SecProbe.io

CORRESP
1
filename1.htm

Harris Corporation

Via Electronic Submission (Correspondence)

February 7, 2007

Ms. Linda Cvrkel

Branch Chief

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

              Re:

    Harris Corporation

Form 10-K for the Fiscal Year Ended June 30, 2006

Filed September 7, 2006

File No. 001-03863

Dear Ms. Cvrkel:

     On behalf of Harris Corporation (“Harris”), I herby submit our responses to the
comments of the Staff of the Division of Corporation Finance (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) on the Annual Report on Form 10-K of
Harris for the fiscal year ended June 30, 2006 (the “Form 10-K”), as set forth in your
letter dated January 24, 2007 (the “Comment Letter”).

     For reference purposes, the text of the Staff’s comments is set forth below in bold, numbered
to correspond to the comment numbers used in the Comment Letter and followed by our responses
thereto.

Form 10-K for the Year Ended June 30, 2006

Management’s Discussion and Analysis

Critical Accounting Policies and Estimates, page 47

— Provisions for Excess and Obsolete Inventory Losses

    1.

    We note your disclosure that if you determine that your inventory is undervalued you
may have overstated “cost of sales” in previous periods and would be required to recognize
such additional income. Please note that in the case where goods have been written down
below cost at the close of a fiscal year, such reduced amount is to be considered the cost
for subsequent accounting purposes. In this regard,

Page 2

    please clarify for us and in your disclosure in future filings, whether circumstances exist
or have existed in the past which lead you to recognize additional income as a result of
inventory being undervalued in previous periods. If so, please explain to us in detail how
your accounting treatment complies with footnote 2 of SFAS No. 151 and SAB Topic 5BB. We may
have further comment upon receipt of your response.

Response:

We duly note the Staff’s comment. The circumstance described in our disclosure was the
situation that if we established a reserve for excess and obsolete inventory but then later sold
such inventory for more than the written-down book value, we would recognize income equal to the
difference between the written-down book value and the sale price, which income would be greater
than if the inventory had not been written down. We have not marked up the cost of our inventories
that had previously been written down, but for the inventories that have subsequently been sold
after being written down, we have appropriately eliminated the associated inventory reserves. In
consideration of the Staff’s comment and to clarify the disclosure, in future filings we will
delete the sentence “Likewise, if we determine our inventory is undervalued, we may have overstated
“Cost of product sales” in previous periods and would be required to recognize such additional
income.”

We will also include the following disclosure in our future filings:

    “In the case of goods which have been written down below cost at the close of a
fiscal year, such reduced amount is to be considered the cost for subsequent
accounting purposes.”

Consolidated Financial Statements

Consolidated Statement of Comprehensive Income and Shareholders’ Equity, page 59

    2.

    We note from your statement of comprehensive income and shareholders’ equity that in
fiscal 2006 debt was converted to 20,350 shares of common stock. Please tell us the nature
of this transaction including the initial terms of the debt. Also, citing relevant
authoritative literature, tell us how you accounted for the conversion to common stock.

Response:

As disclosed in the “Liquidity, Capital Resources and Financial Strategies” portion of our
Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 44
of our Form 10-K and in Notes 13 and 16 in the Notes to Consolidated Financial Statements on pages
75 and 81 of our Form 10-K, respectively, during fiscal 2003 we issued $150 million in aggregate
principal amount of 3.5% Convertible Debentures due 2022. The material terms of the convertible
debentures are disclosed in Note 16 of our Form 10-K. Additionally, the resale of such convertible
debt and the underlying shares of common stock

Page 3

were registered with the Commission pursuant to a Form S-3 declared effective on November 12, 2002
(Form S-3 Registration No. 333-100823). During fiscal 2006 an aggregate amount of $460,000 of such
convertible debentures were converted into 20,350 shares of our common stock in accordance with the
original conversion terms. No inducement or incremental conversion expenses were involved with
these conversions. Based on SFAS 84 paragraph 23, no gain or loss was recorded as a result of
these conversions. Our accounting entry to record the conversions was to debit the “long-term
debt” account for the face amount of the debt converted to stock or $460,000; credit “common stock”
for $20,350 ($1 par value) and credit “other capital” for $439,650.

 Notes to the Financial Statements

General

    3.

    We note from your disclosures in MD&A that you recorded a $39.6 million charge in the
Microwave Communications segment in 2006 for inventory write-downs and severance costs
associated with product discontinuances and the shutdown of your manufacturing activities
in Montreal, Canada. We also note that you incurred a $25 million charge related to
inventory write-downs, severance and other costs associated with cost-reduction actions in
the Broadcast Communications Segment. Given these amounts represent ($.26) and ($.14) per
diluted share, respectively, please provide us with and revise your notes to the financial
statements in future filings to include disclosures required by paragraph 20 of SFAS No.
146. Your response and revised disclosures should provide a description of each major type
of cost associated with the exit or disposal activity (for example, one-time termination
benefits, contract termination costs, and other associated costs) by segment; disclose the
total amount expected to be incurred in connection with the activity, the amount incurred
in the period, and the cumulative amount incurred to date, and a reconciliation of the
beginning and ending liability balances showing separately the changes during the period
attributable to costs incurred and charged to expense, costs paid or otherwise settled, and
any adjustments to the liability with an explanation of the reason(s) therefore, where
applicable. Additionally, please provide the line item(s) in the income statement in which
the costs are aggregated. Also, please revise the notes to the financial statements in
future filings, to disclose in greater detail the facts and circumstances surrounding the
inventory write-downs. You may refer to paragraph 14, Chapter 4 of ARB No. 43.

Response:

The charges of $39.6 million and $25.0 million included only $3.7 million (pre-tax) and $5.3
million (pre-tax), respectively, of severance and facility exit costs covered by SFAS No. 146,
which total 2.4 percent of fiscal 2006 income before income taxes. We believe these amounts are
not material and therefore we do not believe the disclosures required by paragraph 20 of SFAS No.
146 are required.

Page 4

The charges of $39.6 million and $25.0 million can be summarized as follows:

($ millions)

Microwave Communications Segment Charges ($39.6 million)

    Inventory write-downs

    $
    34.0

    Severance costs

    2.3

    Facility exit costs

    1.4

    Prepaid import tax impairment

    1.0

    Fixed asset impairments

    0.9

    Total

    $
    39.6

Broadcast Communications Segment Charges ($25.0 million)

    Inventory write-downs

    $
    12.0

    Severance costs

    4.8

    Facility exit costs

    0.5

    Fixed asset impairments

    2.3

    Costs to relocate manufacturing

    5.4

    Total

    $
    25.0

We duly note the Staff’s comment to revise the notes to the financial statements in future filings
to disclose in greater detail the facts and circumstances surrounding the inventory write-downs.
In consideration of the Staff’s comment we will include the following disclosure in future filings:

    “Note
[l]:
Inventories

    Microwave Communications Segment

         During the second quarter of fiscal 2006, the Microwave Communications segment
successfully released additional frequencies of the TRuepoint™ product family,
essentially completing all current frequencies intended to be offered in the low-
and mid-capacity microwave radio market segments. In light of these releases and the
market acceptance of previously released frequencies as demonstrated by TRuepoint™
product sales over the preceding three quarters, management announced in November
2005 a manufacturer’s discontinuance (“MD”) of the MicroStar™ M/H, MicroStar™ L and
Galaxy™ product families (the product families the TRuepoint™ product line was
developed to replace) and of the Clearburst™ product family, a product line that
shared manufacturing facilities with the MicroStar™ and the Galaxy™ product lines in
Montreal, Canada. The Clearburst™ product family was discontinued because
significant costs would have to be incurred to move production of these products
from Montreal, Canada to San Antonio, Texas, which is the segment’s primary
manufacturing location, where the TRuepoint™ product line is produced. In November
2005, letters were sent to Microstar™, Galaxy™ and Clearburst™ customers informing
them of the MD announcement.

Page 5

         We estimated expected demand for these discontinued products based on: (1)
responses to the letters noted above, and (2) a percentage of the installed product
base, using previous product MD history as a basis for this estimate. In addition,
the customer service inventory of these discontinued products was reviewed and
quantities required to support existing warranty obligations and contractual
obligations were quantified. These analyses identified inventory held in multiple
locations including Montreal, Canada; Redwood Shores, California; San Antonio,
Texas; Paris, France; Mexico City, Mexico; Sao Paulo, Brazil; and Shenzhen, China.
As a result of these analyses approximately $34 million of inventory was written
down during fiscal 2006.

    Broadcast Communications Segment

         During the first and second quarter of fiscal 2006, the Broadcast
Communications segment took cost-reduction actions to address ongoing weakness in
our international broadcast transmission markets and to further improve the
segment’s profitability. These actions included closing our Huntingdon, United
Kingdom facility; relocating manufacturing of European-standard transmission
products to our Quincy, Illinois facility; reducing our infrastructure in Austria;
outsourcing manufacturing of radio consoles and related products from our Mason,
Ohio facility; and headcount reductions from further integration within our software
systems business. In light of these actions we identified products that we would no
longer sell to customers because the cost to move the production of these products
from our Huntingdon, United Kingdom facility to our Quincy, Illinois facility and
costs to outsource the manufacturing products from our Mason, Ohio facility to a
third party or move this manufacturing to another Harris facility exceeded the
future benefits expected to result from such actions. As a result, we announced in
the first quarter of fiscal 2006 to our customers, dealers, and suppliers that we
would be discontinuing the production of these products. An analysis of inventory
was made as part of the actions noted above and provision was made for inventory
levels in excess of estimated demand for all exited products. The estimate of
demand took the following into consideration: (1) responses to the letters sent to
the customers, (2) previous product exit experience for the Broadcast Communications
segment, and (3) future customer service requirements including existing warranty
obligations and contractual obligations. As a result of these analyses, $12 million
of inventory was written down during fiscal 2006.”

We note, as the Staff referenced, that paragraph 14 of Chapter 4 of ARB No. 43 states “When
substantial and unusual losses result from the application of this rule it will frequently be
desirable to disclose the amount of the loss in the income statement as a charge separately
identified from the consumed inventory costs described as cost of goods sold.” We determined,
however, that these write-downs of inventory were not material and did not warrant a separate
disclosure in our income statement since the write-downs were only 1.9

Page 6

percent of total fiscal 2006 cost of product sales and services in our Consolidated Statement of
Income.

Note 1. Significant Accounting Policies, page 60

    4.

    We note from your disclosures included within MD&A that in the past you have recognized
impairments related to capitalized software development costs. We also note that
significant additions were made to capitalized software costs during fiscal 2006 and 2005,
and your disclosure in the capital resources and liquidity section indicate that you expect
[to] incur additional software costs in the future. However, it is unclear to us what
type(s) of software costs are being capitalized and how such costs are accounted for within
your financial statements. In this regard, please clarify for us whether your capitalized
software costs are accounted for under SOP 98-1 or SFAS No. 86 and revise your disclosures
with your significant accounting policies footnote in future filings to include your
policies for which you capitalize software costs. Your response and revised disclosure
should specifically identify the accounting guidance used by management to account for the
capitalized software costs and how your policy complies with the applicable literature.
Also, please address when the Company believes it is appropriate to begin capitalization of
software costs and the useful life over which you amortize such costs. Explain how you
determined the period over which you expect to receive future benefits from these assets
and why you believe the assigned useful life is appropriate. Please provide us with our
planned revisions. We may have further comment upon receipt of your response.

Response:

We duly note the Staff’s comment. We have capitalized software both for internal use, which is
capitalized under SOP 98-1, and capitalized software for resale under SFAS No. 86. Both of these
types of capitalized software are included in the “Other assets” caption in our fiscal 2006 Form
10-K Consolidated Balance Sheets. We have, however, reclassified software capitalized under SOP
98-1 to the “Property, plant and equipment” caption starting with our first quarter of fiscal 2007,
which reclassification is discussed in Note A in the notes to condensed
consolidated financial statements included in our fiscal 2007 Form 10-Q’s. As of June 30, 2006 the total amount of
software capitalized under SOP 98-1 was $28.1 million or 1.6 percent of Non-current assets and
software capitalized under SFAS No. 86 was $41.7 million or 2.4 percent of Non-current assets.

In consideration of the Staff’s comment and to clarify our disclosure, including the significant
accounting polices footnote, we will include the following disclosures in our future filings:

    “Note 1: Significant Accounting Policies

    Capitalized Software to Be Sold, Leased, or Otherwise Marketed — Capitalized
software to be sold, leased, or otherwise marketed is accounted for in accordance
with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs
of Computer Software to Be Sold, Leased, or

Page 7

    Otherwise Marketed” (“FAS 86”). Costs incurred to acquire or c