UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 2, 2009
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 1-3863
HARRIS CORPORATION
(Exact name of registrant as specified in its charter)
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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
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
þ
No
o
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.
(Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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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
o
No
þ
The number
of shares outstanding of the registrants common stock as of
February 6, 2009 was 133,622,634
shares.
HARRIS CORPORATION
FORM 10-Q
For the Quarter Ended January 2, 2009
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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Two Quarters Ended
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January 2,
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December 28,
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January 2,
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December 28,
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2009
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2007
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2009
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2007
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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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1,523.4
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$
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1,317.7
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$
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2,891.1
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$
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2,548.2
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Cost of product sales and services
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(1,061.2
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)
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(908.2
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)
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(1,989.6
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)
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(1,757.8
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)
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Engineering, selling and administrative expenses
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(236.6
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)
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(230.3
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)
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(476.9
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(447.2
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)
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Impairment of goodwill and other intangible assets
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(301.0
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(301.0
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)
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Non-operating income (loss)
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(0.7
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)
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4.2
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(8.8
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)
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5.9
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Interest income
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1.2
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1.6
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2.9
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3.6
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Interest expense
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(14.5
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)
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(13.8
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)
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(27.6
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(28.9
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Income (loss) before income taxes and minority interest
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(89.4
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)
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171.2
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90.1
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323.8
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Income taxes
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(87.0
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)
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(57.3
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)
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(148.4
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(110.1
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)
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Minority interest in Harris Stratex Networks, Inc., net of tax
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137.8
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0.4
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138.4
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0.8
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Net income (loss)
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$
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(38.6
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$
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114.3
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$
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80.1
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$
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214.5
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Net income (loss) per common share
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Basic
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$
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(.29
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$
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.84
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$
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.60
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$
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1.60
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Diluted
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$
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(.29
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$
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.83
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$
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.60
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$
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1.56
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Cash dividends paid per common share
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$
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.20
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$
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.15
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$
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.40
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$
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.30
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Basic weighted average shares outstanding
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132.5
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135.7
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132.8
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133.9
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Diluted weighted average shares outstanding
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132.5
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137.6
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133.9
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137.7
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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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January 2,
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June 27,
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2009
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2008(1)
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(In millions)
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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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352.7
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$
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370.0
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Short-term investments
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1.6
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3.1
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Marketable equity securities
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3.6
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19.3
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Receivables
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914.3
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859.0
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Inventories
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701.1
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610.4
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Deferred income taxes
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120.1
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117.2
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Other current assets
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64.3
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67.7
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Total current assets
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2,157.7
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2,046.7
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Non-current Assets
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Property, plant and equipment
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482.0
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482.2
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Goodwill
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1,214.9
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1,547.3
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Identifiable intangible assets
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309.2
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367.0
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Other non-current assets
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106.1
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115.4
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Total non-current assets
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2,112.2
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2,511.9
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$
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4,269.9
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$
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4,558.6
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Liabilities and Shareholders Equity
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Current Liabilities
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Short-term debt
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$
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18.4
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$
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8.5
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Accounts payable
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386.3
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390.8
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Compensation and benefits
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166.7
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181.6
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Other accrued items
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263.5
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239.1
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Advance payments and unearned income
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153.2
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146.4
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Income taxes payable
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5.1
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22.9
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Current portion of long-term debt
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0.7
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5.7
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Total current liabilities
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993.9
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995.0
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Non-current Liabilities
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Non-current deferred income taxes
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29.6
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29.8
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Long-term debt
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827.7
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831.8
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Other long-term liabilities
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86.6
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97.7
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Total non-current liabilities
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943.9
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959.3
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Minority interest in Harris Stratex Networks, Inc.
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192.8
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330.3
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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, $1.00 par value; 500,000,000 shares authorized; issued and
outstanding 132,572,317 shares at January 2, 2009 and 133,594,320 shares at
June 27, 2008
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132.6
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133.6
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Other capital
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454.7
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453.6
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Retained earnings
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1,629.3
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1,660.8
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Accumulated other comprehensive income (loss)
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(77.3
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26.0
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Total shareholders equity
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2,139.3
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2,274.0
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$
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4,269.9
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$
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4,558.6
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(1)
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Derived from audited financial statements.
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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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Two Quarters Ended
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January 2,
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December 28,
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2009
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2007
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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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80.1
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$
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214.5
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Adjustments to reconcile net income to net cash provided by (used in) operating activities:
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Depreciation and amortization
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85.7
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84.2
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Share-based compensation
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18.4
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19.3
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Non-current deferred income taxes
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(2.0
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)
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6.5
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Gain on the sale of securities available-for-sale
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(2.1
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Impairment of securities available-for-sale
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7.6
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Impairment of goodwill and other intangible assets
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301.0
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Minority interest in Harris Stratex Networks, Inc., net of tax
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(138.4
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)
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(0.8
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)
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(Increase) decrease in:
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Accounts and notes receivable
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(53.8
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)
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(56.6
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)
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Inventories
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(90.7
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)
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(54.1
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Increase (decrease) in:
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Accounts payable and accrued expenses
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(5.6
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)
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(18.0
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)
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Advance payments and unearned income
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6.8
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11.0
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Income taxes
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(16.6
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)
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(22.9
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)
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Other
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(3.2
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11.9
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Net cash provided by operating activities
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189.3
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192.9
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Investing Activities
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Cash paid for acquired businesses
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(12.8
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Additions of property, plant and equipment
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(53.2
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(49.1
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Additions of capitalized software
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(13.5
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(19.0
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Cash paid for short-term investments available-for-sale
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(1.2
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(4.3
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Proceeds from the sale of short-term investments available-for-sale
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2.7
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14.7
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Proceeds from the sale of securities available-for-sale
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3.1
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Net cash used in investing activities
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(65.2
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)
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(67.4
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Financing Activities
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Proceeds from borrowings
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78.7
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397.0
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Repayment of borrowings
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(79.4
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)
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(388.7
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)
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Payment of treasury lock
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(8.9
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)
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Proceeds from exercise of employee stock options
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7.3
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29.0
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Repurchases of common stock
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(82.1
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)
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(109.0
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)
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Cash dividends
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(53.9
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)
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(41.1
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)
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Net cash used in financing activities
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(129.4
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)
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(121.7
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)
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Effect of exchange rate changes on cash and cash equivalents
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(12.0
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)
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(0.5
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)
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Net increase (decrease) in cash and cash equivalents
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(17.3
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)
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3.3
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Cash and cash equivalents, beginning of year
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370.0
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368.3
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Cash and cash equivalents, end of quarter
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$
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352.7
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|
|
$
|
371.6
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|
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|
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Supplemental disclosure of noncash investing and financing activities:
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Common stock issued in exchange for 3.5% convertible debentures, due fiscal 2023
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$
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$
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163.5
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|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
January 2, 2009
Note A Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
The accompanying condensed consolidated financial statements of Harris Corporation and its
subsidiaries (Harris, Company, we, our, and us refer to Harris Corporation and its
consolidated subsidiaries) 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 and two quarters
ended January 2, 2009 are not necessarily indicative of the results that may be expected for the
full fiscal year or any subsequent period. The balance sheet at June 27, 2008 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 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 June 27, 2008 (Fiscal 2008 Form 10-K).
The accompanying condensed consolidated financial statements include 100 percent of the
assets, liabilities, revenue and expenses of our majority-owned subsidiary, Harris Stratex
Networks, Inc. (Harris Stratex Networks), and the approximately 44 percent ownership interest of
the minority stockholders of Harris Stratex Networks as of January 2, 2009 is recorded as minority
interest in the accompanying condensed consolidated financial statements. Significant intercompany
transactions and accounts have been eliminated. References to Harris Stratex Networks include its
consolidated subsidiaries.
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those
estimates and assumptions.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (Statement 158), which amends FASB Statements No. 87, Employers
Accounting for Pensions; No. 88, Employers Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits; No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions; and No. 132(R), Employers Disclosures about Pension
and Other Postretirement Benefits. In the fourth quarter of fiscal 2007, we adopted the portion of
Statement 158 that requires the recognition and disclosure of the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability as described in our Annual Report on
Form 10-K for our fiscal year ended June 29, 2007. Statement 158 also requires an employer to
measure the funded status of a plan as of the date of the employers year-end balance sheet, with
limited exceptions. This portion of Statement 158 is effective for fiscal years ending after
December 15, 2008, which for us is fiscal 2009 (our current fiscal year, which ends July 3, 2009).
Certain of our plans currently have measurement dates that do not coincide with our fiscal year end
and thus we will be required to change their measurement dates in fiscal 2009. We do not currently
anticipate that the change in measurement dates will materially impact our financial position,
results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (Statement 157). Statement 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about
fair value measurements. Statement 157 applies under other accounting pronouncements that require
fair value measurement in which the FASB concluded that fair value was the relevant measurement,
but does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff
Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2), which
defers the effective date of Statement 157 for nonfinancial
4
assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually), to fiscal years
beginning after November 15, 2008, which for us is our fiscal 2010. We adopted Statement 157 in the
first quarter of fiscal 2009 and there was no impact to our financial position, results of
operations or cash flows. In accordance with FSP FAS 157-2, we elected to defer until fiscal 2010
the adoption of Statement 157 for nonfinancial assets (including items such as goodwill and other
intangible assets) and nonfinancial liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least annually). We do not
currently anticipate that the adoption of Statement 157 for nonfinancial assets and nonfinancial
liabilities will materially impact our financial position, results of operations or cash flows. See
Note M Fair Value Measurements
in these Notes to Condensed Consolidated Financial Statements
(Unaudited) for disclosures required by Statement 157.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (Statement 159). Statement 159
allows companies to voluntarily choose, at specified election dates, to measure many financial
assets and financial liabilities at fair value (the fair value option). The election is made on
an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an
instrument, all unrealized gains or losses in fair value for that instrument shall be reported in
earnings at each subsequent reporting date. We adopted Statement 159 in the first quarter of fiscal
2009 but have not elected the fair value option for any eligible financial instruments as of
January 2, 2009.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations (Statement 141R). Statement 141R requires that, upon a business
combination, the acquired assets, assumed liabilities, contractual contingencies and contingent
liabilities be recognized and measured at their fair value at the acquisition date. Statement 141R
also requires that acquisition-related costs be recognized separately from the acquisition and
expensed as incurred. In addition, Statement 141R requires that acquired in-process research and
development be measured at fair value and capitalized as an indefinite-lived intangible asset, and
it is therefore not subject to amortization until the project is completed or abandoned. Statement
141R also requires that changes in deferred tax asset valuation allowances and acquired income tax
uncertainties that are recognized after the measurement period be recognized in income tax expense.
Statement 141R is to be applied prospectively and is effective for fiscal years beginning on or
after December 15, 2008, which for us is our fiscal 2010. Thus, while adoption is not expected to
materially impact our financial position, results of operations or cash flows directly when it
becomes effective on July 4, 2009 (the beginning of our fiscal 2010), it is expected to have a
significant effect on the accounting for any acquisitions we make on, or subsequent to, that date.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51
(Statement 160). Statement 160 requires that noncontrolling interests (previously referred to as
minority interests) be clearly identified and presented as a component of equity, separate from the
parents equity. Statement 160 also requires that the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly identified and presented
on the face of the consolidated statement of income; that changes in ownership interest be
accounted for as equity transactions; and that when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in that subsidiary and the gain or loss on the deconsolidation of
that subsidiary be measured at fair value. Statement 160 is to be applied prospectively, except for
the presentation and disclosure requirements (which are to be applied retrospectively for all
periods presented) and is effective for fiscal years beginning after December 15, 2008, which for
us is our fiscal 2010. We are currently evaluating the impact Statement 160 may have on our
financial position, results of operations and cash flows.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement
No. 133 (Statement 161). Statement 161 applies to all derivative instruments, including
bifurcated derivative instruments (and to nonderivative instruments that are designated and qualify
as hedging instruments pursuant to paragraphs 37 and 42 of FASB Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement
133)) and related hedged items accounted for under Statement 133. Statement 161 amends and expands
the disclosure requirements of Statement 133 to provide greater transparency as to (a) how and why
an entity uses derivative instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entitys financial position, results of operations
and cash flows. To meet those objectives, Statement 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about the volume of
derivative activity and fair value amounts of, and gains and losses on, derivative instruments
including location of such amounts in the consolidated financial statements, and disclosures about
credit-risk-related contingent features in derivative agreements. Statement 161 is effective for
fiscal years and interim periods that begin after November 15, 2008, which for us is the third
quarter of our fiscal 2009 (which began January 3, 2009). We do not currently anticipate the
implementation of Statement 161 will materially impact our financial position, results of
operations or cash flows.
5
In April 2008, the FASB issued FSP No. FAS 142-3, Determining the Useful Life of Intangible
Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that must be considered in developing
renewal or extension assumptions used to determine the useful life of recognized intangible assets
accounted for pursuant to FASB Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (Statement 142). FSP FAS 142-3 amends Statement 142 to require an entity
to consider its own historical experience in renewing or extending similar arrangements, regardless
of whether those arrangements have explicit renewal or extension provisions. In the absence of such
experience, FSP FAS 142-3 requires an entity to consider assumptions that market participants would
use (consistent with the highest and best use of the asset by market participants), adjusted for
entity-specific factors. FSP FAS 142-3 also requires incremental disclosures for renewable
intangible assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008,
which for us is our fiscal 2010. FSP FAS 142-3 is to be applied prospectively to intangible assets
acquired after the effective date, and the incremental disclosure requirements for renewable
intangible assets are to be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date.
In June 2008, the FASB issued FSP No. Emerging Issues Task Force (EITF) 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP
EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain rights
to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are
participating securities and, accordingly, should be included in the two-class method of
calculating earnings per share (EPS) under FASB Statement of Financial Accounting Standards No.
128, Earnings per Share. FSP EITF 03-6-1 also includes guidance on allocating earnings pursuant
to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15,
2008, which for us is our fiscal 2010. All prior-period EPS data presented (including interim
financial statements, summaries of earnings, and selected financial data) shall be adjusted
retrospectively. We do not currently anticipate that the implementation of FSP EITF 03-6-1 will
materially impact our financial position, results of operations or cash flows.
Reclassifications
Certain prior-year amounts have been reclassified in the accompanying condensed consolidated
financial statements to conform to current-year classifications.
Note B Stock Options and Share-Based Compensation
As of January 2, 2009, we had three shareholder-approved employee stock incentive plans under
which options or other share-based compensation was outstanding (Harris Plans), and we had the
following types of share-based awards outstanding under the Harris Plans: stock options,
performance share awards, performance share unit awards, restricted stock awards and restricted
stock unit awards. Participants in the Harris Plans include former Harris employees who are now
employed with Harris Stratex Networks and who had options or awards under the Harris Plans that
were outstanding at the January 26, 2007 date of the combination of our former Microwave
Communications Division with Stratex Networks, Inc. (Stratex) to form Harris Stratex Networks.
Additionally, as of January 2, 2009, Harris Stratex Networks had a stock incentive plan that
provided for stock options, restricted stock awards and performance share awards based on Harris
Stratex Networks Class A common stock. Harris Stratex Networks also assumed all of the former
Stratex stock options outstanding as of January 26, 2007, as part of the combination with Stratex
(Harris Stratex Networks Plans). 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 stock incentive plans). The compensation cost
related to our share-based awards that was charged against income was $9.7 million for the quarter
ended January 2, 2009, which includes $0.4 million related to Harris Stratex Networks Plans, and
$18.7 million for the two quarters ended January 2, 2009, which includes $1.4 million related to
Harris Stratex Networks Plans. The compensation cost related to our share-based awards that was
charged against income was $9.1 million for the quarter ended December 28, 2007, which includes
$1.7 million related to Harris Stratex Networks Plans, and $19.3 million for the two quarters ended
December 28, 2007, which includes $3.6 million related to Harris Stratex Networks Plans.
Grants to Harris employees under Harris Plans during the second quarter of fiscal 2009
consisted of 4,250 stock options, 1,100 performance share awards and 1,000 restricted stock awards.
Grants to Harris employees under Harris Plans during the first two quarters of fiscal 2009
consisted of 1,192,650 stock options, 283,850 performance share awards and 102,450 restricted stock
awards. The fair value of each option grant was estimated on the date of grant using the
Black-Scholes-Merton option-pricing model which used the following assumptions: expected volatility
of 33.35 percent; expected dividend yield of 1.4 percent; and expected life in years of 4.45.
6
Grants to Harris Stratex Networks employees under Harris Stratex Networks Plans during the
quarter and two quarters ended January 2, 2009 consisted of 860,906 stock options and 447,654
performance share awards. The fair value of each option grant was estimated on the date of grant
using the Black-Scholes-Merton option-pricing model which used the following assumptions: expected
volatility of 53.00 percent; expected dividend yield of zero percent; and expected life in years of
4.37.
Note C Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
Total comprehensive income (loss) for the quarter and two quarters ended January 2, 2009 and
December 28, 2007 was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
January 2,
|
|
December 28,
|
|
|
2009
|
|
2007
|
|
2009
|
|
2007
|
|
|
(In millions)
|
Net income (loss)
|
|
$
|
(38.6
|
)
|
|
$
|
114.3
|
|
|
$
|
80.1
|
|
|
$
|
214.5
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(78.4
|
)
|
|
|
7.2
|
|
|
|
(100.6
|
)
|
|
|
35.3
|
|
Net unrealized gain (loss) on securities available-for-sale,
net of income tax
|
|
|
(0.1
|
)
|
|
|
7.9
|
|
|
|
(5.0
|
)
|
|
|
5.9
|
|
Net unrealized loss on hedging derivatives, net of income tax
|
|
|
(4.1
|
)
|
|
|
(0.9
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
Impact of treasury lock, net of income tax
|
|
|
0.1
|
|
|
|
(5.4
|
)
|
|
|
0.3
|
|
|
|
(5.4
|
)
|
Recognition of pension actuarial losses in net income, net of
income tax
|
|
|
3.1
|
|
|
|
0.5
|
|
|
|
4.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(118.0
|
)
|
|
$
|
123.6
|
|
|
$
|
(23.2
|
)
|
|
$
|
250.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income (loss) at January 2, 2009 and June
27, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
June 27,
|
|
|
2009
|
|
2008
|
|
|
(In millions)
|
Foreign currency translation
|
|
$
|
(54.1
|
)
|
|
$
|
46.5
|
|
Net unrealized gain (loss) on securities available-for-sale, net of income tax
|
|
|
(0.2
|
)
|
|
|
4.8
|
|
Net unrealized loss on hedging derivatives, net of income tax
|
|
|
(3.3
|
)
|
|
|
(1.1
|
)
|
Unamortized loss on treasury lock, net of income tax
|
|
|
(4.9
|
)
|
|
|
(5.2
|
)
|
Unrecognized pension obligations, net of income tax
|
|
|
(14.8
|
)
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(77.3
|
)
|
|
$
|
26.0
|
|
|
|
|
|
|
|
|
|
|
Note D Receivables
Receivables are summarized below:
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
June 27,
|
|
|
2009
|
|
2008
|
|
|
(In millions)
|
Accounts receivable
|
|
$
|
822.6
|
|
|
$
|
746.3
|
|
Unbilled costs on cost-plus contracts
|
|
|
111.0
|
|
|
|
123.6
|
|
Notes receivable due within one year, net
|
|
|
3.4
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
937.0
|
|
|
|
877.3
|
|
Less allowances for collection losses
|
|
|
(22.7
|
)
|
|
|
(18.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
914.3
|
|
|
$
|
859.0
|
|
|
|
|
|
|
|
|
|
|
7
Note E Inventories
Inventories are summarized below:
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
June 27,
|
|
|
2009
|
|
2008
|
|
|
(In millions)
|
Unbilled costs and accrued earnings on fixed-price contracts
|
|
$
|
310.2
|
|
|
$
|
256.5
|
|
Finished products
|
|
|
165.8
|
|
|
|
135.4
|
|
Work in process
|
|
|
54.9
|
|
|
|
59.7
|
|
Raw materials and supplies
|
|
|
170.2
|
|
|
|
158.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
701.1
|
|
|
$
|
610.4
|
|
|
|
|
|
|
|
|
|
|
Unbilled costs and accrued earnings on fixed-price contracts are net of progress payments of
$25.0 million at January 2, 2009 and $55.3 million at June 27, 2008.
Note F Property, Plant and Equipment
Property, plant and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
June 27,
|
|
|
2009
|
|
2008
|
|
|
(In millions)
|
Land
|
|
$
|
12.1
|
|
|
$
|
12.6
|
|
Software capitalized for internal use
|
|
|
83.8
|
|
|
|
80.3
|
|
Buildings
|
|
|
353.5
|
|
|
|
350.9
|
|
Machinery and equipment
|
|
|
811.1
|
|
|
|
813.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,260.5
|
|
|
|
1,257.5
|
|
Less allowances for depreciation and amortization
|
|
|
(778.5
|
)
|
|
|
(775.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
482.0
|
|
|
$
|
482.2
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property, plant and equipment for the quarter
and two quarters ended January 2, 2009 was $26.6 million and $52.7 million, respectively.
Depreciation and amortization expense related to property, plant and equipment for the quarter and
two quarters ended December 28, 2007 was $24.5 million and $49.7 million, respectively.
Note G Credit Arrangements
On September 10, 2008, we entered into a five-year, senior unsecured revolving credit
agreement (the 2008 Credit Agreement) with a syndicate of lenders. The 2008 Credit Agreement
provides for the extension of credit to us in the form of revolving loans, including swingline
loans, and letters of credit at any time and from time to time during the term of the 2008 Credit
Agreement, in an aggregate principal amount at any time outstanding not to exceed $750 million for
both revolving loans and letters of credit, with a sub-limit of $50 million for swingline loans and
$125 million for letters of credit. This $750 million credit facility replaces our prior $500
million credit facility established pursuant to the five-year, senior unsecured revolving credit
agreement we entered into on March 31, 2005 with a syndicate of lenders. The 2008 Credit Agreement
includes a provision pursuant to which, from time to time, we may request that the lenders in their
discretion increase the maximum amount of commitments under the 2008 Credit Agreement by an amount
not to exceed $500 million. Only consenting lenders (including new lenders reasonably acceptable to
the administrative agent) will participate in any such increase. In no event will the maximum
amount of credit extensions available under the 2008 Credit Agreement exceed $1.25 billion. The
2008 Credit Agreement may be used for working capital and other general corporate purposes
(excluding hostile acquisitions) and to support any commercial paper that we may issue. Borrowings
under the 2008 Credit Agreement may be denominated in U.S. Dollars, Euros, Sterling and any other
currency acceptable to the administrative agent and the lenders, with a non-U.S. currency sub-limit
of $150 million. We may designate certain wholly-owned subsidiaries as borrowers under the 2008
Credit Agreement, and the obligations of any such subsidiary borrower must be guaranteed by Harris
Corporation. We also may designate certain subsidiaries as unrestricted subsidiaries, which means
certain of the covenants and representations in the 2008 Credit Agreement do not apply to such
subsidiaries. Harris Stratex Networks and its subsidiaries are unrestricted subsidiaries under the
2008 Credit Agreement.
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,
8
may increase (to a maximum amount of 1.725 percent) or decrease (to a minimum of 0.385
percent) based on changes in the ratings of our senior, unsecured long-term debt securities
(Senior Debt Ratings) and on the degree of utilization under the 2008 Credit Agreement
(Utilization). The base rate is a fluctuating rate equal to the higher of the federal funds rate
plus 0.50 percent or SunTrust Banks publicly announced prime lending rate for U.S. Dollars. The
interest rate margin over the base rate is 0.00 percent, but if our Senior Debt Ratings fall to
BB+/Ba1 or below, then the interest rate margin over the base rate will increase to either 0.225
percent or 0.725 percent based on Utilization. Borrowings under the 2008 Credit Agreement
denominated in a currency other than U.S. Dollars will bear interest at LIBOR plus the applicable
interest rate margin over LIBOR described above. Letter of credit fees are also determined based on
our Senior Debt Ratings and Utilization.
The 2008 Credit Agreement contains certain covenants, including covenants limiting: certain
liens on our assets; certain mergers, consolidations or sales of assets; certain sale and leaseback
transactions; certain vendor financing investments; and certain investments in unrestricted
subsidiaries. The 2008 Credit Agreement also requires that we not permit our ratio of consolidated
total indebtedness to total capital, each as defined, to be greater than 0.60 to 1.00 and not
permit our ratio of consolidated EBITDA to consolidated net interest expense, each as defined, to
be less than 3.00 to 1.00 (measured on the last day of each fiscal quarter for the rolling
four-quarter period then ending). The 2008 Credit Agreement contains certain events of default,
including: failure to make payments; failure to perform or observe terms, covenants and agreements;
material inaccuracy of any representation or warranty; payment default under other indebtedness
with a principal amount in excess of $75 million or acceleration of such indebtedness; occurrence
of one or more final judgments or orders for the payment of money in excess of $75 million that
remain unsatisfied; incurrence of certain ERISA liability in excess of $75 million; any bankruptcy
or insolvency; or a change of control, including if a person or group becomes the beneficial owner
of 25 percent or more of our voting stock. If an event of default occurs the lenders may, among
other things, terminate their commitments and declare all outstanding borrowings to be immediately
due and payable together with accrued interest and fees. All amounts borrowed or outstanding under
the 2008 Credit Agreement are due and mature on September 10, 2013, unless the commitments are
terminated earlier either at our request or if certain events of default occur. At January 2, 2009,
we had no borrowings outstanding under the 2008 Credit Agreement.
Prior to the combination with Stratex, Stratex was a party to a credit facility with Silicon
Valley Bank, and following the combination, Stratex (now named Harris Stratex Networks Operating
Corporation and a wholly-owned subsidiary of Harris Stratex Networks), remained a party to the
credit facility with Silicon Valley Bank (the Harris Stratex Networks Credit Facility). As
discussed below, the Harris Stratex Networks Credit Facility (the Terminated Facility) was
terminated and replaced in the first quarter of our fiscal 2009. Harris and its subsidiaries (other
than Harris Stratex Networks Operating Corporation) are not and were not parties to, obligated
under or guarantors of the Terminated Facility. Indebtedness under the Terminated Facility is
reflected as of June 27, 2008 in the accompanying Condensed Consolidated Balance Sheet as a result
of the consolidation of Harris Stratex Networks. The Terminated Facility allowed for revolving
credit borrowings of up to $50 million. As of June 27, 2008, the balance of the term loan portion
of the Terminated Facility was $8.7 million (of which $5.0 million was recorded in the current
portion of long-term debt at June 27, 2008) and there was $8.6 million in outstanding standby
letters of credit.
On June 30, 2008, in the first quarter of our fiscal 2009, the Terminated Facility was
terminated and replaced with a new revolving credit facility as of that date with
Silicon Valley Bank and Bank of America, N.A. (the New Harris Stratex Networks Credit Facility). Harris
and its subsidiaries (other than Harris Stratex Networks and certain of its subsidiaries) are not
parties to, obligated under or guarantors of the New Harris Stratex Networks Credit Facility. The
balance of the term loan portion of the Terminated Facility of $8.7 million was repaid in full with
the proceeds of a $10 million borrowing under the New Harris Stratex Networks Credit Facility. The
standby letters of credit outstanding under the Terminated Facility as of the termination date
remained as an obligation to Silicon Valley Bank, and $6.7 million of
such standby letters of credit were still outstanding as of January
2, 2009. The New Harris Stratex Networks Credit Facility
provides for an initial committed amount of $70 million with an uncommitted option for an
additional $50 million available with the same or additional lenders. The New Harris Stratex
Networks Credit Facility has an initial term of three years and provides for (1) demand borrowings
(with no stated maturity date) with an interest rate of the greater of Bank of Americas prime rate
and the federal funds rate plus 0.5 percent, (2) fixed term Eurodollar loans up to six months or
more as agreed with the lenders with an interest rate of LIBOR plus a spread of between 1.25
percent to 2.00 percent based on the current leverage ratio of Harris Stratex Networks and its
consolidated subsidiaries, and (3) the issuance of standby or commercial letters of credit. The New
Harris Stratex Networks Credit Facility contains a minimum liquidity ratio covenant and a maximum
leverage ratio covenant and is unsecured. At January 2, 2009, Harris Stratex Networks had $10.0
million of borrowings and $7.6 million of standby letters of credit outstanding under the New
Harris Stratex Networks Credit Facility.
9
Note H Accrued Warranties
Changes in our warranty liability, which is included as a component of the Other accrued
items line item on the accompanying Condensed Consolidated Balance Sheet (Unaudited), during the
first two quarters of fiscal 2009, are as follows:
|
|
|
|
|
|
|
(In millions)
|
Balance at June 27, 2008
|
|
$
|
46.6
|
|
Warranty provision for sales made during the two quarters ended January 2, 2009
|
|
|
18.6
|
|
Settlements made during the two quarters ended January 2, 2009
|
|
|
(11.5
|
)
|
Other adjustments to the warranty liability, including those for foreign
currency translation, during the two quarters ended January 2, 2009
|
|
|
(1.0
|
)
|
|
|
|
|
|
Balance at January 2, 2009
|
|
$
|
52.7
|
|
|
|
|
|
|
Note I Net Income (Loss) Per Diluted Share
The computations of net income (loss) per diluted share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
January 2,
|
|
December 28,
|
|
|
2009
|
|
2007
|
|
2009
|
|
2007
|
|
|
(In millions, except per share amounts)
|
Net income (loss)
|
|
$
|
(38.6
|
)
|
|
$
|
114.3
|
|
|
$
|
80.1
|
|
|
$
|
214.5
|
|
Impact of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) used in diluted share calculation (A)
|
|
$
|
(38.6
|
)
|
|
$
|
114.3
|
|
|
$
|
80.1
|
|
|
$
|
215.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
132.5
|
|
|
|
135.7
|
|
|
|
132.8
|
|
|
|
133.9
|
|
Impact of dilutive stock options
|
|
|
|
|
|
|
1.9
|
|
|
|
1.1
|
|
|
|
1.9
|
|
Impact of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding (B)
|
|
|
132.5
|
|
|
|
137.6
|
|
|
|
133.9
|
|
|
|
137.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted share (A)/(B)
|
|
$
|
(.29
|
)
|
|
$
|
.83
|
|
|
$
|
.60
|
|
|
$
|
1.56
|
|
In fiscal 2003, we issued $150 million in aggregate principal amount of 3.5% Convertible
Debentures due August 2022. Holders of the debentures had the right to convert each of their
debentures into shares of our common stock prior to the stated maturity. During fiscal 2008, each
holder received 44.2404 shares of our common stock for each $1,000 of debentures surrendered for
conversion. This represented a conversion price of $22.625 per share of our common stock. All
outstanding debentures were either converted or redeemed during the first quarter of fiscal 2008.
For purposes of calculating net income per diluted share, the numerator has not been adjusted
to consider the effect of potentially dilutive securities of Harris Stratex Networks because the
effect would be antidilutive. Additionally, due to the net loss in the second quarter of fiscal
2009, basic weighted average shares were used in calculating net loss per diluted share because the
use of diluted weighted average shares would be antidilutive.
Potential dilutive common shares primarily consist of employee stock options. Employee stock
options to purchase approximately 3,051,558 and 12,350 shares of Harris stock on January 2, 2009
and December 28, 2007, respectively, were outstanding, but were not included in the computation of
net income per diluted share because the effect would be antidilutive because the options exercise
prices exceeded the average market price.
10
Note J Non-Operating Income (Loss)
The components of non-operating income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
January 2,
|
|
December 28,
|
|
|
2009
|
|
2007
|
|
2009
|
|
2007
|
|
|
(In millions)
|
Gain on AuthenTec, Inc. warrants
|
|
$
|
|
|
|
$
|
5.6
|
|
|
$
|
|
|
|
$
|
5.6
|
|
Gain on the sale of securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Gain (loss) on the sale of investments
|
|
|
0.5
|
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
(0.2
|
)
|
Impairment of investments
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
Impairment of securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
Equity income (loss)
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
Net royalty expense
|
|
|
(1.3
|
)
|
|
|
(0.6
|
)
|
|
|
(1.9
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.7
|
)
|
|
$
|
4.2
|
|
|
$
|
(8.8
|
)
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note K Income Taxes
Our
effective tax rate (income taxes as a percentage of income (loss) before income taxes and
minority interest) was unfavorably impacted in the quarter and two quarters ending January 2, 2009
due to charges in our Harris Stratex Networks segment of $301.0 million for impairment of goodwill
and other intangible assets, which is all nondeductible for tax purposes, and of $22.1 million for
the increase in the valuation allowance for certain deferred tax assets. Legislative action during
the second quarter of fiscal 2009 has restored the U.S. Federal income tax credit for research and
development expenses, and as a result we recorded a $5.0 million tax benefit in the second quarter
of fiscal 2009 relating to prior periods. We also recorded a $3.7 million state tax benefit in the
second quarter of fiscal 2009 related to the filing of our fiscal 2007 tax returns.
Note L Impairment of Goodwill and Other Intangible Assets
We test our goodwill and other indefinite-lived intangible assets in accordance with Statement
142 as part of our fiscal year-end financial close process, when we change reporting segments and
when events or circumstances indicate there may be an impairment. On January 7, 2009, we announced
that based on the current global economic environment and the decline of the market capitalization
of Harris Stratex Networks, it was probable that an impairment of goodwill existed for this
segment. As a result, we performed an interim review for impairment as of the end of the second
quarter of fiscal 2009 of Harris Stratex Networks goodwill and its other indefinite-lived
intangible assets, consisting solely of the Stratex trade name.
To test for potential impairment of Harris Stratex Networks goodwill, we determined the fair
value of Harris Stratex Networks based on projected discounted cash
flows and market-based multiples
applied to sales and earnings. The results indicated an
impairment to goodwill, because the current carrying value of the segment exceeded its fair value.
We then allocated this fair value to Harris Stratex Networks underlying assets and liabilities to
determine the implied fair value of goodwill, resulting in a $279.0 million charge to write down
all of Harris Stratex Networks goodwill. We determined the fair value of the Stratex trade name by
performing a projected discounted cash flow analysis based on the relief-from-royalty approach,
resulting in a $22.0 million charge to write down a majority of
the carrying value of the Stratex trade name.
Substantially all of the goodwill and the Stratex trade name were recorded in connection with the
combination of Stratex and our Microwave Communications Division in January 2007. We will not be
required to make any current or future cash expenditures as a result of these impairments, and
these impairments do not impact our covenant compliance under our credit arrangements or our
ongoing financial performance.
For reasons similar to those stated above, we also conducted a review of Harris Stratex
Networks long-lived assets, including amortizable intangible assets, in accordance with FASB
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets. This review did not indicate that an impairment existed as of the end of the
second quarter of fiscal 2009.
As discussed in
Note N Business Segments
in these Notes to Condensed Consolidated Financial
Statements (Unaudited), effective upon the commencement of fiscal 2009, we made certain changes to
our organizational structure which resulted in changes to our business segments, and the goodwill
balances at June 27, 2008 by business segment for fiscal 2009 are reflected in the table below. For
those changes that resulted in reporting unit changes, we applied the relative fair value method to
determine the
11
reallocation of goodwill to reporting units. During the first quarter of fiscal 2009, as a
result of the changes to our reporting structure, we completed an assessment of any potential
goodwill impairment under this new reporting structure and determined that no impairment existed.
Changes in the carrying amount of goodwill during the first two quarters of fiscal 2009, by
business segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
|
|
|
RF
|
|
Communications
|
|
Broadcast
|
|
Harris Stratex
|
|
|
|
|
Communications
|
|
Systems
|
|
Communications
|
|
Networks
|
|
Total
|
|
|
(In millions)
|
Balance at June 27, 2008
|
|
$
|
6.0
|
|
|
$
|
414.5
|
|
|
$
|
842.0
|
|
|
$
|
284.8
|
|
|
$
|
1,547.3
|
|
Goodwill acquired during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279.0
|
)
|
|
|
(279.0
|
)
|
Other (primarily currency translation adjustments)
|
|
|
|
|
|
|
|
|
|
|
(47.6
|
)
|
|
|
(5.8
|
)
|
|
|
(53.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2009
|
|
$
|
6.0
|
|
|
$
|
414.5
|
|
|
$
|
794.4
|
|
|
$
|
|
|
|
$
|
1,214.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note M Fair Value Measurements
We adopted Statement 157 in the first quarter of fiscal 2009 and there was no impact to our
financial position, results of operations or cash flows. In accordance with FSP FAS 157-2, we
elected to defer until fiscal 2010 the adoption of Statement 157 for nonfinancial assets (including
items such as goodwill and other intangible assets) and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually). Statement 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in the principal market (or most advantageous market, in the
absence of a principal market) for the asset or liability in an orderly transaction between market
participants at the measurement date. Statement 157 requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs in measuring fair value and
establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair
value. The three levels of inputs used to measure fair value are as follows:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2 Observable inputs other than quoted prices included within Level 1, including
quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active; and inputs other
than quoted prices that are observable or are derived principally from, or corroborated by,
observable market data by correlation or other means.
|
|
|
|
|
Level 3 Unobservable inputs that are supported by little or no market activity, are
significant to the fair value of the assets or liabilities, and reflect our own assumptions
about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances.
|
The following table represents the fair value hierarchy of our financial assets and financial
liabilities measured at fair value on a recurring basis (at least annually) as of January 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In millions)
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
1.6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.6
|
|
Marketable equity securities
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
Deferred compensation plans (1)
|
|
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
58.8
|
|
Foreign exchange forward contracts
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans (2)
|
|
|
58.2
|
|
|
|
|
|
|
|
|
|
|
|
58.2
|
|
Foreign exchange forward contracts
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
7.6
|
|
(1)
|
|
Represents investments (primarily money market and mutual stock funds) held in a Rabbi Trust
associated with our non-qualified deferred compensation plans. For reporting purposes, we net
these assets against associated deferred compensation plan obligations, which are included in
the Compensation and benefits line item in the accompanying Condensed Consolidated Balance
Sheet (Unaudited).
|
|
(2)
|
|
Represents obligations to pay benefits under certain non-qualified deferred compensation
plans, which we include in the Compensation and benefits line item in the accompanying
Condensed Consolidated Balance Sheet (Unaudited).
|
12
Note N Business Segments
Our segment reporting structure for fiscal 2009 reflects that, effective upon the commencement
of fiscal 2009, our RF Communications business (part of our Defense Communications and Electronics
segment for fiscal 2008) is reported as its own separate segment, and that our Defense Programs
business (the other part of our Defense Communications and Electronics segment for fiscal 2008) is
reported as part of our Government Communications Systems segment. Our Broadcast Communications and
Harris Stratex Networks segments did not change as a result of the adjustments to our segment
reporting structure. The historical results, discussion and presentation of our business segments
as set forth in this Quarterly Report on Form 10-Q reflect the impact of these changes for all
periods presented. There is no impact on our previously reported consolidated statements of income,
balance sheets or statements of cash flows resulting from this change.
We are structured primarily around the products and services we sell and the markets we serve.
Our RF Communications segment is a global supplier of highly secure radio communications products
and systems for defense and government operations and performs advanced research, primarily for the
U.S. Department of Defense and for international customers in government, defense and peacekeeping
organizations in more than 100 countries. Our Government Communications Systems segment designs,
develops and supplies state-of-the-art communications and information networks and equipment;
develops integrated intelligence, surveillance and reconnaissance solutions; develops, designs and
supports information systems for image and other data collection, processing, analysis,
interpretation, display, storage and retrieval; offers enterprise IT and communications
engineering, operations and support services; and conducts advanced research studies, primarily for
the U.S. Department of Defense, a diversified group of other U.S. Government agencies, state
government agencies and other aerospace and defense companies. Our Broadcast Communications segment
serves the global digital and analog media markets, providing infrastructure and networking
products and solutions, media and workflow solutions, and television and radio transmission
equipment and systems. Our Harris Stratex Networks segment offers reliable, flexible, scalable and
cost-efficient wireless transmission network solutions, including microwave radio systems and
network management software, which are backed by comprehensive services and support, primarily to
mobile and fixed telephone service providers, private network operators, government agencies,
transportation and utility companies, public safety agencies and broadcast system operators. Within
each of our business segments, there are multiple program areas and product lines that aggregate
into our four business segments described above.
The accounting policies of our operating segments are the same as those described in Note 1:
Significant Accounting Policies in our Fiscal 2008 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 and minority interest 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 RF Communications, Government
Communications Systems and Broadcast Communications segments are transferred at cost to the buying
segment and the sourcing segment recognizes a normal profit that is eliminated. Intersegment sales
between our Harris Stratex Networks segment and any of our RF Communications, Government
Communications Systems and Broadcast Communications segments are recorded as arms length
transactions. The Corporate eliminations line item in the tables below represents the elimination
of intersegment sales and their related profits, including transactions involving our Harris
Stratex Networks segment. 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:
|
|
|
|
|
|
|
|
|
|
|
January 2,
|
|
June 27,
|
|
|
2009
|
|
2008
|
|
|
(In millions)
|
Total Assets
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
483.5
|
|
|
$
|
412.3
|
|
Government Communications Systems
|
|
|
1,426.5
|
|
|
|
1,302.3
|
|
Broadcast Communications
|
|
|
1,311.8
|
|
|
|
1,404.4
|
|
Harris Stratex Networks
|
|
|
553.9
|
|
|
|
875.2
|
|
Corporate
|
|
|
494.2
|
|
|
|
564.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,269.9
|
|
|
$
|
4,558.6
|
|
|
|
|
|
|
|
|
|
|
13
Segment revenue, segment operating income (loss) and a reconciliation of segment operating
income (loss) to total income (loss) before income taxes and minority interest follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
January 2,
|
|
December 28,
|
|
|
2009
|
|
2007
|
|
2009
|
|
2007
|
|
|
(In millions)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
438.2
|
|
|
$
|
357.1
|
|
|
$
|
853.4
|
|
|
$
|
673.6
|
|
Government Communications Systems
|
|
|
748.0
|
|
|
|
624.7
|
|
|
|
1,357.1
|
|
|
|
1,228.6
|
|
Broadcast Communications
|
|
|
163.0
|
|
|
|
163.6
|
|
|
|
321.2
|
|
|
|
310.3
|
|
Harris Stratex Networks
|
|
|
190.9
|
|
|
|
181.1
|
|
|
|
386.7
|
|
|
|
353.4
|
|
Corporate eliminations
|
|
|
(16.7
|
)
|
|
|
(8.8
|
)
|
|
|
(27.3
|
)
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,523.4
|
|
|
$
|
1,317.7
|
|
|
$
|
2,891.1
|
|
|
$
|
2,548.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes and Minority Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Communications
|
|
$
|
144.1
|
|
|
$
|
124.2
|
|
|
$
|
286.2
|
|
|
$
|
235.0
|
|
Government Communications Systems (1)
|
|
|
85.2
|
|
|
|
67.3
|
|
|
|
151.5
|
|
|
|
131.1
|
|
Broadcast Communications (2)
|
|
|
12.0
|
|
|
|
8.2
|
|
|
|
17.3
|
|
|
|
18.6
|
|
Harris Stratex Networks (3)
|
|
|
(291.5
|
)
|
|
|
(0.8
|
)
|
|
|
(283.6
|
)
|
|
|
(1.8
|
)
|
Unallocated Corporate expense
|
|
|
(19.1
|
)
|
|
|
(18.4
|
)
|
|
|
(38.0
|
)
|
|
|
(37.0
|
)
|
Corporate eliminations
|
|
|
(6.1
|
)
|
|
|
(1.3
|
)
|
|
|
(9.8
|
)
|
|
|
(2.7
|
)
|
Non-operating income (loss) (4)
|
|
|
(0.7
|
)
|
|
|
4.2
|
|
|
|
(8.8
|
)
|
|
|
5.9
|
|
Net interest expense
|
|
|
(13.3
|
)
|
|
|
(12.2
|
)
|
|
|
(24.7
|
)
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(89.4
|
)
|
|
$
|
171.2
|
|
|
$
|
90.1
|
|
|
$
|
323.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The operating income in our Government Communications Systems segment in the quarter and two
quarters ended January 2, 2009 included $10.8 million ($6.7 million after-tax, or $.05 per
diluted share) and $17.6 million ($10.9 million after-tax, or $.08 per diluted share),
respectively, of charges for schedule and cost overruns on commercial satellite reflector
programs. The operating income in our Government Communications Systems segment in the two
quarters ended December 28, 2007 included $23.6 million ($14.6 million after-tax, or $.11 per
diluted share) of charges for schedule and cost overruns on commercial satellite reflector
programs.
|
|
(2)
|
|
The operating income in our Broadcast Communications segment in the two quarters ended
January 2, 2009 included charges of $4.0 million associated with cost-reduction actions. The
operating income in our Broadcast Communications segment in the quarter and two quarters ended
December 28, 2007 included $1.8 million of acquisition-related costs associated with the
acquisition of Zandar Technologies plc (Zandar) including the write-off of in-process
research and development and the impact of a step up in inventory.
|
|
(3)
|
|
The operating loss in our Harris Stratex Networks segment in the quarter and two quarters
ended January 2, 2009 included a $301.0 million ($182.5 million after tax and minority
interest, or $1.37 per diluted share) charge for impairment of goodwill and other
indefinite-lived intangible assets, as well as charges of $1.1 million and $4.4 million,
respectively, associated with cost-reduction actions. The operating loss in our Harris Stratex
Networks segment in the quarter and two quarters ended December 28, 2007 included $12.1
million and $20.4 million, respectively, of integration costs and the impact of a step up in
fixed assets related to the combination with Stratex.
|
|
(4)
|
|
Non-operating income (loss) includes equity investment income (loss), royalties and related
intellectual property expenses, gains and losses on sales of investments and securities
available-for-sale, impairments of investments and securities available-for-sale, and
mark-to-market adjustments of derivatives. The non-operating loss in the two quarters ended
January 2, 2009 included a $7.6 million write-down of our investment in AuthenTec, Inc.
(AuthenTec), recorded in the quarter ended September 26, 2008, to reflect an
other-than-temporary impairment. The non-operating income in the two quarters ended December
28, 2007 included a $2.1 million gain on the sale of a portion of our investment in AuthenTec,
recorded in the quarter ended September 28, 2007, and a $5.6 million gain, recorded in the
quarter ended December 28, 2007, related to a mark-to-market adjustment of warrants we held to
acquire shares of AuthenTec, which were classified as derivatives. Additional information
regarding non-operating income (loss) is set forth in
Note J Non-Operating Income (Loss)
in
these Notes to Condensed Consolidated Financial Statements (Unaudited).
|
14
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 and
subsidiaries as of January 2, 2009, and the related condensed consolidated statements of income for
the quarter and two quarters ended January 2, 2009 and December 28, 2007, and the condensed
consolidated statements of cash flows for the two quarters ended January 2, 2009 and December 28,
2007. 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 and
subsidiaries as of June 27, 2008, and the related consolidated statements of income, cash flows,
and comprehensive income and shareholders equity for the year then ended, not presented herein,
and in our report dated August 22, 2008, 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 June 27, 2008, 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
West Palm Beach, Florida
February 6, 2009
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (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 to Condensed
Consolidated Financial Statements (Unaudited) (Notes) appearing elsewhere in this Quarterly
Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial
Statements and accompanying Notes to Consolidated Financial Statements and MD&A included in our
Fiscal 2008 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 make reading these pages more productive:
|
|
|
Results of Operations
an analysis of our consolidated results of operations and of the
results in each of our four operating segments, to the extent the operating segment results
are helpful to an understanding of our business as a whole, for the periods presented in our
Condensed Consolidated Financial Statements (Unaudited).
|
|
|
|
|
Liquidity and Capital Resources
an analysis of cash flows, common stock repurchases,
dividend policy, 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 pronouncements that have been
issued but not yet implemented by 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 second quarter of fiscal 2009 include:
|
|
|
Net income decreased from $114.3 million, or $.83 per diluted share, in the second
quarter of fiscal 2008 to a net loss of $38.6 million, or $.29 per diluted share, in the
second quarter of fiscal 2009. Net loss in the second quarter of fiscal 2009 includes
charges in our Harris Stratex Networks segment of $182.5 million (after tax and minority
interest, or $1.37 per diluted share) for impairment of goodwill and other intangible assets
and for the increase in the valuation allowance for certain deferred tax assets;
|
|
|
|
|
Revenue increased 15.6 percent from $1,317.7 million in the second quarter of fiscal 2008
to $1,523.4 million in the second quarter of fiscal 2009;
|
|
|
|
|
Our RF Communications segment revenue increased 22.7 percent to $438.2 million and
operating income increased 16.0 percent to $144.1 million in the second quarter of fiscal
2009 compared with the second quarter of fiscal 2008;
|
|
|
|
|
Our Government Communications Systems segment revenue increased 19.7 percent to $748.0
million and operating income increased 26.6 percent to $85.2 million in the second quarter
of fiscal 2009 compared with the second quarter of fiscal 2008;
|
|
|
|
|
Our Broadcast Communications segment revenue, at $163.0 million, was essentially flat
compared with the second quarter of fiscal 2008, and operating income increased 46.3 percent
to $12.0 million in the second quarter of fiscal 2009 compared with the second quarter of
fiscal 2008. The second quarter of fiscal 2008 included $1.8 million of transaction-related
costs associated with the acquisition of Zandar;
|
16
|
|
|
Our Harris Stratex Networks segment revenue increased 5.4 percent to $190.9 million in
the second quarter of fiscal 2009 compared with the second quarter of fiscal 2008, while
there was an operating loss of $291.5 million in the second quarter of fiscal 2009 compared
with an operating loss of $0.8 million in the second quarter of fiscal 2008. The operating
loss in the second quarter of fiscal 2009 includes a $301.0 million charge for impairment of
goodwill and other intangible assets. The operating loss in the second quarter of fiscal
2008 included $12.1 million of costs associated with the combination with Stratex;
|
|
|
|
|
On December 8, 2008 we announced that we are evaluating strategic alternatives related to
our Harris Stratex Networks segment. We expect to provide further
details regarding our ownership in Harris Stratex Networks during the third
quarter of fiscal 2009; and
|
|
|
|
|
Net cash provided by operating activities was $189.3 million in the first two quarters of
fiscal 2009 compared with $192.9 million in the first two quarters of fiscal 2008.
|
Consolidated Results of Operations
Revenue and Net Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except per share amounts and percentages)
|
Revenue
|
|
$
|
1,523.4
|
|
|
$
|
1,317.7
|
|
|
|
15.6
|
%
|
|
$
|
2,891.1
|
|
|
$
|
2,548.2
|
|
|
|
13.5
|
%
|
Net income (loss)
|
|
$
|
(38.6
|
)
|
|
$
|
114.3
|
|
|
|
*
|
|
|
$
|
80.1
|
|
|
$
|
214.5
|
|
|
|
(62.7
|
)%
|
% of revenue
|
|
|
(2.5
|
)%
|
|
|
8.7
|
%
|
|
|
|
|
|
|
2.8
|
%
|
|
|
8.4
|
%
|
|
|
|
|
Net income (loss)
per diluted common
share
|
|
$
|
(.29
|
)
|
|
$
|
.83
|
|
|
|
*
|
|
|
$
|
.60
|
|
|
$
|
1.56
|
|
|
|
(61.5
|
)%
|
Second Quarter 2009 Compared With Second Quarter 2008:
Revenue in the second quarter of fiscal
2009 was $1,523.4 million, an increase of 15.6 percent compared with the second quarter of fiscal
2008. The increase in revenue was led by 22.7 percent and
19.7 percent revenue increases in our RF
Communications and Government Communications Systems segments, respectively. Our RF Communications
segment revenue benefited from significant growth in international markets, while our Government
Communications Systems segment revenue benefited from the Field Data Collection Automation (FDCA)
program for the U.S. Census Bureau for the 2010 census.
The net loss in the second quarter of fiscal 2009 was $38.6 million, or $.29 per diluted
share, compared with net income of $114.3 million, or $.83 per diluted share, in the second quarter
of fiscal 2008. The decrease in net income was due to charges in our Harris Stratex Network segment
of $182.5 million (after tax and minority interest) for impairment of goodwill and other intangible
assets and for the increase in the valuation allowance for certain deferred tax assets. Our RF
Communications segment operating income increased by 16.0 percent in the second quarter of fiscal
2009 compared with the second quarter of fiscal 2008, primarily from strong international sales of
our Falcon
®
tactical radio systems. Our Government Communications Systems segment operating income
increased by 26.6 percent in the second quarter of fiscal 2009 compared with the second quarter of
fiscal 2008, primarily benefiting from the FDCA program for the U.S. Census Bureau for the 2010
census. Operating income in our Broadcast Communications segment increased by 46.3 percent in the
second quarter of fiscal 2009 compared with the second quarter of fiscal 2008, primarily benefiting
from the over-the-air digital TV transition in the U.S. and Brazil and cost-reduction actions taken
in previous quarters. Our Broadcast Communications segment operating income in the second quarter
of fiscal 2008 was negatively impacted by $1.8 million of transaction-related costs associated with
the acquisition of Zandar. We had a non-operating loss of $0.7 million in the second quarter of
fiscal 2009 compared with non-operating income of $4.2 million in the second quarter of fiscal
2008, which non-operating income included a $5.6 million gain related to a mark-to-market
adjustment of warrants we held to acquire shares of AuthenTec, which were classified as
derivatives.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Our revenue for the first two
quarters of fiscal 2009 was $2,891.1 million, an increase of 13.5 percent compared with the first
two quarters of fiscal 2008. The reasons for the increase in revenue are primarily the same as
those noted above regarding the second quarter of fiscal 2009.
17
Net income for the first two quarters of fiscal 2009 was $80.1 million, or $.60 per diluted
share, compared with $214.5 million, or $1.56 per diluted share, for the first two quarters of
fiscal 2008. The decrease in net income and net income per diluted share primarily resulted from
the same causes as noted above regarding the second quarter of fiscal 2009.
See the
Discussion of Business Segment Results of Operations
section of this MD&A for
further information.
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Revenue
|
|
$
|
1,523.4
|
|
|
$
|
1,317.7
|
|
|
|
15.6
|
%
|
|
$
|
2,891.1
|
|
|
$
|
2,548.2
|
|
|
|
13.5
|
%
|
Cost of product sales and services
|
|
|
(1,061.2
|
)
|
|
|
(908.2
|
)
|
|
|
16.8
|
%
|
|
|
(1,989.6
|
)
|
|
|
(1,757.8
|
)
|
|
|
13.2
|
%
|
Gross margin
|
|
$
|
462.2
|
|
|
$
|
409.5
|
|
|
|
12.9
|
%
|
|
$
|
901.5
|
|
|
$
|
790.4
|
|
|
|
14.1
|
%
|
% of revenue
|
|
|
30.3
|
%
|
|
|
31.1
|
%
|
|
|
|
|
|
|
31.2
|
%
|
|
|
31.0
|
%
|
|
|
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
Our gross margin (revenue less cost of
product sales and services) as a percentage of revenue was 30.3 percent in the second quarter of
fiscal 2009 compared with 31.1 percent in the second quarter of fiscal 2008. The decrease in gross
margin as a percentage of revenue was primarily due to a decline in the gross margin percentage in
our RF Communications segment and a 19.7 percent increase in revenue in our Government
Communications Systems segment at lower margins.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Our gross margin as a
percentage of revenue was 31.2 percent in the first two quarters of fiscal 2009 compared with 31.0
percent in the first two quarters of fiscal 2008. The reason for the slight increase in gross margin as a
percentage of revenue is primarily due to revenue growth in our higher-margin RF Communications
segment, partially offset by the causes for the decreases in gross margin as a percentage of
revenue as noted above.
See the
Discussion of Business Segment Results of Operations
section of this MD&A for
further information.
Engineering, Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Engineering,
selling and
administrative
expenses
|
|
$
|
236.6
|
|
|
$
|
230.3
|
|
|
|
2.7
|
%
|
|
$
|
476.9
|
|
|
$
|
447.2
|
|
|
|
6.6
|
%
|
% of revenue
|
|
|
15.5
|
%
|
|
|
17.5
|
%
|
|
|
|
|
|
|
16.5
|
%
|
|
|
17.5
|
%
|
|
|
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
Our engineering, selling and
administrative expenses increased to $236.6 million in the second quarter of fiscal 2009 from
$230.3 million in the second quarter of fiscal 2008. As a percentage of revenue, these expenses
were 15.5 percent in the second quarter of fiscal 2009 compared with 17.5 percent in the second
quarter of fiscal 2008. The decrease in engineering, selling and administrative expenses as a
percentage of revenue was a result of 19.7 percent revenue growth in our Government Communications
Systems segment and lower engineering, selling and administrative expenses as a result of
cost-reduction actions taken in prior quarters. The increase in engineering, selling and
administrative expenses was primarily from increased selling expenses in our RF Communications
segment. We incurred $9.0 million of integration and transaction-related costs during the second
quarter of fiscal 2008 associated with the Multimax Incorporated (Multimax) and Zandar
acquisitions and the combination with Stratex.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Our engineering, selling and
administrative expenses increased to $476.9 million in the first two quarters of fiscal 2009 from
$447.2 million in the first two quarters of fiscal 2008. As a percentage of revenue, these expenses
decreased to 16.5 percent in the first two quarters of fiscal 2009 from 17.5 percent in the first
two quarters of fiscal 2008. The reasons for the increase in engineering, selling and
administrative expenses and the decrease in engineering, selling and administrative expenses as a
percentage of revenue are primarily the same as those noted above regarding the
18
second quarter of 2009, as well as $17.1 million of integration and transaction-related costs we
incurred during the first two quarters of fiscal 2008 associated with the Multimax and Zandar
acquisitions and the combination with Stratex.
See the
Discussion of Business Segment Results of Operations
section of this MD&A for
further information.
Non-Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Non-operating income (loss)
|
|
$
|
(0.7
|
)
|
|
$
|
4.2
|
|
|
|
*
|
|
|
$
|
(8.8
|
)
|
|
$
|
5.9
|
|
|
|
*
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
We had a non-operating loss of $0.7
million in the second quarter of fiscal 2009 compared with non-operating income of $4.2 million in
the second quarter of fiscal 2008. The non-operating income in the second quarter of fiscal 2008
was primarily due to a $5.6 million gain related to a mark-to-market adjustment of warrants we held
to acquire shares of AuthenTec, which were classified as derivatives. See
Note J Non-Operating
Income (Loss)
and footnote 4 of
Note N Business Segments
in the Notes for further information.
First Two Quarters 2009 Compared With First Two Quarters 2008:
We had a non-operating loss of
$8.8 million for the first two quarters of fiscal 2009 compared with non-operating income of $5.9
million for the first two quarters of fiscal 2008. The non-operating loss for the first two
quarters of fiscal 2009 was primarily due to a $7.6 million write-down of our investment in
AuthenTec, recorded in the quarter ended September 26, 2008, to reflect an other-than-temporary
impairment. In the first quarter of fiscal 2008, we recorded a gain of $2.1 million on the sale of
a portion of our investment in AuthenTec, and in the second quarter of fiscal 2008, we recorded a
$5.6 million gain related to a mark-to-market adjustment of warrants we held to acquire shares of
AuthenTec, which were classified as derivatives. See
Note J Non-Operating Income (Loss)
and
footnote 4 of
Note N Business Segments
in the Notes for further information.
Interest Income and Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Interest income
|
|
$
|
1.2
|
|
|
$
|
1.6
|
|
|
|
(25.0
|
)%
|
|
$
|
2.9
|
|
|
$
|
3.6
|
|
|
|
(19.4
|
)%
|
Interest expense
|
|
|
(14.5
|
)
|
|
|
(13.8
|
)
|
|
|
5.1
|
%
|
|
|
(27.6
|
)
|
|
|
(28.9
|
)
|
|
|
(4.5
|
)%
|
Second Quarter 2009 Compared With Second Quarter 2008:
Our interest income decreased to $1.2
million in the second quarter of fiscal 2009 from $1.6 million in the second quarter of fiscal
2008. Our interest expense increased to $14.5 million in the second quarter of fiscal 2009 from
$13.8 million in the second quarter of fiscal 2008. The decrease in our interest income was due to
slightly lower average balances of cash, cash equivalents and short-term investments and lower
interest rates earned on those balances. The increase in our interest expense was primarily due to
the issuance, in December 2007, of $400 million in aggregate principal amount of 5.95% Notes due
December 1, 2017, which replaced lower interest rate commercial paper.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Our interest income decreased
to $2.9 million in the first two quarters of fiscal 2009 from $3.6 million in the first two
quarters of fiscal 2008. Our interest expense decreased to $27.6 million in the first two quarters
of fiscal 2009 from $28.9 million in the first two quarters of fiscal 2008. Our interest income
decreased for the same causes as noted above regarding the second quarter of fiscal 2009. Our
interest expense decreased due to the conversion or redemption, during the first quarter of fiscal
2008, of $150 million in aggregate principal amount of 3.5% Convertible Debentures, partially
offset by the increased interest expense associated with the issuance, in December 2007, of $400
million in aggregate principal amount of 5.95% Notes due December 1, 2017, which replaced
lower interest rate commercial paper.
19
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Income taxes
|
|
$
|
87.0
|
|
|
$
|
57.3
|
|
|
|
51.8
|
%
|
|
$
|
148.4
|
|
|
$
|
110.1
|
|
|
|
34.8
|
%
|
Effective tax rate
|
|
|
(97.3
|
)%
|
|
|
33.5
|
%
|
|
|
|
|
|
|
164.7
|
%
|
|
|
34.0
|
%
|
|
|
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
Our effective tax rate (income taxes as
a percentage of income (loss) before income taxes and minority interest) was unfavorably impacted by
charges in our Harris Stratex Networks segment of $301.0 million for impairment of goodwill and
other intangible assets, which is all nondeductible for tax purposes, and of $22.1 million for the
increase in the valuation allowance for certain deferred tax assets. Legislative action during the
second quarter of fiscal 2009 has restored the U.S. Federal income tax credit for research and
development expenses, and as a result we recorded a $5.0 million tax benefit in the second quarter
of fiscal 2009 relating to prior periods. We also recorded a $3.7 million state tax benefit in the
second quarter of fiscal 2009 related to the filing of our fiscal 2007 tax returns.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Our effective tax rate for the
first two quarters of fiscal 2009 was much higher than the U.S. statutory income tax rate primarily
due to the same causes as noted above regarding the second quarter of fiscal 2009.
Discussion of Business Segment Results of Operations
As discussed in
Note N Business Segments
in the Notes, effective upon the
commencement of fiscal 2009, we changed our segment reporting. Our RF Communications business (part
of our Defense Communications and Electronics segment for fiscal 2008) is reported as its own
separate segment, and our Defense Programs business (the other part of our Defense Communications
and Electronics segment for fiscal 2008) is reported as part of our Government Communications
Systems segment. Our Broadcast Communications and Harris Stratex Networks segments did not change
as a result of the adjustments to our segment reporting structure. The historical results,
discussion and presentation of our business segments as set forth in this Quarterly Report on Form
10-Q reflect the impact of these changes for all periods presented. There is no impact on our
previously reported consolidated statements of income, balance sheets or statements of cash flows
resulting from this change.
RF Communications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Revenue
|
|
$
|
438.2
|
|
|
$
|
357.1
|
|
|
|
22.7
|
%
|
|
$
|
853.4
|
|
|
$
|
673.6
|
|
|
|
26.7
|
%
|
Segment operating income
|
|
|
144.1
|
|
|
|
124.2
|
|
|
|
16.0
|
%
|
|
|
286.2
|
|
|
|
235.0
|
|
|
|
21.8
|
%
|
% of revenue
|
|
|
32.9
|
%
|
|
|
34.8
|
%
|
|
|
|
|
|
|
33.5
|
%
|
|
|
34.9
|
%
|
|
|
|
|
Second
Quarter 2009 Compared With Second Quarter 2008:
RF Communications segment revenue
increased 22.7 percent and operating income increased 16.0 percent in the second quarter of fiscal
2009 from the second quarter of fiscal 2008. Operating margins in the second quarter of fiscal 2009
were 32.9 percent of revenue compared with 34.8 percent of revenue in the second quarter of fiscal 2008.
Revenue in the second quarter of fiscal 2009 compared with the second quarter of fiscal 2008
was modestly higher in the U.S. market and significantly higher in international markets.
International revenue comprised 40 percent of total segment revenue in the second quarter of fiscal
2009 compared with 27 percent of total segment revenue for fiscal 2008. International revenue
growth in the second quarter of fiscal 2009 was driven by major deliveries of tactical radio
systems to the Philippines, Mexico, Iraq, Algeria and Afghanistan. We expect multi-year tactical
communications modernization programs in international markets to continue.
Total orders
in the second quarter of fiscal 2009 were lower than expected due to the delay of
several large orders, which we now expect to receive later in fiscal 2009 or early fiscal 2010.
In the U.S. Department of Defense (DoD) market, we believe the transition to the new presidential administration
has created some delays as positions are filled and budgets are reviewed. In addition, we believe
DoD customers are in the process of establishing new contract vehicles necessary to procure the Joint
Tactical Radio System (JTRS)-approved Falcon III
®
117G manpack radios.
We
received significant new orders
in the second quarter of fiscal 2009 from the U.S. Army and U.S. Marine Corps, as well as Norway,
Algeria and Singapore. Following the end of the second quarter of fiscal 2009, we
were awarded a contract from the government of the United Arab
Emirates, potentially worth $45 million. The award is a follow-on
contract to a multi-year series of procurements for Falcon
®
radio products and systems and includes
Falcon II
®
radios, Falcon III
®
high-capacity data radios (HCDRs) and
tactical broadband global area network (BGAN) satellite communications terminals.
20
Adoption of
our new Falcon III multiband radios both handheld and manpack continued to gain traction in the marketplace. More than 65,000
JTRS-approved Falcon III radios have been delivered for U.S. combat operations worldwide.
Growing demand for Falcon III radios
both handheld and manpack was also reflected in new U.S. orders totaling $85
million, which we received in the second quarter of fiscal 2009 and early in the third quarter of
fiscal 2009. We received Falcon III handheld orders (AN/PRC-152 and the vehicular-configured
AN/VRC-110 radios and accessories) from the U.S. Army and U.S. Marine Corps, which are using the
radios in multiple applications including Mine Resistant Ambush Protected (MRAP) vehicles. We
received new orders in the second quarter of fiscal 2009 for the latest Falcon III radio the
multiband manpack radio (AN/PRC-117G) from the U.S. Special Operations Command, U.S. Air Force
and U.S. Marine Corps. The 117G is the first and only JTRS-approved wideband/narrowband
networking tactical radio to be deployed by the DoD. The radio enables
data-intensive applications, bringing streaming video and situational awareness information to the
battlefield.
First Two Quarters 2009 Compared With First Two Quarters 2008:
RF Communications segment
revenue increased 26.7 percent and operating income increased 21.8 percent in the first two
quarters of fiscal 2009 from the first two quarters of fiscal 2008. The reasons for these
revenue and operating income increases
are primarily the same as those noted above regarding the second quarter of fiscal 2009.
Government Communications Systems Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Revenue
|
|
$
|
748.0
|
|
|
$
|
624.7
|
|
|
|
19.7
|
%
|
|
$
|
1,357.1
|
|
|
$
|
1,228.6
|
|
|
|
10.5
|
%
|
Segment operating income
|
|
|
85.2
|
|
|
|
67.3
|
|
|
|
26.6
|
%
|
|
|
151.5
|
|
|
|
131.1
|
|
|
|
15.6
|
%
|
% of revenue
|
|
|
11.4
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
11.2
|
%
|
|
|
10.7
|
%
|
|
|
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
Government Communications Systems
segment revenue increased 19.7 percent and operating income increased 26.6 percent in the second
quarter of fiscal 2009 from the second quarter of fiscal 2008. Operating margin was 11.4
percent of revenue in the second quarter of fiscal 2009 compared with 10.8 percent of revenue in the second quarter of fiscal 2008. The increase in revenue was primarily from
the FDCA program for the U.S. Census Bureau for the 2010 census. The increase in operating income
was also primarily from the FDCA program, partially offset by $10.8 million of charges for schedule
and cost overruns on commercial satellite reflector programs.
The FDCA program for the U.S. Census Bureau contributed significantly higher revenue in the
second quarter of fiscal 2009 compared with the second quarter of fiscal 2008, as a result of the
delivery of computers and communications equipment, as well as additional program requirements. During the second quarter of fiscal 2009, the FDCA contract was modified to include additional program
requirements, bringing the expected total value of the program to approximately $800 million through December 2011.
Other
revenue drivers in the second quarter of fiscal 2009 included
multiband satellite communications terminals for the U.S. Navys Commercial Broadband Satellite
Program, avionics shipments for the F-35 Joint Strike Fighter program, an IT services program for
the Air Force Weather Agency and several classified programs. Revenue decreases in the second
quarter of fiscal 2009 compared with the second quarter of fiscal 2008 resulted from the successful
completion of the Federal Aviation Administration (FAA) Voice Switching and Control Systems
(VSCS) refurbishment phase, completion of the MAF/TIGER database program for the U.S. Census
Bureau, and a decline in commercial satellite reflectors revenue.
During the second quarter of fiscal 2009 we were awarded new National Intelligence programs
with a combined potential contract value of approximately $300 million, including a $100 million order under
a new five-year Indefinite Delivery Indefinite Quantity (IDIQ) contract to provide systems
integration and IT services. Other key program wins in the second quarter of fiscal 2009 included
a contract modification by the U.S. Navy Space and Naval Warfare Systems Command, potentially worth $37
million, to supply multiband shipboard satellite communications terminals for the Arleigh Burke
class of guided missile destroyers.
Also in the second quarter of fiscal 2009, we completed the first phase for the
U.S. Department of Health and Human Services Nationwide Health Information Network (NHIN)
CONNECT Gateway project. The customized software is designed to enable seamless health information
sharing among multiple federal agencies and regional healthcare providers. Healthcare enterprise
information solutions is a new growth initiative for our Government Communications Systems segment.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Government Communications
Systems segment revenue increased 10.5 percent and operating income increased 15.6 percent in the
first two quarters of fiscal 2009 from the first two quarters
21
of fiscal 2008. The reasons for the increases in revenue and operating income are primarily
the same as those noted above regarding the second quarter of fiscal 2009. Additionally, operating
income included $17.6 million and $23.6 million of charges for schedule and cost overruns on
commercial satellite reflector programs incurred in the first two quarters of fiscal 2009 and
fiscal 2008, respectively.
Broadcast Communications Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Revenue
|
|
$
|
163.0
|
|
|
$
|
163.6
|
|
|
|
(0.4
|
)%
|
|
$
|
321.2
|
|
|
$
|
310.3
|
|
|
|
3.5
|
%
|
Segment operating income
|
|
|
12.0
|
|
|
|
8.2
|
|
|
|
46.3
|
%
|
|
|
17.3
|
|
|
|
18.6
|
|
|
|
(7.0
|
)%
|
% of revenue
|
|
|
7.4
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
5.4
|
%
|
|
|
6.0
|
%
|
|
|
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
Broadcast Communications segment
revenue decreased 0.4 percent in the second quarter of fiscal 2009 from the second quarter of
fiscal 2008. Segment operating income increased 46.3 percent in the second quarter of fiscal 2009
from the second quarter of fiscal 2008, benefiting from cost-reduction actions taken over the past
several quarters. The second quarter of fiscal 2008 included $1.8 million of transaction-related
costs associated with the acquisition of Zandar.
Sales of Transmission Systems increased in the second quarter of fiscal 2009 compared with the
second quarter of fiscal 2008 driven by the over-the-air digital TV transition in the U.S. and
Brazil. Strong sales in the second quarter of fiscal 2009 of Infrastructure and Networking
Solutions and Media and Workflow software in international markets were more than offset by weak
market demand in the North America market. We believe weak economic conditions in the U.S. have
prompted many broadcast and media customers to delay capital spending.
Orders momentum slowed significantly in the U.S. market during the first half of fiscal 2009
and is expected to remain weak during the next several quarters. We believe the outlook for
international business is more positive, aided by several large
project opportunities. We benefited from our recent investments to expand sales and marketing resources in international
markets. During the second quarter of fiscal 2009, we received significant international orders for
Harris ONE solutions from Qatar, Iraq, India, Australia, Lebanon, Turkey, Nigeria, Russia,
Bulgaria, Slovenia, Italy, Germany, Belgium, Switzerland and Mexico.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Broadcast Communications
segment revenue increased 3.5 percent during the first two quarters of fiscal 2009 from the first
two quarters of fiscal 2008. Segment operating income decreased 7.0 percent in the first two
quarters of fiscal 2009 from the first two quarters of fiscal 2008. The reasons for these variances
are primarily the same as those noted above for the second quarter of
fiscal 2009. Segment operating income
also included $4.0 million of charges associated with cost-reduction actions incurred in the first
quarter of fiscal 2009.
Harris Stratex Networks Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
January 2,
|
|
December 28,
|
|
%
|
|
January 2,
|
|
December 28,
|
|
%
|
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
2009
|
|
2007
|
|
Inc/(Dec)
|
|
|
(In millions, except percentages)
|
Revenue
|
|
$
|
190.9
|
|
|
$
|
181.1
|
|
|
|
5.4
|
%
|
|
$
|
386.7
|
|
|
$
|
353.4
|
|
|
|
9.4
|
%
|
Segment operating loss
|
|
|
(291.5
|
)
|
|
|
(0.8
|
)
|
|
|
*
|
|
|
|
(283.6
|
)
|
|
|
(1.8
|
)
|
|
|
*
|
|
% of revenue
|
|
|
(152.7
|
)%
|
|
|
(0.4
|
)%
|
|
|
|
|
|
|
(73.3
|
)%
|
|
|
(0.5
|
)%
|
|
|
|
|
Minority
interest in Harris Stratex Networks
|
|
$
|
137.8
|
|
|
$
|
0.4
|
|
|
|
*
|
|
|
$
|
138.4
|
|
|
$
|
0.8
|
|
|
|
*
|
|
Second Quarter 2009 Compared With Second Quarter 2008:
Harris Stratex Networks segment revenue
increased 5.4 percent in the second quarter of fiscal 2009 from the second quarter of fiscal 2008.
The segment had an operating loss of $291.5 million in the second quarter of fiscal 2009 compared
with an operating loss of $0.8 million in the second quarter of fiscal 2008. Operating income in
the second quarter of fiscal 2009 included a $301.0 million charge for impairment of goodwill and
other indefinite-lived intangible assets, as discussed below. Operating income in the second
quarter of fiscal 2008 included $12.1 million of integration costs and the impact of a step up in
fixed assets associated with the combination with Stratex.
22
On January 7, 2009, we determined that based on the current global economic environment and
the decline of the market capitalization of Harris Stratex Networks, it was probable that an
impairment of goodwill existed for this segment. As a result, we performed an interim review for
impairment as of the end of the second quarter of fiscal 2009 of Harris Stratex Networks goodwill
and its other indefinite-lived intangible assets, consisting solely of the Stratex trade name.
To test for potential impairment of Harris Stratex Networks goodwill, we determined the fair
value of Harris Stratex Networks based on projected discounted cash flows and market-based multiples
applied to sales and earnings. The results indicated an
impairment to goodwill, because the current carrying value of the segment exceeded its fair value.
We then allocated this fair value to Harris Stratex Networks underlying assets and liabilities to
determine the implied fair value of goodwill, resulting in a $279.0 million charge to write down
all of Harris Stratex Networks goodwill. We determined the fair value of the Stratex trade name by
performing a projected discounted cash flow analysis based on the relief-from-royalty approach,
resulting in a $22.0 million charge to write down a majority of the carrying value of the Stratex trade name.
Substantially all of the goodwill and the Stratex trade name were recorded in connection with the
combination of Stratex and our Microwave Communications Division in January 2007. We will not be
required to make any current or future cash expenditures as a result of these impairments, and
these impairments do not impact our covenant compliance under our credit arrangements or our
ongoing financial performance.
On December 8, 2008 we announced that we are evaluating strategic alternatives related to our
Harris Stratex Networks segment. We expect to provide further details regarding our ownership in Harris Stratex Networks during the third quarter of
fiscal 2009.
First Two Quarters 2009 Compared With First Two Quarters 2008:
Harris Stratex Networks segment
revenue increased 9.4 percent during the first two quarters of fiscal 2009 compared with the first
two quarters of fiscal 2008. The segment had an operating loss of $283.6 million during the first
two quarters of fiscal 2009 compared with an operating loss of $1.8 million during the first two
quarters of fiscal 2008. The reasons for these variances are primarily the same as those noted
above regarding the second quarter of fiscal 2009. Additionally, operating income included $8.3
million of charges for integration costs and the impact of a step up in fixed assets in the first
quarter of fiscal 2008 associated with the combination with Stratex.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
|
January 2,
|
|
|
December 28,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(In millions)
|
|
Net cash provided by operating activities
|
|
$
|
189.3
|
|
|
$
|
192.9
|
|
Net cash used in investing activities
|
|
|
(65.2
|
)
|
|
|
(67.4
|
)
|
Net cash used in financing activities
|
|
|
(129.4
|
)
|
|
|
(121.7
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(12.0
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(17.3
|
)
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents:
Our cash and cash equivalents decreased $17.3 million from $370.0
million at the end of fiscal 2008 to $352.7 million at the end of the second quarter of fiscal
2009. The decrease was primarily due to $129.4 million of net cash used in financing activities and
$65.2 million of net cash used in investing activities, partially offset by $189.3 million of net
cash provided by operating activities. We own approximately 56 percent of Harris Stratex Networks,
which had a cash balance of $97.7 million included in our consolidated cash and cash equivalents
balance of $352.7 million at January 2, 2009. The $97.7 million balance is available only for
Harris Stratex Networks general corporate purposes.
Our financial position remained strong at January 2, 2009. We ended the second quarter with
cash and cash equivalents and short-term investments of $354.3 million in aggregate; we have no
long-term debt maturing until fiscal 2016; we have a five-year, senior unsecured $750 million
revolving credit facility that expires in September 2013; and we do not have any material defined
benefit pension plan obligations.
We currently believe that existing cash, funds generated from operations, sales of marketable
equity securities, 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 share repurchases under the current repurchase program for the next 12 months and
the foreseeable future. We anticipate tax payments over the next three years to be approximately
equal to our tax expense during the same
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period. We anticipate that our fiscal 2009 cash outlays may include 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 2009 and thereafter.
There can be no assurance, however, that our business will continue to generate cash flow at
current levels, that ongoing operational improvements will be achieved, or that the cost or
availability of future borrowings, if any, under our commercial paper program or our credit
facilities or in the debt markets will not be impacted by the ongoing credit and capital markets
disruptions. If we are unable to maintain cash balances or generate sufficient cash flow from
operations to service our obligations, we may be required to sell assets, reduce capital
expenditures, reduce or terminate our share repurchase 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, broadcast communications and wireless transmission 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
$189.3 million in the first two quarters of fiscal 2009 compared with $192.9 million in the first
two quarters of fiscal 2008. All of our segments had positive cash flow in the first two quarters
of fiscal 2009.
Net cash used in investing activities:
Our net cash used in investing activities was $65.2
million in the first two quarters of fiscal 2009 compared with net cash used in investing
activities of $67.4 million in the first two quarters of fiscal 2008. Net cash used in investing
activities in the first two quarters of fiscal 2009 was primarily due to $53.2 million of property,
plant and equipment additions and $13.5 million of capitalized software additions. This was
partially offset by net proceeds of $1.5 million from the sale of short-term investments
available-for-sale. Net cash used in investing activities in the first two quarters of fiscal 2008
was primarily due to $49.1 million of property, plant and equipment additions, $19.0 million of
capitalized software additions and $12.8 million cash paid for acquisitions. This was partially
offset by net proceeds of $13.5 million from the sale of securities and short-term investments
available-for-sale. Our total capital expenditures, including capitalized software, in fiscal 2009
are expected to be between $140 million and $150 million.
Net cash used in financing activities:
Our net cash used in financing activities was $129.4
million in the first two quarters of fiscal 2009 compared with net cash used in financing
activities of $121.7 million in the first two quarters of fiscal 2008. Net cash used in financing
activities in the first two quarters of fiscal 2009 was primarily due to $82.1 million used for the
repurchase of shares of our common stock and $53.9 million used to pay cash dividends, partially
offset by proceeds of $7.3 million from the exercise of employee stock options. Net cash used in
financing activities in the first two quarters of fiscal 2008 was primarily due to $109.0 million
used for the repurchase of shares of our common stock and $41.1 million used to pay cash dividends,
partially offset by proceeds of $29.0 million from the exercise of employee stock options.
Common Stock Repurchases
During the second quarter of fiscal 2009, there were no repurchases of shares of our common
stock under our repurchase program. During the second quarter of fiscal 2008, we used $50 million
to repurchase 785,000 shares of our common stock under our repurchase program at an average price
per share of $63.64, including commissions. During the first two quarters of fiscal 2009, we used
$75 million to repurchase 1,470,929 shares of our common stock under our repurchase program at an
average price per share of $50.98, including commissions. During the first two quarters of fiscal
2008, we used $100 million to repurchase 1,667,358 shares of our common stock under our repurchase
program at an average price per share of $59.95, including commissions. In the second quarter of
fiscal 2009 and second quarter of fiscal 2008, $0.5 million and $1.6 million, respectively, in
shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on
employee share-based awards. In the first two quarters of fiscal 2009 and first two quarters of
fiscal 2008, $7.1 million and $9.0 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.
As of January 2, 2009, we have a remaining authorization to repurchase approximately $100
million in shares of our common stock under our repurchase program. This program does not have a
stated expiration date. Additional information regarding share repurchases during the second
quarter of fiscal 2009 and our repurchase program is set forth in this Quarterly Report on Form
10-Q under Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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Dividend Policy
On August 23, 2008, our Board of Directors increased the quarterly cash dividend rate on our
common stock from $.15 per share to $.20 per share, for an annualized rate of $.80 per share. Our
annual cash dividend rate on our common stock was $.60 per share in fiscal 2008. The declaration of
dividends and the amount thereof will depend on a number of factors, including our financial
position, capital requirements, results of operations, future business prospects and other factors
that our Board may deem relevant. There can be no assurances that our quarterly dividend will
continue to increase or that dividends will be paid at all in the future.
Capital Structure and Resources
On September 10, 2008, we entered into a five-year, senior unsecured revolving credit
agreement (the 2008 Credit Agreement) with a syndicate of lenders. The 2008 Credit Agreement
provides for the extension of credit to us in the form of revolving loans, including swingline
loans, and letters of credit at any time and from time to time during the term of the 2008 Credit
Agreement, in an aggregate principal amount at any time outstanding not to exceed $750 million for
both revolving loans and letters of credit, with a sub-limit of $50 million for swingline loans and
$125 million for letters of credit. This $750 million credit facility replaces our prior $500
million credit facility established pursuant to the five-year, senior unsecured revolving credit
agreement we entered into on March 31, 2005 with a syndicate of lenders. The 2008 Credit Agreement
includes a provision pursuant to which, from time to time, we may request that the lenders in their
discretion increase the maximum amount of commitments under the 2008 Credit Agreement by an amount
not to exceed $500 million. Only consenting lenders (including new lenders reasonably acceptable to
the administrative agent) will participate in any such increase. In no event will the maximum
amount of credit extensions available under the 2008 Credit Agreement exceed $1.25 billion. The
2008 Credit Agreement may be used for working capital and other general corporate purposes
(excluding hostile acquisitions) and to support any commercial paper that we may issue. Borrowings
under the 2008 Credit Agreement may be denominated in U.S. Dollars, Euros, Sterling and any other
currency acceptable to the administrative agent and the lenders, with a non-U.S. currency sub-limit
of $150 million. We may designate certain wholly-owned subsidiaries as borrowers under the 2008
Credit Agreement, and the obligations of any such 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. Harris Stratex Networks and its subsidiaries are unrestricted subsidiaries under the
2008 Credit Agreement.
At our election, borrowings under the 2008 Credit Agreement denominated in U.S. Dollars will
bear interest either at LIBOR plus an applicable margin or at the base rate plus an applicable
margin. The interest rate margin over LIBOR, initially set at 0.50 percent, may increase (to a
maximum amount of 1.725 percent) or decrease (to a minimum of 0.385 percent) based on changes in
the ratings of our senior, unsecured long-term debt securities (Senior Debt Ratings) and on the
degree of utilization under the 2008 Credit Agreement (Utilization). The base rate is a
fluctuating rate equal to the higher of the federal funds rate plus 0.50 percent or SunTrust Banks
publicly announced prime lending rate for U.S. Dollars. The interest rate margin over the base rate
is 0.00 percent, but if our Senior Debt Ratings fall to BB+/Ba1 or below, then the interest rate
margin over the base rate will increase to either 0.225 percent or 0.725 percent based on
Utilization. Borrowings under the 2008 Credit Agreement denominated in a currency other than U.S.
Dollars will bear interest at LIBOR plus the applicable interest rate margin over LIBOR described
above. Letter of credit fees are also determined based on our Senior Debt Ratings and Utilization.
The 2008 Credit Agreement contains certain covenants, including covenants limiting: certain
liens on our assets; certain mergers, consolidations or sales of assets; certain sale and leaseback
transactions; certain vendor financing investments; and certain investments in unrestricted
subsidiaries. The 2008 Credit Agreement also requires that we not permit our ratio of consolidated
total indebtedness to total capital, each as defined, to be greater than 0.60 to 1.00 and not
permit our ratio of consolidated EBITDA to consolidated net interest expense, each as defined, to
be less than 3.00 to 1.00 (measured on the last day of each fiscal quarter for the rolling
four-quarter period then ending). The 2008 Credit Agreement contains certain events of default,
including: failure to make payments; failure to perform or observe terms, covenants and agreements;
material inaccuracy of any representation or warranty; payment default under other indebtedness
with a principal amount in excess of $75 million or acceleration of such indebtedness; occurrence
of one or more final judgments or orders for the payment of money in excess of $75 million that
remain unsatisfied; incurrence of certain ERISA liability in excess of $75 million; any bankruptcy
or insolvency; or a change of control, including if a person or group becomes the beneficial owner
of 25 percent or more of our voting stock. If an event of default occurs the lenders may, among
other things, terminate their commitments and declare all outstanding borrowings to be immediately
due and payable together with accrued interest and fees. All amounts borrowed or outstanding under
the 2008 Credit Agreement are due and mature on September 10, 2013, unless the commitments are
terminated earlier either at our request or if certain events of default occur. At January 2, 2009,
we had no borrowings outstanding under the 2008 Credit Agreement.
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On December 5, 2007, we completed the issuance of $400 million in aggregate principal amount
of 5.95% Notes due December 1, 2017. Interest on the notes is payable on June 1 and December 1 of
each year. We may redeem the notes at any time in whole or, from time to time, in part at the
make-whole redemption price. The make-whole redemption price is equal to the greater of 100
percent of the principal amount of the notes being redeemed or the sum of the present values of the
remaining scheduled payments of the principal and interest (other than interest accruing to the
date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual
basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as
defined, plus 30 basis points. In each case, we will pay accrued interest on the principal amount
of the notes being redeemed to the redemption date. In addition, upon a change of control combined
with a below-investment-grade rating event, we may be required to make an offer to repurchase the
notes at a price equal to 101 percent of the aggregate principal amount of the notes repurchased,
plus accrued interest on the notes repurchased to the date of repurchase. In conjunction with the
issuance of the notes, we entered into treasury lock agreements to protect against fluctuations in
forecasted interest payments resulting from the issuance of ten-year, fixed rate debt due to
changes in the benchmark U.S. Treasury rate. In accordance with Statement 133, these agreements
were determined to be highly effective in offsetting changes in forecasted interest payments as a
result of changes in the benchmark U.S. Treasury rate. Upon termination of these agreements on
December 6, 2007, we recorded a loss of $5.5 million, net of income tax, in shareholders equity as
a component of accumulated other comprehensive income. This loss, along with $5.0 million in debt
issuance costs, will be amortized over the life of the notes on a straight-line basis, 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.
We have a universal shelf registration statement 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.
Prior to the combination with Stratex, Stratex was a party to a credit facility with Silicon
Valley Bank, and following the combination, Stratex (now named Harris Stratex Networks Operating
Corporation and a wholly-owned subsidiary of Harris Stratex Networks), remained a party to the
credit facility with Silicon Valley Bank (the Harris Stratex Networks Credit Facility). As
discussed below, the Harris Stratex Networks Credit Facility (the Terminated Facility) was
terminated and replaced in the first quarter of our fiscal 2009. Harris and its subsidiaries (other
than Harris Stratex Networks Operating Corporation) are not and were not parties to, obligated
under or guarantors of the Terminated Facility. Indebtedness under the Terminated Facility is
reflected as of June 27, 2008 in our Condensed Consolidated Balance Sheet as a result of the
consolidation of Harris Stratex Networks. The Terminated Facility allowed for revolving credit
borrowings of up to $50 million. As of June 27, 2008, the balance of the term loan portion of the
Terminated Facility was $8.7 million (of which $5.0 million was recorded in the current portion of
long-term debt at June 27, 2008) and there was $8.6 million in outstanding standby letters of
credit.
On June 30, 2008, in the first quarter of our fiscal 2009, the Terminated Facility was
terminated and replaced with a new revolving credit facility as of that date with Silicon Valley Bank and Bank of America, N.A. (the New Harris Stratex Networks Credit Facility). Harris
and its subsidiaries (other than Harris Stratex Networks and certain of its subsidiaries) are not
parties to, obligated
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under or guarantors of the New Harris Stratex Networks Credit Facility. The balance of the
term loan portion of the Terminated Facility of $8.7 million was repaid in full with the proceeds
of a $10 million borrowing under the New Harris Stratex Networks Credit Facility. The standby
letters of credit outstanding under the Terminated Facility as of the
termination date remained as an
obligation to Silicon Valley Bank, and $6.7 million of such standby letters of
credit were still outstanding as of January 2, 2009. The New Harris Stratex Networks Credit Facility provides for an
initial committed amount of $70 million with an uncommitted option for an additional $50
million available with the same or additional lenders. The New Harris Stratex Networks Credit
Facility has an initial term of three years and provides for (1) demand borrowings (with no stated
maturity date) with an interest rate of the greater of Bank of Americas prime rate and the federal
funds rate plus 0.5 percent, (2) fixed term Eurodollar loans up to six months or more as agreed
with the lenders with an interest rate of LIBOR plus a spread of between 1.25 percent to 2.00
percent based on the current leverage ratio of Harris Stratex Networks and its consolidated
subsidiaries, and (3) the issuance of standby or commercial letters of credit. The New Harris
Stratex Networks Credit Facility contains a minimum liquidity ratio covenant and a maximum leverage
ratio covenant and is unsecured. At January 2, 2009, Harris Stratex Networks had $10.0 million of
borrowings and $7.6 million of standby letters of credit outstanding under the New Harris Stratex
Networks Credit Facility.
We have uncommitted short-term lines of credit from various international banks. These lines
provide for borrowings at various interest rates, typically may be terminated upon notice, may be
used on such terms as mutually agreed to by the banks and us, and are reviewed annually for renewal
or modification. These lines do not require compensating balances. We also have a short-term
commercial paper program in place, which we may utilize to satisfy short-term cash requirements and
which is supported by our 2008 Credit Agreement. There were no borrowings outstanding under the
commercial paper program at January 2, 2009.
Our debt is currently rated BBB+ by Standard and Poors Rating Group and Baa1 by Moodys
Investors Service. We expect to maintain operating ratios, fixed-charge coverage ratios and balance
sheet ratios sufficient for retention of, or improvement to, these debt ratings. There are no
assurances that our debt ratings will not be reduced in the future. If our debt ratings are lowered
below investment grade, then we may not be able to issue short-term commercial paper, but may
instead need to borrow under our credit facilities or pursue other options. 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.
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 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 January 2,
2009, we did not have material financial guarantees or other contractual commitments that are
reasonably likely to adversely affect our results of operations, cash flows or financial position.
In addition, we are not currently a party to any related party transactions that materially affect
our results of operations, cash flows or financial position.
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 financial position, results of operations 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
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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 financial position, results of
operations or cash flows.
Commercial Commitments and Contractual Obligations
The amounts disclosed in our Fiscal 2008 Form 10-K include our commercial commitments and
contractual obligations. During the quarter ended January 2, 2009, 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
letters of credit, guarantees and other arrangements as disclosed in our Fiscal 2008 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 2008 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, (iv) income taxes and tax valuation
allowances, and (v) assumptions used to record stock option and share-based compensation. For
additional discussion of our critical accounting policies and estimates, see our Managements
Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2008 Form
10-K.
Impact Of Recently Issued Accounting Pronouncements
As described in
Note A Significant Accounting Policies and Recent Accounting Pronouncements
in the Notes, there are accounting pronouncements that have recently been issued but not yet
implemented by us.
Note A
includes a description of the potential impact that these pronouncements
are expected to have on our financial position, results of operations and cash flows.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report on Form 10-Q 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 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, 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 Quarterly Report on Form 10-Q 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, and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). The following are some factors we
believe could cause our actual results to differ materially from expected or historical results:
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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 depend on the U.S. Government for a significant portion of our revenue, and the loss
of this relationship or a shift in U.S. Government funding 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 substantial 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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We may not be successful in obtaining the necessary export licenses to conduct certain
operations abroad, and Congress or the Administration 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 cannot predict the consequences of future geo-political events, but they may affect
adversely 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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The inability of our subcontractors to perform, or our key suppliers to timely deliver
our components or parts, could cause our products to be produced in an untimely or
unsatisfactory manner.
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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
position and results of operations.
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We are subject to customer credit risk.
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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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Our consolidated financial results may be impacted by Harris Stratex Networks financial
results, which may vary significantly and be difficult to forecast.
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We have significant operations in Florida, California 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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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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In order to be successful, we must attract and retain key employees, and failure to do so
could seriously harm us.
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The effects of the recession in the United States and general downturn in the global
economy, including financial market disruptions, could have an adverse impact on our
business, operating results or financial position.
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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 2008 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 2008 Form 10-K and in Part II. Item 1A. Risk Factors in this
Quarterly Report on Form 10-Q 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 operations and
financial position. Should any risks or uncertainties develop into actual events, these
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developments could have a material adverse effect on our business, financial position, cash
flows and results of operations. The forward-looking statements contained in this Quarterly Report
on Form 10-Q are made as of the date hereof and we disclaim any intention or obligation, other than
imposed by law, to update or revise any 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 Quarterly Report on Form 10-Q.
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 exchange contracts and options to hedge both
balance sheet and off-balance sheet future foreign currency commitments. Generally, these foreign
exchange contracts offset foreign currency denominated inventory and purchase commitments from
suppliers, accounts receivable from and future committed sales to customers, and intercompany
loans. We believe the use of foreign currency financial instruments should reduce the risks that
arise from doing business in international markets. At January 2, 2009, we had open foreign
exchange contracts with a notional amount of $149.3 million, of which $71.4 million were classified
as cash flow hedges, $16.9 million were classified as fair value hedges and $61.0 million were not
designated hedges under the provisions of Statement 133. This compares with total foreign exchange
contracts with a notional amount of $127.8 million at June 27, 2008, of which $49.9 million were
classified as cash flow hedges, $16.7 million were classified as fair value hedges and $61.2
million were not designated hedges under the provisions of Statement 133. At January 2, 2009,
contract expiration dates ranged from less than one month to 16 months with a weighted average
contract life of 2 months.
More specifically, the foreign exchange contracts classified as cash flow hedges are primarily
being used to hedge currency exposures from cash flows anticipated in our Harris Stratex Networks
segment related to customer orders denominated in non-functional currencies that are currently in
backlog and in our RF Communications segment related to programs in the U.K., Canada and the
Netherlands. We also have hedged U.S. dollar payments to suppliers to maintain our anticipated
profit margins in our international operations. As of January 2, 2009, we estimated that a pre-tax
loss of $5.8 million would be reclassified into net income from comprehensive income within the
next 12 months related to these cash flow hedges.
The net gain included in our net income in the first two quarters of fiscal 2009 and in the
first two quarters of fiscal 2008, representing the amount of fair value and cash flow hedges
ineffectiveness were not material. Amounts recognized in our net income in the first two quarters
of fiscal 2009 and in the first two quarters of fiscal 2008 related to the component of the
derivative instruments gain or loss excluded from the assessment of hedge effectiveness were also
not material. In addition, no amounts were recognized in our net income in the first two quarters
of fiscal 2009 or the first two quarters of fiscal 2008 related to hedged firm commitments that no
longer qualify as fair value hedges. All of these derivatives were recorded at their fair value on
our Condensed Consolidated Balance Sheet (Unaudited) in accordance with Statement 133.
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 January 2, 2009 would have an impact of approximately $8.1 million on
the fair value of such instruments. This quantification of exposure to the market risk associated
with foreign exchange financial instruments does not take into account the offsetting impact of
changes in the fair value of our foreign denominated assets, liabilities and firm commitments.
Interest Rates:
As of January 2, 2009, we have short-term investments and debt obligations
subject to interest rate risk. The interest rate risk associated with our short-term investments is
not material as the maturities of these investments are less than one year. 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. The interest rate risk associated with our commercial paper is not material as these
borrowings are only for short periods until refinanced by fixed-rate long-term debt or paid off
using operating cash flows. There can be no assurances that interest rates will not change
significantly or have a material effect on our income or cash flows in fiscal 2009.
30
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. Also, we have investments in
certain unconsolidated entities. As we do not control or manage those entities, our controls and
procedures with respect to those entities are necessarily substantially more limited than those we
maintain with respect to our consolidated subsidiaries. As required by Rule 13a-15 under the
Exchange Act, as of the end of the fiscal quarter ended January 2, 2009, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out under the supervision and with the participation of our
senior management, including our Chief Executive Officer and our Chief Financial Officer. Based
upon that evaluation, our management, including our Chief Executive Officer and our Chief Financial
Officer, has concluded that as of the end of the fiscal quarter ended January 2, 2009 our
disclosure controls and procedures were effective.
(b)
Changes in internal control:
We periodically review our system of 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 periodically 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 acquired 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 January 2, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
(c)
Events Relating to Harris Stratex Networks:
During the first quarter of fiscal 2009, our
majority-owned publicly-traded subsidiary, Harris Stratex Networks, restated its 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. Harris Stratex Networks reported that as a
result of such accounting errors, as of June 27, 2008, there were material weaknesses in its
disclosure controls and procedures and in its system of internal control over financial reporting
that led to the need to restate its financial statements. These events relating to Harris Stratex
Networks were considered in our evaluation of our internal control over financial
reporting, and our management concluded that we maintained effective disclosure controls
and procedures as of the end of the second quarter of fiscal 2009 and effective internal control
over financial reporting as of the end of the second quarter of fiscal 2009. We have been advised
by Harris Stratex Networks management that they anticipate that all material weaknesses that were
identified in Harris Stratex Networks system of internal control over financial reporting will be
remediated by the end of fiscal 2009. We will continue to evaluate whether the above events
relating to Harris Stratex Networks will require any change in fiscal 2009 to our disclosure
controls and procedures or our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Harris Stratex Networks 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 Harris Stratex Networks securities from January 29, 2007 to July 30, 2008, including
shareholders of Stratex who exchanged shares of Stratex for shares of Harris Stratex Networks as
part of the combination between Stratex and our former Microwave Communications Division. This
action relates to the restatement of Harris Stratex Networks financial statements as discussed in
Part I. Item 4. Controls and
31
Procedures in this Quarterly Report on Form 10-Q. Similar complaints were filed in the United
States District Court for the District of Delaware on October 6,
2008 and October 30, 2008. Each such
complaint alleges violations of Section 10(b) and Section 20(a) of the Exchange Act and of Rule
10b-5 promulgated thereunder, as well as violations of Section 11 and Section 15 of the Securities
Act of 1933, as amended, and seeks, among other relief, determinations that the action is a proper
class action, unspecified compensatory damages and reasonable attorneys fees and costs. Harris
Stratex Networks has entered into stipulations with plaintiffs counsel in these actions under
which Harris Stratex Networks and the other named defendants will not have to respond to these
claims until a lead plaintiff is selected by the Court and that lead plaintiff has filed a
consolidated class action complaint. Harris and Harris Stratex Networks 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, operating results, cash flows and financial position set
forth under Item 1A. Risk Factors in our Fiscal 2008 Form 10-K. Other than the new risk factor
below relating to the effects of the recession in the United States and general downturn in the
global economy, we do not believe that there have been any material changes to the risk factors
previously disclosed in our Fiscal 2008 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 deem not to be material may also impair
our business operations.
The effects of the recession in the United States and general downturn in the global economy,
including financial market disruptions, could have an adverse impact on our business, operating
results or financial position.
The United States economy is in recession and there has been a general downturn in the global
economy. A continuation or worsening of these conditions, including the ongoing credit and capital
markets disruptions, could have an adverse impact on our business, operating results or financial
position in a number of ways. For example:
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The U.S. Government could reprioritize its spending away from the government contracts
in which we participate.
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We may experience declines in revenues, profitability and cash flows as a result of
reduced orders, payment delays or other factors caused by the economic problems of our
customers and prospective customers.
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We may experience supply chain delays, disruptions or other problems associated with
financial constraints faced by our suppliers and subcontractors.
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We may incur increased costs or experience difficulty with future borrowings
under our commercial paper program or credit facilities or in the
debt markets, or otherwise
with financing our operating, investing (including any future acquisitions) or financing activities.
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the second quarter of fiscal 2009, there were no repurchases of shares of our common
stock under our repurchase program. During the second quarter of fiscal 2008, we repurchased
785,000 shares of our common stock under our repurchase program at an average price per share of
$63.62, excluding commissions. The level of our repurchases depends on a number of factors,
including our financial position, capital requirements, results of operations, future business
prospects and other factors our Board of Directors may deem relevant. The timing, volume and nature
of share repurchases are subject to market conditions, applicable securities laws and other factors
and are at the discretion of management and may be suspended or discontinued at any time. Shares
repurchased by us are cancelled and retired.
32
The following table sets forth information with respect to repurchases by us of our common
stock during the fiscal quarter ended January 2, 2009:
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Total number of shares
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Maximum approximate
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purchased as part of
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dollar value of shares that
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Total number of
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Average price paid
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publicly announced
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may yet be purchased under
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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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the plans or programs (1)
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Month No. 1
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(September 27, 2008-October 24, 2008)
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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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100,311,802
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Employee Transactions (2)
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2,052
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$
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41.51
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n/a
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n/a
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Month No. 2
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(October 25, 2008-November 28, 2008)
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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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100,311,802
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Employee Transactions (2)
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22,362
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$
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34.95
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n/a
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n/a
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Month No. 3
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(November 29, 2008-January 2, 2009)
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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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100,311,802
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Employee Transactions (2)
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5,476
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$
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34.77
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n/a
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n/a
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Total
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29,890
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$
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35.37
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None
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$
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100,311,802
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*
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Periods represent our fiscal months.
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(1)
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On April 27, 2007, our Board of Directors approved a share repurchase program authorizing us
to repurchase up to $600 million of our stock through open-market transactions, private
transactions, transactions structured through investment banking institutions or any
combination thereof. This share repurchase program does not have a stated expiration date. The
approximate dollar amount of our stock that may yet be purchased under this share repurchase
program as of January 2, 2009 is $100,311,802 (as reflected in the table above). This share
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 position, capital requirements, results of operations, future business prospects and
other factors our Board of Directors may deem relevant. As a matter of policy, we do not
repurchase shares during the period beginning on the 15th day of the third month of a fiscal
quarter and ending two days following the public release of earnings and financial results for
such fiscal quarter.
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(2)
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Represents a combination of (a) shares of our common stock delivered to us in satisfaction of
the exercise price and/or tax withholding obligation by holders of employee stock options who
exercised stock options, (b) shares of our common stock delivered to us in satisfaction of the
tax withholding obligation of holders of performance shares or restricted shares which vested
during the quarter, (c) performance or restricted shares returned to us upon retirement or
employment termination of employees or (d) shares of our common stock purchased by the trustee
of the Harris Corporation Master Rabbi Trust at our direction to fund obligations under our
deferred compensation plans. Our equity incentive plans provide that the value of shares
delivered to us to pay the exercise price of options or to cover tax withholding obligations
shall be the closing price of our common stock on the date the relevant transaction occurs.
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Sales of Unregistered Securities
During the second quarter of fiscal 2009, we did not issue or sell any unregistered equity
securities.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
33
Item 4. Submission of Matters to a Vote of Security Holders.
Our 2008 Annual Meeting of Shareholders was held on October 24, 2008. A total of 119,446,415
of our outstanding shares were represented in person or by proxy at the meeting. This represented
approximately 89% of our shares issued, outstanding and entitled to be voted at the 2008 Annual
Meeting of Shareholders.
(1) Proposal 1: Shareholders elected four nominees to our Board of Directors for a three-year
term expiring at the Annual Meeting of Shareholders in 2011, or until their successors are elected
and qualified. The vote tabulation for individual directors was:
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Number of Shares
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Nominee
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For
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Against
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Abstain
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Lewis Hay III
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110,176,362
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6,422,068
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2,847,985
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Karen Katen
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113,926,214
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5,217,805
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302,396
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Stephen P. Kaufman
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117,678,168
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1,469,594
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298,653
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Hansel E. Tookes II
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116,172,563
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2,820,143
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453,709
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The terms of the following directors also continued after the 2008 Annual Meeting of
Shareholders:
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Thomas A. Dattilo
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Terry D. Growcock
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Howard L. Lance
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Leslie F. Kenne
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David B. Rickard
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Dr. James C. Stoffel
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Gregory T. Swienton
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(2) Proposal 2: To ratify our Audit Committees appointment of Ernst & Young LLP as our
independent registered public accounting firm for the fiscal year ending July 3, 2009:
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For
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Against
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Abstain
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115,755,365
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3,548,331
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142,719
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Proposal 2 was approved by our shareholders.
(3) Proposal 3: To approve an amendment to our Restated Certificate of Incorporation to
increase the number of authorized shares of our common stock from 250,000,000 shares to 500,000,000
shares:
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For
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Against
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Abstain
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99,626,642
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19,552,495
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267,278
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Proposal 3 was approved by our shareholders.
(4) Proposal 4: To approve an amendment to our Restated Certificate of Incorporation to
declassify our Board of Directors:
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For
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Against
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Abstain
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118,026,159
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972,928
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447,328
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Proposal 4 was approved by our shareholders.
Item 5. Other Information.
Not Applicable.
34
Item 6. Exhibits.
The following exhibits are filed herewith or incorporated by reference to exhibits previously
filed with the SEC:
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(3)
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(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)
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(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)
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(10)
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*(a) Form of Executive Change in Control Severance Agreement.
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*(b) Amendment No. 1 to Harris Corporation 2005 Annual Incentive
Plan, effective January 1, 2009.
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*(c) Amendment No. 2 to Harris Corporation 2000 Stock Incentive
Plan, effective January 1, 2009.
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*(d) Amendment No. 1 to Harris Corporation 2005 Equity Incentive
Plan, effective January 1, 2009.
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*(e) Amendment Number Four to the Harris Corporation Retirement
Plan, dated November 7, 2008 and effective November 6, 2008.
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*(f) Harris Corporation 2005 Supplemental Executive Retirement
Plan, effective January 1, 2009.
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*(g) Amendment Number One to the Harris Corporation 1997
Directors Deferred Compensation and Annual Stock Unit Award Plan
(Amended and Restated Effective January 1, 2006), effective January 1, 2009.
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*(h) Harris Corporation 2005 Directors Deferred Compensation
Plan (as Amended and Restated Effective January 1, 2009).
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*(i) Third Amendment to the Harris Corporation Master Rabbi Trust
Agreement, dated January 15, 2009 and effective January 1, 2009.
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*(j) Letter Agreement, dated as of December 19, 2008 and
effective January 1, 2009, by and between Harris Corporation and
Howard L. Lance, incorporated herein by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the SEC on
December 24, 2008. (Commission File Number 1-3863)
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*(k) Supplemental Pension Plan for Howard L. Lance (Amended and
Restated effective January 1, 2009), dated as of December 19,
2008, by and between Harris Corporation and Howard L. Lance,
incorporated herein by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed with the SEC on December 24,
2008. (Commission File Number 1-3863)
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*(l) Addendum, dated December 12, 2008, to the Offer Letter,
dated July 5, 2005, by and between Harris Corporation and Jeffrey
S. Shuman.
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*(m) Third Addendum, dated December 12, 2008, to the Letter
Agreement, dated as of January 23, 2007, by and between Harris
Corporation and Timothy E. Thorsteinson.
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(12)
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Computation of Ratio of Earnings to Fixed Charges.
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(15)
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Letter Regarding Unaudited Interim Financial Information.
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(31.1)
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
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(31.2)
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
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(32.1)
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Section 1350 Certification of Chief Executive Officer.
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(32.2)
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Section 1350 Certification of Chief Financial Officer.
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*
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Management contract or compensatory plan or arrangement.
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35
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.
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HARRIS CORPORATION
(Registrant)
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Date: February 10, 2009
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By:
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/s/ Gary L. McArthur
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Gary L. McArthur
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Senior Vice President and Chief Financial Officer
(principal financial officer and duly authorized officer)
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36
EXHIBIT INDEX
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Exhibit No.
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Under Reg. S-K,
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Item 601
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Description
|
(3)
|
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(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)
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(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)
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(10)
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*(a) Form of Executive Change in Control Severance Agreement.
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*(b) Amendment No. 1 to Harris Corporation 2005 Annual Incentive
Plan, effective January 1, 2009.
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*(c) Amendment No. 2 to Harris Corporation 2000 Stock Incentive
Plan, effective January 1, 2009.
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*(d) Amendment No. 1 to Harris Corporation 2005 Equity Incentive
Plan, effective January 1, 2009.
|
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*(e) Amendment Number Four to the Harris Corporation Retirement
Plan, dated November 7, 2008 and effective November 6, 2008.
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*(f) Harris Corporation 2005 Supplemental Executive Retirement
Plan, effective January 1, 2009.
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*(g) Amendment Number One to the Harris Corporation 1997
Directors Deferred Compensation and Annual Stock Unit Award Plan
(Amended and Restated Effective January 1, 2006), effective January 1, 2009.
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*(h) Harris Corporation 2005 Directors Deferred Compensation
Plan (as Amended and Restated Effective January 1, 2009).
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*(i) Third Amendment to the Harris Corporation Master Rabbi Trust
Agreement, dated January 15, 2009 and effective January 1, 2009.
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*(j) Letter Agreement, dated as of December 19, 2008 and
effective January 1, 2009, by and between Harris Corporation and
Howard L. Lance, incorporated herein by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the SEC on
December 24, 2008. (Commission File Number 1-3863)
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*(k) Supplemental Pension Plan for Howard L. Lance (Amended and
Restated effective January 1, 2009), dated as of December 19,
2008, by and between Harris Corporation and Howard L. Lance,
incorporated herein by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed with the SEC on December 24,
2008. (Commission File Number 1-3863)
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*(l) Addendum, dated December 12, 2008, to the Offer Letter,
dated July 5, 2005, by and between Harris Corporation and Jeffrey
S. Shuman.
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*(m) Third Addendum, dated December 12, 2008, to the Letter
Agreement, dated as of January 23, 2007, by and between Harris
Corporation and Timothy E. Thorsteinson.
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(12)
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Computation of Ratio of Earnings to Fixed Charges.
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(15)
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Letter Regarding Unaudited Interim Financial Information.
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(31.1)
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
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(31.2)
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
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(32.1)
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Section 1350 Certification of Chief Executive Officer.
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(32.2)
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Section 1350 Certification of Chief Financial Officer.
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*
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Management contract or compensatory plan or arrangement.
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Exhibit 10(a)
[FORM]
EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the
day of
, 2008 by and between Harris
Corporation, a Delaware corporation (the Company), and [
] (Executive).
W I T N E S S E T H
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
stockholders; 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 stockholders; 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 stockholders 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.
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.
1
(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 means the occurrence of any one of the following events:
(i) any person (as such term is defined in Section 3(a) (9) of the Securities
Exchange Act of 1934 (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 13(d) (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
2
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 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 of Directors shall be deemed to be an Incumbent
Director;
(iii) the consummation of 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 stockholders
(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 80% 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, 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); or
(iv) the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or the 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.
(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
4
employment by the
Company terminates by reason of death, the date of death of Executive. For all purposes of this
Agreement, 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 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
5
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 (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
6
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
.
(a) Executive agrees that if a Change in Control shall occur, Executive shall not voluntarily
leave the employ of the Company without Good Reason for a period of six (6) months following the
Change in Control.
(b) 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(b) constitute a basis
for deferring or withholding any amounts otherwise payable to Executive under this Agreement.
3.
Payments Upon Termination of Employment
.
7
(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:
(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, 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
8
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 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.
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
9
pay to Executive, at the same time that such reimbursements are
paid, in cash an additional 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, 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.
Certain Additional Payments by the Company
.
(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment, award, benefit or distribution by the Company or its affiliated
companies to or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 4) (a Payment) would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the Excise Tax), then Executive shall be
entitled to receive an additional payment (a Gross-Up Payment) in an amount such that after
payment by Executive of all taxes (including any interest or penalties imposed with respect to such
taxes) including, without limitation, any income and employment taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax, imposed upon the Gross-Up
10
Payment but
before deduction for any federal, state or local income tax upon the Payments, Executive retains an
amount (before deductions for any federal, state or local income or employment taxes on the
Payments) equal to the sum of (x) the Payments and (y) an amount equal to the product of any
deductions disallowed because of the inclusion of the Gross-up Payment in Executives adjusted
gross income and the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. Notwithstanding the foregoing, if it shall be
determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive net after-tax proceeds of at least
$50,000 (taking into account income and employment taxes and any Excise Tax) in excess of the net
after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a
reduction of the Payments, in the aggregate, to an amount (the Reduced Amount) such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-up Payment shall be made
to Executive and the aggregate Payments shall be reduced to the Reduced Amount by reducing the cash
amount payable to Executive pursuant to Section 3(a) or Section 3(c), whichever is applicable. For
purposes of determining the amount of the Gross-up Payment, Executive shall be deemed to (i) pay
federal income taxes at the highest marginal rates of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (ii) pay applicable state and local income taxes at
the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be
made, net of the maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those disallowed because of the increase of the Gross-up
Payment in Executives adjusted gross income. The Companys obligation to make a Gross-up Payment
under this Section 4 shall not be conditioned upon Executives termination of employment.
(b) Subject to the provisions of Section 4(a), all determinations required to be made under
this Section 4, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment 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
11
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 Gross-up Payment under this Section
4 with respect to any Payments shall be made no later than thirty (30) days following such
Payments. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall
furnish Executive with a written opinion to such effect, and to the effect that failure to report
the Excise Tax, if any, on Executives applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be
binding upon the Company and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made (Underpayment) or Gross-up
Payments are made by the Company which should not have been made (Overpayment), consistent with
the calculations required to be made hereunder. In the event that Executive thereafter is required
to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment (together with interest at the rate
provided in Section 1274(b) (2) (B) of the Code) shall be promptly paid by the Company to or for the benefit of Executive, and in no event later than the end of the
calendar year following the calendar year in which Executive makes payment of the additional Excise
Tax. In the event the amount of the Gross-up Payment exceeds the amount necessary to reimburse
Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment
that has been made and any such Overpayment (together with interest at the rate provided in Section
1274(b) (2) of the Code) shall be promptly paid by Executive to or for the benefit of the Company.
Executive shall cooperate, to the extent his 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.
12
5.
Section 409A of the Code
.
(a) 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, 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), 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
Executive hereunder assuming that the employment of the Executive shall terminate, other than
13
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 upheld by a
court of competent jurisdiction; provided, however, Executive shall be required to
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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 three 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.
(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
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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
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1025 W. NASA Boulevard
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Melbourne, Florida 32919
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Attn: Corporate Secretary
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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.
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(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.
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
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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]
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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:
Scott T. Mikuen
Secretary
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Exhibit 10(f)
HARRIS CORPORATION
2005 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I TITLE, PURPOSE AND EFFECTIVE DATE
Section 1.1.
Title
. The title of this plan shall be the Harris Corporation 2005
Supplemental Executive Retirement Plan.
Section 1.2.
Purpose
. This plan shall constitute an unfunded nonqualified deferred
compensation arrangement established for the purpose of providing deferred compensation for a
select group of management or highly compensated employees (within the meaning of section 201(2) of
ERISA).
Section 1.3.
Effective Date
. This plan is effective as of January 1, 2009 and shall
govern (i) deferrals described herein for services performed in calendar years commencing on or
after January 1, 2005 (and earnings thereon) and (ii) deferrals under the Prior SERP that were not
earned and vested as of December 31, 2004 (and earnings thereon). All deferrals under the Prior
SERP that were earned and vested as of December 31, 2004, and all earnings credited to such
deferrals at any time (prior to, on or after January 1, 2005) shall be governed by the terms of the
Prior SERP and shall not be subject to the terms of this plan.
ARTICLE II DEFINITIONS
Each capitalized term used herein shall have the meaning set forth in the Harris Corporation
Retirement Plan, as amended from time to time, except as otherwise set forth below.
2.1.
Account
means an account established on the books of the Corporation, pursuant to
Section 5.1, on behalf of a Participant. Subaccounts may be maintained within an Account (i) for
each Plan Year with respect to which deferrals under the SERP are made on behalf of a Participant;
(ii) for various sources of deferrals under the SERP made on behalf of a Participant and (iii) as
otherwise established by the Committee. Unless otherwise determined by the Committee, a
Participant may make separate form of distribution elections under Section 6.3 with respect to
subaccounts within the Participants Account.
2.2.
Account Balance Plan
means an account balance plan as defined in Treasury
Regulation §1.409A-1(c)(2)(i)(A) (whether elective or non-elective in nature) maintained by the
Corporation or an Affiliate, including without limitation, this SERP and the Prior SERP.
2.3.
Affiliate
means an entity, other than the Corporation, that would be treated as
part of the group of entities comprising the Corporation under sections 414(b) and (c) of the Code
and accompanying regulations.
2.4.
Code
means the Internal Revenue Code of 1986, as amended from time to time, and any
regulations promulgated thereunder.
2.5.
Code Limits
means contribution limits under any of section 401(a)(17), 401(k)(3),
401(m)(2)(A), 402(g) or 415 of the Code.
2.6.
Committee
means the Employee Benefits Committee of the Corporation, the members of
which are appointed by the Compensation Committee. Reference herein to the Committee shall include
any person or committee to whom the Committee has delegated any of its authority pursuant to
Section 7.2, to the extent of such delegation.
2.7.
Compensation Committee
means the Management Development and Compensation Committee
of the Board of Directors of the Corporation. Reference herein to the Compensation Committee shall
include any person or committee to whom the Compensation Committee has delegated any of its
authority pursuant to Section 7.2, to the extent of such delegation.
2.8.
Corporation
means Harris Corporation, a Delaware corporation, or any successor
thereto.
2.9.
Election Form
means the form prescribed by the Committee which is completed by a
Participant pursuant to Section 3.2 (which may be in written or electronic form). The Committee
shall specify in the Election Form any limitations with respect to the percentage of the employees
compensation that may be deferred in the aggregate under the Retirement Plan and SERP.
2.10.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended from
time to time, and any regulations promulgated thereunder.
2.11.
Fiscal Year
means the fiscal year of the Corporation.
2.12.
General Compensation
means Compensation as defined in the Retirement Plan,
except that (i) the dollar limitation imposed on tax-qualified plans under section 401(a)(17) of
the Code shall not apply and (ii) PRP Compensation shall be excluded.
2.13.
General Compensation Deferral
means a deferral under the SERP equal to (i) General
Compensation that would have been contributed to the Retirement Plan as a pre-tax contribution had
Code Limits not applied and (ii) the matching contribution attributable thereto that would have
been made to the Retirement Plan had Code Limits not applied.
2.14.
Investment Committee
means the Investment Committee Employee Benefit Plans of
the Corporation. Reference herein to the Investment Committee shall include any person or
committee to whom the Investment Committee has delegated any of its authority pursuant to Section
7.2, to the extent of such delegation.
2.15.
Matching Deferral
means a deferral under the SERP equal to a matching contribution
that would have been made to the Retirement Plan had section 401(m)(2)(A) or 415 of the Code not
limited the matching contributions made thereunder.
2.16.
Newly Eligible Employee
means an employee who (i) newly is eligible to participate
in the SERP and (ii) was not, at any time during the 24-month period ending on the date on which he
or she became eligible to participate in the SERP, eligible to participate in any Account Balance
Plan (irrespective of whether such individual in fact elected to participate in such plan). For
this purpose, an employee is not eligible to participate in an Account Balance Plan solely on
account of the accrual of earnings or interest on amounts previously deferred thereunder.
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2.17.
Participant
means an individual who satisfies the requirements of Section 3.1 and,
if applicable, files an Election Form pursuant to Section 3.2.
2.18.
Plan Year
means the calendar year.
2.19.
Prior SERP
means the Harris Corporation Supplemental Executive Retirement Plan,
effective as of March 1, 2003, as amended from time to time, and under which contributions ceased
effective December 31, 2004.
2.20.
Profit Sharing Deferral
means a deferral under the SERP equal to the difference
between (i) the amount of profit sharing contribution that would have been made to the Retirement
Plan had Code Limits not applied and (ii) the amount of profit sharing contribution made to the
Retirement Plan.
2.21.
PRP Compensation
means compensation payable to a Participant pursuant to a
Performance Reward Plan (or similar broad-based cash incentive plan) maintained by the Corporation
or an Affiliate.
2.22.
PRP Deferral
means a deferral under the SERP equal to the PRP Compensation that
would have been contributed to the Retirement Plan as a pre-tax contribution had Code Limits not
applied.
2.23.
Retirement Plan
means the Harris Corporation Retirement Plan, as amended from time
to time.
2.24.
Separation from Service
means a termination of employment with the Corporation and
its affiliates within the meaning of Treasury Regulation §1.409A-1(h) (without regard to any
permissible alternative definition thereunder). Notwithstanding any other provision herein,
affiliate for purposes of determining whether a Participant has incurred a Separation from
Service shall be defined to include all entities that would be treated as part of the group of
entities comprising the Corporation under sections 414(b) and (c) of the Code and accompanying
regulations, but substituting a 50% ownership level for the 80% ownership level set forth therein.
2.25.
SERP
means this Harris Corporation 2005 Supplemental Executive Retirement Plan, as
amended from time to time.
2.26.
Specified Employee
shall have the meaning set forth in the Harris Corporation
Specified Employee Policy for 409A Arrangements, as amended from time to time, which policy hereby
is incorporated herein.
2.27.
Unforeseeable Emergency
means (i) a severe financial hardship to a Participant
resulting from an illness or accident of the Participant, the Participants spouse or the
Participants dependent (as defined in section 152 of the Code, without regard to sections
152(b)(1), (b)(2) and (d)(1)(B)), (ii) the loss of a Participants property due to casualty
(including the need to rebuild a home following damage to a home not otherwise covered by
insurance, irrespective of whether caused by a natural disaster) or (iii) other similar
extraordinary and unforeseeable circumstances arising as a result of events beyond the control of
the Participant. Examples of what may be considered to be Unforeseeable Emergencies include (a)
the imminent foreclosure
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of or eviction from the Participants primary residence, (b) the need to pay for medical expenses,
including non-refundable deductibles and the cost of prescription drug medication and (c) the need
to pay for funeral expenses of a Participants spouse or dependent.
ARTICLE III ELIGIBILITY AND PARTICIPATION
3.1.
Eligibility
. An employee of the Corporation or an Affiliate shall be eligible to
participate in the SERP for a Plan Year if (i) the employee is a participant in the Retirement Plan
and the requirements set forth in (a), (b) or (c) below are satisfied or (ii) the Committee, in its
sole discretion, designates the employee as eligible to participate in the SERP for the Plan Year
and the employee is a member of a select group of management or highly compensated employees
(within the meaning of section 201(2) of ERISA). Notwithstanding the foregoing, an employee of the
Corporation or an Affiliate shall not be eligible to participate in the SERP if the employee has
waived in writing participation in the SERP.
(a)
General Compensation Deferrals
. An employee who participates in the Retirement
Plan shall be eligible to have General Compensation Deferrals made under the SERP on his or her
behalf for a Plan Year if the employees annual rate of compensation, as in effect at the
commencement of the election period with respect to General Compensation Deferrals for the Plan
Year or at any time thereafter through August 31 of the Plan Year, is at least equal to the
threshold amount for SERP participation in effect at that time as determined by the Committee in
its sole discretion (the Threshold Compensation Rate). An employee who attains the Threshold
Compensation Rate after August 31 of a Plan Year (whether as a result of the employees hire by the
Corporation or an Affiliate, promotion or any other reason) shall not be eligible to have General
Compensation Deferrals made on his or her behalf with respect to such Plan Year.
(b)
PRP Deferrals
. An employee who participates in the Retirement Plan shall be
eligible to have a PRP Deferral made under the SERP on his or her behalf for a Plan Year if the
employees annual rate of compensation, as in effect at the commencement of the election period
with respect to PRP Deferrals for the Plan Year, is at least equal to the Threshold Compensation
Rate. An employee who attains the Threshold Compensation Rate after the commencement of the
election period with respect to PRP Deferrals for a Plan Year (whether as a result of the
employees hire by the Corporation or an Affiliate, promotion or any other reason) shall not be
eligible to have a PRP Deferral made on his or her behalf with respect to such Plan Year.
(c)
Matching Deferrals and Profit Sharing Deferrals
. An employee who participates in
the Retirement Plan shall be eligible to have Matching Deferrals or a Profit Sharing Deferral made
under the SERP on his or her behalf for a Plan Year if the employees annual rate of compensation,
as in effect on the date that the Matching Deferral or Profit Sharing Deferral is to be allocated,
is at least equal to the Threshold Compensation Rate.
In the event that the annual rate of compensation of an employee who has elected General
Compensation Deferrals or a PRP Deferral is reduced below the Threshold Compensation Rate,
deferrals on behalf of such employee shall cease (i) with respect to General Compensation earned
during the Plan Year subsequent to the Plan Year during which the Participants annual rate of
compensation is so reduced and (ii) with respect to PRP Compensation earned during the
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Fiscal Year subsequent to the Fiscal Year during which the Participants annual rate of
compensation is so reduced.
3.2.
Participation with respect to General Compensation Deferrals and PRP Deferrals
.
(a)
In General
. An eligible employee may have General Compensation Deferrals and/or a
PRP Deferral made on his or her behalf for a Plan Year by submitting to the Committee an Election
Form or Election Forms specifying (i) the percentage of the employees General Compensation or PRP
Compensation, as applicable, to be deferred in the aggregate under the Retirement Plan and SERP for
the Plan Year, with such deferrals being made to the SERP only to the extent that such deferrals
cannot be made to the Retirement Plan due to Code Limits and (ii) the form in which the
Participants deferrals for the Plan Year (and earnings and losses thereon) shall be distributed,
as further described in Section 6.3. Unless otherwise determined by the Committee, an eligible
employee may submit separate Election Forms, and make separate elections, with respect to General
Compensation Deferrals and a PRP Deferral for a Plan Year. In the case of an eligible employees
initial Election Form, the eligible employee shall specify the treatment of his or her aggregate
General Compensation Deferrals and PRP Deferrals (and earnings or losses thereon) in the event of a
Change of Control that qualifies as a change in control event within the meaning of Treasury
Regulation §1.409A-3(i)(5), as further described in Section 6.7. A Participant who has elected to
have General Compensation Deferrals and/or a PRP Deferral made on his or her behalf, but who fails
to elect on a timely basis a form of distribution with respect to such deferrals (and earnings or
losses thereon) for a particular Plan Year or the treatment of General Compensation Deferrals and
PRP Deferrals (and earnings or losses thereon) in the event of a Change of Control that qualifies
as a change in control event within the meaning of Treasury Regulation §1.409A-3(i)(5), shall be
deemed to have elected, respectively, (i) distribution in installments over a ten-year period and
(ii) distribution in a single sum at the time determined by the Corporation within sixty (60) days
following the date of the Change of Control.
(b)
Submission of Election Form
. An Election Form must be completed and submitted to
the Committee in accordance with procedures prescribed by the Committee, but in any event (i) with
respect to General Compensation Deferrals, prior to the commencement of the Plan Year during which
the General Compensation is earned and (ii) with respect to PRP Deferrals, prior to the
commencement of the Fiscal Year during which the PRP Compensation is earned. Notwithstanding the
foregoing, a Newly Eligible Employee may elect to have General Compensation Deferrals made on his
or her behalf under the SERP during the Plan Year of his or her initial eligibility by submitting
an Election Form within 30 days after the date he or she becomes eligible to participate in the
SERP, which mid-year election shall be effective as of the first pay date that is at least 30 days
after the date the election is filed.
(c)
Irrevocability of Elections
. A Participants elections set forth in an Election
Form shall become irrevocable as of the latest date on which such elections may be made pursuant to
Section 3.2(b). Notwithstanding the foregoing, any election by a Participant to participate in the
SERP in effect on the date when the Participant receives a distribution from the SERP or any other
nonqualified deferred compensation arrangement maintained by the Corporation or an Affiliate on
account of the Participants Unforeseeable Emergency, or on the date when the
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Participant receives a withdrawal from the Retirement Plan on account of the Participants
hardship, shall be cancelled, effective as of the date of such distribution or withdrawal.
(d)
Rollover of Elections
. A Participants elections set forth in an Election Form
shall continue in effect from year to year until (i) changed by the Participant with respect to
future General Compensation Deferrals or PRP Deferrals, (ii) cancelled pursuant to Section 3.2(c)
in connection with the Participants Unforeseeable Emergency or hardship or (iii) the Participant
ceases to meet the eligibility criteria set forth in Section 3.1. Any election changes by the
Participant with respect to future General Compensation Deferrals or PRP Deferrals shall be made on
a new Election Form (to be submitted in accordance with procedures prescribed by the Committee) and
shall be given effect (i) with respect to General Compensation earned during the Plan Year
subsequent to the Plan Year during which the new Election Form is submitted and (ii) with respect
to PRP Compensation earned during the Fiscal Year subsequent to the Fiscal Year during which the
new Election Form is submitted.
3.3.
Participation with respect to Matching Deferrals and Profit Sharing Deferrals
. An
eligible employee automatically shall participate in the SERP in connection with, and need not
submit an election form related to, Matching Deferrals or a Profit Sharing Deferral with respect to
a Plan Year. Notwithstanding any election or elections made by a Participant pursuant to Section
6.3 regarding the form of distribution of his or her Account, a Participants Matching Deferrals
and Profit Sharing Deferrals (and earnings or losses thereon) shall be distributed in a single sum.
In the event of a Change of Control that qualifies as a change in control event within the
meaning of Treasury Regulation §1.409A-3(i)(5), a Participants Matching Deferrals and Profit
Sharing Deferrals (and earnings or losses thereon) shall be distributed in a single sum at the time
determined by the Corporation within sixty (60) days following the date of the Change of Control.
ARTICLE IV ALLOCATIONS
4.1.
Deferral due to Code Limits
. Any General Compensation Deferral or PRP Deferral
elected by a Participant for a Plan Year, or Matching Deferral or Profit Sharing Deferral
automatically made on behalf of a Participant for a Plan Year, shall be credited to the
Participants Account at the same time as such amount would have been contributed to the Retirement
Plan but for the existence of Code Limits.
4.2.
Compensation Deferral unrelated to Code Limits
. In addition to any General
Compensation Deferral or PRP Deferral that a Participant may elect pursuant to Section 3.2 for a
Plan Year, the Committee, in its sole discretion, may permit a Participant to elect to defer under
this SERP for a Plan Year a portion of his or her compensation to be earned during such year by
completing an election form in accordance with procedures established by the Committee and the
requirements of section 409A of the Code. An amount equal to such portion of the Participants
compensation shall be credited to the Participants Account at the time determined by the
Committee.
4.3.
Deferral with respect to Equity Awards
. To the extent that any award or payment
under the Harris Corporation 2000 Stock Incentive Plan, the Harris Corporation 2005 Equity
Incentive Plan or any successor thereto is to be deferred under this SERP pursuant to action of the
Compensation Committee, the amount which is so deferred shall be credited to the Account of
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the affected Participant at the time determined by the Compensation Committee. Any elections by
the Participant in connection therewith shall be made in accordance with procedures established by
the Committee and the requirements of section 409A of the Code.
4.4.
Special Awards
. The Compensation Committee, in its sole discretion, at any time may
grant a special award under this SERP to any Participant, and an amount equal to the award shall be
credited to the Participants Account at the time determined by the Compensation Committee. The
crediting of such award, and any elections by the Participant in connection therewith, shall be
made in accordance with procedures established by the Committee and the requirements of section
409A of the Code.
ARTICLE V ACCOUNTS AND INVESTMENT
5.1.
Establishment of Accounts
. An Account shall be established on the books of the
Corporation in the name and on behalf of each Participant. A Participants Account shall be
credited in an amount equal to (i) deferrals made on behalf of a Participant pursuant to Section
4.1 in connection with Code Limits, (ii) deferrals of compensation made by a Participant pursuant
to Section 4.2 unrelated to Code Limits, (iii) deferrals pursuant to Section 4.3 in connection with
equity awards; (iv) special awards granted pursuant to Section 4.4, and (v) any deemed investment
gains and losses determined pursuant to Section 5.2.
5.2.
Account Investment
.
(a)
In General
. Each Participants Account shall be credited with earnings and losses
experienced by the investment funds elected by such Participant, in accordance with rules and
procedures established by the Committee, from among the investment funds designated by the
Investment Committee from time to time. During any period in which no investment election with
respect to a Participants Account, or portion thereof, is on file with the Committee, the
Participants Account, or portion thereof, as applicable, shall be deemed to be invested in an
age-appropriate LifeCycle Fund (or such other investment fund designated by the Investment
Committee from time to time).
(b)
Harris Stock
. If the Harris Stock Fund is designated by the Investment Committee
as an investment fund hereunder, and except as otherwise determined by the Investment Committee,
(i) a Participant may not elect a deemed investment in the Harris Stock Fund of more than 20% of
the deferrals newly made on his or her behalf under the SERP and (ii) a Participant may not,
pursuant to a change in an investment election, cause more than 20% of the Participants Account to
be deemed to be invested in the Harris Stock Fund. If a Participant who is a director or officer
of the Corporation within the meaning of Rule 16a-1(f) under Section 16 of the Securities Exchange
Act of 1934, as amended, elects to have his or her Account credited with earnings and losses
experienced by the Harris Stock Fund (if an available investment fund hereunder), then, unless
otherwise directed by the Investment Committee with respect to all such directors and officers,
such an election with respect to amounts credited during any calendar quarter to such Participants
Account shall be an election to have the amounts deemed to be invested in the Stable Value Fund (or
such other investment fund designated by the Investment Committee from time to time) until the
first day of the following calendar quarter and
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on such day shall be an election to have the amounts deemed to be invested in the Harris Stock
Fund.
(c)
Investment Election to Remain in Effect
. A Participants investment election
shall remain in effect until the Participant changes it. Investment election changes shall be
subject to such limitations as the Committee from time to time may impose (including restrictions
on investment election changes that apply solely to a particular investment fund and restrictions
designed to insure compliance with securities or other laws).
(d)
Timing of Investment Return
. A Participants Account shall be credited
periodically with amounts equal to the gains and losses that would have been realized by the
Corporation if the Account had been invested as it is deemed to be invested.
ARTICLE VI VESTING AND DISTRIBUTION
6.1.
Vesting
. Amounts credited to a Participants Account pursuant to Section 4.1 (as
adjusted for deemed earnings and losses pursuant to Section 5.2) shall become vested at the same
time and to the same extent as their corresponding contributions to the Retirement Plan become
vested. Amounts credited to a Participants Account pursuant to Section 4.2 (as adjusted for
deemed earnings and losses pursuant to Section 5.2, to the extent applicable) shall become vested
as determined by the Committee. Amounts credited to a Participants Account pursuant to Sections
4.3 and 4.4 (as adjusted for deemed earnings and losses pursuant to Section 5.2, to the extent
applicable) shall become vested as determined by the Compensation Committee.
6.2.
Time of Distribution
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(a)
In General
. Subject to Sections 6.2(b) and 6.4, a Participant shall commence
distribution of his or her vested Account in January of the calendar year immediately following the
later of (i) the calendar year during which the Participant attains age 55 and (ii) the calendar
year during which the Participant Separates from Service.
(b)
Special Rule for Specified Employees
. Notwithstanding any provision to the
contrary in this SERP, if a Participant is a Specified Employee as of the date of the Participants
Separation from Service and is entitled to payment hereunder on account of such separation, no
payment of the Participants vested Account under this SERP (including in connection with the
Participants Unforeseeable Emergency or a Change of Control) shall be made before the date which
is six months after the date of the Separation from Service (or, if earlier than the end of such
six-month period, the date of the Participants death). Any payment delayed pursuant to the
immediately preceding sentence shall be paid in a single sum during the seventh calendar month
following the calendar month during which the Participant Separates from Service.
6.3.
Form of Distribution
. A Participant may elect to receive distribution of his or her
vested Account in any one of the following forms:
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(1)
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a single sum;
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(2)
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installments over a three-year period;
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(3)
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installments over a five-year period;
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(4)
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installments over a seven-year period;
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(5)
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installments over a ten-year period; or
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(6)
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installments over a fifteen-year period.
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Installment payments shall be made annually. Subject to Section 6.8, a Participants election with
respect to the form of distribution of his or her vested Account shall be irrevocable.
6.4.
De Minimis Amounts
. Notwithstanding Sections 6.2(a) and 6.3 or any other provision
herein to the contrary, but subject to Section 6.2(b), if at the time of the Participants
Separation from Service, the aggregate of (i) the Participants vested Account and (ii) the
Participants vested interest in any other Account Balance Plan does not exceed the applicable
dollar amount under section 402(g)(1)(B) of the Code at such time, then the Participants vested
Account and the Participants vested interest in such other Account Balance Plan shall be
distributed in a single sum during the calendar month following the calendar month during which the
Participant Separates from Service.
6.5.
Death
. If a Participant shall die before his or her entire vested Account is
distributed, then the remaining vested Account shall be paid, at the time and in the manner such
vested Account would have been paid to the Participant, to the beneficiary or the beneficiaries
designated by the Participant in the manner prescribed by the Committee. A Participant may revoke
or change his or her beneficiary designation at any time by filing a new beneficiary designation
with the Committee during his or her lifetime. If a Participant does not designate a beneficiary
under the SERP or if no designated beneficiary survives the Participant, then the Participants
vested Account shall be distributed to the beneficiary or beneficiaries entitled to his or her
accounts under the Retirement Plan (or who would be so entitled if the Participant had Retirement
Plan accounts).
6.6.
Unforeseeable Emergency
. Upon written request by a Participant whom the Committee
determines has suffered an Unforeseeable Emergency, the Committee may, in its sole discretion,
direct payment to the Participant of all or any portion of the Participants vested Account. The
circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each
case, but, in any case, payment may not exceed an amount reasonably necessary to satisfy such
Unforeseeable Emergency plus amounts necessary to pay taxes or penalties reasonably anticipated as
a result of such payment after taking into account the extent to which such Unforeseeable Emergency
is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the Participants assets, to the extent the liquidation of such assets would not
itself cause severe financial hardship or (iii) by cessation of deferrals hereunder or under any
other Account Balance Plan. A Participant shall provide the Committee with documentation
evidencing the Unforeseeable Emergency. In the event that the Committee approves a withdrawal due
to an Unforeseeable Emergency, payment shall be made to the Participant in a lump sum as soon as
practicable following such approval, but in no event later than ninety (90) days after the
occurrence of the Unforeseeable Emergency. A request for an
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Unforeseeable Emergency withdrawal by a Specified Employee who has Separated from Service shall be
subject to any delay required by Section 6.2(b).
6.7.
Change of Control
. Notwithstanding any provision to the contrary in this SERP, in
the event of a Change of Control that qualifies as a change in control event within the meaning
of Treasury Regulation §1.409A-3(i)(5), a Participants vested Account either (i) shall be
distributed to such Participant in a single sum at the time determined by the Corporation within
sixty (60) days following the date of the Change of Control or (ii) shall be transferred to (or
retained in) a grantor trust established by the Corporation and distributed at the same time and in
the same form as such Account would have been distributed if a Change of Control had not occurred,
as determined by the Change of Control election made by the Participant pursuant to Section 3.2(a)
or as set forth in Section 3.3. In the event of a Change of Control that does not qualify as a
change in control event within the meaning of Treasury Regulation §1.409A-3(i)(5), a
Participants vested Account shall be transferred to (or retained in) a grantor trust established
by the Corporation and distributed at the same time and in the same form as such Account would have
been distributed if a Change of Control had not occurred. The provisions of this Section 6.7 may
not be amended on or after the date of a Change of Control without the written consent of a
majority of those individuals with Accounts under the SERP on the date of the Change of Control.
6.8.
Special Transition Election
. Notwithstanding any provision herein to the contrary,
at a time determined by the Committee no later than December 31, 2008 (or any later date permitted
under transition rules under section 409A of the Code), a Participant shall be permitted to change
the form of distribution and Change of Control elections previously made by such Participant with
respect to his or her Account, subject to rules and procedures established by the Committee and all
requirements of section 409A of the Code and guidance provided thereunder.
6.9.
Withholding for Taxes
. For each calendar year in which a Participants compensation
is reduced pursuant to the Participants elections under the SERP, the Corporation shall withhold
from the Participants payments of compensation any taxes imposed upon the Participant pursuant to
section 3121(v) of the Code in respect to the amount by which the Participants compensation is
reduced. The Corporation shall have the right to deduct any federal, state or local income,
employment or other taxes required by law to be withheld with respect to any payments to be made
under the SERP, and to withhold such amounts from any other compensation or payment due the
Participant (or his or her beneficiary).
6.10.
Reemployment
. The reemployment by the Corporation or an Affiliate of a separated
Participant whose Account is being distributed in the form of installments shall not change the
time or form of payment of the Participants unpaid vested Account, which vested Account will
continue to be paid in installments in accordance with the distribution schedule in effect
immediately prior to the Participants reemployment.
6.11.
Receipt of Distribution by Direct Deposit
. As a condition to participation in the
SERP, each eligible employee shall agree to receive any distribution under the SERP in the form of
direct deposit (or other method determined by the Committee).
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ARTICLE VII ADMINISTRATION
7.1.
Authority of Committee
. The SERP shall be administered by the Committee. The
Committee shall, in its sole discretion, have the complete authority to interpret the SERP, to
adopt rules for carrying out the purposes of the SERP and to make all other determinations
necessary or advisable for the administration of the SERP. To the extent practicable and
consistent with section 409A of the Code, the SERP shall be administered in a manner consistent
with the administration of the Retirement Plan. Any decision with respect to, or interpretation
of, any provision of the SERP made by the Committee shall be final and conclusive, and shall be
binding on all Participants, their beneficiaries and any other person. Benefits under the SERP
shall be paid only if the Committee decides, in its sole discretion, that the Participant or
beneficiary is entitled to them. A Participant who has any authority to make SERP administrative
decisions may not participate in any such decision that may affect his or her rights or obligations
under the SERP, unless the decision affects all Participants.
7.2.
Delegation of Authority
. Each of the Compensation Committee, the Committee and the
Investment Committee may delegate any of its responsibilities, powers and duties under the SERP to
any person or committee. The Compensation Committee, the Committee and the Investment Committee
(or any delegate of such committee) may employ such attorneys, agents and advisors as such
committee (or such delegate) may deem necessary or advisable to assist it in carrying out its
duties hereunder.
7.3.
Liability
. No member of the Compensation Committee, the Committee or the Investment
Committee (and no person or committee to whom any such committee has delegated any of its
responsibilities, powers or duties under the SERP) shall be liable for, and the Corporation hereby
indemnifies such members, persons or committees with respect to the effects and consequences of,
any action or failure to act under the SERP in an official capacity, except where such action or
failure to act was due to willful or gross misconduct or criminal acts.
7.4.
Claims Procedure
. If any Participant or beneficiary believes he or she is entitled
to benefits under the SERP in an amount greater than those which he or she is receiving or has
received, he or she (or his or her duly authorized representative) may file a claim with the
Committee. Any such claim shall be processed in accordance with, and subject to, the claims
procedure set forth in the Retirement Plan, which is incorporated herein by reference.
7.5.
Statute of Limitations for Actions under the SERP
. Except for actions to which any
statute of limitations prescribed by ERISA applies, (a) no legal or equitable action relating to a
claim for benefits under section 502 of ERISA with respect to the SERP may be commenced later than
one (1) year after the claimant receives a final decision from the Committee in response to the
claimants request for review of an adverse benefit determination (or, if later, one (1) year after
the effective date of this provision, which is January 1, 2009) and (b) no other legal or equitable
action involving the SERP may be commenced later than two (2) years after the date the person
bringing the action knew, or had reason to know, of the circumstances giving rise to the action
(or, if later, two (2) years after the effective date of this provision, which is January 1, 2009).
This provision shall not bar the SERP or the Corporation from recovering, in accordance with
section 409A of the Code or other applicable law, overpayments of benefits or other amounts
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incorrectly paid to any person under the SERP at any time or bringing any legal or equitable action
against any party.
ARTICLE VIII GENERAL PROVISIONS
8.1.
Amendment and Termination
. Subject to Section 6.7, (i) at any time the Compensation
Committee may adopt amendments to the SERP (irrespective of whether such amendments are material or
nonmaterial) or may terminate the SERP, and (ii) at any time the Committee may adopt nonmaterial
amendments to the SERP. Notwithstanding the previous sentence, no amendment or termination of the
SERP shall reduce or cancel any amount credited to any Participants Account.
8.2.
Anti-Alienation
. A Participants rights and interest under the SERP may not be
assigned or transferred except by will or the laws of descent or distribution, or as may be
required under ERISA pursuant to a qualified domestic relations order. Any other purported
transfer, assignment, pledge, encumbrance or attachment of any payments or benefits under the SERP
shall not be permitted or recognized and shall be void.
8.3.
Funding
. The Corporation may, but is not required to, establish a trust to fund the
amounts credited to Accounts under the SERP,
provided that
the assets in such trust shall be
subject to the claims of the Corporations general creditors in the event of insolvency.
Participants (and beneficiaries) shall have no interest in any fund or specific asset of the
Corporation. The rights of each Participant (and beneficiary) to any payments under the SERP shall
be solely those of an unsecured general creditor of the Corporation.
8.4.
Inability to Locate Participant or Beneficiary
. If, as of the Latest Payment Date,
the Committee is unable to make payment of all or a portion of a Participants Account to such
Participant or his or her beneficiary because the whereabouts of such person cannot be ascertained
(notwithstanding the mailing of notice to any last known address or addresses and the exercise by
the Committee of other reasonable diligence), then the portion of the Participants Account with
respect to which payment is due shall be forfeited. For this purpose, the Latest Payment Date
shall be the latest date on which a Participants Account, or portion thereof, as applicable, may
be paid to the Participant or the beneficiary without the imposition of excise taxes and other
penalties under section 409A of the Code.
8.5.
Severability
. If any provision of the SERP is found illegal or invalid by any court
having proper jurisdiction, then such provision shall be construed by such court to reflect most
nearly the Corporations original intent in adopting the SERP, consistent with applicable law, and
the illegality or invalidity shall not affect the remaining provisions of the SERP.
8.6.
Not a Contract of Employment
. The SERP shall not constitute a contract of employment
or in any manner obligate the Corporation or an Affiliate to continue the employment of any
employee.
8.7.
Successors and Assigns
. The provisions of the SERP shall bind and inure to the
Corporation and its successors and assigns, as well as each Participant and beneficiary.
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8.8.
Applicable Law
. The SERP shall be construed and governed in all respects in
accordance with the laws of the State of Florida to the extent that the latter are not preempted by
ERISA or other applicable federal law. Venue for any action arising under the SERP shall be in
Brevard County, Florida.
8.9.
Compliance with Section 409A of the Code
. The SERP is intended to comply with
section 409A of the Code and shall be administered and interpreted accordingly. In the event that
the SERP does not comply with section 409A of the Code, the Corporation shall have the authority to
amend the terms of the SERP (which amendment may be retroactive to the extent permitted by section
409A of the Code and may be made by the Corporation without the consent of any Participant or
beneficiary) to avoid the imposition of excise taxes, interest and other penalties under section
409A of the Code, to the extent possible. Notwithstanding the foregoing, no particular tax result
for any Participant in connection with participation in the SERP is guaranteed, and the Participant
solely shall be responsible for any taxes, interest, penalties or other losses or expenses incurred
by the Participant in connection with such participation.
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IN WITNESS WHEREOF, the Harris Corporation Employee Benefits Committee has caused this
instrument to be executed by its duly authorized representative on this 7th day of November, 2008.
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HARRIS CORPORATION
EMPLOYEE BENEFITS COMMITTEE
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By:
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/s/ John D. Gronda
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Title:
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Secretary
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