversely
affect the anticipated returns or which are otherwise not
recoverable as an adjustment to the purchase price. Even after
careful integration efforts, actual operating results may vary
significantly from initial estimates. Goodwill accounts for
approximately 34 percent of our recorded total assets as of
July 3, 2009. We evaluate the recoverability of recorded
goodwill amounts annually, or when evidence of potential
impairment exists. The annual impairment test is based on
several factors requiring judgment. Principally, a decrease in
expected reporting segment cash flows or changes in market
conditions may indicate potential impairment of recorded
goodwill. For additional information on accounting policies we
have in place for goodwill impairment, see our discussion under
Critical Accounting Policies and
21
Estimates in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations of this Report and
Note 1: Significant
Accounting Policies
and
Note 22: Impairment of
Goodwill and Other Long-Lived Assets
in the Notes.
In
order to be successful, we must attract and retain key
employees, and failure to do so could seriously harm
us.
Our business has a continuing need to attract significant
numbers of skilled personnel, including personnel holding
security clearances, to support our growth and to replace
individuals who have terminated employment due to retirement or
for other reasons. To the extent that the demand for qualified
personnel exceeds supply, as has been the case from time to time
in recent years, we could experience higher labor, recruiting or
training costs in order to attract and retain such employees, or
could experience difficulties in performing under our contracts
if our needs for such employees were unmet.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
We have no unresolved comments from the SEC.
Our principal executive offices are located at owned facilities
in Melbourne, Florida. As of July 3, 2009, we operated
approximately 134 locations in the United States, Canada,
Europe, Central and South America and Asia, consisting of about
6.9 million square feet of manufacturing, administrative,
research and development, warehousing, engineering and office
space, of which approximately 4.4 million square feet were
owned and approximately 2.5 million square feet were
leased. There are no material encumbrances on any of our
facilities. Our leased facilities are, for the most part,
occupied under leases for remaining terms ranging from one month
to 10 years, a majority of which can be terminated or
renewed at no longer than five-year intervals at our option. As
of July 3, 2009, we had major operations at the following
locations:
RF Communications
Rochester, New York;
Lynchburg, Virginia; Lowell, Massachusetts; Forest, Virginia;
Austerlitz, New York; Columbia, Maryland; and the United Kingdom.
Government Communications Systems
Palm
Bay, Florida; Melbourne, Florida; Malabar, Florida; Chantilly,
Virginia; Herndon, Virginia; Largo, Maryland; Falls Church,
Virginia; Dulles, Virginia; Alexandria, Virginia; Colorado
Springs, Colorado; Annapolis Junction, Maryland; Bellevue,
Nebraska; and Calgary, Canada.
Broadcast Communications
Quincy,
Illinois; Mason, Ohio; Toronto, Canada; Pottstown, Pennsylvania;
Englewood, Colorado; Chesapeake, Virginia; Los Angeles,
California; Waterloo, Canada; New York, New York;
Beijing, China; Sydney, Australia; Dublin, Ireland; Kowloon,
Hong Kong; and the United Kingdom.
Corporate
Melbourne, Florida.
The following is a summary of the approximate floor space of our
offices and facilities in productive use, by segment, at
July 3, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
Approximate
|
|
|
|
|
|
|
Sq. Ft. Total
|
|
|
Sq. Ft. Total
|
|
|
|
|
Segment
|
|
Owned
|
|
|
Leased
|
|
|
Total
|
|
|
RF Communications
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
1.7
|
|
Government Communications Systems
|
|
|
2.7
|
|
|
|
1.0
|
|
|
|
3.7
|
|
Broadcast Communications
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
1.1
|
|
Corporate
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4.4
|
|
|
|
2.5
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the opinion of management, our facilities, whether owned or
leased, are suitable and adequate for their intended purposes
and have capacities adequate for current and projected needs.
While we have some unused or under-utilized facilities, they are
not considered significant. We frequently review our anticipated
requirements for facilities and will, from time to time, acquire
additional facilities, expand existing facilities, and dispose
of existing facilities or parts thereof, as management deems
necessary. For more information about our lease obligations, see
Note 18: Lease Commitments
in the Notes. Our
facilities and other properties are generally maintained in good
operating condition.
22
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
General.
From time to time, as a normal
incident of the nature and kind of businesses in which we are,
and were, engaged, various claims or charges are asserted and
litigation 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; the sale or use of products 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. While it is not feasible to predict the
outcome of these matters with certainty, and some lawsuits,
claims or proceedings may be disposed of or decided unfavorably
to us, based upon available information, in the opinion of
management, settlements and final judgments, if any, which are
considered probable of being rendered against us in litigation
or arbitration in existence at July 3, 2009 are reserved
against, covered by insurance or would not have a material
adverse effect on our financial condition, results of operations
or cash flows.
U.S. Government
Business.
U.S. Government contractors, such
as us, are engaged in supplying goods and services to the
U.S. Government and its various agencies. We are therefore
dependent on Congressional appropriations and administrative
allotment of funds and may be affected by changes in
U.S. Government policies. U.S. Government contracts
typically involve long lead times for design and development,
are subject to significant changes in contract scheduling and
may be unilaterally modified or cancelled by the
U.S. Government. Often these contracts call for successful
design and production of complex and technologically advanced
products or systems. We may participate in supplying goods and
services to the U.S. Government as either a prime
contractor or as a subcontractor to a prime contractor. Disputes
may arise between the prime contractor and the
U.S. Government and the prime contractor and its
subcontractors and may result in litigation between the
contracting parties.
Generally, U.S. Government contracts are subject to
procurement laws and regulations, including the Federal
Acquisition Regulation (FAR), which outline uniform
policies and procedures for acquiring goods and services by the
U.S. Government, and specific agency acquisition
regulations that implement or supplement the FAR, such as the
Defense Federal Acquisition Regulations. As a
U.S. Government contractor, our contract costs are audited
and reviewed on a continuing basis by the Defense Contract Audit
Agency (DCAA). The DCAA also reviews the adequacy
of, and a U.S. Government contractors compliance
with, the contractors internal control systems and
policies, including the contractors purchasing, property,
estimating, compensation and management information systems. In
addition to these routine audits, from time to time, we may,
either individually or in conjunction with other
U.S. Government contractors, be the subject of audits and
investigations by other agencies of the U.S. Government.
These audits and investigations are conducted to determine if
our performance and administration of our U.S. Government
contracts are compliant with applicable contractual requirements
and procurement and other applicable Federal laws and
regulations. These investigations may be conducted without our
knowledge. We are unable to predict the outcome of such
investigations or to estimate the amounts of resulting claims or
other actions that could be instituted against us, our officers
or employees. Under present U.S. Government procurement
laws and regulations, if indicted or adjudged in violation of
procurement or other Federal laws, a contractor, such as us, or
one or more of our operating divisions or subdivisions, could be
subject to fines, penalties, repayments, or compensatory or
treble damages. U.S. Government regulations also provide
that certain findings against a contractor may lead to
suspension or debarment from eligibility for awards of new
U.S. Government contracts for up to three years. Suspension
or debarment would have a material adverse effect on us because
of our reliance on U.S. Government contracts. In addition,
our export privileges could be suspended or revoked. Suspension
or revocation of our export privileges also would have a
material adverse effect on us.
International.
As an international company, we
are, from time to time, the subject of investigations relating
to our international operations, including under the
U.S. export control laws, the U.S. Foreign Corrupt
Practices Act and similar U.S. and international laws.
Environmental.
We are subject to numerous
U.S. Federal, state and international environmental laws
and regulatory requirements and are involved from time to time
in investigations or litigation of various potential
environmental issues concerning activities at our facilities or
former facilities or remediation as a result of past activities
(including past activities of companies we have acquired). From
time to time, we receive notices from the
U.S. Environmental Protection Agency or equivalent state or
international environmental agencies that we are a potentially
responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act (commonly known as the
Superfund Act)
and/or
equivalent laws. Such notices assert potential liability for
cleanup
23
costs at various sites, which include sites owned by us, sites
we previously owned and treatment or disposal sites not owned by
us, allegedly containing hazardous substances attributable to us
from past operations. We own, previously owned or are currently
named as a potentially responsible party at 14 such sites,
excluding sites as to which our records disclose no involvement
or as to which our liability has been finally determined. While
it is not feasible to predict the outcome of many of these
proceedings, in the opinion of our management, any payments we
may be required to make as a result of such claims in existence
at July 3, 2009 will not have a material adverse effect on
our financial condition, results of operations or cash flows.
Additional information regarding environmental matters is set
forth in
Note 1: Significant Accounting Policies
in
the Notes, which Note is incorporated herein by reference, and
in Item 1. Business Environmental and
Other Regulations of this Report.
HSTX Securities Litigation.
HSTX and certain
of its current and former officers and directors, including
certain current Harris officers, were named as defendants in a
federal securities class action complaint filed on
September 15, 2008 in the United States District Court for
the District of Delaware by plaintiff Norfolk County Retirement
System on behalf of an alleged class of purchasers of HSTX
securities from January 29, 2007 to July 30, 2008,
including shareholders of Stratex Networks, Inc.
(Stratex) who exchanged shares of Stratex for shares
of HSTX as part of the combination between Stratex and our
former Microwave Communications Division to form HSTX.
Similar complaints were filed in the United States District
Court for the District of Delaware on October 6, 2008 and
October 30, 2008. The complaints were consolidated in a
slightly expanded complaint filed on July 29, 2009 that
adds Harris Corporation and Ernst & Young LLP as
defendants. This action relates to public disclosures made by
HSTX on January 30, 2007 and July 30, 2008, which
included the restatement of HSTXs financial statements for
the first three fiscal quarters of its fiscal 2008 (the quarters
ended March 28, 2008, December 28, 2007 and
September 28, 2007) and for its fiscal years ended
June 29, 2007, June 30, 2006 and July 1, 2005 due
to accounting errors. The consolidated complaint alleges
violations of Section 10(b) and Section 20(a) of the
Exchange Act and of
Rule 10b-5
promulgated thereunder, as well as violations of Section 11
and Section 15 of the Securities Act, and seeks, among
other relief, determinations that the action is a proper class
action, unspecified compensatory damages and reasonable
attorneys fees and costs. We believe that the defendants
have meritorious defenses to these actions and the defendants
intend to defend the litigation vigorously.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
No matters were submitted by us to a vote of our security
holders during the fourth quarter of fiscal 2009.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The name, age, position held with us, and principal occupation
and employment during at least the past 5 years for each of
our executive officers as of August 28, 2009, are as
follows:
|
|
|
Name and Age
|
|
Position Currently Held and Past Business Experience
|
|
Howard L. Lance, 53
|
|
Chairman of the Board, President and Chief Executive Officer
since June 2003. President and Chief Executive Officer since
February 2003. Formerly President of NCR Corporation and Chief
Operating Officer of its Retail and Financial Group from July
2001 to October 2002. Prior to July 2001, Mr. Lance served for
17 years with Emerson Electric Company, where he held
increasingly senior management positions with different
divisions of the company, and was named Executive Vice President
for Emersons Electronics and Telecommunications businesses
in 1999. Mr. Lance is a director of Stryker Corporation and
Eastman Chemical Company.
|
|
|
|
|
|
|
Robert K. Henry, 62
|
|
Executive Vice President and Chief Operating Officer since May
2007. Executive Vice President since July 2006. Senior Vice
President from March 2003 to July 2006. President
Government Communications Systems Division from July 1999 to May
2007. Vice President General Manager of the
Communications Systems Division of the Electronic Systems Sector
from 1997 to 1999. Formerly with Sanders, a Lockheed Martin
company from 1995 to 1997, in various positions of increasing
responsibility, including Vice President of Engineering and Vice
President General Manager, Information Systems
Division. Technical Operations Director, Martin Marietta, from
1993 to 1995. Business Interface South Manager, GE Aerospace,
from 1990 to 1993.
|
|
|
|
24
|
|
|
Name and Age
|
|
Position Currently Held and Past Business Experience
|
|
Gary L. McArthur, 49
|
|
Senior Vice President and Chief Financial Officer since
September 2008. Vice President and Chief Financial Officer since
March 2006. Vice President Finance and Treasurer
from January 2005 to March 2006. Vice President
Corporate Development from January 2001 to January 2005.
Director Corporate Development from March 1997 to
December 2000. Formerly, Chief Financial Officer of 3D/EYE Inc.
from 1996 to 1997. Executive Director Mexico, Nextel
from 1995 to 1996. Director Mergers and
Acquisitions, Nextel from 1993 to 1995. Prior to 1993, Mr.
McArthur held various positions with Lehman Brothers, Inc.,
Cellcom Corp. and Deloitte & Touche.
|
|
|
|
|
|
|
Eugene S. Cavallucci, 62
|
|
Vice President, General Counsel since October 2004. Vice
President Counsel, Government Operations and
Director of Business Conduct from July 1999 to October 2004.
Vice President Sector Counsel from August 1992 to
June 1999. Mr. Cavallucci joined Harris in 1990.
|
|
|
|
|
|
|
Dana A. Mehnert, 47
|
|
Group President, RF Communications since May 2009. President, RF
Communications from July 2006 to May 2009. Vice President and
General Manager Government Products Business, RF
Communications from July 2005 to July 2006. Vice President and
General Manager Business Development and Operations,
RF Communications from January 2005 to July 2005. Vice
President Defense Operations, RF Communications from
January 2004 to January 2005. Vice President
International Operations, RF Communications from November 2001
to January 2004. Vice President/Managing Director
International Government Sales Operations for Harris
regional sales organization from September 1999 to November
2001. Vice President Marketing and International
Sales, RF Communications from August 1997 to September 1999.
Vice President Worldwide Marketing, RF
Communications from July 1996 to July 1997. Vice
President International Sales, RF Communications
from November 1995 to June 1996. Mr. Mehnert joined Harris
in 1984.
|
|
|
|
|
|
|
Daniel R. Pearson, 57
|
|
Group President, Government Communications Systems since July
2008. Group President, Defense Communications and Electronics
from May 2007 to June 2008. Group President Defense
Communications from July 2006 to May 2007. President
Department of Defense Programs, Government Communications
Systems Division from November 2003 to July 2006.
President Network Support Division from June 2000 to
November 2003. Mr. Pearson joined Harris in 1977.
|
|
|
|
|
|
|
Lewis A. Schwartz, 46
|
|
Vice President, Principal Accounting Officer since October 2006.
Principal Accounting Officer from October 2005 to October 2006.
Assistant Controller from October 2003 to October 2005.
Director, Corporate Accounting from August 1999 to October 2003.
Director, Corporate Planning from January 1997 to August 1999.
Mr. Schwartz joined Harris in 1992. Formerly, Mr. Schwartz
was with Ernst & Young LLP from 1986 to 1992.
|
|
|
|
|
|
|
Jeffrey S. Shuman, 55
|
|
Vice President, Human Resources and Corporate Relations since
August 2005. Formerly with Northrop Grumman as Vice President of
Human Resources and Administration, Information Technology
Sector from March 2001 to August 2005; and Senior Vice President
of Human Resources Information Systems Group, Litton Inc. from
September 1999 to March 2001. Prior to that, with Honeywell
International/Allied Signal Corporation as Vice
President Human Resources for Allied Signals
technical services business from February 1997 to September 1999
and Director, Human Resources, Allied Signal from January 1995
to February 1997. President, Management Recruiters International
of Orange County from 1994 to 1995. Prior to 1994, Mr. Shuman
held various positions with Avon Products, Inc.
|
|
|
|
|
|
|
Timothy E. Thorsteinson, 54
|
|
President, Broadcast Communications Division since July 2006 and
President and Chief Executive Officer of Harris Canada Systems,
Inc. (formerly Leitch Technology Corporation) since November
2003. Formerly with Thomson Broadcast & Media Solutions as
Vice President Product Business Units from March 2002 to
November 2003 and with Grass Valley Group as Chief Executive
Officer and Chief Operating Officer from 1999 to 2002. Mr.
Thorsteinson was with Tektronix, Inc. from 1991 to 1999, in
various capacities of increasing responsibility, including
President of the Video and Networking Division and President of
Pacific Operations.
|
25
There is no family relationship between any of our executive
officers or directors, and there are no arrangements or
understandings between any of our executive officers or
directors and any other person pursuant to which any of them was
appointed or elected as an officer or director, other than
arrangements or understandings with our directors or officers
acting solely in their capacities as such. All of our executive
officers are elected annually and serve at the pleasure of our
Board of Directors.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Market
Information and Price Range of Common Stock
Our common stock, par value $1.00 per share, is listed and
traded on the NYSE, under the ticker symbol HRS.
According to the records of our transfer agent, as of
August 28, 2009, there were approximately 6,350 holders of
record of our common stock. The high and low sales prices of our
common stock as reported on the NYSE consolidated transactions
reporting system and the dividends paid on our common stock for
each quarterly period in our last two fiscal years are reported
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
55.00
|
|
|
$
|
42.00
|
|
|
$
|
0.20
|
|
Second Quarter
|
|
$
|
47.52
|
|
|
$
|
27.56
|
|
|
|
0.20
|
|
Third Quarter
|
|
$
|
45.25
|
|
|
$
|
27.38
|
|
|
|
0.20
|
|
Fourth Quarter
|
|
$
|
32.22
|
|
|
$
|
27.22
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
62.43
|
|
|
$
|
52.00
|
|
|
$
|
0.15
|
|
Second Quarter
|
|
$
|
66.94
|
|
|
$
|
57.20
|
|
|
|
0.15
|
|
Third Quarter
|
|
$
|
63.17
|
|
|
$
|
44.11
|
|
|
|
0.15
|
|
Fourth Quarter
|
|
$
|
66.71
|
|
|
$
|
47.89
|
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 28, 2009, the last sale price of our common stock
as reported in the NYSE consolidated transactions reporting
system was $35.04 per share.
Dividends
The cash dividends paid on our common stock for each quarter in
our last two fiscal years are set forth in the tables above. On
August 28, 2009, our Board of Directors increased the
quarterly cash dividend rate on our common stock from $.20 per
share to $.22 per share, for an annualized cash dividend rate of
$.88 per share and declared a quarterly cash dividend of $.22
per share, which will be paid on September 18, 2009 to
holders of record on September 9, 2009. Our annualized cash
dividend rate was $.80 per share, $.60 per share and $.44 per
share in fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
Quarterly cash dividends are typically paid in March, June,
September and December. We currently expect that cash dividends
will continue to be paid in the near future, but we can give no
assurances. The declaration of dividends and the amount thereof
will depend on a number of factors, including our financial
condition, capital requirements, results of operations, future
business prospects and other factors that our Board of Directors
may deem relevant.
Harris
Stock Performance Graph
The following performance graph and table do not constitute
soliciting material and the performance graph and table should
not be deemed filed or incorporated by reference into any other
previous or future filings by us under the Securities Act or the
Exchange Act, except to the extent that we specifically
incorporate the performance graph and table by reference
therein.
The performance graph and table below compare the five-year
cumulative total return of our common stock with the comparable
five-year cumulative total returns of the Standard &
Poors 500 Information Technology Section Index
(S&P 500 Information Technology) and the
Standard & Poors 500 Composite Stock Index
(S&P 500). The figures assume an initial
investment of $100 at the close of business on July 2, 2004
in Harris, the S&P 500 Information Technology and the
S&P 500, and the reinvestment of all dividends, including,
with respect to our common stock, the Spin-off dividend. For
purposes of calculating the cumulative total return of our
common stock, the then-current market value of the HSTX shares
distributed in the Spin-off was deemed to have been reinvested
on the May 27, 2009 Spin-off date in shares of our common
stock.
26
COMPARISON OF
FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG HARRIS, S&P 500 INFORMATION TECHNOLOGY AND S&P
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HARRIS
FISCAL YEAR END
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Harris
|
|
|
|
|
$100
|
|
|
|
129
|
|
|
|
|
169
|
|
|
|
|
225
|
|
|
|
|
213
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Information Technology
|
|
|
|
|
$100
|
|
|
|
99
|
|
|
|
|
100
|
|
|
|
|
126
|
|
|
|
|
118
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500
|
|
|
|
|
$100
|
|
|
|
108
|
|
|
|
|
117
|
|
|
|
|
141
|
|
|
|
|
123
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of
Unregistered Securities
During fiscal 2009, we did not issue or sell any unregistered
securities.
Issuer
Repurchases of Equity Securities
During fiscal 2009, we repurchased 2,722,438 shares of our
common stock under our repurchase program at an average price
per share of $45.88, excluding commissions. During fiscal 2008,
we repurchased 3,945,136 shares of our common stock under
our repurchase program at an average price per share of $56.99,
excluding commissions. The level of our repurchases depends on a
number of factors, including our financial condition, capital
requirements, results of operations, future business prospects
and other factors that our Board of Directors may deem relevant.
The timing, volume and nature of share repurchases are subject
to market conditions, applicable securities laws and other
factors and are at our discretion and may be suspended or
discontinued at any time. Shares repurchased by us are cancelled
and retired.
27
The following table sets forth information with respect to
repurchases by us of our common stock during the fiscal quarter
ended July 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of
|
|
|
|
dollar value
|
|
|
|
|
|
|
|
|
|
|
|
|
shares purchased as
|
|
|
|
of shares that may
|
|
|
|
|
|
|
|
|
|
|
|
|
part of publicly
|
|
|
|
yet be purchased
|
|
|
|
|
Total number of
|
|
|
|
Average price
|
|
|
|
announced plans or
|
|
|
|
under the plans or
|
|
Period*
|
|
|
shares purchased
|
|
|
|
paid per share
|
|
|
|
programs (1)
|
|
|
|
programs (1)
|
|
Month No. 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(April 4, 2009 May 1, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase programs (1)
|
|
|
|
None
|
|
|
|
|
n/a
|
|
|
|
|
None
|
|
|
|
$
|
650,343,215
|
|
Employee transactions (2)
|
|
|
|
732
|
|
|
|
$
|
31.17
|
|
|
|
|
n/a
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month No. 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(May 2, 2009 May 29, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase programs (1)
|
|
|
|
None
|
|
|
|
|
n/a
|
|
|
|
|
None
|
|
|
|
$
|
650,343,215
|
|
Employee transactions (2)
|
|
|
|
21,456
|
|
|
|
$
|
30.86
|
|
|
|
|
n/a
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month No. 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(May 30, 2009 July 3, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase programs (1)
|
|
|
|
None
|
|
|
|
|
n/a
|
|
|
|
|
None
|
|
|
|
$
|
650,343,215
|
|
Employee transactions (2)
|
|
|
|
4,299
|
|
|
|
$
|
29.08
|
|
|
|
|
n/a
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
26,487
|
|
|
|
$
|
30.58
|
|
|
|
|
None
|
|
|
|
$
|
650,343,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Periods represent our fiscal months.
|
|
(1)
|
|
On May 1, 2007, we announced
that on April 27, 2007, our Board of Directors approved a
share repurchase program (the 2007 Repurchase
Program) authorizing us to repurchase up to
$600 million in shares of our stock through open-market
transactions, private transactions, transactions structured
through investment banking institutions or any combination
thereof. The 2007 Repurchase Program does not have a stated
expiration date. The 2007 Repurchase Program had a remaining
authorization of $50,343,215 at July 3, 2009. On
March 2, 2009, we announced that on February 27, 2009,
our Board of Directors approved a new share repurchase program
(the 2009 Repurchase Program and together with the
2007 Repurchase Program, the Repurchase Programs)
authorizing us to repurchase up to an additional
$600 million of our stock through open-market transactions,
private transactions, transactions structured through investment
banking institutions or any combination thereof. The 2009
Repurchase Program does not have a stated expiration date. The
approximate dollar amount of our stock that may yet be purchased
on a combined basis under our Repurchase Programs as of
July 3, 2009 was $650,343,215 (as reflected in the table
above). Our 2007 Repurchase Program has resulted, and on a
combined basis our Repurchase Programs are expected to continue
to result, in repurchases in excess of offsetting the dilutive
effect of shares issued under our share-based incentive plans.
However, the level of our repurchases depends on a number of
factors, including our financial condition, capital
requirements, results of operations, future business prospects
and other factors our Board of Directors may deem relevant. As a
matter of policy, we do not repurchase shares during the period
beginning on the 15th day of the third month of a fiscal quarter
and ending two days following the public release of earnings and
financial results for such fiscal quarter.
|
|
(2)
|
|
Represents a combination of
(a) shares of our common stock delivered to us in
satisfaction of the exercise price and/or tax withholding
obligation by holders of employee stock options who exercised
stock options, (b) shares of our common stock delivered to
us in satisfaction of the tax withholding obligation of holders
of performance shares or restricted shares which vested during
the quarter, (c) performance or restricted shares returned
to us upon retirement or employment termination of employees or
(d) shares of our common stock purchased by the trustee of
the Harris Corporation Master Rabbi Trust at our direction to
fund obligations under our deferred compensation plans. 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. Period
No. 2 (May 2, 2009 May 29,
2009) also includes 14,226 shares of our common stock
purchased on May 27, 2009 by the trustee of the Harris
Corporation Master Rabbi Trust at our direction, as a
reinvestment of substantially all of the net proceeds from the
sale on May 27, 2009 by the trustee of the Harris
Corporation Master Rabbi Trust at our direction of
86,233 shares of HSTX common stock received by the Harris
Corporation Master Rabbi Trust pursuant to the Spin-off.
|
The information required by this Item with respect to securities
authorized for issuance under our equity compensation plans is
included in Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters Equity Compensation Plan Information
of this Report. See
Note 14: Stock Options and Other
Share-Based Compensation
in the Notes for a general
description of our stock and equity incentive plans.
28
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The following table summarizes our selected historical financial
information for each of the last five fiscal years. All amounts
presented have been restated on a continuing operations basis.
Discontinued operations are more fully discussed in
Note 3: Discontinued Operations
in the Notes. The
selected financial information shown below has been derived from
our audited Consolidated Financial Statements, which for data
presented for fiscal years 2009 and 2008 are included elsewhere
in this Report. This table should be read in conjunction with
our other financial information, including Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial
Statements and accompanying Notes, included elsewhere in this
Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
2009 (1)
|
|
|
2008 (2)
|
|
|
2007 (3)
|
|
|
2006 (4)
|
|
|
2005 (5)
|
|
|
|
(In millions, except per share amounts)
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and services
|
|
$
|
5,005.0
|
|
|
$
|
4,596.1
|
|
|
$
|
3,737.9
|
|
|
$
|
3,133.3
|
|
|
$
|
2,683.9
|
|
Cost of product sales and services
|
|
|
3,420.2
|
|
|
|
3,145.6
|
|
|
|
2,519.8
|
|
|
|
2,125.8
|
|
|
|
1,959.5
|
|
Interest expense
|
|
|
52.8
|
|
|
|
53.1
|
|
|
|
38.9
|
|
|
|
35.5
|
|
|
|
23.0
|
|
Income from continuing operations before income taxes
|
|
|
485.3
|
|
|
|
667.5
|
|
|
|
518.1
|
|
|
|
413.3
|
|
|
|
296.9
|
|
Income taxes
|
|
|
172.9
|
|
|
|
214.0
|
|
|
|
170.9
|
|
|
|
142.7
|
|
|
|
95.9
|
|
Income from continuing operations
|
|
|
312.4
|
|
|
|
453.5
|
|
|
|
347.2
|
|
|
|
270.6
|
|
|
|
201.0
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
(274.5
|
)
|
|
|
(9.3
|
)
|
|
|
133.2
|
|
|
|
(32.7
|
)
|
|
|
1.2
|
|
Net income
|
|
|
37.9
|
|
|
|
444.2
|
|
|
|
480.4
|
|
|
|
237.9
|
|
|
|
202.2
|
|
Average shares outstanding (diluted)
|
|
|
133.2
|
|
|
|
136.5
|
|
|
|
141.1
|
|
|
|
141.6
|
|
|
|
141.3
|
|
Per Share Data (Diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.35
|
|
|
$
|
3.33
|
|
|
$
|
2.49
|
|
|
$
|
1.94
|
|
|
$
|
1.45
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
(2.07
|
)
|
|
|
(.07
|
)
|
|
|
.94
|
|
|
|
(.23
|
)
|
|
|
.01
|
|
Net income
|
|
|
.28
|
|
|
|
3.26
|
|
|
|
3.43
|
|
|
|
1.71
|
|
|
|
1.46
|
|
Cash dividends
|
|
|
.80
|
|
|
|
.60
|
|
|
|
.44
|
|
|
|
.32
|
|
|
|
.24
|
|
Financial Position at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
$
|
749.7
|
|
|
$
|
814.5
|
|
|
$
|
23.5
|
|
|
$
|
586.5
|
|
|
$
|
576.9
|
|
Net property, plant and equipment
|
|
|
543.2
|
|
|
|
407.2
|
|
|
|
379.2
|
|
|
|
341.6
|
|
|
|
250.8
|
|
Long-term debt
|
|
|
1,177.3
|
|
|
|
828.0
|
|
|
|
400.1
|
|
|
|
699.5
|
|
|
|
401.4
|
|
Total assets
|
|
|
4,465.1
|
|
|
|
4,627.5
|
|
|
|
4,406.0
|
|
|
|
3,142.3
|
|
|
|
2,457.4
|
|
Shareholders equity
|
|
|
1,869.1
|
|
|
|
2,274.0
|
|
|
|
1,903.8
|
|
|
|
1,662.1
|
|
|
|
1,439.1
|
|
Book value per share
|
|
|
14.23
|
|
|
|
17.02
|
|
|
|
14.69
|
|
|
|
12.51
|
|
|
|
10.83
|
|
|
|
|
(1)
|
|
Results for fiscal 2009 included: a
$196.7 million after-tax ($1.48 per diluted share) non-cash
charge for impairment of goodwill and other long-lived assets in
our Broadcast Communications segment; a $6.0 million
after-tax ($.04 per diluted share) charge for integration and
other costs in our RF Communications segment associated with our
acquisition of Wireless Systems; an $18.0 million after-tax
($.14 per diluted share) charge, net of government cost
reimbursement, for company-wide cost-reduction actions; and a
$6.5 million after-tax ($.05 per diluted share) favorable
impact from the settlement of the U.S. Federal income tax audit
of fiscal year 2007.
|
|
(2)
|
|
Results for fiscal 2008 included: a
$47.1 million after-tax ($.34 per diluted share) charge for
schedule and cost overruns on commercial satellite reflector
programs and a $6.2 million after-tax ($.05 per diluted
share) increase to income related to the renegotiation of
pricing on an IT services contract in our Government
Communications Systems segment; and an $11.0 million
after-tax ($.08 per diluted share) favorable impact from the
settlement of U.S. Federal income tax audits of fiscal years
2004 through 2006.
|
|
(3)
|
|
Results for fiscal 2007 included: a
$6.0 million after-tax ($.04 per diluted share) charge for
cost-reduction actions and a $12.3 million after-tax ($.09
per diluted share) write-down of capitalized software associated
with our decision to discontinue an automation software
development effort in our Broadcast Communications segment; a
$12.9 million after-tax ($.09 per diluted share) write-down
of our investment in Terion, Inc. (Terion) due to an
other-than-temporary
impairment; and a $12.0 million after-tax ($.09 per diluted
share) favorable impact from the settlement of a tax audit.
|
|
(4)
|
|
Results for fiscal 2006 included: a
$10.2 million after-tax ($.07 per diluted share) charge
related to a write-off of in-process research and development
costs, lower margins being recognized subsequent to our
acquisition due to a step up in inventory recorded as of the
acquisition date and other costs associated with our acquisition
of Leitch Technology Corporation (Leitch) in our
Broadcast Communications segment; a $20.0 million after-tax
($.14 per diluted share) charge associated with the
consolidation of manufacturing locations and cost-reduction
initiatives in our Broadcast Communications segment; a
$4.6 million after-tax ($.03 per diluted share) write-down
of our passive investments due to
other-than-temporary
impairments; and a $4.1 million after-tax ($.03 per diluted
share) gain from the settlement of intellectual property
infringement lawsuits.
|
29
|
|
|
(5)
|
|
Results for fiscal 2005 included: a
$7.0 million after-tax ($.05 per diluted share) charge
related to a write-off of in-process research and development
costs and impairment losses on capitalized software development
costs associated with our acquisition of Encoda Systems
Holdings, Inc. (Encoda) in our Broadcast
Communications segment; a $6.4 million after-tax ($.05 per
diluted share) write-down of our passive investments due to
other-than-temporary
impairments; a $5.7 million after-tax ($.04 per diluted
share) gain related to our execution of a patent cross-licensing
agreement; and a $3.5 million after-tax ($.02 per diluted
share) favorable impact from the settlement of a tax audit.
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
OVERVIEW
The following Managements Discussion and Analysis
(MD&A) is intended to assist in an
understanding of Harris. MD&A is provided as a supplement
to, should be read in conjunction with, and is qualified in its
entirety by reference to, our Consolidated Financial Statements
and accompanying Notes appearing elsewhere in this Report.
Except for the historical information contained herein, the
discussions in MD&A contain forward-looking statements that
involve risks and uncertainties. Our future results could differ
materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited
to, those discussed below in MD&A under
Forward-Looking Statements and Factors that May Affect
Future Results.
The following is a list of the sections of MD&A, together
with our perspective on the contents of these sections of
MD&A, which we hope will make reading these pages more
productive:
|
|
|
|
|
Business Considerations
a general
description of our businesses; the value drivers of our
businesses and our strategy for achieving value; fiscal 2009
results of operations and liquidity and capital resources key
indicators; and industry-wide opportunities, challenges and
risks that are relevant to us in the defense, government and
broadcast communications markets.
|
|
|
|
Operations Review
an analysis of
our consolidated results of operations and of the results in
each of our three operating segments, to the extent the
operating segment results are helpful to an understanding of our
business as a whole, for the three years presented in our
financial statements.
|
|
|
|
Liquidity, Capital Resources and Financial
Strategies
an analysis of cash flows,
common stock repurchases, dividends, capital structure and
resources, contractual obligations, off-balance sheet
arrangements, commercial commitments, financial risk management,
impact of foreign exchange and impact of inflation.
|
|
|
|
Critical Accounting Policies and
Estimates
a discussion of accounting
policies and estimates that require the most judgment and a
discussion of accounting pronouncements that have been issued
but not yet implemented by us and their potential impact on our
financial position, 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.
|
BUSINESS
CONSIDERATIONS
General
We are an international communications and information
technology company serving government and commercial markets in
more than 150 countries. We are dedicated to developing
best-in-class
assured
communications
®
products, systems and services. Our company generates revenue,
income and cash flows by developing, manufacturing and selling
communications products and software as well as providing
related services. We sell directly to our customers, the largest
of which are U.S. Government customers and their prime
contractors, and we utilize agents and intermediaries to sell
and market some products and services, especially in
international markets.
We structure our operations primarily around the products and
services we sell and the markets we serve, and we report the
financial results of our continuing operations in the following
three business segments:
|
|
|
|
|
Our RF Communications segment, comprised of our
(i) Tactical Radio Communications and (ii) Public
Safety and Professional Communications businesses;
|
|
|
Our Government Communications Systems segment, comprised of our
(i) Defense Programs, (ii) National Intelligence
Programs, (iii) Civil Programs and (iv) IT Services
businesses; and
|
|
|
Our Broadcast Communications segment, comprised of our
(i) Infrastructure and Networking Solutions,
(ii) Media and Workflow and (iii) Transmission Systems
businesses.
|
30
Our segment reporting structure for fiscal 2009 reflects that,
effective upon the commencement of fiscal 2009, our RF
Communications business (part of our Defense Communications and
Electronics segment for fiscal 2008) is reported as its own
separate segment, and our Defense Programs business (the other
part of our Defense Communications and Electronics segment for
fiscal 2008) is reported as part of our Government
Communications Systems segment. Our Broadcast Communications
segment did not change as a result of those adjustments to our
segment reporting structure. The historical results, discussion
and presentation of our business segments as set forth in this
Report reflect the impact of those adjustments to our segment
reporting structure for all periods presented in this Report.
Additionally, in the fourth quarter of fiscal 2009, in
connection with the May 27, 2009 Spin-off in the form of a
taxable pro rata dividend to our shareholders of all the shares
of HSTX common stock owned by us, we eliminated as a reporting
segment our former HSTX segment. In accordance with Financial
Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(Statement 144), our historical financial results
have been restated to account for HSTX as discontinued
operations for all periods presented in this Report, and unless
otherwise specified, disclosures in this Report relate solely to
our continuing operations. See
Note 3: Discontinued
Operations
in the Notes for additional information regarding
discontinued operations.
Financial information with respect to all of our other
activities, including corporate costs not allocated to the
business segments or discontinued operations, is reported as
part of the Unallocated corporate expense or
Non-operating
income (loss) line items in our Consolidated Financial
Statements.
Value
Drivers of Our Businesses and Our Strategy for Achieving
Value
Harris mission statement is as follows: Harris
Corporation will be the
best-in-class
global provider of mission-critical assured communications
systems and services to both government and commercial
customers, combining advanced technology and application
knowledge. We are committed to our mission statement, and
we believe that executing our mission statement creates value.
Consistent with this commitment to effective execution, we
currently focus on these key value drivers:
|
|
|
|
|
Continuing profitable revenue growth in all segments by
introducing new technology-based products, expanding our
addressable markets and customer base, and investing in
international markets and channels;
|
|
|
Leveraging technology across business segments;
|
|
|
Achieving operating efficiencies and cost reductions by
delivering on supply chain and operations excellence;
|
|
|
Making strategic acquisitions to enhance and supplement our
products and services portfolios and to gain access to new
markets; and
|
|
|
Maintaining an efficient capital structure.
|
Continuing profitable revenue growth in all
segments:
We plan to focus on continued
profitable revenue growth by focusing on the following
strategies in each segment:
RF Communications:
Continue to leverage our
reputation and position as a leading provider of secure tactical
radio communications and embedded high-grade encryption
solutions for military and government organizations and also of
secure communications systems and equipment for public safety,
utility and transportation markets. Expand our market reach with
new products and in adjacent markets.
Government Communications Systems:
Conduct
advanced research studies and produce, integrate and support
highly reliable, net-centric communications and information
technology that solve the mission-critical challenges of our
defense, intelligence and civilian U.S. Government
customers. Leverage core capabilities such as SATCOM; ground
systems; avionics; data links; mission-critical networks; ISR;
and space systems. Utilize IT Services business scale to address
the growing government and commercial services markets. Identify
and implement growth initiatives in new markets, including
healthcare solutions, cyberspace and commercial managed services.
Broadcast Communications:
Supply technology
and service solutions to consumers of rich media, including TV
stations and networks and cable, satellite, telecommunications
and other media content providers. Grow our core businesses by
expanding our product offerings. Expand into new markets,
including full-motion video for government customers, mobile TV,
sports stadiums and arenas and digital signage.
Leveraging technology across business
segments:
One of our strengths is our ability
to transfer technology among segments and focus our research and
development projects in ways that benefit Harris as a whole. An
example of this is our FAME product, which utilizes COTS
software and hardware developed by our commercial Broadcast
Communications segment and applying that technology to
government applications where there is a need to gather, store,
distribute and analyze increasingly large amounts of ISR data.
Another area of focus is cross-selling
31
through segment sales channels and joint pursuits by multiple
segments. Other corporate initiatives include joint
international market channel development, such as shared
distributors and coordinated
go-to-market
strategies.
Achieving operating efficiencies and cost
reductions:
Our principal focus areas for
operating efficiencies and cost management are: reducing
procurement costs through an emphasis on coordinated supply
chain management; reducing product costs through dedicated
engineering resources focused on product design; improving
manufacturing efficiencies across all segments; and optimizing
facility utilization.
Making strategic acquisitions:
Another
key value driver is effective capital allocation by making
effective acquisitions and investments to build or complement
the strengths in our base businesses and to gain access to new
markets. We believe acquisitions may also serve to balance and
enhance our portfolio of businesses. In the fourth quarter of
fiscal 2009, we acquired Wireless Systems, CSI and SolaCom ATC.
Wireless Systems is an established provider of mission-critical
wireless communications systems for law enforcement, fire and
rescue, public service, utility and transportation markets. We
operate Wireless Systems, which we now call the Public Safety
and Professional Communications business, within our RF
Communications segment. We believe the acquisition of Wireless
Systems creates a powerful supplier of
end-to-end
wireless network solutions to the global land mobile radio
systems market and greatly accelerates our entry into that
market. CSI is a Washington, D.C.-area provider of
mission-enabling engineering solutions that address both
offensive and defensive IT security challenges for Federal law
enforcement and other U.S. Government agencies. We operate
CSI within our Government Communications Systems segment as part
of the National Intelligence Programs business. We believe the
acquisition of CSI expands our capabilities, customer footprint
and current initiatives in the cyber security market. SolaCom
ATC provides voice and data communications systems and solutions
for air traffic facilities and radio communications between
aircraft in flight and air traffic controllers. We operate
SolaCom ATC within our Government Communications Systems segment
as part of the Civil Programs business. We believe the
acquisition of SolaCom ATC provides us with an immediate ability
to address additional segments of the air traffic control
voice/data systems market and further positions us to support
the FAAs anticipated NextGen program. In fiscal 2007, we
acquired Multimax Incorporated (Multimax), a leading
provider of information technology and network services for the
U.S. Government. We operate Multimax within our Government
Communications Systems segment as part of the IT Services
business. The acquisition of Multimax provided us greater scale,
a broader customer base and new growth opportunities through key
positions on GWACs. In recent years, we have also made several
acquisitions in our Broadcast Communications segment, including
Encoda, Leitch, Optimal Solutions, Inc. (OSi),
Aastra Digital Video (Aastra) and Zandar
Technologies plc (Zandar). These acquisitions helped
us expand our product and service portfolios so we can offer
end-to-end
content delivery, transport and asset management solutions to
our customers.
Maintaining an efficient capital
structure:
Our capital structure is intended
to optimize our cost of capital. Our debt is currently rated
BBB+ by Standard and Poors Rating Group and
Baa1 by Moodys Investors Service. We believe
our strong capital position, access to key financial markets,
ability to raise funds at a low effective cost and overall low
cost of borrowing provide a competitive advantage. We had
$281.2 million in cash and cash equivalents as of
July 3, 2009 and had $666.8 million of cash flows
provided by operating activities during fiscal 2009. Our cash is
not restricted and can be used to invest in capital
expenditures, make strategic acquisitions, repurchase our common
stock or pay dividends to our shareholders. As of July 3,
2009, we have a remaining authorization to repurchase
approximately $650 million in shares of our common stock
under our Repurchase Programs. Our Repurchase Programs do not
have a stated expiration date. The level of our repurchases
depends on a number of factors, including our financial
condition, capital requirements, results of operations, future
business prospects and other factors our Board of Directors may
deem relevant. The timing, volume and nature of share
repurchases are subject to market conditions, applicable
securities laws and other factors and are at our discretion and
may be suspended or discontinued at any time. Additional
information regarding share repurchases during fiscal 2009 and
our Repurchase Programs is set forth above under Part II.
Item 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities of this Report.
Key
Indicators
We believe our value drivers, when implemented, will improve our
key indicators of value such as: (1) income from continuing
operations and income from continuing operations per diluted
share, (2) revenue, (3) gross margin, (4) income
from continuing operations as a percentage of revenue,
(5) net cash provided by operating activities,
(6) return on average assets and (7) return on average
equity. The measure of our success is reflected in our results
of operations and liquidity and capital resources key indicators:
32
Fiscal 2009 Results of Operations Key
Indicators:
Income from continuing
operations, income from continuing operations per diluted share,
revenue, gross margin, and income from continuing operations as
a percentage of revenue represent key measurements of our value
drivers:
|
|
|
|
|
Income from continuing operations decreased 31.1 percent
from $453.5 million in fiscal 2008 to $312.4 million
in fiscal 2009 (which included a $196.7 million after-tax
non-cash charge for impairment of goodwill and other long-lived
assets in our Broadcast Communications segment);
|
|
|
Income from continuing operations per diluted share decreased
29.4 percent from $3.33 in fiscal 2008 to $2.35 in fiscal
2009 (which included a $1.48 per diluted share after-tax
non-cash charge for impairment of goodwill and other long-lived
assets in our Broadcast Communications segment);
|
|
|
Revenue increased 8.9 percent from $4.6 billion in
fiscal 2008 to $5.0 billion in fiscal 2009;
|
|
|
Gross margin (revenue from product sales and services less cost
of product sales and services) increased slightly from
31.6 percent of revenue in fiscal 2008 to 31.7 percent
of revenue in fiscal 2009; and
|
|
|
Income from continuing operations as a percentage of revenue
decreased from 9.9 percent in fiscal 2008 to
6.2 percent in fiscal 2009 (primarily due to the impairment
charge in fiscal 2009 noted above).
|
Refer to MD&A heading Operations Review below
in this Report for more information.
Liquidity and Capital Resources Key
Indicators:
Net cash provided by operating
activities, return on average assets and return on average
equity also represent key measurements of our value drivers:
|
|
|
|
|
Net cash provided by operating activities increased from
$555.5 million in fiscal 2008 to $666.8 million in
fiscal 2009;
|
|
|
Return on average assets (defined as income from continuing
operations divided by the two-point average of total assets at
the beginning and ending of the fiscal year) decreased from
10.0 percent in fiscal 2008 to 6.9 percent in fiscal
2009. Return on average assets would have increased in fiscal
2009 when compared with fiscal 2008 absent the impairment charge
noted above.
|
|
|
Return on average equity (defined as income from continuing
operations divided by the two-point average of
shareholders equity at the beginning and ending of the
fiscal year) decreased from 21.7 percent in fiscal 2008 to
15.1 percent in fiscal 2009. Return on average equity would
have increased in fiscal 2009 when compared with fiscal 2008
absent the impairment charge noted above.
|
Refer to MD&A heading Liquidity, Capital Resources
and Financial Strategies below in this Report for more
information.
Industry-Wide
Opportunities, Challenges and Risks
Defense Markets:
The DoDs
U.S. Government Fiscal Year (GFY) 2010 budget
proposal supports military readiness, with a continued focus on
modernizing the U.S.s military infrastructure, addressing
the evolving requirements of
modern-day
warfare, and promoting security within the international
community. As a result, we expect the U.S. Government to
remain committed to funding intelligence, information
superiority, special operations and warfighter support. As a
result of global economic decline and U.S. budget deficits,
requirements to upgrade and modernize tactical radio
communications capabilities and provide more secure,
interoperable and reliable communications may slow down in the
near term compared with prior years but we believe they will
remain a funding priority over the longer term. International
defense forces continue to drive toward tactical communications
upgrades and interoperability with the systems and equipment
used by the U.S. Government.
The DoDs GFY 2010 budget request is for $664 billion,
which includes $534 billion for base defense programs and
$130 billion for overseas contingency operations
(OCO), primarily in Iraq and Afghanistan. The
DoDs $130 billion OCO request would fund an increase
in U.S. troops in Afghanistan and the withdrawal of troops
from Iraq. It also would fund the training of Afghan and
Pakistani forces. The GFY 2010 budget proposal would end the
planned use of supplemental requests to fund OCO
(previously referred to as the Global War on Terror). OCO
expenses are now expected to be included as a separate component
of annual defense budget requests to ensure greater transparency
and accountability.
The $534 billion GFY 2010 budget request for base programs
is approximately 4 percent above the GFY 2009 enacted level
of $513 billion. While this continues a moderate growth
trend, funding for OCO has been declining and is expected to
decline further. The GFY 2010 request of $130 billion for
OCO represents a 12 percent decrease from the GFY 2009
supplemental funding level of $147 billion (which includes
an additional $81 billion approved in June 2009), which was
a 21 percent decrease from the GFY 2008 supplemental level
of $186 billion.
33
The DoD Operations and Maintenance account
(O&M), which contains the bulk of funding for
training, logistics, services and other logistical support, is a
major account of importance to the defense industry. The budget
request for GFY 2010, including funding for OCO, is
$276 billion compared with the GFY 2009 estimate of
$272 billion.
We also believe that the level of growth and budget amounts
allocated to DoD procurement accounts (Procurement),
along with research, development, test and evaluation
(RDT&E) components of the DoD budget, are an
important indicator of DoD spending. These accounts are
applicable to defense contractors because they generally
represent the amounts that are expended for military hardware
and technology. Including OCO funding, GFY 2010 budget requests
for Procurement and RDT&E of $131 billion and
$79 billion, respectively, are comparable to GFY 2009
estimates for Procurement and RDT&E of $133 billion
and $81 billion, respectively.
Despite the recent slowing in the rate of growth of DoD budgets,
our products and services appear to be a funding priority in DoD
spending over the long term, which we believe will positively
affect our future orders, sales, income and cash flows based on
the defense markets we serve. Conversely, a decline in the DoD
budget or a shift in funding priorities may have a negative
effect on future orders, sales, income and cash flows of defense
contractors, including us, depending on the weapons platforms
and programs affected by such budget reductions or shifts in
funding priorities.
International governments are expected to continue to increase
their defense spending on national security and on tactical
communications modernization and standardization programs, which
we believe will positively affect our future orders, sales,
income and cash flows.
Government Markets Other Than
Defense:
A funding priority for the
U.S. Government is the security of the U.S., which includes
better communications interplay among law enforcement, civil
government agencies, intelligence agencies and our military
services. Funding for investments in secure tactical
communications, IT, information processing, healthcare IT, cyber
security and additional communications assets and upgrades has
remained solid. Another priority of the U.S. Government is
investments in productivity, cost reductions and upgrading to
new IT systems and solutions, including outsourcing. As a
result, programs that promote these initiatives are also
expected to receive funding. We provide products and services to
a number of U.S. Government agencies including the FAA,
NRO, NGA, Census Bureau, Department of State, NSA, NOAA and
others. Recent trends continue to indicate an increase in demand
from these agencies to outsource their requirements for better,
more efficient and less costly information technology and
communications. We also provide products to Federal, state and
local government agencies that are committed to protecting our
homeland and public safety. These agencies are upgrading their
technologies to improve communications and interoperability.
As a U.S. Government contractor, we are subject to
U.S. Government oversight. The U.S. Government may
investigate our business practices and audit our compliance with
applicable rules and regulations. Depending on the results of
those investigations and audits, the U.S. Government could
make claims against us. Under U.S. Government procurement
regulations and practices, an indictment or conviction of a
government contractor could result in that contractor being
fined
and/or
suspended from being able to bid on, or from being awarded, new
U.S. Government contracts for a period of time. Similar
government oversight exists in most other countries where we
conduct business. We are currently not aware of any compliance
audits or investigations that could result in a significant
adverse impact to our financial condition, results of operations
or cash flows.
We are also subject to other risks associated with
U.S. Government business, including technological
uncertainties, dependence on annual appropriations and allotment
of funds, extensive regulations and other risks, which are
discussed in Item 1A. Risk Factors and
Item 3. Legal Proceedings of this Report.
Commercial Broadcast
Communications:
The global economic recession
has adversely impacted spending on capital projects and
significantly weakened demand, especially in the U.S.
Trends and developments in the broadcast communications market
include:
|
|
|
|
|
The transition to HD in North America is maturing rapidly;
|
|
|
Internationally, there are significant growth opportunities, as
the worldwide transition to digital and HD technologies is in
various stages of implementation;
|
|
|
The market is transitioning from the traditional linear
broadcast TV advertising model to
out-of-home
networks; and
|
|
|
There is a greater dependency on suppliers to provide
systemization and integration support.
|
Our management believes that our experience and capabilities are
well aligned with, and that we are positioned to capitalize on,
the market trends noted above in this Report. While we believe
that some of these developments may temper near-term growth, we
also expect they generally will have a longer-term positive
impact on us.
34
However, we remain subject to general economic conditions that
could adversely affect our customers. We also remain subject to
other risks associated with these markets, including
technological uncertainties, changes in the Federal
Communications Commissions (FCC) regulations,
slow market adoption of digital radio and DTV or any of our new
products and other risks which are discussed below under
Forward-Looking Statements and Factors that May Affect
Future Results and in Item 1A. Risk
Factors of this Report.
OPERATIONS
REVIEW
Revenue
and Income From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Revenue
|
|
$
|
5,005.0
|
|
|
$
|
4,596.1
|
|
|
|
8.9
|
%
|
|
$
|
3,737.9
|
|
|
|
23.0
|
%
|
Income from continuing operations
|
|
$
|
312.4
|
|
|
$
|
453.5
|
|
|
|
(31.1
|
)%
|
|
$
|
347.2
|
|
|
|
30.6
|
%
|
% of revenue
|
|
|
6.2
|
%
|
|
|
9.9
|
%
|
|
|
|
|
|
|
9.3
|
%
|
|
|
|
|
Income from continuing operations per diluted common share
|
|
$
|
2.35
|
|
|
$
|
3.33
|
|
|
|
(29.4
|
)%
|
|
$
|
2.49
|
|
|
|
33.7
|
%
|
Fiscal 2009 Compared With Fiscal
2008:
Our revenue for fiscal 2009 was
$5,005.0 million, an increase of 8.9 percent compared
with fiscal 2008. Income from continuing operations for fiscal
2009 was $312.4 million, a decrease of 31.1 percent
compared with fiscal 2008 income from continuing operations of
$453.5 million. Fiscal 2009 revenue increased by
16.8 percent and 9.3 percent in our RF Communications
and Government Communications Systems segments, respectively,
and decreased by 9.3 percent in our Broadcast
Communications segment. Our RF Communications segment revenue
benefited from continued strength in international markets and
our acquisition of Wireless Systems, while our Government
Communications Systems segment revenue benefited from the
ramping up of the FDCA program for the U.S. Census Bureau
for the 2010 census and new program wins. The revenue decrease
in our Broadcast Communications segment reflected lower demand,
primarily due to the global recession and delays in capital
spending by customers.
Fiscal 2009 income from continuing operations decreased from
fiscal 2008, primarily due to a $255.5 million
($196.7 million after-tax) non-cash charge for impairment
of goodwill and other long-lived assets in our Broadcast
Communications segment. Operating income increased in our RF
Communications and Government Communications Systems segments in
fiscal 2009 compared with fiscal 2008. The increase in our
Government Communications Systems segment operating income was
primarily due to lower charges for schedule and cost overruns on
commercial satellite reflector programs in fiscal 2009
($18.0 million) than in fiscal 2008 ($75.9 million),
the ramp up of the FDCA program and strong results on the FTI
program.
Additionally, income from continuing operations in fiscal 2009
was impacted by $28.6 million of charges, net of government
cost reimbursement, for company-wide cost-reduction actions,
primarily initiated in response to the global economic slowdown,
pressure on DoD spending, and contract delays. Those charges
were comprised of $24.1 million for severance and other
employee-related exit costs and $4.5 million related to
consolidation of facilities. An additional charge of
approximately $3.1 million for cost-reduction actions is
expected in fiscal 2010. These actions are expected to result in
annualized cost savings of approximately $70 million to
$75 million.
We had a fiscal 2009 non-operating loss of $3.1 million
compared with fiscal 2008 non-operating income of
$11.4 million. In fiscal 2009, our effective tax rate
(income taxes as a percentage of income from continuing
operations before income taxes) was 35.6 percent compared
with an effective tax rate of 32.1 percent in fiscal 2008.
See the Non-Operating Income (Loss), Income
Taxes and Discussion of Business Segments
discussions below in this MD&A for further information.
Fiscal 2008 Compared With Fiscal
2007:
Our revenue for fiscal 2008 was
$4,596.1 million, an increase of 23.0 percent compared
with fiscal 2007. Income from continuing operations for fiscal
2008 was $453.5 million, an increase of 30.6 percent
compared with fiscal 2007 income from continuing operations of
$347.2 million. Fiscal 2008 revenue increased as compared
with fiscal 2007 in all three of our business segments. Fiscal
2008 revenue increased by 24.1 percent in our Government
Communications Systems segment, primarily as a result of the
June 2007 acquisition of Multimax, 27.8 percent in our RF
Communications segment and 7.3 percent in our Broadcast
Communications segment. While fiscal 2008 revenue increases
benefited from our acquisitions of Multimax and Zandar, we also
had strong organic revenue growth in fiscal 2008 compared with
fiscal 2007.
35
Fiscal 2008 income from continuing operations increased from
fiscal 2007, primarily due to our RF Communications segment,
which continued its strong operating income trends in fiscal
2008 with a 30.3 percent increase over fiscal 2007
operating income. Operating income in our Government
Communications Systems segment increased slightly over fiscal
2007 operating income, primarily due to the acquisition of
Multimax, partially offset by $75.9 million of charges
recorded in fiscal 2008 for schedule and cost overruns on
commercial satellite reflector programs. Operating income in our
Broadcast Communications segment improved significantly, from
$11.9 million in fiscal 2007 to $33.8 million in
fiscal 2008. Fiscal 2007 operating income in that segment was
adversely impacted by $7.5 million of charges associated
with cost-reduction actions and an $18.9 million write-down
of capitalized software associated with managements
decision to discontinue an automation software development
effort.
Net interest expense increased to $47.9 million in fiscal
2008 from $27.1 million in fiscal 2007, mainly due to
increased borrowings related to the acquisition of Multimax in
June 2007, as well as lower interest rates earned on our
invested cash. Fiscal 2008 non-operating income was
$11.4 million compared with a fiscal 2007 non-operating
loss of $16.2 million. In fiscal 2008, our effective tax
rate was 32.1 percent compared with an effective tax rate
of 33.0 percent in fiscal 2007.
See the Non-Operating Income (Loss), Income
Taxes and Discussion of Business Segments
discussions below in this MD&A for further information.
Gross
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Revenue
|
|
$
|
5,005.0
|
|
|
$
|
4,596.1
|
|
|
|
8.9
|
%
|
|
$
|
3,737.9
|
|
|
|
23.0
|
%
|
Cost of product sales and services
|
|
|
(3,420.2
|
)
|
|
|
(3,145.6
|
)
|
|
|
8.7
|
%
|
|
|
(2,519.8
|
)
|
|
|
24.8
|
%
|
Gross margin
|
|
$
|
1,584.8
|
|
|
$
|
1,450.5
|
|
|
|
9.3
|
%
|
|
$
|
1,218.1
|
|
|
|
19.1
|
%
|
% of revenue
|
|
|
31.7
|
%
|
|
|
31.6
|
%
|
|
|
|
|
|
|
32.6
|
%
|
|
|
|
|
Fiscal 2009 Compared With Fiscal
2008:
Our gross margin (revenue less cost of
product sales and services) as a percentage of revenue was
essentially flat from fiscal 2008 to fiscal 2009 at
31.7 percent in fiscal 2009 compared with 31.6 percent
in fiscal 2008. The slight increase in gross margin as a
percentage of revenue was primarily due to an increase in gross
margin as a percentage of revenue in our Government
Communications Systems segment due to lower charges for schedule
and cost overruns on commercial satellite reflector programs
incurred in fiscal 2009 compared with fiscal 2008 and a larger
mix of sales coming from our higher-margin RF Communications
segment in fiscal 2009 compared with fiscal 2008. These positive
impacts to gross margin as a percentage of revenue were almost
entirely offset by a decline in gross margin as a percentage of
revenue in our RF Communications segment in fiscal 2009 compared
with fiscal 2008 and a lower mix of sales coming from our
higher-margin Broadcast Communications segment in fiscal 2009
compared with fiscal 2008. Additionally, gross margin included
$5.0 million of charges, net of government cost
reimbursement, for cost-reduction actions. See the
Discussion of Business Segments discussion below in
this MD&A for further information.
Fiscal 2008 Compared With Fiscal
2007:
Our gross margin (revenue less cost of
product sales and services) as a percentage of revenue was
31.6 percent in fiscal 2008 compared with 32.6 percent
in fiscal 2007. Our overall blended fiscal 2008 gross
margin as a percentage of revenue was negatively impacted by a
larger mix of sales coming from our lower-margin Government
Communications Systems segments products and services in
fiscal 2008 compared with fiscal 2007, primarily as a result of
our acquisition of Multimax in the fourth quarter of fiscal
2007. Government Communications Systems gross margin as a
percentage of revenue in fiscal 2008 was slightly lower compared
with fiscal 2007, reflecting the negative impact from
$75.9 million of charges for schedule and cost overruns on
commercial satellite reflector programs, partially offset by the
positive impact from the acquisition of Multimax. See the
Discussion of Business Segments discussion below in
this MD&A for further information.
Engineering,
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
2008/2007
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
|
Increase/
|
|
|
|
Increase/
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
2007
|
|
(Decrease)
|
|
|
(Dollars in millions)
|
|
Engineering, selling and administrative expenses
|
|
$
|
791.3
|
|
|
$
|
746.5
|
|
|
|
6.0
|
%
|
|
$
|
656.7
|
|
|
|
13.7
|
%
|
% of revenue
|
|
|
15.8
|
%
|
|
|
16.2
|
%
|
|
|
|
|
|
|
17.6
|
%
|
|
|
|
|
36
Fiscal 2009 Compared With Fiscal
2008:
Our engineering, selling and
administrative expenses increased to $791.3 million in
fiscal 2009 from $746.5 million in fiscal 2008. As a
percentage of revenue, these expenses decreased to
15.8 percent in fiscal 2009 from 16.2 percent in
fiscal 2008. The decrease in engineering, selling and
administrative expenses as a percentage of revenue was primarily
due to revenue growth of 8.9 percent compared with total
growth in engineering, selling and administrative expenses of
only 6.0 percent, primarily as a result of cost-reduction
actions in our Broadcast Communications segment. The increase in
total engineering, selling and administrative expenses was
primarily due to $23.6 million of charges for
cost-reduction actions, $8.3 million of charges related to
integration costs and a write-off of in-process research and
development associated with our acquisition of Wireless Systems
and a $4.1 million charge related to the Spin-off of HSTX.
Engineering, selling and administrative expenses also increased
due to higher sales and marketing expenses in our RF
Communications segment in fiscal 2009 associated with our
tactical radio systems products and the acquisition of Wireless
Systems, partially offset by decreases in engineering, selling
and administrative expenses in our Government Communications
Systems and Broadcast Communications segments in fiscal 2009.
See the Discussion of Business Segments discussion
below in this MD&A for further information.
Overall company-sponsored research and product development
costs, which are included in engineering, selling and
administrative expenses, were $243.5 million in fiscal 2009
compared with $248.0 million in fiscal 2008.
Fiscal 2008 Compared With Fiscal
2007:
Our engineering, selling and
administrative expenses increased to $746.5 million in
fiscal 2008 from $656.7 million in fiscal 2007. As a
percentage of revenue, these expenses decreased to
16.2 percent in fiscal 2008 from 17.6 percent in
fiscal 2007. Our RF Communications segment engineering, selling
and administrative expenses increased in fiscal 2008, primarily
due to research and development costs associated with our
Falcon III radio. Our Government Communications Systems
segment engineering, selling and administrative expenses
increased, primarily due to the acquisition of Multimax in the
fourth quarter of fiscal 2007 and the impact of recording state
income taxes allocated to government contracts. Fiscal 2007
engineering, selling and administrative expenses in our
Broadcast Communications segment reflected $26.4 million of
costs incurred related to a write-down of capitalized software
and cost-reduction actions. See the Discussion of Business
Segments discussion below in this MD&A for further
information.
Overall company-sponsored research and product development
costs, which are included in engineering, selling and
administrative expenses, were $248.0 million in fiscal 2008
compared with $195.2 million in fiscal 2007. The increase
was primarily due to spending on the development of our
Falcon III radio in our RF Communications segment.
Non-Operating
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Non-operating income (loss)
|
|
$
|
(3.1
|
)
|
|
$
|
11.4
|
|
|
|
|
*
|
|
$
|
(16.2
|
)
|
|
|
|
*
|
Fiscal 2009 Compared With Fiscal
2008:
We had a non-operating loss of
$3.1 million in fiscal 2009 compared with non-operating
income of $11.4 million in fiscal 2008. The fiscal 2009
non-operating loss was primarily due to a $7.6 million
write-down of our investment in AuthenTec, Inc.
(AuthenTec), recorded in the first quarter of fiscal
2009, to reflect an
other-than-temporary
impairment, partially offset by a $7.5 million gain on the
sale of certain non-strategic patents in the third quarter of
fiscal 2009. Fiscal 2008 non-operating income primarily resulted
from a $5.6 million gain related to
mark-to-market
adjustments on warrants we held to acquire shares of AuthenTec,
which were classified as derivatives, and gains of
$9.8 million on the sale of a portion of our investment in
AuthenTec. See
Note 20: Non-Operating Income (Loss)
in the Notes for further information.
Fiscal 2008 Compared With Fiscal
2007:
We had non-operating income of
$11.4 million in fiscal 2008 compared with a non-operating
loss of $16.2 million in fiscal 2007. Fiscal 2008
non-operating income primarily resulted from the items noted for
fiscal 2008 above in the discussion of non-operating income
(loss) in fiscal 2009 compared with fiscal 2008. The fiscal 2007
non-operating loss primarily resulted from a $19.8 million
write-down of our investment in Terion. See
Note 20:
Non-Operating Income (Loss)
in the Notes for further
information.
37
Interest
Income and Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
2008/2007
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
|
Increase/
|
|
|
|
Increase/
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
2007
|
|
(Decrease)
|
|
|
(Dollars in millions)
|
|
Interest income
|
|
$
|
3.2
|
|
|
$
|
5.2
|
|
|
|
(38.5
|
)%
|
|
$
|
11.8
|
|
|
|
(55.9
|
)%
|
Interest expense
|
|
|
(52.8
|
)
|
|
|
(53.1
|
)
|
|
|
(0.6
|
)%
|
|
|
(38.9
|
)
|
|
|
36.5
|
%
|
Fiscal 2009 Compared With Fiscal
2008:
Our interest income decreased to
$3.2 million in fiscal 2009 from $5.2 million in
fiscal 2008, primarily due to lower interest rates earned on our
balances of cash and cash equivalents. Our interest expense of
$52.8 million in fiscal 2009 was essentially flat with
interest expense of $53.1 million in fiscal 2008.
Fiscal 2008 Compared With Fiscal
2007:
Our interest income decreased to
$5.2 million in fiscal 2008 from $11.8 million in
fiscal 2007, primarily due to lower interest rates earned on our
balances of cash and cash equivalents. Our interest expense
increased to $53.1 million in fiscal 2008 from
$38.9 million in fiscal 2007, primarily due to increased
borrowings related to our acquisition of Multimax in June 2007.
Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Income from continuing operations before income taxes
|
|
$
|
485.3
|
|
|
$
|
667.5
|
|
|
|
(27.3
|
)%
|
|
$
|
518.1
|
|
|
|
28.8
|
%
|
Income taxes
|
|
|
172.9
|
|
|
|
214.0
|
|
|
|
(19.2
|
)%
|
|
|
170.9
|
|
|
|
25.2
|
%
|
% of income from continuing operations before income taxes
|
|
|
35.6
|
%
|
|
|
32.1
|
%
|
|
|
|
|
|
|
33.0
|
%
|
|
|
|
|
Fiscal 2009 Compared With Fiscal
2008:
Our effective tax rate (income taxes as
a percentage of income from continuing operations before income
taxes) was 35.6 percent in fiscal 2009 compared with
32.1 percent in fiscal 2008. In fiscal 2009, our effective
tax rate was higher than the U.S. statutory income tax
rate, primarily due to the non-deductibility of a significant
portion of the $255.5 million non-cash charge for
impairment of goodwill and other long-lived assets in our
Broadcast Communications segment recorded in the fourth quarter
of fiscal 2009, largely offset by a $3.3 million tax
benefit relating to fiscal 2008 recorded in the second quarter
of fiscal 2009 when legislative action restored the
U.S. Federal income tax credit for research and development
expenses; a $3.7 million state tax benefit in the second
quarter of fiscal 2009 related to the filing of our fiscal 2007
tax returns; and a $6.5 million favorable impact recorded
in the third quarter of fiscal 2009 from the settlement of the
U.S. Federal income tax audit of fiscal year 2007. In
fiscal 2008, our effective tax rate was lower than the
U.S. statutory income tax rate primarily due to an
$11 million favorable impact from the settlement of
U.S. Federal income tax audits of fiscal years 2004 through
2006. Additionally, in the third quarter of fiscal 2008, we
began recording state income taxes in our Consolidated Statement
of Income as engineering, selling and administrative expenses to
the extent such state taxes are reimbursed under government
contracts, which totaled $9.9 million for fiscal 2008.
Under U.S. Government regulations, these state income taxes
are allowable costs in establishing prices for the products and
services we sell to the U.S. Government. Prior to the third
quarter of fiscal 2008, these state income taxes were recorded
in our Consolidated Statement of Income as income taxes. The
reimbursement of these state income taxes is recorded in our
Consolidated Statement of Income as revenue for all periods
presented. As a result of this change, we reduced total income
tax expense by approximately $6.4 million in fiscal 2008.
See
Note 23: Income Taxes
in the Notes for further
information.
Fiscal 2008 Compared With Fiscal
2007:
Our effective tax rate was
32.1 percent in fiscal 2008 compared with 33.0 percent
in fiscal 2007. In fiscal 2008, our effective tax rate was lower
than the U.S. statutory income tax rate because of the
items noted for fiscal 2008 above in the discussion of income
taxes in fiscal 2009 compared with fiscal 2008. In fiscal 2007,
our effective tax rate was lower than the U.S. statutory
income tax rate, primarily due to a $12 million favorable
impact from the settlement concerning the tax audit for fiscal
years 2001, 2002 and 2003. These favorable impacts to our
effective tax rate were partially offset by cost-reduction
initiatives in our Broadcast Communications segment in foreign
jurisdictions where we had significant net operating losses and
where we were unable to realize a tax benefit associated with
these charges due to uncertainty about their realization. See
Note 23: Income Taxes
in the Notes for further
information.
38
Discussion
of Business Segments
RF
Communications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Revenue
|
|
$
|
1,760.6
|
|
|
$
|
1,506.8
|
|
|
|
16.8
|
%
|
|
$
|
1,179.1
|
|
|
|
27.8
|
%
|
Segment operating income
|
|
|
571.5
|
|
|
|
525.5
|
|
|
|
8.8
|
%
|
|
|
403.2
|
|
|
|
30.3
|
%
|
% of revenue
|
|
|
32.5
|
%
|
|
|
34.9
|
%
|
|
|
|
|
|
|
34.2
|
%
|
|
|
|
|
Fiscal 2009 Compared With Fiscal
2008:
RF Communications segment revenue
increased 16.8 percent and operating income increased
8.8 percent from fiscal 2008 to fiscal 2009. Operating
income as a percentage of revenue was 32.5 percent in
fiscal 2009 compared with 34.9 percent in fiscal 2008.
Revenue growth in fiscal 2009 compared with fiscal 2008 was
primarily driven by significantly higher international sales and
our acquisition of Wireless Systems, partially offset by a
decline in the U.S. market. International tactical radio
sales increased 66.2 percent from fiscal 2008 levels and
represented 40 percent of total tactical radio revenue in
fiscal 2009 compared with 27 percent of total tactical
radio revenue in fiscal 2008.
The decline in the U.S. market was a result of a
combination of factors. Pressure on DoD budgets caused by the
global economic crisis and deficit spending slowed DoD
procurements for many defense products and systems, including
tactical radios for modernization programs. For us, the slower
procurement environment was compounded by reduced urgency for
radio systems to support operational requirements in Iraq, which
has been partially offset by additional requirements for
Afghanistan.
In the international market, demand remained robust and is
expected to continue to drive significant international revenue
growth. Communications modernization and standardization
programs by U.S. allies are expected to continue. We
provide Falcon tactical radios to more than 100 countries.
We believe, in spite of the near-term decline in the
U.S. market, longer-term growth prospects for the segment
remain very positive in both U.S. and international
markets. In the fourth quarter of fiscal 2009 we saw a rebound
in DoD orders. Our RF Communications segment is expected to
benefit from positive long-term market trends, a very strong
competitive position and an industry-leading new product
portfolio. For example, the Falcon III 117G manpack radio
is the first JTRS-approved tactical radio system that provides
wideband mobile ad-hoc networked communications. The radio has
been fielded by all military branches of the DoD and several
international allies. The radio supports secure, high-bandwidth
on-the-move
communications, delivering an evolving picture of the
battlefield in real time.
On May 29, 2009, we acquired substantially all of the
assets of Wireless Systems (formerly known as
M/A-COM),
an
established provider of mission-critical wireless communications
systems for law enforcement, fire and rescue, public service,
utility and transportation markets. In connection with the
acquisition, we assumed liabilities primarily related to
Wireless Systems. We did not assume the State of New York
wireless network contract awarded to Wireless Systems in
December 2004. We operate Wireless Systems, which we now call
the Public Safety and Professional Communications business,
within our RF Communications segment. We believe the acquisition
creates a powerful supplier of
end-to-end
wireless network solutions to the global land mobile radio
systems market and greatly accelerates our entry into that
market. Our fiscal 2009 results of operations reflect five weeks
of operating results of the newly acquired Public Safety and
Professional Communications business, representing the period
subsequent to the acquisition. For further information related
to the acquisition, including the allocation of the purchase
price and pro forma results as if the acquisition had taken
place as of the beginning of the periods presented, see
Note 4: Business Combinations
in the Notes.
The decline in operating income as a percentage of revenue was
primarily driven by a decline in gross margin percentage as a
result of higher sales of lower margin products and
$8.1 million of charges in the fourth quarter of fiscal
2009 for cost-reduction actions. Additionally, we incurred
$9.5 million of transaction-related costs in connection
with our acquisition of Wireless Systems including the write-off
of in-process research and development ($7.0 million), the
impact of a
step-up
in
inventory ($1.1 million) and integration costs
($1.4 million).
Orders for this segment were $1.25 billion for fiscal 2009
compared with $1.68 billion for fiscal 2008. This segment
derived 79 percent of its revenue from U.S. Government
customers, including the DoD and intelligence and civilian
agencies, as well as foreign military sales through the U.S.
Government, whether directly or through prime contractors, in
fiscal 2009 compared with 82 percent in fiscal 2008.
39
Fiscal 2008 Compared With Fiscal
2007:
RF Communications segment revenue
increased 27.8 percent and operating income increased
30.3 percent in fiscal 2008 from fiscal 2007. Revenue
growth was driven by continuing strong market demand, and also,
we believe, because of customer preference in both U.S. and
international markets for Harris Falcon tactical radios.
Worldwide demand for Harris software-defined tactical radios was
driven by multiple factors, including modernization programs,
force expansion, force restructuring, interoperability
requirements and requirements for network-centric
communications. Our customers priorities continued to
evolve across the defense, homeland security, public safety and
peacekeeping landscape. Their communications systems needed to
be versatile and adaptable in order to be effective in multiple
operating environments and missions. Demand continued to
increase for network-centric communications systems that can
significantly improve situational awareness and force
effectiveness through communications superiority. Harris Falcon
radios embrace these changing mission priorities and we believe
offer superior multimission performance.
The fiscal 2008 operating income increase over fiscal 2007 in
our RF Communications segment was primarily driven by higher
sales volume from increased sales of our Falcon III
handheld radio units. Engineering, selling and administrative
expense as a percentage of revenue decreased from fiscal 2007 to
fiscal 2008 in our RF Communications segment as our expenses
increased at a lower rate than revenue. This segment continued,
however, to increase its investment in research and development
associated with our Falcon III product family.
Orders for this segment were $1.68 billion for fiscal 2008
compared with $1.26 billion for fiscal 2007. This segment
derived 82 percent of its revenue from U.S. Government
customers in fiscal 2008 compared with 76 percent in fiscal
2007.
Government
Communications Systems Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Revenue
|
|
$
|
2,709.6
|
|
|
$
|
2,478.1
|
|
|
|
9.3
|
%
|
|
$
|
1,997.1
|
|
|
|
24.1
|
%
|
Segment operating income
|
|
|
302.8
|
|
|
|
226.0
|
|
|
|
34.0
|
%
|
|
|
225.6
|
|
|
|
0.2
|
%
|
% of revenue
|
|
|
11.2
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
|
11.3
|
%
|
|
|
|
|
Fiscal 2009 Compared With Fiscal
2008:
Government Communications Systems
segment revenue increased 9.3 percent and operating income
increased 34.0 percent from fiscal 2008 to fiscal 2009.
Operating income as a percentage of revenue was
11.2 percent in fiscal 2009 compared with 9.1 percent
in fiscal 2008. Revenue in fiscal 2009 compared with fiscal 2008
increased in all four of the segments businesses (Defense
Programs, National Intelligence Programs, Civil Programs and IT
Services), and was primarily driven by a further ramping up of
the FDCA program for the U.S. Census Bureau for the 2010
census and classified programs for our national intelligence
customers. In addition to revenue growth from the FDCA and
national intelligence customer programs, significant
contributions to increased revenue in fiscal 2009 came from: the
CBSP for the U.S. Navy; sales of surveillance equipment;
the Global Geospatial Intelligence (GGI) program for
the NGA; and the F-35 Joint Strike Fighter program. Revenue
decreases in fiscal 2009 compared with fiscal 2008 resulted from
the successful completion of the FAA Voice Switching and Control
Systems (VSCS) refurbishment phase, completion of
the MTAIP database program for the U.S. Census Bureau and a
decline in commercial satellite reflectors revenue.
The ramping up of several contract awards in the segments
Healthcare Solutions initiative also contributed to higher
revenue in fiscal 2009, including a significant
multi-million-dollar, ten-year contract with Health First, a
Florida-based healthcare provider.
The increases in operating income and operating income as a
percentage of revenue in fiscal 2009 compared with fiscal 2008
were primarily due to significantly lower charges for schedule
and cost overruns on commercial satellite reflector programs in
fiscal 2009 ($18.0 million) than in fiscal 2008
($75.9 million). We have now made final delivery on seven
of the radial rib-design reflectors. We are under a stop-work
order on the eighth reflector for reasons unrelated to us. The
two remaining hoop-design reflectors are also progressing and
scheduled to be delivered in fiscal 2010. Additionally,
operating income and operating margin in fiscal 2009 benefitted
from the ramping up of the FDCA program and strong results on
the FTI program. These increases to operating income and
operating income as a percentage of revenue were partially
offset by charges for cost-reduction actions of
$5.0 million.
On April 15, 2009, we acquired CSI, a privately held
110-employee Washington, D.C.-area provider of
mission-enabling engineering solutions that address both
offensive and defensive IT security challenges for Federal law
enforcement and other U.S. Government agencies. We operate CSI
as part of the National Intelligence Programs
40
business. The acquisition expands our capabilities, customer
footprint and current initiatives in the cyber security market.
On June 19, 2009, we acquired 50-employee SolaCom ATC,
which provides voice and data communications systems and
solutions for air traffic facilities and radio communications
between aircraft in flight and air traffic controllers. We
operate SolaCom ATC as part of the Civil Programs business. We
believe the acquisition provides our Civil Programs
business, a leader in air traffic control communications
networks and telecommunications infrastructure, with an
immediate ability to address additional segments of the air
traffic control voice/data systems market and further positions
us to support the FAAs anticipated NextGen program.
Our fiscal 2009 results of operations reflect approximately
eleven weeks of operating results for CSI and two weeks of
operating results for SolaCom ATC, representing the periods
subsequent to those acquisitions, which were not material to the
financial results of our Government Communications Systems
segment.
Orders for this segment were $2.7 billion for fiscal 2009
compared with $2.5 billion for fiscal 2008. This segment
derived 96 percent of its revenue from U.S. Government
customers, including the DoD and intelligence and civilian
agencies, as well as foreign military sales through the U.S.
Government, whether directly or through prime contractors, in
fiscal 2009 compared with 96 percent in fiscal 2008.
In the fourth quarter of fiscal 2009, we were awarded two new
long-term contracts on major government programs. We were
awarded a
ten-year
contract, potentially worth $736 million, for the GOES-R GS
program for NOAA. The GOES-R GS system will receive and process
satellite data, and generate and distribute weather data to more
than 10,000 users. We were also awarded a
ten-year
contract, potentially worth $600 million, for the MET
program. The next-generation large satellite earth stations we
develop for the MET program will provide the worldwide backbone
for high-priority military communications and missile defense
systems.
Fiscal 2008 Compared With Fiscal
2007:
Government Communications Systems
segment revenue increased 24.1 percent and operating income
increased 0.2 percent from fiscal 2007 to fiscal 2008.
Organic revenue, excluding the impact of the acquisition of
Multimax, increased in fiscal 2008 compared with fiscal 2007,
and was primarily driven by the ramping up of the FDCA program
for the U.S. Census Bureau and from classified programs for
our national intelligence customers. Significant contributions
to increased revenue in fiscal 2008 came from the FDCA program,
the Patriot technical services program for the NRO, our
classified programs, the VSCS program for the FAA, the Common
Data Link-Hawklink program for the U.S. Navy, the WIN-T
program for the U.S. Army, tactical SATCOM and the NSOM,
NMCI and NETCENTS programs in our IT Services business.
The increase in operating income in fiscal 2008 was primarily
due to the acquisition of Multimax and approximately
$10.0 million of income related to the renegotiation of
pricing on an IT services contract, partially offset by
$75.9 million of charges for schedule and cost overruns on
commercial satellite reflector programs, encompassing ten
commercial reflectors in various stages of development,
assembly, test and delivery. Due to technical difficulties
experienced on these reflector programs, which necessitated
design changes and associated cost increases, we also fell
behind schedule. To mitigate the impact of these schedule
changes, we began performing these programs in parallel rather
than in series. This further adversely impacted costs, as costs
from rework activities associated with further design changes
were multiplied through all the reflectors in the factory.
Additionally, engineering, selling and administrative expenses
in this segment increased in fiscal 2008 when compared with
fiscal 2007, partly due to a gain recorded on the sale of our
STAT network security product line in fiscal 2007.
Orders for this segment were $2.5 billion for fiscal 2008
compared with $2.0 billion for fiscal 2007. This segment
derived 96 percent of its revenue from U.S. Government
customers, including the DoD and intelligence and civilian
agencies, as well as foreign military sales through the U.S.
Government, whether directly or through prime contractors, in
fiscal 2008 compared with 95 percent in fiscal 2007.
Broadcast
Communications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
|
|
2008/2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Revenue
|
|
$
|
583.6
|
|
|
$
|
643.1
|
|
|
|
(9.3
|
)%
|
|
$
|
599.5
|
|
|
|
7.3
|
%
|
Segment operating income
|
|
|
(238.0
|
)
|
|
|
33.8
|
|
|
|
*
|
|
|
|
11.9
|
|
|
|
184.0
|
%
|
% of revenue
|
|
|
(
40.8
|
)%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
2.0
|
%
|
|
|
|
|
* Not meaningful
41
Fiscal 2009 Compared With Fiscal
2008:
Broadcast Communications segment
revenue decreased 9.3 percent in fiscal 2009 from fiscal
2008, and this segment had an operating loss of
$238.0 million in fiscal 2009 compared with operating
income of $33.8 million in fiscal 2008. The operating loss
in fiscal 2009 was primarily due to a $255.5 million
non-cash charge for impairment of goodwill and other long-lived
assets, as described in greater detail below. The global
recession and postponement of capital projects significantly
weakened demand. Additionally, this segment recorded charges for
cost-reduction actions of $13.1 million in fiscal 2009, and
these actions as well as actions taken in the prior-year have
mitigated the impact of lower revenue on operating performance.
Revenue in fiscal 2009 compared with fiscal 2008 declined in
both U.S. and international markets and was lower primarily
as a result of declining sales in Infrastructure and Networking
Solutions where the impact of the global market softness was
most significant. Media and Workflow sales were lower compared
with the prior fiscal year, with weakness in sales of
U.S. and international traffic systems partially offset by
higher sales of media server products. Transmission Systems
sales were modestly lower compared with the prior fiscal year as
a result of softness in the global radio market.
Although significantly lower advertising revenue in the
broadcast industry continued to postpone some capital
investments, we continued to have success in deploying our
Harris ONE solution for interoperable workflow. This includes
the capability of tying together IT-centric file-based
workflows, broadcast technology for plant infrastructure,
transmission systems and media enterprise software.
In the fourth quarter of fiscal 2009, we performed our annual
impairment tests of our reporting units goodwill. Because
of the global recession and postponement of capital projects
which significantly weakened demand, and the general decline of
peer company valuations impacting our valuation, we determined
that goodwill in our Broadcast Communications segment was
impaired. Accordingly, during the fourth quarter of fiscal 2009,
we recorded a $255.5 million non-cash impairment charge,
consisting of charges of $160.9 million, $70.2 million
and $24.4 million for impairment of goodwill, amortizable
intangible assets and capitalized software, respectively.
Orders for this segment were $529 million for fiscal 2009
compared with $660 million for fiscal 2008.
Fiscal 2008 Compared With Fiscal
2007:
Broadcast Communications segment
revenue increased 7.3 percent in fiscal 2008 from fiscal
2007, and operating income was $33.8 million in fiscal 2008
compared with $11.9 million in fiscal 2007. Revenue growth
in fiscal 2008 compared with fiscal 2007 was across all
businesses in this segment. The Infrastructure and Networking
Solutions business, including routers, graphics equipment and
multiviewers, had double-digit revenue growth in fiscal 2008
compared with fiscal 2007. Fiscal 2008 sales of traffic and
billing software solutions also improved, particularly in
international markets, compared with fiscal 2007. Sales of
transmission systems grew in fiscal 2008 compared with fiscal
2007 as a result of strong shipments in the U.S. market for
the
over-the-air
digital transmission build-out.
Increasingly, large media customers selected the Harris ONE
approach for workflow solutions across the entire broadcast
delivery chain, tying workflow and signal flow together to
improve productivity and responsiveness. Examples included
projects with Chunghwa Telecom in Taiwan; Brazilian broadcaster,
TV Anhanguera; the Saudi Arabia Ministry of Culture and
Information for Saudi Television; Kuwait Television; RTV, the
national public broadcaster in Slovenia; HD suisse, the first HD
television channel in Switzerland; Sezmi, a new
U.S. entertainment services company; and SBS, an Australian
broadcaster.
Fiscal 2008 operating income in this segment was adversely
impacted by $2.0 million of costs associated with our
acquisition of Zandar and a decrease in margins due to our
transition to lead-free products. Fiscal 2007 operating income
was adversely impacted by $7.5 million of costs associated
with cost-reduction actions and an $18.9 million write-down
of capitalized software associated with managements
decision to discontinue an automation software development
effort.
Orders for this segment were $660 million for fiscal 2008
compared with $666 million for fiscal 2007.
Unallocated
Corporate Expense and Corporate Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009/2008
|
|
|
|
2008/2007
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
|
Increase/
|
|
|
|
Increase/
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
2007
|
|
(Decrease)
|
|
|
(Dollars in millions)
|
|
Unallocated corporate expense
|
|
$
|
81.4
|
|
|
$
|
74.0
|
|
|
|
10.0
|
%
|
|
$
|
65.9
|
|
|
|
12.3
|
%
|
Corporate eliminations
|
|
|
16.9
|
|
|
|
7.3
|
|
|
|
131.5
|
%
|
|
|
13.4
|
|
|
|
(45.5
|
)%
|
Fiscal 2009 Compared With Fiscal
2008:
Unallocated corporate expense increased
10.0 percent to $81.4 million in fiscal 2009 from
$74.0 million in fiscal 2008, primarily due to a
share-based compensation charge
42
of $4.1 million in the fourth quarter of fiscal 2009
related to the Spin-off of HSTX, and a charge of
$2.4 million in the fourth quarter of fiscal 2009 related
to cost-reduction actions. As a percentage of revenue,
unallocated corporate expense was unchanged at 1.6 percent
in fiscal 2009 and fiscal 2008. Corporate eliminations increased
to $16.9 million in fiscal 2009 from $7.3 million in
fiscal 2008, primarily due to higher intersegment activity
involving the sale of broadcasting equipment through our
Government Communications Systems segment.
Fiscal 2008 Compared With Fiscal
2007:
Unallocated corporate expense increased
12.3 percent to $74.0 million in fiscal 2008 from
$65.9 million in fiscal 2007. As a percentage of revenue,
unallocated corporate expense decreased to 1.6 percent in
fiscal 2008 from 1.8 percent in fiscal 2007. Corporate
eliminations decreased to $7.3 million in fiscal 2008 from
$13.4 million in fiscal 2007, primarily due to less
intersegment activity on our FTI program.
In-Process
Research and Development
In connection with our acquisition of Wireless Systems, we
allocated $7.0 million of the purchase price to two
in-process research and development projects. These allocations
represent the estimated fair value based on risk-adjusted cash
flows related to these incomplete projects. At the acquisition
date, the development of these projects had not yet reached
technological feasibility, and the in-process research and
development had no alternative future uses and did not otherwise
qualify for capitalization. Accordingly, these costs were
expensed as a charge to earnings and are included in the
Engineering, selling and administrative expenses
line item in our Consolidated Statement of Income. In making
these purchase price allocations we relied on present value
calculations of income, an analysis of project accomplishments
and completion costs and an assessment of overall contribution
and project risk. The value assigned to the purchased
in-process
research and development was determined by estimating the costs
to develop the purchased in-process research and development
into commercially viable products and discounting the net cash
flows to their present value using a discount rate of
15 percent.
The two in-process research and development projects consisted
of a new product platform and a new technology. As of the
valuation date, the new product platform project was
approximately 75 percent complete with a product launch
expected at the end of calendar 2009 and had remaining costs
until completion of approximately $2.1 million. As of the
valuation date, the new technology project was approximately
80 percent complete with a product launch expected in early
fiscal 2010 and had remaining costs until completion of
approximately $1.1 million.
Discontinued
Operations
In the fourth quarter of fiscal 2009, in connection with the
May 27, 2009 Spin-off to our shareholders of all the shares
of HSTX common stock owned by us, we eliminated as a reporting
segment our former HSTX segment. In accordance with Statement
144, our historical financial results have been restated to
account for HSTX as discontinued operations for all periods
presented in this Report. See
Note 3: Discontinued
Operations
for additional information regarding discontinued
operations.
LIQUIDITY,
CAPITAL RESOURCES AND FINANCIAL STRATEGIES
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by operating activities
|
|
$
|
666.8
|
|
|
$
|
555.5
|
|
|
$
|
443.0
|
|
Net cash used in investing activities
|
|
|
(864.6
|
)
|
|
|
(134.6
|
)
|
|
|
(382.9
|
)
|
Net cash provided by (used in) financing activities
|
|
|
117.1
|
|
|
|
(418.6
|
)
|
|
|
128.9
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(8.1
|
)
|
|
|
(0.6
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(88.8
|
)
|
|
|
1.7
|
|
|
|
187.0
|
|
Cash and cash equivalents, beginning of year
|
|
|
370.0
|
|
|
|
368.3
|
|
|
|
181.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
281.2
|
|
|
|
370.0
|
|
|
|
368.3
|
|
Less cash and cash equivalents of discontinued operations
|
|
|
|
|
|
|
(95.5
|
)
|
|
|
(69.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations, end of year
|
|
$
|
281.2
|
|
|
$
|
274.5
|
|
|
$
|
299.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
Our
Consolidated Statement of Cash Flows includes the results of
HSTX through the May 27, 2009 Spin-off date. Accordingly,
for fiscal 2009, our Consolidated Statement of Cash Flows, and
the following analysis, includes approximately eleven months of
cash flows from HSTX. All line items on our Consolidated Balance
Sheet have been restated to account for HSTX as discontinued
operations. Our cash and cash
43
equivalents balance was $281.2 million and
$274.5 million, as of the end of fiscal 2009 and fiscal
2008, respectively.
The increase in cash and cash equivalents from fiscal 2008 to
fiscal 2009 was primarily due to $666.8 million provided by
operating activities and $450.4 million of net proceeds
from borrowings to partially fund acquisitions, partially offset
by the $745.3 million of cash paid for acquired businesses,
$132.3 million of cash used to repurchase shares of our
common stock, $121.8 million of cash paid for additions of
property, plant, and equipment and capitalized software,
$106.6 million used to pay cash dividends, and a
$100.0 million cash decrease related to the HSTX Spin-off.
Our financial position remained strong at July 3, 2009. We
ended the fiscal year with cash and cash equivalents of
$281.2 million; we have no long-term debt maturing until
fiscal 2016; we have a five-year, senior unsecured
$750 million revolving credit facility that expires in
September 2013; and we do not have any material defined benefit
pension plan obligations.
During the current downturn in global financial markets, some
companies have experienced difficulties with liquidity of their
cash equivalents, trading investment securities, drawing on
revolvers, issuing debt and raising capital, which have had an
adverse impact on their liquidity. Given our current cash
position, outlook for funds generated from operations, credit
ratings, available credit facilities, cash needs and debt
structure, we have not experienced to date, and do not expect to
experience, any material issues with liquidity, although we can
give no assurances.
We also currently believe that existing cash, funds generated
from operations, our credit facilities and access to the public
and private debt and equity markets will be sufficient to
provide for our anticipated working capital requirements,
capital expenditures and repurchases under our share repurchase
programs for the next 12 months and the foreseeable future.
We anticipate tax payments over the next three years to be
approximately equal to our tax expense during the same period.
We anticipate that our fiscal 2010 cash outlays may include
strategic acquisitions. Other than those cash outlays noted in
the Contractual Obligations discussion below in this
MD&A, capital expenditures, potential acquisitions and
repurchases under our share repurchase programs, no other
significant cash outlays are anticipated in fiscal 2010 and
thereafter.
There can be no assurance, however, that our business will
continue to generate cash flow at current levels, that ongoing
operational improvements will be achieved, or that the cost or
availability of future borrowings, if any, under our commercial
paper program or our credit facilities or in the debt markets
will not be impacted by the ongoing credit and capital markets
disruptions. If we are unable to maintain cash balances or
generate sufficient cash flow from operations to service our
obligations, we may be required to sell assets, reduce capital
expenditures, reduce or terminate our share repurchase programs,
reduce or eliminate dividends, refinance all or a portion of our
existing debt or obtain additional financing. Our ability to
make principal payments or pay interest on or refinance our
indebtedness depends on our future performance and financial
results, which, to a certain extent, are subject to general
conditions in or affecting the defense, government and broadcast
communications markets and to general economic, political,
financial, competitive, legislative and regulatory factors
beyond our control.
Net cash provided by operating
activities:
Our net cash provided by
operating activities was $666.8 million in fiscal 2009
compared with $555.5 million in fiscal 2008. Excluding
HSTX, all of our segments had positive cash flow in fiscal 2009,
and all of our segments had improved cash flow in fiscal 2009
when compared with fiscal 2008. The improvement was led by our
RF Communications and Government Communications Systems
segments, primarily as a result of those segments higher
operating income.
Net cash used in investing
activities:
Our net cash used in investing
activities was $864.6 million in fiscal 2009 compared with
$134.6 million in fiscal 2008. Net cash used in investing
activities in fiscal 2009 was primarily due to
$745.3 million of cash paid for acquired businesses,
$98.7 million of property, plant and equipment additions
and $23.1 million of capitalized software additions. Net
cash used in investing activities in fiscal 2008 was primarily
due to $112.9 million of property, plant and equipment
additions, $33.3 million of capitalized software additions
and $19.4 million of cash paid for acquisitions. This was
partially offset by the net proceeds from the sale of securities
and short-term investments
available-for-sale
of $31.0 million. Our total capital expenditures, including
capitalized software, in fiscal 2010 are expected to be between
$150 million and $160 million.
Net cash provided by (used in) financing
activities:
Our net cash provided by
financing activities was $117.1 million in fiscal 2009
compared with net cash used in financing activities of
$418.6 million in fiscal 2008. Net cash provided by
financing activities in fiscal 2009 was primarily due to
$450.4 million of net proceeds from borrowings to partially
fund acquisitions in the fourth quarter of fiscal 2009 and
$5.6 million of proceeds from the exercise of employee
stock options, partially offset by $132.3 million used to
repurchase shares of our common stock, $106.6 million used
to pay cash dividends, and a $100.0 million cash decrease
related to the HSTX Spin-off.
44
In fiscal 2009, we issued 498,814 shares of common stock to
employees under our share-based incentive plans. Net cash used
in financing activities in fiscal 2008 was primarily due to
$234.6 million used to repurchase shares of our common
stock, $138.9 million used for net repayments of borrowings
and $81.5 million used to pay cash dividends, partially
offset by $45.2 million of proceeds from the exercise of
employee stock options. In fiscal 2008, we issued
1,367,588 shares of common stock to employees under our
share-based incentive plans.
Common
Stock Repurchases
During fiscal 2009, we used $125 million to repurchase
2,722,438 shares of our common stock under our repurchase
program at an average price per share of $45.91, including
commissions. During fiscal 2008, we used $225 million to
repurchase 3,945,136 shares of our common stock under our
repurchase program at an average price per share of $57.02,
including commissions. In fiscal 2009 and fiscal 2008,
$7.3 million and $9.6 million, respectively, in shares
of our common stock were delivered to us or withheld by us to
satisfy withholding taxes on employee share-based awards. Shares
repurchased by us are cancelled and retired.
On February 27, 2009, our Board of Directors approved the
new $600 million 2009 Repurchase Program. The 2009
Repurchase Program is in addition to our previous share
repurchase authorization under the 2007 Repurchase Program,
which had a remaining authorization of approximately
$50 million at February 27, 2009. As of July 3,
2009, we have a remaining authorization to repurchase
approximately $650 million in shares of our common stock on
a combined basis under our Repurchase Programs. Our Repurchase
Programs do not have a stated expiration date. Repurchases under
our Repurchase Programs may be made through open market
purchases, private transactions, transactions structured through
investment banking institutions or any combination thereof.
Share repurchases are expected to be funded with available cash.
The level of our repurchases depends on a number of factors,
including our financial condition, capital requirements, results
of operations, future business prospects and other factors that
our Board of Directors may deem relevant. The timing, volume and
nature of share repurchases are subject to market conditions,
applicable securities laws and other factors and are at our
discretion and may be suspended or discontinued at any time.
Additional information regarding share repurchases during fiscal
2009 and our Repurchase Programs is set forth above under
Item 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities of this Report.
Dividends
On August 28, 2009, our Board of Directors increased the
quarterly cash dividend rate on our common stock from $.20 per
share to $.22 per share, for an annualized cash dividend rate of
$.88 per share, which was our eighth consecutive annual increase
in our quarterly cash dividend rate. Our annualized cash
dividend rate was $.80 per share, $.60 per share and $.44 per
share in fiscal 2009, 2008 and 2007, respectively. There can be
no assurances that our annualized cash dividend rate will
continue to increase. Quarterly cash dividends are typically
paid in March, June, September and December. We currently expect
that cash dividends will continue to be paid in the near future,
but we can give no assurances. Additional information concerning
our dividends is set forth above under Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities of this Report.
Capital
Structure and Resources
On September 10, 2008, we entered into a five-year, senior
unsecured revolving credit agreement (the 2008 Credit
Agreement) with a syndicate of lenders. The 2008 Credit
Agreement provides for the extension of credit to us in the form
of revolving loans, including swingline loans, and letters of
credit at any time and from time to time during the term of the
2008 Credit Agreement, in an aggregate principal amount at any
time outstanding not to exceed $750 million for both
revolving loans and letters of credit, with a
sub-limit
of
$50 million for swingline loans and $125 million for
letters of credit. This $750 million credit facility
replaces our prior $500 million credit facility established
pursuant to the five-year, senior unsecured revolving credit
agreement we entered into on March 31, 2005 with a
syndicate of lenders. The 2008 Credit Agreement includes a
provision pursuant to which, from time to time, we may request
that the lenders in their discretion increase the maximum amount
of commitments under the 2008 Credit Agreement by an amount not
to exceed $500 million. Only consenting lenders (including
new lenders reasonably acceptable to the administrative agent)
will participate in any such increase. In no event will the
maximum amount of credit extensions available under the 2008
Credit Agreement exceed $1.25 billion. The 2008 Credit
Agreement may be used for working capital and other general
corporate purposes (excluding hostile acquisitions) and to
support any commercial paper that we may issue. Borrowings under
the 2008 Credit Agreement may be denominated in
U.S. Dollars, Euros, Sterling and any other currency
acceptable to the administrative agent and the lenders, with a
non-U.S. currency
sub-limit
of
$150 million. We may designate certain wholly owned
subsidiaries as borrowers under the 2008 Credit Agreement, and
the obligations of any such
45
subsidiary borrower must be guaranteed by Harris Corporation. We
also may designate certain subsidiaries as unrestricted
subsidiaries, which means certain of the covenants and
representations in the 2008 Credit Agreement do not apply to
such subsidiaries.
At our election, borrowings under the 2008 Credit Agreement
denominated in U.S. Dollars will bear interest either at
LIBOR plus an applicable margin or at the base rate plus an
applicable margin. The interest rate margin over LIBOR,
initially set at 0.50 percent, may increase (to a maximum
amount of 1.725 percent) or decrease (to a minimum of
0.385 percent) based on changes in the ratings of our
senior, unsecured long-term debt securities (Senior Debt
Ratings) and on the degree of utilization under the 2008
Credit Agreement (Utilization). The base rate is a
fluctuating rate equal to the higher of the federal funds rate
plus 0.50 percent or SunTrust Banks publicly
announced prime lending rate for U.S. Dollars. The interest
rate margin over the base rate is 0.00 percent, but if our
Senior Debt Ratings fall to BB+/Ba1 or below, then
the interest rate margin over the base rate will increase to
either 0.225 percent or 0.725 percent based on
Utilization. Borrowings under the 2008 Credit Agreement
denominated in a currency other than U.S. Dollars will bear
interest at LIBOR plus the applicable interest rate margin over
LIBOR described above. Letter of credit fees are also determined
based on our Senior Debt Ratings and Utilization.
The 2008 Credit Agreement contains certain covenants, including
covenants limiting: certain liens on our assets; certain
mergers, consolidations or sales of assets; certain sale and
leaseback transactions; certain vendor financing investments;
and certain investments in unrestricted subsidiaries. The 2008
Credit Agreement also requires that we not permit our ratio of
consolidated total indebtedness to total capital, each as
defined, to be greater than 0.60 to 1.00 and not permit our
ratio of consolidated EBITDA to consolidated net interest
expense, each as defined, to be less than 3.00 to 1.00 (measured
on the last day of each fiscal quarter for the rolling
four-quarter period then ending). We were in compliance with the
covenants in the 2008 Credit Agreement in fiscal 2009. The 2008
Credit Agreement contains certain events of default, including:
failure to make payments; failure to perform or observe terms,
covenants and agreements; material inaccuracy of any
representation or warranty; payment default under other
indebtedness with a principal amount in excess of
$75 million or acceleration of such indebtedness;
occurrence of one or more final judgments or orders for the
payment of money in excess of $75 million that remain
unsatisfied; incurrence of certain ERISA liability in excess of
$75 million; any bankruptcy or insolvency; or a change of
control, including if a person or group becomes the beneficial
owner of 25 percent or more of our voting stock. If an
event of default occurs the lenders may, among other things,
terminate their commitments and declare all outstanding
borrowings to be immediately due and payable together with
accrued interest and fees. All amounts borrowed or outstanding
under the 2008 Credit Agreement are due and mature on
September 10, 2013, unless the commitments are terminated
earlier either at our request or if certain events of default
occur. At July 3, 2009, we had no borrowings outstanding
under the 2008 Credit Agreement, but we had $105.7 million
of short-term debt outstanding under our commercial paper
program, which is supported by the 2008 Credit Agreement.
On June 9, 2009, we completed the issuance of
$350 million in aggregate principal amount of
6.375% Notes due June 15, 2019. Interest on the notes
is payable on June 15 and December 15 of each year. We may
redeem the notes at any time in whole or, from time to time, in
part at the make-whole redemption price. The
make-whole redemption price is equal to the greater
of 100 percent of the principal amount of the notes being
redeemed or the sum of the present values of the remaining
scheduled payments of the principal and interest (other than
interest accruing to the date of redemption) on the notes being
redeemed, discounted to the redemption date on a
semi-annual
basis (assuming a
360-day
year
consisting of twelve
30-day
months) at the Treasury Rate, as defined, plus 37.5 basis
points. In each case, we will pay accrued interest on the
principal amount of the notes being redeemed to the redemption
date. In addition, upon a change of control combined with a
below-investment-grade rating event, we may be required to make
an offer to repurchase the notes at a price equal to
101 percent of the aggregate principal amount of the notes
repurchased, plus accrued interest on the notes repurchased to
the date of repurchase. We incurred $4.1 million in debt
issuance costs and discounts related to the issuance of the
notes, which are being amortized on a straight-line basis over
the life of the notes, which approximates the effective interest
rate method, and are reflected as a portion of interest expense
in our Consolidated Statement of Income.
On December 5, 2007, we completed the issuance of
$400 million in aggregate principal amount of
5.95% Notes due December 1, 2017. Interest on the
notes is payable on June 1 and December 1 of each year. We may
redeem the notes at any time in whole or, from time to time, in
part at the make-whole redemption price. The
make-whole redemption price is equal to the greater
of 100 percent of the principal amount of the notes being
redeemed or the sum of the present values of the remaining
scheduled payments of the principal and interest (other than
interest accruing to the date of redemption) on the notes being
redeemed, discounted to the redemption date on a semi-annual
basis (assuming a
360-day
year
consisting of twelve
30-day
months) at the Treasury Rate, as defined, plus 30 basis
points. In each case, we will pay accrued interest on the
principal amount of the notes being redeemed to the redemption
date. In addition, upon a change of control combined with a
below-investment-grade
46
rating event, we may be required to make an offer to repurchase
the notes at a price equal to 101 percent of the aggregate
principal amount of the notes repurchased, plus accrued interest
on the notes repurchased to the date of repurchase. In
conjunction with the issuance of the notes, we entered into
treasury lock agreements to protect against fluctuations in
forecasted interest payments resulting from the issuance of
ten-year, fixed-rate debt due to changes in the benchmark
U.S. Treasury rate. In accordance with Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities
(Statement 133), these agreements were determined to
be highly effective in offsetting changes in forecasted interest
payments as a result of changes in the benchmark
U.S. Treasury rate. Upon termination of these agreements on
December 6, 2007, we recorded a loss of $5.5 million,
net of income tax, in shareholders equity as a component
of accumulated other comprehensive income. This loss, along with
$5.0 million in debt issuance costs, is being amortized on
a straight-line basis over the life of the notes, which
approximates the effective interest rate method, and is
reflected as a portion of interest expense in our Consolidated
Statement of Income.
On September 20, 2005, we completed the issuance of
$300 million in aggregate principal amount of 5% Notes
due October 1, 2015. Interest on the notes is payable on
April 1 and October 1 of each year. We may redeem the notes in
whole, or in part, at any time at the make-whole
redemption price. The make-whole redemption price is
equal to the greater of 100 percent of the principal amount
of the notes being redeemed or the sum of the present values of
the remaining scheduled payments of the principal and interest
(other than interest accruing to the date of redemption) on the
notes being redeemed, discounted to the redemption date on a
semi-annual basis (assuming a
360-day
year
consisting of twelve
30-day
months) at the Treasury Rate, as defined, plus 15 basis
points. In each case, we will pay accrued interest on the
principal amount of the notes being redeemed to the redemption
date. We incurred $4.1 million in debt issuance costs and
discounts related to the issuance of the notes, which are being
amortized on a straight-line basis over a ten-year period and
reflected as a portion of interest expense in our Consolidated
Statement of Income.
In February 1998, we completed the issuance of $150 million
in aggregate principal amount of 6.35% Debentures due
February 1, 2028. On December 5, 2007, we repurchased
and retired $25.0 million in aggregate principal amount of
the debentures. On February 1, 2008, we redeemed
$99.2 million in aggregate principal amount of the
debentures pursuant to the procedures for redemption at the
option of the holders of the debentures. We may redeem the
remaining $25.8 million in aggregate principal amount of
the debentures in whole, or in part, at any time at a
pre-determined redemption price.
In January 1996, we completed the issuance of $100 million
in aggregate principal amount of 7% Debentures due
January 15, 2026. The debentures are not redeemable prior
to maturity.
We have an automatically effective, universal shelf registration
statement, filed with the SEC on June 3, 2009, related to
the potential future issuance of an indeterminate amount of
securities, including debt securities, preferred stock, common
stock, fractional interests in preferred stock represented by
depositary shares and warrants to purchase debt securities,
preferred stock or common stock.
We have uncommitted short-term lines of credit aggregating
$10.0 million from various international banks, the full
amount of which was available on July 3, 2009. These lines
provide for borrowings at various interest rates, typically may
be terminated upon notice, may be used on such terms as mutually
agreed to by the banks and us, and are reviewed annually for
renewal or modification. These lines do not require compensating
balances. We also have a short-term commercial paper program in
place, which we may utilize to satisfy short-term cash
requirements and which is supported by our 2008 Credit
Agreement. As of July 3, 2009, we had $105.7 million
of short-term debt outstanding under our commercial paper
program.
Our debt is currently rated BBB+ by Standard and
Poors Rating Group and Baa1 by Moodys
Investors Service. We expect to maintain operating ratios,
fixed-charge coverage ratios and balance sheet ratios sufficient
for retention of, or improvement to, these debt ratings. There
are no assurances that our debt ratings will not be reduced in
the future. If our debt ratings are lowered below
investment grade, then we may not be able to issue
short-term commercial paper, but may instead need to borrow
under our credit facilities or pursue other options. In
addition, if our debt ratings are lowered below investment
grade, then we may also be required to provide cash
collateral to support outstanding performance bonds. For a
discussion of such performance bonds, see Commercial
Commitments below. We do not currently foresee losing our
investment-grade debt ratings, but no assurances can be given.
If our debt ratings were downgraded, however, it could adversely
impact, among other things, our future borrowing costs and
access to capital markets and our ability to receive certain
types of contract awards.
47
Contractual
Obligations
At July 3, 2009, we had contractual cash obligations to repay
debt, to purchase goods and services and to make payments under
operating leases. Payments due under these long-term obligations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations Due by Fiscal Year
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
After
|
|
|
|
Total
|
|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
2014
|
|
|
|
(Dollars in millions)
|
|
|
Long-term debt
|
|
$
|
1,178.0
|
|
|
$
|
0.7
|
|
|
$
|
1.3
|
|
|
$
|
0.2
|
|
|
$
|
1,175.8
|
|
Purchase
obligations
(1),(2),(3)
|
|
|
683.3
|
|
|
|
636.4
|
|
|
|
46.5
|
|
|
|
0.4
|
|
|
|
|
|
Operating lease commitments
|
|
|
120.7
|
|
|
|
29.5
|
|
|
|
37.0
|
|
|
|
25.0
|
|
|
|
29.2
|
|
Interest on long-term debt
|
|
|
661.9
|
|
|
|
69.8
|
|
|
|
139.5
|
|
|
|
139.5
|
|
|
|
313.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
2,643.9
|
|
|
$
|
736.4
|
|
|
$
|
224.3
|
|
|
$
|
165.1
|
|
|
$
|
1,518.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts did not include pension
contributions and payments for various welfare and benefit plans
because such amounts had not been determined beyond fiscal 2009.
|
|
(2)
|
|
The purchase obligations of
$683.3 million included $476.3 million of purchase
obligations related to our Government Communications Systems
segment, which were fully funded under contracts with the U.S.
Government, and $194.2 million of these purchase
obligations related to cost-plus type contracts where our costs
were fully reimbursable.
|
|
(3)
|
|
Amounts did not include
unrecognized tax benefits of $23.1 million.
|
Off-Balance
Sheet Arrangements
In accordance with the definition under SEC rules, any of the
following qualify as off-balance sheet arrangements:
|
|
|
|
|
Any obligation under certain guarantee contracts;
|
|
|
A retained or contingent interest in assets transferred to an
unconsolidated entity or similar 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 held by the registrant in an
unconsolidated entity that provides financing, liquidity, market
risk or credit risk support to the registrant, or engages in
leasing, hedging or research and development services with the
registrant.
|
Currently we are not participating in transactions that generate
relationships with unconsolidated entities or financial
partnerships, including variable interest entities, and we do
not have any material retained or contingent interest in assets
as defined above. As of July 3, 2009, we did not have
material financial guarantees or other contractual commitments
that are reasonably likely to adversely affect our results of
operations, financial condition or cash flows. In addition, we
are not currently a party to any related party transactions that
materially affect our results of operations, financial condition
or cash flows.
We have, from time to time, divested certain of our businesses
and assets. In connection with these divestitures, we often
provide representations, warranties
and/or
indemnities to cover various risks and unknown liabilities, such
as environmental liabilities and tax liabilities. We cannot
estimate the potential liability from such representations,
warranties and indemnities because they relate to unknown
conditions. We do not believe, however, that the liabilities
relating to these representations, warranties and indemnities
will have a material adverse effect on our results of
operations, financial condition or cash flows.
Due to our downsizing of certain operations pursuant to
acquisitions, restructuring plans or otherwise, certain
properties leased by us have been sublet to third parties. In
the event any of these third parties vacates any of these
premises, we would be legally obligated under master lease
arrangements. We believe that the financial risk of default by
such sublessees is individually and in the aggregate not
material to our results of operations, financial position or
cash flows.
Commercial
Commitments
We have entered into commercial commitments in the normal course
of business including surety bonds, standby letter of credit
agreements and other arrangements with financial institutions
and customers primarily relating to the guarantee of future
performance on certain contracts to provide products and
services to customers or
48
to obtain insurance policies with our insurance carriers. At
July 3, 2009, we had commercial commitments on outstanding
surety bonds, standby letters of credit and other arrangements,
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of Commitments
|
|
|
|
|
|
|
by Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2012
|
|
|
|
(Dollars in millions)
|
|
|
Standby letters of credit used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bids
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Down payments
|
|
|
17.2
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
66.1
|
|
|
|
51.7
|
|
|
|
7.0
|
|
|
|
0.2
|
|
|
|
7.2
|
|
Warranty
|
|
|
12.8
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96.4
|
|
|
|
82.0
|
|
|
|
7.0
|
|
|
|
0.2
|
|
|
|
7.2
|
|
Surety bonds used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
441.0
|
|
|
|
365.5
|
|
|
|
25.5
|
|
|
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441.0
|
|
|
|
365.5
|
|
|
|
25.5
|
|
|
|
50.0
|
|
|
|
|
|
Guarantees (Debt and Performance)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
537.4
|
|
|
$
|
447.5
|
|
|
$
|
32.5
|
|
|
$
|
50.2
|
|
|
$
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The level of our total commercial commitments outstanding at
July 3, 2009 of $537.4 million is significantly higher
than the $82.7 million outstanding at June 27, 2008.
The increase is primarily attributable to our acquisition of
Wireless Systems. As is customary in bidding for and completing
network infrastructure projects for public safety systems,
contractors are required to procure performance/bid bonds,
standby letters of credit and surety bonds (collectively,
Performance Bonds). Such Performance Bonds normally
have maturities of up to three years and are standard in the
industry as a way to provide customers a mechanism to seek
redress if a contractor does not satisfy performance
requirements under a contract. A customer is permitted to draw
on a Performance Bond if we do not fulfill all terms of a
project contract. In such an event, we would be obligated to
reimburse the financial institution that issued the Performance
Bond for the amounts paid. It has been rare for Wireless Systems
and its predecessors to have a Performance Bond drawn upon. In
addition, pursuant to the terms under which we procure
Performance Bonds, if our credit ratings are lowered below
investment grade, then we may be required to provide
collateral to support a portion of the outstanding amount of
Performance Bonds. Such a downgrade could increase the cost of
the issuance of Performance Bonds and could make it more
difficult to procure Performance Bonds, which would adversely
impact our ability to compete for contract awards. Such
collateral requirements could also result in less liquidity for
other operational needs or corporate purposes.
Financial
Risk Management
In the normal course of doing business, we are exposed to the
risks associated with foreign currency exchange rates and
changes in interest rates. We employ established policies and
procedures governing the use of financial instruments to manage
our exposure to such risks.
Foreign Exchange and Currency:
We use
foreign exchange contracts and options to hedge both balance
sheet and off-balance sheet future foreign currency commitments.
Factors that could impact the effectiveness of our hedging
programs for foreign currency include accuracy of sales
estimates, volatility of currency markets and the cost and
availability of hedging instruments. A 10 percent adverse
change in currency exchange rates for our foreign currency
derivatives held at July 3, 2009 would have an impact of
approximately $0.2 million on the fair value of such
instruments. This quantification of exposure to the market risk
associated with foreign exchange financial instruments does not
take into account the offsetting impact of changes in the fair
value of our foreign denominated assets, liabilities and firm
commitments. See
Note 19: Derivative Instruments and
Hedging Activities
in the Notes for additional information.
Interest Rates:
As of July 3,
2009, we have long-term debt obligations and short-term debt
under our commercial paper program subject to interest rate
risk. Because the interest rates on our long-term debt
obligations are fixed, and because our long-term debt is not
putable (redeemable at the option of the holders of the debt
prior to maturity), the interest rate risk associated with that
debt on our results of operations is not material. We have a
short-term variable-rate commercial paper program in place,
which we may utilize to satisfy short-term cash requirements. We
can give no assurances that interest rates will not change
significantly or have a material effect on our income or cash
flows in fiscal 2010.
49
Impact of
Foreign Exchange
Approximately 25 percent of our international business was
transacted in local currency environments in fiscal 2009
compared with 30 percent in fiscal 2008. The impact of
translating the assets and liabilities of these operations to
U.S. dollars is included as a component of
shareholders equity. At July 3, 2009, the cumulative
translation adjustment included in shareholders equity was
a $17.5 million loss compared with a $46.5 million
gain at June 27, 2008. We utilize foreign currency hedging
instruments to minimize the currency risk of international
transactions. Gains and losses resulting from currency rate
fluctuations did not have a material effect on our results in
fiscal 2009, 2008 or 2007.
Impact of
Inflation
To the extent feasible, we have consistently followed the
practice of adjusting our prices to reflect the impact of
inflation on salaries and fringe benefits for employees and the
cost of purchased materials and services. Inflation and changing
prices did not materially adversely impact our gross margin,
revenue or operating income in fiscal 2009, 2008 or 2007.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The following is not intended to be a comprehensive list of all
of our accounting policies or estimates. Our significant
accounting policies are more fully described in
Note 1:
Significant Accounting Policies
in the Notes. In preparing
our financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies and
estimates as disclosed in the Notes. We consider the policies
and estimates discussed below as critical to an understanding of
our financial statements because their application places the
most significant demands on our judgment, with financial
reporting results relying on estimates about the effect of
matters that are inherently uncertain and may change in
subsequent periods. Specific risks for these critical accounting
estimates are described in the following paragraphs. The impact
and any associated risks related to these estimates on our
business operations are discussed throughout this MD&A
where such estimates affect our reported and expected financial
results. Senior management has discussed the development and
selection of the critical accounting policies and estimates and
the related disclosure included herein with the Audit Committee
of our Board of Directors. Preparation of this Report requires
us to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of our financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results may differ from those estimates.
Besides estimates that meet the critical accounting
estimate criteria, we make many other accounting estimates in
preparing our financial statements and related disclosures. All
estimates, whether or not deemed critical, affect reported
amounts of assets, liabilities, revenue and expenses as well as
disclosures of contingent assets and liabilities. Estimates are
based on experience and other information available prior to the
issuance of the financial statements. Materially different
results can occur as circumstances change and additional
information becomes known, including for estimates that we do
not deem critical.
Revenue
Recognition on Development and Production Contracts and Contract
Estimates
A significant portion of our business is derived from
development and production contracts, which are accounted for
under the provisions of the American Institute of Certified
Public Accountants (AICPA) audit and
accounting guide, Audits of Federal Government
Contractors, and the AICPAs Statement of Position
No. 81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1).
Cost-reimbursable contracts with the U.S. Government also
are specifically accounted for in accordance with Accounting
Research Bulletin No. 43, Chapter 11,
Section A, Government Contracts, Cost-Plus-Fixed Fee
Contracts (ARB 43).
Revenue related to development and production contracts is
recorded using the
percentage-of-completion
method generally measured by the costs incurred on each contract
to date against estimated total contract costs at completion
(cost-to-cost)
with consideration given for risk of performance and estimated
profit. The
percentage-of-completion
method of revenue recognition is primarily used in our
Government Communications Systems and RF Communications
segments. Revenue is recorded on certain development and
production contracts within our RF Communications segment using
the units-of-delivery method rather than the cost-to-cost
method. Under the units-of-delivery method, sales and profits
are recorded based on the ratio of actual units delivered to
estimated total units to be delivered under the contract.
Amounts representing contract change orders, claims or other
items that may change the scope of a contract are included in
revenue only when they can be reliably estimated and realization
is probable. Incentives or penalties and award fees applicable
to performance on contracts are considered in estimating sales
and profit rates, and are recorded when there is sufficient
information to assess anticipated contract performance.
Incentive provisions, which increase earnings based solely on a
single significant
50
event, generally are not recognized until the event occurs.
Contracts generally are not segmented. If contracts are
segmented, we have determined that they meet the segmenting
criteria stated in
SOP 81-1.
Under the
percentage-of-completion
method of accounting, a single estimated total profit margin is
used to recognize profit for each contract over its entire
period of performance. Recognition of profit on development and
production fixed-price contracts requires estimates of: the
contract value or total contract revenue, the total cost at
completion and the measurement of progress toward completion.
The estimated profit or loss on a contract is equal to the
difference between the estimated contract value and the
estimated total cost at completion. Due to the
long-term
nature of many of our programs, developing the estimated total
cost at completion often requires significant judgment. Factors
that must be considered in estimating the work to be completed
include labor productivity and availability of labor, the nature
and complexity of the work to be performed, availability and
cost of materials, subcontractor performance, the impact of
delayed performance, availability and timing of funding from the
customer and the recoverability of claims outside the original
contract included in any estimate to complete. We review cost
performance and estimates to complete on our ongoing contracts
at least quarterly and, in many cases, more frequently. If a
change in estimated cost to complete a contract is determined to
have an impact on contract earnings, we will record a positive
or negative adjustment to estimated earnings when identified.
Revenue and profits on a cost-reimbursable contract are
recognized when allowable costs are incurred in an amount equal
to the allowable costs plus the profit on those costs. These
profits may be at a fixed or variable percentage of allowable
costs, depending on the contract fee arrangement. Thus,
cost-reimbursable contracts generally are not subject to the
same estimation risks that affect fixed-price contracts. We have
not made any material changes in the methodologies used to
recognize revenue on development and production contracts or to
estimate our costs related to development and production
contracts in the past three fiscal years.
As of July 3, 2009, the amount of unbilled costs and
accrued earnings on fixed-price contracts classified as
Inventory in our Consolidated Balance Sheet was
$305.0 million compared with $215.5 million as of
June 27, 2008. These amounts include gross costs and
accrued income, which is netted against billings and progress
payments. A significant change in an estimate on one or more
programs could have a material effect on our statement of
financial position and results of operations. For example, a one
percent variance in our estimate of accrued income booked as of
July 3, 2009 on all open fixed-price contracts would impact
our pre-tax income and our revenue from product sales and
services by $12.1 million.
Provisions
for Excess and Obsolete Inventory Losses
We value our inventory at the lower of cost or market. We
balance the need to maintain prudent inventory levels to ensure
competitive delivery performance with the risk of excess or
obsolete inventory due to changing technology and customer
requirements. We regularly review inventory quantities on hand
and record a provision for excess and obsolete inventory
primarily based on our estimated forecast of product demand,
anticipated end of product life and production requirements. The
review of excess and obsolete inventory applies to all of our
business segments. Several factors may influence the sale and
use of our inventories, including our decision to exit a product
line, technological change and new product development. These
factors could result in a change in the amount of obsolete
inventory quantities on hand. Additionally, our estimates of
future product demand may prove to be inaccurate, in which case
we may have understated or overstated the provision required for
excess and obsolete inventory. In the future, if we determine
that our inventory is overvalued, we would be required to
recognize such costs in the Cost of product sales
line item in our Consolidated Statement of Income at the time of
such determination. In the case of goods which have been written
down below cost at the close of a fiscal year, such reduced
amount is to be considered the cost for subsequent accounting
purposes. We have not made any material changes in the reserve
methodology used to establish our inventory loss reserves during
the past three fiscal years.
As of July 3, 2009, our reserve for excess and obsolete
inventory was $68.3 million, or 10.1 percent of our
gross inventory balance, which compares with our reserve of
$44.2 million, or 8.5 percent of our gross inventory
balance, as of June 27, 2008. We recorded
$8.6 million, $12.4 million and $19.3 million in
inventory write-downs that either reduced our reserve for excess
and obsolete inventory or our income from continuing operations
before income taxes during fiscal 2009, 2008 and 2007,
respectively. Although we make every reasonable effort to ensure
the accuracy of our forecasts of future product demand,
including the impact of planned future product launches, any
significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our
inventory and our reported operating results.
Goodwill
In accordance with Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets
(Statement 142), goodwill is not amortized. Under
the provisions of Statement 142, we are required to
51
perform annual (or under certain circumstances, more frequent)
impairment tests of our goodwill. We test goodwill for
impairment using a two-step process. The first step is to
identify potential impairment by comparing the fair value of
each of our reporting units, which we define as our business
segments, with its net book value, including goodwill, adjusted
for allocations of corporate assets and liabilities as
appropriate. If the fair value of a reporting unit exceeds its
adjusted net book value, goodwill of the reporting unit is
considered not impaired and the second step of the impairment
test is unnecessary. If the adjusted net book value of a
reporting unit exceeds its fair value, the second step of the
goodwill impairment test compares the implied fair value of the
reporting units goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting units
goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business
combination. The fair value of the reporting unit is allocated
to all of the assets and liabilities of that unit, including any
unrecognized intangible assets, as if the reporting unit had
been acquired in a business combination and the fair value of
the reporting unit was the purchase price paid to acquire the
reporting unit.
We estimate fair values of our reporting units based on
projected cash flows, and sales and earnings multiples applied
to the latest twelve months sales and earnings of our
reporting units. Projected cash flows are based on our best
estimate of future sales, operating costs and balance sheet
metrics reflecting our view of the financial and market
conditions of the underlying business; and the resulting cash
flows are discounted using an appropriate discount rate which
reflects the risk in the forecasted cash flows. The sales and
earnings multiples applied to the sales and earnings of our
reporting units are based on current multiples of sales and
earnings for similar businesses, and based on sales and earnings
multiples paid for recent acquisitions of similar businesses
made in the marketplace. We then assess whether any implied
control premium, based on a comparison of fair value based
purely on our stock price and outstanding shares with fair value
determined by using all of the above-described models, is
reasonable. We have not made any material changes during the
past three fiscal years in the methodology used in the
assessment of whether or not goodwill is impaired.
In the fourth quarter of fiscal 2009, we performed our annual
impairment tests of our reporting units goodwill. Because
of the global recession and postponement of capital projects
which significantly weakened demand, and the general decline of
peer company valuations impacting our valuation, we determined
that goodwill in our Broadcast Communications segment was
impaired. As a result, we recorded a $160.9 million
non-cash charge for the impairment of goodwill. See
Note 8: Goodwill
and
Note 22: Impairment of
Goodwill and Other Long-Lived Assets
for additional
information regarding goodwill, including impairment of our
Broadcast Communications segments goodwill.
Goodwill in our Consolidated Balance Sheet as of July 3,
2009 and June 27, 2008 was $1,507.1 million and
$1,262.5 million, respectively. Although we make reasonable
efforts to ensure the accuracy of our estimate of the fair value
of our reporting units, future changes in the assumptions used
to make these estimates or a further decline in industry
conditions could result in the recording of additional
impairment losses in our Broadcast Communications segment.
Income
Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and
amounts reported in our Consolidated Balance Sheet, as well as
operating loss and tax credit carryforwards. We follow very
specific and detailed guidelines in each tax jurisdiction
regarding the recoverability of any tax assets recorded on the
balance sheet and provide necessary valuation allowances as
required. Future realization of deferred tax assets ultimately
depends on the existence of sufficient taxable income of the
appropriate character (for example, ordinary income or capital
gain) within the carryback or carryforward periods available
under the tax law. We regularly review our deferred tax assets
for recoverability based on historical taxable income, projected
future taxable income, the expected timing of the reversals of
existing temporary differences and tax planning strategies. We
have not made any material changes in the methodologies used to
determine our tax valuation allowances during the past three
fiscal years.
Our Consolidated Balance Sheet as of July 3, 2009 includes
a current deferred tax asset of $117.2 million and a
non-current deferred tax asset of $85.3 million. This
compares with a current deferred tax asset of
$103.9 million and a non-current deferred tax liability of
$42.5 million as of June 27, 2008. For all
jurisdictions for which we have net deferred tax assets, we
expect that our existing levels of pre-tax earnings are
sufficient to generate the amount of future taxable income
needed to realize these tax assets. Our valuation allowance
related to deferred income taxes, which is reflected in our
Consolidated Balance Sheet, was $72.5 million as of
July 3, 2009 and $84.4 million as of June 27,
2008. Although we make reasonable efforts to ensure the accuracy
of our deferred tax assets, if we continue to operate at a loss
in certain jurisdictions or are unable to generate sufficient
future taxable income, or if
52
there is a material change in the actual effective tax rates or
time period within which the underlying temporary differences
become taxable or deductible, or if the potential impact of tax
planning strategies changes, we could be required to increase
the valuation allowance against all or a significant portion of
our deferred tax assets resulting in a substantial increase in
our effective tax rate and a material adverse impact on our
operating results.
Impact of
Recently Issued Accounting Pronouncements
Accounting pronouncements that have recently been issued but
have not yet been implemented by us are described in
Note 2: Accounting Changes or Recent Accounting
Pronouncements
in the Notes, which describes the potential
impact that these pronouncements are expected to have on our
results of operations, financial condition and cash flows.
FORWARD-LOOKING
STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The following are some of the factors we believe could cause our
actual results to differ materially from our historical results
or our current expectations or projections. Other factors
besides those listed here also could adversely affect us. See
Item 1A. Risk Factors of this Report for more
information regarding factors that might cause our results to
differ materially from those expressed in or implied by the
forward-looking statements contained in this Report.
|
|
|
|
|
We depend on U.S. Government customers for a significant
portion of our revenue, and the loss of this relationship or a
shift in U.S. Government funding priorities could have
adverse consequences on our future business.
|
|
|
We depend significantly on our 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 one or more of these contracts could have an
adverse impact on our business.
|
|
|
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 derive a substantial portion of our revenue from
international operations and are subject to the risks of doing
business internationally, including fluctuations in currency
exchange rates.
|
|
|
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 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.
|
|
|
We have made, and may continue to make, strategic acquisitions
that involve significant risks and uncertainties.
|
|
|
Disputes with our subcontractors and the inability of our
subcontractors to perform, or our key suppliers to timely
deliver our components or parts, could cause our products to be
produced 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 is unpredictable and an adverse decision in any such
matter could have a material adverse effect on our financial
condition and results of operations.
|
|
|
We are subject to customer credit risk.
|
|
|
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.
|
|
|
The effects of the recession in the United States and general
downturn in the global economy could have an adverse impact on
our business, operating results or financial condition.
|
|
|
We have significant operations in Florida and other locations
that could be materially and adversely impacted in the event of
a natural disaster or other significant disruption.
|
|
|
Changes in future business conditions could cause business
investments
and/or
recorded goodwill to become impaired, resulting in substantial
losses and write-downs that would reduce our results of
operations.
|
|
|
In order to be successful, we must attract and retain key
employees, and failure to do so could seriously harm us.
|
53
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
In the normal course of doing business, we are exposed to the
risks associated with foreign currency exchange rates and
changes in interest rates. We employ established policies and
procedures governing the use of financial instruments to manage
our exposure to such risks. For a discussion of such policies
and procedures and the related risks, see Financial Risk
Management in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations of this Report, which is incorporated by
reference into this Item 7A.
54
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
106
|
|
55
MANAGEMENTS
REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
The management of Harris Corporation (the Company)
is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934, as amended. The
Companys internal control over financial reporting is
designed to provide reasonable assurance, based on an
appropriate cost-benefit analysis, regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally
accepted accounting principles. The Companys internal
control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Management, with the participation of our Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness
of the Companys internal control over financial reporting
as of July 3, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal
Control-Integrated Framework.
Based on managements
assessment and those criteria, management concluded that the
Company maintained effective internal control over financial
reporting as of July 3, 2009.
Management excluded from its assessment of the effectiveness of
the Companys internal control over financial reporting the
internal controls of the Tyco Electronics wireless systems
business (Wireless Systems), which was acquired by
the Company during the fourth quarter of fiscal 2009. Wireless
Systems is included in the 2009 consolidated financial
statements of the Company. Wireless Systems constituted
$883.1 million and $597.5 million of total assets and
net assets, respectively, as of July 3, 2009. Wireless
Systems revenue was $47.3 million for the year ended
July 3, 2009. Wireless Systems total assets and net
assets as of July 3, 2009 were 19.8 percent and
32.0 percent of the Companys total assets and net
assets, respectively. Wireless Systems revenue for the
year ended July 3, 2009 was 0.9 percent of the
Companys total revenue. Management will include the
internal controls of Wireless Systems in its assessment of the
effectiveness of the Companys internal control over
financial reporting for fiscal 2010.
The Companys independent registered public accounting
firm, Ernst & Young LLP, has issued a report on the
effectiveness of the Companys internal control over
financial reporting. This report appears on page 58 of this
Annual Report on
Form 10-K.
56
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Harris Corporation
We have audited the accompanying consolidated balance sheets of
Harris Corporation as of July 3, 2009 and June 27,
2008, and the related consolidated statements of income, cash
flows, and comprehensive income and shareholders equity,
for each of the three years in the period ended July 3,
2009. Our audits also included the financial statement schedule
listed in the Index at Item 15(2). These financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Harris Corporation at July 3, 2009
and June 27, 2008, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended July 3, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Harris Corporations internal control over financial
reporting as of July 3, 2009, based on criteria established
in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our
report dated August 31, 2009 expressed an unqualified
opinion thereon.
/s/
Ernst &
Young LLP
Certified Public Accountants
West Palm Beach, Florida
August 31, 2009
57
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Harris Corporation
We have audited Harris Corporations internal control over
financial reporting as of July 3, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Harris
Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Report on
Internal Control Over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal
control over financial reporting did not include the internal
controls of the Tyco Electronics wireless systems business
(Wireless Systems), which is included in the 2009
consolidated financial statements of Harris Corporation.
Wireless Systems constituted $883.1 million and
$597.5 million of total assets and net assets,
respectively, as of July 3, 2009 and $47.3 million of
revenues for the year then ended. Our audit of internal control
over financial reporting of Harris Corporation also did not
include an evaluation of the internal controls over Wireless
Systems.
In our opinion, Harris Corporation maintained, in all material
respects, effective internal control over financial reporting as
of July 3, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Harris Corporation as of
July 3, 2009 and June 27, 2008, and the related
consolidated statements of income, cash flows, and comprehensive
income and shareholders equity, for each of the three
years in the period ended July 3, 2009 of Harris
Corporation and our report dated August 31, 2009 expressed
an unqualified opinion thereon.
/s/
Ernst &
Young LLP
Certified Public Accountants
West Palm Beach, Florida
August 31, 2009
58
CONSOLIDATED
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except per share amounts)
|
|
|
Revenue from product sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales
|
|
$
|
3,915.3
|
|
|
$
|
3,544.2
|
|
|
$
|
2,937.6
|
|
Revenue from services
|
|
|
1,089.7
|
|
|
|
1,051.9
|
|
|
|
800.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,005.0
|
|
|
|
4,596.1
|
|
|
|
3,737.9
|
|
Cost of product sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
(2,498.0
|
)
|
|
|
(2,289.7
|
)
|
|
|
(1,826.3
|
)
|
Cost of services
|
|
|
(922.2
|
)
|
|
|
(855.9
|
)
|
|
|
(693.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,420.2
|
)
|
|
|
(3,145.6
|
)
|
|
|
(2,519.8
|
)
|
Engineering, selling and administrative expenses
|
|
|
(791.3
|
)
|
|
|
(746.5
|
)
|
|
|
(656.7
|
)
|
Impairment of goodwill and other long-lived assets
|
|
|
(255.5
|
)
|
|
|
|
|
|
|
|
|
Non-operating income (loss)
|
|
|
(3.1
|
)
|
|
|
11.4
|
|
|
|
(16.2
|
)
|
Interest income
|
|
|
3.2
|
|
|
|
5.2
|
|
|
|
11.8
|
|
Interest expense
|
|
|
(52.8
|
)
|
|
|
(53.1
|
)
|
|
|
(38.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
485.3
|
|
|
|
667.5
|
|
|
|
518.1
|
|
Income taxes
|
|
|
(172.9
|
)
|
|
|
(214.0
|
)
|
|
|
(170.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
312.4
|
|
|
|
453.5
|
|
|
|
347.2
|
|
Discontinued operations (including a $62.6 million loss on
disposition), net of income taxes
|
|
|
(274.5
|
)
|
|
|
(9.3
|
)
|
|
|
133.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37.9
|
|
|
$
|
444.2
|
|
|
$
|
480.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.36
|
|
|
$
|
3.39
|
|
|
$
|
2.62
|
|
Discontinued operations
|
|
|
(2.07
|
)
|
|
|
(0.07
|
)
|
|
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.29
|
|
|
$
|
3.32
|
|
|
$
|
3.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.35
|
|
|
$
|
3.33
|
|
|
$
|
2.49
|
|
Discontinued operations
|
|
|
(2.07
|
)
|
|
|
(0.07
|
)
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.28
|
|
|
$
|
3.26
|
|
|
$
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
59
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except shares)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
281.2
|
|
|
$
|
274.5
|
|
Marketable equity securities
|
|
|
3.3
|
|
|
|
19.3
|
|
Receivables
|
|
|
770.8
|
|
|
|
679.9
|
|
Inventories
|
|
|
607.2
|
|
|
|
476.0
|
|
Income taxes receivable
|
|
|
21.0
|
|
|
|
|
|
Current deferred income taxes
|
|
|
117.2
|
|
|
|
103.9
|
|
Other current assets
|
|
|
58.7
|
|
|
|
56.7
|
|
Current assets of discontinued operations
|
|
|
|
|
|
|
442.2
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,859.4
|
|
|
|
2,052.5
|
|
Non-current Assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
543.2
|
|
|
|
407.2
|
|
Goodwill
|
|
|
1,507.1
|
|
|
|
1,262.5
|
|
Intangible assets
|
|
|
335.6
|
|
|
|
236.9
|
|
Non-current deferred income taxes
|
|
|
85.3
|
|
|
|
|
|
Other non-current assets
|
|
|
134.5
|
|
|
|
162.7
|
|
Non-current assets of discontinued operations
|
|
|
|
|
|
|
505.7
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
2,605.7
|
|
|
|
2,575.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,465.1
|
|
|
$
|
4,627.5
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
105.7
|
|
|
$
|
0.3
|
|
Accounts payable
|
|
|
368.0
|
|
|
|
309.3
|
|
Compensation and benefits
|
|
|
224.9
|
|
|
|
170.6
|
|
Other accrued items
|
|
|
288.7
|
|
|
|
192.3
|
|
Advance payments and unearned income
|
|
|
121.7
|
|
|
|
100.2
|
|
Income taxes payable
|
|
|
|
|
|
|
22.4
|
|
Current portion of long-term debt
|
|
|
0.7
|
|
|
|
0.7
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
195.4
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,109.7
|
|
|
|
991.2
|
|
Non-current Liabilities
|
|
|
|
|
|
|
|
|
Non-current deferred income taxes
|
|
|
|
|
|
|
42.5
|
|
Long-term debt
|
|
|
1,177.3
|
|
|
|
828.0
|
|
Long-term contract liability
|
|
|
145.6
|
|
|
|
|
|
Other long-term liabilities
|
|
|
163.4
|
|
|
|
160.3
|
|
Non-current liabilities of discontinued operations
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
1,486.3
|
|
|
|
1,032.0
|
|
Minority interest in discontinued operations
|
|
|
|
|
|
|
330.3
|
|
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 131,370,702 shares at
July 3, 2009 and 133,594,320 shares at June 27,
2008
|
|
|
131.4
|
|
|
|
133.6
|
|
Other capital
|
|
|
466.3
|
|
|
|
453.6
|
|
Retained earnings
|
|
|
1,322.8
|
|
|
|
1,660.8
|
|
Accumulated other comprehensive income (loss)
|
|
|
(51.4
|
)
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,869.1
|
|
|
|
2,274.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,465.1
|
|
|
$
|
4,627.5
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
60
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37.9
|
|
|
$
|
444.2
|
|
|
$
|
480.4
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
177.7
|
|
|
|
172.2
|
|
|
|
135.2
|
|
Purchased in-process research and development write-off
|
|
|
7.0
|
|
|
|
1.4
|
|
|
|
15.3
|
|
Share-based compensation
|
|
|
41.9
|
|
|
|
38.2
|
|
|
|
28.7
|
|
Non-current deferred income taxes
|
|
|
(47.2
|
)
|
|
|
(4.7
|
)
|
|
|
(16.3
|
)
|
Gain on AuthenTec, Inc. warrants
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
Gain on the sale of securities
available-for-sale
|
|
|
|
|
|
|
(9.8
|
)
|
|
|
|
|
Impairment of securities
available-for-sale
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other long-lived assets
|
|
|
556.5
|
|
|
|
|
|
|
|
|
|
Gain on the combination with Stratex Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
(163.4
|
)
|
Minority interest in discontinued operations, net of income taxes
|
|
|
(162.5
|
)
|
|
|
(7.2
|
)
|
|
|
(10.5
|
)
|
Loss on disposition of discontinued operations
|
|
|
62.6
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
32.7
|
|
|
|
(105.7
|
)
|
|
|
(91.9
|
)
|
Inventories
|
|
|
(68.3
|
)
|
|
|
(51.3
|
)
|
|
|
(46.0
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
72.1
|
|
|
|
65.3
|
|
|
|
91.0
|
|
Advance payments and unearned income
|
|
|
(17.2
|
)
|
|
|
17.9
|
|
|
|
(1.2
|
)
|
Income taxes
|
|
|
(41.3
|
)
|
|
|
(6.6
|
)
|
|
|
12.5
|
|
Other
|
|
|
7.3
|
|
|
|
7.2
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
666.8
|
|
|
|
555.5
|
|
|
|
443.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquired businesses
|
|
|
(745.3
|
)
|
|
|
(19.4
|
)
|
|
|
(404.6
|
)
|
Cash received in the combination with Stratex Networks,
Inc.
|
|
|
|
|
|
|
|
|
|
|
33.1
|
|
Additions of property, plant and equipment
|
|
|
(98.7
|
)
|
|
|
(112.9
|
)
|
|
|
(88.8
|
)
|
Additions of capitalized software
|
|
|
(23.1
|
)
|
|
|
(33.3
|
)
|
|
|
(40.3
|
)
|
Cash paid for short-term investments
available-for-sale
|
|
|
(1.2
|
)
|
|
|
(9.3
|
)
|
|
|
(356.0
|
)
|
Proceeds from the sale of short-term investments
available-for-sale
|
|
|
3.7
|
|
|
|
26.6
|
|
|
|
473.7
|
|
Proceeds from the sale of securities
available-for-sale
|
|
|
|
|
|
|
13.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(864.6
|
)
|
|
|
(134.6
|
)
|
|
|
(382.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
531.8
|
|
|
|
460.5
|
|
|
|
442.0
|
|
Repayment of borrowings
|
|
|
(81.4
|
)
|
|
|
(599.4
|
)
|
|
|
(39.3
|
)
|
Payment of treasury lock
|
|
|
|
|
|
|
(8.8
|
)
|
|
|
|
|
Proceeds from exercise of employee stock options
|
|
|
5.6
|
|
|
|
45.2
|
|
|
|
35.7
|
|
Repurchases of common stock
|
|
|
(132.3
|
)
|
|
|
(234.6
|
)
|
|
|
(251.3
|
)
|
Cash dividends
|
|
|
(106.6
|
)
|
|
|
(81.5
|
)
|
|
|
(58.2
|
)
|
Cash decrease related to spin-off of Harris Stratex Networks,
Inc.
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
117.1
|
|
|
|
(418.6
|
)
|
|
|
128.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(8.1
|
)
|
|
|
(0.6
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(88.8
|
)
|
|
|
1.7
|
|
|
|
187.0
|
|
Cash and cash equivalents, beginning of year
|
|
|
370.0
|
|
|
|
368.3
|
|
|
|
181.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
281.2
|
|
|
|
370.0
|
|
|
|
368.3
|
|
Less cash and cash equivalents of discontinued operations
|
|
|
|
|
|
|
(95.5
|
)
|
|
|
(69.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations, end of
year
|
|
$
|
281.2
|
|
|
$
|
274.5
|
|
|
$
|
299.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Formation and combination of Harris Stratex Networks, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of 43% of Harris Microwave Communications Division
assets and liabilities to the former shareholders of Stratex
Networks, Inc.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(117.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57% of the fair value of Stratex Networks, Inc. received by
Harris Corporation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
281.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exchange for 3.5% convertible debentures,
due fiscal 2023
|
|
$
|
|
|
|
$
|
163.5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of Harris Stratex Networks, Inc. common stock owned
by Harris Corporation to Harris Corporation shareholders
|
|
$
|
173.1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
61
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Other
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
(In millions, except share and per share amounts)
|
|
|
|
|
|
Balance at June 30, 2006
|
|
$
|
132.8
|
|
|
$
|
264.8
|
|
|
$
|
1,252.8
|
|
|
$
|
11.7
|
|
|
$
|
1,662.1
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
480.4
|
|
|
|
|
|
|
|
480.4
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5
|
|
|
|
12.5
|
|
|
|
|
|
Net unrealized gain on hedging derivatives, net of income taxes
of $(0.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
Net unrealized loss on securities
available-for-sale,
net of income taxes of $(9.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.7
|
|
|
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509.7
|
|
|
|
|
|
Adjustment for initial implementation of Statement 158, net of
income taxes of $10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.4
|
)
|
|
|
(22.4
|
)
|
|
|
|
|
Shares issued under stock incentive plans
|
|
|
1.7
|
|
|
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
38.8
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
24.6
|
|
|
|
|
|
Debt converted to shares of common stock
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
Repurchases and retirement of common stock
|
|
|
(4.9
|
)
|
|
|
(43.9
|
)
|
|
|
(202.5
|
)
|
|
|
|
|
|
|
(251.3
|
)
|
|
|
|
|
Cash dividends ($0.44 per share)
|
|
|
|
|
|
|
|
|
|
|
(58.2
|
)
|
|
|
|
|
|
|
(58.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 29, 2007
|
|
|
129.6
|
|
|
|
283.1
|
|
|
|
1,472.5
|
|
|
|
18.6
|
|
|
|
1,903.8
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
444.2
|
|
|
|
|
|
|
|
444.2
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.2
|
|
|
|
22.2
|
|
|
|
|
|
Net unrealized loss on hedging derivatives, net of income taxes
of $0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
Net unrealized loss on securities
available-for-sale,
net of income taxes of $7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.9
|
)
|
|
|
(11.9
|
)
|
|
|
|
|
Loss on treasury lock, net of income taxes of $3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.2
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
Net unrecognized pension obligation, net of income taxes of
$(1.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451.6
|
|
|
|
|
|
Shares issued under stock incentive plans
|
|
|
1.4
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
39.3
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
Debt converted to shares of common stock
|
|
|
6.6
|
|
|
|
156.9
|
|
|
|
|
|
|
|
|
|
|
|
163.5
|
|
|
|
|
|
Repurchases and retirement of common stock
|
|
|
(4.0
|
)
|
|
|
(56.1
|
)
|
|
|
(174.5
|
)
|
|
|
|
|
|
|
(234.6
|
)
|
|
|
|
|
Adjustment for initial implementation of FIN 48
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Cash dividends ($0.60 per share)
|
|
|
|
|
|
|
|
|
|
|
(81.5
|
)
|
|
|
|
|
|
|
(81.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2008
|
|
|
133.6
|
|
|
|
453.6
|
|
|
|
1,660.8
|
|
|
|
26.0
|
|
|
|
2,274.0
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
37.9
|
|
|
|
|
|
|
|
37.9
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64.0
|
)
|
|
|
(64.0
|
)
|
|
|
|
|
Net unrealized gain on hedging derivatives, net of income taxes
of $(1.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
|
|
2.3
|
|
|
|
|
|
Net unrealized loss on securities
available-for-sale,
net of income taxes of $3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
Amortization of loss on treasury lock, net of income taxes of
$(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
Net unrecognized pension obligation, net of income taxes of $6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.3
|
)
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.5
|
)
|
|
|
|
|
Shares issued under stock incentive plans
|
|
|
0.5
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
7.7
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
39.2
|
|
|
|
|
|
|
|
|
|
|
|
39.2
|
|
|
|
|
|
Repurchases and retirement of common stock
|
|
|
(2.7
|
)
|
|
|
(33.7
|
)
|
|
|
(95.9
|
)
|
|
|
|
|
|
|
(132.3
|
)
|
|
|
|
|
Spin-off of Harris Stratex Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
(173.1
|
)
|
|
|
|
|
|
|
(173.1
|
)
|
|
|
|
|
Cash dividends ($.80 per share)
|
|
|
|
|
|
|
|
|
|
|
(106.6
|
)
|
|
|
|
|
|
|
(106.6
|
)
|
|
|
|
|
Statement 158 transition adjustment
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2009
|
|
$
|
131.4
|
|
|
$
|
466.3
|
|
|
$
|
1,322.8
|
|
|
$
|
(51.4
|
)
|
|
$
|
1,869.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
62
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1:
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Principles of Consolidation
Our Consolidated
Financial Statements include the accounts of Harris Corporation
and its consolidated subsidiaries. As used in these Notes to
Consolidated Financial Statements (these Notes), the
terms Harris, we, our and
us refer to Harris Corporation and its consolidated
subsidiaries. Significant intercompany transactions and accounts
have been eliminated.
In the fourth quarter of fiscal 2009, in connection with the
May 27, 2009 spin-off (the Spin-off) in the
form of a taxable pro rata dividend to our shareholders of all
the shares of Harris Stratex Networks, Inc. (HSTX)
common stock owned by us, we eliminated as a reporting segment
our former HSTX segment, which is reported as discontinued
operations in this Report. Until the Spin-off, HSTX (formerly
our Microwave Communications segment), a provider of wireless
network solutions, was our majority-owned subsidiary, and
HSTXs results of operations and financial position were
consolidated into our financial statements. Subsequent to the
Spin-off, we no longer own an equity interest in HSTX and,
therefore, HSTX no longer constitutes part of our business
operations. In accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (Statement 144),
our historical financial results have been restated to account
for HSTX as discontinued operations for all periods presented in
this Annual Report on
Form 10-K
(this Report). See
Note 3: Discontinued
Operations
for additional information regarding discontinued
operations.
Unless otherwise specified, disclosures in the Notes relate
solely to our continuing operations.
Use of Estimates
Our Consolidated Financial
Statements have been prepared in conformity with
U.S. generally accepted accounting principles and require
management to make estimates and assumptions. These assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the Consolidated Financial Statements and the reported amounts
of revenue and expenses during the reporting period. These
estimates are based on experience and other information
available prior to issuance of the Consolidated Financial
Statements. Materially different results can occur as
circumstances change and additional information becomes known.
Fiscal Year
Our fiscal year ends on the
Friday nearest June 30. Fiscal 2009 includes 53 weeks.
Each of fiscal 2008 and 2007 includes 52 weeks.
Cash and Cash Equivalents
Cash equivalents
are temporary cash investments with a maturity of three or fewer
months when purchased. These investments include accrued
interest and are carried at the lower of cost or market.
Marketable Equity Securities
Marketable
equity securities
available-for-sale
are accounted for in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (Statement
115), and are classified accordingly at the time of
purchase. We consider all our
available-for-sale
securities as available for use in our current operations. All
of our marketable equity securities are classified as
available-for-sale
and are stated at fair value, with unrealized gains and losses,
net of taxes, included as a separate component of
shareholders equity. Realized gains and losses from
marketable equity securities
available-for-sale
are determined using the specific identification method. In
instances where a security is subject to transfer restrictions,
the value of the security is based primarily on the quoted price
of the same security without restriction but may be reduced by
an amount estimated to reflect such restrictions. If an
other-than-temporary
impairment is determined to exist, the difference between the
value of the investment security recorded on the financial
statements and our current estimate of fair value is recognized
as a charge to earnings in the period in which the impairment is
determined.
The cost basis of marketable equity securities
available-for-sale,
consisting primarily of shares of common stock of AuthenTec,
Inc. (AuthenTec), was $3.7 million and
$11.5 million at July 3, 2009 and June 27, 2008,
respectively.
Selected Investments
Selected investments are
investments in securities that do not have readily determinable
fair values. Selected investments are accounted for using the
cost method of accounting and are evaluated for impairment if
cost exceeds fair value. The determination of fair value
requires management to obtain independent appraisals, or to
estimate the value of the securities without an independent
appraisal based upon available information such as projected
cash flows, comparable market prices of similar companies,
recent acquisitions of similar companies made in the marketplace
and a review of the financial and market conditions of the
underlying company. In fiscal 2007, the Non-operating
income (loss) line item in our Consolidated Statement
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of Income included a write-down of $19.8 million related to
our investment in Terion, Inc. (Terion) due to an
other-than-temporary
impairment in the first quarter of fiscal 2007, and a
$1.8 million gain in the third quarter of fiscal 2007
resulting from proceeds received from Terion following
Terions sale of substantially all of its assets on
January 10, 2007. As a result of our receipt of proceeds
from Terion following the sale in fiscal 2007 as described
above, we did not have any selected investments at July 3,
2009 or June 27, 2008.
Fair Value of Financial Instruments
The
carrying amounts reflected in our Consolidated Balance Sheet for
cash and cash equivalents, marketable equity securities
available-for-sale,
accounts receivable, non-current receivables, notes receivable,
accounts payable and short-term and long-term debt approximate
their fair values. Fair values for long-term debt are based
primarily on quoted market prices for those or similar
instruments. A discussion of fair values for our derivative
financial instruments is included under the caption
Financial Instruments and Risk Management in this
Note 1: Significant Accounting Policies
.
Accounts Receivable
We record receivables at
net realizable value and they do not bear interest. This value
includes an allowance for estimated uncollectible accounts to
reflect any loss anticipated on the accounts receivable balances
which is charged to the provision for doubtful accounts. We
calculate this allowance based on our history of write-offs,
level of past due accounts and economic status of the customers.
We consider a receivable delinquent if it is unpaid after the
term of the related invoice has expired. Write-offs are recorded
at the time a customer receivable is deemed uncollectible. See
Note 5: Receivables
for additional information
regarding accounts receivable.
Inventories
Inventories are valued at the
lower of cost (determined by average and
first-in,
first-out methods) or market. We regularly review inventory
quantities on hand and record a provision for excess and
obsolete inventory based primarily on our estimated forecast of
product demand and production requirements. See
Note 6:
Inventories
for additional information regarding inventories.
Property, Plant and Equipment
Property, plant
and equipment are carried on the basis of cost. Depreciation of
buildings, machinery and equipment is computed by the
straight-line and accelerated methods. The estimated useful
lives of buildings generally range between 3 and 45 years.
The estimated useful lives of machinery and equipment generally
range between 2 and 10 years. Software capitalized for
internal use is accounted for in accordance with the American
Institute of Certified Public Accountants (AICPA)
Statement of Position
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1).
Amortization of internal-use software begins when the software
is put into service and is based on the expected useful life of
the software. The useful lives over which we amortize
internal-use software generally range between 2 and
7 years. See
Note 7: Property, Plant and Equipment
for additional information regarding property, plant and
equipment.
Goodwill and Indefinite-Lived Intangible
Assets
In accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (Statement 142), goodwill
and indefinite-lived intangible assets are not amortized. Under
the provisions of Statement 142, we are required to perform
annual (or under certain circumstances, more frequent)
impairment tests of our goodwill and indefinite-lived intangible
assets. We test indefinite-lived intangible assets for
impairment by comparing their fair value (determined by
forecasting future cash flows) against their carrying value. We
test goodwill for impairment using a two-step process. The first
step is to identify potential impairment by comparing the fair
value of each of our reporting units, which we define as our
business segments, with its net book value, including goodwill,
adjusted for allocations of corporate assets and liabilities as
appropriate. If the fair value of a reporting unit exceeds its
adjusted net book value, goodwill of the reporting unit is
considered not impaired and the second step of the impairment
test is unnecessary. If the adjusted net book value of a
reporting unit exceeds its fair value, the second step of the
goodwill impairment test compares the implied fair value of the
reporting units goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting units
goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business
combination. The fair value of the reporting unit is allocated
to all of the assets and liabilities of that unit, including any
unrecognized intangible assets, as if the reporting unit had
been acquired in a business combination and the fair value of
the reporting unit was the purchase price paid to acquire the
reporting unit. See
Note 8: Goodwill, Note 9:
Intangible Assets
and
Note 22: Impairment of
Goodwill and Other Long-Lived Assets
for additional
information regarding goodwill and intangible assets, including
goodwill and intangible asset impairment charges recorded in
fiscal 2009.
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Lived Assets, Including Finite-Lived Intangible
Assets
Long-lived assets, including finite-lived
intangible assets, are amortized on a straight-line basis over
their useful lives. We assess the recoverability of the carrying
value of our long-lived assets, including intangible assets with
finite useful lives, whenever events or changes in circumstances
indicate the carrying amount of the assets may not be
recoverable. We evaluate the recoverability of such assets based
upon the expectations of undiscounted cash flows from such
assets. If the sum of the expected future undiscounted cash
flows were less than the carrying amount of the asset, a loss
would be recognized for the difference between the fair value
and the carrying amount. See
Note 7: Property, Plant and
Equipment, Note 9: Intangible Assets
and
Note 22: Impairment of Goodwill and Other Long-Lived
Assets
for additional information regarding long-lived
assets and intangible assets, including impairment charges
recorded in fiscal 2009.
Capitalized Software to Be Sold, Leased or Otherwise
Marketed
Capitalized software to be sold, leased
or otherwise marketed is accounted for in accordance with
Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed (Statement 86).
Costs incurred to acquire or create a computer software product
are expensed when incurred as research and development until
technological feasibility has been established for the product,
at which point such costs are capitalized. Technological
feasibility is normally established upon completion of a
detailed program design. Capitalization of computer software
costs ceases when the product is available for general release
to customers. Costs of reproduction, documentation, training
materials, physical packaging, maintenance and customer support
are charged to cost of products sold as incurred. Capitalized
software is evaluated for impairment periodically by comparing
the unamortized capitalized costs of a computer software product
to the net realizable value of that product. In the fourth
quarter of fiscal 2009, we recorded a $24.4 million
write-down of capitalized software in our Broadcast
Communications segment based on current market conditions that
have resulted in reduced levels of capital expenditures,
including demand for Broadcast Communications software
products. See
Note 22: Impairment of Goodwill and Other
Long-Lived Assets
for additional information regarding
impairment charges recorded in fiscal 2009. In the third quarter
of fiscal 2007, we recorded an $18.9 million write-down of
capitalized software in our Broadcast Communications segment.
The write-down was a result of managements decision to
discontinue an automation software development effort. These
write-downs are included in the Engineering, selling and
administrative expenses line item in our Consolidated
Statement of Income.
Capitalized software accounted for under Statement 86 had a net
carrying value of $22.4 million at July 3, 2009 and
$42.3 million at June 27, 2008. Total amortization
expense related to these capitalized software amounts for fiscal
2009, 2008 and 2007 was $4.7 million, $3.8 million and
$1.8 million, respectively. The annual amortization of
capitalized software costs is the greater of the amount computed
using (a) the ratio that current gross revenues for a
product bear to the total of current and anticipated future
gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the
product. Based on this policy, the useful lives over which we
amortize costs of computer software to be sold, leased or
otherwise marketed range from three years to seven years.
Amortization commences when the product is available for general
release to customers. The capitalized costs, net of accumulated
amortization, are reflected in the Other non-current
assets line item in our Consolidated Balance Sheet. The
amortization of capitalized software is included in the
Cost of product sales line item in our Consolidated
Statement of Income.
Other Assets and Liabilities
No current
assets other than those already set forth in the line items in
our Consolidated Balance Sheet exceeded 5 percent of our
total current assets as of July 3, 2009 or June 27,
2008. No assets within the Other non-current assets
line item in our Consolidated Balance Sheet exceeded
5 percent of total assets as of July 3, 2009 or
June 27, 2008. No accrued liabilities or expenses within
the Other accrued items or Other long-term
liabilities line items in our Consolidated Balance Sheet
exceeded 5 percent of our total current liabilities or
total liabilities, respectively, as of July 3, 2009 or
June 27, 2008. Also, see the caption
Reclassifications in this
Note 1:
Significant Accounting Policies
for additional information
regarding other assets and liabilities.
Income Taxes
We follow the liability method
of accounting for income taxes. We record the estimated future
tax effects of temporary differences between the tax basis of
assets and liabilities and amounts reported in our Consolidated
Balance Sheet, as well as operating loss and tax credit
carryforwards. We follow very specific and detailed guidelines
in each tax jurisdiction regarding the recoverability of any tax
assets recorded on the balance sheet and provide necessary
valuation allowances as required. We regularly review our
deferred tax assets for recoverability based on historical
taxable income, projected future taxable income, the expected
timing of the
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reversals of existing temporary differences and tax planning
strategies. See
Note 23: Income Taxes
for additional
information regarding income taxes.
Warranties
On development and production
contract sales in our Government Communications Systems and RF
Communications segments, the value or price of our warranty is
generally included in the contract and funded by the customer. A
provision for warranties is built into the estimated program
costs when determining the profit rate to accrue when applying
the
cost-to-cost
percentage-of-completion
revenue recognition method. Warranty costs, as incurred, are
charged to the specific programs cost, and both revenue
and cost are recognized at that time. Factors that affect the
estimated program cost for warranties include terms of the
contract, complexity of the delivered product or service, number
of installed units, historical experience and managements
judgment regarding anticipated rates of warranty claims and cost
per claim.
On product sales in our RF Communications, Broadcast
Communications and Government Communications Systems segments,
we provide for future warranty costs upon product delivery. The
specific terms and conditions of those warranties vary depending
upon the product sold, customer and country in which we do
business. In the case of products sold by us, our warranties
start from the shipment, delivery or customer acceptance date
and continue as follows:
|
|
|
Segment
|
|
Warranty Periods
|
|
RF Communications
|
|
One to twelve years
|
Broadcast Communications
|
|
One to five years
|
Government Communications Systems
|
|
One year
|
Because our products are manufactured, in many cases, to
customer specifications and their acceptance is based on meeting
those specifications, we historically have experienced minimal
warranty costs. Factors that affect our warranty liability
include the number of installed units, historical experience and
managements judgment regarding anticipated rates of
warranty claims and cost per claim. We assess the adequacy of
our recorded warranty liabilities every quarter and make
adjustments to the liability as necessary.
Automation software products sold by our Broadcast
Communications segment generally carry a
90-day
warranty from the date of shipment. Our liability under these
warranties is either to provide a corrected copy of any portion
of the software found not to be in substantial compliance with
the specifications or, if we are unable to do so, to provide a
full refund.
Software license agreements and sales contracts for products in
our Broadcast Communications segment generally include
provisions for indemnifying customers against certain specified
liabilities should that segments products infringe certain
intellectual property rights of third parties. Certain of our
Broadcast Communications transmission systems customers have
notified us of potential claims against us based on these
standard indemnification provisions included in sales contracts
between us and these customers. These indemnification claims
arise from litigation brought by a third-party patent licensing
company asserting alleged technology rights against these
customers. We are cooperating with these customers in efforts to
mitigate their litigation exposure. To date, we have not
incurred material costs as a result of such indemnification and
have not accrued any liabilities related to such obligations in
our Consolidated Financial Statements. See
Note 10:
Accrued Warranties
for additional information regarding
warranties.
Foreign Currency Translation
The functional
currency for most international subsidiaries is the local
currency. Assets and liabilities are translated at current rates
of exchange and income and expense items are translated at the
weighted average exchange rate for the year. The resulting
translation adjustments are recorded as a separate component of
shareholders equity.
Stock Options and Other Share-Based
Compensation
In accordance with Statement of
Financial Accounting Standards No. 123(R),
Share-Based Payment (Statement 123R), we
measure compensation cost for all share-based payments
(including employee stock options) at fair value and recognize
cost over the vesting period. It is our policy to issue shares
when options are exercised. We have also repurchased shares of
our common stock to offset the dilutive effect of shares issued
under our stock incentive plans. See
Note 14: Stock
Options and Other Share-Based Compensation
for additional
information regarding share-based compensation.
Restructuring Costs
In accordance with
Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (Statement 146), we record
restructuring charges for sales or terminations of product
lines, closures or relocations of business activities, changes
in management structure, and
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fundamental reorganizations that affect the nature and focus of
operations. Such costs include one-time 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
Engineering, selling and administrative expenses
line item in our Consolidated Statement of Income.
During the fourth quarter of fiscal 2009, due to the global
economic slowdown, pressure on Department of Defense
(DoD) spending, and contract delays, we announced a
number of cost-reduction actions across our business segments
and at our corporate headquarters. In accordance with Statement
146, we recorded charges, net of government cost reimbursement,
of $17.8 million for severance and other employee-related
exit costs and $4.5 million related to consolidation of
facilities. As of the end of fiscal 2009, we have recorded
liabilities associated with these restructuring activities of
$26.5 million, of which the majority will be paid within
the next twelve months.
Revenue Recognition
Our segments have the
following revenue recognition policies:
Government Communications Systems
segment:
Revenue in our Government Communications
Systems segment primarily relates to development and production
contracts. Revenue and anticipated profits under development and
production contracts are recorded on a
percentage-of-completion
basis, generally using the
cost-to-cost
method of accounting where sales and profits are recorded based
on the ratio of costs incurred to estimated total costs at
completion. Recognition of profit on development and production
fixed-price contracts requires estimates of: the total contract
value; the total cost at completion; and the measurement of
progress towards completion. Revenue and profits on
cost-reimbursable contracts are recognized as allowable costs
are incurred on the contract, and become billable to the
customer, in an amount equal to the allowable costs plus the
profit on those costs.
Contracts are combined when specific aggregation criteria stated
in AICPAs Statement of Position
No. 81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1)
are met. Criteria generally include closely interrelated
activities performed for a single customer within the same
economic environment. Contracts generally are not segmented. If
contracts are segmented, we have determined that they meet the
segmenting criteria stated in
SOP 81-1.
Amounts representing contract change orders, claims or other
items are included in sales only when they can be reliably
estimated and realization is probable. Incentives or penalties
and awards applicable to performance on contracts are considered
in estimating sales and profit rates and are recorded when there
is sufficient information to assess anticipated contract
performance. Incentive provisions, which increase earnings based
solely on a single significant event, are generally not
recognized until the event occurs. When adjustments in contract
value or estimated costs are determined, any changes from prior
estimates are reflected in earnings in the current period.
Anticipated losses on contracts or programs in progress are
charged to earnings when identified.
This segment also has revenue from product sales other than
development and production contracts and revenue from service
arrangements, which are recognized when persuasive evidence of
an arrangement exists, the fee is fixed or determinable,
collection is probable, delivery of a product has occurred, and
title has transferred or services have been rendered. Further,
if an arrangement other than a development and production
contract requires the delivery or performance of multiple
deliverables or elements under a bundled sale, we determine
whether the individual elements represent separate units
of accounting under the requirements of Emerging Issues
Task Force Issue
00-21,
Multiple-Deliverable Revenue Arrangements
(EITF 00-21).
If the separate elements meet the requirements listed in
EITF 00-21,
we recognize the revenue associated with each element separately
and contract revenue is allocated among elements based on
relative fair value. If the elements within a bundled sale are
not considered separate units of accounting, the delivery of an
individual element is considered not to have occurred if there
are undelivered elements that are essential to the
functionality. Unearned income on service contracts is amortized
by the straight-line method over the term of the contracts.
Also, if contractual obligations related to customer acceptance
exist, revenue is not recognized for a product or service unless
these obligations are satisfied.
RF Communications segment:
Revenue in our RF
Communications segment primarily relates to product and services
sales. Revenue recognition from development and production
contracts and product and services sales follows the same
policies as stated under our Government Communications Systems
segments revenue recognition policy above except that our
RF Communications segment also uses the
units-of-delivery
method of accounting as well as the
cost-to-cost
method of accounting for production contracts that call for the
delivery of larger quantities
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of products. Under the
units-of-delivery
method, sales and profits are recorded based on the ratio of
actual units delivered to estimated total units to be delivered
under the contract.
Broadcast Communications segment:
Revenue in
our Broadcast Communications segment primarily relates to
product and services sales and software licenses. Revenue
recognition from development and production contracts and
product and services sales follows the same policies as stated
under our Government Communications Systems segments
revenue recognition policy above. This segment derives a portion
of its revenue from the licensing of software with multi-year
maintenance arrangements. The amount of revenue allocated to
undelivered elements under these bundled software licenses is
based on the vendor-specific objective evidence of fair value
for those elements using the residual method. Under the residual
method, the total fair value of the undelivered elements, as
indicated by vendor-specific objective evidence, is recorded as
unearned, and the difference between the total arrangement fee
and the amount recorded as unearned for the undelivered elements
is recognized as revenue related to delivered elements. Unearned
revenue due to undelivered elements is recognized ratably on a
straight-line basis over the maintenance agreement. In the case
of software products for which we sell term-based licenses
including multi-year maintenance agreements, but do not have
vendor-specific objective evidence on the undelivered element,
the entire arrangement is recognized ratably on a straight-line
basis over the term of the license.
Other:
Royalty income is included as a
component of the Non-operating income (loss) line
item in our Consolidated Statement of Income and is recognized
on the basis of terms specified in contractual agreements.
Shipping and handling fees billed to customers are included in
the Revenue from product sales line item in our
Consolidated Statement of Income and the associated costs are
included in the Cost of product sales line item in
our Consolidated Statement of Income. Also, we record taxes
collected from customers and remitted to governmental
authorities on a net basis in that they are excluded from
revenues.
Retirement Benefits
As of July 3, 2009,
we provide retirement benefits to substantially all
U.S.-based
employees primarily through a defined contribution retirement
plan having matching and savings elements. Contributions by us
to the retirement plan are based on employees savings with
no other funding requirements. Fiscal 2007 retirement plans
included a profit sharing component of $38.4 million. We
may make additional contributions to the retirement plan at our
discretion. Retirement benefits also include an unfunded limited
healthcare plan for
U.S.-based
retirees and employees on long-term disability. We accrue the
estimated cost of these medical benefits, which are not
material, during an employees active service life.
Retirement plan expenses amounted to $31.9 million in
fiscal 2009, $33.2 million in fiscal 2008 and
$81.1 million in fiscal 2007. Fiscal 2009 and 2008 profit
sharing under our performance reward plan is recorded as
compensation expense.
Environmental Expenditures
We capitalize
environmental expenditures that increase the life or efficiency
of property or that reduce or prevent environmental
contamination. We accrue environmental expenses resulting from
existing conditions that relate to past operations when the
costs are probable and reasonably estimable.
We are named as a potentially responsible party at 14 sites
where future liabilities could exist. These sites include 2
sites owned by us, 8 sites associated with our former graphics
or semiconductor locations and 4 treatment or disposal sites not
owned by us that contain hazardous substances allegedly
attributable to us from past operations. Additionally, future
liabilities could exist at 7 sites acquired by us as part of our
acquisition of the Tyco Electronics wireless systems business.
Based on an assessment of relevant factors, we have estimated
that our discounted liability under the Comprehensive
Environmental Response, Compensation and Liability Act (commonly
known as the Superfund Act) and other environmental
statutes and regulations for identified sites, using a
6.5 percent discount rate, is approximately
$6.3 million. The current portion of this liability is
included in the Other accrued items line item and
the non-current portion is included in the Other long-term
liabilities line item in our Consolidated Balance Sheet.
The expected aggregate undiscounted amount that will be incurred
over the next 15 to 20 years (depending on the number of
years for each site) is approximately $9.1 million. The
expected payments for the next five years are: fiscal
2010 $1.0 million; fiscal 2011
$1.3 million; fiscal 2012 $0.8 million;
fiscal 2013 $0.7 million;
fiscal 2014 $0.8 million; and the
aggregate amount thereafter is approximately $4.5 million.
The relevant factors we considered in estimating our potential
liabilities under the Superfund Act and other environmental
statutes and regulations include cost-sharing agreements with
other parties and the potential indemnification from successor
and predecessor owners of these sites. We do not believe that
uncertainties with respect to these relevant factors would
materially affect our potential liability under the Superfund
Act and other environmental statutes and regulations.
Financial Guarantees and Commercial
Commitments
Guarantees are contingent
commitments issued to guarantee the performance of a customer to
a third party in borrowing arrangements, such as commercial
paper
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
issuances, bond financings and similar transactions. At
July 3, 2009, there are no such contingent commitments, nor
are any guarantees accrued for in our Consolidated Balance Sheet.
We have entered into commercial commitments in the normal course
of business including surety bonds, standby letter of credit
agreements and other arrangements with financial institutions
and customers primarily relating to the guarantee of future
performance on certain contracts to provide products and
services to customers and to obtain insurance policies with our
insurance carriers. At July 3, 2009, we had total
commercial commitments, including debt and performance
guarantees, of $537.4 million.
Financial Instruments and Risk Management
In
the normal course of doing business, we are exposed to global
market risks, including the effect of changes in foreign
currency exchange rates. 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. Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities
(Statement 133) requires us to recognize all
derivatives in our Consolidated Balance Sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative
are either offset against the change in fair value of assets,
liabilities or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a
derivatives change in fair value is immediately recognized
in earnings. We do not hold or issue derivatives for trading
purposes. See
Note 19: Derivative Instruments and
Hedging Activities
for additional information regarding our
use of derivative instruments.
Net Income Per Share
Net income per share is
based upon the weighted average number of common and common
equivalent shares outstanding during each year. See
Note 15: Income From Continuing Operations
Per Diluted Share
for additional information regarding
net income per share.
Reclassifications
Certain prior-year amounts
have been reclassified in our Consolidated Financial Statements
to conform with current-year classifications. These
reclassifications include:
|
|
|
|
|
Reclassifying $5.8 million and $63.1 million of
investments associated with our non-qualified deferred
compensation plans from the Compensation and
benefits line item to the Other current assets
and Other non-current assets line items,
respectively, in our Consolidated Balance Sheet;
|
|
|
|
Reclassifying $58.6 million of obligations to pay benefits
under our non-qualified deferred compensation plans from the
Compensation and benefits line item to the
Other long-term liabilities line item in our
Consolidated Balance Sheet; and
|
|
|
|
Reclassifying $14.1 million of advance payments on extended
warranty contracts from the Advanced payments and unearned
income line item to the Other long-term
liabilities line item in our Consolidated Balance Sheet.
|
|
|
NOTE 2:
|
ACCOUNTING
CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
|
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement 109
(FIN 48), which sets out a consistent framework
for preparers to use to determine the appropriate level of tax
reserves to maintain for uncertain tax positions. This
interpretation of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes
(Statement 109) uses a two-step approach wherein a
tax benefit is recognized if a position is more likely than not
to be sustained. The amount of the benefit to be recognized is
the largest amount that has a greater than 50 percent
likelihood of being ultimately sustained. FIN 48 also sets
out disclosure requirements to enhance transparency of an
entitys tax reserves. We implemented FIN 48 effective
June 30, 2007, which was the beginning of our fiscal 2008.
See
Note 23: Income Taxes
for information regarding
the impact on our financial position of implementing FIN 48.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (Statement 158), which amends FASB
Statements No. 87, Employers Accounting for
Pensions; No. 88, Employers Accounting
for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits; No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions; and No. 132(R),
Employers Disclosures about Pension and Other
Postretirement Benefits. In the fourth quarter of fiscal
2007, we adopted the portion of Statement 158 that requires the
recognition and disclosure of the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or
liability as described in our Annual Report on
Form 10-K
for our fiscal year ended June 29, 2007.
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement 158 also requires an employer to measure the funded
status of a plan as of the date of the employers year-end
balance sheet, with limited exceptions. This portion of
Statement 158 is effective for fiscal years ending after
December 15, 2008, which for us was fiscal 2009 (which
ended July 3, 2009). In the fourth quarter of fiscal 2009,
we adopted the portion of Statement 158 that requires an
employer to measure the funded status of a plan as of the date
of the employers year-end balance sheet. Certain of our
plans had measurement dates that did not coincide with our
fiscal year end and thus we were required to change their
measurement dates in fiscal 2009. The change in measurement
dates did not materially impact our financial position, results
of operations or cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (Statement 157). Statement 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. Statement 157
applies under other accounting pronouncements that require fair
value measurement in which the FASB concluded that fair value
was the relevant measurement, but does not require any new fair
value measurements. In February 2008, the FASB issued FASB Staff
Position (FSP)
No. FAS 157-2,
Effective Date of FASB Statement No. 157
(FSP
FAS 157-2),
which defers the effective date of Statement 157 for
nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
to fiscal years beginning after November 15, 2008, which
for us is our fiscal 2010. We adopted Statement 157 in the first
quarter of fiscal 2009 and there was no impact to our financial
position, results of operations or cash flows. In accordance
with FSP
FAS 157-2,
we elected to defer until fiscal 2010 the adoption of Statement
157 for nonfinancial assets (including items such as goodwill,
other intangible assets and long-lived assets) and nonfinancial
liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis
(at least annually). We do not currently anticipate that the
adoption of Statement 157 for nonfinancial assets and
nonfinancial liabilities will materially impact our financial
position, results of operations or cash flows. See
Note 24: Fair Value Measurements
for disclosures
required by Statement 157.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
(Statement 159). Statement 159 allows companies to
voluntarily choose, at specified election dates, to measure many
financial assets and financial liabilities at fair value (the
fair value option). The election is made on an
instrument-by-instrument
basis and is irrevocable. If the fair value option is elected
for an instrument, all unrealized gains or losses in fair value
for that instrument shall be reported in earnings at each
subsequent reporting date. We adopted Statement 159 in the first
quarter of fiscal 2009 but have not elected the fair value
option for any eligible financial instruments as of July 3,
2009.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (Statement 141R). Statement 141R
requires that, upon a business combination, the acquired assets,
assumed liabilities, contractual contingencies and contingent
liabilities be recognized and measured at their fair value at
the acquisition date. Statement 141R also requires that
acquisition-related costs be recognized separately from the
acquisition and expensed as incurred. In addition, Statement
141R requires that acquired
in-process
research and development be measured at fair value and
capitalized as an indefinite-lived intangible asset, and it is
therefore not subject to amortization until the project is
completed or abandoned. Statement 141R also requires that
changes in deferred tax asset valuation allowances and acquired
income tax uncertainties that are recognized after the
measurement period be recognized in income tax expense.
Statement 141R is to be applied prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008, which for us is our fiscal 2010,
which started on July 4, 2009. While adoption of Statement
141R is not expected to materially impact our financial
position, results of operations or cash flows directly,
Statement 141R is expected to have a significant effect on the
accounting for any acquisitions we make subsequent to
July 3, 2009.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133 (Statement 161).
Statement 161 applies to all derivative instruments, including
bifurcated derivative instruments (and to nonderivative
instruments that are designated and qualify as hedging
instruments pursuant to paragraphs 37 and 42 of
Statement 133) and related hedged items accounted for
under Statement 133. Statement 161 amends and expands the
disclosure requirements of Statement 133 to provide greater
transparency as to (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative
instruments and related hedged items affect an entitys
financial position, results of operations and cash flows. To
meet those objectives, Statement 161 requires qualitative
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
disclosures about objectives and strategies for using
derivatives, quantitative disclosures about the volume of
derivative activity and fair value amounts of, and gains and
losses on, derivative instruments including location of such
amounts in the consolidated financial statements, and
disclosures about credit-risk-related contingent features in
derivative agreements. We adopted Statement 161 in the third
quarter of fiscal 2009, and there was no impact to our financial
position, results of operations or cash flows. See
Note 19: Derivative Instruments and Hedging Activities
for disclosures required by Statement 161.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determining the Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that must be considered in developing renewal
or extension assumptions used to determine the useful life of
recognized intangible assets accounted for pursuant to
Statement 142. FSP
FAS 142-3
amends Statement 142 to require an entity to consider its own
historical experience in renewing or extending similar
arrangements, regardless of whether those arrangements have
explicit renewal or extension provisions. In the absence of such
experience, FSP
FAS 142-3
requires an entity to consider assumptions that market
participants would use (consistent with the highest and best use
of the asset by market participants), adjusted for
entity-specific factors. FSP
FAS 142-3
also requires incremental disclosures for renewable intangible
assets. FSP
FAS 142-3
is effective for fiscal years beginning after December 15,
2008, which for us is our fiscal 2010, which started on
July 4, 2009. FSP
FAS 142-3
is to be applied prospectively to intangible assets acquired
after the effective date, and the incremental disclosure
requirements for renewable intangible assets are to be applied
prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. While adoption of FSP FAS
142-3 is not expected to materially impact our financial
position, results of operations or cash flows directly, the
effect of FSP FAS 142-3 on the accounting for any acquisitions
we make subsequent to July 3, 2009 will depend on the facts and
circumstances of those acquisitions.
In June 2008, the FASB issued FSP No. Emerging Issues Task
Force (EITF)
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(FSP
EITF 03-6-1).
FSP
EITF 03-6-1 states
that unvested share-based payment awards that contain rights to
receive nonforfeitable dividends or dividend equivalents
(whether paid or unpaid) are participating securities and,
accordingly, should be included in the two-class method of
calculating earnings per share (EPS) under Statement
of Financial Accounting Standards No. 128, Earnings
per Share. FSP
EITF 03-6-1
also includes guidance on allocating earnings pursuant to the
two-class
method. FSP
EITF 03-6-1
is effective for fiscal years beginning after December 15,
2008, which for us is our fiscal 2010. All prior-period EPS data
presented (including interim financial statements, summaries of
earnings, and selected financial data) shall be adjusted
retrospectively. We do not currently anticipate that the
implementation of FSP
EITF 03-6-1
will materially impact our financial position, results of
operations or cash flows.
In April 2009, the FASB issued FSP
No. FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies
(FSP
FAS 141R-1).
Under FSP
FAS 141R-1,
assets and liabilities arising from contingencies in a business
combination are to be recognized at fair value at the
acquisition date if the acquisition-date fair value can be
determined during the measurement period. In cases where
acquisition-date fair values cannot be determined during the
measurement period, an asset or liability shall be recognized at
the acquisition date at amounts based on guidance in Statement
of Financial Accounting Standards No. 5, Accounting
for Contingencies and FASB Interpretation No. 14,
Reasonable Estimation of the Amount of a Loss if
certain other criteria are met. FSP
FAS 141R-1
also expands the disclosure requirements of Statement 141R to
provide additional information about business
combination-related contingencies in footnotes describing
business combinations. FSP
FAS 141R-1
is effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, which for
us is our fiscal 2010, which started on July 4, 2009. While
adoption of FSP FAS 141R-1 is not expected to materially impact
our financial position, results of operations or cash flows
directly, FSP FAS 141R-1 may have a significant effect on the
accounting for any acquisitions we make subsequent to July 3,
2009.
In April 2009, the FASB issued FSP
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments (FSP
FAS 107-1).
FSP
FAS 107-1
extends the annual disclosure requirements of Statement of
Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments (Statement
107) to interim reporting periods. Statement 107 requires
disclosures of the fair value of all financial instruments
(whether recognized or not in the statement of financial
position), except for those specifically listed in
paragraph 8 of Statement 107, when practicable to do so. In
addition, FSP
FAS 107-1
requires fair value information disclosed in the notes to
financial statements to be presented together with the related
carrying amount of the financial instruments in a form that
clearly distinguishes between assets and liabilities and
indicates how the carrying
71
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amounts relate to what is reported on the statement of financial
position. An entity must also disclose the methods and
significant assumptions used to estimate the fair value of the
financial instruments and describe any changes in these methods
and significant assumptions. FSP
FAS 107-1
is effective for interim reporting periods ending after
June 15, 2009, which for us is the first quarter of our
fiscal 2010. We do not currently anticipate that the
implementation of FSP
FAS 107-1
will materially impact our financial position, results of
operations or cash flows.
In May 2009, the FASB issued Statement of Financial Accounting
Standards No. 165, Subsequent Events
(Statement 165). Statement 165 is intended to
establish general standards of accounting for, and disclosure
of, events that occur after the balance sheet date but before
financial statements are issued, in the case of public entities.
Specifically, Statement 165 sets forth the period after the
balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. Statement 165 is effective for interim or
annual reporting periods ending after June 15, 2009, which
for us was fiscal 2009 (which ended July 3, 2009). We
adopted Statement 165 in the fourth quarter of fiscal 2009, and
have evaluated any subsequent events through the date of filing
of this Report (August 31, 2009), and there was no impact
to our financial position, results of operations or cash flows.
In June 2009, the FASB issued Statement of Financial Accounting
Standards No. 168, The FASB Accounting Standards
Codification
tm
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162 (Statement 168). Statement 168
replaces Statement of Financial Accounting Standards
No. 162, The Hierarchy of Generally Accepted
Accounting Principles and establishes only two levels of
U.S. generally accepted accounting principles
(GAAP): authoritative and nonauthoritative. The FASB
Accounting Standards
Codification
tm
(the Codification) will become the source of
authoritative U.S. accounting principles recognized by the
FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP,
except for rules and interpretive releases of the Securities and
Exchange Commission (SEC), which continue to be
sources of authoritative GAAP for SEC registrants. All
nongrandfathered, non-SEC accounting literature not included in
the Codification will become nonauthoritative. Statement 168 is
effective for interim and annual reporting periods ending after
September 15, 2009, which for us is the first quarter of
our fiscal 2010, at which time we will begin using the new
guidelines and numbering system prescribed by the Codification
when referring to GAAP. As the Codification is not intended to
change existing GAAP for public entities, we do not currently
anticipate that the implementation of Statement 168 will
materially impact our financial position, results of operations
or cash flows.
|
|
NOTE 3:
|
DISCONTINUED
OPERATIONS
|
On March 31, 2009, we announced that our Board of Directors
approved the Spin-off of all the shares of HSTX owned by us to
our shareholders. On May 27, 2009, we completed the
Spin-off through the distribution of our ownership of
approximately 56 percent of the outstanding shares of HSTX
in the form of a taxable pro rata dividend to our shareholders.
Each of our shareholders received approximately 0.248418 of a
share of HSTX Class A common stock for each share of our
common stock such shareholder held as of 5:30 p.m. Eastern
Time on May 13, 2009, the record date for the Spin-off. The
distribution ratio was based on the number of shares of HSTX
Class B common stock owned by us, which we exchanged for an
equal number of shares of HSTX Class A common stock prior
to the distribution in order to effect the Spin-off, divided by
the number of shares of our common stock and common stock
equivalents outstanding on the record date. Our shareholders of
record on the record date received cash in lieu of any fraction
of a HSTX share that they would have otherwise received in the
Spin-off. In aggregate, we distributed 32,913,377 shares of
HSTX Class A common stock to our shareholders. Based upon
the $5.26 per share closing price for the HSTX Class A
common stock on the NASDAQ Global Market on May 26, 2009,
the day prior to the date of the distribution, the aggregate
market value of the shares distributed was $173.1 million.
In accordance with Statement 144, our historical financial
results have been restated to account for HSTX as discontinued
operations for all periods presented in this Report.
Prior to the Spin-off of HSTX, as of the end of the second
quarter of fiscal 2009, based on the current global economic
environment and the decline of the market capitalization of
HSTX, we performed an interim review for impairment of
HSTXs goodwill and its other indefinite-lived intangible
assets, consisting solely of the Stratex trade name. To test for
potential impairment of HSTXs goodwill, we determined the
fair value of HSTX based on projected discounted cash flows and
market-based multiples applied to sales and earnings. The
results indicated an impairment of goodwill because the current
carrying value of the segment exceeded its fair value. We then
allocated
72
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
this fair value to HSTXs underlying assets and liabilities
to determine the implied fair value of goodwill, resulting in a
$279.0 million charge to write down all of HSTXs
goodwill. We determined the fair value of the Stratex trade name
by performing a projected discounted cash flow analysis based on
the relief-from-royalty approach, resulting in a
$22.0 million charge to write down a majority of the
carrying value of the Stratex trade name. Substantially all of
the goodwill and the Stratex trade name were recorded in
connection with the combination of Stratex and our Microwave
Communications Division in January 2007.
Summarized financial information for our discontinued operations
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Revenue from product sales and services
|
|
$
|
594.6
|
|
|
$
|
718.4
|
|
|
$
|
508.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
$
|
(340.8
|
)
|
|
$
|
(29.0
|
)
|
|
$
|
142.7
|
|
Income taxes
|
|
|
(33.6
|
)
|
|
|
12.5
|
|
|
|
(20.0
|
)
|
Minority interest in discontinued operations
|
|
|
162.5
|
|
|
|
7.2
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
(211.9
|
)
|
|
|
(9.3
|
)
|
|
|
133.2
|
|
Loss on the disposition of discontinued operations, including
income tax expense of $11.1 million
|
|
|
(62.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of income taxes
|
|
$
|
(274.5
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
133.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
|
|
|
$
|
442.2
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
947.9
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
195.4
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
196.6
|
|
|
|
|
|
Minority interest in discontinued operations
|
|
|
|
|
|
|
330.3
|
|
|
|
|
|
Net assets of discontinued operations
|
|
|
|
|
|
|
421.0
|
|
|
|
|
|
Unless otherwise specified, the information set forth in the
other Notes relates solely to our continuing operations.
|
|
NOTE 4:
|
BUSINESS
COMBINATIONS
|
During fiscal 2009 we made the following significant acquisition:
|
|
|
|
|
Acquisition of Tyco Electronics Wireless Systems
Business
. On May 29, 2009, we acquired
substantially all of the assets of the Tyco Electronics wireless
systems business (Wireless Systems) (formerly known
as
M/A-COM),
an established provider of mission-critical wireless
communications systems for law enforcement, fire and rescue,
public service, utility and transportation markets. In
connection with the acquisition, we assumed liabilities
primarily related to Wireless Systems. We did not assume the
State of New York wireless network contract awarded to Wireless
Systems in December 2004. The purchase price for Wireless
Systems was $665 million in cash, subject to further
post-closing adjustments. We operate Wireless Systems, which we
now call the Public Safety and Professional Communications
business, within our RF Communications segment. We believe the
acquisition creates a powerful supplier of
end-to-end
wireless network solutions to the global land mobile radio
systems market. Additional details, including calculation of the
purchase price, identifiable intangible assets and Wireless
Systems Consolidated Balance Sheet as of the acquisition
date, are provided in the table and notes below.
|
73
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide further detail of the acquisition
of Wireless Systems in fiscal 2009:
|
|
|
|
|
Wireless Systems
|
|
|
(In millions)
|
|
Date of acquisition
|
|
5/29/09
|
Reporting business segment
|
|
RF Communications
|
|
|
|
|
|
Cash consideration paid to former owner
|
|
$
|
665.3
|
|
Acquisition costs
|
|
|
10.6
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
675.9
|
|
|
|
|
|
|
Balance Sheet as of the acquisition date:
|
|
|
|
|
Accounts and notes receivable
|
|
$
|
73.5
|
|
Inventories
|
|
|
47.8
|
|
Non-current deferred tax assets
|
|
|
67.8
|
|
Identifiable intangible assets and in-process research and
development
|
|
|
215.2
|
|
Goodwill
|
|
|
405.4
|
|
Property, plant and equipment
|
|
|
140.5
|
|
Other assets
|
|
|
6.4
|
|
|
|
|
|
|
Total assets
|
|
|
956.6
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
99.2
|
|
Advance payments and unearned income
|
|
|
18.0
|
|
Long-term contract liability
|
|
|
160.0
|
|
Other liabilities
|
|
|
3.5
|
|
|
|
|
|
|
Total liabilities acquired
|
|
|
280.7
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
675.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless Systems
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
Period
|
|
|
Total
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Identifiable Intangible Assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
10.0
|
|
|
$
|
62.8
|
|
Developed technology
|
|
|
10.0
|
|
|
|
82.0
|
|
Trade names
|
|
|
10.0
|
|
|
|
11.0
|
|
Contract backlog
|
|
|
4.0
|
|
|
|
34.1
|
|
Other
|
|
|
2.0
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
|
Totals and weighted average lives
|
|
|
8.3
|
|
|
$
|
208.2
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
$
|
7.0
|
|
The long-term contract liability recorded in the purchase price
allocation is for a significant loss contract acquired with a
single customer to build, deploy, own, operate and maintain a
statewide network for 20 years, of which 12 years were
remaining under the contract on the acquisition date.
In connection with our acquisition of Wireless Systems, we
allocated $7.0 million of the purchase price to two
in-process research and development projects. These allocations
represent the estimated fair value based on risk-adjusted cash
flows related to these incomplete projects. In accordance with
FASB Statement of Financial Accounting Standards No. 141,
Business Combinations, these costs were expensed as
a charge to earnings and are included in the Engineering,
selling and administrative expenses line item in our
Consolidated Statement of Income. In making these purchase price
allocations we relied on present value calculations of income,
an analysis of project accomplishments and completion costs and
an assessment of overall contribution and project risk. The
value assigned to the purchased in-process research and
development was determined by estimating the costs to develop
the purchased in-process research and development into
commercially viable products and discounting the net cash flows
to their present value using a discount rate of 15 percent.
The two in-process research and development
74
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
projects consisted of a new product platform and a new
technology. As of the valuation date, the new product platform
project was approximately 75 percent complete with a
product launch expected at the end of calendar 2009 and had
remaining costs until completion of approximately
$2.1 million. As of the valuation date, the new technology
project was approximately 80 percent complete with a
product launch expected in early fiscal 2010 and had remaining
costs until completion of approximately $1.1 million.
Pro
Forma Results (Unaudited)
The following summary, prepared on a pro forma basis, presents
our unaudited consolidated results of operations as if the
acquisition of Wireless Systems had been completed as of the
beginning of fiscal 2008, after including the impact of
adjustments such as amortization of intangible assets, interest
expense on related borrowings, and the related income tax
effects. This pro forma presentation does not include any impact
of transaction synergies.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except per share amounts)
|
|
|
Revenue from product sales and services as reported
|
|
$
|
5,005.0
|
|
|
$
|
4,596.1
|
|
Revenue from product sales and services pro forma
|
|
$
|
5,403.3
|
|
|
$
|
5,075.5
|
|
Income from continuing operations as reported
|
|
$
|
312.4
|
|
|
$
|
453.5
|
|
Income from continuing operations pro forma
|
|
$
|
328.6
|
|
|
$
|
493.6
|
|
Income from continuing operations per diluted common
share as reported
|
|
$
|
2.35
|
|
|
$
|
3.33
|
|
Income from continuing operations per diluted common
share pro forma
|
|
$
|
2.47
|
|
|
$
|
3.62
|
|
The pro forma results are not necessarily indicative of our
results of operations had we owned Wireless Systems for the
entire periods presented. The decrease in Wireless Systems
contribution to our pro forma income from continuing operations
in fiscal 2009 compared with fiscal 2008 is primarily a result
of higher radio sales in fiscal 2008 by Wireless Systems to
Sprint Nextel related to the federally mandated 800 MHz band
spectrum reconfiguration in order to reduce the frequency
interference between public safety and commercial markets.
Wireless Systems results for fiscal 2009 include after-tax
charges of $0.8 million for integration costs associated
with the acquisition.
During fiscal 2007 we made the following significant acquisition:
|
|
|
|
|
Acquisition of Multimax Incorporated.
On
June 15, 2007, we acquired Multimax Incorporated
(Multimax), a privately held provider of information
technology and communications services for the
U.S. Government. The acquisition of Multimax significantly
expanded our information technology services
business providing greater scale, a broader customer
base and new growth opportunities through key positions on
Government-Wide Acquisition Contracts. We purchased Multimax for
$402 million in cash. We recorded $115.0 million of
identifiable intangible assets that are being amortized over a
weighted average life of 10.0 years.
|
These business combinations have been accounted for under the
purchase method of accounting and, accordingly, their results of
operations have been included in our Consolidated Statement of
Income and Consolidated Statement of Cash Flows since their
acquisition dates. The purchase price for Wireless Systems
remains subject to further post-closing adjustments and the
purchase price allocation is preliminary. The goodwill resulting
from these business combinations was associated primarily with
the acquired companies market presence and leading
positions, growth opportunities in the markets in which the
acquired companies operated, and experienced work forces and
established operating infrastructures. The goodwill resulting
from the Multimax acquisition is not deductible for tax purposes
while the goodwill related to the Wireless Systems acquisition
is deductible for tax purposes.
75
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Receivables are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Accounts receivable
|
|
$
|
630.4
|
|
|
$
|
561.3
|
|
Unbilled costs on cost-plus contracts
|
|
|
149.1
|
|
|
|
123.6
|
|
Notes receivable due within one year, net
|
|
|
4.5
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
784.0
|
|
|
|
685.6
|
|
Less allowances for collection losses
|
|
|
(13.2
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
770.8
|
|
|
$
|
679.9
|
|
|
|
|
|
|
|
|
|
|
We expect to bill substantially all unbilled costs outstanding
at July 3, 2009 during fiscal 2010.
Inventories are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Unbilled costs and accrued earnings on fixed-price contracts
|
|
$
|
305.0
|
|
|
$
|
215.5
|
|
Finished products
|
|
|
146.7
|
|
|
|
113.3
|
|
Work in process
|
|
|
64.1
|
|
|
|
46.5
|
|
Raw materials and supplies
|
|
|
91.4
|
|
|
|
100.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
607.2
|
|
|
$
|
476.0
|
|
|
|
|
|
|
|
|
|
|
Unbilled costs and accrued earnings on fixed-price contracts are
net of progress payments of $16.1 million at July 3,
2009 and $55.3 million at June 27, 2008.
|
|
NOTE 7:
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Land
|
|
$
|
10.9
|
|
|
$
|
11.3
|
|
Software capitalized for internal use
|
|
|
69.8
|
|
|
|
66.4
|
|
Buildings
|
|
|
351.4
|
|
|
|
321.7
|
|
Machinery and equipment
|
|
|
812.5
|
|
|
|
692.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244.6
|
|
|
|
1,092.1
|
|
Less allowances for depreciation and amortization
|
|
|
(701.4
|
)
|
|
|
(684.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
543.2
|
|
|
$
|
407.2
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property, plant
and equipment was $93.5 million, $87.9 million and
$75.7 million in fiscal 2009, 2008 and 2007, respectively.
As discussed in
Note 25: Business Segments
,
effective upon the commencement of fiscal 2009, we changed our
segment reporting structure, which resulted in changes in the
goodwill balances by business segment as presented below. For
those changes that resulted in reporting unit changes, we
applied the relative fair value method to determine the
reallocation of goodwill to reporting units. Statement 142
requires that goodwill be tested for impairment at least
annually and when reporting units are changed. During the first
quarter of fiscal 2009, as a result of the changes to our
segment reporting structure, we completed an assessment of any
potential goodwill impairment under this new segment reporting
structure and determined that no impairment existed.
76
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with Statement 142, we also must test goodwill and
other indefinite-lived intangible assets when events or
circumstances indicate there may be an impairment charge. See
Note 3: Discontinued Operations
for additional
information regarding impairment of HSTXs goodwill and its
other indefinite-lived intangible assets recorded in fiscal
2009. See
Note 22: Impairment of Goodwill and Other
Long-Lived Assets
for information regarding impairment of
our Broadcast Communications segments goodwill recorded in
fiscal 2009.
Changes in the carrying amount of goodwill for the fiscal years
ended July 3, 2009 and June 27, 2008, by business
segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
|
|
|
|
RF
|
|
|
Communications
|
|
|
Broadcast
|
|
|
|
|
|
|
Communications
|
|
|
Systems
|
|
|
Communications
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance at June 29, 2007
|
|
$
|
6.0
|
|
|
$
|
381.1
|
|
|
$
|
814.5
|
|
|
$
|
1,201.6
|
|
Goodwill acquired during the period
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
|
|
8.6
|
|
Other (including currency translation adjustments and
true-ups
of
previously estimated purchase price allocations)
|
|
|
|
|
|
|
33.4
|
|
|
|
18.9
|
|
|
|
52.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2008
|
|
|
6.0
|
|
|
|
414.5
|
|
|
|
842.0
|
|
|
|
1,262.5
|
|
Goodwill acquired during the period
|
|
|
405.4
|
|
|
|
41.2
|
|
|
|
|
|
|
|
446.6
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
(160.9
|
)
|
|
|
(160.9
|
)
|
Other (including currency translation adjustments and
true-ups
of
previously estimated purchase price allocations)
|
|
|
0.2
|
|
|
|
(4.2
|
)
|
|
|
(37.1
|
)
|
|
|
(41.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2009
|
|
$
|
411.6
|
|
|
$
|
451.5
|
|
|
$
|
644.0
|
|
|
$
|
1,507.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The goodwill resulting from acquisitions was associated
primarily with the acquired companies market presence and
leading positions, growth opportunities in the markets in which
the acquired companies operated, experienced work forces and
established operating infrastructures.
|
|
NOTE 9:
|
INTANGIBLE
ASSETS
|
We recorded impairment charges to intangible assets during
fiscal 2009, which reduced their carrying value. See
Note 3: Discontinued Operations
for additional
information regarding impairment of HSTXs indefinite-lived
intangible assets. See
Note 22: Impairment of Goodwill
and Other Long-Lived Assets
for information regarding
impairment of our Broadcast Communications segments
amortizable intangible assets.
Intangible assets subject to amortization and not subject to
amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In millions)
|
|
|
Customer relationships
|
|
$
|
216.2
|
|
|
$
|
43.5
|
|
|
$
|
172.7
|
|
|
$
|
167.2
|
|
|
$
|
27.2
|
|
|
$
|
140.0
|
|
Developed technologies
|
|
|
164.6
|
|
|
|
63.3
|
|
|
|
101.3
|
|
|
|
118.6
|
|
|
|
48.8
|
|
|
|
69.8
|
|
Contract backlog
|
|
|
56.9
|
|
|
|
20.8
|
|
|
|
36.1
|
|
|
|
32.9
|
|
|
|
16.6
|
|
|
|
16.3
|
|
Trade names
|
|
|
15.3
|
|
|
|
3.4
|
|
|
|
11.9
|
|
|
|
15.0
|
|
|
|
6.4
|
|
|
|
8.6
|
|
Non-competition agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
0.2
|
|
Other
|
|
|
18.7
|
|
|
|
5.6
|
|
|
|
13.1
|
|
|
|
8.7
|
|
|
|
7.2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subject to amortization
|
|
|
471.7
|
|
|
|
136.6
|
|
|
|
335.1
|
|
|
|
343.3
|
|
|
|
106.9
|
|
|
|
236.4
|
|
Total not subject to amortization
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
472.2
|
|
|
$
|
136.6
|
|
|
$
|
335.6
|
|
|
$
|
343.8
|
|
|
$
|
106.9
|
|
|
$
|
236.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was
$43.3 million, $44.7 million and $31.0 million in
fiscal 2009, 2008 and 2007, respectively.
77
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future estimated amortization expense for intangible assets is
as follows:
|
|
|
|
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Fiscal Years:
|
|
|
|
|
2010
|
|
$
|
51.7
|
|
2011
|
|
|
51.1
|
|
2012
|
|
|
43.8
|
|
2013
|
|
|
41.2
|
|
2014
|
|
|
31.3
|
|
Thereafter
|
|
|
116.0
|
|
|
|
|
|
|
Total
|
|
$
|
335.1
|
|
|
|
|
|
|
|
|
NOTE 10:
|
ACCRUED
WARRANTIES
|
Changes in our warranty liability, which is included as a
component of the Other accrued items line item in
our Consolidated Balance Sheet, during fiscal 2009 and 2008, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at beginning of the fiscal year
|
|
$
|
41.6
|
|
|
$
|
31.6
|
|
Warranty provision for sales made during the year
|
|
|
26.4
|
|
|
|
27.0
|
|
Settlements made during the year
|
|
|
(19.4
|
)
|
|
|
(15.7
|
)
|
Other adjustments to the warranty liability, including those for
acquisitions and foreign currency translation, during the year
|
|
|
16.9
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the fiscal year
|
|
$
|
65.5
|
|
|
$
|
41.6
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11:
|
CREDIT
ARRANGEMENTS
|
On September 10, 2008, we entered into a five-year, senior
unsecured revolving credit agreement (the 2008 Credit
Agreement) with a syndicate of lenders. The 2008 Credit
Agreement provides for the extension of credit to us in the form
of revolving loans, including swingline loans, and letters of
credit at any time and from time to time during the term of the
2008 Credit Agreement, in an aggregate principal amount at any
time outstanding not to exceed $750 million for both
revolving loans and letters of credit, with a
sub-limit
of
$50 million for swingline loans and $125 million for
letters of credit. This $750 million credit facility
replaces our prior $500 million credit facility established
pursuant to the five-year, senior unsecured revolving credit
agreement we entered into on March 31, 2005 with a
syndicate of lenders. The 2008 Credit Agreement includes a
provision pursuant to which, from time to time, we may request
that the lenders in their discretion increase the maximum amount
of commitments under the 2008 Credit Agreement by an amount not
to exceed $500 million. Only consenting lenders (including
new lenders reasonably acceptable to the administrative agent)
will participate in any such increase. In no event will the
maximum amount of credit extensions available under the 2008
Credit Agreement exceed $1.25 billion. The 2008 Credit
Agreement may be used for working capital and other general
corporate purposes (excluding hostile acquisitions) and to
support any commercial paper that we may issue. Borrowings under
the 2008 Credit Agreement may be denominated in
U.S. Dollars, Euros, Sterling and any other currency
acceptable to the administrative agent and the lenders, with a
non-U.S. currency
sub-limit
of
$150 million. We may designate certain wholly owned
subsidiaries as borrowers under the 2008 Credit Agreement, and
the obligations of any such subsidiary borrower must be
guaranteed by Harris Corporation. We also may designate certain
subsidiaries as unrestricted subsidiaries, which means certain
of the covenants and representations in the 2008 Credit
Agreement do not apply to such subsidiaries.
At our election, borrowings under the 2008 Credit Agreement
denominated in U.S. Dollars will bear interest either at
LIBOR plus an applicable margin or at the base rate plus an
applicable margin. The interest rate margin over LIBOR,
initially set at 0.50 percent, may increase (to a maximum
amount of 1.725 percent) or decrease (to a minimum of
0.385 percent) based on changes in the ratings of our
senior, unsecured long-term debt securities (Senior Debt
Ratings) and on the degree of utilization under the 2008
Credit Agreement (Utilization). The base rate is a
fluctuating rate equal to the higher of the federal funds rate
plus 0.50 percent or SunTrust Banks publicly
announced prime lending rate for U.S. Dollars. The interest
rate margin over the base rate is 0.00 percent, but if our
Senior Debt
78
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Ratings fall to BB+/Ba1 or below, then the interest
rate margin over the base rate will increase to either
0.225 percent or 0.725 percent based on Utilization.
Borrowings under the 2008 Credit Agreement denominated in a
currency other than U.S. Dollars will bear interest at
LIBOR plus the applicable interest rate margin over LIBOR
described above. Letter of credit fees are also determined based
on our Senior Debt Ratings and Utilization.
The 2008 Credit Agreement contains certain covenants, including
covenants limiting: certain liens on our assets; certain
mergers, consolidations or sales of assets; certain sale and
leaseback transactions; certain vendor financing investments;
and certain investments in unrestricted subsidiaries. The 2008
Credit Agreement also requires that we not permit our ratio of
consolidated total indebtedness to total capital, each as
defined, to be greater than 0.60 to 1.00 and not permit our
ratio of consolidated EBITDA to consolidated net interest
expense, each as defined, to be less than 3.00 to 1.00 (measured
on the last day of each fiscal quarter for the rolling
four-quarter period then ending). The 2008 Credit Agreement
contains certain events of default, including: failure to make
payments; failure to perform or observe terms, covenants and
agreements; material inaccuracy of any representation or
warranty; payment default under other indebtedness with a
principal amount in excess of $75 million or acceleration
of such indebtedness; occurrence of one or more final judgments
or orders for the payment of money in excess of $75 million
that remain unsatisfied; incurrence of certain ERISA liability
in excess of $75 million; any bankruptcy or insolvency; or
a change of control, including if a person or group becomes the
beneficial owner of 25 percent or more of our voting stock.
If an event of default occurs the lenders may, among other
things, terminate their commitments and declare all outstanding
borrowings to be immediately due and payable together with
accrued interest and fees. All amounts borrowed or outstanding
under the 2008 Credit Agreement are due and mature on
September 10, 2013, unless the commitments are terminated
earlier either at our request or if certain events of default
occur. At July 3, 2009, we had no borrowings outstanding
under the 2008 Credit Agreement, but we had $105.7 million
of short-term debt outstanding under our commercial paper
program, which is supported by the 2008 Credit Agreement.
We have an automatically effective, universal shelf registration
statement, filed with the SEC on June 3, 2009, related to
the potential future issuance of an indeterminate amount of
securities, including debt securities, preferred stock, common
stock, fractional interests in preferred stock represented by
depositary shares and warrants to purchase debt securities,
preferred stock or common stock.
We have uncommitted short-term lines of credit aggregating
$10.0 million from various international banks, the full
amount of which was available on July 3, 2009. These lines
provide for borrowings at various interest rates, typically may
be terminated upon notice, may be used on such terms as mutually
agreed to by the banks and us, and are reviewed annually for
renewal or modification. These lines do not require compensating
balances. We also have a short-term commercial paper program in
place, which we may utilize to satisfy short-term cash
requirements and which is supported by our 2008 Credit
Agreement. As of July 3, 2009, we had $105.7 million
of short-term debt outstanding under our commercial paper
program.
Our short-term debt at July 3, 2009 was
$105.7 million, which consisted solely of commercial paper.
Our short-term debt at June 27, 2008 was $0.3 million.
The weighted-average interest rate for our short-term debt was
1.0 percent at July 3, 2009 and 3.8 percent at
June 27, 2008.
Long-term debt is summarized below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
6.375% notes, due fiscal 2019
|
|
$
|
350.0
|
|
|
$
|
|
|
5.95% notes, due fiscal 2018
|
|
|
400.0
|
|
|
|
400.0
|
|
5.0% notes, due fiscal 2016
|
|
|
300.0
|
|
|
|
300.0
|
|
6.35% debentures, due fiscal 2028
|
|
|
25.8
|
|
|
|
25.8
|
|
7.0% debentures, due fiscal 2026
|
|
|
100.0
|
|
|
|
100.0
|
|
Other
|
|
|
2.2
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,178.0
|
|
|
|
828.7
|
|
Less: current portion of long-term debt
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,177.3
|
|
|
$
|
828.0
|
|
|
|
|
|
|
|
|
|
|
79
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The potential maturities of long-term debt, including the
current portion, for the five years following fiscal 2009 and,
in total, thereafter are: $0.7 million in fiscal 2010;
$0.7 million in fiscal 2011; $0.6 million in fiscal
2012; $0.2 million in fiscal 2013; none in fiscal 2014; and
$1,175.8 million thereafter. All of our outstanding
long-term debt is unsubordinated and unsecured with equal
ranking.
On June 9, 2009, we completed the issuance of
$350 million in aggregate principal amount of
6.375% Notes due June 15, 2019. Interest on the notes
is payable on June 15 and December 15 of each year. We may
redeem the notes at any time in whole or, from time to time, in
part at the make-whole redemption price. The
make-whole redemption price is equal to the greater
of 100 percent of the principal amount of the notes being
redeemed or the sum of the present values of the remaining
scheduled payments of the principal and interest (other than
interest accruing to the date of redemption) on the notes being
redeemed, discounted to the redemption date on a semi-annual
basis (assuming a
360-day
year
consisting of twelve
30-day
months) at the Treasury Rate, as defined, plus 37.5 basis
points. In each case, we will pay accrued interest on the
principal amount of the notes being redeemed to the redemption
date. In addition, upon a change of control combined with a
below-investment-grade rating event, we may be required to make
an offer to repurchase the notes at a price equal to
101 percent of the aggregate principal amount of the notes
repurchased, plus accrued interest on the notes repurchased to
the date of repurchase. We incurred $4.1 million in debt
issuance costs and discounts related to the issuance of the
notes, which are being amortized on a straight-line basis over
the life of the notes, which approximates the effective interest
rate method, and are reflected as a portion of interest expense
in our Consolidated Statement of Income.
On December 5, 2007, we completed the issuance of
$400 million in aggregate principal amount of
5.95% Notes due December 1, 2017. Interest on the
notes is payable on June 1 and December 1 of each year. We may
redeem the notes at any time in whole or, from time to time, in
part at the make-whole redemption price. The
make-whole redemption price is equal to the greater
of 100 percent of the principal amount of the notes being
redeemed or the sum of the present values of the remaining
scheduled payments of the principal and interest (other than
interest accruing to the date of redemption) on the notes being
redeemed, discounted to the redemption date on a semi-annual
basis (assuming a
360-day
year
consisting of twelve
30-day
months) at the Treasury Rate, as defined, plus 30 basis
points. In each case, we will pay accrued interest on the
principal amount of the notes being redeemed to the redemption
date. In addition, upon a change of control combined with a
below-investment-grade rating event, we may be required to make
an offer to repurchase the notes at a price equal to
101 percent of the aggregate principal amount of the notes
repurchased, plus accrued interest on the notes repurchased to
the date of repurchase. In conjunction with the issuance of the
notes, we entered into treasury lock agreements to protect
against fluctuations in forecasted interest payments resulting
from the issuance of ten-year, fixed-rate debt due to changes in
the benchmark U.S. Treasury rate. In accordance with
Statement 133, these agreements were determined to be highly
effective in offsetting changes in forecasted interest payments
as a result of changes in the benchmark U.S. Treasury rate.
Upon termination of these agreements on December 6, 2007,
we recorded a loss of $5.5 million, net of income tax, in
shareholders equity as a component of accumulated other
comprehensive income. This loss, along with $5.0 million in
debt issuance costs, is being amortized on a straight-line basis
over the life of the notes, which approximates the effective
interest rate method, and is reflected as a portion of interest
expense in our Consolidated Statement of Income.
On September 20, 2005, we completed the issuance of
$300 million in aggregate principal amount of 5% Notes
due October 1, 2015. Interest on the notes is payable on
April 1 and October 1 of each year. We may redeem the notes in
whole, or in part, at any time at the make-whole
redemption price. The make-whole redemption price is
equal to the greater of 100 percent of the principal amount
of the notes being redeemed or the sum of the present values of
the remaining scheduled payments of the principal and interest
(other than interest accruing to the date of redemption) on the
notes being redeemed, discounted to the redemption date on a
semi-annual basis (assuming a
360-day
year
consisting of twelve
30-day
months) at the Treasury Rate, as defined, plus 15 basis
points. In each case, we will pay accrued interest on the
principal amount of the notes being redeemed to the redemption
date. We incurred $4.1 million in debt issuance costs and
discounts related to the issuance of the notes, which are being
amortized on a straight-line basis over a ten-year period and
reflected as a portion of interest expense in our Consolidated
Statement of Income.
In February 1998, we completed the issuance of $150 million
in aggregate principal amount of 6.35% Debentures due
February 1, 2028. On December 5, 2007, we repurchased
and retired $25.0 million in aggregate principal amount of
the debentures. On February 1, 2008, we redeemed
$99.2 million in aggregate principal amount of the
debentures pursuant to the procedures for redemption at the
option of the holders of the
80
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
debentures. We may redeem the remaining $25.8 million in
aggregate principal amount of the debentures in whole, or in
part, at any time at a pre-determined redemption price.
In January 1996, we completed the issuance of $100 million
in aggregate principal amount of 7% Debentures due
January 15, 2026. The debentures are not redeemable prior
to maturity.
|
|
NOTE 14:
|
STOCK
OPTIONS AND OTHER SHARE-BASED COMPENSATION
|
As of July 3, 2009, we had three shareholder-approved
employee stock incentive plans (SIPs) under which
options or other share-based compensation was outstanding, and
we had the following types of share-based awards outstanding
under our SIPs: stock options, performance share awards,
performance share unit awards, restricted stock awards and
restricted stock unit awards. We believe that such awards more
closely align the interests of employees with those of
shareholders. Certain share-based awards provide for accelerated
vesting if there is a change in control (as defined under our
SIPs).
Summary
of Share-Based Compensation Expense
The following table summarizes the components and classification
of share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Total expense
|
|
$
|
39.3
|
|
|
$
|
30.4
|
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales and services
|
|
$
|
3.5
|
|
|
$
|
2.2
|
|
|
$
|
1.6
|
|
Engineering, selling and administrative expenses
|
|
|
35.8
|
|
|
|
28.2
|
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
39.3
|
|
|
|
30.4
|
|
|
|
23.0
|
|
Tax effect on share-based compensation expense
|
|
|
(14.0
|
)
|
|
|
(9.8
|
)
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense after-tax
|
|
$
|
25.3
|
|
|
$
|
20.6
|
|
|
$
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost related to share-based compensation
arrangements that was capitalized as part of inventory or fixed
assets as of July 3, 2009, June 27, 2008 and
June 29, 2007 was not material.
Shares of common stock remaining available for future issuance
under our SIPs totaled 21,531,236 as of July 3, 2009. In
fiscal 2009, we issued an aggregate of 498,814 shares of
common stock under the terms of our SIPs, which is net of shares
withheld for tax purposes.
Stock
Options
The following information relates to stock options that have
been granted under shareholder-approved SIPs. Option exercise
prices are equal to or greater than the fair market value of our
common stock on the date the options are granted, using the
closing stock price of our common stock. Options may be
exercised for a period set at the time of grant, which generally
ranges from seven to ten years after the date of grant, and they
generally become exercisable in installments, which are
typically 50 percent one year from the grant date,
25 percent two years from the grant date and
25 percent three years from the grant date.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option-pricing model which
uses assumptions noted in the following table. Expected
volatility is based on implied volatility from traded options on
our stock, historical volatility of our stock price over the
last ten years and other factors. The expected term of the
options is based on historical observations of our stock over
the past ten years, considering average years to exercise for
all options exercised, average years to cancellation for all
options cancelled and average years remaining for outstanding
options, which is calculated based on the weighted-average
vesting period plus the weighted-average of the difference
between the vesting period and average years to exercise and
81
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cancellation. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
A summary of the significant assumptions used in calculating the
fair value of stock option grants under our SIPs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected dividends
|
|
|
1.4
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Expected volatility
|
|
|
33.4
|
%
|
|
|
31.2
|
%
|
|
|
35.8
|
%
|
Risk-free interest rates
|
|
|
2.6
|
%
|
|
|
4.3
|
%
|
|
|
4.8
|
%
|
Expected term (years)
|
|
|
4.45
|
|
|
|
4.26
|
|
|
|
3.42
|
|
A summary of stock option activity under our SIPs as of
July 3, 2009 and changes during fiscal 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Stock options outstanding at June 27, 2008
|
|
|
4,837,075
|
|
|
$
|
35.72
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or expired
|
|
|
(222,954
|
)
|
|
$
|
49.08
|
|
|
|
|
|
|
|
|
|
Stock options granted
|
|
|
1,546,429
|
|
|
$
|
46.30
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
(233,992
|
)
|
|
$
|
24.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at July 3, 2009
|
|
|
5,926,558
|
|
|
$
|
36.99
|
|
|
|
4.16
|
|
|
$
|
19.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at July 3, 2009
|
|
|
3,936,294
|
|
|
$
|
30.68
|
|
|
|
3.40
|
|
|
$
|
19.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 grants include 319,739 options issued in connection
with the HSTX Spin-off to preserve the intrinsic value of the
awards before and after the Spin-off. This was accounted for as
a modification, and $4.1 million was recorded as non-cash
compensation in fiscal 2009. The remaining $0.8 million of
non-cash compensation will be recognized over the remaining
vesting period.
The weighted-average grant-date fair value was $11.38 per share,
$14.88 per share and $11.59 per share for options granted during
fiscal 2009, 2008 and 2007, respectively. The total intrinsic
value of options exercised during fiscal 2009, 2008 and 2007 was
$4.0 million, $46.8 million and $49.4 million,
respectively, at the time of exercise.
A summary of the status of our nonvested stock options at
July 3, 2009 and changes during fiscal 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Nonvested stock options at June 27, 2008
|
|
|
1,783,516
|
|
|
$
|
13.31
|
|
Stock options granted
|
|
|
1,546,429
|
|
|
$
|
11.38
|
|
Stock options vested
|
|
|
(1,339,681
|
)
|
|
$
|
9.20
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options at July 3, 2009
|
|
|
1,990,264
|
|
|
$
|
14.58
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2009, there was $29.0 million of total
unrecognized compensation cost related to nonvested stock
options granted under our SIPs. This cost is expected to be
recognized over a weighted-average period of 1.49 years.
The total fair value of stock options that vested during fiscal
2009, 2008 and 2007 was approximately $12.3 million,
$12.1 million and $6.1 million, respectively.
Restricted
Stock Awards
The following information relates to awards of restricted stock
and restricted stock units that have been granted to employees
under our SIPs. The restricted stock and restricted stock units
are not transferable until vested and the restrictions lapse
upon the achievement of continued employment over a specified
time period.
82
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each restricted stock grant is based on the
closing price of our stock on the date of grant and is amortized
to compensation expense over its vesting period. At July 3,
2009, there were 360,181 shares of restricted stock
outstanding.
The fair value of each restricted stock unit, which can be
distributed in cash or shares, is equal to the most probable
estimate of intrinsic value at the time of distribution and is
amortized to compensation expense over the vesting period. At
July 3, 2009, we had 37,116 restricted stock units
outstanding.
A summary of the status of our restricted stock and restricted
stock units at July 3, 2009 and changes during fiscal 2009
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
Price
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Restricted stock and restricted stock units outstanding at
June 27, 2008
|
|
|
434,016
|
|
|
$
|
47.18
|
|
Restricted stock and restricted stock units granted
|
|
|
110,950
|
|
|
$
|
50.57
|
|
Restricted stock and restricted stock units vested
|
|
|
(126,336
|
)
|
|
$
|
40.28
|
|
Restricted stock and restricted stock units forfeited
|
|
|
(21,333
|
)
|
|
$
|
49.70
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and restricted stock units outstanding at
July 3, 2009
|
|
|
397,297
|
|
|
$
|
50.19
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2009, there was $8.3 million of total
unrecognized compensation cost related to restricted stock and
restricted stock unit awards under our SIPs. This cost is
expected to be recognized over a weighted-average period of
1.18 years. The weighted-average grant date price per share
of restricted stock and per unit of restricted stock units
granted during fiscal 2009, 2008 and 2007 was $50.57, $57.47 and
$45.92, respectively. The total fair value of restricted stock
and restricted stock units that vested during fiscal 2009, 2008
and 2007 was approximately $5.1 million, $3.5 million
and $1.6 million, respectively.
Performance
Share Awards
The following information relates to awards of performance
shares and performance share units that have been granted to
employees under our SIPs. Generally, performance share and
performance share unit awards are subject to performance
criteria such as meeting predetermined earnings and return on
invested capital targets for a three-year plan period. These
awards also generally vest at the expiration of the same
three-year period. The final determination of the number of
shares to be issued in respect of an award is determined by our
Board of Directors or a committee of our Board of Directors.
The fair value of each performance share is based on the closing
price of our stock on the date of grant and is amortized to
compensation expense over its vesting period, if achievement of
the performance measures is considered probable. At July 3,
2009, there were 662,216 performance shares outstanding.
The fair value of each performance share unit, which can be
distributed in cash or shares, is equal to the most probable
estimate of intrinsic value at the time of distribution and is
amortized to compensation expense over the vesting period. At
July 3, 2009, there were 53,552 performance share units
outstanding.
A summary of the status of our performance shares and
performance share units at July 3, 2009 and changes during
fiscal 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
Price
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Performance shares and performance share units outstanding at
June 27, 2008
|
|
|
675,795
|
|
|
$
|
46.30
|
|
Performance shares and performance share units granted
|
|
|
356,268
|
|
|
$
|
48.82
|
|
Performance shares and performance share units vested
|
|
|
(287,233
|
)
|
|
$
|
37.37
|
|
Performance shares and performance share units forfeited
|
|
|
(29,062
|
)
|
|
$
|
51.88
|
|
|
|
|
|
|
|
|
|
|
Performance shares and performance share units outstanding at
July 3, 2009
|
|
|
715,768
|
|
|
$
|
50.90
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2009, there was $14.2 million of total
unrecognized compensation cost related to performance share and
performance share unit awards under our SIPs. This cost is
expected to be recognized over a weighted-average period of
1.52 years. The weighted-average grant date price per share
of performance shares and per unit of
83
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance share units granted during fiscal 2009, 2008 and
2007 was $48.82, $46.86 and $43.88, respectively. The total fair
value of performance share and performance share units that
vested during fiscal 2009, 2008 and 2007 was approximately
$10.7 million, $7.7 million and $4.5 million,
respectively.
Other
Prior to fiscal 2008, under Harris U.S. retirement plans,
most
U.S.-based
employees were able to select an option to invest in
Harris common stock at 70 percent of current market
value limited to the lesser of (a) one percent of their
eligible compensation and (b) 20 percent of a
participants total contribution to the plan, which was
matched by us. The discount from fair market value on common
stock purchased by employees under our U.S. retirement
plans was charged to compensation expense in the period of the
related purchase. Effective in fiscal 2008, we no longer
provided a discount to invest in our common stock.
|
|
NOTE 15:
|
INCOME
FROM CONTINUING OPERATIONS PER DILUTED SHARE
|
The computations of income from continuing operations per
diluted share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except per share amounts)
|
|
|
Income from continuing operations
|
|
$
|
312.4
|
|
|
$
|
453.5
|
|
|
$
|
347.2
|
|
Impact of convertible debentures
|
|
|
|
|
|
|
0.5
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations used in diluted share
calculation (A)
|
|
$
|
312.4
|
|
|
$
|
454.0
|
|
|
$
|
351.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
132.3
|
|
|
|
133.9
|
|
|
|
132.5
|
|
Impact of dilutive stock options
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
2.0
|
|
Impact of convertible debentures
|
|
|
|
|
|
|
0.8
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding (B)
|
|
|
133.2
|
|
|
|
136.5
|
|
|
|
141.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per diluted share (A)/(B)
|
|
$
|
2.35
|
|
|
$
|
3.33
|
|
|
$
|
2.49
|
|
In fiscal 2003, we issued $150 million in aggregate
principal amount of 3.5% Convertible Debentures due August
2022. Holders of the debentures had the right to convert each of
their debentures into shares of our common stock prior to the
stated maturity. During fiscal 2008, each holder received
44.2404 shares of our common stock for each $1,000 of
debentures surrendered for conversion. This represented a
conversion price of $22.625 per share of our common stock. All
outstanding debentures were either converted or redeemed during
the first quarter of fiscal 2008.
Potential dilutive common shares primarily consist of employee
stock options. Employee stock options to purchase approximately
4,113,850, 1,027,350 and zero shares of our stock were
outstanding at the end of fiscal 2009, 2008 and 2007,
respectively, but were not included in the computation of net
income per diluted share because the effect would have been
antidilutive as the options exercise prices exceeded the
average market price.
|
|
NOTE 16:
|
RESEARCH
AND DEVELOPMENT
|
Company-sponsored research and product development costs are
expensed as incurred. These costs were $243.5 million in
fiscal 2009, $248.0 million in fiscal 2008 and
$195.2 million in fiscal 2007 and are included in the
Engineering, selling and administrative expenses
line item in our Consolidated Statement of Income.
Customer-sponsored research and development costs are incurred
pursuant to contractual arrangements and are accounted for
principally by the
percentage-of-completion
method. Customer-sponsored research and development costs
incurred under U.S. Government-sponsored contracts require
us to provide a product or service meeting certain defined
performance or other specifications (such as designs).
Customer-sponsored research and development was
$759.2 million in fiscal 2009, $731.8 million in
fiscal 2008 and $689.0 million in fiscal 2007.
Customer-sponsored research and development is included in our
revenue and cost of product sales and services.
|
|
NOTE 17:
|
INTEREST
EXPENSE
|
Total interest expense was $52.8 million,
$53.1 million and $38.9 million in fiscal 2009, 2008
and 2007, respectively. Interest paid was $49.0 million,
$54.1 million and $36.8 million in fiscal 2009, 2008
and 2007, respectively.
84
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 18:
|
LEASE
COMMITMENTS
|
We account for leases in accordance with the provisions of
Statement of Financial Accounting Standard No. 13,
Accounting for Leases and other related
authoritative guidance. Total rental expense amounted to
$33.4 million in fiscal 2009, $33.4 million in fiscal
2008 and $27.2 million in fiscal 2007. Future minimum
rental commitments under leases with an initial lease term in
excess of one year, primarily for land and buildings, amounted
to approximately $120.7 million at July 3, 2009. These
commitments for the years following fiscal 2009 and, in total,
thereafter are: fiscal 2010 $29.5 million;
fiscal 2011 $20.1 million; fiscal
2012 $16.9 million; fiscal 2013
$14.1 million; fiscal 2014 $10.9 million;
and $29.2 million thereafter. These commitments do not
contain any material rent escalations, rent holidays, contingent
rent, rent concessions, leasehold improvement incentives or
unusual provisions or conditions. We do not consider any of
these individual leases material to our operations. Leasehold
improvements made either at the inception of the lease or during
the lease term are amortized over the current lease term, or
estimated life, if shorter.
|
|
NOTE 19:
|
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
|
In the normal course of doing business, we are exposed to global
market risks, including the effect of changes in foreign
currency exchange rates. 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. Statement 133 requires us to
recognize all derivatives in our Consolidated Balance Sheet at
fair value. We do not hold or issue derivatives for trading
purposes.
At July 3, 2009, we had open foreign exchange contracts
with a notional amount of $47.6 million, of which
$20.2 million were classified as cash flow hedges and
$27.4 million were classified as fair value hedges under
the provisions of Statement 133. This compares with open foreign
exchange contracts with a notional amount of $47.4 million
at June 27, 2008, of which $30.7 million were
classified as cash flow hedges and $16.7 million were
classified as fair value hedges under the provisions of
Statement 133. At July 3, 2009, contract expiration dates
ranged from less than one month to 12 months with a
weighted average contract life of 2 months.
Balance
Sheet Hedges
To manage the exposure in our balance sheet to risks from
changes in foreign currency exchange rates, we implement 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 income, in the Cost of product sales and
services line item in our Consolidated Statement of
Income. As of July 3, 2009, we had outstanding foreign
currency forward contracts denominated in the Euro, British
Pound, Canadian Dollar and Singapore Dollar to hedge certain
balance sheet items. The net gains on foreign exchange contracts
designated as fair value hedges were not material in fiscal
2009, 2008 or 2007. In addition, no amounts were recognized in
our income from continuing operations in fiscal 2009, 2008 and
2007 related to hedged firm commitments that no longer qualify
as fair value hedges.
Cash Flow
Hedges
To manage the exposure in our income statement to currency risk
and market fluctuation risk associated with anticipated or
forecasted cash flows that are probable of occurring in the
future, we implement cash flow hedges. More specifically, we use
foreign currency forward contracts and options to hedge
off-balance sheet future foreign currency commitments, including
purchase commitments from suppliers, future committed sales to
customers and intercompany transactions. These derivatives are
primarily being used to hedge currency exposures from cash flows
anticipated in our RF Communications segment related to programs
in the U.K., the Netherlands, Japan and China. We also have
hedged U.S. dollar payments to suppliers to maintain our
anticipated profit margins in our international operations. As
of July 3, 2009, we had outstanding foreign currency
forward contracts and options denominated in the Euro, British
Pound, Japanese Yen and Chinese Yuan Renminbi to hedge certain
forecasted transactions.
These derivatives have only nominal intrinsic value at the time
of purchase and have a high degree of correlation to the
anticipated cash flows they are designated to hedge. Hedge
effectiveness is determined by the correlation of the
anticipated cash flows and the maturity dates of the derivatives
used to hedge these cash flows. In accordance with Statement
133, such financial instruments are
marked-to-market
using forward prices and fair value quotes with the offset to
other comprehensive income, net of hedge ineffectiveness. Gains
and losses from other comprehensive income are reclassified to
earnings when the related hedged item is recognized in earnings.
The ineffective portion of a derivatives change in fair
value is immediately recognized in earnings. The cash flow
85
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impact of our derivatives is included in the same category in
our Consolidated Statement of Cash Flows as the cash flows of
the item being hedged.
A net gain of $2.0 million related to the effective portion
of outstanding foreign exchange contracts designated as cash
flow hedges was recognized in the Accumulated other
comprehensive income (loss) line item in our Consolidated
Balance Sheet as of July 3, 2009, which we estimate will be
reclassified into net income from comprehensive income within
the next 12 months. A net loss of $7.2 million was
reclassified from the Accumulated other comprehensive
income (loss) line item in our Consolidated Balance Sheet
to the Cost of product sales and services line item
in our Consolidated Statement of Income in fiscal year 2009. The
amount of gains or losses included in our income from continuing
operations related to the ineffective portion of our cash flow
hedges was not material in fiscal 2009, 2008 or 2007.
Credit
Risk
We are exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but we do not
expect any of the counterparties to fail to meet their
obligations. To manage credit risks, we select counterparties
based on credit ratings, limit our exposure to a single
counterparty under defined guidelines and monitor the market
position with each counterparty.
See
Note 24: Fair Value Measurements
for the amount
of the assets and liabilities related to these foreign exchange
contracts in our Consolidated Balance Sheet as of July 3,
2009, and see our Consolidated Statement of Comprehensive Income
and Shareholders Equity for additional information on
changes in other comprehensive income (loss) for the three
fiscal years ended July 3, 2009.
|
|
NOTE 20:
|
NON-OPERATING
INCOME (LOSS)
|
The components of non-operating income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Impairment of securities
available-for-sale
|
|
$
|
(7.6
|
)
|
|
$
|
|
|
|
$
|
|
|
Gain on AuthenTec warrants
|
|
|
|
|
|
|
5.6
|
|
|
|
|
|
Gain on the sale of securities
available-for-sale
|
|
|
|
|
|
|
9.8
|
|
|
|
|
|
Gain on the sale of investments
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
Impairment of investments
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(19.8
|
)
|
Net royalty income (expense)
|
|
|
3.4
|
|
|
|
(0.6
|
)
|
|
|
0.6
|
|
Other
|
|
|
1.1
|
|
|
|
(2.9
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3.1
|
)
|
|
$
|
11.4
|
|
|
$
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the gain realized on the sale of securities
available-for-sale
was transferred from accumulated other comprehensive income.
|
|
NOTE 21:
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
|
The components of accumulated other comprehensive income (loss)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Foreign currency translation
|
|
$
|
(17.5
|
)
|
|
$
|
46.5
|
|
Net unrealized gain (loss) on securities
available-for-sale,
net of income taxes
|
|
|
(0.2
|
)
|
|
|
4.8
|
|
Net unrealized gain (loss) on hedging derivatives, net of income
taxes
|
|
|
1.2
|
|
|
|
(1.1
|
)
|
Unamortized loss on treasury lock, net of income taxes
|
|
|
(4.6
|
)
|
|
|
(5.2
|
)
|
Unrecognized pension obligations, net of income taxes
|
|
|
(30.3
|
)
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(51.4
|
)
|
|
$
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 22:
|
IMPAIRMENT
OF GOODWILL AND OTHER LONG-LIVED ASSETS
|
In accordance with Statement 142, we test our goodwill and other
indefinite-lived intangible assets for impairment annually, as
well as when we change reporting segments and when events or
circumstances indicate there may be an impairment. In the fourth
quarter of fiscal 2009, we performed our annual review for
impairment of our reporting units goodwill and other
indefinite-lived intangible assets. To test for potential
impairment, we determined the fair
86
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of our reporting units based on projected discounted cash
flows and market-based multiples applied to sales and earnings.
Because of the global recession and postponement of capital
projects which significantly weakened demand, and the general
decline of peer company valuations impacting our valuation, it
appeared that goodwill in our Broadcast Communications segment
was impaired, as the results of step one testing indicated the
adjusted net book value of this segment exceeded its fair value.
We then allocated this fair value to the Broadcast
Communications segments underlying assets and liabilities
to determine the implied fair value of goodwill.
In conjunction with the above-described impairment review, we
conducted a review for impairment of Broadcast
Communications other long-lived assets, including
amortizable intangible assets and capitalized software, in
accordance with Statement 144, as any impairment of these assets
must be considered prior to the conclusion of the impairment
review under Statement 142. The fair value of Broadcast
Communications other long-lived assets were determined
based on projected discounted cash flows based on future sales
and operating costs, except for product trade names, in which
case we projected discounted cash flows based on the
relief-from-royalty method.
As a result of these impairment reviews, we determined that the
goodwill, amortizable intangible assets and capitalized software
for the Broadcast Communications segment were impaired.
Accordingly, during the fourth quarter of fiscal 2009, the
Broadcast Communications segment recorded a $255.5 million
impairment charge, consisting of charges of $160.9 million,
$70.2 million and $24.4 million for impairment of
goodwill, amortizable intangible assets and capitalized
software, respectively.
The provisions for income taxes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
227.3
|
|
|
$
|
201.1
|
|
|
$
|
144.3
|
|
International
|
|
|
1.7
|
|
|
|
5.8
|
|
|
|
7.2
|
|
State and local
|
|
|
20.1
|
|
|
|
23.8
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249.1
|
|
|
|
230.7
|
|
|
|
172.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
(58.3
|
)
|
|
|
(12.3
|
)
|
|
|
(3.4
|
)
|
International
|
|
|
(4.0
|
)
|
|
|
(1.3
|
)
|
|
|
0.6
|
|
State and local
|
|
|
(13.9
|
)
|
|
|
(3.1
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76.2
|
)
|
|
|
(16.7
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172.9
|
|
|
$
|
214.0
|
|
|
$
|
170.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of deferred income tax assets (liabilities) are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Current
|
|
|
Non-Current
|
|
|
|
(In millions)
|
|
|
Inventory valuations
|
|
$
|
17.1
|
|
|
$
|
|
|
|
$
|
17.2
|
|
|
$
|
|
|
Accruals
|
|
|
115.9
|
|
|
|
73.3
|
|
|
|
87.4
|
|
|
|
9.1
|
|
Depreciation
|
|
|
|
|
|
|
(30.2
|
)
|
|
|
|
|
|
|
(19.2
|
)
|
Domestic tax loss and credit carryforwards
|
|
|
|
|
|
|
16.2
|
|
|
|
|
|
|
|
22.6
|
|
International tax loss and credit carryforwards
|
|
|
|
|
|
|
34.8
|
|
|
|
|
|
|
|
43.8
|
|
International research and development expense deferrals
|
|
|
|
|
|
|
36.9
|
|
|
|
|
|
|
|
37.7
|
|
Acquired intangibles
|
|
|
|
|
|
|
(37.8
|
)
|
|
|
|
|
|
|
(102.6
|
)
|
Share-based compensation
|
|
|
|
|
|
|
29.0
|
|
|
|
|
|
|
|
20.8
|
|
FAS 158 unfunded pension liability
|
|
|
|
|
|
|
15.1
|
|
|
|
|
|
|
|
9.2
|
|
Unrecognized tax benefits
|
|
|
|
|
|
|
6.6
|
|
|
|
|
|
|
|
19.9
|
|
All other net
|
|
|
(12.6
|
)
|
|
|
10.7
|
|
|
|
(0.7
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120.4
|
|
|
|
154.6
|
|
|
|
103.9
|
|
|
|
41.9
|
|
Valuation allowance
|
|
|
(3.2
|
)
|
|
|
(69.3
|
)
|
|
|
|
|
|
|
(84.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117.2
|
|
|
$
|
85.3
|
|
|
$
|
103.9
|
|
|
$
|
(42.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the United States statutory income tax rate
to our effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
0.3
|
|
|
|
1.6
|
|
|
|
3.2
|
|
International income
|
|
|
0.3
|
|
|
|
(0.6
|
)
|
|
|
(0.7
|
)
|
Tax benefits related to export sales
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
Settlement of tax audits
|
|
|
(1.3
|
)
|
|
|
(1.8
|
)
|
|
|
(2.3
|
)
|
Research and development tax credit
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(1.3
|
)
|
Lookback and other interest
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
U.S. production activity benefit
|
|
|
(2.4
|
)
|
|
|
(1.5
|
)
|
|
|
(0.9
|
)
|
Impairment of goodwill and other long-lived assets
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
(0.9
|
)
|
|
|
(0.3
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
35.6
|
%
|
|
|
32.1
|
%
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States income taxes have not been provided on
$338.5 million of undistributed earnings of international
subsidiaries because of our intention to reinvest those earnings
indefinitely. Determination of unrecognized deferred
U.S. tax liability for the undistributed earnings of
international subsidiaries is not practicable. Tax loss and
credit carryforwards as of July 3, 2009 have expiration
dates ranging between one year and no expiration in certain
instances. The amount of Federal, international, and state and
local tax loss carryforwards as of July 3, 2009 were
$4.7 million, $53.8 million and $7.7 million,
respectively. Income (loss) from continuing operations before
income taxes of international subsidiaries was
$(59.3) million in fiscal 2009, $30.0 million in
fiscal 2008 and $32.2 million in fiscal 2007. Income taxes
paid were $308.4 million in fiscal 2009,
$208.8 million in fiscal 2008 and $154.2 million in
fiscal 2007. The valuation allowance decreased
$11.9 million from $84.4 million at the end of fiscal
2008 to $72.5 million at the end of fiscal 2009. The
valuation allowance has been established for financial reporting
purposes, to offset certain domestic and foreign deferred tax
assets due to uncertainty regarding our ability to realize them
in the future.
We adopted FIN 48 effective for fiscal 2008 (which began
June 30, 2007). FIN 48 generally clarifies and sets
forth consistent rules for accounting for uncertain income tax
positions in accordance with Statement 109. We recognized an
immaterial cumulative effect adjustment reducing our liability
for unrecognized tax benefits, interest and penalties and
increasing the June 30, 2007 balance of our retained
earnings. The adoption also resulted in a reclassification of
certain tax liabilities from current to non-current. A
reconciliation of the beginning and ending amounts of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at beginning of the fiscal year
|
|
$
|
42.9
|
|
|
$
|
53.1
|
|
Additions based on tax positions taken during the current year
|
|
|
2.3
|
|
|
|
2.0
|
|
Additions based on tax positions taken during prior years
|
|
|
0.4
|
|
|
|
1.6
|
|
Decreases based on tax positions taken during the current year
|
|
|
|
|
|
|
|
|
Decreases based on tax positions taken during prior years
|
|
|
(19.3
|
)
|
|
|
(9.7
|
)
|
Decreases from settlements
|
|
|
(3.0
|
)
|
|
|
(2.2
|
)
|
Decreases from a lapse of statute of limitations
|
|
|
(0.2
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of the fiscal year
|
|
$
|
23.1
|
|
|
$
|
42.9
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2009, we had $23.1 million of
unrecognized tax benefits, of which $16.7 million would
favorably impact our future tax rates in the event that the tax
benefits are eventually recognized.
We recognize accrued interest and penalties related to
unrecognized tax benefits as part of our income tax expense. We
had accrued $2.7 million for the potential payment of
interest and penalties as of June 27, 2008 (and this amount
was not included in the $42.9 million of unrecognized tax
benefits balance at June 27, 2008 shown above) and
$1.9 million of this total could favorably impact future
tax rates. We had accrued $3.4 million for the potential
payment of interest and penalties as of July 3, 2009 (and
this amount was not included in the $23.1 million
88
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of unrecognized tax benefits balance at July 3, 2009 shown
above) and $2.3 million of this total could favorably
impact future tax rates.
We file numerous separate and consolidated income tax returns
reporting our financial results and, where appropriate, those of
our subsidiaries and affiliates, in the U.S. Federal
jurisdiction, and various state, local and foreign
jurisdictions. Pursuant to the Compliance Assurance Process, the
Internal Revenue Service (IRS) is examining fiscal
2009 and fiscal 2010. We are currently under examination by the
Canadian Revenue Agency for fiscal years 2003 through 2007, and
we are appealing portions of a Canadian assessment relating to
fiscal years 2000 through 2002. We are currently under
examination by various state and international tax authorities
for fiscal years ranging from 1990 through 2006. It is
reasonably possible that there could be a significant decrease
or increase to our unrecognized tax benefit balance during the
course of the next twelve months as these examinations continue,
other tax examinations commence or various statutes of
limitations expire. An estimate of the range of possible changes
cannot be made because of the significant number of
jurisdictions in which we do business and the number of open tax
periods.
|
|
NOTE 24:
|
FAIR
VALUE MEASUREMENTS
|
We adopted Statement 157 in the first quarter of fiscal 2009 and
there was no impact to our financial position, results of
operations or cash flows. In accordance with FSP
FAS 157-2,
we elected to defer until fiscal 2010 the adoption of Statement
157 for nonfinancial assets (including items such as goodwill,
other intangible assets and long-lived assets) and nonfinancial
liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis
(at least annually). Statement 157 defines fair value 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. Statement 157 requires
entities to maximize the use of observable inputs and minimize
the use of unobservable inputs in measuring fair value and
establishes 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:
|
|
|
|
|
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 based on the best
information available in the circumstances.
|
The following table represents the fair value hierarchy of our
financial assets and financial liabilities measured at fair
value on a recurring basis (at least annually) as of
July 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
$
|
3.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.3
|
|
Deferred compensation plans (1)
|
|
|
54.9
|
|
|
|
|
|
|
|
|
|
|
|
54.9
|
|
Foreign exchange forward contracts (2)
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
2.6
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans (3)
|
|
|
54.4
|
|
|
|
|
|
|
|
|
|
|
|
54.4
|
|
Foreign exchange forward contracts (4)
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
(1)
|
|
Represents investments (primarily
money market and mutual stock funds) 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
Consolidated Balance Sheet.
|
|
(2)
|
|
Includes derivatives designated as
hedging instruments under Statement 133, which we include in the
Other current assets line item in our Consolidated
Balance Sheet.
|
|
(3)
|
|
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 Consolidated Balance Sheet.
|
|
(4)
|
|
Includes derivatives designated as
hedging instruments under Statement 133, which we include in the
Other accrued items line item in our Consolidated
Balance Sheet.
|
89
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 25:
|
BUSINESS
SEGMENTS
|
We structure our operations primarily around the products and
services we sell and the markets we serve, and we report the
financial results of our continuing operations in the following
three business segments RF Communications,
Government Communications Systems and Broadcast Communications.
Our RF Communications segment is a global supplier of secure
tactical radio communications and embedded high-grade encryption
solutions for military and government organizations and also of
secured communications systems and equipment for public safety,
utility and transportation markets. Our Government
Communications Systems segment conducts advanced research
studies and produces, integrates and supports highly reliable,
net-centric communications and information technology that solve
the mission-critical challenges of our defense, intelligence and
civilian U.S. Government customers. Our Broadcast
Communications segment serves the global digital and analog
media markets, providing infrastructure and networking products
and solutions, media and workflow solutions, and television and
radio transmission equipment and systems. Within each of our
business segments, there are multiple program areas and product
lines that aggregate into our three business segments described
above.
Our segment reporting structure for fiscal 2009 reflects that,
effective upon commencement of fiscal 2009, our RF
Communications business (part of our Defense Communications and
Electronics segment for fiscal 2008) is reported as its own
separate segment, and our Defense Programs business (the other
part of our Defense Communications and Electronics segment for
fiscal 2008) is reported as part of our Government
Communications Systems segment. Our Broadcast Communications
segment did not change as a result of those adjustments to our
segment reporting structure. The historical results, discussion
and presentation of our business segments as set forth in this
Report reflect the impact of those adjustments to our segment
reporting structure for all periods presented in this Report.
Additionally, in the fourth quarter of fiscal 2009, in
connection with the May 27, 2009 Spin-off in the form of a
taxable pro rata dividend to our shareholders of all the shares
of HSTX common stock owned by us, we eliminated as a reporting
segment our former HSTX segment, which is reported as
discontinued operations in this Report. Until the Spin-off, HSTX
(formerly our Microwave Communications segment), a provider of
wireless network solutions, was our majority-owned subsidiary,
and HSTXs results of operations and financial position
were consolidated into our financial statements. Subsequent to
the Spin-off, we no longer own an equity interest in HSTX and,
therefore, HSTX no longer constitutes part of our business
operations. In accordance with Statement 144, our historical
financial results have been restated to account for HSTX as
discontinued operations for all periods presented in this
Report. See
Note 3: Discontinued Operations
for
additional information regarding discontinued operations.
The accounting policies of our operating segments are the same
as those described in
Note 1: Significant Accounting
Policies
. We evaluate each segments performance based
on its operating income (loss), which we define as
profit or loss from operations before income taxes excluding
interest income and expense, royalties and related intellectual
property expenses, equity income and gains or losses from
securities and other investments. Intersegment sales among our
segments are transferred at cost to the buying segment and the
sourcing segment recognizes a normal profit that is eliminated.
The Corporate eliminations line item in the tables
below represents the elimination of intersegment sales and their
related profits. The Unallocated corporate expense
line item in the tables below represents the portion of
corporate expenses not allocated to the business segments.
Our products and systems are produced principally in the United
States with international revenue derived primarily from
exports. No revenue earned from any individual foreign country
exceeded 3 percent of our total revenue during fiscal 2009,
2008 or 2007.
Sales made to U.S. Government customers, including the DoD
and intelligence and civilian agencies, as well as foreign
military sales through the U.S. Government, whether directly or
through prime contractors, by all segments (primarily our RF
Communications and Government Communications Systems segments)
as a percentage of total revenue were 79.4 percent in
fiscal 2009, 78.9 percent in fiscal 2008 and
74.8 percent in fiscal 2007. Revenue from services in
fiscal 2009 was approximately 4.0 percent,
35.1 percent and 11.4 percent of total revenue in our
RF Communications, Government Communications Systems and
Broadcast Communications segments, respectively.
90
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Selected information by business segment and geographical area
is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
1,473.0
|
|
|
$
|
412.3
|
|
|
$
|
338.7
|
|
Government Communications Systems
|
|
|
1,421.4
|
|
|
|
1,302.3
|
|
|
|
1,200.5
|
|
Broadcast Communications
|
|
|
1,042.4
|
|
|
|
1,404.4
|
|
|
|
1,350.0
|
|
Corporate
|
|
|
528.3
|
|
|
|
560.6
|
|
|
|
507.5
|
|
Discontinued operations
|
|
|
|
|
|
|
947.9
|
|
|
|
1,009.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,465.1
|
|
|
$
|
4,627.5
|
|
|
$
|
4,406.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
30.1
|
|
|
$
|
30.7
|
|
|
$
|
21.9
|
|
Government Communications Systems
|
|
|
42.8
|
|
|
|
45.1
|
|
|
|
36.8
|
|
Broadcast Communications
|
|
|
7.8
|
|
|
|
15.1
|
|
|
|
10.5
|
|
Corporate
|
|
|
4.0
|
|
|
|
13.2
|
|
|
|
11.9
|
|
Discontinued operations
|
|
|
14.0
|
|
|
|
8.8
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98.7
|
|
|
$
|
112.9
|
|
|
$
|
88.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
38.5
|
|
|
$
|
17.3
|
|
|
$
|
13.4
|
|
Government Communications Systems
|
|
|
56.9
|
|
|
|
57.2
|
|
|
|
43.8
|
|
Broadcast Communications
|
|
|
39.1
|
|
|
|
47.0
|
|
|
|
40.4
|
|
Corporate
|
|
|
16.3
|
|
|
|
17.5
|
|
|
|
12.7
|
|
Discontinued operations
|
|
|
33.9
|
|
|
|
34.6
|
|
|
|
40.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
184.7
|
|
|
$
|
173.6
|
|
|
$
|
150.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical Information for continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,754.4
|
|
|
$
|
4,366.9
|
|
|
$
|
3,512.3
|
|
Long-lived assets
|
|
$
|
2,293.8
|
|
|
$
|
1,686.3
|
|
|
$
|
1,575.2
|
|
International operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
250.6
|
|
|
$
|
229.2
|
|
|
$
|
225.6
|
|
Long-lived assets
|
|
$
|
311.9
|
|
|
$
|
383.0
|
|
|
$
|
370.5
|
|
Corporate assets consisted primarily of cash, marketable equity
securities, buildings and equipment. Depreciation and
amortization included intangible assets, capitalized software
and debt issuance costs amortization of $60.7 million,
$63.4 million and $45.5 million in fiscal 2009, 2008
and 2007, respectively.
Export revenue was $766.0 million in fiscal 2009,
$530.5 million in fiscal 2008 and $404.0 million in
fiscal 2007. Fiscal 2009 export revenue and revenue from
international operations was principally from Europe, Asia, the
Middle East and Latin America. Fiscal 2009 long-lived assets
from international operations were principally in Canada, which
had $244.4 million of long-lived assets as of July 3,
2009.
91
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue and income from continuing operations before income
taxes by segment follows:
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
RF Communications
|
|
$
|
1,760.6
|
|
|
$
|
1,506.8
|
|
|
$
|
1,179.1
|
|
Government Communications Systems
|
|
|
2,709.6
|
|
|
|
2,478.1
|
|
|
|
1,997.1
|
|
Broadcast Communications
|
|
|
583.6
|
|
|
|
643.1
|
|
|
|
599.5
|
|
Corporate eliminations
|
|
|
(48.8
|
)
|
|
|
(31.9
|
)
|
|
|
(37.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,005.0
|
|
|
$
|
4,596.1
|
|
|
$
|
3,737.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
From Continuing Operations Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009(2)
|
|
|
2008(3)
|
|
|
2007(4)
|
|
|
|
(In millions)
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
571.5
|
|
|
$
|
525.5
|
|
|
$
|
403.2
|
|
Government Communications Systems
|
|
|
302.8
|
|
|
|
226.0
|
|
|
|
225.6
|
|
Broadcast Communications
|
|
|
(238.0
|
)
|
|
|
33.8
|
|
|
|
11.9
|
|
Unallocated corporate expense
|
|
|
(81.4
|
)
|
|
|
(74.0
|
)
|
|
|
(65.9
|
)
|
Corporate eliminations
|
|
|
(16.9
|
)
|
|
|
(7.3
|
)
|
|
|
(13.4
|
)
|
Non-operating income (loss) (1)
|
|
|
(3.1
|
)
|
|
|
11.4
|
|
|
|
(16.2
|
)
|
Net interest expense
|
|
|
(49.6
|
)
|
|
|
(47.9
|
)
|
|
|
(27.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
485.3
|
|
|
$
|
667.5
|
|
|
$
|
518.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Non-operating income
(loss) included equity investment income (loss), royalties
and related intellectual property expenses, gains and losses on
sales of investments and securities
available-for-sale,
impairments of investments and securities
available-for-sale,
and
mark-to-market
adjustments of derivatives. Additional information regarding
non-operating income (loss) is set forth in
Note 20:
Non-Operating Income (Loss)
.
|
|
(2)
|
|
The operating income in our RF
Communications segment included a $9.5 million charge for
integration and other costs associated with our acquisition of
Wireless Systems. The operating income in our Government
Communications Systems segment included an $18.0 million
($11.3 million after-tax, or $.09 per diluted share) charge
for schedule and cost overruns on commercial satellite reflector
programs. The operating income in our Broadcast Communications
segment included a $255.5 million charge for impairment of
goodwill and other long-lived assets. Additionally, we initiated
a number of cost-reduction actions across our business segments
and at our corporate headquarters during fiscal 2009, resulting
in charges of $8.1 million, $5.0 million,
$13.1 million and $2.4 million in our RF
Communications, Government Communications Systems and Broadcast
Communications segments and at our corporate headquarters,
respectively, for severance and other employee-related exit
costs and for consolidation of facilities.
|
|
(3)
|
|
The operating income in our
Government Communications Systems segment included
$10.0 million of income related to the renegotiation of
pricing on an IT services contract offset by a
$75.9 million ($47.1 million after-tax, or $.34 per
diluted share) charge for schedule and cost overruns on
commercial satellite reflector programs.
|
|
(4)
|
|
The operating income in our
Broadcast Communications segment included a charge of
$7.5 million related to severance and other expenses
associated with cost-reduction actions directed at downsizing to
better align the cost structure for our transmission and
software solution products to their revenue run rates, and an
$18.9 million write-down of capitalized software associated
with our decision to discontinue an automation software
development effort. Non-operating income (loss) included a
$19.8 million write-down of our investment in Terion due to
an
other-than-temporary
impairment.
|
|
|
NOTE 26:
|
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 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; the sale or use of
products 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 typically 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 are expensed when incurred. While it is
not feasible to predict the outcome of
92
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these matters with certainty, and some lawsuits, claims or
proceedings may be disposed of or decided unfavorably to us,
based upon available information, in the opinion of management,
settlements and final judgments, if any, which are considered
probable of being rendered against us in litigation or
arbitration in existence at July 3, 2009 are reserved for,
covered by insurance or would not have a material adverse effect
on our financial position, results of operations or cash flows.
Our tax filings are subject to audit by taxing authorities in
jurisdictions where we conduct business. These audits may result
in assessments of additional taxes that are subsequently
resolved with the authorities or ultimately through established
legal proceedings. We believe we have adequately accrued for any
ultimate amounts that are likely to result from these audits;
however, final assessments, if any, could be different from the
amounts recorded in our Consolidated Financial Statements.
QUARTERLY
FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Total
|
|
|
|
9-26-08(1)
|
|
|
1-2-09(2)
|
|
|
4-3-09(3)
|
|
|
7-3-09(4)
|
|
|
Year
|
|
|
|
(In millions, except per share amounts)
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,172.6
|
|
|
$
|
1,333.2
|
|
|
$
|
1,205.1
|
|
|
$
|
1,294.1
|
|
|
$
|
5,005.0
|
|
Gross profit
|
|
|
380.7
|
|
|
|
407.9
|
|
|
|
391.8
|
|
|
|
404.4
|
|
|
|
1,584.8
|
|
Income from continuing operations before income taxes
|
|
|
171.6
|
|
|
|
202.5
|
|
|
|
198.1
|
|
|
|
(86.9
|
)
|
|
|
485.3
|
|
Income from continuing operations
|
|
|
119.4
|
|
|
|
140.6
|
|
|
|
135.9
|
|
|
|
(83.5
|
)
|
|
|
312.4
|
|
Discontinued operations, net of income taxes
|
|
|
(0.7
|
)
|
|
|
(179.2
|
)
|
|
|
(21.7
|
)
|
|
|
(72.9
|
)
|
|
|
(274.5
|
)
|
Net income
|
|
|
118.7
|
|
|
|
(38.6
|
)
|
|
|
114.2
|
|
|
|
(156.4
|
)
|
|
|
37.9
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
.90
|
|
|
|
1.06
|
|
|
|
1.03
|
|
|
|
(.64
|
)
|
|
|
2.36
|
|
Discontinued operations
|
|
|
(.01
|
)
|
|
|
(1.35
|
)
|
|
|
(.16
|
)
|
|
|
(.55
|
)
|
|
|
(2.07
|
)
|
Net income
|
|
|
.89
|
|
|
|
(.29
|
)
|
|
|
.87
|
|
|
|
(1.19
|
)
|
|
|
.29
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
.89
|
|
|
|
1.06
|
|
|
|
1.02
|
|
|
|
(.64
|
)
|
|
|
2.35
|
|
Discontinued operations
|
|
|
(.01
|
)
|
|
|
(1.35
|
)
|
|
|
(.16
|
)
|
|
|
(.55
|
)
|
|
|
(2.07
|
)
|
Net income
|
|
|
.88
|
|
|
|
(.29
|
)
|
|
|
.86
|
|
|
|
(1.19
|
)
|
|
|
.28
|
|
Cash dividends
|
|
|
.20
|
|
|
|
.20
|
|
|
|
.20
|
|
|
|
.20
|
|
|
|
.80
|
|
Stock prices High
|
|
|
55.00
|
|
|
|
47.52
|
|
|
|
45.25
|
|
|
|
32.22
|
|
|
|
|
|
Low
|
|
|
42.00
|
|
|
|
27.56
|
|
|
|
27.38
|
|
|
|
27.22
|
|
|
|
|
|
93
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Total
|
|
|
|
9-28-07(5)
|
|
|
12-28-07
|
|
|
3-28-08(6)
|
|
|
6-27-08(7)
|
|
|
Year
|
|
|
|
(In millions, except per share amounts)
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,059.1
|
|
|
$
|
1,137.1
|
|
|
$
|
1,153.0
|
|
|
$
|
1,246.9
|
|
|
$
|
4,596.1
|
|
Gross profit
|
|
|
331.8
|
|
|
|
360.2
|
|
|
|
342.7
|
|
|
|
415.8
|
|
|
|
1,450.5
|
|
Income from continuing operations before income taxes
|
|
|
153.6
|
|
|
|
172.4
|
|
|
|
141.1
|
|
|
|
200.4
|
|
|
|
667.5
|
|
Income from continuing operations
|
|
|
99.6
|
|
|
|
113.2
|
|
|
|
106.2
|
|
|
|
134.5
|
|
|
|
453.5
|
|
Discontinued operations, net of income taxes
|
|
|
0.6
|
|
|
|
1.1
|
|
|
|
1.8
|
|
|
|
(12.8
|
)
|
|
|
(9.3
|
)
|
Net income
|
|
|
100.2
|
|
|
|
114.3
|
|
|
|
108.0
|
|
|
|
121.7
|
|
|
|
444.2
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
.76
|
|
|
|
.83
|
|
|
|
.79
|
|
|
|
1.01
|
|
|
|
3.39
|
|
Discontinued operations
|
|
|
|
|
|
|
.01
|
|
|
|
.01
|
|
|
|
(.10
|
)
|
|
|
(.07
|
)
|
Net income
|
|
|
.76
|
|
|
|
.84
|
|
|
|
.80
|
|
|
|
.91
|
|
|
|
3.32
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
.73
|
|
|
|
.82
|
|
|
|
.78
|
|
|
|
.99
|
|
|
|
3.33
|
|
Discontinued operations
|
|
|
|
|
|
|
.01
|
|
|
|
|
|
|
|
(.09
|
)
|
|
|
(.07
|
)
|
Net income
|
|
|
.73
|
|
|
|
.83
|
|
|
|
.78
|
|
|
|
.90
|
|
|
|
3.26
|
|
Cash dividends
|
|
|
.15
|
|
|
|
.15
|
|
|
|
.15
|
|
|
|
.15
|
|
|
|
.60
|
|
Stock prices High
|
|
|
62.43
|
|
|
|
66.94
|
|
|
|
63.17
|
|
|
|
66.71
|
|
|
|
|
|
Low
|
|
|
52.00
|
|
|
|
57.20
|
|
|
|
44.11
|
|
|
|
47.89
|
|
|
|
|
|
|
|
|
(1)
|
|
Income from continuing operations
before income taxes included a $6.8 million
($4.3 million after-tax) charge in our Government
Communications Systems segment for schedule and cost overruns on
commercial satellite reflector programs; a $4.0 million
($2.5 million after-tax) charge in our Broadcast
Communications segment for cost-reduction actions initiated in
response to the global economic slowdown and a related decrease
in capital expenditures by customers; and a $7.6 million
($4.8 million after-tax) non-operating charge to write down
our investment in AuthenTec to reflect an
other-than-temporary
impairment.
|
|
(2)
|
|
Income from continuing operations
before income taxes included a $10.8 million
($6.8 million after-tax) charge in our Government
Communications Systems segment for schedule and cost overruns on
commercial satellite reflector programs; a $5.0 million tax
benefit relating to prior periods from legislative action that
restored the U.S. Federal income tax credit for research and
development expenses; and a $3.7 million state tax benefit
related to the filing of our fiscal 2007 tax returns.
|
|
(3)
|
|
Income from continuing operations
before income taxes included a $7.5 million
($4.7 million after-tax) non-operating gain on our sale of
certain non-strategic patents and a $6.5 million favorable
impact from the settlement of the U.S. Federal income tax audit
of fiscal year 2007.
|
|
(4)
|
|
Income from continuing operations
before income taxes included a $255.5 million
($196.7 million after-tax) charge in our Broadcast
Communications segment for impairment of goodwill and other
long-lived assets; a $9.5 million ($6.0 million
after-tax) charge related to integration and other costs
associated with our acquisition of Wireless Systems; and a
$22.3 million ($14.0 million after-tax) charge for
company-wide cost-reduction actions initiated in response to the
global economic slowdown, pressure on DoD spending, and contract
delays. These cost-reduction actions resulted in charges of
$8.1 million, $3.4 million, $8.4 million and
$2.4 million in our RF Communications, Government
Communications Systems and Broadcast Communications segments and
at our corporate headquarters, respectively, for severance and
facilities consolidation actions.
|
|
(5)
|
|
Income from continuing operations
before income taxes included a $23.6 million pre-tax
($14.6 million after-tax) charge for schedule and cost
overruns on commercial satellite reflector programs in our
Government Communications Systems segment.
|
|
(6)
|
|
Income from continuing operations
before income taxes included a $46.8 million pre-tax
($29.0 million after-tax) charge for schedule and cost
overruns on commercial satellite reflector programs in our
Government Communications Systems segment, partially offset by
an $11 million favorable impact from the settlement of U.S.
Federal income tax audits for fiscal 2004 through 2006.
|
|
(7)
|
|
Income from continuing operations
before income taxes included a $5.5 million pre-tax
($3.4 million after-tax) charge for schedule and cost
overruns on commercial satellite reflector programs in our
Government Communications Systems segment.
|
94
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
(a)
Evaluation of disclosure controls and
procedures:
We maintain disclosure controls and
procedures that are designed to ensure that information required
to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. Our
disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed in our reports filed or submitted under
the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosures. There are inherent limitations to the
effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures
can provide only reasonable assurance of achieving their control
objectives, and management necessarily is required to use its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. As required by
Rule 13a-15
under the Exchange Act, as of the end of fiscal 2009, we carried
out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive
Officer and our Chief Financial Officer. Based upon this work
and other evaluation procedures, our management, including our
Chief Executive Officer and our Chief Financial Officer, has
concluded that as of the end of fiscal 2009 our disclosure
controls and procedures were effective.
(b)
Changes in internal control:
We
periodically review our internal control over financial
reporting as part of our efforts to ensure compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002. In addition, we routinely review our system of internal
control over financial reporting to identify potential changes
to our processes and systems that may improve controls and
increase efficiency, while ensuring that we maintain an
effective internal control environment. Changes may include such
activities as implementing new, more efficient systems,
consolidating the activities of business units, migrating
certain processes to our shared services organizations,
formalizing policies and procedures, improving segregation of
duties, and adding additional monitoring controls. In addition,
when we acquire new businesses, we incorporate our controls and
procedures into the acquired business as part of our integration
activities. There have been no changes in our internal control
over financial reporting that occurred during the quarter ended
July 3, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
(c)
Evaluation of Internal Control over Financial
Reporting.
Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting. Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of our internal control over
financial reporting as of the end of fiscal 2009 and concluded
that our internal control over financial reporting was effective
as of the end of fiscal 2009. Managements Report on
Internal Control Over Financial Reporting is included
within Item 8. Financial Statements and Supplementary
Data of this Report. The effectiveness of our internal
control over financial reporting was audited by
Ernst & Young LLP, our independent registered public
accounting firm. Their unqualified report is included within
Item 8. Financial Statements and Supplementary
Data of this Report.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
Not applicable.
95
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
(a)
Identification of Directors:
The
information required by this Item, with respect to our
directors, is incorporated herein by reference to the discussion
under the headings
Proposal 1: Election of
Directors Terms Expiring In 2010
and
Current
Directors Not Up For Election
in our Proxy Statement for our
Annual Meeting of Shareholders scheduled to be held on
October 23, 2009, which proxy statement is expected to be
filed within 120 days after the end of our 2009 fiscal year.
(b)
Identification of Executive
Officers:
Certain information regarding our
executive officers is included in Part I of this Report
under the heading Executive Officers of the
Registrant in accordance with General
Instruction G(3) of
Form 10-K.
(c)
Audit Committee Information; Financial
Expert:
The information required by this Item
with respect to the Audit Committee of our Board of Directors
and Audit Committee financial experts is incorporated herein by
reference to the discussion under the headings
Board
Committees and Committee Charters
,
Audit Committee
and
Committee Membership
in our Proxy Statement for
our Annual Meeting of Shareholders scheduled to be held on
October 23, 2009, which proxy statement is expected to be
filed within 120 days after the end of our 2009 fiscal year.
(d)
Section 16(a) Beneficial Ownership Reporting
Compliance:
The information relating to
compliance with Section 16(a) of the Exchange Act is
incorporated herein by reference to the discussion under the
heading
Section 16(a) Beneficial Ownership Reporting
Compliance
in our Proxy Statement for our Annual Meeting of
Shareholders scheduled to be held on October 23, 2009,
which proxy statement is expected to be filed within
120 days after the end of our 2009 fiscal year.
(e)
Code of Ethics:
All our directors and
employees, including our Chief Executive Officer, Chief
Financial Officer, Principal Accounting Officer and other senior
accounting and financial officers, are required to abide by our
Standards of Business Conduct. Our Standards of Business Conduct
are posted on our website at
www.harris.com/business-conduct
and are also available free of charge by written request to
our Director of Business Conduct, Harris Corporation,
1025 West NASA Boulevard, Melbourne, Florida 32919. We
intend to disclose any amendment to, or waiver from, our
Standards of Business Conduct granted in favor of any of our
directors or officers on the Business Conduct section of our
website at
www.harris.com/business-conduct
within four
business days following such amendment or waiver. The
information required by this Item with respect to codes of
ethics is incorporated herein by reference to the discussion
under the heading
Standards of Business Conduct
in our
Proxy Statement for our Annual Meeting of Shareholders scheduled
to be held on October 23, 2009, which proxy statement is
expected to be filed within 120 days after the end of our
2009 fiscal year.
(f)
Policy for Nominees:
The information
required under Item 407(c)(3) of
Regulation S-K
is incorporated herein by reference to the discussion concerning
procedures by which shareholders may recommend nominees to our
Board of Directors contained under the heading
Director
Nomination Process and Criteria
in our Proxy Statement for
our Annual Meeting of Shareholders scheduled to be held on
October 23, 2009, which proxy statement is expected to be
filed within 120 days after the end of our 2009 fiscal
year. No material changes to those procedures have occurred
since the disclosure regarding those procedures in our Proxy
Statement for our 2008 Annual Meeting of Shareholders.
Separately, in fiscal 2009, we amended the advance notice
provision of our
By-Laws
which, among other things, changed the timing and information
requirements for advance notice of any nomination of directors
directly by a shareholder. Additional information concerning
requirements and procedures for shareholders directly nominating
directors is contained under the heading
Shareholder
Proposals for the 2010 Annual Meeting of Shareholders
in our
Proxy Statement for our Annual Meeting of Shareholders scheduled
to be held on October 23, 2009, which proxy statement is
expected to be filed within 120 days after the end of our
2009 fiscal year.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
The information required by this Item, with respect to
compensation of our directors and executive officers, is
incorporated herein by reference to the discussion under the
headings
Director Compensation and Benefits
,
Executive
Compensation
and
Management Development and Compensation
Committee Report
in our Proxy Statement for our Annual
Meeting of Shareholders scheduled to be held on October 23,
2009, which proxy statement is expected to be filed within
120 days after the end of our 2009 fiscal year.
96
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
EQUITY
COMPENSATION PLAN INFORMATION
The following table provides information as of July 3, 2009
about our common stock that may be issued, whether upon the
exercise of options, warrants and rights or otherwise, under our
existing equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
Number of securities to be
|
|
|
Weighted-average
|
|
|
future issuance under
|
|
|
|
issued upon exercise
|
|
|
exercise price
|
|
|
equity compensation plans
|
|
|
|
of outstanding options,
|
|
|
of outstanding options,
|
|
|
(excluding securities
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
reflected in column (a))
|
|
Plan Category
|
|
(a)(2)
|
|
|
(b)(2)
|
|
|
(c)
|
|
|
Equity compensation plans approved by shareholders (1)
|
|
|
6,017,226
|
|
|
$
|
36.99
|
|
|
|
21,531,236
|
|
Equity compensation plans not approved by shareholders
|
|
|
-0-
|
|
|
|
N/A
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,017,226
|
|
|
$
|
36.99
|
|
|
|
21,531,236
|
|
|
|
|
(1)
|
|
Consists of the Harris Corporation Stock Incentive Plan, the
Harris Corporation 2000 Stock Incentive Plan and the Harris
Corporation 2005 Equity Incentive Plan. No additional awards may
be granted under the Harris Corporation Stock Incentive Plan or
the Harris Corporation 2000 Stock Incentive Plan.
|
|
(2)
|
|
Under the Harris Corporation 2005 Equity Incentive Plan, in
addition to options, we have granted share-based compensation
awards in the form of performance shares, restricted stock,
performance share units, restricted stock units, or other
similar types of share awards. As of July 3, 2009, there
were 1,113,065 such awards outstanding under that plan. The
outstanding awards consisted of (i) 1,022,397 performance
share awards and restricted stock awards, for which all
1,022,397 shares were issued and outstanding; and
(ii) 90,668 performance share unit awards and restricted
stock unit awards, for which all 90,668 were payable in shares
but for which no shares were yet issued and outstanding. The
6,017,226 shares to be issued upon exercise of outstanding
options, warrants and rights as listed in column
(a) consisted of shares to be issued in respect of the
exercise of 5,926,558 outstanding options and in respect of the
90,668 performance share unit awards and restricted stock units
awards payable in shares. Because there is no exercise price
associated with performance share awards or restricted stock
awards or with performance share units awards or restricted
stock unit awards, all of which are granted to employees at no
cost, such awards are not included in the weighted average
exercise price calculation in column (b).
|
See
Note 14: Stock Options and Other Share-Based
Compensation
in the Notes for a general description of our
stock and equity incentive plans.
The other information required by this Item, with respect to
security ownership of certain of our beneficial owners and
management, is incorporated herein by reference to the
discussion under the headings
Our Largest Shareholders
and
Shares Held By Our Directors and Executive
Officers
in our Proxy Statement for our Annual Meeting of
Shareholders scheduled to be held on October 23, 2009,
which proxy statement is expected to be filed within
120 days after the end of our 2009 fiscal year.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
The information required by this Item is incorporated herein by
reference to the discussion under the headings
Director
Independence
and
Related Person Transaction Policy
in
our Proxy Statement for our Annual Meeting of Shareholders
scheduled to be held on October 23, 2009, which proxy
statement is expected to be filed within 120 days after the
end of our 2009 fiscal year.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
The information required by this Item is incorporated herein by
reference to the discussion under the heading
Proposal 2: Ratification of the Appointment of
Independent Registered Public Accounting Firm
in our Proxy
Statement for our Annual Meeting of Shareholders scheduled to be
held on October 23, 2009, which proxy statement is expected
to be filed within 120 days after the end of our 2009
fiscal year.
97
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.
|
The following documents are filed as a part of this
Report:
|
|
|
|
|
|
|
Page
|
|
(1) List of Financial Statements Filed as Part of
this Report
|
|
|
|
|
The following financial statements and reports of Harris
Corporation and its consolidated subsidiaries are included in
Item 8. of this Report at the page numbers referenced below:
|
|
|
|
|
Managements Report on Internal Control Over Financial
Reporting
|
|
|
56
|
|
Report of Independent Registered Public Accounting Firm on the
Consolidated Financial Statements
|
|
|
57
|
|
Report of Independent Registered Public Accounting Firm on the
Effectiveness of Internal Control Over Financial Reporting
|
|
|
58
|
|
Consolidated Statement of Income Fiscal Years ended
July 3, 2009; June 27, 2008; and June 29, 2007
|
|
|
59
|
|
Consolidated Balance Sheet July 3, 2009 and
June 27, 2008
|
|
|
60
|
|
Consolidated Statement of Cash Flows Fiscal Years
ended July 3, 2009; June 27, 2008; and June 29,
2007
|
|
|
61
|
|
Consolidated Statement of Comprehensive Income and
Shareholders Equity Fiscal Years ended
July 3, 2009; June 27, 2008; and June 29, 2007
|
|
|
62
|
|
Notes to Consolidated Financial Statements
|
|
|
63
|
|
(2) Financial Statement Schedules:
|
|
|
|
|
Schedule II Valuation and Qualifying
Accounts Fiscal Years ended July 3, 2009;
June 27, 2008; and June 29, 2007
|
|
|
106
|
|
All other schedules are omitted because they are not applicable,
the amounts are not significant, or the required information is
shown in the Consolidated Financial Statements or the Notes
thereto.
(3) Exhibits:
The following exhibits are filed herewith or are incorporated
herein by reference to exhibits previously filed with the SEC:
(1)(a) Underwriting Agreement, dated as of November 30,
2007, among Harris Corporation and Bank of America Securities
LLC and Morgan Stanley & Co. Incorporated, on behalf
of the several underwriters named therein, incorporated herein
by reference to Exhibit 1.1 to the Companys Current
Report on
Form 8-K
filed with the SEC on December 5, 2007. (Commission File
Number 1-3863)
(1)(b) Underwriting Agreement, dated as of June 4, 2009,
among Harris Corporation and Citigroup Global Markets Inc. and
Morgan Stanley & Co. Incorporated, on behalf of the
several underwriters named therein, incorporated herein by
reference to Exhibit 1.1 to the Companys Current
Report on
Form 8-K
filed with the SEC on June 10, 2009. (Commission File
Number 1-3863)
(2)(a)(i) Asset Purchase Agreement, dated as of April 16,
2009, among Harris Corporation, Tyco Electronics Group S.A. and,
solely for the limited purposes of Section 11.09, Tyco
Electronics Ltd., incorporated herein by reference to
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed with the SEC on April 22, 2009. (Commission File
Number 1-3863)
(ii) Amendment to Asset Purchase Agreement, dated as of
May 29, 2009, by and among Harris Corporation, Tyco
Electronics Group S.A. and, solely for the limited purposes of
Section 11.09, Tyco Electronics Ltd., incorporated herein by
reference to Exhibit 2.2 to the Companys Current
Report on
Form 8-K
filed with the SEC on June 2, 2009. (Commission File Number
1-3863)
(3)(a) Restated Certificate of Incorporation of Harris
Corporation (1995), as amended, incorporated herein by reference
to Exhibit 3(a) to the Companys Quarterly Report on
Form
10-Q
for the fiscal quarter ended September 26, 2008.
(Commission File Number 1-3863)
(3)(b) By-Laws of Harris Corporation, as amended and restated
effective October 24, 2008, incorporated herein by
reference to Exhibit 3(ii) to the Companys Current
Report on
Form 8-K
filed with the SEC on October 29, 2008. (Commission File
Number 1-3863)
98
(4)(a) Specimen stock certificate for the Companys common
stock, incorporated herein by reference to Exhibit 4(a) to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 31, 2004. (Commission
File Number 1-3863)
(4)(b)(i) Indenture, dated as of May 1, 1996, between
Harris Corporation and The Bank of New York, as Trustee,
relating to unlimited amounts of debt securities which may be
issued from time to time by the Company when and as authorized
by the Companys Board of Directors or a Committee of the
Board, incorporated herein by reference to Exhibit 4 to the
Companys Registration Statement on
Form S-3,
Registration Statement
No. 333-03111,
filed with the SEC on May 3, 1996.
(ii) Instrument of Resignation from Trustee and Appointment
and Acceptance of Successor Trustee among Harris Corporation, JP
Morgan Chase Bank, as Resigning Trustee and The Bank of
New York, as Successor Trustee, dated as of
November 1, 2002 (effective November 15, 2002),
incorporated herein by reference to Exhibit 99.4 to the
Companys Quarterly Report on Form
10-Q
for the
fiscal quarter ended September 27, 2002. (Commission File
Number 1-3863)
(4)(c) Indenture, dated as of October 1, 1990, between
Harris Corporation and National City Bank, as Trustee, relating
to unlimited amounts of debt securities which may be issued from
time to time by the Company when and as authorized by the
Companys Board of Directors or a Committee of the Board,
incorporated herein by reference to Exhibit 4 to the
Companys Registration Statement on
Form S-3,
Registration Statement
No. 33-35315,
filed with the SEC on June 8, 1990.
(4)(d) Indenture, dated as of August 26, 2002, between
Harris Corporation and The Bank of New York, as Trustee,
relating to $150,000,000 of 3.5% Convertible Debentures due
2022, incorporated herein by reference to Exhibit 99.2 to
the Companys Current Report on
Form 8-K
filed with the SEC on August 26, 2002. (Commission File
Number 1-3863)
(4)(e)(i) Indenture, dated as of September 3, 2003, between
Harris Corporation and The Bank of New York, as Trustee,
relating to unlimited amounts of debt securities which may be
issued from time to time by the Company when and as authorized
by the Companys Board of Directors or a Committee of the
Board, incorporated herein by reference to Exhibit 4(b) to
the Companys Registration Statement on
Form S-3,
Registration Statement
No. 333-108486,
filed with the SEC on September 3, 2003.
(ii) Instrument of Resignation of Trustee, Appointment and
Acceptance of Successor Trustee, dated as of June 2, 2009,
among Harris Corporation, The Bank of New York Mellon (formerly
known as The Bank of New York) and The Bank of New York Mellon
Trust Company, N.A., as to Indenture dated as of
September 3, 2003, incorporated herein by reference to
Exhibit 4(m) to the Companys Registration Statement on
Form S-3,
Registration Statement No.
333-159688,
filed with the SEC on June 3, 2009.
(4)(f)(i) Subordinated Indenture, dated as of September 3,
2003, between Harris Corporation and The Bank of New York, as
Trustee, relating to unlimited amounts of debt securities which
may be issued from time to time by the Company when and as
authorized by the Companys Board of Directors or a
Committee of the Board, incorporated herein by reference to
Exhibit 4(c) to the Companys Registration Statement
on
Form S-3,
Registration Statement No.
333-108486,
filed with the SEC on September 3, 2003.
(ii) Instrument of Resignation of Trustee, Appointment and
Acceptance of Successor Trustee, dated as of June 2, 2009,
among Harris Corporation, The Bank of New York Mellon (formerly
known as The Bank of New York) and The Bank of New York Mellon
Trust Company, N.A., as to Subordinated Indenture dated as
of September 3, 2003, incorporated herein by reference to
Exhibit 4(n) to the Companys Registration Statement
on
Form S-3,
Registration Statement
No. 333-159688,
filed with the SEC on June 3, 2009.
(4)(g) Form of the Companys 5% Notes due 2015,
incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed with the SEC on September 16, 2005. (Commission File
Number 1-3863)
(4)(h) Form of Harris Corporations 5.95% Notes due
2017, incorporated herein by reference to Exhibit 4.1 to
the Companys Current Report on
Form 8-K
filed with the SEC on December 5, 2007. (Commission File
Number 1-3863)
99
(4)(i) Form of the Companys 6.375% Notes due 2019,
incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed with the SEC on June 10, 2009. (Commission File
Number 1-3863)
(4)(j) Pursuant to
Regulation S-K
Item 601(b)(4)(iii), Registrant by this filing agrees, upon
request, to furnish to the SEC a copy of other instruments
defining the rights of holders of long-term debt of Harris.
(10) Material Contracts:
*(10)(a) Form of Executive Change in Control Severance
Agreement, incorporated herein by reference to
Exhibit 10(a) to the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
*(10)(b)(i) Harris Corporation 2005 Annual Incentive Plan
(Effective as of July 2, 2005), incorporated herein by
reference to Exhibit 10.2 to the Companys Current
Report on
Form 8-K
filed with the SEC on November 3, 2005. (Commission File
Number 1-3863)
(ii) Amendment No. 1 to Harris Corporation 2005 Annual
Incentive Plan, effective January 1, 2009, incorporated
herein by reference to Exhibit (10)(b) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
*(10)(c)(i) Harris Corporation Stock Incentive Plan (amended as
of August 23, 1997), incorporated herein by reference to
Exhibit 10(c) to the Companys Annual Report on
Form 10-K
for the fiscal year ended June 27, 1997. (Commission File
Number 1-3863)
(ii) Stock Option Agreement Terms and Conditions (as of
8/22/97)
for
grants under the Harris Corporation Stock Incentive Plan,
incorporated herein by reference to Exhibit 10(v) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended October 3, 1997. (Commission
File Number 1-3863)
(iii) Stock Option Agreement Terms and Conditions (as of
8/25/00)
for
grants under the Harris Corporation Stock Incentive Plan,
incorporated herein by reference to Exhibit (10)(i) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 29, 2000.
(Commission File Number 1-3863)
*(10)(d)(i) Harris Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit 4(b) to the
Companys Registration Statement on
Form S-8,
Registration Statement
No. 333-49006,
filed with the SEC on October 31, 2000.
(ii) Amendment No. 1 to Harris Corporation 2000 Stock
Incentive Plan, dated as of December 3, 2004, incorporated
herein by reference to Exhibit 10.2 to the Companys
Current Report on
Form 8-K
filed with the SEC on December 8, 2004. (Commission File
Number 1-3863)
(iii) Amendment No. 2 to Harris Corporation 2000 Stock
Incentive Plan, effective January 1, 2009, incorporated
herein by reference to Exhibit (10)(c) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
(iv) Stock Option Agreement Terms and Conditions (as of
10/27/2000)
for grants under the Harris Corporation 2000 Stock Incentive
Plan, incorporated herein by reference to Exhibit (10)(d)(ii) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended June 29, 2001. (Commission File
Number 1-3863)
(v) Stock Option Agreement Terms and Conditions (as of
8/24/01)
for
grants under the Harris Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit (10)(i) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 28, 2001.
(Commission File Number 1-3863)
(vi) Stock Option Agreement Terms and Conditions (as of
8/22/03)
for
grants under the Harris Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit 10(b) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 26, 2003.
(Commission File Number 1-3863)
(vii) Stock Option Agreement Terms and Conditions (as of
8/27/04)
for
grants under the Harris Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit 10(a) to the
100
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended October 1, 2004. (Commission
File Number 1-3863)
(viii) Stock Option Agreement Terms and Conditions (as of
8/26/05)
for
grants under the Harris Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed with the SEC on September 1, 2005. (Commission File
Number 1-3863)
(ix) Form of Outside Director Stock Option Agreement (as of
10/27/2000)
for grants under the Harris Corporation 2000 Stock Incentive
Plan, incorporated herein by reference to Exhibit (10)(d)(iii)
to the Companys Annual Report on
Form 10-K
for the fiscal year ended June 29, 2001. (Commission File
Number 1-3863)
(x) Restoration Stock Option Agreement Terms and Conditions
(as of
8/22/03)
for
grants under the Harris Corporation 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit 10(c) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 26, 2003.
(Commission File Number 1-3863)
*(10)(e)(i) Harris Corporation 2005 Equity Incentive Plan,
incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed with the SEC on November 3, 2005. (Commission File
Number 1-3863)
(ii) Amendment No. 1 to Harris Corporation 2005 Equity
Incentive Plan, effective January 1, 2009, incorporated
herein by reference to Exhibit (10)(d) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
(iii) Stock Option Award Agreement Terms and Conditions (as
of
10/28/05)
for grants under the Harris Corporation 2005 Equity Incentive
Plan, incorporated herein by reference to Exhibit 10(f) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 30, 2005. (Commission
File Number 1-3863)
(iv) Performance Share Award Agreement Terms and Conditions
(as of
10/28/05)
for grants under the Harris Corporation 2005 Equity Incentive
Plan, incorporated herein by reference to Exhibit 10(g) to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 30, 2005. (Commission
File Number 1-3863)
(v) Restricted Stock Award Agreement Terms and Conditions
(as of
10/28/05)
for grants under the Harris Corporation 2005 Equity Incentive
Plan, incorporated herein by reference to Exhibit 10(h) to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 30, 2005. (Commission
File Number 1-3863)
(vi) Performance Unit Award Agreement Terms and Conditions
(as of
10/28/05)
for grants under the Harris Corporation 2005 Equity Incentive
Plan, incorporated herein by reference to Exhibit 10(i) to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 30, 2005. (Commission
File Number 1-3863)
(vii) Restricted Unit Award Agreement Terms and Conditions
(as of
10/28/05)
for grants under the Harris Corporation 2005 Equity Incentive
Plan, incorporated herein by reference to Exhibit 10(j) to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 30, 2005. (Commission
File Number 1-3863)
(viii) Form of Stock Option Award Agreement Terms and
Conditions (as of June 30, 2007) for grants under the
Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.1 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 30, 2007. (Commission File
Number 1-3863)
(ix) Form of Performance Share Award Agreement Terms and
Conditions (as of June 30, 2007) for grants under the
Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.2 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 30, 2007. (Commission File
Number 1-3863)
(x) Form of Performance Share Unit Award Agreement Terms
and Conditions (as of June 30, 2007) for grants under
the Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.3 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 30, 2007. (Commission File
Number 1-3863)
101
(xi) Form of Restricted Stock Award Agreement Terms and
Conditions (as of June 30, 2007) for grants under the
Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.4 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 30, 2007. (Commission File
Number 1-3863)
(xii) Form of Restricted Stock Unit Award Agreement Terms
and Conditions (as of June 30, 2007) for grants under
the Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.5 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 30, 2007. (Commission File
Number 1-3863)
(xiii) Form of Stock Option Award Agreement Terms and
Conditions (as of June 28, 2008) for grants under the
Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.1 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 28, 2008. (Commission File
Number 1-3863)
(xiv) Form of Performance Share Award Agreement Terms and
Conditions (as of June 28, 2008) for grants under the
Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.2 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 28, 2008. (Commission File
Number 1-3863)
(xv) Form of Performance Share Unit Award Agreement Terms
and Conditions (as of June 28, 2008) for grants under
the Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.3 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 28, 2008. (Commission File
Number 1-3863)
(xvi) Form of Restricted Stock Award Agreement Terms and
Conditions (as of June 28, 2008) for grants under the
Harris Corporation 2005 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.4 to the Companys
Current Report on
Form 8-K
filed with the SEC on August 28, 2008. (Commission File
Number 1-3863)
*(10)(f)(i) Harris Corporation Retirement Plan (Amended and
Restated Effective July 1, 2007), incorporated herein by
reference to Exhibit 10(f)(i) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 28, 2007.
(Commission File Number 1-3863)
(ii) Amendment Number One to the Harris Corporation
Retirement Plan, dated July 24, 2007, incorporated herein
by reference to Exhibit 10(f)(ii) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 28, 2007.
(Commission File Number 1-3863)
(iii) Amendment Number Two to the Harris Corporation
Retirement Plan, dated September 19, 2007, incorporated
herein by reference to Exhibit 10(f)(iii) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 28, 2007.
(Commission File Number 1-3863)
(iv) Amendment Number Three to the Harris Corporation
Retirement Plan, dated June 5, 2008, incorporated herein by
reference to Exhibit 10(f)(iv) to the Companys Annual
Report on
Form 10-K
for the fiscal year ended June 27, 2008. (Commission File
Number 1-3863)
(v) Amendment Number Four to the Harris Corporation
Retirement Plan, dated November 7, 2008 and effective
November 6, 2008, incorporated herein by reference to
Exhibit 10(e) to the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
(vi) Amendment Number Five to the Harris Corporation
Retirement Plan, dated March 5, 2009.
(vii) Amendment Number Six to the Harris Corporation
Retirement Plan, dated May 21, 2009 and effective
July 1, 2009.
*(10)(g)(i) Harris Corporation Supplemental Executive Retirement
Plan (amended and restated effective March 1, 2003),
incorporated herein by reference to Exhibit 10(b)(i) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 28, 2003. (Commission
File Number 1-3863)
(ii) Amendment No. 1 to Harris Corporation
Supplemental Executive Retirement Plan, dated April 25,
2003, incorporated herein by reference to Exhibit (10)(b)(ii) to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 28, 2003. (Commission
File Number 1-3863)
(iii) Amendment No. 2 to Harris Corporation
Supplemental Executive Retirement Plan, dated June 4, 2004,
incorporated herein by reference to Exhibit (10)(f)(iii) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended July 2, 2004. (Commission File
Number 1-3863)
102
(iv) Amendment No. 3 to Harris Corporation
Supplemental Executive Retirement Plan, dated April 19,
2007, incorporated herein by reference to Exhibit 10(g)(iv)
to the Companys Annual Report on
Form 10-K
for the fiscal year ended June 29, 2007. (Commission File
Number 1-3863)
*(10)(h) Harris Corporation 2005 Supplemental Executive
Retirement Plan, effective January 1, 2009, incorporated
herein by reference to Exhibit (10)(f) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
*(10)(i)(i) Harris Corporation 1997 Directors
Deferred Compensation and Annual Stock Unit Award Plan (Amended
and Restated Effective January 1, 2006), incorporated
herein by reference to Exhibit 10.4 to the Companys
Current Report on
Form 8-K
filed with the SEC on November 3, 2005. (Commission File
Number 1-3863)
(ii) Amendment Number One to the Harris Corporation
1997 Directors Deferred Compensation and Annual Stock
Unit Award Plan (Amended and Restated Effective January 1,
2006), effective January 1, 2009, incorporated herein by
reference to Exhibit (10)(g) to the Companys Quarterly
Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
*(10)(j) Harris Corporation 2005 Directors Deferred
Compensation Plan (as Amended and Restated Effective
January 1, 2009), incorporated herein by reference to
Exhibit 10(h) to the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
(10)(k) Revolving Credit Agreement, dated as of
September 10, 2008, among the Company and the other parties
thereto, incorporated herein by reference to Exhibit 10.1
to the Companys Current Report on
Form 8-K
filed with the SEC on September 16, 2008. (Commission File
Number 1-3863)
*(10)(l) Form of Director and Executive Officer Indemnification
Agreement, incorporated herein by reference to
Exhibit 10(r) to the Companys Annual Report on
Form 10-K
for the fiscal year ended July 3, 1998. (Commission File
Number 1-3863)
*(10)(m)(i) Amended and Restated Master Trust Agreement and
Declaration of Trust, made as of December 2, 2003, by and
between Harris Corporation and The Northern Trust Company,
incorporated herein by reference to Exhibit 10(c) to the
Companys Quarterly Report on Form
10-Q
for the
fiscal quarter ended January 2, 2004. (Commission File
Number 1-3863)
(ii) Amendment to the Harris Corporation Master Trust, dated
May 21, 2009.
*(10)(n)(i) Master Rabbi Trust Agreement, amended and
restated as of December 2, 2003, by and between Harris
Corporation and The Northern Trust Company, incorporated
herein by reference to Exhibit 10(d) to the Companys
Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2004. (Commission
File Number 1-3863)
(ii) First Amendment to Master Rabbi Trust Agreement,
dated the 24th day of September, 2004, incorporated herein
by reference to Exhibit (10)(b) to the Companys Quarterly
Report on
Form 10-Q
for the fiscal quarter ended October 1, 2004. (Commission
File Number 1-3863)
(iii) Second Amendment to the Harris Corporation Master
Rabbi Trust Agreement, dated as of December 8, 2004,
incorporated herein by reference to Exhibit 10.5 to the
Companys Current Report on
Form 8-K
filed with the SEC on December 8, 2004. (Commission File
Number 1-3863)
(iv) Third Amendment to the Harris Corporation Master Rabbi
Trust Agreement, dated January 15, 2009 and effective
January 1, 2009, incorporated herein by reference to
Exhibit (10)(i) to the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
*(10)(o) Letter Agreement, dated as of December 19, 2008
and effective January 1, 2009, by and between Harris
Corporation and Howard L. Lance, incorporated herein by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K
filed with the SEC on December 24, 2008. (Commission File
Number 1-3863)
*(10)(p)(i) Offer Letter, dated July 5, 2005, by and
between Harris Corporation and Jeffrey S. Shuman, incorporated
herein by reference to Exhibit 10.1 to the Companys
Current Report on
Form 8-K
filed with the SEC on September 1, 2005. (Commission File
Number 1-3863)
(ii) Addendum, dated December 12, 2008, to the Offer
Letter, dated July 5, 2005, by and between Harris
Corporation and Jeffrey S. Shuman, incorporated herein by
reference to Exhibit 10(l) to the Companys Quarterly
Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
103
*(10)(q)(i) Letter Agreement, dated as of January 23, 2007,
by and between Harris Corporation and Timothy E. Thorsteinson,
incorporated herein by reference to Exhibit 10(a) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 30, 2007. (Commission
File Number 1-3863)
(ii) Addendum, dated as of December 5, 2007, to the
Letter Agreement, dated as of January 23, 2007, by and
between Harris Corporation and Timothy E. Thorsteinson,
incorporated herein by reference to Exhibit 10(p)(ii) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended June 27, 2008. (Commission File
Number 1-3863).
(iii) Second Addendum, dated as of July 30, 2008, to
the Letter Agreement, dated as of January 23, 2007, by and
between Harris Corporation and Timothy E. Thorsteinson,
incorporated herein by reference to Exhibit 10(p)(iii) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended June 27, 2008. (Commission File
Number 1-3863).
(iv) Third Addendum, dated December 12, 2008, to the
Letter Agreement, dated as of January 23, 2007, by and
between Harris Corporation and Timothy E. Thorsteinson,
incorporated herein by reference to Exhibit 10(m) to the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended January 2, 2009. (Commission
File Number 1-3863)
(10)(r) Commercial Paper Issuing and Paying Agent Agreement,
dated as of March 30, 2005, between Citibank, N.A. and
Harris Corporation, incorporated herein by reference to Exhibit
99.2 to the Companys Current Report on
Form 8-K
filed with the SEC on April 5, 2005. (Commission File
Number 1-3863)
*(10)(s) Supplemental Pension Plan for Howard L. Lance (Amended
and Restated effective January 1, 2009), dated as of
December 19, 2008, by and between Harris Corporation and
Howard L. Lance, incorporated herein by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed with the SEC on December 24, 2008. (Commission File
Number 1-3863)
(10)(t) Non-Competition Agreement, dated as of January 26,
2007, among Harris Corporation, Stratex Networks, Inc. and
Harris Stratex Networks, Inc., incorporated herein by reference
to Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed with the SEC on February 1, 2007. (Commission File
Number 1-3863)
(10)(u) Commercial Paper Dealer Agreement, dated as of
June 12, 2007, between Citigroup Global Markets Inc. and
Harris Corporation, incorporated herein by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed with the SEC on June 18, 2007. (Commission File
Number 1-3863)
(10)(v) Commercial Paper Dealer Agreement, dated June 13,
2007, between Banc of America Securities LLC and Harris
Corporation, incorporated herein by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed with the SEC on June 18, 2007. (Commission File
Number 1-3863)
(10)(w) Commercial Paper Dealer Agreement, dated as of
June 14, 2007, between SunTrust Capital Markets, Inc. and
Harris Corporation, incorporated herein by reference to
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed with the SEC on June 18, 2007. (Commission File
Number 1-3863)
*(10)(x) Summary of Annual Compensation of Outside Directors.
*(10)(y) Summary of Certain Compensation Arrangements of Named
Executive Officers, incorporated herein by reference to the
Companys Current Report on
Form 8-K
filed with the SEC on August 28, 2008. (Commission File
Number 1-3863)
(12) Statement regarding computation of ratio of earnings
to fixed charges.
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP.
(24) Power of Attorney.
(31.1) Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer.
(31.2) Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer.
(32.1) Section 1350 Certification of Chief Executive
Officer.
(32.2) Section 1350 Certification of Chief Financial
Officer.
|
|
|
*
|
|
Management contract or compensatory plan or arrangement.
|
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARRIS CORPORATION
(Registrant)
|
|
|
Date: August 31, 2009
|
|
|
|
|
Howard L. Lance
Chairman of the Board, President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
/s/
Howard
L. Lance
Howard
L. Lance
|
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Gary
L. McArthur
Gary
L. McArthur
|
|
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Lewis
A. Schwartz
Lewis
A. Schwartz
|
|
Vice President, Principal
Accounting Officer
(Principal Accounting Officer)
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Thomas
A. Dattilo*
Thomas
A. Dattilo
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Terry
D. Growcock*
Terry
D. Growcock
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Lewis
Hay III*
Lewis
Hay III
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Karen
Katen*
Karen
Katen
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Stephen
P. Kaufman*
Stephen
P. Kaufman
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Leslie
F. Kenne*
Leslie
F. Kenne
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
David
B. Rickard*
David
B. Rickard
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
James
C. Stoffel*
James
C. Stoffel
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Gregory
T. Swienton*
Gregory
T. Swienton
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
/s/
Hansel
E. Tookes II*
Hansel
E. Tookes II
|
|
Director
|
|
|
August 31, 2009
|
|
|
|
|
|
|
|
|
|
|
*By:
|
|
/s/
Scott
T.
Mikuen
Scott
T. Mikuen
Attorney-in-Fact
pursuant to a power of attorney
|
|
|
|
|
|
|
105
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
HARRIS
CORPORATION AND SUBSIDIARIES
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A
|
|
Col. B
|
|
|
Col. C
|
|
|
Col. D
|
|
|
Col. E
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other Accounts
|
|
|
Deductions
|
|
|
Balance at
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
Describe
|
|
|
Describe
|
|
|
End of Period
|
|
|
|
|
Year ended July 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Deducted From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Respective Asset Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,991
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for collection losses
|
|
$
|
5,712
|
|
|
$
|
4,711
|
|
|
$
|
6,011
|
(C)
|
|
$
|
3,173
|
|
|
$
|
13,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$
|
84,366
|
|
|
$
|
(12,403
|
)
|
|
$
|
736
|
(D)
|
|
$
|
235
|
(A)
|
|
$
|
72,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Deducted From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Respective Asset Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(84
|
) (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,295
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for collection losses
|
|
$
|
6,250
|
|
|
$
|
673
|
|
|
$
|
|
|
|
$
|
1,211
|
|
|
$
|
5,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,028
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,237
|
(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$
|
62,148
|
|
|
$
|
1,760
|
|
|
$
|
20,265
|
|
|
$
|
(193
|
)
|
|
$
|
84,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Deducted From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Respective Asset Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(95
|
) (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,020
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for collection losses
|
|
$
|
9,300
|
|
|
$
|
(708
|
)
|
|
$
|
583
|
(C)
|
|
$
|
2,925
|
|
|
$
|
6,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$
|
59,224
|
|
|
$
|
2,814
|
|
|
$
|
|
|
|
$
|
(110
|
) (A)
|
|
$
|
62,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note A Foreign currency translation gains and
losses.
Note B Uncollectible accounts charged off, less
recoveries on accounts previously charged off.
Note C Acquisitions.
Note D FIN 48.
106