QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2019
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _
Commission File Number: 1-3863
HARRIS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
34-0276860
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
1025 West NASA Boulevard
Melbourne, Florida
329l9
(Address of principal executive offices)
(Zip Code)
(321) 727-9l00
(Registrant’s telephone number, including area code)
No changes
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
HRS
New York Stock Exchange
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. þ Yes p No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes p No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. p
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). p Yes þ No
The number of shares outstanding of the registrant’s common stock as of April 26, 2019 was 118,125,597 shares.
HARRIS CORPORATION
FORM 10-Q
For the Quarter Ended March 29, 2019
INDEX
Page
Part I. Financial Information:
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statement of Income for the Quarter and Three Quarters Ended March 29, 2019 and March 30, 2018
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)
Quarter Ended
Three Quarters Ended
March 29, 2019
March 30, 2018
March 29, 2019
March 30, 2018
(In millions, except per share amounts)
Revenue from product sales and services
$
1,728
$
1,562
$
4,936
$
4,507
Cost of product sales and services
(1,139
)
(1,028
)
(3,244
)
(2,969
)
Engineering, selling and administrative expenses
(310
)
(331
)
(893
)
(890
)
Non-operating income
46
46
140
136
Interest income
1
—
2
1
Interest expense
(43
)
(41
)
(130
)
(124
)
Income from continuing operations before income taxes
283
208
811
661
Income taxes
(40
)
(10
)
(127
)
(167
)
Income from continuing operations
243
198
684
494
Discontinued operations, net of income taxes
—
(2
)
(3
)
(8
)
Net income
$
243
$
196
$
681
$
486
Net income per common share
Basic
Continuing operations
$
2.06
$
1.66
$
5.79
$
4.15
Discontinued operations
—
(0.01
)
(0.02
)
(0.07
)
$
2.06
$
1.65
$
5.77
$
4.08
Diluted
Continuing operations
$
2.02
$
1.63
$
5.67
$
4.07
Discontinued operations
—
(0.01
)
(0.02
)
(0.07
)
$
2.02
$
1.62
$
5.65
$
4.00
Basic weighted average common shares outstanding
117.9
118.4
117.9
118.7
Diluted weighted average common shares outstanding
120.3
121.0
120.3
121.1
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
1
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended
Three Quarters Ended
March 29, 2019
March 30, 2018
March 29, 2019
March 30, 2018
(In millions)
Net income
$
243
$
196
$
681
$
486
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of income taxes
3
5
(5
)
26
Net unrealized gain (loss) on hedging derivatives, net of income taxes
(8
)
—
(7
)
1
Net unrecognized loss on postretirement obligations, net of income taxes
(1
)
—
(3
)
—
Other comprehensive income (loss), net of income taxes
(6
)
5
(15
)
27
Total comprehensive income
$
237
$
201
$
666
$
513
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
2
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 29, 2019
June 29, 2018
(In millions, except shares)
Assets
Current Assets
Cash and cash equivalents
$
334
$
288
Receivables
453
466
Contract assets
881
782
Inventories
433
411
Income taxes receivable
77
174
Other current assets
107
103
Total current assets
2,285
2,224
Non-current Assets
Property, plant and equipment
904
900
Goodwill
5,371
5,372
Other intangible assets
902
989
Non-current deferred income taxes
91
119
Other non-current assets
239
247
Total non-current assets
7,507
7,627
$
9,792
$
9,851
Liabilities and Equity
Current Liabilities
Short-term debt
$
103
$
78
Accounts payable
523
622
Contract liabilities
466
372
Compensation and benefits
176
142
Other accrued items
316
317
Income taxes payable
16
15
Current portion of long-term debt, net
6
304
Total current liabilities
1,606
1,850
Non-current Liabilities
Defined benefit plans
601
714
Long-term debt, net
3,412
3,408
Non-current deferred income taxes
59
79
Other long-term liabilities
507
522
Total non-current liabilities
4,579
4,723
Equity
Shareholders’ Equity:
Preferred stock, without par value; 1,000,000 shares authorized; none issued
—
—
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 118,072,477 shares at March 29, 2019 and 118,280,120 shares at June 29, 2018
118
118
Other capital
1,720
1,714
Retained earnings
1,986
1,648
Accumulated other comprehensive loss
(217
)
(202
)
Total shareholders’ equity
3,607
3,278
$
9,792
$
9,851
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
3
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Quarters Ended
March 29, 2019
March 30, 2018
(In millions)
Operating Activities
Net income
$
681
$
486
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles
87
87
Depreciation and other amortization
106
105
Share-based compensation
107
50
Qualified pension plan contributions
—
(301
)
Pension income
(102
)
(101
)
(Increase) decrease in:
Accounts receivable
13
(94
)
Contract assets
(99
)
(110
)
Inventories
(22
)
(36
)
Increase (decrease) in:
Accounts payable
(99
)
(46
)
Contract liabilities
94
58
Income taxes
117
148
Other
(9
)
(16
)
Net cash provided by operating activities
874
230
Investing Activities
Additions of property, plant and equipment
(104
)
(79
)
Adjustment to proceeds from sale of business
—
(2
)
Net cash used in investing activities
(104
)
(81
)
Financing Activities
Proceeds from borrowings
25
552
Repayments of borrowings
(303
)
(367
)
Proceeds from exercises of employee stock options
24
31
Repurchases of common stock
(200
)
(197
)
Cash dividends
(244
)
(205
)
Other financing activities
(24
)
(10
)
Net cash used in financing activities
(722
)
(196
)
Effect of exchange rate changes on cash and cash equivalents
(2
)
6
Net increase (decrease) in cash and cash equivalents
46
(41
)
Cash and cash equivalents, beginning of year
288
484
Cash and cash equivalents, end of quarter
$
334
$
443
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
4
HARRIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
Common
Stock
Other
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Equity
(In millions, except per share amounts)
Balance at June 29, 2018
$
118
$
1,714
$
1,648
$
(202
)
$
3,278
Net income
—
—
213
—
213
Shares issued under stock incentive plans
1
15
—
—
16
Shares issued under defined contribution plans
—
23
—
—
23
Share-based compensation expense
—
14
—
—
14
Repurchases and retirement of common stock
(1
)
(118
)
(99
)
—
(218
)
Cash dividends ($.685 per share)
—
—
(82
)
—
(82
)
Balance at September 28, 2018
118
1,648
1,680
(202
)
3,244
Net income
—
—
225
—
225
Other comprehensive income
—
—
—
(9
)
(9
)
Shares issued under stock incentive plans
—
2
—
—
2
Shares issued under defined contribution plans
—
17
—
—
17
Share-based compensation expense
—
15
—
—
15
Repurchases and retirement of common stock
—
(1
)
—
—
(1
)
Cash dividends ($.685 per share)
—
—
(81
)
—
(81
)
Balance at December 28, 2018
118
1,681
1,824
(211
)
3,412
Net income
—
—
243
—
243
Other comprehensive income
—
—
—
(6
)
(6
)
Shares issued under stock incentive plans
—
7
—
—
7
Shares issued under defined contribution plans
—
23
—
—
23
Share-based compensation expense
—
14
—
—
14
Repurchases and retirement of common stock
—
(5
)
—
—
(5
)
Cash dividends ($.685 per share)
—
—
(81
)
—
(81
)
Balance at March 29, 2019
$
118
$
1,720
$
1,986
$
(217
)
$
3,607
Balance at June 30, 2017
$
120
$
1,741
$
1,318
$
(276
)
$
2,903
Net income
—
—
159
—
159
Other comprehensive income
—
—
—
26
26
Shares issued under stock incentive plans
—
14
—
—
14
Share-based compensation expense
—
11
—
—
11
Repurchases and retirement of common stock
(1
)
(73
)
(48
)
—
(122
)
Forward contract component of accelerated share repurchase
—
38
—
—
38
Cash dividends ($.570 per share)
—
—
(69
)
—
(69
)
Balance at September 29, 2017
119
1,731
1,360
(250
)
2,960
Net income
—
—
131
—
131
Other comprehensive income
—
—
—
(4
)
(4
)
Shares issued under stock incentive plans
—
4
—
—
4
Share-based compensation expense
—
12
—
—
12
Repurchases and retirement of common stock
—
(42
)
(34
)
—
(76
)
Cash dividends ($.570 per share)
—
—
(68
)
—
(68
)
Balance at December 29, 2017
119
1,705
1,389
(254
)
2,959
Net income
—
—
196
—
196
Other comprehensive income
—
—
—
5
5
Shares issued under stock incentive plans
1
11
—
—
12
Shares issued under defined contribution plans
—
13
—
—
13
Share-based compensation expense
—
12
—
—
12
Repurchases and retirement of common stock
(1
)
(17
)
(14
)
—
(32
)
Cash dividends ($.570 per share)
—
—
(68
)
—
(68
)
Balance at March 30, 2018
$
119
$
1,724
$
1,503
$
(249
)
$
3,097
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A — Significant Accounting Policies and Recent Accounting Standards
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements (Unaudited) include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) (these “Notes”), the terms “Harris,” “Company,” “we,” “our” and “us” refer to Harris Corporation and its consolidated subsidiaries. Intracompany transactions and accounts have been eliminated in consolidation. The accompanying Condensed Consolidated Financial Statements (Unaudited) have been prepared by Harris, without an audit, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial condition, results of operations, cash flows and equity in conformity with GAAP for annual financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations and cash flows for the periods presented therein. The results for the quarter and three quarters ended March 29, 2019 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 29, 2018 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. We provide complete, audited financial statements in our Annual Report on Form 10-K, which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Management’s 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 29, 2018 (our “Fiscal 2018 Form 10-K”) and in our Current Report on Form 8-K filed with the SEC on December 13, 2018 (our “Fiscal 2017-2018 Update 8-K”), which updated and superseded historical fiscal 2018 and fiscal 2017 financial information contained in Item 7, Item 8 and certain other Items in our Fiscal 2018 Form 10-K to reflect the impact for those two fiscal years of retrospective application of Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), as amended (“ASC 606”), and ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), each of which we adopted effective June 30, 2018. See “Adoption of New Accounting Standards” below in this Note A for additional information.
Amounts contained in this Report may not always add to totals due to rounding.
Reclassifications
The classification of certain prior-period amounts has been adjusted in our Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications. Reclassifications include certain direct selling and bid and proposal costs from the “Cost of product sales and services” line item to the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited) and in these Notes.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes. Materially different results can occur as circumstances change and additional information becomes known.
Adoption of New Accounting Standards
As discussed above, we adopted ASC 606 effective June 30, 2018. This standard supersedes nearly all revenue recognition guidance under GAAP and International Financial Reporting Standards and supersedes some cost guidance for construction-type and production-type contracts. The guidance in this standard is principles-based, and, consequently, entities are required to use more judgment and make more estimates than under prior guidance, including identifying contract performance obligations, estimating variable consideration to include in the contract price and allocating the transaction price to separate performance obligations. The core principle of this standard is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To help financial statement users better understand the nature, amount,
6
timing and potential uncertainty of the revenue and cash flows, this standard requires significantly more interim and annual disclosures.
We adopted the requirements of the new standard using the full retrospective transition method. We opted for this transition method because we believe it provides enhanced comparability and transparency across periods. We elected to apply the practical expedient related to backlog disclosures for prior reporting periods and the practical expedient related to evaluating the effects of contract modifications that occurred prior to the earliest period presented. No other transition practical expedients were applied. Retrospective application of this standard resulted in the recognition of a cumulative-effect adjustment of $15 million to reduce the opening balance of retained earnings at July 2, 2016.
This standard also resulted in the establishment of “Contract assets” and “Contract liabilities” line items and the reclassification to these line items of amounts previously presented in the “Receivables,” “Inventories” and “Advance payments and unearned income” line items in our Condensed Consolidated Balance Sheet. See Note 2: “Accounting Changes or Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K for a table summarizing the effect of adopting ASC 606 on our previously reported Consolidated Balance Sheet as of June 29, 2018. Total net cash provided by operating activities and total net cash provided by or used in investing activities and financing activities in our previously reported Condensed Consolidated Statements of Cash Flows (Unaudited) were not impacted by our adoption of ASC 606.
We also adopted ASU 2017-07effective June 30, 2018, as discussed above. This update requires that entities present components of net periodic pension and postretirement benefit costs other than the service cost component (“non-service cost amounts”) separately from the service cost component. We adopted this update retrospectively by recasting each prior period presented, using as our estimation basis for recasting prior periods the amounts disclosed in Note 13: “Pension and Other Postretirement Benefits” in our Notes to Consolidated Financial Statements in our Fiscal 2018 Form 10-K. Retrospective application of this update resulted in reclassification to the “Non-operating income” line item of non-service cost amounts that were included in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Income (Unaudited) prior to adopting ASU 2017-07.
7
The following table summarizes the effect of adopting ASC 606 and ASU 2017-07 on our previously reported Condensed Consolidated Statement of Income (Unaudited) for the quarter and three quarters endedMarch 30, 2018:
Quarter Ended March 30, 2018
Previously Reported
Effect of Adopting ASC 606
Effect of Adopting ASU 2017-07
Currently Reported
(In millions, except per share amounts)
Revenue from product sales and services
$
1,568
$
(6
)
$
—
$
1,562
Cost of product sales and services
(994
)
3
(37
)
(1,028
)
Engineering, selling and administrative expenses
(318
)
(4
)
(9
)
(331
)
Non-operating income
—
—
46
46
Interest expense
(41
)
—
—
(41
)
Income from continuing operations before income taxes
215
(7
)
—
208
Income taxes
(12
)
2
—
(10
)
Income from continuing operations
203
(5
)
—
198
Discontinued operations, net of income taxes
(2
)
—
—
(2
)
Net income
$
201
$
(5
)
$
—
$
196
Net income per common share
Basic
Continuing operations
$
1.71
$
(0.05
)
$
—
$
1.66
Discontinued operations
(0.01
)
—
—
(0.01
)
$
1.70
$
(0.05
)
$
—
$
1.65
Diluted
Continuing operations
$
1.67
$
(0.04
)
$
—
$
1.63
Discontinued operations
(0.01
)
—
—
(0.01
)
$
1.66
$
(0.04
)
$
—
$
1.62
Three Quarters Ended March 30, 2018
Previously Reported
Effect of Adopting ASC 606
Effect of Adopting ASU 2017-07
Currently Reported
(In millions, except per share amounts)
Revenue from product sales and services
$
4,516
$
(9
)
$
—
$
4,507
Cost of product sales and services
(2,866
)
7
(110
)
(2,969
)
Engineering, selling and administrative expenses
(850
)
(12
)
(28
)
(890
)
Non-operating income (loss)
(2
)
—
138
136
Interest income
1
—
—
1
Interest expense
(124
)
—
—
(124
)
Income from continuing operations before income taxes
675
(14
)
—
661
Income taxes
(166
)
(1
)
—
(167
)
Income from continuing operations
509
(15
)
—
494
Discontinued operations, net of income taxes
(8
)
—
—
(8
)
Net income
$
501
$
(15
)
$
—
$
486
Net income per common share
Basic
Continuing operations
$
4.28
$
(0.13
)
$
—
$
4.15
Discontinued operations
(0.07
)
—
—
(0.07
)
$
4.21
$
(0.13
)
$
—
$
4.08
Diluted
Continuing operations
$
4.19
$
(0.12
)
$
—
$
4.07
Discontinued operations
(0.06
)
(0.01
)
—
(0.07
)
$
4.13
$
(0.13
)
$
—
$
4.00
8
The following table presents the effect of adopting ASC 606 on our previously reported Condensed Consolidated Statement of Cash Flows (Unaudited) for the three quarters endedMarch 30, 2018:
Three Quarters Ended March 30, 2018
Previously Reported
Effect of Adopting ASC 606
Currently Reported
(In millions, except shares)
Net income
$
501
$
(15
)
$
486
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles(1)
87
—
87
Depreciation and other amortization(1)
105
—
105
Share-based compensation
50
—
50
Qualified pension plan contributions
(301
)
—
(301
)
Pension income
(101
)
—
(101
)
(Increase) decrease in:
Accounts receivable
(120
)
26
(94
)
Contract assets
—
(110
)
(110
)
Inventories
(122
)
86
(36
)
Increase (decrease) in:
Accounts payable
(46
)
—
(46
)
Advance payments and unearned income
45
(45
)
—
Contract liabilities
—
58
58
Income taxes
146
2
148
Other
(14
)
(2
)
(16
)
Net cash provided by operating activities
$
230
$
—
$
230
_______________
(1)
“Amortization of acquisition-related intangibles” includes amortization of non-Exelis Inc. acquisition-related intangibles, which was previously included in the “Depreciation and amortization” line item in our Condensed Consolidated Statement of Cash Flows (Unaudited) in our Form 10-Q for the quarter ended March 30, 2018.
Accounting Standards Issued But Not Yet Effective
In February 2016, the Financial Accounting Standards Board issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires, among other things, the recognition of right-of-use assets and liabilities on the balance sheet for most lease arrangements and disclosure of certain information about leasing arrangements. The new standard currently allows two transition methods with certain practical expedients available. Companies may elect to use the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements or to initially apply this standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020.
We expect to adopt the new lease standard on June 29, 2019 by applying the standard at the adoption date and recognizing a cumulative-effect adjustment to the opening balance of retained earnings. We also intend to elect the package of practical expedients permitted by the standard, which, among other things, allows us to carry forward the historical lease classification. The majority of our current lease arrangements are classified as operating leases under existing GAAP lease guidance, and we expect they will continue to be classified as operating leases under the new standard. We have made progress in executing our implementation plan, including identifying our lease population. We are in the process of implementing a new lease management software tool as well as new processes and controls. Once we have configured the new lease management tool and have accumulated compatible lease data, we expect to measure the right-of-use assets and liabilities for leases in effect at the adoption date, which could be material. We do not expect that the adoption of this standard will have a material impact on our results of operations or cash flows.
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Note B — Stock Options and Other Share-Based Compensation
During the three quarters ended March 29, 2019, we had options or other share-based compensation outstanding under two shareholder-approved employee stock incentive plans (“SIPs”), the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) and the Harris Corporation 2015 Equity Incentive Plan (the “2015 EIP”). Grants of share-based awards after October 23, 2015 were made under our 2015 EIP. We believe that share-based awards more closely align the interests of participants with those of shareholders. Certain share-based awards provide for accelerated vesting if there is a change in control (as defined under our SIPs). The compensation cost related to our share-based awards that was charged against income was $14 million and $43 million for the quarter and three quarters ended March 29, 2019, respectively, and $13 million and $37 million for the quarter and three quarters endedMarch 30, 2018, respectively.
The aggregate number of shares of our common stock that we issued under the terms of our SIPs, net of shares withheld for tax purposes and inclusive of both continuing and discontinued operations, was 147,176 and 596,868 for the quarter and three quarters ended March 29, 2019, respectively, and 207,506 and 606,438 for the quarter and three quarters endedMarch 30, 2018, respectively. Awards granted to participants under our 2015 EIP during the quarter ended March 29, 2019 consisted of 1,044 restricted shares and restricted units. There werenostockoptions or performance units granted during the quarter ended March 29, 2019. Awards granted to participants under our 2015 EIP during the three quarters endedMarch 29, 2019consisted of270,963stock options,93,802restricted shares and restricted units and135,629performance units.The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model and the following assumptions: expected dividend yield of 1.61 percent; expected volatility of 19.87 percent; risk-free interest rates averaging 2.72 percent; and expected term of 5.03 years. The fair value as of the grant date of each restricted share award and restricted unit award was based on the closing price of our common stock on the grant date. The fair value as of the grant date of each performance unit award was determined based on the fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to companies in our TSR peer group, less a discount to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting.
Note C — Restructuring and Other Exit Costs
We record charges for restructuring and other exit activities related to sales or terminations of product lines, closures or relocations of business activities, changes in management structure and fundamental reorganizations that affect the nature and focus of operations. Such charges include termination benefits, contract termination costs and costs to consolidate facilities or relocate employees. We record these charges at their fair value when incurred. In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period. These charges are included as a component of the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Income (Unaudited).
In the fourth quarter of fiscal 2018, we recorded a $5 million charge for consolidation of certain Exelis Inc. (collectively with its subsidiaries, “Exelis”) facilities initiated in fiscal 2017. This charge is included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income in our Fiscal 2017-2018 Update 8-K. We had liabilities of $16 million and $27 million at March 29, 2019
