harris corporation

Fiscal 2009 Impairment Tests
In the fourth quarter of fiscal 2009, we performed our fiscal 2009 annual impairment tests of our reporting
units’ goodwill. Because of the global recession and postponement of capital projects, which significantly weakened
demand, and the general decline of peer company valuations impacting our valuation, we determined that goodwill
in our Broadcast and New Media Solutions reporting unit (formerly a separate reportable segment and which,
effective for the third quarter of fiscal 2011, is reported under our Integrated Network Solutions segment) was
impaired. As a result, we recorded a $160.9 million non-cash charge for the impairment of goodwill. See Note 8:
Goodwill and Note 22: Impairment of Goodwill and Other Long-Lived Assets for additional information regarding
goodwill, including impairment of Broadcast and New Media Solutions’ goodwill. In fiscal 2009, we also
determined that goodwill in our former HSTX segment was impaired. See Note 3: Discontinued Operations for
additional information regarding impairment of HSTX’s goodwill.
Fiscal 2010 and 2011 Impairment Tests
In the fourth quarter of fiscal 2010 and 2011, we performed our annual impairment tests of our reporting units’
goodwill. We completed these tests with no adjustment required to the goodwill of any of our reporting units.
For all of our reporting units except for Broadcast and New Media Solutions, the fair value determination
resulted in an amount that exceeded the reporting unit’s adjusted net book value by a substantial margin.
For our Broadcast and New Media Solutions reporting unit, the fair value determination resulted in an amount
that exceeded the adjusted net book value of this reporting unit by approximately 12 percent in 2011 and 8 percent
in 2010. Goodwill allocated to this reporting unit as of July 1, 2011 and July 2, 2010 was $673.8 million and
$661.2 million, respectively. When comparing the results from the fair value determination of this reporting unit in
fiscal 2011 with the results from fiscal 2010, an increase in the fair value based on sales multiples paid for recent
acquisitions of similar businesses and current sales multiples of similar businesses was partially offset by a slight
decrease in fair value based on projected cash flows.
Key assumptions used in projecting cash flows included estimates of future sales, operating costs and balance
sheet metrics based on our intermediate and long-term views of the financial and market conditions of the
underlying business. These assumptions assume a continuation of the rebound in capital spending by our customers
based on continuing global economic growth; successful implementation of several strategic growth initiatives,
including redeployment of resources into new media and international markets, where we believe there are
significant new business opportunities; and favorable impacts from cost-reduction actions taken in the current and
prior fiscal years. Events that could have a detrimental impact to the fair value of this reporting unit in the future
include less than forecasted global economic growth, less than forecasted demand for our products (for example, a
slower or less widely than anticipated migration from analog to digital broadcasting in international markets), and
poor execution of our growth strategies. Additionally, slower global economic growth could negatively impact fair
value based on sales multiples of similar business and sales multiples paid for acquisitions of similar businesses.
Income Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in our Consolidated Balance Sheet, as well as operating loss and tax credit
carryforwards. We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability
of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. Future
realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate
character (for example, ordinary income or capital gain) within the carryback or carryforward periods available
under the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income,
projected future taxable income, the expected timing of the reversals of existing temporary differences and tax
planning strategies. We have not made any material changes in the methodologies used to determine our tax
valuation allowances during the past three fiscal years.
Our Consolidated Balance Sheet as of July 1, 2011 included a current deferred tax asset of $171.0 million and
a non-current deferred tax asset of $5.7 million. This compares with a current deferred tax asset of $145.3 million
and a non-current deferred tax asset of $107.7 million as of July 2, 2010. The increase in the current deferred tax
balances and the decrease in non-current deferred tax balances were primarily due to acquisitions. For all
jurisdictions for which we have net deferred tax assets, we expect that our existing levels of pre-tax earnings are
sufficient to generate the amount of future taxable income needed to realize these tax assets. Our valuation
allowance related to deferred income taxes, which is reflected in our Consolidated Balance Sheet, was $88.7 million
as of July 1, 2011 and $80.3 million as of July 2, 2010. Although we make reasonable efforts to ensure the accuracy
of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions or are unable to generate
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