SecProbe.io

CORRESP
1
filename1.htm

CORRESP

HARRIS CORPORATION

 GARY L. MCARTHUR

 Senior
Vice President, and

 Chief Financial Officer

 1025 West NASA Boulevard

 Melbourne, FL USA 32919

 phone 1-321-724-3858

 www.harris.com

 Via Electronic Submission (Correspondence)

 November 29, 2012

 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 29, 2012

 Filed August 27, 2012

 File No. 001-03863

Dear Ms. Cvrkel:

 On
behalf of Harris Corporation (“Harris”), I hereby 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 Harris’ Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended June 29, 2012, as set forth in your letter dated September 20, 2012 (the “Comment Letter”).

 For reference purposes, the text of each 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 response thereto.

 Staff Comment:

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operations Review, page 36

1.
 Please revise and expand your MD&A section in future filings to separately quantify and discuss factors responsible for changes in the levels of
the Company’s cost of sales for both the consolidated and the segment level during all periods presented in the Company’s financial statements as required by Item 303 of Regulation S-K. In this regard,

 Ms. Linda Cvrkel

Securities and Exchange Commission

 November 29,
2012

 Page 2

we note that page 37 of your MD&A section includes a table with the combined amount of cost of product sales and services but includes only a brief paragraph at the consolidated level which
explains the change in gross margin, and does not directly explain the change in cost of sales. Additionally your segment level disclosure does not include any discussion of changes in cost of sales. However, we believe that for a company with the
size and breadth of operations as yours, this discussion does not adequately provide your investors with an increased depth of understanding and knowledge necessary to properly evaluate your operating results. Therefore, please revise to expand and
enhance your discussion of cost of sales with regards to both product and services sales. As part of your revised disclosure, please revise to quantify and discuss the impact of each significant component of costs comprising cost of sales that
caused cost of sales to materially vary (or not vary when expected to). For costs that cannot be clearly separated and discussed, include a separate detailed discussion of non-business group factors affecting operating earnings, where they are
analyzed from period to period with detailed explanations regarding their fluctuations. In this regard we believe materiality should be assessed in relation to operating income, your consolidated performance measure. This disclosure should be
presented in a manner so as to allow investors to discern the relative contribution of each of multiple components cited to the total change in cost of sales and resultant operating earnings.

Additionally, please note that even when total amounts of costs of sales do not materially vary from period to period, the impacts of
material variances in components of cost of sales that offset each other should be separately disclosed, quantified, and discussed (not netted). Please also ensure that your revised disclosure provides appropriate explanation of underlying reasons
for changes (for example, in addition to quantifying the impacts of changes in price and volume, explain the underlying reasons for these changes). Given the potential for differing or offsetting results in your various segments, we encourage you to
also provide the above disclosures at the segment level. In any event, you should revise to provide discussion and analysis of costs of sales at the segment level when a change in a segment’s cost of sales materially impacts the segment’s
measure of operating profit. As part of your response, please provide us with a copy of your intended revised disclosures.”

Harris Response:

 We appreciate the Staff’s comments and are committed to providing investors with information that enhances their understanding of Harris’ financial condition and results of operations as
included in MD&A. Although we believe that our current

 Ms. Linda Cvrkel

Securities and Exchange Commission

 November 29,
2012

 Page 3

MD&A disclosures related to our results of operations comply with relevant requirements, we intend to expand our future MD&A disclosures to provide additional information regarding cost
of sales at both a consolidated and segment level, based on the Staff’s comment. On a consolidated basis, we intend to expand and enhance our presentation and discussion of cost of sales with regard to both product and services sales. On a
segment basis, we intend to include disclosures of cost of sales as well as operating expenses, which include engineering, selling and administrative (“ESA”) expenses.

On a consolidated basis, we intend to provide a new tabular presentation of cost of product sales and services in future Form 10-K
filings. An example for illustrative purposes using our Form 10-K for the fiscal year ended June 29, 2012 is as follows (excluding fiscal 2010 information because this information will not be disclosed in our Form 10-K for fiscal 2013):

 Cost of product sales and services

2012

2011

2012/2011
Percent
Increase/
(Decrease)

 (Dollars in millions)

 Cost of product sales

$
2,137.6

$
2,141.2

(0.2)%

 % of product sales

59.4%

58.0%

 Cost of services

$
1,431.7

$
1,391.3

2.9%

 % of services

77.2%

80.6%

 Cost of product sales and services

$
3,569.3

$
3,532.5

1.0%

 % of product sales and services

65.5%

65.2%

 Additionally, we affirm that we intend to quantify and discuss in future filings the significant drivers
that cause cost of sales to change materially from period to period.

 Supplementally, the amounts for cost of product sales
and cost of services in the illustrative example above have been revised from the amounts originally reported in our Form 10-K for the fiscal year ended June 29, 2012. During the second quarter of fiscal 2013, we concluded a fiscal 2012 error
resulted in a misclassification between revenue from product sales and revenue from services and the corresponding cost of sales in the fiscal 2012 income statement. The misstatement resulted in reporting $233 million of product revenue as services
revenue, and $192 million of cost of product revenue as cost of service revenue. The misstatement did not affect the total amounts of revenue, cost of product sales and services or gross margin. In addition, it did not affect any balance sheet or
statement of cash flow amounts.

 Ms. Linda Cvrkel

Securities and Exchange Commission

 November 29,
2012

 Page 4

 The following table presents amounts originally reported and balances as corrected for the
affected income statement line items:

2012
As reported

2012
As corrected

(Dollars in millions)

 Revenue from product sales

$
3,364.7

$
3,597.8

 Revenue from services

2,086.6

1,853.5

 Total revenue

$
5,451.3

$
5,451.3

 Cost of product sales

$
1,945.2

$
2,137.6

 Cost of services

1,624.1

1,431.7

 Total cost of product sales and services

$
3,569.3

$
3,569.3

 The presentation of separate revenues and costs has been presented annually as required by
Item 5-03(b) of Regulation S-X. We have not historically presented separate detail in press releases or investor calls and have not received meaningful inquiry by analysts on the details between product and services revenue or costs. Also,
based on our analysis, the error was not quantitatively material to the mix, trend or total amounts of revenue or costs from product sales and services in relation to the financial statements as a whole. As a result of our consideration of relevant
qualitative and quantitative factors, we concluded an immaterial classification error existed in fiscal 2012. As discussed above, as a result of the Staff’s comment our intention is to provide additional tabular information on cost of product
sales and services in future Form 10-K filings. We intend to provide disclosure of the fiscal 2012 misstatement and corrected 2012 amounts in our fiscal 2013 second quarter Form 10-Q, which we expect to file in late January or early February 2013
and in our fiscal 2013 Form 10-K.

 On a segment basis, we intend to expand each of our segment tables in future filings to
include cost of product sales and services, gross margin, gross margin percentage, operating expenses, and operating expenses as a percentage of segment revenue. An example for illustrative purposes using our RF Communications segment table on page
39 of our Form 10-K for the fiscal year ended June 29, 2012 is as follows (excluding fiscal 2010 information because this information will not be disclosed in our Form 10-K for fiscal 2013) (added disclosures are in boldface type):

 Ms. Linda Cvrkel

Securities and Exchange Commission

 November 29,
2012

 Page 5

 RF Communications Segment

2012

2011

2012/2011
Percent
Increase/
(Decrease)

(Dollars in millions)

 Revenue

$
2,144.1

$
2,289.2

(6.3)%

 Cost of product sales and services

(1,057.0
)

(1,078.7
)

(2.0)%

 Gross margin

1,087.1

1,210.5

(10.2)%

 % of revenue

50.7
%

52.9
%

 Operating expenses

(383.4
)

(423.5
)

(9.5)%

 % of revenue

17.9
%

18.5
%

 Segment operating income

$
703.7

$
787.0

(10.6)%

 % of revenue

32.8
%

34.4
%

 To the extent that changes from period to period in cost of product sales and services or operating
expenses materially impact segment operating income, we intend to quantify and discuss the significant drivers of these changes.

 We believe the additional disclosures of cost of product sales and services information on both the consolidated and segment basis that we intend to provide in future filings will provide investors with
additional information to evaluate our operating results. However, for the reasons that follow, we do not believe that further disclosure in the form of a breakdown of cost of sales into its components would be helpful to investors or is required by
MD&A. We have tailored our MD&A disclosures related to our results of operations to be mindful of the requirements of Section 303(a)(3) of Regulation S-K. We also have considered the instructions and guidance in Commission Releases
(“Releases”) 33-8350 and 33-6835 in preparing our MD&A. In particular, we note guidance in Release 33-8350, including:

•

 “MD&A should be a discussion and analysis of a company’s business as seen through the eyes of those who manage that business.
Management has a unique perspective on its business that only it can present. As such, MD&A should not be a recitation of financial statements in narrative form or an otherwise uninformative series of technical responses to MD&A
requirements, neither of which provides this important management perspective.” (emphasis added)

•

 “. . . companies must evaluate an increased amount of information to determine which information they must disclose. In doing so, companies should
avoid the unnecessary information overload for investors that can result from disclosure of information that is not required, is immaterial, and does not promote understanding.”

•

 “. . . the effectiveness of MD&A decreases with the accumulation of unnecessary detail or duplicative or uninformative disclosure that
obscures material information.”

 Ms. Linda Cvrkel

Securities and Exchange Commission

 November 29,
2012

 Page 6

 Moreover, we are unable to provide a further breakdown, disclosure and discussion of cost of
sales by component (e.g., labor, overhead or material costs) because our systems are not able to capture and aggregate costs at the cost-of-sales-by-component level on a consolidated basis because the systems are designed primarily to aggregate
costs based on financial statement line items required to be disclosed by generally accepted accounting principles and Commission requirements. In addition, due to the complex nature of our cost systems and the long-term nature of many of our
contracts, individual cost components often lose their distinction or characterization as they are aggregated into cost pools and charged to inventory, unbilled costs on long-term contracts or fixed assets, and then expensed through inventory sales,
percentage-of-completion accounting or depreciation.

 Modifications to our systems and processes to allow for the suggested
detailed reporting would be costly and would not be useful in the management of our business or, in our view, to investors because we do not operate and manage our business on the basis of cost of sales by component (i.e., we do not accumulate or
analyze information at the component level to evaluate results or allocate resources). More important to management as well as investors and analysts who follow us are total cost of sales and operating (including ESA) expenses at the segment level,
as noted above.

 We also note that a significant portion of our sales is derived from programs for which revenue and profits
are recognized based on the percentage-of-completion method. Impacts to segment profitability primarily are driven by our mix of programs, ability to meet technical requirements, customer satisfaction (e.g., award fee performance) and overall
progress towards completion of programs, as opposed to the components of cost of sales on these programs.

 Staff Comment:

“2.
With respect to your overall results of operations disclosure, we also encourage you to consider the following revisions as set forth in section III.A of FR-72. We
believe these revisions will improve your disclosures by making them more user-friendly and clear. Specifically:

•

 Use tables to list, quantify, and sum all of the material individual factors to which changes in accounts are attributable;

•

 Refocus the narrative text portion of the disclosure on analysis of the underlying business reasons for the individual factors in the tables
above.”

 Harris Response:

We duly note the Staff’s suggestions, which we will carefully consider during the preparation of future filings.

 Ms. Linda Cvrkel

Securities and Exchange Commission

 November 29,
2012

 Page 7

 Staff Comment:

 “Discussion of Business Segments

 Government Communications Systems
Segment, page 41

3.
We note your disclosure that operating income and operating income as a percentage of revenue were higher in 2012 compared with fiscal 2011, primarily driven by a
more favorable product mix and excellent program performance. Please revise to discuss in greater detail, including quantification, of the reasons for the changes in operating income. For example, please include details of the types of programs that
had increased performance and underlying reasons driving the favorable product mix.”

 Harris Response:

 In response to the Staff’s comment, in future filings we intend to provide greater detail regarding the
reasons for significant changes in operating income. An example for illustrative purposes using the results of our Government Communications Systems segment set forth in our Form 10-K for the fiscal year ended June 29, 2012 is as follows
(inserts marked with underline; deletions marked with strikethrough):

 “Operating income and operating
income as a percentage of revenue were higher in fiscal 2012 compared with fiscal 2011, primarily driven by a more favorable product mix and excellent program performance. and a more favorable mix from
fixed-price satellite reflectors and classified programs within National Intelligence Programs, which