UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended October 1, 2010
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number 1-3863
HARRIS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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34-0276860
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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1025 West NASA Boulevard
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Melbourne, Florida
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329l9
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(Address of principal executive offices)
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(Zip Code)
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(321) 727-9l00
(Registrants telephone number, including area code)
No changes
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (l) 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
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No
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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
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No
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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.
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Large accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Accelerated filer
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
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No
þ
The number
of shares outstanding of the registrants common stock as of
October 22, 2010 was 128,279,277
shares.
HARRIS CORPORATION
FORM 10-Q
For the Quarter Ended October 1, 2010
INDEX
This Quarterly Report on Form 10-Q contains trademarks, service marks and registered marks of
Harris Corporation and its subsidiaries.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
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Quarter Ended
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October 1,
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October 2,
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2010
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2009
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(In millions, except per share amounts)
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Revenue from product sales and services
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$
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1,405.4
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$
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1,203.0
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Cost of product sales and services
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(881.1
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(812.1
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Engineering, selling and administrative expenses
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(255.2
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(212.1
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Non-operating loss
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(0.4
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(0.2
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Interest income
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0.6
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0.4
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Interest expense
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(17.8
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(18.2
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Income before income taxes
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251.5
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160.8
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Income taxes
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(87.6
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(56.3
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Net income
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$
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163.9
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$
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104.5
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Net income per common share
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Basic
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$
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1.28
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$
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0.79
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Diluted
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$
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1.27
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$
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0.79
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Cash dividends paid per common share
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$
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0.25
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$
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0.22
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Basic weighted average shares outstanding
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126.8
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130.8
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Diluted weighted average shares outstanding
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127.7
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131.4
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See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
1
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
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October 1,
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July 2,
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2010
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2010
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(In millions, except shares)
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Assets
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Current Assets
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Cash and cash equivalents
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$
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341.4
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$
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455.2
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Receivables
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705.6
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736.0
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Inventories
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670.8
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615.3
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Income taxes receivable
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3.7
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15.3
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Current deferred income taxes
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148.5
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145.3
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Other current assets
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63.3
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37.5
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Total current assets
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1,933.3
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2,004.6
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Non-current Assets
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Property, plant and equipment
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672.2
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609.7
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Goodwill
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1,936.2
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1,576.2
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Intangible assets
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412.9
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297.8
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Non-current deferred income taxes
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64.2
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107.7
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Other non-current assets
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187.9
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147.6
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Total non-current assets
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3,273.4
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2,739.0
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$
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5,206.7
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$
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4,743.6
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Liabilities and Equity
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Current Liabilities
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Short-term debt
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$
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275.0
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$
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30.0
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Accounts payable
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390.7
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329.4
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Compensation and benefits
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190.4
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239.7
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Other accrued items
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298.1
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267.5
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Advance payments and unearned income
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189.8
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175.6
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Income taxes payable
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73.6
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8.9
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Current portion of long-term debt
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0.7
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0.7
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Total current liabilities
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1,418.3
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1,051.8
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Non-current Liabilities
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Long-term debt
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1,176.4
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1,176.6
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Long-term contract liability
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129.5
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132.4
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Other long-term liabilities
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188.2
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192.7
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Total non-current liabilities
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1,494.1
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1,501.7
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Equity
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Shareholders Equity:
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Preferred stock, without par value; 1,000,000 shares authorized; none issued
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Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding
126,631,098 shares at October 1, 2010 and 127,460,307 shares at July 2, 2010
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126.6
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127.5
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Other capital
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462.9
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461.1
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Retained earnings
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1,715.1
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1,621.4
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Accumulated other comprehensive loss
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(10.9
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(20.4
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Total shareholders equity
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2,293.7
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2,189.6
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Noncontrolling interests
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0.6
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0.5
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Total equity
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2,294.3
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2,190.1
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$
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5,206.7
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$
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4,743.6
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See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
2
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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Quarter Ended
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October 1,
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October 2,
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2010
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2009
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(In millions)
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Operating Activities
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Net income
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$
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163.9
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$
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104.5
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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46.8
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42.1
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Share-based compensation
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16.0
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11.1
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Non-current deferred income taxes
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1.3
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6.4
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(Increase) decrease in:
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Accounts and notes receivable
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68.2
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29.2
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Inventories
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(20.3
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(29.8
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Increase (decrease) in:
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Accounts payable and accrued expenses
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(55.9
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(106.0
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Advance payments and unearned income
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11.7
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34.1
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Income taxes
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76.7
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45.1
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Other
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(13.5
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(2.2
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Net cash provided by operating activities
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294.9
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134.5
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Investing Activities
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Net cash paid for acquired businesses
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(518.0
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1.0
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Cash paid for cost-method investment
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(10.0
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Additions of property, plant and equipment
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(37.1
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(18.6
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Additions of capitalized software
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(4.3
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(2.0
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Net cash used in investing activities
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(569.4
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(19.6
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Financing Activities
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Proceeds from borrowings
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244.1
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Repayments of borrowings
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(81.1
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Proceeds from exercise of employee stock options
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2.6
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0.1
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Repurchases of common stock
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(55.5
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(55.3
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Cash dividends
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(32.2
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(29.0
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Net cash provided by (used in) financing activities
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159.0
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(165.3
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Effect of exchange rate changes on cash and cash equivalents
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1.7
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0.3
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Net decrease in cash and cash equivalents
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(113.8
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(50.1
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Cash and cash equivalents, beginning of year
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455.2
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281.2
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Cash and cash equivalents, end of quarter
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$
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341.4
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$
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231.1
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See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 1, 2010
Note A Significant Accounting Policies and Recent Accounting Standards
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Harris
Corporation and its subsidiaries. As used in these Notes to Condensed Consolidated Financial
Statements (Unaudited) (these Notes), the terms Harris, Company, we, our, and us refer
to Harris Corporation and its consolidated subsidiaries. Significant intercompany transactions and
accounts have been eliminated. The accompanying condensed consolidated financial statements have
been prepared by Harris, without an audit, in accordance with U.S. generally accepted accounting
principles for interim financial information and with the rules and regulations of the Securities
and Exchange Commission (SEC). Accordingly, they do not include all information and footnotes
necessary for a complete presentation of financial position, results of operations and cash flows
in conformity with U.S. generally accepted accounting principles. In the opinion of management,
such interim financial statements reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position, results of
operations and cash flows for such periods. The results for the quarter ended October 1, 2010 are
not necessarily indicative of the results that may be expected for the full fiscal year or any
subsequent period. The balance sheet at July 2, 2010 has been derived from the audited financial
statements but does not include all of the information and footnotes required by U.S. generally
accepted accounting principles for annual financial statements. We provide complete financial
statements in our Annual Report on Form 10-K, which includes information and footnotes required by
the rules and regulations of the SEC. The information included in this Quarterly Report on Form
10-Q (this Report) should be read in conjunction with the Managements Discussion and Analysis of
Financial Condition and Results of Operations, and the Consolidated Financial Statements and
accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K
for the fiscal year ended July 2, 2010 (the Fiscal 2010 Form 10-K).
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that affect the amounts reported in the
accompanying condensed consolidated financial statements and these Notes. Actual results could
differ from those estimates and assumptions.
Adoption of New Accounting Standards
In the first quarter of fiscal 2011, we adopted the following accounting standards, neither of
which had a material impact on our financial position, results of operations or cash flows:
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The accounting standard that revises accounting and reporting requirements for
arrangements with multiple deliverables. This standard allows the use of an estimated
selling price to determine the selling price of a deliverable in cases where neither
vendor-specific objective evidence nor third-party evidence is available, which is expected
to increase the ability for entities to separate deliverables in multiple-deliverable
arrangements and, accordingly, to decrease the amount of revenue deferred in these cases.
Additionally, this standard requires the total selling price of a multiple-deliverable
arrangement to be allocated at the inception of the arrangement to all deliverables based on
relative selling prices.
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The accounting standard that clarifies which revenue allocation and measurement guidance
should be used for arrangements that contain both tangible products and software, in cases
where the software is more than incidental to the tangible product as a whole. More
specifically, if the software sold with or embedded within the tangible product is essential
to the functionality of the tangible product, then this software as well as undelivered
software elements that relate to this software are excluded from the scope of existing
software revenue guidance, which is expected to decrease the amount of revenue deferred in
these cases.
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Reclassifications
Certain prior-year amounts have been reclassified in the accompanying condensed consolidated
financial statements to conform with current-year classifications.
4
Note B Stock Options and Other Share-Based Compensation
As of October 1, 2010, 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). The compensation
cost related to our share-based awards that was charged against income was $16.0 million for the
quarter ended October 1, 2010 and $11.1 million for the quarter ended October 2, 2009.
Grants to employees under our SIPs during the quarter ended October 1, 2010 consisted of
1,337,250 stock options, 160,850 performance share awards and 370,800 restricted stock awards. The
fair value of each option award was estimated on the date of grant using the Black-Scholes-Merton
option-pricing model which used the following assumptions: expected volatility of 35.58 percent;
expected dividend yield of 2.0 percent; and expected life in years of 4.94.
Note C Business Combinations
On July 30, 2010, we acquired privately held CapRock Holdings, Inc. and its subsidiaries,
including CapRock Communications, Inc. (collectively, CapRock), a global provider of
mission-critical, managed satellite communications services for the government, energy and maritime
industries. CapRocks highly reliable solutions include broadband Internet access, voice over
Internet Protocol (VOIP) telephony, wideband networking and real-time video, delivered to nearly
2,000 customer sites around the world. The acquisition of CapRock increased the breadth of our
assured communications
®
capabilities, while enabling us to enter new vertical markets
and increase our international presence. The total estimated net purchase price for CapRock is
$528.3 million. The purchase price remains subject to post-closing adjustments and the purchase
price allocation is preliminary. Our first quarter of fiscal 2011 results of operations include
revenue of $64.6 million and a pre-tax loss of $0.4 million (including $2.0 million of
acquisition-related charges) associated with CapRock for the two-month period during the quarter
following the date of acquisition. We report CapRock within our Government Communications Systems
segment.
The following tables provide further detail of the acquisition of CapRock in fiscal 2011:
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CapRock
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(In millions)
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Date of acquisition
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7/30/2010
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Reporting business segment
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Government
Comm. Systems
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Cash consideration paid to former owners
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$
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540.2
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Less cash acquired
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(22.2
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Total net purchase price paid as of October 1, 2010
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518.0
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Estimated post-closing acquired cash true-up
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10.3
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Total estimated net purchase price
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$
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528.3
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Balance Sheet of CapRock as of the acquisition date:
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Accounts and notes receivable
|
|
$
|
37.5
|
|
Inventories
|
|
|
35.2
|
|
Other current assets
|
|
|
4.2
|
|
Current deferred income taxes
|
|
|
3.0
|
|
Identifiable intangible assets
|
|
|
131.5
|
|
Goodwill
|
|
|
356.5
|
|
Property, plant and equipment
|
|
|
62.9
|
|
Other assets
|
|
|
23.0
|
|
|
|
|
|
Total assets acquired
|
|
|
653.8
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
71.3
|
|
Advance payments and unearned income
|
|
|
2.4
|
|
Non-current deferred tax liabilities
|
|
|
42.1
|
|
Other liabilities
|
|
|
9.7
|
|
|
|
|
|
Total liabilities acquired
|
|
|
125.5
|
|
|
|
|
|
Net assets acquired
|
|
$
|
528.3
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
CapRock
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
Period
|
|
Total
|
|
|
|
(In years)
|
|
(In millions)
|
|
Identifiable Intangible Assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
16.0
|
|
|
$
|
70.0
|
|
Contract backlog
|
|
|
5.0
|
|
|
|
47.0
|
|
Tradenames
|
|
|
5.0
|
|
|
|
14.0
|
|
Other
|
|
|
15.0
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Weighted average amortization period and total
|
|
|
10.9
|
|
|
$
|
131.5
|
|
|
|
|
|
|
|
|
|
The goodwill resulting from this business combination was associated primarily with CapRocks
market presence and leading position, growth opportunities in the markets in which it operates,
experienced work force and established operating infrastructure. The goodwill resulting from this
business combination is nondeductible for tax purposes.
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 CapRock had been completed as of the beginning of
fiscal 2010, 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.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
|
2010
|
|
2009
|
|
|
(In millions, except per
|
|
|
share amounts)
|
Revenue from product sales and services as reported
|
|
$
|
1,405.4
|
|
|
$
|
1,203.0
|
|
Revenue from product sales and services pro forma
|
|
$
|
1,437.7
|
|
|
$
|
1,296.3
|
|
Net income as reported
|
|
$
|
163.9
|
|
|
$
|
104.5
|
|
Net income pro forma
|
|
$
|
163.6
|
|
|
$
|
108.6
|
|
Net income per diluted common share as reported
|
|
$
|
1.27
|
|
|
$
|
0.79
|
|
Net income per diluted common share pro forma
|
|
$
|
1.27
|
|
|
$
|
0.82
|
|
The pro forma results are not necessarily indicative of our results of operations had we owned
CapRock for the entire periods presented.
Note D Comprehensive Income and Accumulated Other Comprehensive Loss
Comprehensive income for the quarters ended October 1, 2010 and October 2, 2009 was comprised
of the following:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
October 1,
|
|
|
October 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
Net income
|
|
$
|
163.9
|
|
|
$
|
104.5
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
10.5
|
|
|
|
18.1
|
|
Net unrealized gain (loss) on securities available-for-sale, net of income taxes
|
|
|
(0.9
|
)
|
|
|
1.0
|
|
Net unrealized loss on hedging derivatives, net of income taxes
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
Amortization of loss on treasury lock, net of income taxes
|
|
|
0.2
|
|
|
|
0.1
|
|
Recognition of pension actuarial losses in net income, net of income taxes
|
|
|
0.1
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
173.4
|
|
|
$
|
124.9
|
|
|
|
|
|
|
|
|
6
The components of accumulated other comprehensive loss at October 1, 2010 and July 2, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
|
July 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In millions)
|
|
Foreign currency translation
|
|
$
|
24.8
|
|
|
$
|
14.3
|
|
Net unrealized gain (loss) on securities available-for-sale, net of income taxes
|
|
|
(0.3
|
)
|
|
|
0.6
|
|
Net unrealized gain on hedging derivatives, net of income taxes
|
|
|
0.1
|
|
|
|
0.5
|
|
Unamortized loss on treasury lock, net of income taxes
|
|
|
(3.9
|
)
|
|
|
(4.1
|
)
|
Unrecognized pension obligations, net of income taxes
|
|
|
(31.6
|
)
|
|
|
(31.7
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(10.9
|
)
|
|
$
|
(20.4
|
)
|
|
|
|
|
|
|
|
Note E Receivables
Receivables are summarized below:
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
|
July 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In millions)
|
|
Accounts receivable
|
|
$
|
565.1
|
|
|
$
|
613.0
|
|
Unbilled costs on cost-plus contracts
|
|
|
144.8
|
|
|
|
125.1
|
|
Notes receivable due within one year, net
|
|
|
7.4
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
717.3
|
|
|
|
746.0
|
|
Less allowances for collection losses
|
|
|
(11.7
|
)
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
|
|
|
$
|
705.6
|
|
|
$
|
736.0
|
|
|
|
|
|
|
|
|
Note F Inventories
Inventories are summarized below:
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
|
July 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In millions)
|
|
Unbilled costs and accrued earnings on fixed-price contracts
|
|
$
|
318.5
|
|
|
$
|
295.3
|
|
Finished products
|
|
|
156.0
|
|
|
|
134.6
|
|
Work in process
|
|
|
67.1
|
|
|
|
59.7
|
|
Raw materials and supplies
|
|
|
129.2
|
|
|
|
125.7
|
|
|
|
|
|
|
|
|
|
|
$
|
670.8
|
|
|
$
|
615.3
|
|
|
|
|
|
|
|
|
Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of
$37.2 million at October 1, 2010 and $35.8 million at July 2, 2010.
Note G Property, Plant and Equipment
Property, plant and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
|
July 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In millions)
|
|
Land
|
|
$
|
12.1
|
|
|
$
|
13.1
|
|
Software capitalized for internal use
|
|
|
87.2
|
|
|
|
85.7
|
|
Buildings
|
|
|
407.0
|
|
|
|
396.6
|
|
Machinery and equipment
|
|
|
918.5
|
|
|
|
860.2
|
|
|
|
|
|
|
|
|
|
|
|
1,424.8
|
|
|
|
1,355.6
|
|
Less allowances for depreciation and amortization
|
|
|
(752.6
|
)
|
|
|
(745.9
|
)
|
|
|
|
|
|
|
|
|
|
$
|
672.2
|
|
|
$
|
609.7
|
|
|
|
|
|
|
|
|
7
Depreciation and amortization expense related to property, plant and equipment for the
quarters ended October 1, 2010 and October 2, 2009 was $29.9 million and $26.3 million,
respectively.
Note H Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the quarter ended October 1, 2010 by business
segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
|
|
|
|
RF
|
|
|
Communications
|
|
|
Broadcast
|
|
|
|
|
|
|
Communications
|
|
|
Systems
|
|
|
Communications
|
|
|
Total
|
|
|
|
(In millions)
|
|
Balance at July 2, 2010 net of impairment losses
|
|
$
|
422.6
|
|
|
$
|
492.4
|
|
|
$
|
661.2
|
|
|
$
|
1,576.2
|
|
Goodwill acquired during the period
|
|
|
|
|
|
|
356.5
|
|
|
|
|
|
|
|
356.5
|
|
Currency translation adjustments
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
3.2
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2010 net of impairment losses
|
|
$
|
422.8
|
|
|
$
|
849.0
|
|
|
$
|
664.4
|
|
|
$
|
1,936.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2010 before impairment losses
|
|
$
|
422.8
|
|
|
$
|
849.0
|
|
|
$
|
825.3
|
|
|
$
|
2,097.1
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
(160.9
|
)
|
|
|
(160.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1, 2010 net of impairment losses
|
|
$
|
422.8
|
|
|
$
|
849.0
|
|
|
$
|
664.4
|
|
|
$
|
1,936.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
goodwill resulting from the acquisition of CapRock was associated
primarily with their
market presence and leading position, growth opportunities in the market in which the
acquired company operated, experienced work force and established operating infrastructure.
In
the table above, the accumulated impairment losses in our Broadcast
Communications segment were recorded in the fourth quarter of fiscal
2009.
We have identifiable intangible assets related primarily to customer relationships and
technology acquired through acquisitions. The unamortized balance of identifiable intangible assets
on our accompanying Condensed Consolidated Balance Sheet was $412.9 million and $297.8 million at
October 1, 2010 and July 2, 2010, respectively. Amortization expense related to identifiable
intangible assets for the quarters ended October 1, 2010 and October 2, 2009 was $15.3 million and
$14.2 million, respectively. The estimated amortization expense related to identifiable intangible
assets for the remaining three quarters of fiscal 2011 is $47.8 million and for the five fiscal
years following fiscal 2011 and, in total, thereafter is: $63.5 million in fiscal 2012,
$60.2 million in fiscal 2013, $50.3 million in fiscal 2014, $48.5 million in fiscal 2015, $35.6
million in fiscal 2016 and $107.0 million thereafter.
Note I Credit Arrangements
On
September 29, 2010, we entered into a $300 million senior unsecured 364-day revolving credit
agreement (the 364-Day Revolving Credit Agreement) with a syndicate of lenders. The 364-Day
Revolving Credit Agreement provides for the extension of credit to us in the form of revolving
loans at any time and from time to time during the term of the 364-Day Revolving Credit Agreement,
in an aggregate principal amount at any time outstanding not to exceed $300 million. Borrowings
under the 364-Day Revolving Credit Agreement will be denominated in U.S. Dollars. The 364-Day
Revolving Credit Agreement may be used for working capital and other general corporate purposes
(excluding hostile acquisitions) and may also be used to support any commercial paper that we may
issue.
At our election, borrowings under the 364-Day Revolving Credit Agreement 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 1.75 percent, may increase (to a maximum amount
of 2.25 percent) or decrease (to a minimum amount of 1.25 percent) based on changes in the ratings
of our senior unsecured long-term debt securities (Senior Debt Ratings). The base rate is a
fluctuating rate equal to the highest of (i) the federal funds rate plus 0.50 percent, (ii)
SunTrust Banks publicly announced prime lending rate for U.S. Dollars or (iii) LIBOR for an
interest period of one month plus 1.00 percent. The interest rate margin over the base rate,
initially set at 0.75 percent, may increase (to a maximum amount of 1.25 percent) or decrease (to a
minimum amount of 0.25 percent) based on our Senior Debt Ratings.
The
364-Day Revolving Credit Agreement contains certain customary 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 364-Day Revolving Credit Agreement also requires that we not permit
our ratio of consolidated total indebtedness to total capital, each as defined, to be greater than
0.60:1.00 and not permit our ratio of consolidated EBITDA to consolidated net interest expense,
each as defined, to be less than 3.00:1.00 (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
364-Day Revolving Credit Agreement in the first quarter of fiscal 2011. The 364-Day Revolving
Credit Agreement contains certain events of
8
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, other default under such other
indebtedness that permits acceleration of such indebtedness, or acceleration of such other
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 364-Day Revolving Credit Agreement are due and mature on
September 28, 2011, unless the commitments are terminated earlier either at our request or if
certain events of default occur. At October 1, 2010, we had no borrowings outstanding under the
364-Day Revolving Credit Agreement.
For a description of our other credit arrangements, see the Capital Structure and Resources
discussion in Part I. Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations in this Report.
Note J Accrued Warranties
Changes in our warranty liability, which is included as a component of the Other accrued
items and Other long-term liabilities line items in the accompanying Condensed Consolidated
Balance Sheet (Unaudited), during the quarter ended October 1, 2010 were as follows:
|
|
|
|
|
|
|
(In millions)
|
|
Balance at July 2, 2010
|
|
$
|
73.1
|
|
Warranty provision for sales made during the quarter ended October 1, 2010
|
|
|
5.7
|
|
Settlements made during the quarter ended October 1, 2010
|
|
|
(17.0
|
)
|
Other adjustments to the warranty liability, including those for acquisitions and foreign
currency translation, during the quarter ended October 1, 2010
|
|
|
0.1
|
|
|
|
|
|
Balance at October 1, 2010
|
|
$
|
61.9
|
|
|
|
|
|
Note K Net Income Per Share
The calculations of net income per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
October 1,
|
|
|
October 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except per share
|
|
|
|
amounts)
|
|
Net income
|
|
$
|
163.9
|
|
|
$
|
104.5
|
|
Adjustments for participating securities outstanding
|
|
|
(2.0
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
Net income used in basic and diluted common share calculations (A)
|
|
$
|
161.9
|
|
|
$
|
103.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding (B)
|
|
|
126.8
|
|
|
|
130.8
|
|
Impact of dilutive stock options
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding (C)
|
|
|
127.7
|
|
|
|
131.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per basic share (A)/(B)
|
|
$
|
1.28
|
|
|
$
|
0.79
|
|
Net income per diluted share (A)/(C)
|
|
$
|
1.27
|
|
|
$
|
0.79
|
|
Employee stock options to purchase approximately 2,806,312 and 4,696,082 shares of our common
stock were outstanding at October 1, 2010 and October 2, 2009, respectively, but were not included
in the calculations of net income per diluted share because the effect would have been antidilutive
as the options exercise prices exceeded the average market price.
Note L Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in the principal market (or most advantageous market, in the absence of a principal
market) for the asset or liability in an orderly transaction between market
9
participants at the measurement date. Further, entities are required to maximize the use of
observable inputs and minimize the use of unobservable inputs in measuring fair value, and to
utilize a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.
The three levels of inputs used to measure fair value are as follows:
|
|
|
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 assets and liabilities measured
at fair value on a recurring basis (at least annually) as of October 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In millions)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities (1)
|
|
$
|
3.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.3
|
|
Deferred compensation plan investments: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
27.6
|
|
Stock fund
|
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
34.4
|
|
Equity security
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
14.9
|
|
Foreign currency forward contracts (3)
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans (4)
|
|
|
73.4
|
|
|
|
|
|
|
|
|
|
|
|
73.4
|
|
Foreign currency forward contracts (5)
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
(1)
|
|
Represents investments classified as securities available-for-sale, which we include in the
Other current assets line item in the accompanying Condensed Consolidated Balance Sheet
(Unaudited).
|
|
(2)
|
|
Represents investments 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 the accompanying Condensed Consolidated Balance Sheet (Unaudited).
|
|
(3)
|
|
Includes derivatives designated as hedging instruments, which we include in the Other
current assets line item in the accompanying Condensed Consolidated Balance Sheet
(Unaudited). The fair value of these contracts was measured using a market approach based on
quoted foreign currency forward exchange rates for contracts with similar maturities.
|
|
(4)
|
|
Primarily represents obligations to pay benefits under certain non-qualified deferred
compensation plans, which we include in the Compensation and benefits and Other long-term
liabilities line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited).
Under these plans, participants designate investment options (including money market, stock
and fixed-income funds), which serve as the basis for measurement of the notional value of
their accounts.
|
|
(5)
|
|
Includes derivatives designated as hedging instruments, which we include in the Other
accrued items line item in the accompanying Condensed Consolidated Balance Sheet (Unaudited).
The fair value of these contracts was measured using a market approach based on quoted foreign
currency forward exchange rates for contracts with similar maturities.
|
Assets and liabilities that were measured at fair value on a nonrecurring basis were not
material during the quarters ended October 1, 2010 or October 2, 2009.
10
The following table represents the carrying amounts and estimated fair values of our
significant financial instruments that are not measured at fair value (carrying amounts of other
financial instruments not listed in the table below approximate fair value due to the short-term
nature of those items):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2010
|
|
July 2, 2010
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
(In millions)
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion) (1)
|
|
$
|
1,177.1
|
|
|
$
|
1,363.6
|
|
|
$
|
1,177.3
|
|
|
$
|
1,301.8
|
|
|
|
|
(1)
|
|
The estimated fair value was measured using a market approach based on quoted market prices
for our debt traded in the secondary market.
|
Note M 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. We recognize all derivatives in the accompanying Condensed Consolidated Balance Sheet
(Unaudited) at fair value. We do not hold or issue derivatives for trading purposes.
At October 1, 2010, we had open foreign currency forward contracts with a notional amount of
$79.9 million, of which $43.8 million were classified as cash flow hedges and $36.1 million were
classified as fair value hedges. This compares with open foreign currency forward contracts with a
notional amount of $46.5 million at July 2, 2010, of which $16.2 million were classified as cash
flow hedges and $30.3 million were classified as fair value hedges. At October 1, 2010, contract
expiration dates ranged from less than 1 month to 9 months with a weighted average contract life of
4 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. More specifically, we use foreign currency forward contracts
and options to hedge certain balance sheet items, including foreign currency denominated accounts
receivable and inventory. Changes in the value of the derivatives and the related hedged items are
reflected in earnings, in the Cost of product sales and services line item in the accompanying
Condensed Consolidated Statement of Income (Unaudited). As of October 1, 2010, we had outstanding
foreign currency forward contracts denominated in the Euro, British Pound and Canadian Dollar to
hedge certain balance sheet items. The net gains or losses on foreign currency forward contracts
designated as fair value hedges for the quarter ended October 1, 2010 were not material. In
addition, no amounts were recognized in earnings in the quarter ended October 1, 2010 related to
hedged firm commitments that no longer qualify as fair value hedges.
Cash Flow Hedges
To manage our exposure to currency risk and market fluctuation risk associated with
anticipated 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. We also have hedged U.S. dollar payments to suppliers to maintain
our anticipated profit margins in our international operations. As of October 1, 2010, we had
outstanding foreign currency forward contracts denominated in the Euro, British Pound and Canadian
Dollar 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. These 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 impact of
our derivatives is included in the same category in the accompanying Condensed Consolidated
Statement of Cash Flows (Unaudited) as the cash flows of the item being hedged.
11
The amount of gains or losses from cash flow hedges recognized in earnings or recorded in
other comprehensive income, including
gains or losses related to hedge ineffectiveness, was not material in the quarters ended
October 1, 2010 or October 2, 2009. We do not expect the amount of gains or losses recognized in
the Accumulated other comprehensive loss line item in the accompanying Condensed Consolidated
Balance Sheet (Unaudited) as of October 1, 2010 that will be reclassified to earnings from other
comprehensive income within the next 12 months to be material.
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 any single counterparty under defined guidelines and monitor the market position with
each counterparty.
See
Note L Fair Value Measurements
in these Notes for the amount of the assets and
liabilities related to these foreign currency forward contracts in the accompanying Condensed
Consolidated Balance Sheet (Unaudited) as of October 1, 2010, and see
Note D Comprehensive Income
and Accumulated Other Comprehensive Loss
in these Notes for additional information on changes in
accumulated other comprehensive loss for the quarter ended October 1, 2010.
Note N 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 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 secure
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, as well as those in the energy and maritime industries. Our Broadcast Communications
segment serves the global digital and analog media markets, providing workflow, infrastructure and
networking products and solutions; media 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.
The accounting policies of our business segments are the same as those described in Note 1:
Significant Accounting Policies in our Fiscal 2010 Form 10-K. 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.
Total assets by business segment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
|
July 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In millions)
|
|
Total Assets
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
1,404.2
|
|
|
$
|
1,468.5
|
|
Government Communications Systems
|
|
|
2,124.3
|
|
|
|
1,537.7
|
|
Broadcast Communications
|
|
|
1,050.3
|
|
|
|
1,057.0
|
|
Corporate
|
|
|
627.9
|
|
|
|
680.4
|
|
|
|
|
|
|
|
|
|
|
$
|
5,206.7
|
|
|
$
|
4,743.6
|
|
|
|
|
|
|
|
|
12
Segment revenue, segment operating income (loss) and a reconciliation of segment operating
income (loss) to total income before income taxes follow:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
October 1,
|
|
|
October 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
Revenue
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
566.5
|
|
|
$
|
423.7
|
|
Government Communications Systems
|
|
|
735.5
|
|
|
|
667.7
|
|
Broadcast Communications
|
|
|
121.6
|
|
|
|
118.7
|
|
Corporate eliminations
|
|
|
(18.2
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,405.4
|
|
|
$
|
1,203.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
RF Communications (1)
|
|
$
|
228.5
|
|
|
$
|
114.0
|
|
Government Communications Systems (2)
|
|
|
78.3
|
|
|
|
85.7
|
|
Broadcast Communications
|
|
|
(8.6
|
)
|
|
|
0.3
|
|
Unallocated corporate expense
|
|
|
(25.7
|
)
|
|
|
(19.2
|
)
|
Corporate eliminations
|
|
|
(3.4
|
)
|
|
|
(2.0
|
)
|
Non-operating loss (3)
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
Net interest expense
|
|
|
(17.2
|
)
|
|
|
(17.8
|
)
|
|
|
|
|
|
|
|
|
|
$
|
251.5
|
|
|
$
|
160.8
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The operating income in our RF Communications segment in the quarter ended October 2, 2009
included charges of $6.5 million for integration costs and the impact of a step up in
inventory associated with our acquisition of the Tyco Electronics wireless systems business,
formerly known as M/A-COM (Wireless Systems).
|
|
(2)
|
|
The operating income in our Government Communications Systems segment in the quarter ended
October 1, 2010 included charges of $2.0 million for integration and other costs associated
with our acquisition of CapRock.
|
|
(3)
|
|
Non-operating loss includes equity investment income (loss), royalties and related
intellectual property expenses, gains and losses on sales of investments and securities
available-for-sale, and impairments of investments and securities available-for-sale.
|
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Harris Corporation
We have reviewed the condensed consolidated balance sheet of Harris Corporation as of October
1, 2010, and the related condensed consolidated statements of income for the quarters ended October
1, 2010 and October 2, 2009, and the condensed consolidated statements of cash flows for the
quarters ended October 1, 2010 and October 2, 2009. These financial statements are the
responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Harris Corporation as of July 2,
2010, and the related consolidated statements of income, cash flows, and comprehensive income and
equity for the year then ended, not presented herein, and in our report dated August 30, 2010, we
expressed an unqualified opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet as of July 2, 2010,
is fairly stated, in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ Ernst & Young LLP
Certified Public Accountants
Boca Raton, Florida
October 28, 2010
14
Item 2. 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 Condensed Consolidated Financial Statements
(Unaudited) and accompanying Notes appearing elsewhere in this Report. In addition, reference
should be made to our audited Consolidated Financial Statements and accompanying Notes to
Consolidated Financial Statements and Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Fiscal 2010 Form 10-K. 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 assist in reading these pages:
|
|
|
Results of Operations
- an analysis of our consolidated results of operations and of the
results in each of our three business segments, to the extent the business segment operating
results are helpful to an understanding of our business as a whole, for the periods
presented in our Condensed Consolidated Financial Statements (Unaudited).
|
|
|
|
|
Liquidity and Capital Resources
- an analysis of cash flows, common stock repurchases,
dividends, capital structure and resources, off-balance sheet arrangements and commercial
commitments and contractual obligations.
|
|
|
|
|
Critical Accounting Policies and Estimates
- information about accounting policies that
require critical judgments and estimates and about accounting standards that have been
issued but are not yet effective for us and their potential impact.
|
|
|
|
|
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.
|
RESULTS OF OPERATIONS
Highlights
Operations results for the first quarter of fiscal 2011 include:
|
|
|
Revenue increased 16.8 percent to $1,405.4 million in the first quarter of fiscal 2011
from $1,203.0 million in the first quarter of fiscal 2010;
|
|
|
|
|
Net income increased to $163.9 million, or $1.27 per diluted share, in the first quarter
of fiscal 2011 from $104.5 million, or $0.79 per diluted share, in the first quarter of
fiscal 2010;
|
|
|
|
|
Our RF Communications segment revenue increased 33.7 percent to $566.5 million and
operating income increased 100.4 percent to $228.5 million in the first quarter of fiscal
2011 compared with the first quarter of fiscal 2010;
|
|
|
|
|
Our Government Communications Systems segment revenue increased 10.2 percent to $735.5
million and operating income decreased 8.6 percent to $78.3 million in the first quarter of
fiscal 2011 compared with the first quarter of fiscal 2010. Fiscal 2011 results benefited
from our acquisition of CapRock in the first quarter of fiscal 2011, and operating income in
the first quarter of fiscal 2011 included $2.0 million of acquisition-related charges;
|
|
|
|
|
Our Broadcast Communications segment revenue increased 2.4 percent to $121.6 million in
the first quarter of fiscal 2011 compared with the first quarter of fiscal 2010, and there
was an operating loss of $8.6 million in the first quarter of fiscal 2011 compared with
operating income of $0.3 million in the first quarter of fiscal 2010; and
|
|
|
|
|
Net cash provided by operating activities was $294.9 million in the first quarter of
fiscal 2011 compared with $134.5 million in the first quarter of fiscal 2010, an increase of
119.3 percent.
|
15
Consolidated Results of Operations
Revenue and Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions, except per share amounts)
|
Revenue
|
|
$
|
1,405.4
|
|
|
$
|
1,203.0
|
|
|
|
16.8
|
%
|
Net income
|
|
$
|
163.9
|
|
|
$
|
104.5
|
|
|
|
56.8
|
%
|
% of revenue
|
|
|
11.7
|
%
|
|
|
8.7
|
%
|
|
|
|
|
Net income per diluted common share
|
|
$
|
1.27
|
|
|
$
|
0.79
|
|
|
|
60.8
|
%
|
Our revenue in the first quarter of fiscal 2011 was $1,405.4 million, an increase of 16.8
percent compared with the first quarter of fiscal 2010. Revenue increased by 33.7 percent, 10.2
percent and 2.4 percent in our RF Communications, Government Communications Systems and Broadcast
Communications segments, respectively. RF Communications segment revenue was driven primarily by
deliveries for the U.S. Department of Defenses mine resistant ambush protected vehicle
(MRAP)
and mine resistant ambush protected all-terrain vehicle
(M-ATV) programs. Government
Communications Systems segment revenue benefited from the ramp-up on the recently awarded
Geostationary Operational Environmental Satellite Series R (GOES-R) Ground and Antenna Segment
weather programs for the National Oceanic and Atmospheric Administration (NOAA) and from our
acquisition of CapRock, partially offset by the continued winding down of the Field
Data Collection Automation (FDCA) program for the U.S.
Census Bureau, as expected, and lower revenue on several
classified programs.
Net income in the first quarter of fiscal 2011 was $163.9 million, or $1.27 per diluted common
share, compared with $104.5 million, or $0.79 per diluted common share, in the first quarter of
fiscal 2010. The increase in net income was primarily due to significantly higher operating income
in our RF Communications segment. RF Communications segment operating income increased by $114.5
million, or 100.4 percent, in the first quarter of fiscal 2011 compared with the first quarter of
fiscal 2010, while our Government Communications Systems segment operating income decreased by $7.4
million, or 8.6 percent, and our Broadcast Communications segment had an operating loss of $8.6
million.
Unallocated corporate expense in the first quarter of fiscal 2011 was $25.7 million compared
with $19.2 million in the first quarter of fiscal 2010.
See the Discussion of Business Segment Results of Operations and Unallocated Corporate
Expense and Corporate Eliminations discussions below in this MD&A for further information.
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Revenue
|
|
$
|
1,405.4
|
|
|
$
|
1,203.0
|
|
|
|
16.8
|
%
|
Cost of product sales and services
|
|
|
(881.1
|
)
|
|
|
(812.1
|
)
|
|
|
8.5
|
%
|
Gross margin
|
|
$
|
524.3
|
|
|
$
|
390.9
|
|
|
|
34.1
|
%
|
% of revenue
|
|
|
37.3
|
%
|
|
|
32.5
|
%
|
|
|
|
|
Our gross margin (revenue less cost of product sales and services) as a percentage of revenue
in the first quarter of fiscal 2011 was 37.3 percent compared with 32.5 percent in the first
quarter of fiscal 2010. The increase in gross margin as a percentage of revenue in the first
quarter of fiscal 2011 was primarily due to higher gross margins in our RF Communications segment
as well as a higher percentage of our overall sales that was generated by this higher-margin
segment.
See the Discussion of Business Segment Results of Operations discussion below in this MD&A
for further information.
16
Engineering, Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Engineering, selling and administrative expenses
|
|
$
|
255.2
|
|
|
$
|
212.1
|
|
|
|
20.3
|
%
|
% of revenue
|
|
|
18.2
|
%
|
|
|
17.6
|
%
|
|
|
|
|
Our engineering, selling and administrative (ESA) expenses increased to $255.2 million in
the first quarter of fiscal 2011 from $212.1 million in the first quarter of fiscal 2010. As a
percentage of revenue, ESA expenses were 18.2 percent in the first quarter of fiscal 2011 compared
with 17.6 percent in the first quarter of fiscal 2010. The increase in ESA expenses and ESA
expenses as a percentage of revenue was primarily due to our acquisition of CapRock during the
first quarter of fiscal 2011 (including $2.0 million of acquisition-related charges) and continued
investment in product development and the pursuit of new growth opportunities.
See the Discussion of Business Segment Results of Operations discussion below in this MD&A
for further information.
Non-Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Non-operating loss
|
|
$
|
(0.4
|
)
|
|
$
|
(0.2
|
)
|
|
|
100.0
|
%
|
We had a non-operating loss of $0.4 million in the first quarter of fiscal 2011 compared with
a non-operating loss of $0.2 million in the first quarter of fiscal 2010.
Interest Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Interest income
|
|
$
|
0.6
|
|
|
$
|
0.4
|
|
|
|
50.0
|
%
|
Interest expense
|
|
|
(17.8
|
)
|
|
|
(18.2
|
)
|
|
|
(2.2
|
)%
|
Our interest income increased to $0.6 million in the first quarter of fiscal 2011 from $0.4
million in the first quarter of fiscal 2010 due to higher balances of cash and cash equivalents.
Our interest expense decreased to $17.8 million in the first quarter of fiscal 2011 from $18.2
million in the first quarter of fiscal 2010 due to lower interest rates incurred on our short-term
borrowings, partially offset by higher levels of short-term borrowings related to our acquisition
of CapRock during the first quarter of fiscal 2011.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Income taxes
|
|
$
|
87.6
|
|
|
$
|
56.3
|
|
|
|
55.6
|
%
|
Effective tax rate
|
|
|
34.8
|
%
|
|
|
35.0
|
%
|
|
|
|
|
Our effective tax rate (income taxes as a percentage of income before income taxes) was 34.8
percent for the first quarter of fiscal 2011 compared with 35.0 percent for the first quarter of
fiscal 2010.
17
Discussion of Business Segment Results of Operations
RF Communications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Revenue
|
|
$
|
566.5
|
|
|
$
|
423.7
|
|
|
|
33.7
|
%
|
Segment operating income
|
|
|
228.5
|
|
|
|
114.0
|
|
|
|
100.4
|
%
|
% of revenue
|
|
|
40.3
|
%
|
|
|
26.9
|
%
|
|
|
|
|
RF Communications segment revenue in the first quarter of fiscal 2011 was $566.5 million,
including $446.1 million in our Tactical Radio Communications business and $120.4 million in our
Public Safety and Professional Communications business, compared with
$423.7 million in the first quarter of fiscal 2010. The increase in RF Communications segment revenue was
driven primarily by deliveries for the U.S. Department of Defenses MRAP and M-ATV programs.
Operating income was $228.5 million in the first quarter of fiscal 2011 compared with $114.0
million in the first quarter of fiscal 2010. Operating income as a percentage of revenue was 40.3
percent in the first quarter of fiscal 2011 compared with 26.9 percent in the first quarter of
fiscal 2010. The increase in operating income and operating income as a percentage of revenue was
primarily due to a significant increase in revenue in the first quarter of fiscal 2011 compared
with the first quarter of fiscal 2010, a favorable product mix and operational efficiencies.
RF Communications segment orders in the first quarter of fiscal 2011 were $472 million,
including $394 million in our Tactical Radio Communications business and $78 million in our Public
Safety and Professional Communications business. At the end of the first quarter of fiscal 2011,
total backlog for our RF Communications segment was $1.67 billion, including $1.19 billion in our
Tactical Radio Communications business and $484 million in our Public Safety and Professional
Communications business.
During the first quarter of fiscal 2011, new orders in our Tactical Radio Communications
business were strong in the international market. This reflected continuing strong international
demand and a significant uptake in customer adoption of our new Falcon III
®
radios.
International orders in the first quarter of fiscal 2011 included three orders totaling $69 million
from an Asian country for the next phase of a comprehensive, multi-level Command, Control,
Communications, Computers and Intelligence (C4I) system.
Orders in our Tactical Radio Communications business in the U.S. market in the
first quarter of fiscal 2011 included orders for Falcon III and Falcon II
®
radios for
the U.S. Navy, AN/PRC-117G vehicular adaptor units for the U.S. Marine Corps, and several new
products including high-capacity line-of-sight Internet Protocol (IP) data radios, KGV-72 blue
force tracking encryption devices, and HF Loop antennas for improved communications on the move.
In our Public Safety and Professional Communications business, we received a $9 million
contract from Ontario County, New York, to upgrade its public safety radio communications system
with a Harris P25
IP
(Project 25 to the power of IP) solution. Our Unity
®
XG-100P portable full-spectrum multiband radio and its suite of advanced features will be used for
enhanced interoperability.
Following the close of the first quarter of fiscal 2011, we were selected by Alberta Solicitor
General and Public Security as the preferred vendor for the design, construction, implementation
and operation of the province-wide Alberta First Responders Radio Communications System. We have
been engaged in due diligence activities as defined in the Request for Proposals. Award of the
contract is subject to successful completion of due diligence activities, finalization of contract
documentation satisfactory to Alberta Solicitor General and Public Security and approval of the
finalized contract by the Alberta Treasury Board. This system, which will cover 256,000 square
miles, will be the critical communications link among Albertas
first responders.
18
Government Communications Systems Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Revenue
|
|
$
|
735.5
|
|
|
$
|
667.7
|
|
|
|
10.2
|
%
|
Segment operating income
|
|
|
78.3
|
|
|
|
85.7
|
|
|
|
(8.6
|
)%
|
% of revenue
|
|
|
10.6
|
%
|
|
|
12.8
|
%
|
|
|
|
|
Government Communications Systems segment revenue in the first quarter of fiscal 2011
increased 10.2 percent to $735.5 million compared with $667.7 million in the first quarter of
fiscal 2010. Operating income was $78.3 million in the first quarter of fiscal 2011 compared with
$85.7 million in the first quarter of fiscal 2010. Operating income as a percentage of revenue in
the first quarter of fiscal 2011 was 10.6 percent compared with 12.8 percent in the first quarter
of fiscal 2010. Operating income in the first quarter of fiscal 2010
benefited from favorable award fees for the completion
of the equipment build-out phase on the FAA Telecommunications Infrastructure (FTI) program for
the Federal Aviation Administration (FAA).
Revenue growth in the first quarter of fiscal 2011 compared with the first quarter of fiscal
2010 was driven primarily by the ramp-up on the GOES-R Ground and Antenna Segment weather programs,
partially offset by the continued winding down of the FDCA program, as expected, and lower revenue on
several classified programs.
Revenue also benefited from the recent acquisition of CapRock, which was completed on July 30,
2010. As discussed further in
Note C Business
Combinations
in the Notes, CapRock is a global provider of
managed satellite communications solutions serving remote and harsh
environments for the energy, government and maritime industries. Our
first quarter of fiscal 2011 results of operations include revenue of $64.6 million and a
pre-tax loss of $0.4 million (including $2.0 million of acquisition-related charges) associated
with CapRock for the two-month period during the quarter following the date of acquisition.
Major awards in the first quarter of fiscal 2011 in our Government Communications Systems
segment included a contract, potentially worth $130 million, to supply antennas and control systems
for NOAAs GOES-R program; a contract, potentially worth $77 million, by the U.S. Army Materiel
Command (AMC) to provide Information Technology (IT) infrastructure and follow-on operations
and maintenance support for the relocation of AMC Headquarters building to Huntsville, Alabama; a
follow-on contract, potentially worth $64 million, for the U.S. Air Force Network and Space
Operations and Maintenance (NSOM) program; a follow-on production contract, potentially worth $55
million, to supply avionics systems for the U.S. Department of Defense F-35 Lightning II fighter
aircraft; a follow-on contract, potentially worth $40 million, for the Department of State Consular
Affairs Support Services (CASS) IT services program; and a contract, potentially worth $40
million, to produce telemetry modules supporting the U.S. Air Force Advanced Medium-Range
Air-to-Air Missile (AMRAAM).
Also during the first quarter of fiscal 2011, our Harris CapRock business was awarded four
contracts, potentially worth a total of $43 million, to provide managed network services and more
than 400 MHz of commercial satellite capacity to four separate U.S. Government agencies. The
services provided will be used to support a range of missions, including airborne intelligence,
surveillance and reconnaissance (ISR), tactical field-deployed communications and continuity of
operations.
Following the end of the first quarter of fiscal 2011, we were awarded a nine-year follow-on
contract, potentially worth CAD 273 million, by the Government of Canada for the CF-18 Avionics
Optimized Weapon System Support (OWSS) program. Under the contract, we will provide engineering
services to support the avionics systems on the CF-18 Hornet fighter aircraft.
Broadcast Communications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Revenue
|
|
$
|
121.6
|
|
|
$
|
118.7
|
|
|
|
2.4
|
%
|
Segment operating income (loss)
|
|
|
(8.6
|
)
|
|
|
0.3
|
|
|
|
*
|
|
% of revenue
|
|
|
(7.1
|
)%
|
|
|
0.3
|
%
|
|
|
|
|
19
Broadcast Communications segment revenue in the first quarter of fiscal 2011 was $121.6
million compared with $118.7 million in the first quarter of fiscal 2010. This segment had an
operating loss of $8.6 million in the first quarter of fiscal 2011 compared with operating income
of $0.3 million in the first quarter of fiscal 2010. The first quarter of fiscal 2011 included a
$1.0 million charge related to cost-reduction actions. We expect approximately $5 million of
cost-reduction charges in total for this segment in fiscal 2011, although we can give no assurances
concerning future cost-reduction charges.
Broadcast Communications segment orders in the first quarter of fiscal 2011 were $135.5
million compared with $110.8 million in the fourth quarter of fiscal 2010 and $124.2 million in the
first quarter of fiscal 2010. Orders in the first quarter of fiscal 2011 included an $8 million
order from Nine Network Australia for a new playout center built with our technology, including
servers, multiviewers, routers, digital asset management and automation solutions.
While operating results continued to reflect market weakness in the traditional U.S. broadcast
market and increased investment to address new media and international growth opportunities, the
book-to-bill ratio of 1.1:1 and year-over-year orders and revenue growth are encouraging signs for
our Broadcast Communications segment.
Unallocated Corporate Expense and Corporate Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
October 1,
|
|
October 2,
|
|
%
|
|
|
2010
|
|
2009
|
|
Inc/(Dec)
|
|
|
(Dollars in millions)
|
Unallocated corporate expense
|
|
$
|
25.7
|
|
|
$
|
19.2
|
|
|
|
33.9
|
%
|
Corporate Eliminations
|
|
|
3.4
|
|
|
|
2.0
|
|
|
|
70.0
|
%
|
Unallocated corporate expense increased 33.9 percent to $25.7 million in the first quarter of
fiscal 2011 from $19.2 million in the first quarter of fiscal 2010, primarily due to investments
made in pursuit of new growth opportunities and higher compensation and benefit plan expenses. As a
percentage of revenue, unallocated corporate expense was 1.8 percent in the first quarter of fiscal
2011 compared with 1.6 percent in the first quarter of fiscal 2010. Corporate eliminations
increased to $3.4 million in the first quarter of fiscal 2011 from $2.0 million in the first
quarter of fiscal 2010 due to increased intersegment activity.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
October 1,
|
|
|
October 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
Net cash provided by operating activities
|
|
$
|
294.9
|
|
|
$
|
134.5
|
|
Net cash used in investing activities
|
|
|
(569.4
|
)
|
|
|
(19.6
|
)
|
Net cash provided by (used in) financing activities
|
|
|
159.0
|
|
|
|
(165.3
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1.7
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(113.8
|
)
|
|
|
(50.1
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
455.2
|
|
|
|
281.2
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of quarter
|
|
$
|
341.4
|
|
|
$
|
231.1
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents:
Our cash and cash equivalents decreased $113.8 million to $341.4
million at the end of the first quarter of fiscal 2011 from $455.2 million at the end of fiscal
2010. The decrease was primarily due to $518.0 million of cash paid for acquired businesses, $55.5
million used to repurchase shares of our common stock, $37.1 million of property, plant and
equipment additions and $32.2 million used to pay cash dividends, partially offset by $294.9
million of net cash provided by operating activities and $244.1 million of net proceeds from
borrowings to partially fund our acquisition of CapRock.
Our financial position remained strong at October 1, 2010. We ended the first quarter of
fiscal 2011 with cash and cash equivalents of $341.4 million; we have no long-term debt maturing
until fiscal 2016; we have a senior unsecured $750 million revolving credit facility that expires
in September 2013 ($475.0 million of which was available to us as of October 1, 2010 as a result of
$275.0 million of short-term debt outstanding under our
commercial paper program, which was supported by such senior
unsecured revolving credit facility); we have a senior unsecured $300 million
364-day revolving credit facility that expires on September 28,
2011 (all of which was available to us as of October 1, 2010); and we do not have any material defined benefit
pension plan obligations.
20
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
concerning our future liquidity.
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 program for the next 12 months. 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 2011 cash outlays may include additional strategic acquisitions. Other than those cash
outlays noted in the Commercial Commitments and Contractual Obligations discussion below in this
MD&A, capital expenditures, potential acquisitions and repurchases under our share repurchase
program, no other significant cash outlays are anticipated during the remainder of fiscal 2011.
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 any potential future 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 eliminate strategic acquisitions, reduce or terminate our share repurchase
program, 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
$294.9 million in the first quarter of fiscal 2011 compared with $134.5 million in the first
quarter of fiscal 2010. All of our segments had positive cash flow in the first quarter of fiscal
2011, with significant contributions received from our RF Communications and Government
Communications Systems segments. The increase in net cash provided by operating activities was
primarily due to strong operating results in our RF Communications segment and good working capital
management in our Government Communications Systems segment in the first quarter of fiscal 2011
compared with the first quarter of fiscal 2010.
Net cash used in investing activities:
Our net cash used in investing activities was $569.4
million in the first quarter of fiscal 2011 compared with $19.6 million in the first quarter of
fiscal 2010. Net cash used in investing activities in the first quarter of fiscal 2011 consisted of
$518.0 million of cash paid for our acquisition of CapRock, $37.1 million of property, plant and
equipment additions, $10.0 million of cash paid for a cost-method investment and $4.3 million of
capitalized software additions. Net cash used in investing activities in the first quarter of
fiscal 2010 consisted of $18.6 million of property, plant and equipment additions and $2.0 million
of capitalized software additions, partially offset by $1.0 million of cash adjustments related to
acquired businesses. The increase in our capital expenditures in the first quarter of fiscal 2011
compared with the first quarter of fiscal 2010 was primarily due to the build-out of a newly
acquired facility for our new Harris Cyber Integration Center and our recently acquired RF
Communications manufacturing facility. Our total capital expenditures, including capitalized
software, in fiscal 2011 are expected to be between $250 million and $275 million.
Net cash provided by (used in) financing activities:
Our net cash provided by financing
activities was $159.0 million in the first quarter of fiscal 2011 compared with net cash used in
financing activities of $165.3 million in the first quarter of fiscal 2010. Net cash provided by
financing activities in the first quarter of fiscal 2011 primarily consisted of $244.1 million of
net proceeds from borrowings to partially fund our acquisition of CapRock, partially offset by
$55.5 million used to repurchase shares of our common stock and $32.2 million used to pay cash
dividends. Net cash used in financing activities in the first quarter of fiscal 2010 primarily
consisted of $81.1 million used for repayments of borrowings, $55.3 million used to repurchase
shares of our common stock and $29.0 million used to pay cash dividends.
Common Stock Repurchases
During the first quarter of fiscal 2011, we used $50.0 million to repurchase 1,173,900 shares
of our common stock under our repurchase program at an average price per share of $42.59, including
commissions. During the first quarter of fiscal 2010, we used $50.0 million to repurchase 1,443,072
shares of our common stock under our repurchase program at an average price per share of $34.64,
including commissions. In the first quarter of fiscal 2011 and first quarter of fiscal 2010, $5.5
million and $5.3 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.
21
As of October 1, 2010, we have a remaining authorization to repurchase approximately $400
million in shares of our common stock under our repurchase program, which does not have a stated
expiration date. Repurchases under our repurchase program 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 the first quarter of fiscal 2011 and
our repurchase program is set forth in this Report under Part II. Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds.
Dividends
On August 28, 2010, our Board of Directors increased the quarterly cash dividend rate on our
common stock from $.22 per share to $.25 per share, for an annualized cash dividend rate of $1.00
per share, which was our ninth consecutive annual increase in our quarterly cash dividend rate. Our
annualized cash dividend rate was $.88 per share in fiscal 2010. 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 concerning payment of future
dividends. 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.
Capital Structure and Resources
364-Day Revolving Credit Agreement:
As discussed in
Note I Credit Arrangements
in the Notes,
on September 29, 2010, we entered into the $300 million senior unsecured 364-Day Revolving Credit
Agreement with a syndicate of lenders. The 364-Day Revolving Credit
Agreement provides for the extension of credit to us in the form of revolving loans at any time and from time to time during
the term of the 364-Day Revolving Credit Agreement, in an aggregate principal amount at any time
outstanding not to exceed $300 million. Borrowings under the 364-Day Revolving Credit Agreement
will be denominated in U.S. Dollars. The 364-Day Revolving Credit Agreement may be used for working
capital and other general corporate purposes (excluding hostile acquisitions) and may also be used
to support any commercial paper that we may issue.
At our election, borrowings under the 364-Day Revolving Credit Agreement 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 1.75 percent, may increase (to a maximum amount
of 2.25 percent) or decrease (to a minimum amount of 1.25 percent) based on changes in our Senior
Debt Ratings. The base rate is a fluctuating rate equal to the highest of (i) the federal funds
rate plus 0.50 percent, (ii) SunTrust Banks publicly announced prime lending rate for U.S. Dollars
or (iii) LIBOR for an interest period of one month plus 1.00 percent. The interest rate margin over
the base rate, initially set at 0.75 percent, may increase (to a maximum amount of 1.25 percent) or
decrease (to a minimum amount of 0.25 percent) based on our Senior Debt Ratings.
The
364-Day Revolving Credit Agreement contains certain customary covenants similar to the 2008 Credit
Agreement discussed below. We were in compliance with the covenants in the 364-Day Revolving Credit
Agreement in the first quarter of fiscal 2011. The 364-Day Revolving Credit Agreement contains
certain events of default similar to the 2008 Credit Agreement discussed below. 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 364-Day Revolving Credit Agreement are due and mature
on September 28, 2011, unless the commitments are terminated earlier either at our request or if
certain events of default occur. At October 1, 2010, we had no borrowings outstanding under the
364-Day Revolving Credit Agreement.
2008 Credit Agreement:
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. 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
22
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 our 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 customary 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 0.60:1.00 and not permit our ratio of consolidated EBITDA to consolidated net interest expense, each as defined, to
be less than 3.00:1.00 (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 the first quarter of fiscal 2011. 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, other default under such other
indebtedness that permits acceleration of such indebtedness, or acceleration of such other
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 October 1, 2010, we had no borrowings outstanding under the 2008 Credit Agreement, but we
had $275.0 million of short-term debt outstanding under our
commercial paper program, which was supported by the 2008 Credit Agreement.
Long-Term Debt:
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 the accompanying Condensed Consolidated Statement of Income (Unaudited).
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
23
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. 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 the
accompanying Condensed Consolidated Statement of Income (Unaudited).
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 the accompanying Condensed
Consolidated Statement of Income (Unaudited).
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.
Other:
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 expect to maintain operating ratios, fixed-charge coverage ratios and balance sheet ratios
sufficient for retention of, or improvement to, our current 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 the Commercial Commitments discussion in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations in our Fiscal 2010
Form 10-K. 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.
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules, any of the following qualify as off-balance
sheet arrangements:
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Any obligation under certain guarantee contracts;
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A retained or contingent interest in assets transferred to an unconsolidated entity or
similar entity or similar arrangement that
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serves as credit, liquidity or market risk support to that entity for such assets;
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Any obligation, including a contingent obligation, under certain derivative instruments;
and
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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.
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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 October 1,
2010, 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 condition or cash flows.
Commercial Commitments and Contractual Obligations
The amounts disclosed in our Fiscal 2010 Form 10-K include our commercial commitments and
contractual obligations. During the quarter ended October 1, 2010, other than additional operating
lease commitments of approximately $137 million associated with our acquisition of CapRock,
primarily with respect to satellite bandwidth, no material changes occurred in our contractual cash
obligations to repay debt, to purchase goods and services and to make payments under operating
leases or our commercial commitments and contingent liabilities on outstanding surety bonds,
letters of credit, guarantees and other arrangements as disclosed in our Fiscal 2010 Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes are
prepared in accordance with U.S. generally accepted accounting principles. Preparing financial
statements requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the
application of our accounting policies. Our significant accounting policies are described in Note
1: Significant Accounting Policies in our Notes to Consolidated Financial Statements included in
our Fiscal 2010 Form 10-K. Critical accounting policies and estimates are those that require
application of managements most difficult, subjective or complex judgments, often as a result of
matters that are inherently uncertain and may change in subsequent periods. Critical accounting
policies and estimates for us include: (i) revenue recognition on development and production
contracts and contract estimates, (ii) provisions for excess and obsolete inventory losses, (iii)
impairment testing of goodwill and other intangible assets, and (iv) income taxes and tax valuation
allowances. For additional discussion of our critical accounting policies and estimates, see the
Critical Accounting Policies and Estimates discussion in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Fiscal 2010 Form 10-K.
Impact of Recently Issued Accounting Standards
Accounting standards issued but not effective for us until after October 1, 2010 are not
expected to have a material impact on our financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report 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, but not limited to, 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,
25
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.
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). 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:
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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.
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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.
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We enter into fixed-price contracts that could subject us to losses in the event of cost
overruns or a significant increase in inflation.
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We derive a significant portion of our revenue from international operations and are
subject to the risks of doing business internationally, including fluctuations in currency
exchange rates.
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Our reputation and ability to do business may be impacted by the improper conduct of our
employees, agents or business partners.
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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.
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Our future success will depend on our ability to develop new products and technologies
that achieve market acceptance in our current and future markets.
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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.
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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.
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We have made, and may continue to make, strategic acquisitions that involve significant
risks and uncertainties.
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Disputes with our subcontractors and the inability of our subcontractors to perform, or
our key suppliers to timely deliver our components, parts or services, could cause our
products to be produced in an untimely or unsatisfactory manner.
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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.
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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.
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We face certain significant risk exposures and potential liabilities that may not be
covered adequately by insurance or indemnity.
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Changes in our effective tax rate may have an adverse effect on our results of
operations.
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The effects of the recent 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.
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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.
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We could be negatively impacted by a security breach, through cyber attack, cyber
intrusion or otherwise, or other significant disruption of our IT networks and related
systems or of those we operate for certain of our customers.
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We rely on third parties to provide satellite bandwidth for our managed satellite
communications services, and any bandwidth constraints could harm our business, financial
condition and results of operations.
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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.
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We must attract and retain key employees, and failure to do so could seriously harm us.
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Additional details and discussions concerning some of the factors that could affect our
forward-looking statements or future results are set forth in our Fiscal 2010 Form 10-K under Item
1A. Risk Factors. The foregoing list of factors and the factors set forth in Item 1A. Risk
Factors included in our Fiscal 2010 Form 10-K and in Part II. Item 1A. Risk Factors in this
Report are not exhaustive. Additional risks and uncertainties not known to us or that we currently
believe not to be material also may adversely impact our business, results of operations, financial
position and cash flows. Should any risks or uncertainties develop into actual events, these
developments could have a material adverse effect on our business, results of operations, financial
position and cash flows. The forward-looking statements contained in this Report are made as of the
date hereof and we disclaim any intention or obligation, other than
imposed by law, to update or revise any
26
forward-looking statements or
to update the reasons actual results could differ materially from those projected in the
forward-looking statements, whether as a result of new information, future events or otherwise. For
further information concerning risk factors, see Part II. Item 1A. Risk Factors in this Report.
Item 3. 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.
Foreign Exchange and Currency:
We use foreign currency forward 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
October 1, 2010 would not have had a material impact on the fair value of such instruments. This
quantification of exposure to the market risk associated with foreign currency 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
M Derivative Instruments
and Hedging Activities
in the Notes for additional information.
Interest Rates:
As of October 1, 2010, we had 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
this 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 over the next twelve months.
Item 4. 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 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 the fiscal quarter ended October 1, 2010, 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 the fiscal quarter ended October 1,
2010 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
fiscal quarter ended October 1, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Harris Stratex Networks, Inc. (now known as Aviat Networks, Inc.) (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, among other things, added Harris
Corporation as a defendant. 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 alleged 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 sought, 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 1A. Risk Factors.
Investors should carefully review and consider the information regarding certain factors which
could materially affect our business, results of operations, financial condition and cash flows and
set forth under Item 1A. Risk Factors in our Fiscal 2010 Form 10-K. We do not believe that there
have been any material changes to the risk factors previously disclosed in our Fiscal 2010 Form
10-K. We may disclose changes to such factors or disclose additional factors from time to time in
our future filings with the SEC. Additional risks and uncertainties not presently known to us or
that we currently believe not to be material may also adversely impact our business, results of
operations, financial position and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the first quarter of fiscal 2011, we repurchased 1,173,900 shares of our common stock
under our repurchase program at an average price per share of $42.57, excluding commissions. During
the first quarter of fiscal 2010, we repurchased 1,443,072 shares of our common stock under our
repurchase program at an average price per share of $34.62, 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.
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The following table sets forth information with respect to repurchases by us of our common
stock during the fiscal quarter ended October 1, 2010:
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Maximum approximate
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dollar value of
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shares that
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Total number of shares
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may yet be
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purchased as part of
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purchased under
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Total number of
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Average price paid
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publicly announced
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the plans or
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Period*
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shares purchased
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per share
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plans or programs (1)
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programs (1)
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Month No. 1
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(July 3, 2010-July 30, 2010)
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Repurchase Programs (1)
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None
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n/a
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None
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$
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450,522,775
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Employee Transactions (2)
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4,937
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$
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42.85
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n/a
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n/a
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Month No. 2
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(July 31, 2010-August 27, 2010)
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|
|
|
|
|
Repurchase Programs (1)
|
|
|
706,400
|
|
|
$
|
42.44
|
|
|
|
706,400
|
|
|
$
|
420,539,922
|
|
Employee Transactions (2)
|
|
|
110,508
|
|
|
$
|
42.81
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Month No. 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(August 28, 2010-October 1, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Programs (1)
|
|
|
467,500
|
|
|
$
|
42.76
|
|
|
|
467,500
|
|
|
$
|
400,549,402
|
|
Employee Transactions (2)
|
|
|
54,361
|
|
|
$
|
43.71
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,343,706
|
|
|
$
|
42.64
|
|
|
|
1,173,900
|
|
|
$
|
400,549,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Periods represent our fiscal months.
|
|
(1)
|
|
On March 2, 2009, we announced that on February 27, 2009, our Board of Directors approved a
share 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. Our repurchase program does not
have a stated expiration date. The approximate dollar amount of our stock that may yet be
purchased under our repurchase program as of October 1, 2010 was $400,549,402 (as reflected in
the table above). Our repurchase program has resulted, and is 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 that 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, or sold to
us by, the Harris Corporation Master Rabbi Trust, with the trustee thereof acting at our
direction, to fund obligations of the Rabbi Trust 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.
|
Sales of Unregistered Securities
During the first quarter of fiscal 2011, we did not issue or sell any unregistered equity
securities.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. (Removed and Reserved).
29
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
The following exhibits are filed herewith or incorporated by reference to exhibits previously
filed with the SEC:
|
|
|
(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)
|
|
|
|
|
|
(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)
|
|
|
|
(10)
|
|
*(a) Harris Corporation Annual Incentive Plan (Effective as of July 3, 2010), incorporated herein by
reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed with the SEC on
September 2, 2010. (Commission File Number 1-3863)
|
|
|
|
|
|
*(b) Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27,
2010), incorporated herein by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
filed with the SEC on September 2, 2010. (Commission File Number 1-3863)
|
|
|
|
|
|
*(c) Form of Stock Option Award Agreement Terms and Conditions (as of July 3, 2010) for grants under
the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010).
|
|
|
|
|
|
*(d) Form of Performance Share Award Agreement Terms and Conditions (as of July 3, 2010) for grants
under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27,
2010).
|
|
|
|
|
|
*(e) Form of Performance Share Unit Award Agreement Terms and Conditions (as of July 3, 2010) for
grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective
August 27, 2010).
|
|
|
|
|
|
*(f) Form of Restricted Stock Award Agreement Terms and Conditions (as of July 3, 2010) for grants
under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27,
2010).
|
|
|
|
|
|
*(g) Form of Restricted Stock Unit Award Agreement Terms and Conditions (as of July 3, 2010) for
grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective
August 27, 2010).
|
|
|
|
|
|
*(h) Amendment Number Eleven to the Harris Corporation Retirement Plan, dated September 2, 2010 and
effective as of October 1, 2010.
|
|
|
|
|
|
*(i) Amendment Number Twelve to the
Harris Corporation Retirement Plan, dated October 27, 2010 and
effective as of August 28, 2010.
|
|
|
|
|
|
*(j) Amendment No. 4 to Harris
Corporation Supplemental Executive Retirement Plan, dated October 27,
2010 and effective as of August 28, 2010.
|
|
|
|
|
|
*(k) Amendment Number Three to the Harris Corporation 2005 Supplemental Executive Retirement Plan,
dated
October 27, 2010 and effective as of August 28, 2010.
|
|
|
|
|
|
*(l) Amendment Number Two to the Harris Corporation 1997 Directors Deferred Compensation and Annual
Stock Unit Award Plan (Amended and Restated Effective January 1,
2006), dated October 27, 2010 and
effective as of August 28, 2010.
|
|
|
|
|
|
*(m) Amendment Number One to the Harris Corporation 2005 Directors Deferred Compensation Plan (As
Amended and Restated Effective January 1, 2009), dated October 27, 2010 and effective as of
August 28, 2010.
|
|
|
|
|
|
*(n) Fourth Amendment to the Harris
Corporation Master Rabbi Trust Agreement, dated October 27, 2010
and effective as of August 28, 2010.
|
|
|
|
|
|
*(o) Form of Executive Change in
Control Severance Agreement, effective as of, and for use after, April 22, 2010.
|
|
|
|
|
|
*(p) Form of Director and Executive Officer Indemnification Agreement, effective as of, and for use after, August 28, 2010.
|
30
|
|
|
|
|
(q) 364-Day Revolving Credit Agreement, dated as of September 29, 2010, by and 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 October 5, 2010. (Commission File Number 1-3863)
|
|
|
|
(12)
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
|
|
(15)
|
|
Letter Regarding Unaudited Interim Financial Information.
|
|
|
|
(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.
|
|
|
|
(101. INS)
|
|
**XBRL Instance Document.
|
|
|
|
(101. SCH)
|
|
**XBRL Taxonomy Extension Schema Document.
|
|
|
|
(101. CAL)
|
|
**XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
(101. LAB)
|
|
**XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
(101. PRE)
|
|
**XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
(101. DEF)
|
|
**XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
*
|
|
Management contract or compensatory plan or arrangement.
|
|
**
|
|
Furnished herewith (not filed).
|
31
SIGNATURE
Pursuant to the requirements 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: October 28, 2010
|
By:
|
/s/ Gary L. McArthur
|
|
|
|
Gary L. McArthur
|
|
|
|
Senior Vice President and Chief Financial Officer
(principal financial officer and duly authorized officer)
|
|
32
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
|
Under Reg. S-K,
|
|
|
Item 601
|
|
Description
|
(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)
|
|
|
|
|
|
(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)
|
|
|
|
(10)
|
|
*(a) Harris Corporation Annual Incentive Plan (Effective as of July 3, 2010), incorporated herein by
reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed with the SEC on
September 2, 2010. (Commission File Number 1-3863)
|
|
|
|
|
|
*(b) Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27,
2010), incorporated herein by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
filed with the SEC on September 2, 2010. (Commission File Number 1-3863)
|
|
|
|
|
|
*(c) Form of Stock Option Award Agreement Terms and Conditions (as of July 3, 2010) for grants under
the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010).
|
|
|
|
|
|
*(d) Form of Performance Share Award Agreement Terms and Conditions (as of July 3, 2010) for grants
under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27,
2010).
|
|
|
|
|
|
*(e) Form of Performance Share Unit Award Agreement Terms and Conditions (as of July 3, 2010) for
grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective
August 27, 2010).
|
|
|
|
|
|
*(f) Form of Restricted Stock Award Agreement Terms and Conditions (as of July 3, 2010) for
grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective
August 27, 2010).
|
|
|
|
|
|
*(g) Form of Restricted Stock Unit Award Agreement Terms and Conditions (as of July 3, 2010) for
grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective
August 27, 2010).
|
|
|
|
|
|
*(h) Amendment Number Eleven to the Harris Corporation Retirement Plan, dated September 2, 2010 and
effective as of October 1, 2010.
|
|
|
|
|
|
*(i) Amendment Number Twelve to the
Harris Corporation Retirement Plan, dated October 27, 2010 and
effective as of August 28, 2010.
|
|
|
|
|
|
*(j) Amendment No. 4 to Harris
Corporation Supplemental Executive Retirement Plan, dated October 27,
2010 and effective as of August 28, 2010.
|
|
|
|
|
|
*(k) Amendment Number Three to the Harris Corporation 2005 Supplemental Executive Retirement Plan,
dated
October 27, 2010 and effective as of August 28, 2010.
|
|
|
|
|
|
*(l) Amendment Number Two to the Harris Corporation 1997 Directors Deferred Compensation and Annual
Stock Unit Award Plan (Amended and Restated Effective January 1,
2006), dated October 27, 2010 and
effective as of August 28, 2010.
|
|
|
|
|
|
*(m) Amendment Number One to the Harris Corporation 2005 Directors Deferred Compensation Plan (As
Amended and Restated Effective January 1, 2009), dated October 27, 2010 and effective as of
August 28, 2010.
|
|
|
|
|
|
*(n) Fourth Amendment to the Harris
Corporation Master Rabbi Trust Agreement, dated October 27, 2010
and effective as of August 28, 2010.
|
|
|
|
|
|
*(o) Form of Executive Change in
Control Severance Agreement, effective as of, and for use after, April 22, 2010.
|
|
|
|
|
|
*(p) Form of Director and Executive Officer Indemnification Agreement, effective as of, and for use after, August 28, 2010.
|
|
|
|
Exhibit No.
|
|
|
Under Reg. S-K,
|
|
|
Item 601
|
|
Description
|
|
|
(q) 364-Day Revolving Credit Agreement, dated as of September 29,
2010, by and 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 October 5, 2010.
(Commission File Number 1-3863)
|
|
|
|
(12)
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
|
|
(15)
|
|
Letter Regarding Unaudited Interim Financial Information.
|
|
|
|
(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.
|
|
|
|
(101. INS)
|
|
**XBRL Instance Document.
|
|
|
|
(101. SCH)
|
|
**XBRL Taxonomy Extension Schema Document.
|
|
|
|
(101. CAL)
|
|
**XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
(101. LAB)
|
|
**XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
(101. PRE)
|
|
**XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
(101. DEF)
|
|
**XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
*
|
|
Management contract or compensatory plan or arrangement.
|
|
**
|
|
Furnished herewith (not filed).
|
Exhibit 10(o)
FORM OF EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT
(Effective as of, and for use after, April 22, 2010)
THIS AGREEMENT is entered into as of the _____ day of ____________, 20___ by and between
Harris Corporation, a Delaware corporation (the Company), and [____________________]
(Executive).
WITNESSETH
WHEREAS, the Company considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the Company and its
shareholders; and
WHEREAS, the Company recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its shareholders; and
WHEREAS, Executive currently serves as an officer of the Company; and
WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests
of the Company and its shareholders to secure Executives continued services and to ensure
Executives continued and undivided dedication to Executives duties in the event of any threat or
occurrence of or negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company without being influenced by Executives
uncertainty of Executives own situation; and
WHEREAS, the Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and
agreements herein contained, the Company and Executive hereby agree as follows:
1
1.
Definitions
. As used in this Agreement, the following terms shall have the
respective meanings set forth below:
(a) Board means the Board of Directors of the Company.
(b) Cause means (1) a material breach by Executive of the duties and responsibilities of
Executive (other than as a result of incapacity due to physical or mental illness) which is (x)
demonstrably willful, continued and deliberate on Executives part, (y) committed in bad faith or
without reasonable belief that such breach is in the best interests of the Company and (z) not
remedied within fifteen (15) days after receipt of written notice from the Company which
specifically identifies the manner in which such breach has occurred or (2) Executives conviction
of, or plea of
nolo
contendere
to, a felony involving willful misconduct which is
materially and demonstrably injurious to the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the best interests of the Company. Cause shall not exist unless and
until the Company has delivered to Executive a copy of a resolution duly adopted by three-quarters
(3/4) of the entire Board at a meeting of the Board called and held for such purpose (after
thirty (30) days notice to Executive and an opportunity for Executive, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board an event set forth in
clauses (1) or (2) has occurred and specifying the particulars thereof in detail. The Company must
notify Executive of any event constituting Cause within ninety (90) days following the Companys
knowledge of its existence or such event shall not constitute Cause under this Agreement.
(c) Change in Control shall be deemed to have occurred if:
(i) any person (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of
1934, as amended (the Exchange Act) and as used in Sections l3(d)(3) and 14(d)(2) of the Exchange
Act) is or becomes a beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 20% or more of the combined voting power
of the Companys then outstanding securities eligible to vote for the election of the Board (the
Company Voting Securities);
provided,
however
, that the event described in this
paragraph (i) shall not be deemed to be a
2
Change in Control by virtue of any of the following acquisitions: (A) by the Company or any
Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Company or any
Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), or (E)
pursuant to any acquisition by Executive or any group of persons including Executive;
(ii) individuals who, on July 1, [year most recent], constitute the Board (the Incumbent
Directors) cease for any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to July 1, [year most recent], whose appointment,
election or nomination for election was approved by a vote of at least two-thirds of the Incumbent
Directors who remain on the Board (either by a specific vote or by approval of the proxy statement
of the Company in which such person is named as a nominee for director, without objection to such
nomination) shall also be deemed to be an Incumbent Director;
provided
,
however
,
that no individual initially elected, appointed or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or any other actual or
threatened solicitation of proxies or consents by or on behalf of any person other than the Board
shall be deemed to be an Incumbent Director;
(iii) there is consummated a merger, consolidation, share exchange or similar form of
corporate reorganization of the Company or any such type of transaction involving the Company or
any of its Subsidiaries that requires the approval of the Companys shareholders (whether for such
transaction or the issuance of securities in the transaction or otherwise) (a Business
Combination), unless immediately following such Business Combination: (A) more than 60% of the
total voting power of the company resulting from such Business Combination (including, without
limitation, any company which directly or indirectly has beneficial ownership of 100% of the
Company Voting Securities) eligible to elect directors of such company is represented by shares
that were Company Voting Securities immediately prior to such Business Combination (either by
remaining outstanding or being converted), and such voting power is in substantially the same
proportion as the voting power of such Company Voting Securities immediately prior to the Business
Combination, (B) no person (other than any publicly traded holding company resulting from such
Business Combination, or any employee benefit plan sponsored or maintained by the Company (or the
corporation resulting from such
3
Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of
the total voting power of the outstanding voting securities eligible to elect directors of the
company resulting from such Business Combination, and (C) at least a majority of the members of the
board of directors of the company resulting from such Business Combination were Incumbent Directors
at the time of the Boards approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies the foregoing conditions specified
in (A), (B) and (C) shall be deemed to be a Non-Control Transaction);
(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of
the Company; or
(v) the Company consummates a direct or indirect sale or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries.
Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur
solely because any person acquires beneficial ownership of more than 20% of the Company Voting
Securities as a result of the acquisition of Company Voting Securities by the Company which reduces
the number of Company Voting Securities outstanding;
provided
, that, if after such
acquisition by the Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting Securities beneficially
owned by such person, a Change in Control of the Company shall then occur.
Notwithstanding anything in this Agreement to the contrary, if Executives employment is
terminated prior to a Change in Control, and Executive reasonably demonstrates that such
termination was at the request or suggestion of a third party who has indicated an intention or
taken steps reasonably calculated to effect a Change in Control (a Third Party) and a Change in
Control involving such Third Party occurs, then for all purposes of this Agreement, the date of a
Change in Control shall mean the date immediately prior to the date of such termination of
employment.
4
(d) Date of Termination means (1) the effective date on which Executives employment by the
Company terminates as specified in a prior written notice by the Company or Executive, as the case
may be, to the other, delivered pursuant to Section 13 or (2) if Executives employment by the
Company terminates by reason of death, the date of death of Executive. For all purposes of this
Agreement, to the extent that Executive is subject to Section 409A of the Code, Executives
termination of employment shall mean Executives separation from service, as defined in Treasury
Regulation §1.409A-1(h) (without regard to any permissible alternative definition thereunder).
(e) Good Reason means, without Executives express written consent, the occurrence of any of
the following events after a Change in Control:
(1)(i) the assignment to Executive of any duties or responsibilities inconsistent in any
material adverse respect with Executives position(s), duties, responsibilities or status with the
Company immediately prior to such Change in Control (including any diminution of such duties or
responsibilities) or (ii) a material adverse change in Executives reporting responsibilities,
titles or offices with the Company as in effect immediately prior to such Change in Control;
(2) a reduction by the Company in Executives rate of annual base salary or annual target
bonus opportunity (including any adverse change in the formula for such annual bonus target) as in
effect immediately prior to such Change in Control or as the same may be increased from time to
time thereafter;
(3) any requirement of the Company that Executive (i) be based anywhere more than fifty (50)
miles from the facility where Executive is located at the time of the Change in Control or (ii)
travel on Company business to an extent substantially greater than the travel obligations of
Executive immediately prior to such Change in Control;
(4) the failure of the Company to (i) continue in effect any employee benefit plan or
compensation plan in which Executive is participating immediately prior to such Change in Control,
unless Executive is permitted to participate in other plans providing Executive with substantially
comparable benefits, or the taking of any action by the Company
5
which would adversely affect Executives participation in or reduce Executives benefits under
any such plan, (ii) provide Executive and Executives dependents with welfare benefits in
accordance with the most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive and Executives dependents immediately prior to such
Change in Control or provide substantially comparable benefits at a substantially comparable cost
to Executive, (iii) provide fringe benefits in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in effect for Executive
immediately prior to such Change in Control, or provide substantially comparable fringe benefits,
or (iv) provide Executive with paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect for Executive
immediately prior to such Change in Control; or
(5) the failure of the Company to obtain the assumption agreement from any successor as
contemplated in Section 12(b); or
(6) any purported termination by the Company of Executives employment otherwise than as
expressly permitted hereby.
Any event or condition described in this Section 1(e)(1) through (6) which occurs prior to a
Change in Control, but was at the request or suggestion of a Third Party who effectuates a Change
in Control, shall constitute Good Reason following a Change in Control for purposes of this
Agreement notwithstanding that it occurred prior to the Change in Control. An isolated,
insubstantial and inadvertent action taken in good faith and which is remedied by the Company
within fifteen (15) days after receipt of notice thereof given by Executive shall not constitute
Good Reason. Executive must provide notice of termination of employment within ninety (90) days of
Executives knowledge of an event constituting Good Reason or such event shall not constitute Good
Reason under this Agreement.
(f) Nonqualifying Termination means a termination of Executives employment (1) by the
Company for Cause, (2) by Executive for any reason other than Good Reason, (3) as a result of
Executives death, (4) by the Company due to Executives absence from Executives duties with the
Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of
Executives incapacity due to physical or mental illness or
6
(5) as a result of Executives mandatory retirement (not including any mandatory early
retirement) in accordance with the Companys retirement policy generally applicable to its salaried
employees, as in effect immediately prior to the Change in Control, or in accordance with any
retirement arrangement established with respect to Executive with Executives written consent.
(g) Subsidiary means any corporation or other entity in which the Company has a direct or
indirect ownership interest of more than 50% of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote generally in the
election of directors or in which the Company has the right to receive more than 50% of the
distribution of profits or of the assets on liquidation or dissolution.
(h) Termination Period means the period of time beginning with a Change in Control and
ending two (2) years following such Change in Control.
2.
Obligations of Executive
. Executive agrees to hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data relating to the
Company or any of its Subsidiaries or affiliated companies, and their respective businesses, which
shall have been obtained by Executive during Executives employment by the Company or any of its
Subsidiaries or affiliated companies and which shall not be or become public knowledge (other than
by acts by Executive or representatives of Executive in violation of this Agreement). After
termination of Executives employment with the Company, Executive shall not, without the prior
written consent of the Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 2
constitute a basis for deferring or withholding any amounts otherwise payable to Executive under
this Agreement.
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3.
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Payments Upon Termination of Employment
.
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(a) If during the Termination Period the employment of Executive shall terminate, other than
by reason of a Nonqualifying Termination, then the Company shall pay to Executive (or Executives
beneficiary or estate) within sixty (60) days following the Date of Termination, as compensation
for services rendered to the Company:
7
(1) a lump-sum cash amount equal to the sum of (i) Executives base salary through the Date of
Termination, to the extent not theretofore paid, (ii) a
pro
rata
portion of
Executives annual bonus in an amount at least equal to: (A) the greatest of (x) not less than
Executives target bonus for the fiscal year in which the Change in Control occurs; (y) not less
than Executives target bonus for the fiscal year in which Executives Date of Termination occurs;
and (z) Executives actual bonus payout for the fiscal year in which Executives Date of
Termination occurs (in the case of each of (x), (y) and (z), not including as bonus any amount
payable under the Companys Performance Reward Plan or a similar broad-based plan), multiplied by
(B) a fraction, the numerator of which is the number of days in the fiscal year in which the Date
of Termination occurs through the Date of Termination and the denominator of which is three hundred
sixty-five (365), (iii) any unpaid accrued vacation pay and (iv) to the extent permissible under
Section 409A of the Code, if Executive is subject to Section 409A of the Code, any other benefits
or awards which have been earned or become payable pursuant to the terms of any compensation plan
but which have not yet been paid to Executive; plus
(2) a lump-sum cash amount equal to (i) _____ times Executives highest annual rate of base
salary during the 12-month period prior to the Date of Termination, plus (ii) _____ times the
greatest of: (A) the highest bonus earned by Executive in respect of the three (3) fiscal years of
the Company immediately preceding the fiscal year in which the Change in Control occurs; (B) not
less than Executives target bonus for the fiscal year in which the Change in Control occurs; or
(C) not less than Executives target bonus for the fiscal year in which Executives Date of
Termination occurs (in the case of each of (A), (B) and (C), not including as bonus any amount
payable under the Companys Performance Reward Plan or a similar broad-based plan). Any amount
paid pursuant to this Section 3(a) (2) shall be in lieu of any other amount of severance relating
to salary or bonus continuation to be received by Executive upon termination of employment of
Executive under any severance plan or policy of the Company or under any employment agreement or
offer letter between the Company and Executive.
(b) If during the Termination Period the employment of Executive shall terminate, other than
by reason of a Nonqualifying Termination, the Company shall continue to provide, for a period of
two (2) years following the Date of Termination but in no event after
8
Executives attainment of age 65, Executive (and Executives dependents if applicable) with
the same level of medical, dental, accident, disability, life insurance and any other similar
benefits in place as of the Date of Termination upon substantially the same terms and conditions
(including contributions required by Executive for such benefits) as existed immediately prior to
Executives Date of Termination (or, if more favorable to Executive, as such benefits and terms and
conditions existed immediately prior to the Change in Control);
provided
,
that
, if
Executive cannot continue to participate in the Company plans providing such benefits, the Company
shall otherwise provide such benefits on the same after-tax basis as if continued participation had
been permitted or shall provide Executive with cash payments on an after-tax basis sufficient to
permit Executive to purchase coverage providing benefits comparable to the benefits under the
Company plans; provided, further, that in any case the provisions of this Section 3(b) shall be
effected in a manner that is compliant with the non-discrimination rules applicable to
non-grandfathered health plans under the Patient Protection and Affordable Care Act of 2010 and
related regulations and guidance promulgated thereunder. Notwithstanding the foregoing, in the
event Executive becomes employed with another employer and becomes eligible to receive welfare
benefits from such employer, the welfare benefits described herein shall be secondary to such
benefits during the period of Executives eligibility, but only to the extent that the Company
reimburses Executive for any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Should the terminated Executive move his residence in order to pursue other business
opportunities within two (2) years of the Date of Termination, the Company agrees to reimburse such
Executive for any reasonable expenses incurred in that relocation (including taxes payable on the
reimbursement) which are not reimbursed by another employer. Reimbursement shall include
assistance in selling Executives home which was customarily provided by the Company to transferred
executives prior to the Change in Control. Executive shall be promptly reimbursed by the Company
for up to $4,000 of fees and expenses charged to him by any executive recruiting, counseling or
placement firms incurred in seeking new employment following the termination of employment as
provided in this Agreement; provided, that such fees and expenses are incurred no later than the
end of the second calendar year following the calendar year in which the Date of Termination
occurs. The Company shall also pay to Executive, at the same time that such reimbursements are
paid, in cash an additional
9
amount such that the federal, state and local taxes on the aggregate of such reimbursements
and the additional amount equal said additional amount. The Company will also promptly
reimburse Executive for up to $5,000 per calendar year for the calendar year in which the Date of
Termination occurs and the next following calendar year of fees and expenses charged to Executive
for professional financial and tax planning assistance. If immediately prior to the Date of
Termination the Company provided Executive with any club memberships, Executive will be entitled to
continue such memberships at Executives sole expense.
(c) If during the Termination Period the employment of Executive shall terminate by reason of
a Nonqualifying Termination, then the Company shall pay to Executive within sixty (60) days
following the Date of Termination, a cash amount equal to the sum of (1) Executives base salary
through the Date of Termination, to the extent not theretofore paid, (2) to the extent permissible
under Section 409A of the Code, if Executive is subject to Section 409A of the Code, any benefits
or awards which have been earned or become payable pursuant to the terms of any compensation plan
but which have not yet been paid to Executive, and (3) any unpaid accrued vacation pay. The
Company may make such additional payments, and provide such additional benefits, to Executive as
the Company and Executive may agree in writing.
4.
Excise Tax
.
(a) To the extent that any payment or distribution to or for the benefit of Executive pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any of
its affiliated companies, any person whose actions result in a change of ownership or effective
control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such
person, whether paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (the Payments) would be subject to the excise tax (the Excise Tax)
imposed by Section 4999 of the Code, then the Company shall reduce the payments to the amount that
is (after taking into account federal, state, local and social security taxes at the maximum
marginal rates, including any excise taxes imposed by Section 4999 of the Code) one dollar less
than the amount of the Payments that would subject Executive to the Excise Tax (the Safe Harbor
Cap) if, and only if, such reduction would result in Executive receiving a higher net after-tax
amount. Unless Executive
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shall have given prior written notice specifying a different order to the
Company to effectuate the
Safe Harbor Cap, the Payments to be reduced hereunder will be determined in a manner which has
the least economic cost to Executive and, to the extent the economic cost is equivalent, will be
reduced in the inverse order of when the Payment would have been made to Executive until the
reduction specified herein is achieved. Executives right to specify the order of reduction of the
Payments shall apply only to the extent that it does not directly or indirectly alter the time or
method of payment of any amount that is deferred compensation subject to (and not exempt from)
Section 409A.
(b) All determinations required to be made under this Section 4, including whether and when
the Safe Harbor Cap is required and the amount of the reduction of the Payments pursuant to the
Safe Harbor Cap and the assumptions to be utilized in arriving at such determination, shall be made
by a public accounting firm that is retained by the Company as of the date immediately prior to the
Change in Control (the Accounting Firm) which shall provide detailed supporting calculations both
to the Company and Executive within fifteen (15) business days of the receipt of notice from the
Company or Executive that there has been a Payment, or such earlier time as is requested by the
Company (collectively, the Determination). In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change in Control,
Executive may appoint another nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by
the Company and the Company shall enter into any agreement requested by the Accounting Firm in
connection with the performance of the services hereunder. The Determination by the Accounting
Firm shall be binding upon the Company and Executive. Executive shall cooperate, to the extent his
reasonable out-of pocket expenses are reimbursed by the Company, with any reasonable requests by
the Company in connection with any contests or disputes with the Internal Revenue Service in
connection with the Excise Tax.
5.
Section 409A of the Code
.
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(a) If Executive is subject to Section 409A of the Code, this Agreement is intended to meet
the requirements of Section 409A of the Code, and shall be interpreted and construed consistent
with that intent.
(b) Notwithstanding any other provision of this Agreement, to the extent that the right to any
payment (including the provision of benefits) hereunder provides for the deferral of compensation
within the meaning of Section 409A(d)(1) of the Code and Executive is subject to Section 409A of
the Code, the payment shall be paid (or provided) in accordance with the following:
(i) If Executive is a Specified Employee under the Harris Corporation Specified Employee
Policy for 409A Arrangements on the date of Executives termination of employment (the Separation
Date), and if a payment is required to be delayed pursuant to Section 409A(a)(2)(B)(i), then no
such payment shall be made or commence during the period beginning on the Separation Date and
ending on the date that is six months following the Separation Date or, if earlier, on the date of
Executives death, if the earlier making of such payment would result in tax penalties being
imposed on Executive under Section 409A of the Code. The amount of any payment that otherwise
would be paid to Executive hereunder during this period shall instead be paid to Executive on the
first business day coincident with or next following the date that is six months and one day
following the Separation Date or, if earlier, within ninety (90) days following the death of
Executive.
(ii) Payments with respect to reimbursements of expenses shall be made promptly, but in any
event on or before the last day of the calendar year following the calendar year in which the
relevant expense is incurred. The amount of expenses eligible for reimbursement during a calendar
year may not affect the expenses eligible for reimbursement in any other calendar year, and any
right to reimbursement is not subject to liquidation or exchange for cash or another benefit.
6.
Funding Of Rabbi Trust
. No later than the date on which a Change in Control
occurs, (i) the Company shall maintain a rabbi trust (the Trust) as hereinafter described; and
(ii) the Company shall contribute to the Trust in cash or other liquid assets acceptable to the
trustee of the Trust (A) the amount of the total payments reasonably expected to be paid to
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Executive hereunder assuming that the employment of the Executive shall terminate, other than by
reason of a Nonqualifying Termination, during the Termination Period (including the cash value of
the total benefits expected to be provided to the Executive hereunder); plus (B) the
amount of the trust administration and trustee fees and expenses (including the fees and
expenses of any agent of the trustee) which the trustee reasonably expects to be incurred over the
life of the Trust. The terms of the Trust shall generally follow the model rabbi trust set forth in
IRS Revenue Procedure 92-64, except that (1) the Trust shall be irrevocable from the date of its
creation; (2) the Trust shall be non-amendable by the Company except with the consent of Executive
or his legal representative; (3) the power to direct the investment of the Trust assets shall be
held by the Company; (4) the Company shall remain liable for the payment of all amounts payable to
Executive hereunder to the extent there is any shortfall of assets under the Trust; (5) the initial
trustee and any successor thereto shall be a bank or trust company with shareholder equity of at
least $1.0 billion; and (6) neither the Trust nor its assets shall be located or transferred
outside the United States.
7.
Withholding Taxes
. The Company may withhold from all payments due to Executive (or
Executives beneficiary or estate) hereunder all taxes which by applicable federal, state, local or
other law, the Company is required to withhold therefrom.
8.
Indemnification and Reimbursement of Expenses
. The Company agrees to indemnify
Executive for litigation or arbitration proceedings brought to contest, or dispute of any provision
of this Agreement. If any such contest or dispute shall arise under this Agreement involving
termination of Executives employment with the Company or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive
for all legal fees and expenses, if any, incurred by Executive in connection with such contest or
dispute (regardless of the result thereof) within thirty (30) days of receipt of evidence thereof,
and in no event later than the end of the calendar year following the calendar year in which
Executive pays the reimbursed fees and expenses, together with interest in an amount equal to the
prime rate published in The Wall Street Journal from time to time in effect, but in no event higher
than the maximum legal rate permissible under applicable law, such interest to accrue from the date
the Company receives Executives statement for such fees and expenses through the date of payment
thereof, regardless of whether or not Executives claim is
13
upheld by a court of competent
jurisdiction; provided, however, Executive shall be required to repay any such amounts to the
Company to the extent that a court issues a final and non-
appealable order setting forth the determination that the position taken by Executive was
frivolous or advanced by Executive in bad faith.
9.
Term of Agreement
. This Agreement shall be effective on the date hereof and shall
continue in effect until the Company shall have given two year written notice of cancellation;
provided, that, notwithstanding the delivery of any such notice, this Agreement shall continue in
effect for a period of twenty-four (24) months after a Change in Control, if such Change in Control
shall have occurred during the term of this Agreement. Notwithstanding anything in this Section 9
to the contrary, this Agreement shall terminate if Executive or the Company terminates Executives
employment prior to a Change in Control except as provided in the last paragraph of Section 1(c) or
Section 12(b).
10.
Termination of Agreement
. This Agreement shall be effective on the date hereof
and shall continue until the first to occur of (i) termination of Executives employment with the
Company prior to a Change in Control (except as otherwise provided hereunder), (ii) a Nonqualifying
Termination, (iii) the end of the Termination Period or (iv) cancellation in accordance with
Section 9.
11.
Scope of Agreement
. Nothing in this Agreement shall be deemed to entitle
Executive to continued employment with the Company or its Subsidiaries, and if Executives
employment with the Company shall terminate prior to a Change in Control, Executive shall have no
further rights under this Agreement (except as otherwise provided hereunder);
provided
,
however
, that any termination of Executives employment during the Termination Period shall
be subject to all of the provisions of this Agreement.
12.
Successors; Binding Agreement
.
(a) This Agreement shall not be terminated by any Business Combination. In the event of any
Business Combination, the provisions of this Agreement shall be binding upon the surviving or
resulting corporation or the person or entity to which such assets are transferred.
14
(b) The Company agrees that concurrently with any Business Combination that does not
constitute a Non-Control Transaction, it will cause any successor or transferee unconditionally to
assume, by written instrument delivered to Executive (or Executives
beneficiary or estate), all of the obligations of the Company hereunder. Failure of the
Company to obtain such assumption prior to the effectiveness of any such Business Combination shall
be a breach of this Agreement and shall constitute Good Reason hereunder. For purposes of
implementing the foregoing, (i) the date on which any such Business Combination becomes effective
shall be deemed the date Good Reason occurs, and (ii) Executive shall be entitled to terminate
employment for Good Reason immediately prior to the time the Business Combination becomes effective
and receive compensation and other benefits from the Company in the same amount and on the same
terms as Executive would have been entitled hereunder if Executives employment were terminated for
Good Reason during the Termination Period.
(c) This Agreement shall inure to the benefit of and be enforceable by Executives personal or
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive shall die while any amounts would be payable to Executive hereunder had
Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to such person or persons appointed in writing by
Executive to receive such amounts or, if no person is so appointed, to Executives estate.
13.
Notice
.
(a) For purposes of this Agreement, all notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when delivered or five
(5) days after deposit in the United States mail certified and return receipt requested, postage
prepaid, addressed as follows:
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If to Executive:
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If to the Company:
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Harris Corporation
1025 W. NASA Boulevard
Melbourne, Florida 32919
Attn: Secretary
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15
or to such other address as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon receipt.
(b) A written notice of Executives Date of Termination by the Company or Executive, as the
case may be, to the other, shall (i) indicate the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executives employment under the
provision so indicated and (iii) specify the termination date (which date shall be not less than
fifteen (15) nor more than sixty (60) days after the giving of such notice). The failure by
Executive or the Company to set forth in such notice any fact or circumstance which contributes to
a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder
or preclude Executive or the Company from asserting such fact or circumstance in enforcing
Executives or the Companys rights hereunder.
14.
Full Settlement; Resolution of Disputes
. The Companys obligation to make
payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be
in lieu and in full settlement of all other payments to Executive under any previous severance or
employment agreement between Executive and the Company. The Companys obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others. In no event shall Executive be obligated
to seek other employment or take other action by way of mitigation of the amounts payable to
Executive under any of the provisions of this Agreement and, except as provided in Section 3(b),
such amounts shall not be reduced whether or not Executive obtains other employment. Any dispute
or controversy arising under or in connection with this Agreement shall be settled exclusively by
arbitration in Orlando, Florida by three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the arbitrators award in any
court having jurisdiction. The Company shall bear all costs and expenses arising in connection
with any arbitration proceeding pursuant to this Section 14.
15.
Employment with Subsidiaries
. Employment with the Company for purposes of this
Agreement shall include employment with any Subsidiary.
16
16.
Governing Law; Validity
. THE INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
THE PRINCIPLE OF CONFLICTS OF LAWS. THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION OF THIS
AGREEMENT SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT,
WHICH OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.
17.
Counterparts
. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original and all of which together shall constitute one and the same instrument.
18.
Miscellaneous
. No provision of this Agreement may be modified or waived unless
such modification or waiver is agreed to in writing and signed by Executive and by a duly
authorized officer of the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to
insist upon strict compliance with any provision of this Agreement or to assert any right Executive
or the Company may have hereunder, including without limitation, the right of Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement. Except as otherwise specifically provided
herein, the rights of, and benefits payable to, Executive, Executives estate or Executives
beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to,
Executive, Executives estate or Executives beneficiaries under any other employee benefit plan or
compensation program of the Company.
[signature page to follow]
17
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized
officer of the Company and Executive has executed this Agreement as of the day and year first above
written.
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HARRIS CORPORATION
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EXECUTIVE
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By:
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Howard L. Lance
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[Name]
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Chairman, President and CEO
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Attest:
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Scott T. Mikuen
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Secretary
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18
Exhibit 10(p)
FORM OF INDEMNIFICATION AGREEMENT
(Effective as of, and for use after, August 28, 2010)
This Agreement made as of [
DATE
]
,
between Harris Corporation, a Delaware corporation (the
Company) and [
NAME
], a director, officer, employee or agent of the Company (the Indemnitee);
WHEREAS, the Company and the Indemnitee are each aware of conditions in the insurance industry
that have affected and may continue to affect the Companys ability to obtain appropriate
directors and officers liability insurance on an economically acceptable basis;
WHEREAS, the Company and the Indemnitee are also aware of the exposure to litigation of
officers, directors, employees and agents of corporations as such persons exercise their duties to
the Company;
WHEREAS, the Company desires to continue to benefit from the services of highly qualified and
experienced persons such as the Indemnitee;
WHEREAS, the Indemnitee desires to serve or to continue to serve the Company as a director,
officer, employee or agent, including service at the request of the Company as a director, officer
or trustee of another corporation, joint venture, trust or other enterprise, for so long as the
Company continues to provide on an acceptable basis indemnification against certain liabilities and
expenses which may be incurred by the Indemnitee.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, the parties hereto agree as follows:
1.
Indemnification
. The Company shall indemnify the Indemnitee with respect to his
activities as a director, officer or employee of the Company or as a person who is serving or has
served at the request of the Company (Agent) as a director, officer or trustee of another
corporation, joint venture, trust or other enterprise against expenses (including attorneys fees,
judgments, fines, and amounts paid in settlement) actually and reasonably incurred by him
(Expenses) in connection with any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a Proceeding), to which he was, is, or
is threatened to be made a party by reason of facts which include his being or having been such a
director, officer, employee, or agent, to the extent of the highest and most advantageous to the
Indemnitee, as determined by the Indemnitee, of one or any combination of the following:
(a) The benefits provided by the Companys Certificate of Incorporation or By-Laws in effect
on the date hereof, a copy of the relevant portions of which are attached hereto as Exhibit I;
(b) The benefits provided by the Companys Certificate of Incorporation or By-Laws or their
equivalent in effect at the time Expenses are incurred by Indemnitee;
(c) The benefits allowable under Delaware law in effect at the date hereof;
(d) The benefits allowable under the law of the jurisdiction under which the Company exists at
the time Expenses are incurred by the Indemnitee;
(e) The benefits available under liability insurance obtained by the Company; and
(f) Such other benefits as may be otherwise available to Indemnitee under then existing
practices of the Company.
Combination of two or more of the benefits provided by (a) through (f) shall be available only
to the extent that the Applicable Document, as hereafter defined, does not require that the
benefits provided therein must be exclusive of other benefits. The document or law providing for
the benefits listed in items (a) through (f) above is called the Applicable Document in this
Agreement. Company hereby undertakes to assist Indemnitee, in all proper and legal ways, to obtain
the benefits selected by Indemnitee under items (a) through (f) above.
2.
Insurance
. The Company shall maintain directors and officers liability insurance for
so long as Indemnitees services are covered hereunder, provided and to the extent that such
insurance is available on a commercially reasonable basis. However, the Company agrees that the
provisions hereof shall remain in effect regardless of whether liability or other insurance
coverage is at any time obtained or retained by the Company; except that any payments made under an
insurance policy shall reduce the obligations of the Company hereunder.
3.
Payment Of Expenses
. At Indemnitees request, the Company shall pay the Expenses as and
when incurred by Indemnitee upon receipt of an undertaking in the form of Exhibit II attached
hereto by or on behalf of Indemnitee to repay such amounts so paid on his behalf if it shall
ultimately be determined under the Applicable Document that he is not entitled to be indemnified by
the Company for such Expenses. That portion of Expenses which represents attorneys fees and other
costs incurred in defending any Proceeding shall be paid by the Company within thirty (30) days of
its receipt of such request, together with such reasonable documentation evidencing the amount and
nature of such Expenses as the Company shall require, subject to its also receiving such
undertaking.
4.
Escrow
. The Company shall dedicate up to an aggregate of $2 million as collateral
security for the funding of its obligations hereunder and under similar agreements with other
directors, officers, employees and agents by depositing assets or bank letters of credit in escrow
in the dedicated amount (the Escrow Reserve); provided, however, that the terms of any such
Escrow Reserve may provide that the cash, securities or letter of credit available therefore shall
only be utilized for the indemnification or advancement of expenses provided for herein in the
event that there shall have occurred within the preceding five years a Change in Control of the
Company, as defined below. For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have occurred if:
2
(i) any person (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of
1934, as amended (the Exchange Act) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) is or becomes a beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 20% or more of the combined voting power
of the Companys then outstanding securities eligible to vote for the election of the Board (the
Company Voting Securities);
provided, however
, that the event described in this paragraph (i)
shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (a)
by the Company or any Subsidiary, (b) by any employee benefit plan sponsored or maintained by the
Company or any Subsidiary, (c) by any underwriter temporarily holding securities pursuant to an
offering of such securities, or (d) pursuant to a Non-Control Transaction (as defined in paragraph
(iii));
(ii) individuals who, on July 3, 2010, constitute the Board (the Incumbent Directors) cease
for any reason to constitute at least a majority of the Board,
provided
that any person becoming
a director subsequent to July 3, 2010, whose appointment, election or nomination for election was
approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board
(either by a specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination) shall also be
deemed to be an Incumbent Director;
provided, however
, that no individual initially elected or
nominated as a director of the Company as a result of an actual or threatened election contest with
respect to directors or any other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(iii) there is consummated a merger, consolidation, share exchange or similar form of
corporate reorganization of the Company or any such type of transaction involving the Company or
any of its Subsidiaries that requires the approval of the Companys shareholders (whether for such
transaction or the issuance of securities in the transaction or otherwise) (a Business
Combination), unless immediately following such Business Combination: (a) more than 60% of the
total voting power of the corporation resulting from such Business Combination (including, without
limitation, any company which directly or indirectly has beneficial ownership of 100% of the
Company Voting Securities) eligible to elect directors of such corporation is represented by shares
that were Company Voting Securities immediately prior to such Business Combination (either by
remaining outstanding or being converted), and such voting power is in substantially the same
proportion as the voting power of such Company Voting Securities immediately prior to the Business
Combination, (b) no person (other than any publicly traded holding company resulting from such
Business Combination, or any employee benefit plan sponsored or maintained by the Company (or the
corporation resulting from such Business Combination)) becomes the beneficial owner, directly or
indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible
to elect directors of the corporation resulting from such Business Combination, and (c) at least a
majority of the members of the board of directors of the corporation resulting from such Business
Combination were Incumbent Directors at the time of the Boards approval of the execution of the
initial agreement providing for such Business Combination (any Business Combination which satisfies
the conditions specified in (a), (b) and (c) shall be deemed to be a Non-Control Transaction);
3
(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of
the Company; or
(v) the Company consummates a direct or indirect sale or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries.
Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur
solely because any person acquires beneficial ownership of more than 20% of the Company Voting
Securities as a result of the acquisition of Company Voting Securities by the Company which reduces
the number of Company Voting Securities outstanding;
provided
, that if after such acquisition by
the Company such person becomes the beneficial owner of additional Company Voting Securities that
increases the percentage of outstanding Company Voting Securities beneficially owned by such
person, a Change in Control of the Company shall then occur.
For the purposes of this definition of Change in Control the term Board shall mean the
Board of Directors of the Company and the term Subsidiary shall mean any entity of which the
Company owns or controls, either directly or indirectly, 50% or more of the outstanding shares of
stock normally entitled to vote for the election of directors or of comparable equity participation
and voting power.
5.
Additional Rights
. The indemnification provided in this Agreement shall not be deemed
exclusive of any other indemnification or rights to which Indemnitee may be entitled and shall
continue after Indemnitee has ceased to occupy a position as an officer, director, employee, or
agent as described in Paragraph 1 above with respect to Proceedings relating to or arising out of
Indemnitees acts or omissions during his service in such position.
6.
Notice to Company
. Indemnitee shall provide to the Company prompt written notice of any
proceeding brought, threatened, asserted or commenced against Indemnitee with respect to which
Indemnitee may assert a right to indemnification hereunder. Indemnitee shall not make any
admission or effect any settlement without the Companys written consent unless Indemnitee shall
have determined to undertake his own defense in such matter and has waived the benefits of this
Agreement. The Company shall not settle any Proceeding to which Indemnitee is a party in any manner
which would impose any penalty on Indemnitee without his written consent. Neither Indemnitee nor
the Company will unreasonably withhold consent to any proposed settlement. Indemnitee shall
cooperate to the extent reasonably possible with the Company and/or its insurers, in attempts to
defend and/or settle such Proceeding.
7.
Assumption of Defense
. Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly notified will be entitled to
assume Indemnitees defense in any Proceeding, with counsel mutually satisfactory to Indemnitee and
the Company. After notice from the Company to Indemnitee of the Companys election so to assume
such defense, the Company will not be liable to Indemnitee under this Agreement for Expenses
subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. Indemnitee shall have the right to
4
employ counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice
from the Company of its assumption of the defense thereof shall be at Indemnitees expense unless:
(a) The employment of counsel by Indemnitee has been authorized by the Company;
(b) Indemnitee shall have reasonably concluded that there may be a conflict of interest
between Indemnitee and the Company in the conduct of the defense of such Proceeding; or
(c) The Company shall not in fact have employed counsel to assume the defense of such
Proceeding, in each of which cases the fees and expenses of counsel shall be at the expense of the
Company. The Company shall not be entitled to assume the defense of Indemnitee in any Proceeding
brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion
provided for in clause (b) above.
8.
Arbitration and Enforcement
. In the event that any dispute or controversy shall arise
between Indemnitee and the Company with respect to whether the Indemnitee is entitled to
indemnification in connection with any Proceeding or with respect to the amount of Expenses
incurred, such dispute or controversy shall be submitted by the parties to binding arbitration
before a single arbitrator at Melbourne, Florida. If the parties cannot agree on a designated
arbitrator 15 days after arbitration is requested in writing by either of them, the arbitration
shall proceed before an arbitrator appointed by the American Arbitration Association and under the
rules then in effect of that Association. The award shall be rendered in such form that judgment
may be entered thereon in any court having jurisdiction thereof. The prevailing party shall be
entitled to prompt reimbursement of any costs and expenses (including, without limitation,
reasonable attorneys fees) incurred in connection with such arbitration.
9.
Exclusions
. No indemnification, reimbursement or payment shall be required of the
Company hereunder:
(a) With respect to any claim as to which Indemnitee shall have been adjudged by a court of
competent jurisdiction to have acted with bad faith, willful misfeasance, or willful disregard of
his duties, except to the extent that such court shall determine upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case, Indemnitee is fairly
and reasonably entitled to indemnify for such expenses as the court shall deem proper; or
(b) With respect to any obligation of Indemnitee under Section 16(b) of the Exchange Act.
10.
Extraordinary Transactions
The Company covenants and agrees that, in the event of any
merger, consolidation or reorganization in which the Company is not the surviving entity, any sale
of all or substantially all of the assets of the Company or any liquidation of the Company (each
such event is hereinafter referred to as an extraordinary transaction), the Company shall use its
best efforts to:
(a) Obtain insurance in Indemnitees favor from a reputable insurance carrier in reasonable
amounts (if such insurance is available at commercially reasonable rates) for a period of
5
not less than one (1) year from the date of such extraordinary transaction against any liability to
which the indemnification provided in this Agreement relates;
(b) Have the obligations of the Company under this Agreement expressly assumed by the
survivor, purchaser or successor, as the case may be, in such extraordinary transaction; or
(c) Otherwise adequately provide for the satisfaction of the Companys obligations under this
Agreement, in a manner acceptable to Indemnitee.
11.
No Personal Liability
. Indemnitee agrees that neither the Directors, nor any officer,
employee, representative or agent of the Company shall be personally liable for the satisfaction of
the Companys obligations under this Agreement, and Indemnitee shall look solely to the assets of
the Company and the escrow referred to in Section 4 hereof for satisfaction of any claims
hereunder.
12.
Severability
. If any provision, phrase, or other portion of this Agreement should be
determined by any court of competent jurisdiction to be invalid, illegal or unenforceable, in whole
or in part, and such determination should become final, such provision, phrase or other portion
shall be deemed to be severed or limited, but only to the extent required to render the remaining
provisions and portions of the Agreement enforceable, and the Agreement as thus amended shall be
enforced to give effect to the intention of the parties insofar as that is possible.
13.
Governing Law
. The parties hereto agree that this Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware.
14.
Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be considered to have been duly given if delivered by hand and receipted for by
the party to whom the notice, request, demand or other communication shall have been directed, or
mailed by registered mail with postage prepaid:
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(a) If to the Company, to:
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Harris Corporation
1025 West Nasa Boulevard
Melbourne, Florida 32919
Attention: Secretary
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(b) If to Indemnitee, to:
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[
NAME]
[
ADDRESS
]
[
ADDRESS
]
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15.
Termination
. This Agreement may be terminated by either party upon not less than sixty
(60) days prior written notice delivered to the other party, but such termination shall not in any
way diminish the obligations of Company hereunder (including the obligation to maintain the escrow
referred to in Section 4 hereof) with respect to Indemnitees activities prior to the effective
date of termination.
6
This Agreement is and shall be binding upon and shall inure to the benefits of the parties
hereto and their respective heirs, executors, administrators, successors and assigns.
7
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.
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INDEMNITEE
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HARRIS CORPORATION
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[
NAME
]
[
TITLE
]
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Howard L. Lance
Chairman, President and Chief Executive
Officer
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Attest:
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Scott T. Mikuen
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Secretary
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8
EXHIBIT I
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company shall indemnify to the full extent permitted by law any person made or threatened
to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or officer of the
Company, is or was a director, officer, trustee, member, stockholder, partner, incorporator or
liquidator of a Subsidiary of the Company, or serves or served at the request of the Company as a
director, officer, trustee, member, stockholder, partner, incorporator or liquidator of or in any
other capacity for any other enterprise. Expenses, including attorneys fees, incurred by any such
person in defending any such action, suit or proceeding shall be paid or reimbursed by the Company
promptly upon demand by such person and, if any such demand is made in advance of the final
disposition of any such action, suit or proceeding, promptly upon receipt by the Company of an
undertaking of such person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by the Company. The rights provided to any person by this
by-law shall be enforceable against the Company by such person, who shall be presumed to have
relied upon it in serving or continuing to serve as a director or officer or in such other capacity
as provided above. In addition, the rights provided to any person by this by-law shall survive the
termination of such person as any such director, officer, trustee, member, stockholder, partner,
incorporator or liquidator and, insofar as such person served at the request of the Company as a
director, officer, trustee, member, stockholder, partner, incorporator or liquidator of or in any
other capacity for any other enterprise, shall survive the termination of such request as to
service prior to termination of such request. No amendment of this by-law shall impair the rights
of any person arising at any time with respect to events occurring prior to such amendment.
Notwithstanding anything contained in this Article VI, except for proceedings to enforce
rights provided in this Article VI, the Company shall not be obligated under this Article VI to
provide any indemnification or any payment or reimbursement of expenses to any director, officer or
other person in connection with a proceeding (or part thereof) initiated by such person (which
shall not include counterclaims or crossclaims initiated by others) unless the Board of Directors
has authorized or consented to such proceeding (or part thereof) in a resolution adopted by the
Board.
For purposes of this by-law, the term Subsidiary shall mean any corporation, partnership,
limited liability company or other entity in which the Company owns, directly or indirectly, a
majority of the economic or voting ownership interest; the term other enterprise shall include
any corporation, partnership, limited liability company, joint venture, trust, association or other
unincorporated organization or other entity and any employee benefit plan; the term officer, when
used with respect to the Company, shall refer to any officer elected by or appointed pursuant to
authority granted by the Board of Directors of the Company pursuant to Article V of these By-Laws,
when used with respect to a Subsidiary or other enterprise that is a
9
corporation, shall refer to any person elected or appointed pursuant to the by-laws of such
Subsidiary or other enterprise or chosen in such manner as is prescribed by the by-laws of such
Subsidiary or other enterprise or determined by the Board of Directors of such Subsidiary or other
enterprise, and when used with respect to a Subsidiary or other enterprise that is not a
corporation or is organized in a foreign jurisdiction, the term officer shall include in addition
to any officer of such entity, any person serving in a similar capacity or as the manager of such
entity; service at the request of the Company shall include service as a director or officer of
the Company which imposes duties on, or involves services by, such director or officer with respect
to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a
person with respect to an employee benefit plan, its participants or beneficiaries; any excise
taxes assessed on a person with respect to an employee benefit plan shall be deemed to be
indemnifiable expenses; and action by a person with respect to an employee benefit plan which such
person reasonably believes to be in the interest of the participants and beneficiaries of such plan
shall be deemed to be action not opposed to the best interests of the Company.
To the extent authorized from time to time by the Board of Directors, the Company may provide
to (i) any one or more employees and other agents of the Company, (ii) any one or more officers,
employees and other agents of any Subsidiary and (iii) any one or more directors, officers,
employees and other agents of any other enterprise, rights of indemnification and to receive
payment or reimbursement of expenses, including attorneys fees, that are similar to the rights
conferred in this Article VI on directors and officers of the Company or any Subsidiary or other
enterprise. Any such rights shall have the same force and effect as they would have if they were
conferred in this Article VI.
Nothing in this Article VI shall limit the power of the Company or the Board of Directors to
provide rights of indemnification and to make payment and reimbursement of expenses, including
attorneys fees, to directors, officers, employees, agents and other persons otherwise than
pursuant to this Article VI.
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EXHIBIT II
FORM OF UNDERTAKING
THIS UNDERTAKING has been entered into by _____________________________ (hereinafter
Indemnitee) pursuant to an Indemnification Agreement dated _____________________________ (the Indemnification Agreement)
between Harris Corporation (hereinafter Company), a Delaware corporation and Indemnitee.
WITNESSETH:
WHEREAS, pursuant to the Indemnification Agreement, Company agreed to pay Expenses (within the
meaning of the Indemnification Agreement) as and when incurred by Indemnitee in connection with any
threatened, pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, to which indemnitee was, is, or is threatened to be made a party
by reason of facts which include Indemnitees being or having been a director, officer or employee
of the Company or a person who is serving or has served at the request of the Company as a
director, officer, or trustee of another corporation, joint venture, trust or other enterprise;
WHEREAS, a claim has been asserted against the Indemnitee and the Indemnitee has notified the
company thereof in accordance with the terms of Section 6 of the Indemnification Agreement
(hereinafter the Proceeding);
WHEREAS, Indemnitee believes that Indemnitee should prevail in this proceeding and it is in
the interest of both the Indemnitee and company to defend against the claim against Indemnitee
thereunder.
NOW THEREFORE, Indemnitee hereby agrees that in consideration of Companys advance payment of
Indemnitees Expenses incurred prior to a final disposition of the proceeding, Indemnitee hereby
undertakes to reimburse the Company for any and all legal fees, costs and expenses paid by Company
on behalf of the Indemnitee prior to a final disposition of the Proceeding in the event that
Indemnitee is determined under the Applicable Document (within the meaning of the Indemnification
Agreement) not to be entitled to indemnification. Such payments or arrangements for payments shall
be consummated within ninety (90) days after a determination that Indemnitee is not entitled to
indemnification and reimbursement pursuant to the Indemnification Agreement and applicable law.
IN WITNESS WHEREOF, the undersigned has set his/her hand this ____ day of
,
.
11