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Form 10-Q HARRIS CORP /DE/ For: Jan 01

February 3, 2016 5:11 PM EST
Table of Contents

LOGO

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 1, 2016

or

 

¨ 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)

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    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).                                                     þ  Yes    ¨  No

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.

 

Large accelerated filer   þ       Accelerated filer   ¨
Non-accelerated filer   ¨    (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      ¨  Yes    þ  No

The number of shares outstanding of the registrant’s common stock as of January 29, 2016 was 124,654,177 shares.

 

 

 


Table of Contents

HARRIS CORPORATION

FORM 10-Q

For the Quarter Ended January 1, 2016

INDEX

 

     Page  

Part I. Financial Information:

  

Item 1. Financial Statements (Unaudited):

  

Condensed Consolidated Statement of Income for the Quarter and Two Quarters ended January  1, 2016 and January 2, 2015

     1   

Condensed Consolidated Statement of Comprehensive Income for the Quarter and Two Quarters ended January 1, 2016 and January 2, 2015

     2   

Condensed Consolidated Balance Sheet at January 1, 2016 and July 3, 2015

     3   

Condensed Consolidated Statement of Cash Flows for the Two Quarters ended January  1, 2016 and January 2, 2015

     4   

Notes to Condensed Consolidated Financial Statements

     5   

Review Report of Independent Registered Certified Public Accounting Firm

     18   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     34   

Item 4. Controls and Procedures

     34   

Part II. Other Information:

  

Item 1. Legal Proceedings

     35   

Item 1A. Risk Factors

     36   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     36   

Item 3. Defaults Upon Senior Securities

     37   

Item 4. Mine Safety Disclosures

     37   

Item 5. Other Information

     38   

Item 6. Exhibits

     38   

Signature

     39   

Exhibit Index

  

This Quarterly Report on Form 10-Q contains trademarks, service marks and registered marks of Harris Corporation and its subsidiaries.


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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HARRIS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    January 1,
2016
    January 2,
2015
 
     (In millions, except per share amounts)  

Revenue from product sales and services

   $ 1,843     $ 1,206     $ 3,654     $ 2,361  

Cost of product sales and services

     (1,281     (808     (2,501     (1,570

Engineering, selling and administrative expenses

     (239     (188     (568     (383

Impairment of goodwill and other assets

     (367           (367      

Non-operating income

                 1        

Interest income

           1       1       2  

Interest expense

     (45     (22     (93     (45
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (89     189       127       365  

Income taxes

     (46     (50     (114     (101
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (135     139       13       264  

Discontinued operations, net of income taxes

     (17           (17      
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (152   $ 139     $ (4   $ 264  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

        

Basic

        

Continuing operations

   $ (1.09   $ 1.34     $ 0.10     $ 2.52  

Discontinued operations

     (0.14           (0.14      
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (1.23   $ 1.34     $ (0.04   $ 2.52  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

        

Continuing operations

   $ (1.09   $ 1.32     $ 0.10     $ 2.50  

Discontinued operations

     (0.14           (0.13      
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (1.23   $ 1.32     $ (0.03   $ 2.50  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends paid per common share

   $ 0.50     $ 0.47     $ 1.00     $ 0.94  

Basic weighted average common shares outstanding

     123.8       103.9       123.6       104.3  

Diluted weighted average common shares outstanding

     123.8       104.9       124.7       105.3  

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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HARRIS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    January 1,
2016
    January 2,
2015
 
     (In millions)  

Net income (loss)

   $ (152   $ 139     $ (4 )   $ 264  

Other comprehensive loss:

        

Foreign currency translation loss, net of income taxes

     (15     (45     (47     (74

Net unrealized gain (loss) on hedging derivatives, net of income taxes

     1       —         1       (1

Net unrecognized gain (loss) on postretirement obligations, net of income taxes

     (4     3       (4     12  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of income taxes

     (18     (42     (50     (63
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (170   $ 97     $ (54   $ 201  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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HARRIS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

     January 1,
2016
    July 3,
2015
 
     (In millions, except shares)  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 511     $ 481  

Receivables

     935       1,168  

Inventories

     1,070       1,015  

Income taxes receivable

     156       87  

Deferred compensation plan investments

     41       267  

Other current assets

     122       165  
  

 

 

   

 

 

 

Total current assets

     2,835       3,183  

Non-current Assets

    

Property, plant and equipment

     1,102       1,165  

Goodwill

     5,989       6,348  

Other intangible assets

     1,643       1,775  

Non-current deferred income taxes

     376       502  

Other non-current assets

     152       154  
  

 

 

   

 

 

 

Total non-current assets

     9,262       9,944  
  

 

 

   

 

 

 
   $ 12,097     $ 13,127  
  

 

 

   

 

 

 

Liabilities and Equity

    

Current Liabilities

    

Short-term debt

   $ 198     $ 33  

Accounts payable

     558       581  

Compensation and benefits

     159       255  

Other accrued items

     422       490  

Advance payments and unearned income

     353       433  

Income taxes payable

     8        57  

Deferred compensation plan liabilities

     13       267  

Current portion of long-term debt

     385       130  

Liabilities of discontinued operations

     43        28   
  

 

 

   

 

 

 

Total current liabilities

     2,139       2,274  

Non-current Liabilities

    

Defined benefit plans

     1,739       1,943  

Long-term debt

     4,443       5,053  

Long-term contract liability

     64       71  

Non-current deferred income taxes

     11        12  

Other long-term liabilities

     449       372  
  

 

 

   

 

 

 

Total non-current liabilities

     6,706       7,451  

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 124,411,448 shares at January 1, 2016 and 123,675,756 shares at July 3, 2015

     124       124  

Other capital

     2,066       2,031  

Retained earnings

     1,127       1,258  

Accumulated other comprehensive loss

     (66     (16
  

 

 

   

 

 

 

Total shareholders’ equity

     3,251       3,397  

Noncontrolling interests

     1       5  
  

 

 

   

 

 

 

Total equity

     3,252       3,402  
  

 

 

   

 

 

 
   $ 12,097     $ 13,127  
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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HARRIS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
 
     (In millions)  

Operating Activities

    

Net income (loss)

   $ (4 )   $ 264  

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     114       104  

Amortization of intangible assets from Exelis Inc. acquisition

     66       —     

Share-based compensation

     19       17  

Pension contributions

     (97     —     

Pension income

     (12     —     

Net liability reduction for certain post-employment benefit plans

     (101     —     

Impairment of goodwill and other assets

     367       —     

Loss on sale of discontinued operations

     21       —    

(Increase) decrease in:

    

Accounts receivable

     220       (16

Inventories

     (91     (31

Increase (decrease) in:

    

Accounts payable and accrued expenses

     (128     (120

Advance payments and unearned income

     (59     (12

Income taxes

     31        8  

Other

     41       8  
  

 

 

   

 

 

 

Net cash provided by operating activities

     387       222  
  

 

 

   

 

 

 

Investing Activities

    

Additions of property, plant and equipment

     (51     (79

Proceeds from sale of property, plant and equipment

     2       —     

Proceeds from sale of Cyber Integration Center

     —          7  
  

 

 

   

 

 

 

Net cash used in investing activities

     (49     (72
  

 

 

   

 

 

 

Financing Activities

    

Proceeds from borrowings

     209       33  

Repayments of borrowings

     (395     (17

Proceeds from exercises of employee stock options

     33       28  

Repurchases of common stock

     —          (150

Cash dividends

     (127     (99

Other financing activities

     (15     (14
  

 

 

   

 

 

 

Net cash used in financing activities

     (295     (219
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (13     (22
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     30       (91

Cash and cash equivalents, beginning of year

     481       561  
  

 

 

   

 

 

 

Cash and cash equivalents, end of quarter

   $ 511     $ 470  
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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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 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 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 position, results of operations and cash flows in conformity with U.S. 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 position, results of operations and cash flows for the periods presented therein. The results for the second quarter and first two quarters of fiscal 2016 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at July 3, 2015 has been derived from our audited financial statements, but does not include all of the information and footnotes required by U.S. 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 July 3, 2015 (our “Fiscal 2015 Form 10-K”).

As further discussed in Note B — Discontinued Operations in these Notes, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 based on a final determination rendered in a dispute over the amount of the post-closing working capital adjustment to the purchase price for our former broadcast communications operation (“Broadcast Communications”), which we sold on February 4, 2013. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material. Unless otherwise specified, disclosures in these Notes relate solely to our continuing operations.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and these Notes. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying condensed consolidated financial statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known.

Reclassifications

Certain prior year amounts have been reclassified in our Condensed Consolidated Financial Statements (Unaudited) to conform to current year classifications.

Adoption of New Accounting Standards

In the first quarter of fiscal 2016, we adopted an accounting standard issued by the Financial Accounting Standards Board (“FASB”) that eliminates the requirement for an acquirer in a business combination to retrospectively account for measurement-period adjustments. Instead, the new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This standard is to be applied prospectively. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

In the second quarter of fiscal 2016, we adopted an accounting standard issued by the FASB that simplifies the presentation of deferred income taxes by requiring entities to classify all deferred tax assets and liabilities as non-current in a classified statement of financial position instead of separating deferred tax assets and liabilities into current and non-current amounts. Consequently, entities may no longer allocate valuation allowances between current and non-current deferred tax assets because those allowances also will be classified as non-current. This standard was applied retrospectively, and as a result, we reclassified certain prior-period amounts in the accompanying Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications as follows:

 

   

In the accompanying Condensed Consolidated Balance Sheet (Unaudited), we reclassified $341 million of current deferred income tax assets from the “Current deferred income taxes” line item in the assets section and $7 million of current deferred income tax liabilities from the “Current deferred income taxes” line item in the liabilities and equity section, which resulted in an increase of $339 million to the “Non-current deferred income taxes” line item in the assets section and a net increase of $5 million to the “Non-current deferred income taxes” line item in the liabilities and equity section.

 

   

In the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited), we reclassified $7 million from the “Non-current deferred income taxes” line item to the “Income taxes” line item in the operating activities section.

 


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Other than those reclassifications, the adoption of this standard did not have any impact on our financial position, results of operations or cash flows.

Accounting Standards Issued But Not Yet Effective

In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under U.S. 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 will be 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 guidance in this standard is applicable to all contracts with customers, regardless of industry-specific or transaction-specific fact patterns. Additionally, this standard provides guidance for transactions that were not previously addressed comprehensively (e.g., service revenue, contract modifications and licenses of intellectual property) and modifies guidance for multiple-element arrangements. 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, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures. This standard allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to only the most current period presented in the financial statements, as well as certain additional required footnote disclosures). In August 2015, the FASB issued an accounting standards update that defers the effective date of this standard by one year, while permitting entities to elect to adopt one year earlier on the original effective date. As a result, this standard is now effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which for us is our fiscal 2019. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows.

Note B — Discontinued Operations

On February 4, 2013, we completed the sale of Broadcast Communications to an affiliate of The Gores Group, LLC (the “Buyer”) pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Broadcast Communications was recorded as discontinued operations in connection with the sale.

Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer’s favor. As a result of such determination, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 of $21 million ($17 million after-tax or $0.14 per diluted share) and adjusted current liabilities of discontinued operations to $43 million. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material. Unless otherwise specified, the information set forth in these Notes, other than this Note B — Discontinued Operations, relates solely to our continuing operations.

Note C — Stock Options and Other Share-Based Compensation

During the two quarters ended January 1, 2016, 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. We have granted the following types of share-based awards under these SIPs: stock options, restricted stock awards, restricted stock unit awards, performance share awards, performance share unit awards and awards of immediately vested shares of our common stock. 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 SIPs). The compensation cost related to our share-based awards that was charged against income was $9 million and $19 million for the quarter and two quarters ended January 1, 2016, respectively. The compensation cost related to our share-based awards that was charged against income was $9 million and $17 million for the quarter and two quarters ended January 2, 2015, respectively.

Grants to employees under our SIPs during the second quarter ended January 1, 2016 consisted of 10,110 stock options, 33,600 restricted stock awards and 10,070 performance share unit awards. Grants to employees under our SIPs during the two quarters ended January 1, 2016 consisted of 1,658,000 stock options, 100,270 restricted stock awards and 292,665 performance share unit awards. The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model, which used the following assumptions: expected dividend yield of 2.50 percent; expected volatility of 23.01 percent; risk-free interest rates averaging 1.52 percent; and expected term in years of 5.05. The fair value as of the grant date of each restricted stock 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 share unit award was determined based on a fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to other 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.

 

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Note D — Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are summarized below:

 

     January 1,
2016  (1)
    July 3,
2015  (1)
 
     (In millions)  

Foreign currency translation, net of income taxes of $27 million and $15 million at January 1, 2016 and July 3, 2015, respectively

   $ (109   $ (62

Net unrealized loss on hedging derivatives, net of income taxes of $12 million at January 1, 2016 and July 3, 2015

     (18     (19

Unrecognized postretirement obligations, net of income taxes of $40 million and $42 million at January 1, 2016 and July 3, 2015, respectively

     61       65  
  

 

 

   

 

 

 
   $ (66   $ (16
  

 

 

   

 

 

 

 

(1) Reclassifications out of accumulated other comprehensive loss to earnings were not material for the two quarters ended January 1, 2016 or January 2, 2015.

Note E — Receivables

Receivables are summarized below:

 

     January 1,
2016
    July 3,
2015
 
     (In millions)  

Accounts receivable

   $ 666     $ 837  

Unbilled costs and accrued earnings on cost-plus contracts

     277       343  
  

 

 

   

 

 

 
     943       1,180  

Less allowances for collection losses

     (8     (12
  

 

 

   

 

 

 
   $ 935     $ 1,168  
  

 

 

   

 

 

 

Note F — Inventories

Inventories are summarized below:

 

     January 1,
2016
     July 3,
2015
 
     (In millions)  

Unbilled costs and accrued earnings on fixed-price contracts

   $ 543      $ 463  

Finished products

     100        100  

Work in process

     228        256  

Raw materials and supplies

     199        196  
  

 

 

    

 

 

 
   $ 1,070      $ 1,015  
  

 

 

    

 

 

 

Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of $70 million at January 1, 2016 and $85 million at July 3, 2015.

 

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Note G — Property, Plant and Equipment

Property, plant and equipment are summarized below:

 

     January 1,
2016
    July 3,
2015
 
     (In millions)  

Land

   $ 45     $ 45  

Software capitalized for internal use

     147       155  

Buildings

     640       587  

Machinery and equipment

     1,467       1,526  
  

 

 

   

 

 

 
     2,299       2,313  

Less accumulated depreciation and amortization

     (1,197     (1,148
  

 

 

   

 

 

 
   $ 1,102     $ 1,165  
  

 

 

   

 

 

 

Depreciation and amortization expense related to property, plant and equipment was $49 million and $99 million for quarter and two quarters ended January 1, 2016, respectively. Depreciation and amortization expense related to property, plant and equipment was $38 million and $73 million for the quarter and two quarters ended January 2, 2015, respectively.

Note H — Goodwill

As discussed in Note R — Business Segments, we adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016, which resulted in changes to our operating segments, which are also our reportable segments and are referred to as our business segments. In accordance with GAAP, we have reassigned goodwill using a relative fair value approach. Because our accounting for our acquisition of Exelis Inc. and its subsidiaries (collectively, “Exelis”) in the fourth quarter of fiscal 2015 is still preliminary, we assigned the goodwill acquired as a result of the acquisition on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed.

In addition, we test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be an impairment. See Note N — Impairment of Goodwill and Other Assets in these Notes for information regarding a preliminary estimate for a non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications recorded in the second quarter of fiscal 2016 in our Critical Networks segment.

The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the two quarters ended January 1, 2016, by business segment, were as follows:

 

     Communication
Systems
     Space and
Intelligence
Systems
    Electronic
Systems
    Critical
Networks
    Total  
     (In millions)  

Balance at July 3, 2015

   $ 760      $ 1,446     $ 1,718     $ 2,424     $ 6,348  

Impairment of goodwill

     —          —         —         (290     (290

Currency translation adjustments

     —          (9     (8     (25     (42

Other (including true-ups of previously estimated purchase price allocations) (1)

     12        (9     12       (42     (27
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2016

   $ 772      $ 1,428     $ 1,722     $ 2,067     $ 5,989  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Our accounting for the Exelis acquisition is still preliminary. The fair value estimates for the assets acquired and liabilities assumed were based on preliminary calculations, and our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of these preliminary estimates that are not yet finalized relate to certain tangible assets and liabilities acquired, identifiable intangible assets and tax-related items. During the two quarters ended January 1, 2016, we recorded several purchase price adjustments which impacted goodwill, the largest of which reduced current liabilities by $82 million related to previously unrecognized tax benefits and to deferred revenue based on the fair value of a customer contract.

 

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Note I — Accrued Warranties

Changes in our liability for standard product warranties, which is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited), during the two quarters ended January 1, 2016 were as follows:

 

     (In millions)  

Balance at July 3, 2015

   $ 36  

Warranty provision for sales

     9  

Settlements

     (9

Other adjustments to warranty liability, including those for foreign currency translation

     (2
  

 

 

 

Balance at January 1, 2016

   $ 34  
  

 

 

 

We also sell extended product warranties and recognize revenue from these arrangements over the warranty period. Costs of warranty services under these arrangements are recognized as incurred. Deferred revenue associated with extended product warranties at January 1, 2016 and July 3, 2015 was $36 million and is included as a component of the “Advance payments and unearned income” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited).

Note J — Long-Term Debt

As disclosed in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K, in connection with our acquisition of Exelis, Harris Corporation fully and unconditionally guaranteed all of the long-term fixed-rate debt securities issued by Exelis Inc. outstanding at the time of the acquisition, consisting of $250 million in aggregate principal amount of 4.25% senior notes due October 1, 2016 and $400 million in aggregate principal amount of 5.55% senior notes due October 1, 2021 (together, the “Exelis Notes”), as indicated in the table in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. In addition, Exelis Inc. fully and unconditionally guaranteed all of the long-term fixed-rate debt securities issued by Harris Corporation outstanding at the time of the acquisition, consisting of the nine other series of fixed-rate debt securities listed in the “2015” column in the table in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K, in an aggregate principal amount of $3.226 billion. On December 31, 2015, Exelis Inc. merged with and into Harris Corporation, with Harris Corporation being the surviving corporation in the merger, the separate existence of Exelis Inc. ceased, Harris Corporation assumed the obligations of Exelis under the Exelis Notes, and the cross guarantees of our outstanding long-term fixed-rate debt securities as described above terminated.

Note K — Postretirement Benefit Plans

The following table provides the components of our net periodic benefit cost for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:

 

     Quarter Ended January 1, 2016      Two Quarters Ended January 1, 2016  
     Pension      Other
Benefits
     Total      Pension      Other
Benefits
     Total  
     (In millions)  

Net periodic benefit cost

                 

Service cost

   $ 20      $ 2      $ 22      $ 38      $ 3      $ 41  

Interest cost

     61        3        64        123        7        130  

Expected return on plan assets

     (85      (4      (89      (171      (9      (180

Amortization of net actuarial loss

     —           —           —           —           2        2  

Amortization of prior service cost

     —           (4      (4      —           (7      (7
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ (4    $ (3    $ (7      (10      (4      (14

Effect of curtailments or settlements (1)

     —           (121      (121      —           (121      (121
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net periodic benefit cost

   $ (4    $ (124    $ (128    $ (10    $ (125    $ (135
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment and curtailment during the quarter ended January 1, 2016, a settlement as of December 31, 2015, and a net liability reduction of $101 million.

 

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We contributed $97 million to our qualified defined benefit pension plans during the two quarters ended January 1, 2016. We currently anticipate making additional contributions to our qualified defined benefit pension plans of approximately $76 million during the remainder of fiscal 2016.

Note L — Income (Loss) From Continuing Operations Per Common Share

The computations of income (loss) from continuing operations per common share are as follows:

 

     Quarter Ended      Two Quarters Ended  
     January 1,
2016
    January 2,
2015
     January 1,
2016
     January 2,
2015
 
     (In millions, except per share amounts)  

Income (loss) from continuing operations

   $ (135   $ 139      $ 13      $ 264  

Adjustments for participating securities outstanding

     —          —           —           (1
  

 

 

   

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations used in per basic and diluted common share calculations (A)

   $ (135   $ 139      $ 13      $ 263  
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic weighted average common shares outstanding (B)

     123.8       103.9        123.6        104.3  

Impact of dilutive share-based awards

     —          1.0        1.1        1.0  
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares outstanding (C)

     123.8        104.9        124.7        105.3  
  

 

 

   

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations per basic common share (A)/(B)

   $ (1.09   $ 1.34      $ 0.10      $ 2.52  

Income (loss) from continuing operations per diluted common share (A)/(C)

   $ (1.09   $ 1.32      $ 0.10      $ 2.50  

For purposes of the computations of loss from continuing operations per common share in the quarter ended January 1, 2016, due to the loss, the numerator was not adjusted to consider the effect of participating securities outstanding, and also basic weighted average common shares outstanding was used in the computation of the loss from continuing operations per diluted common share because the use of diluted weighted average common shares outstanding would have been antidilutive.

Potential dilutive common shares primarily consist of employee stock options and performance share unit awards. Employee stock options to purchase approximately 1,482,261 and 678,650 shares of our common stock were outstanding at January 1, 2016 and January 2, 2015, respectively, but were not included as dilutive stock options in the computations of income (loss) from continuing operations per diluted common share because the effect would have been antidilutive.

Note M — Income Taxes

In the second quarter of fiscal 2016, we recorded income tax expense of $46 million coupled with an $89 million loss from continuing operations before income taxes, compared with our effective tax rate (income taxes as a percentage of income (loss) from continuing operations before income taxes) of 26.5 percent in the second quarter of fiscal 2015. In the second quarter of fiscal 2016, our effective tax rate was negatively impacted by the non-deductibility for tax purposes of portions of the impairment charge described in Note N — Impairment of Goodwill and Other Assets in these Notes. This negative impact was partially offset by the effect of legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying research and development (“R&D”) expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015. This resulted in a benefit of approximately $12 million in calculating our effective tax rate in the second quarter of fiscal 2016. Approximately 40 percent of this benefit related to R&D expenses in the second half of fiscal 2015 and the remainder related to R&D expenses in fiscal 2016. Additionally, in the second quarter of fiscal 2016, our effective tax rate benefited from the settlement of a state tax issue for an amount lower than the previously recorded estimate and several differences between GAAP and tax accounting for investments. In the second quarter of fiscal 2015, legislation was enacted that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2014. This resulted in a benefit of approximately $7 million (approximately 3.7 percent of income from continuing operations before income taxes) in calculating our effective tax rate in the second quarter of fiscal 2015. Approximately half of this benefit related to R&D expenses in the second half of fiscal 2014 and the remainder related to R&D expenses in the first half of fiscal 2015. Additionally, in the second quarter of fiscal 2015, our effective tax rate benefited by approximately $8 million (approximately 4.2 percent of income from continuing operations before income taxes) due to finalizing issues with Canadian and U.S. tax authorities for amounts lower than previously recorded estimates.

Our effective tax rate was 89.8 percent in the first two quarters of fiscal 2016 compared with 27.7 percent in the first two quarters of fiscal 2015. In the first two quarters of fiscal 2016, our effective tax rate was impacted as described above by the discrete items noted above regarding the second quarter of fiscal 2016 and by a benefit recorded in the first quarter of fiscal 2016 from the settlement

 

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of several items for amounts lower than previously recorded estimates. In the first two quarters of fiscal 2015, our effective tax rate benefited from the discrete items noted above regarding the second quarter of fiscal 2015, as well as from the recognition, in the first quarter of fiscal 2015, of foreign tax credits resulting from a dividend paid by a foreign subsidiary during fiscal 2013 that exceeded the U.S. tax liability in respect of the dividend. These discrete items resulted in an aggregate benefit of approximately $23 million (approximately 6 percent of income from continuing operations before income taxes) in calculating our effective tax rate in the first two quarters of fiscal 2015.

Note N — Impairment of Goodwill and Other Assets

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Indications of potential impairment of goodwill related to Harris CapRock Communications (which is part of our Critical Networks segment) were present at the end of the quarter ended January 1, 2016 due to the downturn in the energy market and its impact on customer operations, which also resulted in a decrease in the fiscal 2016 outlook for Harris CapRock Communications. Consequently, in connection with the preparation and review of our financial statements for the quarter ended January 1, 2016, we performed an interim review of Harris CapRock Communications’ goodwill for impairment as of the end of the quarter ended January 1, 2016.

To test for potential impairment of goodwill related to Harris CapRock Communications, we prepared a preliminary estimate of the fair value of the reporting unit based on projected discounted cash flows. The current carrying value of the Harris CapRock Communications reporting unit exceeded its estimated fair value, and accordingly, we preliminarily allocated the estimated fair value to the assets and liabilities of the Harris CapRock Communications reporting unit to estimate the implied fair value of goodwill.

In conjunction with the above-described impairment review, we also conducted a review for impairment of other assets related to Harris CapRock Communications, including amortizable intangible assets and fixed assets, and impairment of these assets was considered prior to the conclusion of the goodwill impairment review. The estimated fair value of these other assets related to Harris CapRock Communications was determined based, in part, on an analysis of projected cash flows.

As a result of these impairment reviews, we concluded that goodwill and other assets related to Harris CapRock Communications were impaired as of the end of the quarter ended January 1, 2016, and we recorded an estimated non-cash impairment charge of $367 million ($328 million after-tax), of which $290 million related to goodwill. Due to the length of time necessary to measure the impairment of goodwill and other assets, our impairment analysis is not complete and is subject to change. We expect to complete our analysis prior to reporting our financial results for the third quarter of fiscal 2016 and will record any adjustments to our preliminary estimate at that time. Most of the $367 million estimated impairment charge is not deductible for tax purposes. The tax effect of that non-deductibility was treated as a discrete item in the quarter ended January 1, 2016 for purposes of calculating our effective tax rate. We do not expect to make any current or future cash expenditures as a result of the impairment. The estimated impairment will not cause us to be in noncompliance with the covenants under our credit arrangements, and we do not expect the impairment to impact our ongoing financial performance, although no assurances can be given.

Note O — Fair Value Measurements

Fair value is defined 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. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value, and to utilize 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 using the best information available in the circumstances.

 

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The following table presents the fair value hierarchy of our assets and liabilities measured at fair value on a recurring basis (at least annually) as of January 1, 2016:

 

     Level 1      Level 2      Level 3      Total  
     (In millions)  

Assets

           

Deferred compensation plan investments: (1)

           

Corporate-owned life insurance

   $ —         $ 17      $ —         $ 17  

Stock fund

     55        —           —           55  

Equity security

     40        —           —           40  

Liabilities

           

Deferred compensation plans (2)

     48        82        —           130  

 

(1) Represents investments held in a “Rabbi Trust” associated with our non-qualified deferred compensation plans, which we include in the “Deferred compensation plan investments” and “Other non-current assets” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited).
(2) Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Deferred compensation plan liabilities” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited). Under these plans, participants designate investment options (including money market, stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.

We had certain assets measured and recorded at fair value on a nonrecurring basis using level 3 inputs during the quarter and two quarters ended January 1, 2016. Goodwill and other assets held and used related to Harris CapRock Communications with a carrying amount of $714 million were written down to their preliminary estimate of fair value of $347 million, resulting in a preliminary estimate of $367 million for a non-cash impairment charge, which was included in income (loss) from continuing operations for the quarter and two quarters ended January 1, 2016. See Note N — Impairment of Goodwill and Other Assets in these Notes for additional information.

The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):

 

     January 1, 2016      July 3, 2015  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (In millions)  

Financial Liabilities

           

Long-term debt (including current portion) (1)

   $ 4,828      $ 4,902      $ 5,183      $ 5,230  

 

(1) The fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If our long-term debt in our balance sheet were measured at fair value, it would be categorized in Level 2 of the fair value hierarchy.

Note P — Derivative Instruments and Hedging Activities

In the normal course of doing business, we are exposed to global market risks, including the effect of changes in foreign currency exchange rates. We use derivative instruments to manage our exposure to such risks and formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions. We recognize all derivatives in the accompanying Condensed Consolidated Balance Sheet (Unaudited) at fair value. We do not hold or issue derivatives for speculative trading purposes.

At January 1, 2016, we had open foreign currency forward contracts with an aggregate notional amount of $79 million, of which $73 million were classified as fair value hedges and $6 million were classified as cash flow hedges. This compares with open foreign currency forward contracts with an aggregate notional amount of $74 million at July 3, 2015, of which $73 million were classified as fair value hedges and $1 million were classified as cash flow hedges. At January 1, 2016, contract expiration dates ranged from less than 1 month to 5 months with a weighted average contract life of 1 month.

Exchange-Rate Risk Balance Sheet Hedges

To manage the exposure in our balance sheet to risks from changes in foreign currency exchange rates, we implement fair value hedges. More specifically, we use foreign currency forward contracts and options to hedge certain balance sheet items, including foreign currency denominated accounts receivable and inventory. Changes in the value of the derivatives and the related hedged items are reflected in earnings in the “Cost of product sales and services” line item in the accompanying Condensed Consolidated Statement

 

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of Income (Unaudited). As of January 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound, Australian Dollar, Singapore Dollar, Brazilian Real, Norwegian Krone, Canadian Dollar and Mexican Peso to hedge certain balance sheet items. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in the quarter and two quarters ended January 1, 2016 or in the quarter and two quarters ended January 2, 2015. In addition, no amounts were recognized in earnings in the quarter and two quarters ended January 1, 2016 or in the quarter and two quarters ended January 2, 2015 related to hedged firm commitments that no longer qualify as fair value hedges.

Exchange-Rate Risk Cash Flow Hedges

To manage our exposure to currency risk and market fluctuation risk associated with anticipated cash flows that are probable of occurring in the future, we implement cash flow hedges. More specifically, we use foreign currency forward contracts and options to hedge off-balance sheet future foreign currency commitments, including purchase commitments to suppliers, future committed sales to customers and intersegment transactions. These derivatives are being used to hedge currency exposures from cash flows anticipated across our business segments. We also have hedged U.S. Dollar payments to suppliers to maintain our anticipated profit margins in our international operations. As of January 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound and Euro to hedge certain forecasted transactions.

These derivatives have only nominal intrinsic value at the time of purchase and have a high degree of correlation to the anticipated cash flows they are designated to hedge. Hedge effectiveness is determined by the correlation of the anticipated cash flows from the hedging instruments and the anticipated cash flows from the future foreign currency commitments through the maturity dates of the derivatives used to hedge these cash flows. These financial instruments are marked-to-market using forward prices and fair value quotes with the offset to accumulated other comprehensive loss, net of hedge ineffectiveness. Gains and losses from other comprehensive loss are reclassified to earnings when the related hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. The cash flow impact of our derivatives is included in the same category in the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited) as the cash flows of the related hedged items.

The net gains or losses from cash flow hedges recognized in earnings or recorded in other comprehensive loss, including gains or losses related to hedge ineffectiveness, were not material in the quarter and two quarters ended January 1, 2016 or in the quarter and two quarters ended January 2, 2015. We do not expect the net gains or losses recognized in the “Accumulated other comprehensive loss” line item in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of January 1, 2016 that will be reclassified to earnings from other comprehensive income (loss) within the next 12 months to be material.

Credit Risk

We are exposed to the risk of credit losses from non-performance by counterparties to the financial instruments discussed above, but we do not expect any of the counterparties to fail to meet their obligations. To manage credit risks, we select counterparties based on credit ratings, limit our exposure to any single counterparty under defined guidelines and monitor the market position with each counterparty.

The amount of assets and liabilities related to foreign currency forward contracts in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of January 1, 2016 was immaterial.

Note Q — Changes in Estimates 

Estimates and assumptions, and changes therein, are important in connection with, among others, our segments’ revenue recognition policies related to development and production contracts. Revenue and profits related to development and production contracts are recognized using the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total costs at completion (i.e., the “cost-to-cost” method) or the ratio of actual units delivered to estimated total units to be delivered under the contract (i.e., the “units-of-delivery” method) with consideration given for risk of performance and estimated profit. Revenue and profits on cost-reimbursable development and production contracts are recognized as allowable costs are incurred on the contract, and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs.

Development and production contracts are combined when specific aggregation criteria are met. Criteria generally include closely interrelated activities performed for a single customer within the same economic environment. Development and production contracts are generally not segmented. If development and production contracts are segmented, we have determined that they meet specific segmenting criteria. Change orders, claims or other items that may change the scope of a development and production contract are included in contract value only when the value can be reliably estimated and realization is probable. Possible incentives or penalties and award fees applicable to performance on development and production contracts are considered in estimating contract value and profit rates and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions that increase earnings based solely on a single significant event are generally not recognized until the event occurs.

 

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Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each development and production contract over its period of performance. Recognition of profit on development and production fixed-price contracts requires estimates of the total cost at completion and the measurement of progress toward completion. The estimated profit or loss on a development and production contract is equal to the difference between the estimated contract value and the estimated total cost at completion. Due to the long-term nature of many of our programs, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance, the risk and impact of delayed performance, availability and timing of funding from the customer and the recoverability of any claims outside the original development and production contract included in the estimate to complete. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which management reviews the progress and performance on our ongoing development and production contracts at least quarterly and, in many cases, more frequently. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, at the outset of a cost-reimbursable contract (for example, contracts containing award or incentive fees), we establish an estimated total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimated total contract value may increase or decrease if, for example, we receive higher or lower than expected award fees. When adjustments in estimated total costs at completion or in estimated total contract value are determined, the related impact to operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Anticipated losses on development and production contracts or programs in progress are charged to operating income when identified. Net EAC adjustments resulting from changes in estimates favorably impacted our operating income by $24 million ($0.12 per diluted share) and $41 million ($0.20 per diluted share) in the quarter and two quarters ended January 1, 2016, respectively, and by $16 million ($0.11 per diluted share) and $38 million ($0.26 per diluted share) in the quarter and two quarters ended January 2, 2015, respectively.

Note R — Business Segments

We adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016. We structure our operations primarily around the products and services we sell and the markets we serve, and commencing with the first quarter of fiscal 2016, we report the financial results of our operations in the following four operating segments, which are also our reportable segments and are referred to as our business segments:

 

   

Communication Systems, serving markets in tactical and airborne radios, night vision technology, and defense and public safety networks;

 

   

Space and Intelligence Systems, providing complete earth observation, environmental, geospatial, space protection, and intelligence solutions from advanced sensors and payloads, as well as ground processing and information analytics;

 

   

Electronic Systems, offering an extensive portfolio of solutions in electronic warfare, avionics, wireless technology, command, control, communications, computers and intelligence (“C4I”), undersea systems and aerostructures; and

 

   

Critical Networks, providing managed services supporting air traffic management, energy and maritime communications, and ground network operation and sustainment, as well as high-value information technology (“IT”) and engineering services.

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 adjustments 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 these adjustments.

The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. We evaluate each segment’s performance based on its operating income or loss, which we define as profit or loss from operations before income taxes excluding interest income and expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment recognizes a profit that is eliminated. The “Corporate eliminations” line items in the tables below represent the elimination of intersegment sales and their related profits. The “Unallocated corporate expense” line item in the tables below represents the portion of corporate expenses not allocated to our business segments.

 

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Total assets by business segment are summarized below:

 

     January 1,      July 3,  
     2016      2015  
     (In millions)  

Total Assets

     

Communication Systems

   $ 1,722      $ 1,906  

Space and Intelligence Systems

     2,078         2,096  

Electronic Systems

     2,511         2,513  

Critical Networks

     2,999         3,492  

Corporate (1)

     2,787         3,120  
  

 

 

    

 

 

 
   $ 12,097      $ 13,127  
  

 

 

    

 

 

 

 

(1) Because the acquisition of Exelis in the fourth quarter of fiscal 2015 benefited the entire Company as opposed to any individual segments, the approximately $1.6 billion of identifiable intangible assets acquired in the Exelis acquisition was recorded as Corporate assets.

Segment revenue, segment operating income (loss) and a reconciliation of segment operating income (loss) to total income (loss) from continuing operations before income taxes follow:

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    January 1,
2016
    January 2,
2015
 
     (In millions)  

Revenue

        

Communication Systems

   $ 489     $ 435     $ 943     $ 824  

Space and Intelligence Systems

     446       221       881       474  

Electronic Systems

     382       128       756       237  

Critical Networks

     541       423       1,107       830  

Corporate eliminations

     (15     (1     (33     (4
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,843     $ 1,206     $ 3,654     $ 2,361  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) From Continuing Operations Before Income Taxes

        

Segment Operating Income (Loss):

        

Communication Systems (1)

     121     $ 126     $ 259     $ 242  

Space and Intelligence Systems

     67       34       135       71  

Electronic Systems

     63       24       132       46  

Critical Networks (2)

     (308     50       (245     92  

Unallocated corporate income (expense) (3)

     14       (21     (61     (38

Corporate eliminations

     (1     (3     (2     (5

Non-operating income

     —          —          1       —     

Net interest expense

     (45     (21     (92     (43
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (89   $ 189     $ 127     $ 365  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Communication Systems operating income included $17 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions, facility consolidation and other items. We recorded $14 million of these charges in the “Cost of product sales and services” line item and the remaining $3 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).
(2) Critical Networks operating loss in the quarter and two quarters ended January 1, 2016 included a preliminary estimate of $367 million for a non-cash impairment charge to write down goodwill and other assets related to Harris CapRock Communications. We recorded this charge in the “Impairment of goodwill and other assets” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). Additionally, operating loss included $12 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions and facility consolidation. We recorded these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).
(3) Unallocated corporate income (expense) included: (i) the impact of a net liability reduction of $101 million in the quarter and two quarters ended January 1, 2016 for certain post-employment benefit plans, (ii) charges of $46 million and $69 million in the quarter and two quarters ended January 1, 2016, respectively, for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, and (iii) $33 million and $66 million of expense in the quarter and two quarters ended January 1, 2016, respectively, for amortization of intangible assets acquired as a result of our acquisition of Exelis. Because the acquisition of Exelis benefited the entire Company as opposed to any individual segments, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense.

 

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Note S — Legal Proceedings and Contingencies

From time to time, as a normal incident of the nature and kind of businesses in which we are, and were, engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. At January 1, 2016, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us is not material. Although it is not feasible to predict the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be disposed of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in litigation or arbitration in existence at January 1, 2016 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

Legal Proceedings

On February 4, 2013, we completed the sale of Broadcast Communications to the Buyer pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer’s favor. As further discussed in Note B — Discontinued Operations in these Notes, as a result of such determination we recorded a loss in discontinued operations of $21 million ($17 million after-tax) in the second quarter of fiscal 2016.

International

As an international company, we are, from time to time, the subject of investigations relating to our international operations, including under U.S. export control laws and the Foreign Corrupt Practices Act (“FCPA”) and other similar U.S. and international laws. On April 4, 2011, we completed the acquisition of Carefx Corporation (“Carefx”) and thereby also acquired its subsidiaries, including in China (“Carefx China”). Following the closing, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, we initiated an internal investigation and learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers, potential customers, consultants, and government regulators, after which we took certain remedial actions. The results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and voluntarily to the U.S. Department of Justice (“DOJ”) and the SEC. The SEC and DOJ initiated investigations with respect to this matter. During the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter. The DOJ further advised us that its decision was based on its overall view of the evidence as to our level of acquisition due diligence and integration efforts, our voluntary disclosure to the DOJ and SEC, our remediation efforts and our cooperation throughout the investigation, which is continuing. At this time we also are continuing to cooperate with the SEC regarding its investigation. We cannot predict at this time the duration or scope of, developments in, results of, or any regulatory action or other potential consequences from, such investigation or otherwise in connection with this matter. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.

Environmental Matters

We are subject to numerous U.S. Federal, state, local and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of multiple sites, including as a result of our acquisition of Exelis. These sites are in various stages of investigation and/or remediation and in some of these proceedings our liability is considered de minimis. We have received notices from the U.S. Environmental Protection Agency (the “EPA”) or equivalent state or international environmental agencies that a number of sites formerly or currently owned and/or operated by us or companies we have acquired, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent state and international laws. For example, Exelis received notice in June

 

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2014 from the Department of Justice, Environment and Natural Resources Division, that it may be potentially responsible for contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, the EPA issued on April 11, 2014 a proposed plan for remedial alternatives to address the cleanup of the lower eight mile stretch of the Passaic River. The EPA estimates the cost for the alternatives will range from $0.4 billion to $3.2 billion. The EPA’s preferred alternative would involve dredging the river bank to bank and installing an engineered cap at an estimated cost of $1.7 billion. The EPA is currently evaluating input from a public comment period that ended in August 2014 before it makes its final record of decision, which is expected in our fiscal 2016. Therefore, the ultimate remedial approach and associated costs and the parties who will participate in funding the remediation and their respective allocations have not been determined. We have found no evidence that Exelis contributed any of the primary contaminants of concern to the Passaic River. We intend to vigorously defend ourselves in this matter and we believe our ultimate costs will not be material. Although it is not feasible to predict the outcome of these environmental claims, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims in existence at January 1, 2016 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.

Note T — Subsequent Events

As further discussed in Note B — Discontinued Operations in these Notes, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 of $21 million ($17 million after-tax) based on a final determination rendered on January 29, 2016 in a dispute over the amount of the post-closing working capital adjustment to the purchase price for Broadcast Communications, which we sold on February 4, 2013.

Following the end of the second quarter of fiscal 2016, we announced that we are in the process of divesting our aerostructures business, which has less than $150 million of net assets, excluding goodwill, and is not strategic to our business. We currently expect to reach a definitive agreement for a divestiture in fiscal 2016. The aerostructures business, which was part of Exelis, manufactures advanced, lightweight composite aerospace assembly structures, subassemblies and components for defense and commercial industries.

 

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REVIEW REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Harris Corporation

We have reviewed the unaudited condensed consolidated balance sheet of Harris Corporation as of January 1, 2016, and the related unaudited condensed consolidated statements of income and comprehensive income for the quarter and two quarters ended January 1, 2016 and January 2, 2015, and the unaudited condensed consolidated statements of cash flows for the two quarters ended January 1, 2016 and January 2, 2015. These financial statements are the responsibility of the Company’s 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 (United States), 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 unaudited 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 as of July 3, 2015, and the related consolidated statements of income, comprehensive income, cash flows, and equity for the year then ended (not presented herein) and expressed an unqualified audit opinion on those consolidated financial statements in our report dated August 31, 2015. In our opinion, the accompanying condensed consolidated balance sheet of Harris Corporation as of July 3, 2015, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Orlando, Florida

February 3, 2016

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

The following Management’s Discussion and Analysis (this “MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This 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 appearing elsewhere in this Report. In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Fiscal 2015 Form 10-K. Except for the historical information contained herein, the discussions in this 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 this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”

The following is a list of the sections of this MD&A, together with our perspective on their contents, which we hope will assist in reading these pages:

 

   

Results of Operations — an analysis of our consolidated results of operations and of the results in each of our four business segments, to the extent the segment operating 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, funding of pension plans, common stock repurchases, dividends, 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 standards that have been issued, but are not yet effective for us, and their potential impact on our financial position, results of operations and cash flows.

 

   

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.

As discussed in Note R — Business Segments in the Notes, we adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016, which resulted in changes to our operating segments, which are also our reportable segments and are referred to as our business segments. As a result of these adjustments, we report the financial results of our operations in the following four business segments:

 

   

Communication Systems, serving markets in tactical and airborne radios, night vision technology, and defense and public safety networks;

 

   

Space and Intelligence Systems, providing complete earth observation, environmental, geospatial, space protection, and intelligence solutions from advanced sensors and payloads, as well as ground processing and information analytics;

 

   

Electronic Systems, offering an extensive portfolio of solutions in electronic warfare, avionics, wireless technology, C4I, undersea systems and aerostructures; and

 

   

Critical Networks, providing managed services supporting air traffic management, energy and maritime communications, and ground network operation and sustainment, as well as high-value IT and engineering services.

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 adjustments 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 these adjustments.

Unless otherwise specified, disclosures in this MD&A relate solely to our continuing operations.

RESULTS OF OPERATIONS

Highlights

Our acquisition of Exelis on May 29, 2015 significantly impacted our operating results, as further discussed in the remaining sections of this MD&A. Operations results for the second quarter of fiscal 2016 included:

 

   

Revenue increased 52.8 percent to $1.843 billion in the second quarter of fiscal 2016 from $1.206 billion in the second quarter of fiscal 2015;

 

   

We incurred a loss from continuing operations of $135 million, or $1.09 per diluted share, in the second quarter of fiscal 2016 compared with income from continuing operations of $139 million, or $1.32 per diluted share, in the second quarter of fiscal 2015. In the second quarter of fiscal 2016, we recorded in our Critical Networks segment a preliminary estimate of $367 million, or $2.63 per diluted common share after-tax, for a non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications due to the downturn in the energy market and its impact on customer operations;

 

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Communication Systems revenue increased 12.4 percent to $489 million and operating income decreased 4.0 percent to $121 million in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015;

 

   

Space and Intelligence Systems revenue increased 101.8 percent to $446 million and operating income increased 97.1 percent to $67 million in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015;

 

   

Electronic Systems revenue increased 198.4 percent to $382 million and operating income increased 162.5 percent to $63 million in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015;

 

   

Critical Networks revenue increased 27.9 percent to $541 million in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015, and Critical Networks had an operating loss of $308 million in the second quarter of fiscal 2016 compared with operating income of $50 million in the second quarter of fiscal 2015. The operating loss in the second quarter of fiscal 2016 was primarily due to the non-cash impairment charge noted above related to Harris CapRock Communications;

 

   

In the second quarter of fiscal 2016, we incurred charges for restructuring and other items of $17 million, $6 million, and $12 million in our Communication Systems, Electronic Systems and Critical Networks segments, respectively;

 

   

In the second quarter of fiscal 2016, our unallocated corporate (income) expense reflected the impact of a net liability reduction of $101 million for certain post-employment benefit plans; and

 

   

Net cash provided by operating activities increased 74.3 percent to $387 million in the first two quarters of fiscal 2016 compared with $222 million in the first two quarters of fiscal 2015.

Consolidated Results of Operations

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
    January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
 
     (Dollars in millions, except per share amounts)  

Revenue:

            

Communication Systems

   $ 489     $ 435       12.4  %    $ 943     $ 824       14.4  % 

Space and Intelligence Systems

     446       221       101.8  %      881       474       85.9  % 

Electronic Systems

     382       128       198.4  %      756       237       219.0  % 

Critical Networks

     541       423       27.9  %      1,107       830       33.4  % 

Corporate eliminations

     (15     (1     *        (33     (4     *   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total revenue

     1,843       1,206       52.8  %      3,654       2,361       54.8  % 

Cost of product sales and services

     (1,281     (808     58.5  %      (2,501     (1,570     59.3  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross margin

     562       398       41.2  %      1,153       791       45.8  % 

% of total revenue

     30.5  %      33.0  %        31.6  %      33.5  %   

Engineering, selling and administrative expenses

     (239     (188     27.1  %      (568     (383     48.3  % 

% of total revenue

     13.0  %      15.6  %        15.5  %      16.2  %   

Impairment of goodwill and other assets

     (367     —           (367     —         *   

Non-operating income

     —         —         *        1       —         *   

Net interest expense

     (45     (21     114.3  %      (92     (43     114.0  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

Income (loss) from continuing operations before income taxes

     (89     189       *        127       365       (65.2 )% 

Income taxes

     (46     (50     (8.0 )%      (114     (101     12.9  % 

Effective tax rate

     *        26.5  %        89.8     27.7  %   
  

 

 

   

 

 

     

 

 

   

 

 

   

Income (loss) from continuing operations

     (135     139       *        13       264       (95.1 )% 

% of total revenue

     (7.3 )%      11.5  %        0.4  %      11.2  %   

Income (loss) from continuing operations per diluted common share

   $ (1.09   $ 1.32       *      $ 0.10     $ 2.50       (96.0 )% 
  

 

 

   

 

 

     

 

 

   

 

 

   

 

* Not meaningful

Revenue

Second Quarter 2016 Compared With Second Quarter 2015: The increase in revenue in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to the inclusion in our operating results of revenue from Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015. Revenue in the second quarter of fiscal 2016 also reflected continuing services revenue weakness in our Critical Networks segment, revenue weakness from Exelis tactical radio and night vision product lines in our Communication Systems segment and revenue softness in electronic warfare in our Electronic Systems segment.

 

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First Two Quarters 2016 Compared With First Two Quarters 2015: The increase in revenue in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to the same reasons as noted above regarding the second quarters of fiscal 2016 and 2015.

See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Gross Margin

Second Quarter 2016 Compared With Second Quarter 2015: The increase in gross margin in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to the inclusion in our operating results of gross margin from Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015. The decrease in gross margin as a percentage of total revenue (“gross margin percentage”) in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to a shift in the mix of contract types, toward an increased percentage of lower-margin cost-plus contracts, lower gross margin percentage in Exelis legacy tactical radio and night vision product lines and write-downs of certain assets related to restructuring programs.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increase in gross margin and decrease in gross margin percentage in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the same reasons as noted above regarding the second quarters of fiscal 2016 and 2015.

See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Engineering, Selling and Administrative Expenses

Second Quarter 2016 Compared With Second Quarter 2015: The increase in engineering, selling and administrative (“ESA”) expenses in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to the inclusion in our operating results of ESA expenses from Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015, as well as $33 million of amortization of intangible assets acquired, $46 million of integration and other costs associated with the acquisition, and $18 million of charges for restructuring and other items. These drivers of the increase in ESA expenses were partially offset by a net liability reduction of $101 million for certain post-employment benefit plans. The decrease in ESA expenses as a percentage of total revenue (“ESA percentage”) in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to the net liability reduction noted above and cost savings realized after our acquisition of Exelis, partially offset by the amortization, integration and other costs and charges for restructuring and other items noted above.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increase in ESA expenses and decrease in ESA percentage in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the same reasons as noted above regarding the second quarters of fiscal 2016 and 2015. This included $66 million of amortization of intangible assets acquired from Exelis, $69 million of integration and other costs associated with the acquisition, and $18 million of charges for restructuring and other items, partially offset by the net liability reduction of $101 million noted above. ESA percentage in the first quarter of fiscal 2015 also benefited from our collection of payment on a promissory note in the first quarter of fiscal 2015 related to the sale of our Cyber Integration Center.

See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Impairment of Goodwill and Other Assets

Second Quarter 2016 Compared With Second Quarter 2015: In the second quarter of fiscal 2016, we recorded in our Critical Networks segment a preliminary estimate of $367 million for a non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications due to the downturn in the energy market and its impact on customer operations.

First Two Quarters 2016 Compared With First Two Quarters 2015: The first two quarters of fiscal 2016 reflect the non-cash impairment charge described above.

See Note N — Impairment of Goodwill and Other Assets in the Notes and the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Net Interest Expense

Second Quarter 2016 Compared With Second Quarter 2015: The increase in net interest expense in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to higher overall debt levels as a result of our issuance of $2.4 billion of new debt securities and our borrowing of $1.3 billion under a new term loan agreement to finance our acquisition of Exelis in the fourth quarter of fiscal 2015.

 

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First Two Quarters 2016 Compared With First Two Quarters 2015: The increase in net interest expense in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to the same reason as noted above regarding the second quarters of fiscal 2016 and 2015.

Income Taxes

Second Quarter 2016 Compared With Second Quarter 2015: In the second quarter of fiscal 2016, our effective tax rate (income taxes as a percentage of income (loss) from continuing operations before income taxes) was negatively impacted by the non-deductibility for tax purposes of portions of the impairment charge described in Note N — Impairment of Goodwill and Other Assets in the Notes. This negative impact was partially offset by the effect of legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015. This resulted in a benefit of approximately $12 million in calculating our effective tax rate in the second quarter of fiscal 2016. Approximately 40 percent of this benefit related to R&D expenses in the second half of fiscal 2015 and the remainder related to R&D expenses in fiscal 2016. Additionally, in the second quarter of fiscal 2016, our effective tax rate benefited from the settlement of a state tax issue for an amount lower than the previously recorded estimate and several differences between GAAP and tax accounting for investments. In the second quarter of fiscal 2015, legislation was enacted that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2014. This resulted in a benefit of approximately $7 million (approximately 3.7 percent of income from continuing operations before income taxes) in calculating our effective tax rate in the second quarter of fiscal 2015. Approximately half of this benefit related to R&D expenses in the second half of fiscal 2014 and the remainder related to R&D expenses in the first half of fiscal 2015. Additionally, in the second quarter of fiscal 2015, our effective tax rate benefited by approximately $8 million (approximately 4.2 percent of income from continuing operations before income taxes) due to finalizing issues with Canadian and U.S. tax authorities for amounts lower than previously recorded estimates.

First Two Quarters 2016 Compared With First Two Quarters 2015: In the first two quarters of fiscal 2016, our effective tax rate was impacted as described above by the discrete items noted above regarding the second quarter of fiscal 2016, and by a benefit recorded in the first quarter of fiscal 2016 from the settlement of several items for amounts lower than previously recorded estimates. In the first two quarters of fiscal 2015, our effective tax rate benefited from the discrete items noted above regarding the second quarter of fiscal 2015, as well as from the recognition, in the first quarter of fiscal 2015, of foreign tax credits resulting from a dividend paid by a foreign subsidiary during fiscal 2013 that exceeded the U.S. tax liability in respect of the dividend. These discrete items resulted in an aggregate benefit of approximately $23 million (approximately 6 percent of income from continuing operations before income taxes) in calculating our effective tax rate in the first two quarters of fiscal 2015.

Income (Loss) From Continuing Operations

Second Quarter 2016 Compared With Second Quarter 2015: The loss from continuing operations in the second quarter of fiscal 2016 compared with income from continuing operations in the second quarter of fiscal 2015 was primarily due to recording in the second quarter of fiscal 2016 in our Critical Networks segment a preliminary estimate of $367 million, or $328 million after-tax, for the non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications noted above, partially offset by the net impact of the other items described above in this MD&A regarding the second quarters of fiscal 2016 and 2015.

First Two Quarters 2016 Compared With First Two Quarters 2015: The decrease in income from continuing operations in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to recording in the second quarter of fiscal 2016 the preliminary estimate of the non-cash impairment charge related to Harris CapRock Communications noted above, partially offset by the net impact of the other items described above in this MD&A regarding the first two quarters of fiscal 2016 and 2015.

See Note N— Impairment of Goodwill and Other Assets in the Notes and the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Income (Loss) From Continuing Operations Per Diluted Common Share

Second Quarter 2016 Compared With Second Quarter 2015: The loss from continuing operations per diluted common share in the second quarter of fiscal 2016 compared with income from continuing operations per diluted common share in the second quarter of fiscal 2015 was primarily due to recording in the second quarter of fiscal 2016 the preliminary estimate of the non-cash impairment charge related to Harris CapRock Communications noted above, partially offset by the net impact of the other items described above in this MD&A regarding the second quarters of fiscal 2016 and 2015. We also had an increase in our average common shares outstanding as a result of approximately 19 million shares issued in connection with our acquisition of Exelis.

First Two Quarters 2016 Compared With First Two Quarters 2015: The decrease in income from continuing operations per diluted common share in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to recording in the second quarter of fiscal 2016 the preliminary estimate of the non-cash impairment charge related to Harris CapRock Communications noted above, partially offset by the net impact of the other items described above in this MD&A regarding the first two quarters of fiscal 2016 and 2015. We also had an increase in our average common shares outstanding as a result of approximately 19 million shares issued in connection with our acquisition of Exelis.

 

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See Note N — Impairment of Goodwill and Other Assets in the Notes and the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Discussion of Business Segment Results of Operations

Communication Systems Segment

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
    January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
 
     (Dollars in millions)  

Revenue

   $ 489     $ 435       12.4  %    $ 943     $ 824       14.4  % 

Cost of product sales and services

     (263     (219     20.1  %      (480     (405     18.5  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross margin

     226       216       4.6  %      463       419       10.5  % 

% of revenue

     46.2  %      49.7  %        49.1  %      50.8  %   

ESA expenses

     (105     (90     16.7  %      (204     (177     15.3  % 

% of revenue

     21.5  %      20.7  %        21.6  %      21.5  %   
  

 

 

   

 

 

     

 

 

   

 

 

   

Segment operating income

   $ 121     $ 126       (4.0 )%    $ 259     $ 242       7.0  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

% of revenue

     24.7  %      29.0  %        27.5  %      29.4  %   

Second Quarter 2016 Compared With Second Quarter 2015: The increases in segment revenue, gross margin and ESA expenses in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 were primarily due to the inclusion in segment operating results of Exelis operations (principally ground and airborne tactical radio and night vision operations) as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015. Additionally, the inclusion in segment operating results of Exelis operations partially offset a decrease in segment operating income in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015.

Segment revenue in the second quarter of fiscal 2016 also reflected revenue weakness from Exelis legacy tactical radio and night vision product lines and lower revenue in the public safety and professional communications markets due to continued competitive pressures. The decrease in segment gross margin percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to a less favorable mix among products and programs, lower gross margin percentage in Exelis legacy tactical radio and night vision product lines and write-downs of certain assets related to restructuring programs. The increase in segment ESA percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to restructuring charges to consolidate certain facilities and reduce future costs. The decreases in segment operating income and operating margin as a percentage of revenue (“operating margin percentage”) in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 reflected the items discussed above regarding this segment.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increases in segment revenue, gross margin, ESA expenses and operating income in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the inclusion in segment operating results of Exelis operations. Segment revenue also reflected higher tactical communications revenue from international customers, partially offset by lower revenue in the public safety and professional communications markets due to continued competitive pressures. Revenue in the first two quarters of fiscal 2016 also reflected expected revenue weakness from Exelis legacy tactical radio and night vision product lines. The decreases in segment gross margin and operating margin percentages and increase in segment ESA percentage in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the same reasons as noted above regarding this segment for the second quarters of fiscal 2016 and 2015.

 

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Space and Intelligence Systems Segment

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
    January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
 
     (Dollars in millions)  

Revenue

   $ 446     $ 221       101.8  %    $ 881     $ 474       85.9  % 

Cost of product sales and services

     (331     (157     110.8  %      (644     (340     89.4  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross margin

     115       64       79.7  %      237       134       76.9  % 

% of revenue

     25.8  %      29.0  %        26.9  %      28.3  %   

ESA expenses

     (48     (30     60.0  %      (102     (63     61.9  % 

% of revenue

     10.8  %      13.6  %        11.6  %      13.3  %   
  

 

 

   

 

 

     

 

 

   

 

 

   

Segment operating income

   $ 67     $ 34       97.1  %    $ 135     $ 71       90.1  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

% of revenue

     15.0  %      15.4  %        15.3  %      15.0  %   

Second Quarter 2016 Compared With Second Quarter 2015: The increases in segment revenue, gross margin, ESA expenses and operating income in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 were primarily due to the inclusion in segment operating results of Exelis operations (principally geospatial intelligence solutions; integrated sensing and information systems; environmental intelligence; precision instruments and position, navigation and timing; and command, control and communication systems operations) as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015.

Segment revenue also reflected higher revenue from two classified programs, including the Foundation GEOINT Content Management program, more than offset by the completion of other classified programs and lower revenue from the Global Positioning System III program. The decrease in segment gross margin percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was due to a less favorable mix of cost-plus intelligence and space payload programs. The decrease in segment ESA percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to cost savings realized after our acquisition of Exelis. The slight decrease in segment operating margin percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 reflected the items discussed above regarding this segment.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increases in segment revenue, gross margin, ESA expenses and operating income, and the decreases in segment gross margin percentage and ESA percentage, in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the same reasons as noted above regarding this segment for the second quarters of fiscal 2016 and 2015. The slight increase in segment operating margin percentage in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to cost savings after our acquisition of Exelis.

 

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Electronic Systems Segment

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
    January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
 
     (Dollars in millions)  

Revenue

   $ 382     $ 128       198.4  %    $ 756     $ 237       219.0  % 

Cost of product sales and services

     (278     (93     198.9  %      (543     (170     219.4  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross margin

     104       35       197.1  %      213       67       217.9  % 

% of revenue

     27.2  %      27.3  %        28.2  %      28.3  %   

ESA expenses

     (41     (11     272.7  %      (81     (21     285.7  % 

% of revenue

     10.7  %      8.6  %        10.7  %      8.9  %   
  

 

 

   

 

 

     

 

 

   

 

 

   

Segment operating income

   $ 63     $ 24       162.5  %    $ 132     $ 46       187.0  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

% of revenue

     16.5  %      18.8  %        17.5  %      19.4  %   

Second Quarter 2016 Compared With Second Quarter 2015: The increases in segment revenue, gross margin, ESA expenses and operating income in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 were primarily due to the inclusion in segment operating results of Exelis operations (principally integrated electronic warfare systems; radar, reconnaissance and undersea systems; electronic attack and release systems; specialty applications; and composites operations) as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015.

Segment revenue also reflected higher revenue from the ramp in the F-35 Joint Strike Fighter program, more than offset by lower electronic warfare revenue. The increase in segment ESA percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to the mix of programs requiring a higher ESA expense and charges for restructuring and other items. The decrease in segment operating margin percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 reflected the items discussed above regarding this segment.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increases in segment revenue, gross margin, ESA expenses, ESA percentage and operating income, and the decrease in operating margin percentage, in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the same reasons as noted above regarding this segment for the second quarters of fiscal 2016 and 2015.

 

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Table of Contents

Critical Networks Segment

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
    January 1,
2016
    January 2,
2015
    %
Inc/
(Dec)
 
     (Dollars in millions)  

Revenue

   $ 541     $ 423       27.9    $ 1,107     $ 830       33.4  % 

Cost of product sales and services

     (423     (341     24.0      (866     (662     30.8  % 
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross margin

     118       82       43.9      241       168       43.5  % 

% of revenue

     21.8  %      19.4  %        21.8  %      20.2  %   

ESA expenses

     (426     (32     *        (486     (76     *   

% of revenue

     78.7  %      7.6  %        43.9  %      9.2  %   
  

 

 

   

 

 

     

 

 

   

 

 

   

Segment operating income (loss)

   $ (308   $ 50       *      $ (245   $ 92       *   
  

 

 

   

 

 

     

 

 

   

 

 

   

% of revenue

     *        11.8  %        *        11.1  %   

 

* Not meaningful

Second Quarter 2016 Compared With Second Quarter 2015: The increases in segment revenue and gross margin in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 were primarily due to the inclusion in segment operating results of Exelis operations (principally civil and aerospace systems; command, control and communication systems; and advanced information solutions operations) as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015.

Segment revenue also reflected lower revenue in IT services and Harris CapRock Communication’s energy market, partially offset by higher revenue from the Federal Aviation Administration, driven by the Next Generation Air Transportation modernization programs. The increase in segment gross margin percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 was primarily due to improved program execution. The increases in segment ESA expenses and ESA percentage in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 were primarily due to recording in the second quarter of fiscal 2016 a preliminary estimate of $367 million for a non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications due to the downturn the energy market and its impact on customer operations. The segment operating loss and segment operating margin percentage in the second quarter of fiscal 2016 compared with the operating income and operating margin percentage in the second quarter of fiscal 2015 reflected the items discussed above regarding this segment.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increases in segment revenue, gross margin, gross margin percentage, ESA expenses and ESA percentage in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 were primarily due to the same reasons as noted above regarding this segment for the second quarters of fiscal 2016 and 2015. The segment operating loss and operating margin percentage in the first two quarters of fiscal 2016 compared with the operating income and operating margin percentage in the first two quarters of fiscal 2015 reflected the items discussed above regarding this segment for the second quarters of fiscal 2016 and 2015.

 

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Table of Contents

Unallocated Corporate (Income) Expense and Corporate Eliminations

 

     Quarter Ended     Two Quarters Ended  
     January 1,
2016
     January 2,
2015
     %
Inc/
(Dec)
    January 1,
2016
     January 2,
2015
     %
Inc/
(Dec)
 
     (Dollars in millions)  

Unallocated corporate (income) expense

   $ (47    $ 21        *      $ (5    $ 38        *   

Amortization of intangible assets from Exelis Inc. acquisition

     33        —          *        66        —          *   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total unallocated corporate (income) expense

   $ (14    $ 21        *      $ 61      $ 38        60.5  % 

Corporate eliminations

   $ 1      $ 3        (66.7 )%    $ 2      $ 5        (60.0 )% 

 

* Not meaningful

Second Quarter 2016 Compared With Second Quarter 2015: The change to total unallocated corporate income in the second quarter of fiscal 2016 from total unallocated corporate expense in the second quarter of fiscal 2015 was primarily due to: (i) a net liability reduction of $101 million for certain post-employment benefit plans, mostly offset by (ii) $33 million of amortization of intangible assets acquired as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015, and (iii) charges of $46 million for integration and other costs associated with our acquisition of Exelis. In connection with our acquisition of Exelis, we identified approximately $1.6 billion of intangible assets. Because the acquisition benefited our entire Company as opposed to any individual segments, we recorded these intangible assets as Corporate assets and the related amortization expense as unallocated corporate expense.

First Two Quarters 2016 Compared With First Two Quarters 2015: The increase in total unallocated corporate expense in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to $66 million of amortization of intangible assets acquired as a result of our acquisition of Exelis and charges of $69 million for integration and other costs associated with our acquisition of Exelis, partially offset by the net liability reduction of $101 million noted above.

Discontinued Operations

As further discussed in Note B — Discontinued Operations in the Notes, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 of $21 million ($17 million after-tax) based on a final determination rendered on January 29, 2016 in a dispute over the amount of the post-closing working capital adjustment to the purchase price for Broadcast Communications, which we sold on February 4, 2013. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

 

     Two Quarters Ended  
     January 1,     January 2,  
     2016     2015  
     (In millions)  

Net cash provided by operating activities

   $ 387     $ 222  

Net cash used in investing activities

     (49     (72

Net cash used in financing activities

     (295     (219

Effect of exchange rate changes on cash and cash equivalents

     (13     (22
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     30       (91

Cash and cash equivalents, beginning of year

     481       561  
  

 

 

   

 

 

 

Cash and cash equivalents, end of quarter

   $ 511     $ 470  
  

 

 

   

 

 

 

Cash and cash equivalents: The $30 million increase in cash and cash equivalents from the end of fiscal 2015 to January 1, 2016 (the end of the second quarter of fiscal 2016) was primarily due to $387 million of net cash provided by operating activities, $209 million of proceeds from borrowings and $33 million of proceeds from exercises of employee stock options, mostly offset by $395 million used for repayments of borrowings, which included $350 million of cash used to repay principal on our term loans ($285 million of voluntary prepayments of principal and $65 million of scheduled principal repayments), $127 million used to pay cash dividends, and $49 million used for net additions of property, plant and equipment. The $91 million decrease in cash and cash equivalents from the end of fiscal 2014 to January 2, 2015 (the end of the second quarter of fiscal 2015) was primarily due to $150 million used to repurchase shares of our common stock, $99 million used to pay cash dividends, $79 million used for additions of property, plant and equipment and $22 million from the impact of exchange rate changes (primarily reflecting the strength of the U.S. dollar relative to the Canadian Dollar), partially offset by $222 million of net cash provided by operating activities and $28 million of proceeds from exercises of employee stock options.

 

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At January 1, 2016, we had cash and cash equivalents of $511 million, and we have a senior unsecured $1 billion revolving credit facility that expires in July 2020 (all of which was available to us as of January 1, 2016). Additionally, we had $4.8 billion of long-term debt outstanding at January 1, 2016, the majority of which we incurred in connection with our acquisition of Exelis in the fourth quarter of fiscal 2015. For further information regarding our long-term debt, see Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K and Note J — Long-Term Debt in the Notes. Additionally, we had defined benefit plan obligations of $1.7 billion at January 1, 2016, primarily as a result of the Exelis acquisition. Our $511 million of cash and cash equivalents at January 1, 2016 included $106 million held by our foreign subsidiaries, of which $96 million was considered permanently reinvested. Of the $96 million considered permanently reinvested, $66 million was available for use in the U.S. without incurring additional U.S. income taxes, and we would be required to recognize U.S. income taxes of $12 million on the remaining $30 million if we were to repatriate such funds to the U.S., but we have no current plans to repatriate such funds.

Accumulated other comprehensive loss increased $50 million, to $66 million at the end of the second quarter of fiscal 2016 from $16 million at the end of fiscal 2015, primarily due to the impact of exchange rate changes, reflecting the strength of the U.S. dollar relative to the Canadian Dollar, British Pound, Norwegian Krone and Brazilian Real. See Note P — Derivative Instruments and Hedging Activities in the Notes for further information.

Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facility, cash needs and debt structure, we have not experienced, and do not expect to experience, any material issues with liquidity, although we can give no assurances concerning our future liquidity, particularly in light of our overall level of indebtedness and unfunded pension liability, U.S. Government budget uncertainties and the state of global commerce and financial uncertainty.

We also currently believe that existing cash, funds generated from operations, our credit facility and access to the public and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements, capital expenditures, dividend payments, repayment of our term loans and pension contributions for the next 12 months and reasonably foreseeable future thereafter. Our total capital expenditures in fiscal 2016 are expected to be approximately $200 million. We anticipate tax payments over the next three years to be approximately equal to our tax expense for the same period. Other than those cash outlays noted in the “Commercial Commitments and Contractual Obligations” discussion below in this MD&A, capital expenditures, dividend payments, payments under our term loans and pension contributions, no other significant cash outlays are anticipated during the remainder of fiscal 2016.

There can be no assurance, however, that our business will continue to generate cash flows at current levels or that the cost or availability of future borrowings, if any, under our commercial paper program or our credit facility or in the debt markets will not be impacted by any potential future 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 eliminate strategic acquisitions, reduce or terminate our share repurchases, 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 and other markets we serve and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Net cash provided by operating activities: The increase in net cash provided by operating activities in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to the impact of a decrease in accounts receivable, partially offset by pension contributions.

Net cash used in investing activities: The decrease in net cash used in investing activities in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to $28 million less used for additions of property, plant and equipment in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015.

Net cash used in financing activities: The increase in net cash used in financing activities in the first two quarters of fiscal 2016 compared with the first two quarters of fiscal 2015 was primarily due to $378 million more used for repayments of borrowings, which included $350 million of cash used to repay principal on our term loans ($285 million of voluntary prepayments of principal and $65 million of scheduled principal repayments), as noted above, and $28 million more used to pay cash dividends, partially offset by $176 million more of proceeds from borrowings and $150 million less of repurchases of our common stock under our repurchase program (there were no repurchases of our common stock under our repurchase program in the first two quarters of fiscal 2016).

Funding of Pension Plans

Funding requirements under applicable laws and regulations are a major consideration in making contributions to our U.S. pension plans. Although we have significant discretion in making voluntary contributions, the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree, and Employer Recovery Act of

 

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Table of Contents

2008, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) and applicable Internal Revenue Code regulations mandate minimum funding thresholds. Failure to satisfy the minimum funding thresholds could result in restrictions on our ability to amend the plan or make benefit payments. With respect to U.S. qualified pension plans, we intend to contribute annually not less than the required minimum funding thresholds.

The Highway and Transportation Funding Act of 2014 (“HATFA”), which was signed into law on August 8, 2014, modified the interest rate stabilization provision of MAP-21. We made total contributions of $97 million to our U.S. qualified defined benefit pension plans during the two quarters ended January 1, 2016. We currently anticipate making additional contributions to our U.S. qualified defined benefit pension plans of approximately $76 million during the remainder of fiscal 2016.

Future required contributions will depend primarily on the actual annual return on assets and the discount rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory minimum contributions could be material. See Note 14: “Pension and Other Postretirement Benefits” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K and Note K — Postretirement Benefit Plans in the Notes for further information regarding our pension plans.

Common Stock Repurchases

During the first and second quarters of fiscal 2016, we did not repurchase any shares of our common stock under our repurchase program. During the second quarter of fiscal 2015, we used $50 million to repurchase 704,097 shares of our common stock under our repurchase program at an average price per share of $71.01, including commissions. During the first two quarters of fiscal 2015, we used $150 million to repurchase 2,136,362 shares of our common stock under our repurchase program at an average price per share of $70.21, including commissions. Shares repurchased by us are cancelled and retired.

As of January 1, 2016, we had a remaining, unused authorization of approximately $684 million under our repurchase program, which does not have a stated expiration date. The level of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors may deem relevant. Repurchases are expected to be funded with available cash and commercial paper and may be made through open market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. Additional information regarding our repurchase program is set forth in this Report under Part II. Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds.”

Dividends

On August 28, 2015, our Board of Directors increased the quarterly cash dividend rate on our common stock from $.47 per share to $.50 per share, for an annualized cash dividend rate of $2.00 per share, which was our fourteenth consecutive annual increase in our quarterly cash dividend rate. Our annualized cash dividend rate was $1.88 per share in fiscal 2015. There can be no assurances that our annualized cash dividend rate will continue to increase. Quarterly cash dividends are typically paid in March, June, September and December. We currently expect that cash dividends will continue to be paid in the near future, but we can give no assurances concerning payment of future dividends. The declaration of dividends and the amount thereof will depend on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors that our Board of Directors may deem relevant.

Capital Structure and Resources

2015 Credit Agreement: We have a $1 billion 5-year senior unsecured revolving credit facility (the “2015 Credit Facility”) under a Revolving Credit Agreement (the “2015 Credit Agreement”) entered into on July 1, 2015 with a syndicate of lenders. For a description of the 2015 Credit Facility and the 2015 Credit Agreement, see Note 11: “Credit Arrangements” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K.

We were in compliance with the covenants in the 2015 Credit Agreement at January 1, 2016, including the covenant requiring that we not permit our ratio of consolidated total indebtedness to total capital, each as defined in the 2015 Credit Agreement, to be greater than 0.675 to 1.00 from and including May 29, 2015 until and including February 29, 2016 and 0.65 to 1.00 thereafter. At January 1, 2016, we had no borrowings outstanding under the 2015 Credit Agreement.

Long-Term Debt: For a description of our long-term variable-rate and fixed-rate debt, see Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K and Note J — Long-Term Debt in the Notes.

Short-Term Debt: Our short-term debt at January 1, 2016 and July 3, 2015 was $198 million and $33 million, respectively, and consisted of local borrowing by international subsidiaries for working capital needs and commercial paper at January 1, 2016, and local borrowing by international subsidiaries for working capital needs at July 3, 2015. Our commercial paper program was supported at January 1, 2016 by the 2015 Credit Facility.

 

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Table of Contents

Off-Balance Sheet Arrangements

In accordance with the definition under SEC rules, any of the following qualify as off-balance sheet arrangements:

 

   

Any obligation under certain guarantee contracts;

 

   

A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

 

   

Any obligation, including a contingent obligation, under certain derivative instruments; and

 

   

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.

As of January 1, 2016, we were not participating in any material transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities, and we did not have any material retained or contingent interest in assets as defined above. As of January 1, 2016, we did not have any such material financial guarantees or other contractual commitments that are reasonably likely to adversely affect our results of operations, financial condition or cash flows. In addition, we are not currently a party to any related party transactions that materially affect our results of operations, financial condition or cash flows.

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 results of operations, financial condition 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 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 results of operations, financial condition or cash flows.

Commercial Commitments and Contractual Obligations

The amounts disclosed in our Fiscal 2015 Form 10-K include our contractual obligations and commercial commitments. During the second quarter of fiscal 2016, 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 surety bonds, standby letters of credit and other arrangements as disclosed in our Fiscal 2015 Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes are prepared in accordance with U.S. GAAP. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities. Actual results may differ from our estimates. 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 2015 Form 10-K. Critical accounting policies and estimates are those that require application of management’s 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 contracts and contract estimates (discussed in greater detail in the following paragraphs), (ii) postretirement benefit plans, (iii) provisions for excess and obsolete inventory losses, (iv) impairment testing of goodwill, and (v) income taxes and tax valuation allowances. For additional discussion of our critical accounting policies and estimates, see the “Critical Accounting Policies and Estimates” discussion in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2015 Form 10-K.

Revenue Recognition

A significant portion of our business is derived from development and production contracts. Revenue and profits related to development and production contracts are recognized using the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total costs at completion (i.e., the “cost-to-cost” method) or the ratio of actual units delivered to estimated total units to be delivered under the contract (i.e., the “units-of-delivery” method) with consideration given for risk of performance and estimated profit. The majority of the revenue in our Space and Intelligence Systems and Electronic Systems segments (and to a lesser

 

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extent, revenue in our Critical Networks and Communication Systems segments) relates to development and production contracts, and the percentage-of-completion method of revenue recognition is primarily used for these contracts. Change orders, claims or other items that may change the scope of a development and production contract are included in contract value only when the value can be reliably estimated and realization is probable. Possible incentives or penalties and award fees applicable to performance on development and production contracts are considered in estimating contract value and profit rates and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions that increase earnings based solely on a single significant event generally are not recognized until the event occurs.

Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each development and production contract over its period of performance. Recognition of profit on development and production fixed-price contracts requires estimates of the total cost at completion and the measurement of progress toward completion. The estimated profit or loss on a development and production contract is equal to the difference between the estimated contract value and the estimated total cost at completion. Due to the long-term nature of many of our programs, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance, the risk and impact of delayed performance, availability and timing of funding from the customer and the recoverability of any claims outside the original development and production contract included in the estimate to complete. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we follow a standard estimate at completion process in which management reviews the progress and performance on our ongoing development and production contracts at least quarterly and, in many cases, more frequently. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, at the outset of a cost-reimbursable contract (for example, contracts containing award or incentive fees), we establish an estimated total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimated total contract value may increase or decrease if, for example, we receive higher or lower than expected award fees. When adjustments in estimated total costs at completion or in estimated total contract value are determined, the related impact to operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Anticipated losses on development and production contracts or programs in progress are charged to operating income when identified. We have not made any material changes in the methodologies used to recognize revenue on development and production contracts or to estimate our costs related to development and production contracts in the past three fiscal years.

Estimate at completion adjustments had the following impacts to operating income for the periods presented:

 

     Quarter Ended     Two Quarters Ended  
     January 1,     January 2,     January 1,     January 2,  
     2016     2015     2016     2015  
     (In millions)  

Favorable adjustments

   $ 49     $ 32     $ 96     $ 64  

Unfavorable adjustments

     (25     (16     (55     (26
  

 

 

   

 

 

   

 

 

   

 

 

 

Net operating income adjustments

   $ 24     $ 16     $ 41     $ 38  
  

 

 

   

 

 

   

 

 

   

 

 

 

The increase in the favorable and unfavorable impacts to operating income due to estimate at completion adjustments in the quarter and two quarters ended January 1, 2016 compared with the quarter and two quarters ended January 2, 2015 reflected the inclusion of adjustments in respect of Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015. There were no individual impacts to operating income due to estimate at completion adjustments in the quarter and two quarters ended January 1, 2016 or the quarter and two quarters ended January 2, 2015 that were material to our results of operations on a consolidated or segment basis for such periods.

We also recognize revenue from arrangements requiring the delivery or performance of multiple deliverables or elements under a bundled sale. In these arrangements, judgment is required to determine the appropriate accounting, including whether the individual deliverables represent separate units of accounting for revenue recognition purposes, and the timing of revenue recognition for each deliverable. If we determine that individual deliverables represent separate units of accounting, we recognize the revenue associated with each unit of accounting separately, and contract revenue is allocated among the separate units of accounting at the inception of the arrangement based on relative selling price. If options or change orders materially change the scope of work or price of the contract subsequent to inception, we reevaluate and adjust our prior conclusions regarding units of accounting and allocation of contract revenue as necessary. The allocation of selling price among the separate units of accounting may impact the timing of revenue recognition, but will not change the total revenue recognized on the arrangement. We establish the selling price used for each

 

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deliverable based on the vendor-specific objective evidence (“VSOE”) of selling price, or third-party evidence (“TPE”) of selling price if VSOE of selling price is not available, or best estimate of selling price (“BESP”) if neither VSOE of selling price nor TPE of selling price is available. In determining VSOE of selling price, a substantial majority of the recent standalone sales of the deliverable must be priced within a relatively narrow range. In determining TPE of selling price, we evaluate competitor prices for similar deliverables when sold separately. Generally, comparable pricing of our products to those of our competitors with similar functionality cannot be obtained. In determining BESP, we consider both market data and entity-specific factors, including market conditions, the geographies in which our products are sold, our competitive position and strategy, and our profit objectives.

Impact of Recently Issued Accounting Standards

Accounting standards that have been recently issued, but are not yet effective for us, are described in Note A — Significant Accounting Policies and Recent Accounting Standards in the Notes, which describes the potential impact that these standards 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 Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove to be correct, could cause our results to differ materially from those expressed in 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, systems, technologies, services or developments; future economic conditions, performance or outlook; the outcome of contingencies; the potential level of share repurchases or dividends; potential acquisitions or divestitures; 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 management’s opinions only as of the date of the filing of this Report and are not guarantees of future performance or actual results. Forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The following are some of the factors we believe could cause our actual results to differ materially from our historical results or our current expectations or projections:

 

   

We depend on U.S. Government customers for a significant portion of our revenue, and the loss of these relationships, a reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an adverse impact on our business, financial condition, results of operations and cash flows.

 

   

We depend significantly on 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, or negative audit findings for, one or more of these contracts could have an adverse impact on our business, financial condition, results of operations and cash flows.

 

   

We could be negatively impacted by a security breach, through cyber attack, cyber intrusion or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers.

 

   

The level of returns on defined benefit plan assets, changes in interest rates and other factors could affect our earnings and cash flows in future periods.

 

   

We enter into fixed-price contracts that could subject us to losses in the event of cost overruns or a significant increase in inflation.

 

   

We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our future financial results.

 

   

We derive a significant portion of our revenue from international operations and are subject to the risks of doing business internationally, including fluctuations in currency exchange rates.

 

   

Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.

 

   

We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments.

 

   

The continued effects of the general weakness in the global economy and the U.S. Government’s budget deficits and national debt and sequestration could have an adverse impact on our business, financial condition, results of operations and cash flows.

 

   

Our future success will depend on our ability to develop new products, systems, services and technologies that achieve market acceptance in our current and future markets.

 

   

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.

 

   

We cannot predict the consequences of future geo-political events, but they may adversely affect 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 and divestitures that involve significant risks and uncertainties.

 

   

Disputes with our subcontractors and the inability of our subcontractors to perform, or our key suppliers to timely deliver our components, parts or services, could cause our products or services to be produced or delivered in an untimely or unsatisfactory manner.

 

   

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.

 

   

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 condition, results of operations and cash flows.

 

   

We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.

 

   

Changes in our effective tax rate may have an adverse effect on our results of operations.

 

   

Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded pension liability may adversely affect our financial and operating activities or our ability to incur additional debt.

 

   

A downgrade in our credit ratings could materially adversely affect our business.

 

   

Unforeseen environmental issues could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

   

We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption.

 

   

Sustained weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, could adversely affect demand for our managed satellite and terrestrial communications solutions or other products, which could adversely affect our business, financial condition, results of operations and cash flows.

 

   

Changes in the regulatory framework under which our managed satellite and terrestrial communications solutions operations are operated could adversely affect our business, financial condition, results of operations and cash flows.

 

   

We rely on third parties to provide satellite bandwidth for our managed satellite and terrestrial communications solutions, and any bandwidth constraints could harm our business, financial condition, results of operations and cash flows.

 

   

Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other long-term assets to become impaired, resulting in substantial losses and write-downs that would adversely affect our results of operations.

 

   

Some of our workforce is represented by labor unions, so our business could be harmed in the event of a prolonged work stoppage.

 

   

We must attract and retain key employees, and failure to do so could seriously harm us.

 

   

We may be responsible for U.S. Federal income tax liabilities that relate to the spin-off of Vectrus, Inc. (“Vectrus”) completed by Exelis.

 

   

In connection with the Vectrus spin-off, Vectrus indemnified Exelis for certain liabilities and Exelis indemnified Vectrus for certain liabilities. This indemnity may not be sufficient to insure us against the full amount of the liabilities assumed by Vectrus and Vectrus may be unable to satisfy its indemnification obligations to us in the future.

 

   

The Vectrus spin-off may expose us to potential liabilities arising out of state and Federal fraudulent conveyance laws and legal distribution requirements.

 

   

The ITT Corporation (“ITT”) spin-off of Exelis may expose us to potential liabilities arising out of state and Federal fraudulent conveyance laws and legal distribution requirements.

 

   

If we are required to indemnify ITT or Xylem, Inc. (“Xylem”) in connection with the ITT spin-off of Exelis, we may need to divert cash to meet those obligations and our financial results could be negatively impacted.

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 2015 Form 10-K under Item 1A. “Risk Factors” and in Part II. Item 1A “Risk Factors” in this Report. The foregoing list of factors and the factors set forth in Item 1A. “Risk Factors” included in our Fiscal 2015 Form 10-K and in Part II. Item 1A. “Risk Factors” in this Report 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 business, financial condition, results of operations and cash flows. Should any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition, results of operations and cash flows. The forward-looking statements contained in this Report 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 developments or otherwise.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

In the normal course of doing business, we are exposed to 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 currency forward contracts and options to hedge both balance sheet and off-balance sheet future foreign currency commitments. 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 change in currency exchange rates for our foreign currency derivatives held at January 1, 2016 would not have had a material impact on the fair value of such instruments or our results of operations or cash flows. This quantification of exposure to the market risk associated with foreign currency 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. See Note P — Derivative Instruments and Hedging Activities in the Notes for additional information.

Interest Rates: As of January 1, 2016, we had long-term fixed-rate debt obligations. The fair value of these obligations is impacted by changes in interest rates; however, a 10 percent change in interest rates for our long-term fixed-rate debt obligations at January 1, 2016 would not have had a material impact on the fair value of these obligations. Additionally, there is no interest-rate risk associated with these obligations on our results of operations and cash flows, because the interest rates are fixed, and because our long-term fixed-rate debt is not putable to us (required to be redeemed by us prior to maturity). We can give no assurances, however, that interest rates will not change significantly or have a material effect on the fair value of our long-term debt obligations over the next twelve months.

As of January 1, 2016, we also had long-term variable-rate debt obligations of $917 million under our senior unsecured term loan facility in connection with our acquisition of Exelis, comprised of term loans of $316 million in a 3-year tranche and $601 million in a 5-year tranche. These term loans bear interest that is variable based on certain short-term indices, thus exposing us to interest-rate risk; however, a 10 percent change in interest rates for these term loans would not have had a material impact on our results of operations or cash flows. For each tranche of term loans, we are required to make quarterly principal amortization payments equal to 2.50 percent of the $650 million initial principal amount of such tranche of the term loans. We have the ability at any time or from time to time, to voluntarily prepay term loans of either tranche in whole or in part without premium or penalty. We made $168 million and $285 million of voluntary repayments of principal on the 3-year tranche term loan during the quarter and two quarters ended January 1, 2016, respectively.

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 or submitted 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. As required by Rule 13a-15 under the Exchange Act, as of the end of the second quarter of fiscal 2016, 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 management, including our Chief Executive Officer and our Chief Financial Officer. Based on this work and other evaluation procedures, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that as of the end of the second quarter of fiscal 2016 our disclosure controls and procedures were effective.

(b) Changes in Internal Control: We periodically review our 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 routinely 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 business units, migrating certain processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and increasing monitoring controls. In addition, when we acquire new businesses, we incorporate our controls and procedures into the acquired business as part

 

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of our integration activities. As part of our integration of Exelis, we are in the process of incorporating our controls and procedures with respect to Exelis operations, and we will include internal controls with respect to Exelis operations in our assessment of the effectiveness of our internal control over financial reporting as of the end of fiscal 2016. Other than incorporating our controls and procedures with respect to Exelis operations, there have been no changes in our internal control over financial reporting that occurred during the second quarter of fiscal 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

General. From time to time, as a normal incident of the nature and kind of business in which we are, and were, engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. Although it is not feasible to predict the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be disposed of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in litigation or arbitration in existence at January 1, 2016 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

On February 4, 2013, we completed the sale of Broadcast Communications to the Buyer pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer’s favor. As further discussed in Note B Discontinued Operations in the Notes, as a result of such determination we recorded a loss in discontinued operations of $21 million ($17 million after-tax) in the second quarter of fiscal 2016.

International. As an international company, we are, from time to time, the subject of investigations relating to our international operations, including under U.S. export control laws and the FCPA and other similar U.S. and international laws. On April 4, 2011, we completed the acquisition of Carefx and thereby also acquired its subsidiaries, including Carefx China. Following the closing, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, we initiated an internal investigation and learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers, potential customers, consultants, and government regulators, after which we took certain remedial actions. The results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and voluntarily to the DOJ and the SEC. The SEC and DOJ initiated investigations with respect to this matter. During the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter. The DOJ further advised us that its decision was based on its overall view of the evidence as to our level of acquisition due diligence and integration efforts, our voluntary disclosure to the DOJ and SEC, our remediation efforts and our cooperation throughout the investigation, which is continuing. At this time we also are continuing to cooperate with the SEC regarding its investigation. We cannot predict at this time the duration or scope of, developments in, results of, or any regulatory action or other potential consequences from, such investigation or otherwise in connection with this matter. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.

Tax Audits. Our tax filings are subject to audit by taxing authorities in jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or ultimately through legal proceedings. We believe we have adequately accrued for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be different from the amounts recorded in our Condensed Consolidated Financial Statements (Unaudited).

 

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Item 1A. Risk Factors.

Investors should carefully review and consider the information regarding certain factors which could materially affect our business, results of operations, financial condition and cash flows as set forth under Item 1A. “Risk Factors” in our Fiscal 2015 Form 10-K. Other than the new risk factor below, we do not believe that there have been any material changes to the risk factors previously disclosed in our Fiscal 2015 Form 10-K. We may disclose changes to such risk factors or disclose additional risk 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 believe not to be material may also adversely impact our business, results of operations, financial condition and cash flows.

Sustained weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, could adversely affect demand for our managed satellite and terrestrial communications solutions or other products, which could adversely affect our business, financial condition, results of operations and cash flows.

Prices in oil and natural gas markets may be influenced by numerous factors, including general economic conditions, industry inventory levels, production quotas or other actions imposed by the Organization of Petroleum Exporting Countries (“OPEC”), weather-related disruptions, competing fuel prices and geopolitical risks. Sustained weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, could adversely affect our customers in energy and related industries, which could adversely affect demand for our managed satellite and terrestrial communications solutions. Such weakness or volatility also could adversely affect demand for our tactical communications or other products from customers in the Middle East or other oil or natural gas-producing countries. Any decrease in demand for our managed satellite and terrestrial communications solutions or other products could adversely affect our business, financial condition, results of operations and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

During the second quarter of fiscal 2016, we did not repurchase any shares of our common stock under our repurchase program. During the second quarter of fiscal 2015, we repurchased 704,097 shares of our common stock under our repurchase program at an average price per share of $70.99, excluding commissions. The level of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. Shares repurchased by us are cancelled and retired.

 

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The following table sets forth information with respect to repurchases by us of our common stock during the second quarter of fiscal 2016:

 

Period*    Total number of
shares purchased
     Average price
paid per share
     Total number of
shares purchased
as part of publicly
announced  plans
or programs (1)
     Maximum approximate
dollar value of shares
that may yet be
purchased under the
plans or programs (1)
 

Month No. 1

           

(October 3, 2015-October 30, 2015)

           

Repurchase Programs (1)

     —           —           —         $ 683,544,295  

Employee Transactions (2)

     2,094      $ 77.52        —           —     

Month No. 2

           

(October 31, 2015-November 27, 2015)

           

Repurchase Programs (1)

     —           —           —         $ 683,544,295  

Employee Transactions (2)

     14,221      $ 79.82        —           —     

Month No. 3

           

(November 28, 2015-January 1, 2016)

           

Repurchase Programs (1)

     —           —           —         $ 683,544,295  

Employee Transactions (2)

     8,172      $ 83.06        —           —     
  

 

 

       

 

 

    

Total

     24,487      $ 80.70        —         $ 683,544,295  
  

 

 

       

 

 

    
* Periods represent our fiscal months.
(1) On August 26, 2013, we announced that on August 23, 2013, our Board of Directors approved a new share repurchase program (our “2013 Repurchase Program”) authorizing us to repurchase up to $1 billion in shares of our common stock through open-market transactions, private transactions, transactions structured through investment banking institutions or any combination thereof. As of January 1, 2016, $683,544,295 (as reflected in the table above) was the approximate dollar amount of our common stock that may yet be purchased under our 2013 Repurchase Program, which does not have a stated expiration date. The level of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time.
(2) Represents a combination of (a) shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance share units, restricted stock units or restricted shares that vested during the quarter or (b) performance share units, restricted stock units or restricted shares returned to us upon retirement or employment termination of employees. 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.

Sales of Unregistered Equity Securities

During the second quarter of fiscal 2016, we did not issue or sell any unregistered equity securities.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

 

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Item 5. Other Information.

Not Applicable.

Item 6. Exhibits.

The following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC:

 

(3)    (a) Restated Certificate of Incorporation of Harris Corporation (1995), as amended, incorporated herein by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2012. (Commission File Number 1-3863)
   (b) By-Laws of Harris Corporation, as amended and restated effective December 5, 2014, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2014. (Commission File Number 1-3863)
(4)    Second Supplemental Indenture, dated as of December 31, 2015, between Harris Corporation and MUFG Union Bank, N.A.
(10)    *(a) Harris Corporation 2015 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)
   *(b) Harris Corporation Annual Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)
   *(c) Harris Corporation 2015 Equity Incentive Plan Performance Unit Award Agreement Terms and Conditions (as of October 23, 2015).
   *(d) Harris Corporation 2015 Equity Incentive Plan Restricted Share Award Agreement Terms and Conditions (as of October 23, 2015).
   *(e) Harris Corporation 2015 Equity Incentive Plan Restricted Unit Award Agreement Terms and Conditions (as of October 23, 2015).
   *(f) Harris Corporation 2015 Equity Incentive Plan Stock Option Award Agreement Terms and Conditions (as of October 23, 2015).
   *(g) Harris Corporation 2015 Equity Incentive Plan Non-Employee Director Restricted Unit Award Agreement Terms and Conditions (As of December 4, 2015).
   *(h) Amendment Number Two to the Harris Corporation 2005 Directors’ Deferred Compensation Plan (As Amended and Restated Effective January 1, 2009), dated December 4, 2015.
   *(i) Summary of Annual Compensation of Non-Employee Directors (Last Modified December 4, 2015).
   *(j) Amendment Number One to the Harris Corporation Retirement Plan (Amended and Restated Effective October 1, 2015), dated December 9, 2015.
   *(k) Harris Corporation Retirement Plan (Amended and Restated Effective January 1, 2016).
(12)    Computation of Ratio of Earnings to Fixed Charges.
(15)    Letter Regarding Unaudited Interim Financial Information.
(31.1)    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
(31.2)    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
(32.1)    Section 1350 Certification of Chief Executive Officer.
(32.2)    Section 1350 Certification of Chief Financial Officer.
(101.INS)    XBRL Instance Document.
(101.SCH)    XBRL Taxonomy Extension Schema Document.
(101.CAL)    XBRL Taxonomy Extension Calculation Linkbase Document.
(101.LAB)    XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)    XBRL Taxonomy Extension Presentation Linkbase Document.
(101.DEF)    XBRL Taxonomy Extension Definition Linkbase Document.

 

* Management contract or compensatory plan or arrangement

 

38


Table of Contents

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.

 

    HARRIS CORPORATION
    (Registrant)
Date: February 3, 2016     By:   /s/ Miguel A. Lopez
      Miguel A. Lopez
      Senior Vice President and Chief Financial Officer
      (principal financial officer and duly authorized officer)

 

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Table of Contents

EXHIBIT INDEX

 

Exhibit No.

Under Reg. S-K,

Item 601

  

Description

(3)   

(a) Restated Certificate of Incorporation of Harris Corporation (1995), as amended, incorporated herein by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2012. (Commission File Number 1-3863)

 

(b) By-Laws of Harris Corporation, as amended and restated effective December 5, 2014, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2014. (Commission File Number 1-3863)

(4)    Second Supplemental Indenture, dated as of December 31, 2015, between Harris Corporation and MUFG Union Bank, N.A.
(10)   

*(a) Harris Corporation 2015 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)

 

*(b) Harris Corporation Annual Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)

 

*(c) Harris Corporation 2015 Equity Incentive Plan Performance Unit Award Agreement Terms and Conditions (as of October 23, 2015).

 

*(d) Harris Corporation 2015 Equity Incentive Plan Restricted Share Award Agreement Terms and Conditions (as of October 23, 2015).

 

*(e) Harris Corporation 2015 Equity Incentive Plan Restricted Unit Award Agreement Terms and Conditions (as of October 23, 2015).

 

*(f) Harris Corporation 2015 Equity Incentive Plan Stock Option Award Agreement Terms and Conditions (as of October 23, 2015).

 

*(g) Harris Corporation 2015 Equity Incentive Plan Non-Employee Director Restricted Unit Award Agreement Terms and Conditions (As of December 4, 2015).

 

*(h) Amendment Number Two to the Harris Corporation 2005 Directors’ Deferred Compensation Plan (As Amended and Restated Effective January 1, 2009), dated December 4, 2015.

 

*(i) Summary of Annual Compensation of Non-Employee Directors (Last Modified December 4, 2015).

 

*(j) Amendment Number One to the Harris Corporation Retirement Plan (Amended and Restated Effective October 1, 2015), dated December 9, 2015.

 

*(k) Harris Corporation Retirement Plan (Amended and Restated Effective January 1, 2016).

(12)    Computation of Ratio of Earnings to Fixed Charges.
(15)    Letter Regarding Unaudited Interim Financial Information.
(31.1)    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
(31.2)    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
(32.1)    Section 1350 Certification of Chief Executive Officer.
(32.2)    Section 1350 Certification of Chief Financial Officer.
(101.INS)    XBRL Instance Document.
(101.SCH)    XBRL Taxonomy Extension Schema Document.
(101.CAL)    XBRL Taxonomy Extension Calculation Linkbase Document.
(101.LAB)    XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)    XBRL Taxonomy Extension Presentation Linkbase Document.
(101.DEF)    XBRL Taxonomy Extension Definition Linkbase Document.

 

* Management contract or compensatory plan or arrangement.

Exhibit 4

Execution Version

SECOND SUPPLEMENTAL INDENTURE (this “Second Supplemental Indenture”), dated as of December 31, 2015, between HARRIS CORPORATION (or its permitted successor), a Delaware corporation (“Harris”), and MUFG UNION BANK, N.A. (f/k/a Union Bank, N.A.), as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, Exelis Inc., an Indiana corporation and a subsidiary of Harris, (“Exelis”), Harris and the guarantors named therein, as applicable, have heretofore executed and delivered to the Trustee an indenture, dated as of September 20, 2011, as amended by the Supplemental Indenture, dated as of June 2, 2015 (as further amended or supplemented, the “Indenture”) providing for the issuance from time to time of an unlimited amount of senior notes;

WHEREAS, Exelis currently has issued and outstanding under the Indenture $250,000,000 aggregate principal amount of 4.25% senior notes due October 1, 2016 and $400,000,000 aggregate principal amount of 5.55% senior notes due October 1, 2021 (collectively, the “Notes”, and each a “series of Notes”);

WHEREAS, pursuant to the terms of the Indenture, Exelis, simultaneously with the effectiveness of this Second Supplemental Indenture, shall merge with and into Harris (the “Merger”), with Harris as the successor corporation (“Successor Corporation”); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Second Supplemental Indenture without notice to or consent of the Holders of the Notes.

NOW THEREFORE, in consideration of the foregoing, the Successor Corporation and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

ARTICLE ONE.

DEFINITIONS

SECTION 1.01. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture or in the securities evidencing the applicable series of Notes.

ARTICLE TWO.

ASSUMPTION OF OBLIGATIONS

SECTION 2.01. Assumption of Payment. Pursuant to, and in compliance and accordance with, Section 8.01 of the Indenture, the Successor Corporation hereby expressly assumes the due and punctual payment of the principal, premium, if any, and interest, if any, on the Notes and the performance of every covenant of the Indenture on the part of Exelis to be performed or observed.

SECTION 2.02. Assumption of Rights. Pursuant to, and in compliance and accordance with, Section 8.02 of the Indenture, the Successor Corporation succeeds to, is substituted for, and may exercise every right and power of, Exelis under the Indenture with the same effect as if the Successor Corporation had originally been named in the Indenture as Exelis.

 

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SECTION 2.03. Conditions of Effectiveness. This Second Supplemental Indenture shall become effective simultaneously with the effectiveness of the Merger.

ARTICLE THREE.

MISCELLANEOUS

SECTION 3.01. Successors and Assigns of the Successor Corporation. All the covenants, stipulations, promises and agreements contained in this Second Supplemental Indenture by or in behalf of the Successor Corporation shall bind its respective successors and assigns, whether so expressed or not.

SECTION 3.02. Provisions of Trust Indenture Act of 1939 to Control. If and to the extent that any provision of this Second Supplemental Indenture limits, qualifies or conflicts with a provision of the Trust Indenture Act of 1939 that is required under such Act to be a part of and govern this Second Supplemental Indenture, the latter provision shall control. If any provision of this Second Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act of 1939 that may be so modified or excluded, the latter provision shall be deemed to apply to this Second Supplemental Indenture as so modified or to be excluded, as the case may be.

SECTION 3.03. Effect of Invalidity of Provisions. In case any one or more of the provisions contained in this Second Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Second Supplemental Indenture, but this Second Supplemental Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.

SECTION 3.04. Second Supplemental Indenture to Be Construed in Accordance with New York Law. This Second Supplemental Indenture shall be construed in accordance with and governed by the laws of the State of New York, without regard to conflict of law principles.

SECTION 3.05. Second Supplemental Indenture May Be Executed in Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.

SECTION 3.06. Headings. The headings of the Articles and Sections of this Second Supplemental Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.

SECTION 3.07. Recitals by Successor Corporation. The recitals in this Second Supplemental Indenture are made by the Successor Corporation only and not by the Trustee, all of the provisions contained in the Indenture in respect of the rights, privileges, indemnities, immunities, powers and duties of the Trustee shall be applicable in respect of this Second Supplemental Indenture as fully and with like effect as if set forth herein in full and the Trustee shall not be responsible for the validity or sufficiency of this Second Supplemental Indenture.

 

2


IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the date first above written.

 

Harris Corporation, as the Successor Corporation
By:  

/s/ Charles J. Greene

Name:   Charles J. Greene
Title:   Vice President, Tax and Treasurer

 

[Signature Page to Second Supplemental Indenture to Exelis Indenture]


MUFG Union Bank, N.A., as Trustee
By:  

/s/ Fernando Moreyra

Name:   Fernando Moreyra
Title:   Vice President

 

[Signature Page to Second Supplemental Indenture to Exelis Indenture]

Exhibit 10(c)

HARRIS CORPORATION

2015 EQUITY INCENTIVE PLAN

PERFORMANCE UNIT AWARD AGREEMENT

TERMS AND CONDITIONS

(AS OF OCTOBER 23, 2015)

1. Performance Unit Award – Terms and Conditions. Under and subject to the provisions of the Harris Corporation 2015 Equity Incentive Plan (as may be amended from time to time, the “Plan”) and upon the terms and conditions set forth herein (these “Terms and Conditions”), Harris Corporation (the “Corporation”) has granted to the employee receiving these Terms and Conditions (the “Employee”) a Performance Unit Award (the “Award”) of such number of performance units as set forth in the Award Notice (as defined below) from the Corporation to the Employee (such units, as may be adjusted in accordance with Sections 1(c), 1(d), 1(e) and 3 of these Terms and Conditions, the “Performance Units”). At all times, each Performance Unit shall be equal in value to one share of common stock, $1.00 par value per share (the “Common Stock”), of the Corporation (a “Share”). Such Award is subject to the following Terms and Conditions (these Terms and Conditions, together with the Corporation’s letter or notice to the Employee specifying the number of Performance Units subject to the Award, the Performance Period, the form of payment of the Award and certain other terms (the “Award Notice”) and the Statement of Performance Goals (as defined below) related thereto, are referred to as the “Agreement”).

(a) Performance Period. For purposes of the Agreement, the “Performance Period” shall be the Performance Period set forth and designated as such in the Award Notice.

(b) Payout of Award. Provided the Award has not previously been forfeited, as soon as administratively practicable following the expiration of the Performance Period, but in no event later than the 15th day of the third month following the expiration of the Performance Period, (i) if the Award Notice specifies that the Performance Units are to be paid in Shares, the Corporation shall issue to the Employee in a single payment the number of Shares underlying the Performance Units to which the Employee is entitled pursuant hereto; or (ii) if the Award Notice specifies that the Performance Units are to be paid in cash, the Corporation shall pay to the Employee a single lump sum cash payment equal to the Fair Market Value (as of the date of the expiration of the Performance Period) of the number of Shares underlying the Performance Units to which the Employee is entitled pursuant hereto. If the Award is to be paid in Shares, upon payout the Corporation shall at its option, cause such Shares as to which the Employee is entitled pursuant hereto: (i) to be released without restriction on transfer by delivery to the custody of the Employee of a stock certificate in the name of the Employee or his or her designee or (ii) to be credited without restriction on transfer to an account for the benefit of the Employee or his or her designee.

(c) Satisfaction of Performance Objectives. The payout of the Award shall be contingent upon the attainment during the Performance Period of the performance objectives set forth in the Statement of Performance Goals (however designated) delivered or made available to the Employee at the time of the Award (the “Statement of Performance Goals”). The payout of the Award shall be determined upon the expiration of the Performance Period in accordance with the Statement of Performance Goals. The final determination of the payout of the Award

 

1


will be authorized by the Board, the Board Committee, or its designee. Performance Units will be forfeited (A) if they are not earned at the end of the Performance Period or (B) except as otherwise provided herein, if the Employee ceases to be employed by the Corporation at any time prior to the expiration of the Performance Period.

(d) Rights During Performance Period; Dividend Equivalents.

(i) During the Performance Period, the Employee shall not have any rights as a shareholder with respect to the Shares underlying the Performance Units.

(ii) If, at any time during the Performance Period, the Corporation pays a dividend or makes other distributions on the Common Stock, (A) if the Award Notice specifies that the Performance Units are to be paid in Shares, then on or about the date the Performance Units are paid in Shares and the Corporation issues to the Employee the Shares underlying the Performance Units, the Corporation shall pay to the Employee the dividends or other distributions paid or payable during the Performance Period on the number of Shares underlying the Performance Units to which the Employee is entitled, or (B) if the Award Notice specifies that the Performance Units are to be paid in cash, then on or about the date the Performance Units are paid in cash to the Employee, the Corporation shall pay to the Employee the dividends or other distributions paid or payable during the Performance Period on the number of Shares underlying the Performance Units to which the Employee is entitled. No such dividends or other distributions will be paid in respect of Performance Units that are forfeited or cancelled. No interest shall be paid on any such dividends or distributions. If any such dividend or other distribution is paid in securities of the Corporation (including Shares), such dividend equivalents in respect of such securities relating to the Performance Units shall be subject to the same restrictions and conditions as the Performance Units in respect of which such dividend equivalents were paid, and shall be paid to the Employee in the manner and at the time the Performance Units are paid.

(iii) If the number of outstanding shares of Common Stock is changed as a result of a stock dividend, stock split or the like, without additional consideration to the Corporation, the Performance Units subject to the Award shall be adjusted to correspond to the change in the Corporation’s outstanding shares of Common Stock. If the Award Notice specifies that the Performance Units are to be paid in Shares, upon the expiration of the Performance Period and payout of the Award, the Employee may exercise voting rights and shall be entitled to receive dividends and other distributions with respect to the number of Shares to which the Employee is entitled pursuant hereto.

(e) Adjustment to Award. The number of Performance Units subject to the Award is based upon the assumption that the Employee shall continue to perform substantially the same duties throughout the Performance Period, and such number of Performance Units may be reduced or increased by the Board or the Board Committee or its designee without formal amendment of the Agreement to reflect a change in duties during the Performance Period.

2. Forfeiture; Termination of Employment. Except in the event of a Change in Control covered in Section 5 herein or as otherwise provided in the Award Notice, if the Employee ceases to be an employee of the Corporation prior to the expiration of the first fiscal year of the Performance Period (“Minimum Vesting Period”), the Award and all Performance

 

2


Units subject to the Award and any right to payment of Shares or cash in respect of the Award shall be immediately and automatically forfeited upon such termination of employment. Except in the event of a Change in Control covered in Section 5 herein or as otherwise provided in the Award Notice, if the Employee ceases to be an employee of the Corporation following satisfaction of the Minimum Vesting Period but prior to the expiration of the Performance Period:

(a) for any reason other than (i) death, (ii) permanent disability (as determined by the Corporation), or (iii) retirement after age 55 with ten or more years of full-time service, all Performance Units subject to the Award shall be immediately and automatically forfeited upon such termination of employment; or

(b) due to (i) death or (ii) permanent disability (as determined by the Corporation), the Employee’s heirs or beneficiaries or the Employee, as applicable, shall be fully vested in, and entitled to receive a payment in respect of, a pro-rata portion of the target number of Performance Units subject to the Award, and the remaining payout and Performance Units subject to the Award shall be immediately and automatically forfeited. Such pro-rata portion shall be measured by a fraction, of which the numerator is the number of days of the Performance Period during which the Employee’s employment continued, and the denominator is the number of days of the Performance Period. The Performance Period shall immediately expire with respect to such pro-rata portion that is vested pursuant to the provisions of this Section 2(b), if any, and the payout in respect of such pro-rata portion shall be made in the form specified in Section 1(b) as soon as administratively practicable following such immediate expiration of the Performance Period, but in no event later than sixty (60) days following such immediate expiration of the Performance Period.

(c) due to retirement after age 55 with ten or more years of full-time service, the Employee shall be eligible to receive a pro-rata portion of the payout in respect of the Performance Units which would have been made to the Employee under the Award at the end of the Performance Period determined in accordance with the provisions of Section 1(c) hereof, and the remaining payout and Performance Units subject to the Award shall be immediately and automatically forfeited. Such pro-rata portion shall be measured by a fraction, of which the numerator is the number of days of the Performance Period during which the Employee’s employment continued, and the denominator is the number of days of the Performance Period. The pro-rata portion of the payout in respect of the Performance Units required to be paid under this Section 2(c) shall be paid to the Employee in the form and at the time as specified in Section 1(b).

3. Transfer of Employment. If the Employee transfers employment from one business unit of the Corporation or an Affiliate to another business unit or Affiliate during a Performance Period, the Employee shall be eligible to receive the number of Performance Units determined by the Board or the Board Committee or its designee based upon such factors as the Board or the Board Committee or its designee, as the case may be, in its sole discretion may deem appropriate.

4. Prohibition Against Transfer. Until the expiration of the Performance Period and payout of the Award, the Award, the Performance Units subject to the Award, any interest in the Shares (in the case of a payout to be made in Shares as specified in the Award Notice) or cash to

 

3


be paid, as applicable, related thereto, and the rights granted under these Terms and Conditions and the Agreement are not transferable except by will or by the laws of descent and distribution in the event of the Employee’s death. Without limiting the generality of the foregoing, except as aforesaid, until the expiration of the Performance Period and payout of the Award, the Award, the Performance Units subject to the Award, any interest in the Shares (in the case of a payout to be made in Shares as specified in the Award Notice) or cash to be paid, as applicable, related thereto, and the rights granted under these Terms and Conditions and the Agreement may not be sold, exchanged, assigned, transferred, pledged, hypothecated, encumbered or otherwise disposed of, shall not be assignable by operation of law, and shall not be subject to execution, attachment, charge, alienation or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect.

5. Change in Control. (a) Upon a Change in Control, the performance objectives set forth in the Statement of Performance Goals shall be conclusively deemed to have been attained for the Performance Period upon the occurrence of such Change in Control at the target level of performance under such performance objectives, or at such greater level of performance as the Board, the Board Committee or its designee may authorize. The payout of the Performance Units shall be paid to the Employee at the end of the Performance Period; provided, however, that, following such Change in Control but prior to the end of the Performance Period: (i) in the event of the Employee’s death, termination due to permanent disability (as determined by the Corporation), retirement after age 55 with ten or more years of full-time service, or involuntary termination of employment of the Employee by the Corporation other than for Cause, the payout of the Performance Units shall be vested immediately and paid in Shares or in a single cash lump sum as specified in the Award Notice as soon as administratively practicable but no later than the end of the calendar year in which the vesting event occurs; (ii) in the event of the Employee’s resignation or termination for Cause, the payout of the Award shall be forfeited; and (iii) in the event of a “change in the Corporation’s capital structure,” the payout of the Performance Units shall be vested immediately and if (A) the Award Notice specifies that the Performance Units are to be paid in Shares, at the election of the Employee, the payout of the Award shall be paid in Shares without restriction on transfer or shall be converted and paid in cash or (B) the Award Notice specifies that the Performance Units are to be paid in cash, such Performance Units shall be paid in cash. The amount of any cash payment made under this Section 5 will be an amount equal to the number of Shares underlying the Performance Units subject to the Award at the target level of performance or at such greater level of performance so authorized by the Board, the Board Committee or its designee, in either case multiplied by the highest price per share paid in any transaction reported on the New York Stock Exchange Composite Index: (A) during the sixty (60) day period preceding and including the date of a “change in the Corporation’s capital structure;” or (B) during the sixty (60) day period preceding and including the date of the Change in Control. An Award in Shares or cash shall be paid as soon as administratively practicable following a “change in the Corporation’s capital structure,” but no later than the end of the calendar year in which the change in the Corporation’s capital structure occurs.

(b) For purposes hereof, a “change in the Corporation’s capital structure” shall be deemed to have occurred if:

(i) the Shares are no longer the only class of the Corporation’s Common Stock;

 

4


(ii) the Shares cease to be, or are not readily, tradable on an established securities market (in the United States) within the meaning of Section 409(l)(1) of the Internal Revenue Code of 1986, as amended;

(iii) the Corporation issues warrants, convertible debt, or any other security that is exercisable or convertible into Common Stock, except for rights granted under the Plan; or

(iv) the ratio of total debt to total capitalization exceeds 45 percent. Total debt is the total debt for borrowed money. Total capitalization is consolidated total assets of the Corporation less consolidated total liabilities of the Corporation.

(c) “Cause” shall mean (i) a material breach by the Employee of the duties and responsibilities of the Employee (other than as a result of incapacity due to physical or mental illness) which is (A) demonstrably willful, continued and deliberate on the Employee’s part, (B) committed in bad faith or without reasonable belief that such breach is in the best interests of the Corporation and (C) not remedied within fifteen (15) days after receipt of written notice from the Corporation which specifically identifies the manner in which such breach has occurred or (ii) the Employee’s conviction of, or plea of nolo contendere to, a felony involving willful misconduct which is materially and demonstrably injurious to the Corporation. 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 Corporation shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Corporation. Cause shall not exist unless and until the Corporation has delivered to the Employee 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 the Employee and an opportunity for the Employee, 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 (i) or (ii) has occurred and specifying the particulars thereof in detail. The Corporation must notify the Employee of any event constituting Cause within ninety (90) days following the Corporation’s knowledge of its existence or such event shall not constitute Cause under these Terms and Conditions.

6. Protective Covenants. In consideration of, among other things, the grant of the Award to the Employee, the Employee acknowledges and agrees, by acceptance of the Award, to the following provisions:

(a) Non-Solicitation. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or on behalf of any other employer or any other business, person or entity: (i) recruit, induce, Solicit or attempt to recruit, induce or Solicit any Individual Employed by the Corporation to terminate, abandon or otherwise leave or discontinue employment with the Corporation; or (ii) hire or cause or assist any Individual Employed by the Corporation to become employed by or provide services to any other business, person or entity whether as an employee, consultant, contractor or otherwise.

(b) Customer or Potential Customer Non-Interference. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or (i) on behalf of any other employer or any other business, person or entity, entice, induce, Solicit or attempt or

 

5


participate in enticing, inducing or Soliciting, any Customer or Potential Customer of the Corporation to cease or reduce or refrain from doing business with the Corporation; or (ii) on behalf of any Competitive Business, entice, induce, Solicit or attempt or participate in enticing, inducing or Soliciting, or accept or attempt or participate in accepting, business from any Customer or Potential Customer of the Covered Unit(s).

(c) Non-Competition. During the Protective Covenant Period, the Employee shall not, directly or indirectly, as an employee, independent contractor, consultant, officer, director, principal, lender or investor engage or otherwise participate in any activities with, or provide services to, a Competitive Business, without the prior written consent of the Senior Vice President, Human Resources or other designated executive officer of the Corporation (which consent shall be at such officer’s discretion to give or withhold). Nothing in this Section 6(c) shall preclude the Employee from owning up to 1% of the equity in any publicly traded company.

(d) No Disparagement or Detrimental Comments. During the Employee’s employment with the Corporation and thereafter, the Employee shall not, directly or indirectly, make or publish, or cause to be made or published, any statement, observation or opinion, whether verbal or written, that criticizes, disparages, defames or otherwise impugns or reasonably may be interpreted to criticize, disparage, defame or impugn, the character, integrity or reputation of the Corporation or its products, goods, systems or services, or its current or former directors, officers, employees, agents, successors or assigns. Nothing in this Section 6(d) is intended or should be construed to prevent the Employee from providing truthful testimony or information to any person or entity as required by law or fiduciary duties or as may be necessary in the performance of the Employee’s duties in connection with the Employee’s employment with the Corporation.

(e) Confidentiality. During the Employee’s employment with the Corporation and thereafter, the Employee shall not use or disclose, except on behalf of the Corporation and pursuant to and in compliance with its direction and policies, any Confidential Information of (i) the Corporation or (ii) any third party received by the Corporation which the Corporation is obligated to keep confidential. This Section 6(e) will apply in addition to, and not in derogation of, any other confidentiality or non-disclosure agreement that may exist, now or in the future, between the Employee and the Corporation.

(f) Consideration and Acknowledgment. The Employee acknowledges and agrees to each of the following: (i) the Employee’s acceptance of the Award and participation in the Plan is voluntary; (ii) the benefits and rights provided by the Agreement and Plan are wholly discretionary and, although provided by the Corporation, do not constitute regular or periodic payments; (iii) the benefits and compensation provided under the Agreement are in addition to the benefits and compensation that otherwise are or would be available to the Employee in connection with the Employee’s employment with the Corporation and the grant of the Award is expressly contingent upon the Employee’s agreement with the Corporation contained in Sections 6 and 7; (iv) the scope and duration of the restrictions in Section 6 are fair and reasonable; (v) if any provisions of Sections 6(a), (b), (c), (d) or (e), or any part thereof, are held to be unenforceable, the court making such determination shall have the power to revise or modify such provision to make it enforceable to the maximum extent permitted by applicable law and, in its revised or modified form, such provision shall then be enforceable, and if the provision is not

 

6


capable of being modified or revised so that it is enforceable, it shall be excised from these Terms and Conditions without affecting the enforceability of the remaining provisions; and (vi) the time period of the Employee’s obligations under Sections 6(a), (b) and (c) shall be extended by a period equal to the length of any breach of those obligations by the Employee, in addition to any and all other remedies provided by these Terms and Conditions or otherwise available to the Corporation at law or in equity.

(g) Definitions. For purposes of Section 6 of these Terms and Conditions, the following definitions shall apply:

(1) “Competitive Business” means any business, person or entity that is engaged, or planning or contemplating to engage within a period of twelve (12) months, in any business activity that is competitive with the business and business activities engaged in by the Covered Unit(s).

(2) “Confidential Information” means confidential, proprietary or trade secret information, whether or not marked or otherwise designated as confidential, whether in document, electronic or other form, and includes, but is not limited to, information that is not publicly known regarding finances, business and marketing plans, proposals, projections, forecasts, existing and prospective customers, vendor identities, employees and compensation, drawings, manuals, inventions, patent applications, process and fabrication information, research plans and results, computer programs, databases, software flow charts, specifications, technical data, scientific and technical information, test results and market studies.

(3) “Corporation” means, and shall be deemed to include, the Corporation and any Subsidiary.

(4) “Covered Unit(s)” means: (i) during the period of the Employee’s employment with the Corporation, each business unit of the Corporation; and (ii) following the Employment Termination Date, each business unit of the Corporation in or for which the Employee was employed or to which the Employee provided services or about which the Employee obtained or had access to Confidential Information, in each case of this clause (ii) at any time within the twenty-four (24)-month period prior to the Employment Termination Date. The Employee acknowledges and agrees that if the Employee is or was employed at a segment level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of such segment; and if the Employee is or was employed at the corporate/headquarters level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of the Corporation.

(5) “Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity who purchased any products, goods, systems or services from the Corporation or such Covered Unit(s) at any time during the preceding twenty-four (24) months (or, if after the Employment Termination Date, the last twenty-four (24) months of the Employee’s employment with the Corporation) and either with whom the Employee dealt in the course of performing the Employee’s job duties for the Corporation or about whom the Employee has or had Confidential Information.

 

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(6) “Employment Termination Date” means the date of termination of the Employee’s employment with the Corporation, voluntarily or involuntarily, for any reason, with or without cause.

(7) “Individual Employed by the Corporation” means any employee of the Corporation with whom the Employee dealt in the course of performing the Employee’s job duties at any time during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation).

(8) “Potential Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity targeted during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation) as a customer to purchase any products, goods, systems or services from the Corporation or such Covered Unit(s) and (i) with whom the Employee had direct or indirect contact, (ii) for whom the Employee participated in the development or execution of the plan to sell products, goods, systems or services of the Corporation or such Covered Unit(s), or (iii) about whom the Employee otherwise has or had Confidential Information.

(9) “Protective Covenant Period” means the period of the Employee’s employment with the Corporation and the twelve (12)-month period following the Employment Termination Date.

(10) “Solicit” and “Soliciting” mean any direct or indirect communication of any kind, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or refrain from taking any actions; provided, for purposes of Section 6(a), the term “Solicit” excludes the placement of general advertisements inviting applications for employment that are not targeted to employees of the Corporation generally or any specific employees of the Corporation.

7. Remedies for Breach of Section 6.

(a) Forfeiture and Clawback. The Employee agrees, by acceptance of the Award, that if the Employee breaches any provision of Sections 6(a), (b), (c), (d) or (e), in addition to any and all other remedies available to the Corporation, (i) the Award and all Performance Units subject to the Award and any rights with respect to the Award and such Performance Units shall upon written notice (which may be in electronic form) immediately be forfeited and terminate and be cancelled; and (ii) the Corporation shall have the right upon written notice (which may be in electronic form) to reclaim and receive from the Employee all Shares and cash, as applicable, issued or paid to the Employee in respect of the Performance Units, or to the extent the Employee has transferred such Shares, the Fair Market Value thereof (as of the date such Shares were transferred by the Employee) in cash and any such return of Shares or payment of cash by the Employee which requires action on the part of the Employee shall be made within five (5) business days following receipt of written demand therefore.

(b) Additional Relief. The Employee agrees, by acceptance of the Award, that: (i) the remedy provided for in Section 7(a) shall not be the exclusive remedy available to

 

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the Corporation for a breach of the provisions of Sections 6(a), (b), (c), (d) or (e) and shall not limit the Corporation from seeking damages or injunctive relief; and (ii) the Corporation’s remedies at law may be inadequate to protect the Corporation against any actual or threatened breach of the provisions of Sections 6(a), (b), (c), (d) or (e), and therefore, without prejudice to any other rights and remedies otherwise available to the Corporation at law or in equity (including, but not limited to, the rights under Section 7(a)), in addition to and cumulative with such rights, the Corporation shall be entitled to the granting of injunctive relief in its favor and to specific performance without proof of actual damages and without the requirement of posting of any bond or similar security.

(c) Forum. The Employee agrees, by acceptance of the Award, that any judicial action brought with respect to the provisions of Sections 6 or 7 of these Terms and Conditions may be filed in the United States District Court for the Middle District of Florida or in the Circuit Court of Brevard County, Florida and hereby consents to the jurisdiction of such courts and waives any objection he/she may now or hereafter have to such venue.

(d) Change in Control. If a Change in Control shall occur, the provisions of Sections 6 and 7 shall immediately terminate and be of no further force and effect.

8. Securities Law Requirements. If the Award Notice specifies that the Performance Units are to be paid in Shares, the Corporation shall not be required to issue Shares pursuant to the Award, to the extent required, unless and until (a) such Shares have been duly listed upon each stock exchange on which the Corporation’s stock is then registered; and (b) a registration statement under the Securities Act of 1933 with respect to such Shares is then effective.

9. Board Committee Administration. The Board Committee shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe these Terms and Conditions and the Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Board Committee necessary or desirable for the administration of the Plan. The Board Committee may correct any defect or supply any omission or reconcile any inconsistency in these Terms and Conditions and the Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.

10. Adjustments. Unusual or non-recurring losses or charges which are separately identified and quantified in the Corporation’s audited financial statements and notes thereto including, but not limited to, extraordinary items, changes in tax laws, changes in generally accepted accounting principles, impact of discontinued operations, restructuring charges, or restatement of prior period financial results, shall be excluded from the calculation of performance results for purposes of the Plan. However, the Board Committee can choose to include any or all such unusual or non-recurring items as long as inclusion of each such item causes the Award to be reduced.

11. Impact of Restatement of Financial Statements upon Awards. If any of the Corporation’s financial statements are restated, as a result of errors, omissions, or fraud, the Board Committee may (in its sole discretion, but acting in good faith) direct that the Corporation recover all or a portion of any Award or payment made to the Employee with respect to any fiscal year of the Corporation the financial results of which are negatively affected by such

 

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restatement. The amount to be recovered shall be the amount by which the affected Award or payment exceeded the amount that would have been payable had the financial statements been initially filed as restated, or any greater or lesser amount (including, but not limited to, the entire Award) that the Board Committee shall determine. The Board Committee shall determine whether the Corporation shall effect any such recovery: (a) by seeking repayment from the Employee; (b) by reducing the amount that would otherwise be payable to the Employee under any compensatory plan, program or arrangement maintained by the Corporation, a Subsidiary or any of its Affiliates; (c) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the Corporation’s otherwise applicable compensation practices; or (d) by any combination of the foregoing or otherwise (subject, in each of subclause (b), (c) and (d), to applicable law, including without limitation, Section 409A of the Code, and the terms and conditions of the applicable plan, program or arrangement). This Section 11 shall be a non-exclusive remedy and nothing in this Section 11 shall preclude the Corporation from pursuing any other applicable remedies available to it, whether in addition to, or in lieu of this Section 11.

12. Incorporation of Plan Provisions. These Terms and Conditions and the Agreement are made pursuant to the Plan, the provisions of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of these Terms and Conditions and the Agreement and the Plan, the terms of the Plan shall govern.

13. Compliance with Section 409A of the Code.

(a) The Agreement and the Plan are intended to be exempt from the provisions of Section 409A of the Code to the maximum extent permitted by applicable law. To the extent applicable, it is intended that the Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Employee. The Agreement and the Plan shall be administered and interpreted in a manner consistent with this intent, and any provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A of the Code (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 the Employee). Notwithstanding the foregoing, no particular tax result for the Employee with respect to any income recognized by the Employee in connection with the Agreement is guaranteed, and the Employee solely shall be responsible for any taxes, penalties or interest imposed on the Employee in connection with the Agreement.

(b) Reference to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

14. Data Privacy; Electronic Delivery. By acceptance of the Award, the Employee acknowledges and agrees that: (a) data, including the Employee’s personal data, necessary to administer the Agreement may be exchanged among the Corporation and its Subsidiaries and affiliates as necessary, and with any vendor engaged by the Corporation to assist in the administration of equity awards; and (b) unless and until revoked in writing by the Employee,

 

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information and materials in connection with this Agreement or any awards under the Plan, including, but not limited to, any prospectuses and plan document, may be provided by means of electronic delivery (including by e-mail, by web site access and/or by facsimile).

15. Miscellaneous. These Terms and Conditions and the other portions of the Agreement: (a) shall be binding upon and inure to the benefit of any successor of the Corporation; (b) shall be governed by the laws of the State of Delaware and any applicable laws of the United States; and (c) except as permitted under Sections 3.2, 12 and 13.6 of the Plan and Section 13 of the Agreement, may not be amended without the written consent of both the Corporation and the Employee. The Agreement shall not in any way interfere with or limit the rights of the Corporation or any Subsidiary to terminate the Employee’s employment or service with the Corporation or any Subsidiary at any time, and no contract or right of employment shall be implied by these Terms and Conditions and the Agreement of which they form a part. For the purposes of these Terms and Conditions and the Agreement, (i) employment by the Corporation or any Subsidiary or a successor to the Corporation shall be considered employment by the Corporation, and (ii) references to “termination of employment,” “cessation of employment,” “ceases to be employed,” “ceases to be an Employee” or similar phrases shall mean the last day actually worked (as determined by the Corporation), and shall not include any notice period or any period of severance or separation pay or pay continuation (whether required by law or custom or otherwise provided) following the last day actually worked. If the Award is assumed or a new award is substituted therefor in any corporate reorganization (including, but not limited to, any transaction of the type referred to in Section 424(a) of the Code), employment by such assuming or substituting corporation or by a parent corporation or subsidiary thereof shall be considered for all purposes of the Award to be employment by the Corporation.

 

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Exhibit 10(d)

HARRIS CORPORATION

2015 EQUITY INCENTIVE PLAN

RESTRICTED SHARE AWARD AGREEMENT

TERMS AND CONDITIONS

(AS OF OCTOBER 23, 2015)

1. Restricted Share Award – Terms and Conditions. Under and subject to the provisions of the Harris Corporation 2015 Equity Incentive Plan (as may be amended from time to time, the “Plan”) and upon the terms and conditions set forth herein (these “Terms and Conditions”), Harris Corporation (the “Corporation”) has granted to the employee receiving these Terms and Conditions (the “Employee”) a Restricted Share Award (the “Award”) of such number of shares of common stock, $1.00 par value per share (the “Common Stock”), of the Corporation as set forth in the Award Notice (as defined below) from the Corporation to the Employee (such shares, as may be adjusted in accordance with Section 1(c) of these Terms and Conditions, the “Restricted Shares”). Such Award is subject to the following Terms and Conditions (these Terms and Conditions, together with the Corporation’s letter or notice to the Employee specifying the Restricted Shares subject to the Award, the Restriction Period and certain other terms (the “Award Notice”), are referred to as the “Agreement”).

(a) Restriction Period. For purposes of this Agreement, the Restriction Period is the period beginning on the grant date and ending as set forth in the Award Notice (the “Restriction Period”). The Board Committee may, in accordance with the Plan, accelerate the expiration of the Restriction Period as to some or all of the Restricted Shares at any time.

(b) Restrictions and Forfeiture. The Restricted Shares are granted to the Employee subject to the prohibitions on transfer set forth in Section 2 below, which shall lapse, if at all, upon the expiration of the Restriction Period as described in Sections 3 and 4 below.

(c) Rights During Restriction Period. During the Restriction Period, the Employee may exercise full voting rights with respect to all Restricted Shares subject to the Award and shall be entitled to receive dividends and other distributions paid with respect to the Restricted Shares. If any such dividend or other distribution is paid in securities of the Corporation (including additional shares of Common Stock), such securities shall be subject to the same restrictions on transferability, risks of forfeiture, and other restrictions and conditions as the Restricted Shares in respect of which such dividend or other distribution was made. If the number of outstanding shares of Common Stock is changed as a result of a stock dividend, stock split or the like, without additional consideration to the Corporation, the Restricted Shares subject to the Award shall be adjusted to correspond to the change in the outstanding shares of Common Stock. For the avoidance of doubt, upon the expiration of the Restriction Period, the Employee may exercise voting rights and shall be entitled to receive dividends and other distributions with respect to the number of shares to which the Employee is entitled pursuant hereto.

(d) Release of Award. Provided the Award has not previously been forfeited, as soon as administratively practicable following the expiration of the Restriction Period and the satisfaction of the applicable tax withholding obligations, the Corporation shall at its option,

 

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cause the Restricted Shares to which the Employee is entitled pursuant hereto (i) to be released without restriction on transfer by delivery to the custody of the Employee of a stock certificate in the name of the Employee or his or her designee or (ii) to be credited without restriction on transfer to an account for the benefit of the Employee or his or her designee.

2. Prohibition Against Transfer. Until the expiration of the Restriction Period, the Award and the Restricted Shares subject to the Award and the rights granted under these Terms and Conditions and the Agreement are not transferable except by will or by the laws of descent and distribution in the event of the Employee’s death. Without limiting the generality of the foregoing, except as aforesaid, until the expiration of the Restriction Period, the Award and the Restricted Shares subject to the Award and the rights granted under these Terms and Conditions and the Agreement may not be sold, exchanged, assigned, transferred, pledged, hypothecated, encumbered or otherwise disposed of, shall not be assignable by operation of law, and shall not be subject to execution, attachment, charge, alienation or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect.

3. Forfeiture; Termination of Employment.

(a) Except in the event of a Change in Control covered by Section 4 herein, it shall be a condition to the vesting of the Restricted Shares and the release of the Restricted Shares following the expiration of the Restriction Period that the Employee shall have remained continuously in the employ of the Corporation for a minimum of one year from the grant date (the “Minimum Vesting Period”), and in the event that the Minimum Vesting Period is not satisfied, the Award and the Restricted Shares shall be immediately and automatically forfeited upon the Employee’s termination of employment with the Corporation. Except in the event of death or permanent disability (as determined by the Corporation) of the Employee covered in Section 3(b) herein or a Change in Control covered in Section 4 herein or as otherwise provided in the Award Notice, if the Employee ceases to be an employee of the Corporation following satisfaction of the Minimum Vesting Period but prior to the expiration of the Restriction Period:

(i) for any reason other than (x) retirement after age 55 with ten or more years of full-time service, or (y) involuntary termination of employment of the Employee by the Corporation other than for Misconduct, all Restricted Shares subject to the Award shall be immediately and automatically forfeited upon such termination of employment; or

(ii) due to (x) retirement after age 55 with ten or more years of full-time service or (y) involuntary termination of employment of the Employee by the Corporation other than for Misconduct, the Employee shall be vested in, and entitled to receive a release in respect of, a pro-rata portion of the Restricted Shares subject to the Award, and the remaining portion of the Restricted Shares subject to the Award shall be immediately and automatically forfeited as of the date of such retirement or termination of employment. Such pro-rata portion shall be measured by a fraction, of which the numerator is the number of days of the Restriction Period during which the Employee’s employment continued, and the denominator is the number of days of the Restriction Period. The Restriction Period shall immediately expire with respect to such pro-rata portion that is vested pursuant to the provisions of this Section 3(a)(ii), if any, and the release in respect of such pro-rata portion shall be made in the manner specified in Section 1(d) as soon as administratively practicable following such immediate expiration of the

 

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Restriction Period and the satisfaction of the applicable tax withholding obligations. “Misconduct” shall mean deliberate, willful or gross misconduct, as determined by the Corporation.

(b) If the Employee ceases to be an employee of the Corporation following satisfaction of the Minimum Vesting Period but prior to the expiration of the Restriction Period due to death or permanent disability (as determined by the Corporation), the Employee’s heirs or beneficiaries or the Employee, as applicable, shall be fully vested in, and entitled to receive a release in respect of, the total number of Restricted Shares subject to the Award. In such event, the Restriction Period shall immediately expire, and the release in respect of the Restricted Shares subject to the Award as of the date of the Employee’s death or permanent disability (as determined by the Corporation), if any, shall be made in the manner specified in Section 1(d) as soon as administratively practicable following such immediate expiration of the Restriction Period and the satisfaction of the applicable tax withholding obligations.

4. Change in Control. Upon a Change in Control, the Employee shall be fully vested in, and entitled to receive a release in respect of, the total number of Restricted Shares subject to the Award, the Restriction Period shall immediately expire and the release in respect of the Restricted Shares subject to the Award shall be made in the manner specified in Section 1(d) as soon as administratively practicable following such immediate expiration of the Restriction Period and the satisfaction of the applicable tax withholding obligations.

5. Protective Covenants. In consideration of, among other things, the grant of the Award to the Employee, the Employee acknowledges and agrees, by acceptance of the Award, to the following provisions:

(a) Non-Solicitation. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or on behalf of any other employer or any other business, person or entity: (i) recruit, induce, Solicit or attempt to recruit, induce or Solicit any Individual Employed by the Corporation to terminate, abandon or otherwise leave or discontinue employment with the Corporation; or (ii) hire or cause or assist any Individual Employed by the Corporation to become employed by or provide services to any other business, person or entity whether as an employee, consultant, contractor or otherwise.

(b) Customer and Potential Customer Non-Interference. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or (i) on behalf of any other employer or any other business, person or entity, entice, induce, Solicit or attempt or participate in enticing, inducing or Soliciting, any Customer or Potential Customer of the Corporation to cease or reduce or refrain from doing business with the Corporation; or (ii) on behalf of any Competitive Business, entice, induce, Solicit or attempt or participate in enticing, inducing or Soliciting, or accept or attempt or participate in accepting, business from any Customer or Potential Customer of the Covered Unit(s).

(c) Non-Competition. During the Protective Covenant Period, the Employee shall not, directly or indirectly, as an employee, independent contractor, consultant, officer, director, principal, lender or investor engage or otherwise participate in any activities with, or provide services to, a Competitive Business, without the prior written consent of the Senior Vice

 

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President, Human Resources or other designated executive officer of the Corporation (which consent shall be at such officer’s discretion to give or withhold). Nothing in this Section 5(c) shall preclude the Employee from owning up to 1% of the equity in any publicly traded company.

(d) No Disparagement or Detrimental Comments. During the Employee’s employment with the Corporation and thereafter, the Employee shall not, directly or indirectly, make or publish, or cause to be made or published, any statement, observation or opinion, whether verbal or written, that criticizes, disparages, defames or otherwise impugns or reasonably may be interpreted to criticize, disparage, defame or impugn, the character, integrity or reputation of the Corporation or its products, goods, systems or services, or its current or former directors, officers, employees, agents, successors or assigns. Nothing in this Section 5(d) is intended or should be construed to prevent the Employee from providing truthful testimony or information to any person or entity as required by law or fiduciary duties or as may be necessary in the performance of the Employee’s duties in connection with the Employee’s employment with the Corporation.

(e) Confidentiality. During the Employee’s employment with the Corporation and thereafter, the Employee shall not use or disclose, except on behalf of the Corporation and pursuant to and in compliance with its direction and policies, any Confidential Information of (i) the Corporation or (ii) any third party received by the Corporation which the Corporation is obligated to keep confidential. This Section 5(e) will apply in addition to, and not in derogation of, any other confidentiality or non-disclosure agreement that may exist, now or in the future, between the Employee and the Corporation.

(f) Consideration and Acknowledgment. The Employee acknowledges and agrees to each of the following: (i) the Employee’s acceptance of the Award and participation in the Plan is voluntary; (ii) the benefits and rights provided by the Agreement and Plan are wholly discretionary and, although provided by the Corporation, do not constitute regular or periodic payments; (iii) the benefits and compensation provided under the Agreement are in addition to the benefits and compensation that otherwise are or would be available to the Employee in connection with the Employee’s employment with the Corporation and the grant of the Award is expressly contingent upon the Employee’s agreement with the Corporation contained in Sections 5 and 6; (iv) the scope and duration of the restrictions in Section 5 are fair and reasonable; (v) if any provisions of Sections 5(a), (b), (c), (d) or (e), or any part thereof, are held to be unenforceable, the court making such determination shall have the power to revise or modify such provision to make it enforceable to the maximum extent permitted by applicable law and, in its revised or modified form, such provision shall then be enforceable, and if the provision is not capable of being modified or revised so that it is enforceable, it shall be excised from these Terms and Conditions without affecting the enforceability of the remaining provisions; and (vi) the time period of the Employee’s obligations under Sections 5(a), (b) and (c) shall be extended by a period equal to the length of any breach of those obligations by the Employee, in addition to any and all other remedies provided by these Terms and Conditions or otherwise available to the Corporation at law or in equity.

 

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(g) Definitions. For purposes of Section 5 of these Terms and Conditions, the following definitions shall apply:

(1) “Competitive Business” means any business, person or entity that is engaged, or planning or contemplating to engage within a period of twelve (12) months, in any business activity that is competitive with the business and business activities engaged in by the Covered Unit(s).

(2) “Confidential Information” means confidential, proprietary or trade secret information, whether or not marked or otherwise designated as confidential, whether in document, electronic or other form, and includes, but is not limited to, information that is not publicly known regarding finances, business and marketing plans, proposals, projections, forecasts, existing and prospective customers, vendor identities, employees and compensation, drawings, manuals, inventions, patent applications, process and fabrication information, research plans and results, computer programs, databases, software flow charts, specifications, technical data, scientific and technical information, test results and market studies.

(3) “Corporation” means, and shall be deemed to include, the Corporation and any Subsidiary.

(4) “Covered Unit(s)” means: (i) during the period of the Employee’s employment with the Corporation, each business unit of the Corporation; and (ii) following the Employment Termination Date, each business unit of the Corporation in or for which the Employee was employed or to which the Employee provided services or about which the Employee obtained or had access to Confidential Information, in each case of this clause (ii) at any time within the twenty-four (24)-month period prior to the Employment Termination Date. The Employee acknowledges and agrees that if the Employee is or was employed at a segment level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of such segment; and if the Employee is or was employed at the corporate/headquarters level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of the Corporation.

(5) “Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity who purchased any products, goods, systems or services from the Corporation or such Covered Unit(s) at any time during the preceding twenty-four (24) months (or, if after the Employment Termination Date, the last twenty-four (24) months of the Employee’s employment with the Corporation) and either with whom the Employee dealt in the course of performing the Employee’s job duties for the Corporation or about whom the Employee has or had Confidential Information.

(6) “Employment Termination Date” means the date of termination of the Employee’s employment with the Corporation, voluntarily or involuntarily, for any reason, with or without cause.

 

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(7) “Individual Employed by the Corporation” means any employee of the Corporation with whom the Employee dealt in the course of performing the Employee’s job duties at any time during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation).

(8) “Potential Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity targeted during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation) as a customer to purchase any products, goods, systems or services from the Corporation or such Covered Unit(s) and (i) with whom the Employee had direct or indirect contact, (ii) for whom the Employee participated in the development or execution of the plan to sell products, goods, systems or services of the Corporation or such Covered Unit(s), or (iii) about whom the Employee otherwise has or had Confidential Information.

(9) “Protective Covenant Period” means the period of the Employee’s employment with the Corporation and the twelve (12)-month period following the Employment Termination Date.

(10) “Solicit” and “Soliciting” mean any direct or indirect communication of any kind, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or refrain from taking any actions; provided, for purposes of Section 5(a), the term “Solicit” excludes the placement of general advertisements inviting applications for employment that are not targeted to employees of the Corporation generally or any specific employees of the Corporation.

6. Remedies for Breach of Section 5.

(a) Forfeiture and Clawback. The Employee agrees, by acceptance of the Award, that if the Employee breaches any provision of Sections 5(a), (b), (c), (d) or (e), in addition to any and all other remedies available to the Corporation, (i) the Award and all Restricted Shares subject to the Award and any rights with respect to the Award and such Restricted Shares shall upon written notice (which may be in electronic form) immediately be forfeited and terminate and be cancelled; and (ii) the Corporation shall have the right upon written notice (which may be in electronic form) to reclaim and receive from the Employee all Common Stock and cash, as applicable, issued or paid to the Employee in respect of the Restricted Shares, or to the extent the Employee has transferred such Common Stock, the Fair Market Value thereof (as of the date such Common Stock was transferred by the Employee) in cash and any such return of Common Stock or payment of cash by the Employee which requires action on the part of the Employee shall be made within five (5) business days following receipt of written demand therefore.

(b) Additional Relief. The Employee agrees, by acceptance of the Award, that: (i) the remedy provided for in Section 6(a) shall not be the exclusive remedy available to the Corporation for a breach of the provisions of Sections 5(a), (b), (c), (d) or (e) and shall not limit the Corporation from seeking damages or injunctive relief; and (ii) the Corporation’s

 

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remedies at law may be inadequate to protect the Corporation against any actual or threatened breach of the provisions of Sections 5(a), (b), (c), (d) or (e), and therefore, without prejudice to any other rights and remedies otherwise available to the Corporation at law or in equity (including, but not limited to, the rights under Section 6(a)), in addition to and cumulative with such rights, the Corporation shall be entitled to the granting of injunctive relief in its favor and to specific performance without proof of actual damages and without the requirement of posting of any bond or similar security.

(c) Forum. The Employee agrees, by acceptance of the Award, that any judicial action brought with respect to the provisions of Sections 5 or 6 of these Terms and Conditions may be filed in the United States District Court for the Middle District of Florida or in the Circuit Court of Brevard County, Florida and hereby consents to the jurisdiction of such courts and waives any objection he/she may now or hereafter have to such venue.

(d) Change in Control. If a Change in Control shall occur, the provisions of Sections 5 and 6 shall immediately terminate and be of no further force and effect.

7. Securities Law Requirements. The Corporation shall not be required to issue shares pursuant to the Award unless and until (a) such shares have been duly listed upon each stock exchange on which the Corporation’s Common Stock is then registered; and (b) a registration statement under the Securities Act of 1933 with respect to such shares is then effective.

8. Board Committee Administration. The Board Committee shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe these Terms and Conditions and the Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Board Committee necessary or desirable for the administration of the Plan. The Board Committee may correct any defect or supply any omission or reconcile any inconsistency in these Terms and Conditions and the Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.

9. Incorporation of Plan Provisions. These Terms and Conditions and the Agreement are made pursuant to the Plan, the provisions of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of these Terms and Conditions and the Agreement and the Plan, the terms of the Plan shall govern.

10. Data Privacy; Electronic Delivery. By acceptance of the Award, the Employee acknowledges and agrees that: (a) data, including the Employee’s personal data, necessary to administer the Agreement may be exchanged among the Corporation and its Subsidiaries and affiliates as necessary, and with any vendor engaged by the Corporation to assist in the administration of equity awards; and (b) unless and until revoked in writing by the Employee, information and materials in connection with this Agreement or any awards under the Plan, including, but not limited to, any prospectuses and plan document, may be provided by means of electronic delivery (including by e-mail, by web site access and/or by facsimile).

 

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11. Miscellaneous. These Terms and Conditions and the other portions of the Agreement: (a) shall be binding upon and inure to the benefit of any successor of the Corporation; (b) shall be governed by the laws of the State of Delaware and any applicable laws of the United States; and (c) except as permitted under Sections 3.2, 12 and 13.6 of the Plan, may not be amended without the written consent of both the Corporation and the Employee. The Agreement shall not in any way interfere with or limit the right of the Corporation or any Subsidiary to terminate the Employee’s employment or service with the Corporation or any Subsidiary at any time, and no contract or right of employment shall be implied by these Terms and Conditions and the Agreement of which they form a part. For the purposes of these Terms and Conditions and the Agreement, (i) employment by the Corporation or any Subsidiary or a successor to the Corporation shall be considered employment by the Corporation, and (ii) references to “termination of employment,” “cessation of employment,” “ceases to be employed,” “ceases to be an Employee” or similar phrases shall mean the last day actually worked (as determined by the Corporation), and shall not include any notice period or any period of severance or separation pay or pay continuation (whether required by law or custom or otherwise provided) following the last day actually worked. If the Award is assumed or a new award is substituted therefor in any corporate reorganization (including, but not limited to, any transaction of the type referred to in Section 424(a) of the Code), employment by such assuming or substituting corporation or by a parent corporation or subsidiary thereof shall be considered for all purposes of the Award to be employment by the Corporation.

 

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Exhibit 10(e)

HARRIS CORPORATION

2015 EQUITY INCENTIVE PLAN

RESTRICTED UNIT AWARD AGREEMENT

TERMS AND CONDITIONS

(AS OF OCTOBER 23, 2015)

1. Restricted Unit Award – Terms and Conditions. Under and subject to the provisions of the Harris Corporation 2015 Equity Incentive Plan (as may be amended from time to time, the “Plan”) and upon the terms and conditions set forth herein (these “Terms and Conditions”), Harris Corporation (the “Corporation”) has granted to the employee receiving these Terms and Conditions (the “Employee”) a Restricted Unit Award (the “Award”) of such number of restricted units as set forth in the Award Notice (as defined below) from the Corporation to the Employee (such units, as may be adjusted in accordance with Section 1(c) of these Terms and Conditions, the “Restricted Units”). At all times, each Restricted Unit shall be equal in value to one share of common stock, $1.00 par value per share (the “Common Stock”), of the Corporation (a “Share”). Such Award is subject to the following Terms and Conditions (these Terms and Conditions, together with the Corporation’s letter or notice to the Employee specifying the Restricted Units subject to the Award, the Restriction Period, the form of payment of the Award and certain other terms (the “Award Notice”), are referred to as the “Agreement”).

(a) Restriction Period. For purposes of this Agreement, the Restriction Period is the period beginning on the grant date and ending as set forth in the Award Notice (the “Restriction Period”). The Board Committee may, in accordance with the Plan and to the extent permitted by Section 409A of the Code (if applicable), accelerate the expiration of the Restriction Period as to some or all of the Restricted Units at any time.

(b) Payout of Award. Provided the Award has not previously been forfeited, as soon as administratively practicable following the expiration of the Restriction Period, but in no event later than sixty (60) days following the expiration of the Restriction Period, (i) if the Award Notice specifies that the Restricted Units are to be paid in Shares, the Corporation shall issue to the Employee in a single payment the number of Shares underlying the Restricted Units; or (ii) if the Award Notice specifies that the Restricted Units are to be paid in cash, the Corporation shall pay to the Employee a single lump sum cash payment equal to the Fair Market Value (as of the date of the expiration of the Restriction Period) of the number of Shares underlying the Restricted Units. If the Award is to be paid in Shares, upon payout the Corporation shall at its option, cause such Shares as to which the Employee is entitled pursuant hereto: (i) to be released without restriction on transfer by delivery to the custody of the Employee of a stock certificate in the name of the Employee or his or her designee or (ii) to be credited without restriction on transfer to a book-entry account for the benefit of the Employee or his or her designee maintained by the Corporation’s stock transfer agent or its designee.

(c) Rights During Restriction Period; Dividend Equivalents. During the Restriction Period, the Employee shall not have any rights as a shareholder with respect to the Shares underlying the Restricted Units. During the Restriction Period, if the Corporation pays a

 

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dividend or makes other distributions on the Common Stock, the Employee shall be entitled to receive dividend equivalents, in cash, in the case of a cash dividend or cash distribution, or other property, in the case of a non-cash dividend or non-cash distribution, as applicable, paid or distributed with respect to the number of Shares underlying the Restricted Units. In the case of a dividend or other distribution paid in a form other than securities of the Corporation, such dividend equivalents will be paid to the Employee as soon as is practicable following payment of the dividend or other distribution to holders of Common Stock, but no later than the end of the calendar year in which the corresponding actual dividends or other distributions are paid to holders of Common Stock. If any such dividend or other distribution is paid in securities of the Corporation (including Shares), such dividend equivalents in respect of such securities relating to the Restricted Units shall be subject to the same restrictions and conditions as the Restricted Units in respect of which such dividend equivalents were paid and shall be paid to the Employee in the manner and at the time the Restricted Units are paid. If the number of outstanding shares of Common Stock is changed as a result of a stock dividend, stock split or the like, without additional consideration to the Corporation, the Restricted Units subject to the Award shall be adjusted to correspond to the change in the Corporation’s outstanding shares of Common Stock. If the Award Notice specifies that the Restricted Units are to be paid in Shares, upon the expiration of the Restriction Period and payout of the Award, the Employee may exercise voting rights and shall be entitled to receive dividends and other distributions with respect to the number of Shares to which the Employee is entitled pursuant hereto.

2. Prohibition Against Transfer. Until the expiration of the Restriction Period and payout of the Award, the Award, the Restricted Units subject to the Award, any interest in the Shares (in the case of a payout to be made in Shares as specified in the Award Notice) or cash to be paid, as applicable, related thereto, and the rights granted under these Terms and Conditions and the Agreement are not transferable except by will or by the laws of descent and distribution in the event of the Employee’s death. Without limiting the generality of the foregoing, except as aforesaid, until the expiration of the Restriction Period and payout of the Award, the Award, the Restricted Units subject to the Award, any interest in the Shares (in the case of a payout to be made in Shares as specified in the Award Notice) or cash to be paid, as applicable, related thereto, and the rights granted under these Terms and Conditions and the Agreement may not be sold, exchanged, assigned, transferred, pledged, hypothecated, encumbered or otherwise disposed of, shall not be assignable by operation of law, and shall not be subject to execution, attachment, charge, alienation or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect.

3. Forfeiture; Termination of Employment.

(a) Except in the event of a Change in Control covered by Section 4 herein, it shall be a condition to the vesting of Restricted Units and the payment of Shares or cash following the expiration of the Restriction Period that the Employee shall have remained continuously in the employ of the Corporation for a minimum of one year from the grant date (the “Minimum Vesting Period”), and in the event that the Minimum Vesting Period is not satisfied, the Award and any Restricted Units or right to payment of Shares or cash shall be immediately forfeited upon the Employee’s termination of employment with the Corporation. Except in the event of the death or permanent disability (as determined by the Corporation) of

 

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the Employee covered in Section 3(b) herein or a Change in Control covered in Section 4 herein or as otherwise provided in the Award Notice, if the Employee ceases to be an employee of the Corporation following satisfaction of the Minimum Vesting Period but prior to the expiration of the Restriction Period:

(i) for any reason other than (x) retirement after age 55 with ten or more years of full-time service or (y) involuntary termination of employment of the Employee by the Corporation other than for Misconduct, all Restricted Units subject to the Award shall be automatically forfeited upon such termination of employment; or

(ii) due to (x) retirement after age 55 with ten or more years of full-time service or (y) involuntary termination of employment of the Employee by the Corporation other than for Misconduct, the Employee shall be vested in, and entitled to receive a payout in respect of, a pro-rata portion of the Restricted Units subject to the Award, and the remaining portion of the Restricted Units subject to the Award shall be automatically forfeited as of the date of such retirement or termination of employment. Such pro-rata portion shall be measured by a fraction, of which the numerator is the number of days of the Restriction Period during which the Employee’s employment continued, and the denominator is the number of days of the Restriction Period. The Restriction Period shall immediately expire with respect to such pro-rata portion that is vested pursuant to the provisions of this Section 3(a)(ii), if any, and the payout in respect of such pro-rata portion shall be made in the form specified in Section 1(b) as soon as administratively practicable following such immediate expiration of the Restriction Period, but in no event later than sixty (60) days following such immediate expiration of the Restriction Period; provided, however, that if the Award is subject to Section 409A of the Code, and if the Employee is a Specified Employee (within the meaning of the Corporation’s Specified Employee Policy for 409A Arrangements) as of the date the Employee ceases to be an employee of the Corporation, then such payout shall be delayed until and made during the seventh calendar month following the calendar month during which the Employee ceased to be an employee of the Corporation (or, if earlier, the calendar month following the calendar month of the Employee’s death). “Misconduct” shall mean deliberate, willful or gross misconduct, as determined by the Corporation.

(b) If the Employee ceases to be an employee of the Corporation following satisfaction of the Minimum Vesting Period but prior to the expiration of the Restriction Period due to death or permanent disability (as determined by the Corporation), the Employee’s heirs or beneficiaries or the Employee, as applicable, shall be fully vested in, and entitled to receive a payout in respect of, the total number of Restricted Units subject to the Award. In such event, the Restriction Period shall immediately expire, and the payout in respect of the Restricted Units subject to the Award as of the date of the Employee’s death or permanent disability (as determined by the Corporation), if any, shall be made in the form specified in Section 1(b) as soon as administratively practicable following such immediate expiration of the Restriction Period, but in no event later than sixty (60) days following such immediate expiration of the Restriction Period; provided, however, that in the case of the immediate expiration of the Restriction Period due to permanent disability (as determined by the Corporation) pursuant to the provisions of this Section 3(b), if the Award is subject to Section 409A of the Code, and if the Employee is a Specified Employee (within the meaning of the Corporation’s Specified Employee

 

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Policy for 409A Arrangements) as of the date he or she ceases to be an employee of the Corporation, then such payout shall be delayed until and made during the seventh calendar month following the calendar month during which the Employee ceased to be an employee of the Corporation (or, if earlier, the calendar month following the calendar month of the Employee’s death).

4. Change in Control. Upon a Change in Control that qualifies as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), then the Employee shall be fully vested in, and entitled to receive a payout in respect of, the total number of Restricted Units subject to the Award, the Restriction Period shall immediately expire and the payout in respect of the Restricted Units subject to the Award shall be made in the form specified in Section 1(b) as soon as administratively practicable, but in no event later than sixty (60) days following such Change in Control. In the event of a Change in Control that does not qualify as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), then the Employee shall be fully vested in, and entitled to receive a payout in respect of, the total number of Restricted Units subject to the Award; provided, however, that such Restricted Units shall continue to be subject to the Restriction Period until the expiration thereof, at which time the payout in respect of the Restricted Units shall be made in the form and at the time specified in Section 1(b), 3(a)(ii) or 3(b), as applicable (and deeming Section 3(a)(ii) to apply in the event that the Employee ceases to be an employee of the Corporation prior to the expiration of the Restriction Period for any reason other than death or permanent disability (as determined by the Corporation)).

5. Protective Covenants. In consideration of, among other things, the grant of the Award to the Employee, the Employee acknowledges and agrees, by acceptance of the Award, to the following provisions:

(a) Non-Solicitation. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or on behalf of any other employer or any other business, person or entity: (i) recruit, induce, Solicit or attempt to recruit, induce or Solicit any Individual Employed by the Corporation to terminate, abandon or otherwise leave or discontinue employment with the Corporation; or (ii) hire or cause or assist any Individual Employed by the Corporation to become employed by or provide services to any other business, person or entity whether as an employee, consultant, contractor or otherwise.

(b) Customer and Potential Customer Non-Interference. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or (i) on behalf of any other employer or any other business, person or entity, entice, induce, Solicit or attempt or participate in enticing, inducing or Soliciting, any Customer or Potential Customer of the Corporation to cease or reduce or refrain from doing business with the Corporation; or (ii) on behalf of any Competitive Business, entice, induce, Solicit or attempt or participate in enticing, inducing or Soliciting, or accept or attempt or participate in accepting, business from any Customer or Potential Customer of the Covered Unit(s).

(c) Non-Competition. During the Protective Covenant Period, the Employee shall not, directly or indirectly, as an employee, independent contractor, consultant, officer,

 

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director, principal, lender or investor engage or otherwise participate in any activities with, or provide services to, a Competitive Business, without the prior written consent of the Senior Vice President, Human Resources or other designated executive officer of the Corporation (which consent shall be at such officer’s discretion to give or withhold). Nothing in this Section 5(c) shall preclude the Employee from owning up to 1% of the equity in any publicly traded company.

(d) No Disparagement or Detrimental Comments. During the Employee’s employment with the Corporation and thereafter, the Employee shall not, directly or indirectly, make or publish, or cause to be made or published, any statement, observation or opinion, whether verbal or written, that criticizes, disparages, defames or otherwise impugns or reasonably may be interpreted to criticize, disparage, defame or impugn, the character, integrity or reputation of the Corporation or its products, goods, systems or services, or its current or former directors, officers, employees, agents, successors or assigns. Nothing in this Section 5(d) is intended or should be construed to prevent the Employee from providing truthful testimony or information to any person or entity as required by law or fiduciary duties or as may be necessary in the performance of the Employee’s duties in connection with the Employee’s employment with the Corporation.

(e) Confidentiality. During the Employee’s employment with the Corporation and thereafter, the Employee shall not use or disclose, except on behalf of the Corporation and pursuant to and in compliance with its direction and policies, any Confidential Information of (i) the Corporation or (ii) any third party received by the Corporation which the Corporation is obligated to keep confidential. This Section 5(e) will apply in addition to, and not in derogation of, any other confidentiality or non-disclosure agreement that may exist, now or in the future, between the Employee and the Corporation.

(f) Consideration and Acknowledgment. The Employee acknowledges and agrees to each of the following: (i) the Employee’s acceptance of the Award and participation in the Plan is voluntary; (ii) the benefits and rights provided by the Agreement and Plan are wholly discretionary and, although provided by the Corporation, do not constitute regular or periodic payments; (iii) the benefits and compensation provided under the Agreement are in addition to the benefits and compensation that otherwise are or would be available to the Employee in connection with Employee’s employment with the Corporation and the grant of the Award is expressly contingent upon the Employee’s agreement with the Corporation contained in Sections 5 and 6; (iv) the scope and duration of the restrictions in Section 5 are fair and reasonable; (v) if any provisions of Sections 5(a), (b), (c), (d) or (e), or any part thereof, are held to be unenforceable, the court making such determination shall have the power to revise or modify such provision to make it enforceable to the maximum extent permitted by applicable law and, in its revised or modified form, such provision shall then be enforceable, and if the provision is not capable of being modified or revised so that it is enforceable, it shall be excised from these Terms and Conditions without affecting the enforceability of the remaining provisions; and (vi) the time period of the Employee’s obligations under Sections 5(a), (b) and (c) shall be extended by a period equal to the length of any breach of those obligations by the Employee, in addition to any and all other remedies provided by these Terms and Conditions or otherwise available to the Corporation at law or in equity.

 

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(g) Definitions. For purposes of Section 5 of these Terms and Conditions, the following definitions shall apply:

(1) “Competitive Business” means any business, person or entity that is engaged, or planning or contemplating to engage within a period of twelve (12) months, in any business activity that is competitive with the business and business activities engaged in by the Covered Unit(s).

(2) “Confidential Information” means confidential, proprietary or trade secret information, whether or not marked or otherwise designated as confidential, whether in document, electronic or other form, and includes, but is not limited to, information that is not publicly known regarding finances, business and marketing plans, proposals, projections, forecasts, existing and prospective customers, vendor identities, employees and compensation, drawings, manuals, inventions, patent applications, process and fabrication information, research plans and results, computer programs, databases, software flow charts, specifications, technical data, scientific and technical information, test results and market studies.

(3) “Corporation” means, and shall be deemed to include, the Corporation and any Subsidiary.

(4) “Covered Unit(s)” means: (i) during the period of the Employee’s employment with the Corporation, each business unit of the Corporation; and (ii) following the Employment Termination Date, each business unit of the Corporation in or for which the Employee was employed or to which the Employee provided services or about which the Employee obtained or had access to Confidential Information, in each case of this clause (ii) at any time within the twenty-four (24)-month period prior to the Employment Termination Date. The Employee acknowledges and agrees that if the Employee is or was employed at a segment level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of such segment; and if the Employee is or was employed at the corporate/headquarters level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of the Corporation.

(5) “Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity who purchased any products, goods, systems or services from the Corporation or such Covered Unit(s) at any time during the preceding twenty-four (24) months (or, if after the Employment Termination Date, the last twenty-four (24) months of the Employee’s employment with the Corporation) and either with whom the Employee dealt in the course of performing the Employee’s job duties for the Corporation or about whom the Employee has or had Confidential Information.

(6) “Employment Termination Date” means the date of termination of the Employee’s employment with the Corporation, voluntarily or involuntarily, for any reason, with or without cause.

 

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(7) “Individual Employed by the Corporation” means any employee of the Corporation with whom the Employee dealt in the course of performing the Employee’s job duties at any time during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation).

(8) “Potential Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity targeted during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation) as a customer to purchase any products, goods, systems or services from the Corporation or such Covered Unit(s) and (i) with whom the Employee had direct or indirect contact, (ii) for whom the Employee participated in the development or execution of the plan to sell products, goods, systems or services of the Corporation or such Covered Unit(s), or (iii) about whom the Employee otherwise has or had Confidential Information.

(9) “Protective Covenant Period” means the period of the Employee’s employment with the Corporation and the twelve (12) month period following the Employment Termination Date.

(10) “Solicit” and “Soliciting” mean any direct or indirect communication of any kind, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or refrain from taking any actions; provided, for purposes of Section 5(a), the term “Solicit” excludes the placement of general advertisements inviting applications for employment that are not targeted to employees of the Corporation generally or any specific employees of the Corporation.

6. Remedies for Breach of Section 5.

(a) Forfeiture and Clawback. The Employee agrees, by acceptance of the Award, that if the Employee breaches any provision of Sections 5(a), (b), (c), (d) or (e), in addition to any and all other remedies available to the Corporation, (i) the Award and all Restricted Units subject to the Award and any rights with respect to the Award and such Restricted Units shall upon written notice (which may be in electronic form) immediately be forfeited and terminate and be cancelled; and (ii) the Corporation shall have the right upon written notice (which may be in electronic form) to reclaim and receive from the Employee all Shares and cash, as applicable, issued or paid to the Employee in respect of the Restricted Units pursuant to Sections 1(b) and 1(c) above, or to the extent the Employee has transferred such Shares, the Fair Market Value thereof (as of the date such Shares were transferred by the Employee) in cash and any such return of Shares or payment of cash by the Employee which requires action on the part of the Employee shall be made within five (5) business days following receipt of written demand therefore.

(b) Additional Relief. The Employee agrees, by acceptance of the Award, that: (i) the remedy provided for in Section 6(a) shall not be the exclusive remedy available to the Corporation for a breach of the provisions of Sections 5(a), (b), (c), (d) or (e) and shall not

 

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limit the Corporation from seeking damages or injunctive relief; and (ii) the Corporation’s remedies at law may be inadequate to protect the Corporation against any actual or threatened breach of the provisions of Sections 5(a), (b), (c), (d) or (e), and therefore, without prejudice to any other rights and remedies otherwise available to the Corporation at law or in equity (including, but not limited to, the rights under Section 6(a)), in addition to and cumulative with such rights, the Corporation shall be entitled to the granting of injunctive relief in its favor and to specific performance without proof of actual damages and without the requirement of posting of any bond or similar security.

(c) Forum. The Employee agrees, by acceptance of the Award, that any judicial action brought with respect to the provisions of Sections 5 or 6 of these Terms and Conditions may be filed in the United States District Court for the Middle District of Florida or in the Circuit Court of Brevard County, Florida and hereby consents to the jurisdiction of such courts and waives any objection he/she may now or hereafter have to such venue.

(d) Change in Control. If a Change in Control shall occur, the provisions of Sections 5 and 6 shall immediately terminate and be of no further force and effect.

7. Securities Law Requirements. If the Award Notice specifies that the Restricted Units are to be paid in Shares, the Corporation shall not be required to issue Shares pursuant to the Award, to the extent required, unless and until (a) such Shares have been duly listed upon each stock exchange on which the Corporation’s Common Stock is then registered; and (b) a registration statement under the Securities Act of 1933 with respect to such Shares is then effective.

8. Board Committee Administration. The Board Committee shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe these Terms and Conditions and the Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Board Committee necessary or desirable for the administration of the Plan. The Board Committee may correct any defect or supply any omission or reconcile any inconsistency in these Terms and Conditions and the Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.

9. Incorporation of Plan Provisions. These Terms and Conditions and the Agreement are made pursuant to the Plan, the provisions of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of these Terms and Conditions and the Agreement and the Plan, the terms of the Plan shall govern.

10. Compliance with Section 409A of the Code. The Agreement and the Plan are intended to be exempt from the provisions of Section 409A of the Code to the maximum extent permitted by applicable law. To the extent applicable, it is intended that the Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Employee. The Agreement and the Plan shall be administered and interpreted in a manner consistent with this intent, and any

 

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provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A of the Code (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 the Employee). Notwithstanding the foregoing, no particular tax result for the Employee with respect to any income recognized by the Employee in connection with the Agreement is guaranteed, and the Employee solely shall be responsible for any taxes, penalties or interest imposed on the Employee in connection with the Agreement. Reference to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

11. Data Privacy; Electronic Delivery. By acceptance of the Award, the Employee acknowledges and agrees that: (a) data, including the Employee’s personal data, necessary to administer the Agreement may be exchanged among the Corporation and its Subsidiaries and affiliates as necessary, and with any vendor engaged by the Corporation to assist in the administration of equity awards; and (b) unless and until revoked in writing by the Employee, information and materials in connection with this Agreement or any awards under the Plan, including, but not limited to, any prospectuses and plan document, may be provided by means of electronic delivery (including by e-mail, by web site access and/or by facsimile).

12. Miscellaneous. These Terms and Conditions and the other portions of the Agreement: (a) shall be binding upon and inure to the benefit of any successor of the Corporation; (b) shall be governed by the laws of the State of Delaware and any applicable laws of the United States; and (c) except as permitted under Sections 3.2, 12 and 13.6 of the Plan and Section 10 of this Agreement, may not be amended without the written consent of both the Corporation and the Employee. The Agreement shall not in any way interfere with or limit the right of the Corporation or any Subsidiary to terminate the Employee’s employment or service with the Corporation or any Subsidiary at any time, and no contract or right of employment shall be implied by these Terms and Conditions and the Agreement of which they form a part. For purposes of these Terms and Conditions and the Agreement, (i) employment by the Corporation or any Subsidiary or a successor to the Corporation shall be considered employment by the Corporation and (ii) references to “termination of employment,” “cessation of employment,” “ceases to be employed,” “ceases to be an Employee” or similar phrases shall mean the last day actually worked (as determined by the Corporation), and shall not include any notice period or any period of severance or separation pay or pay continuation (whether required by law or custom or otherwise provided) following the last day actually worked. If the Award is assumed or a new award is substituted therefor in any corporate reorganization (including, but not limited to, any transaction of the type referred to in Section 424(a) of the Code), employment by such assuming or substituting corporation or by a parent corporation or subsidiary thereof shall be considered for all purposes of the Award to be employment by the Corporation.

 

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Exhibit 10(f)

HARRIS CORPORATION

2015 EQUITY INCENTIVE PLAN

STOCK OPTION AWARD AGREEMENT

TERMS AND CONDITIONS

(AS OF OCTOBER 23, 2015)

1. Stock Option – Terms and Conditions. Under and subject to the provisions of the Harris Corporation 2015 Equity Incentive Plan (as may be amended from time to time, the “Plan”) and upon the terms and conditions set forth herein (these “Terms and Conditions”), Harris Corporation (the “Corporation”) has granted to the employee receiving these Terms and Conditions (the “Employee”) a Non-Qualified Stock Option (the “Option”) to purchase such number of shares of common stock, $1.00 par value per share (the “Common Stock”), of the Corporation at such designated exercise price per share as set forth in the Award Notice (as defined below) from the Corporation to the Employee. Such grant is subject to the following Terms and Conditions (these Terms and Conditions, together with the Corporation’s letter or notice to the Employee specifying the grant date, the number of shares issuable upon exercise of the Option, the exercise price and certain other terms (the “Award Notice”), are referred to as the “Agreement”).

(a) Except as set forth in Section 1(e), the Option shall not be exercisable to any extent unless the Employee shall have remained continuously in the employ of the Corporation for a minimum of one year from the grant date (the “Minimum Vesting Period”) and if the Minimum Vesting Period is not satisfied, the Option shall terminate immediately upon the Employee’s termination of employment with the Corporation. Following the Minimum Vesting Period, except as set forth in Sections 1(e), 2(b), 2(c) and 2(d), the Option shall not be exercisable to any extent unless the Employee shall have remained continuously in the employ of the Corporation until the Option shall become exercisable.

(b) During the lifetime of the Employee, the Option shall be exercisable only by the Employee, and, except as otherwise set forth in Section 2, only while the Employee continues as an Employee of the Corporation.

(c) Notwithstanding any other provision of these Terms and Conditions and the Agreement, the Option shall expire no later than ten years from the grant date (the “Expiration Date”), and shall not be exercisable thereafter.

(d) Except as otherwise provided in the Award Notice, the Option shall vest and become exercisable as to the following shares issuable upon exercise of the Option:

(i) After the end of one year from the grant date and prior to the end of two years from the grant date, not more than one-third of the aggregate shares issuable upon exercise of the Option;

(ii) After the end of two years from the grant date and prior to the end of three years from the grant date, not more than two-thirds of the aggregate shares issuable upon exercise of the Option; and

(iii) After the end of three years from the grant date, all shares issuable upon exercise of the Option.


(e) Upon a Change in Control of the Corporation as defined in Section 11.1 of the Plan, the Option shall immediately become fully vested and exercisable.

2. Termination of Employment.

(a) Termination of Employment. In the event of termination of the Employee’s employment with the Corporation other than as a result of circumstances described in Sections 2(b), 2(c), 2(d), and 2(e) below, the Option, whether exercisable or not, shall terminate immediately upon such termination of employment.

(b) Death. Notwithstanding Section 1(d) but subject to satisfaction of the Minimum Vesting Period, in the event of the death of the Employee (x) while employed by the Corporation, (y) following the Employee’s cessation of employment with the Corporation due to permanent disability of the Employee (as determined by the Corporation) while employed by the Corporation, or (z) following the retirement of the Employee if the retirement occurred after the Employee reached age 62 and had ten or more years of full-time service with the Corporation, the Option shall immediately become fully vested and exercisable, and may be exercised by the Employee’s Beneficiary (as defined in Section 4) but only until the earlier of (i) the date that is twelve (12) months following the date of death of the Employee or (ii) the Expiration Date. In the event of the death of the Employee following termination of or cessation of employment with the Corporation, unless the first sentence of this Section 2(b) is applicable, the Option may be exercised by the Employee’s Beneficiary but only until the earlier of (i) the date that is twelve (12) months following the date of death of the Employee or (ii) the Expiration Date, and only to the extent that the Option was vested and exercisable on the day immediately prior to the date of the Employee’s death.

(c) Disability. In the event of cessation of employment with the Corporation due to permanent disability of the Employee (as determined by the Corporation) while employed by the Corporation, notwithstanding Section 1(d) but subject to satisfaction of the Minimum Vesting Period, the Option shall immediately become fully vested and exercisable and unless the first sentence of Section 2(b) becomes applicable, may be exercised by the Employee until the Expiration Date.

(d) Retirement. In the event of retirement of the Employee, the Option may, if the retirement occurs after the Employee has reached age 55 and has ten or more years of full-time service with the Corporation, be exercised by the Employee until the Expiration Date, but only to the extent that the Option was vested and exercisable at the date of such retirement. In the event of retirement of the Employee, the Option may, if the retirement occurs (x) after satisfaction of the Minimum Vesting Period and (y) after the Employee has reached age 62 and has ten or more years of full-time service with the Corporation, unless the first sentence of Section 2(b) becomes applicable, be exercised by the Employee until the Expiration Date and shall continue to vest and become exercisable after such retirement according to the schedule set forth in Section 1(d).

(e) Involuntary or Voluntary Termination. In the event of termination of employment of the Employee by the Corporation other than for Misconduct, the Option may be exercised by the Employee but only until the earlier of (i) the date that is ninety (90) days following such termination of employment or (ii) the Expiration Date, and only to the extent that the Option was vested and exercisable at the date of such termination of employment. In the event of termination of employment of the Employee by the Corporation for Misconduct, the Option shall immediately terminate upon such termination of employment and shall not be exercisable. “Misconduct” shall mean deliberate, willful or gross misconduct, as determined by the Corporation. In the event of termination of employment of the Employee by the Employee

 

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other than as a result of death, permanent disability (as determined by the Corporation) or retirement (in a circumstance in which Section 2(d) applies), the Option may be exercised by the Employee but only until the earlier of (i) the date that is thirty (30) days following such termination of employment or (ii) the Expiration Date, and only to the extent that the Option was vested and exercisable at the date of such termination of employment.

3. Exercise of Option. The Option may be exercised by delivering to the Corporation at the office of the Corporate Secretary (a) a written notice, signed by the person entitled to exercise the Option, stating the designated number of shares such person then elects to purchase; provided, however, that in the discretion of the Corporation, notice sent through an approved electronic means may be substituted for a signed, written notice, (b) payment in an amount equal to the full exercise price for the shares to be purchased, and (c) in the event the Option is exercised by any person other than the Employee, such as the Employee’s Beneficiary, evidence satisfactory to the Corporation that such person has the right to exercise the Option. Payment of the exercise price shall be made (i) in cash, (ii) in previously acquired shares of Common Stock of the Corporation, or (iii) in any combination of cash and such shares. Shares tendered in payment of the exercise price which have been acquired through an exercise of a stock option must have been held at least six months prior to exercise of the Option and shall be valued at the Fair Market Value. Upon the exercise of the Option, the Corporation shall cause the shares in respect of which the Option shall have been so exercised to be issued and delivered by crediting such shares to a book-entry account for the benefit of the Employee or the Employee’s Beneficiary maintained by the Corporation’s stock transfer agent or its designee. The Employee does not have any rights as a shareholder in respect of any shares as to which the Option shall not have been duly exercised and no rights as a shareholder shall exist prior to the proper exercise of such Option.

4. Prohibition Against Transfer; Designation of Beneficiary. The Option and rights granted by the Corporation under these Terms and Conditions and the Agreement are not transferable except by will or by the laws of descent and distribution in the event of the Employee’s death. The Employee may designate a beneficiary or beneficiaries (the “Employee’s Beneficiary”) to exercise any rights or receive any benefits under Section 2(b) following the Employee’s death. To be effective, such designation must be made in accordance with such rules and on such form as prescribed by the Corporation for such purpose, which completed form must be received by the office of the Corporate Secretary prior to the Employee’s death. If the Employee fails to designate a beneficiary, or if no designated beneficiary survives the Employee’s death, the Employee’s estate shall be deemed the Employee’s Beneficiary. Without limiting the generality of the foregoing, except as aforesaid, the Option may not be sold, exchanged, assigned, transferred, pledged, hypothecated, encumbered or otherwise disposed of, shall not be assignable by operation of law, and shall not be subject to execution, attachment, charge, alienation or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect.

5. Employment by Corporation, Subsidiary or Successor; Termination or Cessation of Employment. For the purpose of these Terms and Conditions and the Agreement, (a) employment by the Corporation or any Subsidiary of or a successor to the Corporation shall be considered employment by the Corporation, and (b) references to “termination of employment,” “cessation of employment,” “ceases to be employed,” “ceases to be an Employee” or similar phrases shall mean the last day actually worked (as determined by the Corporation), and shall not include any notice period, or any period of severance or separation pay or pay continuation (whether required by law or custom or otherwise provided) following the last day actually worked.

 

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6. Protective Covenants. In consideration of, among other things, the grant of the Option to the Employee, the Employee acknowledges and agrees, by acceptance of the Option, to the following provisions:

(a) Non-Solicitation. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or on behalf of any other employer or any other business, person or entity: (i) recruit, induce, Solicit or attempt to recruit, induce or Solicit any Individual Employed by the Corporation to terminate, abandon or otherwise leave or discontinue employment with the Corporation; or (ii) hire or cause or assist any Individual Employed by the Corporation to become employed by or provide services to any other business, person or entity whether as an employee, consultant, contractor or otherwise.

(b) Customer and Potential Customer Non-Interference. During the Protective Covenant Period, the Employee shall not, directly or indirectly, individually or (i) on behalf of any other employer or any other business, person or entity, entice, induce, Solicit or attempt or participate in enticing, inducing or Soliciting, any Customer or Potential Customer of the Corporation to cease or reduce or refrain from doing business with the Corporation; or (ii) on behalf of any Competitive Business, entice, induce, Solicit, or attempt or participate in enticing, inducing or Soliciting or accept or attempt or participate in accepting, business from any Customer or Potential Customer of the Covered Unit(s).

(c) Non-Competition. During the Protective Covenant Period, the Employee shall not, directly or indirectly, as an employee, independent contractor, consultant, officer, director, principal, lender or investor engage or otherwise participate in any activities with, or provide services to, a Competitive Business, without the prior written consent of the Senior Vice President, Human Resources or other designated executive officer of the Corporation (which consent shall be at such officer’s discretion to give or withhold). Nothing in this Section 6(c) shall preclude the Employee from owning up to 1% of the equity in any publicly traded company.

(d) No Disparagement or Detrimental Comments. During the Employee’s employment with the Corporation and thereafter, the Employee shall not, directly or indirectly, make or publish, or cause to be made or published, any statement, observation or opinion, whether verbal or written, that criticizes, disparages, defames or otherwise impugns or reasonably may be interpreted to criticize, disparage, defame or impugn, the character, integrity or reputation of the Corporation or its products, goods, systems or services, or its current or former directors, officers, employees, agents, successors or assigns. Nothing in this Section 6(d) is intended or should be construed to prevent the Employee from providing truthful testimony or information to any person or entity as required by law or fiduciary duties or as may be necessary in the performance of the Employee’s duties in connection with the Employee’s employment with the Corporation.

(e) Confidentiality. During the Employee’s employment with the Corporation and thereafter, the Employee shall not use or disclose, except on behalf of the Corporation and pursuant to and in compliance with its direction and policies, any Confidential Information of (i) the Corporation or (ii) any third party received by the Corporation which the Corporation is

 

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obligated to keep confidential. This Section 6(e) will apply in addition to, and not in derogation of, any other confidentiality or non-disclosure agreement that may exist, now or in the future, between the Employee and the Corporation.

(f) Consideration and Acknowledgment. The Employee acknowledges and agrees to each of the following: (i) the Employee’s acceptance of the Option and participation in the Plan is voluntary; (ii) the benefits and rights provided by the Agreement and Plan are wholly discretionary and, although provided by the Corporation, do not constitute regular or periodic payments; (iii) the benefits and compensation provided under the Agreement are in addition to the benefits and compensation that otherwise are or would be available to the Employee in connection with Employee’s employment with the Corporation and the grant of the Option is expressly contingent upon the Employee’s agreement with the Corporation contained in Sections 6 and 7; (iv) the scope and duration of the restrictions in Section 6 are fair and reasonable; (v) if any provisions of Sections 6(a), (b), (c), (d) or (e), or any part thereof, are held to be unenforceable, the court making such determination shall have the power to revise or modify such provision to make it enforceable to the maximum extent permitted by applicable law and, in its revised or modified form, such provision shall then be enforceable, and if the provision is not capable of being modified or revised so that it is enforceable, it shall be excised from these Terms and Conditions without affecting the enforceability of the remaining provisions; and (vi) the time period of the Employee’s obligations under Sections 6(a), (b) and (c) shall be extended by a period equal to the length of any breach of those obligations by the Employee, in addition to any and all other remedies provided by these Terms and Conditions or otherwise available to the Corporation at law or in equity.

(g) Definitions. For purposes of Section 6 of these Terms and Conditions, the following definitions shall apply:

(1) “Competitive Business” means any business, person or entity that is engaged, or planning or contemplating to engage within a period of twelve (12) months, in any business activity that is competitive with the business and business activities engaged in by the Covered Unit(s).

(2) “Confidential Information” means confidential, proprietary or trade secret information, whether or not marked or otherwise designated as confidential, whether in document, electronic or other form, and includes, but is not limited to, information that is not publicly known regarding finances, business and marketing plans, proposals, projections, forecasts, existing and prospective customers, vendor identities, employees and compensation, drawings, manuals, inventions, patent applications, process and fabrication information, research plans and results, computer programs, databases, software flow charts, specifications, technical data, scientific and technical information, test results and market studies.

(3) “Corporation” means, and shall be deemed to include, the Corporation and any Subsidiary.

(4) “Covered Unit(s)” means: (i) during the period of the Employee’s employment with the Corporation, each business unit of the Corporation; and (ii) following the

 

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Employment Termination Date, each business unit of the Corporation in or for which the Employee was employed or to which the Employee provided services or about which the Employee obtained or had access to Confidential Information, in each case of this clause (ii) at any time within the twenty-four (24)-month period prior to the Employment Termination Date. The Employee acknowledges and agrees that if the Employee is or was employed at a segment level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of such segment; and if the Employee is or was employed at the corporate/headquarters level, the Employee is providing or has provided services to and for, and has obtained and has or had access to Confidential Information about, each business unit of the Corporation.

(5) “Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity who purchased any products, goods, systems or services from the Corporation or such Covered Unit(s) at any time during the preceding twenty-four (24) months (or, if after the Employment Termination Date, the last twenty-four (24) months of the Employee’s employment with the Corporation) and either with whom the Employee dealt in the course of performing the Employee’s job duties for the Corporation or about whom the Employee has or had Confidential Information.

(6) “Employment Termination Date” means the date of termination of the Employee’s employment with the Corporation, voluntarily or involuntarily, for any reason, with or without cause.

(7) “Individual Employed by the Corporation” means any employee of the Corporation with whom the Employee dealt in the course of performing the Employee’s job duties at any time during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation).

(8) “Potential Customer” means, with respect to the Corporation or the Covered Unit(s), as the case may be, any business, person or entity targeted during the preceding twelve (12) months (or, if after the Employment Termination Date, the last twelve (12) months of the Employee’s employment with the Corporation) as a customer to purchase any products, goods, systems or services from the Corporation or such Covered Unit(s) and (i) with whom the Employee had direct or indirect contact, (ii) for whom the Employee participated in the development or execution of the plan to sell products, goods, systems or services of the Corporation or such Covered Unit(s), or (iii) about whom the Employee otherwise has or had Confidential Information.

(9) “Protective Covenant Period” means the period of the Employee’s employment with the Corporation and the twelve (12) month period following the Employment Termination Date.

(10) “Solicit” and “Soliciting” mean any direct or indirect communication of any kind, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or refrain from taking any actions; provided, for

 

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purposes of Section 6(a), the term “Solicit” excludes the placement of general advertisements inviting applications for employment that are not targeted to employees of the Corporation generally or any specific employees of the Corporation.

7. Remedies for Breach of Section 6.

(a) Forfeiture and Clawback. The Employee agrees, by acceptance of the Option, that if the Employee breaches any provision of Sections 6(a), (b), (c), (d) or (e), in addition to any and all other remedies available to the Corporation, (i) the Option, whether vested or unvested, shall upon written notice (which may be in electronic form) immediately terminate and lapse and shall no longer be exercisable as to any shares of Common Stock; and (ii) the Employee shall within five (5) business days following receipt of written demand therefore pay to the Corporation in cash, the amount of the excess of the Fair Market Value on the exercise date of any shares of Common Stock the Employee acquired upon exercise of the Option (other than any shares acquired upon exercise of the Option more than twelve (12) months before (x) the Employment Termination Date in the situation where the Employee is no longer employed by the Corporation, or (y) the date of such breach in the situation where the Employee is employed by the Corporation), over the exercise price for such shares of Common Stock.

(b) Additional Relief. The Employee agrees, by acceptance of the Option, that: (i) the remedy provided for in Section 7(a) shall not be the exclusive remedy available to the Corporation for a breach of the provisions of Sections 6(a), (b), (c), (d) or (e) and shall not limit the Corporation from seeking damages or injunctive relief; and (ii) the Corporation’s remedies at law may be inadequate to protect the Corporation against any actual or threatened breach of the provisions of Sections 6(a), (b), (c), (d) or (e), and therefore, without prejudice to any other rights and remedies otherwise available to the Corporation at law or in equity (including, but not limited to, the rights under Section 7(a)), in addition to and cumulative with such rights, the Corporation shall be entitled to the granting of injunctive relief in its favor and to specific performance without proof of actual damages and without the requirement of posting of any bond or similar security.

(c) Forum. The Employee agrees, by acceptance of the Option, that any judicial action brought with respect to the provisions of Sections 6 or 7 of these Terms and Conditions may be filed in the United States District Court for the Middle District of Florida or in the Circuit Court of Brevard County, Florida and hereby consents to the jurisdiction of such courts and waives any objection he/she may now or hereafter have to such venue.

(d) Change in Control. If a Change in Control shall occur, the provisions of Sections 6 and 7 shall immediately terminate and be of no further force and effect.

8. Securities Law Requirement. The Corporation shall not be required to issue shares upon exercise of the Option unless and until: (a) such shares have been duly listed upon each stock exchange on which the Corporation’s Common Stock is then registered; and (b) a registration statement under the Securities Act of 1933 with respect to such shares is then effective.

9. Board Committee Administration. The Board Committee shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe these

 

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Terms and Conditions and the Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Board Committee necessary or desirable for the administration of the Plan. The Board Committee may correct any defect or supply any omission or reconcile any inconsistency in these Terms and Conditions and the Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.

10. Incorporation of Plan Provisions. These Terms and Conditions and the Agreement are made pursuant to the Plan, the provisions of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of these Terms and Conditions and the Agreement and the Plan, the terms of the Plan shall govern.

11. Data Privacy; Electronic Delivery. By acceptance of the Option, the Employee acknowledges and agrees that: (a) data, including the Employee’s personal data, necessary to administer the Agreement may be exchanged among the Corporation and its Subsidiaries and affiliates as necessary, and with any vendor engaged by the Corporation to assist in the administration of equity awards; and (b) unless and until revoked in writing by the Employee, information and materials in connection with this Agreement or any awards under the Plan, including, but not limited to, any prospectuses and plan document, may be provided by means of electronic delivery (including by e-mail, by web site access and/or by facsimile).

12. Miscellaneous. These Terms and Conditions and the other portions of the Agreement: (a) shall be binding upon and inure to the benefit of any successor to the Corporation; (b) shall be governed by the laws of the State of Delaware and any applicable laws of the United States; and (c) except as permitted under Sections 3.2, 12 and 13.6 of the Plan, may not be amended without the written consent of both the Corporation and the Employee. The Agreement shall not in any way interfere with or limit the right of the Corporation or any Subsidiary to terminate the Employee’s employment or service with the Corporation or any Subsidiary at any time, and no contract or right of employment shall be implied by these Terms and Conditions and the Agreement of which they form a part.

 

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Exhibit 10(g)

FINAL FORM

HARRIS CORPORATION

2015 EQUITY INCENTIVE PLAN

NON-EMPLOYEE DIRECTOR RESTRICTED UNIT AWARD AGREEMENT

TERMS AND CONDITIONS

(AS OF DECEMBER 4, 2015)

1. Restricted Unit Award – Terms and Conditions. Under and subject to the provisions of the Harris Corporation 2015 Equity Incentive Plan (as may be amended from time to time, the “Plan”) and upon the terms and conditions set forth herein (these “Terms and Conditions”), Harris Corporation (the “Corporation”) has granted on [insert date] (the “Grant Date”) to the non-Employee Director receiving these Terms and Conditions (the “Non-Employee Director”) a Restricted Unit Award (the “Award”) of [insert number] restricted units (such units, as may be adjusted in accordance with the Plan and Section 1(c) of these Terms and Conditions, the “Restricted Units”). At all times, each Restricted Unit shall be equal in value to one share of common stock, $1.00 par value per share (the “Common Stock”), of the Corporation (a “Share”). Such Award is subject to the following Terms and Conditions (these Terms and Conditions are referred to as the “Agreement”).

(a) Restriction Period. For purposes of this Agreement, the Award shall vest and the Restriction Period (as defined below) shall expire as to one-third of the total number of Restricted Units originally subject to the Award on each of the first, second and third anniversaries of the Grant Date, provided that the Non-Employee Director continuously serves as a Director of the Corporation through the applicable vesting date. The period of time during which any of the Restricted Units subject to the Award shall not be vested shall be referred to herein as the “Restriction Period” with respect to such Restricted Units that are not then vested. The Board Committee may, in accordance with the Plan and to the extent permitted by Section 409A of the Code (if applicable), accelerate the expiration of the Restriction Period as to, and the vesting of, some or all of the Restricted Units that are not then vested, at any time.

(b) Payout of Award. Provided the Award has not previously been forfeited, as soon as administratively practicable following the expiration of the Restriction Period as to the Restricted Units that have become vested, but in no event later than sixty (60) days following the expiration of the Restriction Period as to such Restricted Units, the Corporation shall issue to the Non-Employee Director the number of Shares underlying such Restricted Units. Upon payout, the Corporation shall at its option, cause such Shares as to which the Non-Employee Director is entitled pursuant hereto: (i) to be released without restriction on transfer by delivery to the custody of the Non-Employee Director of a stock certificate in the name of the Non-Employee Director or his or her designee or (ii) to be credited without restriction on transfer to a book-entry account for the benefit of the Non-Employee Director or his or her designee maintained by the Corporation’s stock transfer agent or its designee.

(c) Rights During Restriction Period; Dividend Equivalents. During the Restriction Period, the Non-Employee Director shall not have any rights as a shareholder with respect to the Shares underlying Restricted Units that are not then vested. During the Restriction

 

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Period, if the Corporation pays a dividend or makes other distributions on the Common Stock, the Non-Employee Director shall be entitled to receive dividend equivalents, in cash, in the case of a cash dividend or cash distribution, or other property, in the case of a non-cash dividend or non-cash distribution, as applicable, paid or distributed with respect to the number of Shares underlying Restricted Units that are not then vested. In the case of a dividend or other distribution paid in a form other than securities of the Corporation, such dividend equivalents will be paid to the Non-Employee Director as soon as is practicable following payment of the dividend or other distribution to holders of Common Stock, but no later than the end of the calendar year in which the corresponding actual dividends or other distributions are declared with respect to holders of Common Stock. If any such dividend or other distribution is paid in securities of the Corporation (including Shares), such dividend equivalents in respect of such securities relating to the Restricted Units shall be subject to the same restrictions and conditions as the Restricted Units in respect of which such dividend equivalents were paid and shall be paid to the Non-Employee Director in the manner and at the time the Restricted Units are paid. If the number of outstanding shares of Common Stock is changed as a result of a stock dividend, stock split or the like, without additional consideration to the Corporation, the Restricted Units subject to the Award that are not then vested shall be adjusted to correspond to the change in the Corporation’s outstanding shares of Common Stock. Upon the expiration of the Restriction Period and payout of the Award as to Restricted Units that have become vested, the Non-Employee Director may exercise voting rights and shall be entitled to receive dividends and other distributions with respect to the number of Shares acquired upon the vesting of such Restricted Units hereunder.

2. Prohibition Against Transfer. Until the expiration of the Restriction Period and payout of the Award, the Award, the Restricted Units subject to the Award that are not then vested, any interest in the Shares related thereto, and the rights granted under these Terms and Conditions and the Agreement are not transferable except by will or by the laws of descent and distribution in the event of the Non-Employee Director’s death. Without limiting the generality of the foregoing, except as aforesaid, until the expiration of the Restriction Period and payout of the Award, the Award, the Restricted Units subject to the Award that are not then vested, any interest in the Shares related thereto, and the rights granted under these Terms and Conditions and the Agreement may not be sold, exchanged, assigned, transferred, pledged, hypothecated, encumbered or otherwise disposed of, shall not be assignable by operation of law, and shall not be subject to execution, attachment, charge, alienation or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect.

3. Forfeiture; Termination of Service.

(a) Except as otherwise provided for herein in the event the Non-Employee Director’s service as a Director terminates due to death, permanent disability (as determined by the Corporation), retirement (as determined by the Corporation), resignation or failure to be re-nominated or elected to the Board (excluding, in the case of such failure to be re-nominated or elected, a termination of service due to cause or misconduct (as determined by the Corporation)) or in the event of a Change in Control, if the Non-Employee Director’s service as a Director terminates prior to the end of the Restriction Period for any reason, then the Award and any Restricted Units that are not vested immediately prior to such termination of service and any right to payment of Shares with respect to such Restricted Units shall be immediately and automatically forfeited by the Non-Employee Director and cancelled by the Corporation.

 

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(b) If the Non-Employee Director’s service as a Director terminates due to death, permanent disability (as determined by the Corporation), retirement (as determined by the Corporation), resignation or failure to be re-nominated or elected to the Board (excluding, in the case of such failure to be re-nominated or elected, a termination of service due to cause or misconduct (as determined by the Corporation)), in each case, prior to the expiration of the Restriction Period as to any Restricted Units that are not then vested, then the Non-Employee Director’s heirs or beneficiaries or the Non-Employee Director, as applicable, shall be fully vested in, and entitled to receive a payout in respect of, the total number of Restricted Units subject to the Award that are not then vested. In such event, the Restriction Period shall immediately expire, and the payout in respect of the Restricted Units subject to the Award that are not vested as of the date of such termination of service, shall be made in the manner specified in Section 1(b) as soon as administratively practicable following such immediate expiration of the Restriction Period, but in no event later than sixty (60) days following such immediate expiration of the Restriction Period; provided, however, that if the Award is subject to Section 409A of the Code, and if the Non-Employee Director is a Specified Employee (within the meaning of the Corporation’s Specified Employee Policy for 409A Arrangements) as of the date of such termination of service, then such payout shall be delayed until and made during the seventh calendar month following the calendar month during which the Non-Employee Director ceased to serve as a Director of the Corporation (or, if earlier, the calendar month following the calendar month of the Non-Employee Director’s death).

4. Change in Control. Upon a Change in Control, the Non-Employee Director shall be fully vested in, and entitled to receive a release in respect of, the total number of Restricted Units subject to the Award that are not then vested, the Restriction Period shall immediately expire and the payout in respect of such Restricted Units shall be made in the manner specified in Section 1(b) as soon as administratively practicable following such immediate expiration of the Restriction Period, but in no event later than sixty (60) days following such Change in Control; provided, however, that if the Award is subject to Section 409A of the Code and the Change in Control does not qualify as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), then the Non-Employee Director shall be fully vested in, and entitled to receive a payout in respect of, the total number of Restricted Units subject to the Award that are not then vested; provided, however, that such Restricted Units shall continue to be subject to the Restriction Period as to such Restricted Units until the expiration thereof, at which time the payout in respect of such Restricted Units shall be made in the form and at the time specified in Sections 1(a), 1(b) or 3(b), as applicable.

5. Securities Law Requirements. The Corporation shall not be required to issue Shares pursuant to the Award unless and until (a) such Shares have been duly listed upon each stock exchange on which the Corporation’s Common Stock is then registered; and (b) a registration statement under the Securities Act of 1933, as amended, with respect to such Shares is then effective.

6. Board Committee Administration. The Board Committee shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe these

 

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Terms and Conditions and the Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Board Committee necessary or desirable for the administration of the Plan. The Board Committee may correct any defect or supply any omission or reconcile any inconsistency in these Terms and Conditions and the Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.

7. Incorporation of Plan Provisions. These Terms and Conditions and the Agreement are made pursuant to the Plan, the provisions of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of these Terms and Conditions and the Agreement and the Plan, the terms of the Plan shall govern.

8. Compliance with Section 409A of the Code. To the extent applicable, it is intended that the Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Non-Employee Director. The Agreement and the Plan shall be administered and interpreted in a manner consistent with this intent, and any provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A of the Code (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 the Non-Employee Director). Notwithstanding the foregoing, no particular tax result for the Non-Employee Director with respect to any income recognized by the Non-Employee Director in connection with the Agreement is guaranteed, and the Non-Employee Director solely shall be responsible for any taxes, penalties or interest imposed on the Non-Employee Director in connection with the Agreement. Reference to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

9. Data Privacy; Electronic Delivery. By acceptance of the Award, the Non-Employee Director acknowledges and agrees that: (a) data, including the Non-Employee Director’s personal data, necessary to administer the Agreement may be exchanged among the Corporation and its Subsidiaries and affiliates as necessary, and with any vendor engaged by the Corporation to assist in the administration of equity awards; and (b) unless and until revoked in writing by the Non-Employee Director, information and materials in connection with this Agreement or any awards under the Plan, including, but not limited to, any prospectuses and plan document, may be provided by means of electronic delivery (including by e-mail, by web site access and/or by facsimile).

10. Miscellaneous. These Terms and Conditions and the other portions of the Agreement: (a) shall be binding upon and inure to the benefit of any successor of the Corporation; (b) shall be governed by the laws of the State of Delaware and any applicable laws of the United States; and (c) except as permitted under Sections 3.2, 12 and 13.6 of the Plan and Section 8 of the Agreement, may not be amended without the written consent of both the Corporation and the Non-Employee Director.

 

4

Exhibit 10(h)

EXECUTION VERSION

AMENDMENT NUMBER TWO

TO THE

HARRIS CORPORATION

2005 DIRECTORS’ DEFERRED COMPENSATION PLAN

(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2009)

WHEREAS, Harris Corporation, a Delaware corporation (the “Corporation”), heretofore has adopted and maintains the Harris Corporation 2005 Directors’ Deferred Compensation Plan, as amended and restated effective January 1, 2009 (the “Plan”);

WHEREAS, pursuant to Paragraph 10 of the Plan, the Board of Directors of the Corporation (the “Board”) has the authority to amend the Plan; and

WHEREAS, the Board has approved an amendment to the Plan to modify non-elective deferrals of Harris Stock Equivalents (as defined in the Plan) to be credited to non-employee directors in consideration of their service on the Board during 2016;

NOW, THEREFORE, pursuant to action by the Board, Section 3(a) of the Plan hereby is amended, effective as of December 4, 2015, to delete the first and second sentences thereof in their entirety and replace such sentences with the following:

On January 1, April 1, July 1, and October 1 (each such day an “Award Date”) of each year, commencing January 1, 2016, the Corporation shall credit the Harris Stock Equivalents Subaccount of each Non-Employee Director with a number of Harris Stock Equivalents (the “Non-Elective Deferred Units”) having a Fair Market Value equal to $33,750; provided, however, that for 2016, the Corporation shall credit the Harris Stock Equivalents Subaccount of each Non-Employee Director with a number of Non-Elective Deferred Units having a Fair Market Value equal to $33,750 on January 1 and October 1 and the Non-Employee Directors shall not be credited with any Non-Elective Deferred Units on April 1 and July 1. The Non-Elective Deferred Units shall be in consideration for such Non-Employee Director’s service on the Board during the preceding calendar quarter.

IN WITNESS WHEREOF, the Corporation has caused this amendment to the Plan to be executed by its duly authorized officer as of December 4, 2015.

 

HARRIS CORPORATION
By:  

/s/ William M. Brown

Name:   William M. Brown
Title:  

Chairman, President and

Chief Executive Officer

 

ATTEST

/s/ Scott T. Mikuen

Scott T. Mikuen
Secretary
Harris Corporation

Exhibit 10(i)

SUMMARY OF ANNUAL COMPENSATION OF NON-EMPLOYEE DIRECTORS

(Last Modified December 4, 2015)

The following table summarizes the annual compensation of non-employee directors of Harris Corporation (“Harris”) effective as of January 1, 2016. Employee directors are not separately compensated for service as a director.

Retainer

 

    $80,000 in cash

Non-Executive Chairman of the Board Retainer (to the extent applicable)

 

    $150,000 in cash

Lead Independent Director Retainer

 

    $25,000 in cash

Audit Committee Chairperson Retainer

 

    $20,000 in cash

Committee Chairperson Retainer (other than Audit Committee)

 

    $15,000 in cash

Board, Committee or Other Meeting or Event Attendance Fee

 

    $2,000 in cash per Board or Committee meeting or for any other meeting or event for Harris or on Harris’ behalf

Deferred Compensation Plan

 

   

Under the terms of the Harris Corporation 2005 Directors’ Deferred Compensation Plan, as amended (the “2005 Directors’ Plan”), on January 1, April 1, July 1 and October 1 of each year, Harris credits each non-employee director’s account with a number of Harris stock equivalent units having an aggregate fair market value equal to $33,750 (for an annual rate of $135,000), which amount may be changed from time to time by the Board; provided, however, that for 2016, such credits shall be made only on January 1 and October 1, and no credits shall be made on April 1 and July 1. In addition, under the 2005 Directors’ Plan, prior to the commencement of a calendar year, each non-employee director may make an irrevocable election to defer all or a portion of his or her director compensation for the subsequent year or years. Amounts deferred at the election of the non-employee director may be invested in investment alternatives similar to those available under the Harris Corporation Retirement Plan or in Harris stock equivalent units, pursuant to which a non-employee director’s account is credited with a number of

 

1


 

Harris stock equivalent units based on the fair market value of Harris common stock on the date of deferral. Harris stock equivalent units are equivalent in value to shares of Harris common stock. A non-employee director may not transfer or reallocate amounts invested in other investments into Harris stock equivalent units, but may reallocate (provided director minimum stock ownership guidelines are satisfied) amounts invested in Harris stock equivalent units into any other investment alternatives. Deferred amounts and investment earnings on such amounts are payable in cash following the non-employee director’s resignation, retirement or death. Each Harris stock equivalent unit is credited with dividend equivalents, which are deemed reinvested in additional Harris stock equivalent units on the dividend payment date.

 

    Amounts invested in Harris stock equivalent units shall be appropriately adjusted in the event of any stock dividend or split, recapitalization, merger, spin-off, extraordinary dividends or other similar events.

 

    A non-employee director may elect to receive amounts deferred under the 2005 Directors’ Plan, including amounts deferred in the form of Harris stock equivalent units, either in a cash lump sum on a date certain within five years of his or her resignation or retirement or in annual substantially equal cash installments over a designated number of years beginning on a date certain within five years of a director’s resignation or retirement, provided that all amounts are fully paid within ten years of resignation or retirement.

 

    Within 90 days following a non-employee director’s death, a lump sum cash payment equal to the then-remaining balance in his or her account will be made to his or her beneficiary.

 

    Within 90 days following a Change of Control (as defined in the 2005 Directors’ Plan), and to the extent permitted by Section 409A of the Internal Revenue Code, each non-employee director (or former non-employee director) will receive a lump sum cash payment equal to the then-remaining balance in his or her account. If payment within 90 days following a Change of Control is not permitted by Section 409A of the Internal Revenue Code, then payment will be made at the time and in the form that payment would have been made if a Change of Control had not occurred.

 

    The foregoing summary description of the 2005 Directors’ Plan is not complete and is qualified in its entirety by, and should be read in conjunction with, the complete text of the 2005 Directors’ Plan.

Travel and Other Expenses

 

    Actual costs and expenses incurred in the performance of service as a director, including director education institutes and activities, are reimbursed.

Insurance

 

    Liability insurance and up to $200,000 in accidental death and dismemberment insurance and an additional $200,000 in the event involved in an accident while traveling on business relating to Harris’ affairs.

 

2


Charitable Gift Matching Program

 

    Annual maximum of $10,000 per non-employee director is matched to eligible educational institutions and charitable organizations.

One-Time Grant of Restricted Stock to New Directors

 

    Effective January 1, 2016, when a non-employee director first becomes a member of the Board, such non-employee director will be granted a restricted share award of such number of shares of Harris common stock as results in such award having a grant date fair value equal to 50% of the then-current annual rate of non-elective deferrals of Harris stock equivalent units (currently $135,000) under the 2005 Directors’ Plan, with such restricted share award to be granted on the first New York Stock Exchange trading day of the calendar month following the calendar month in which such non-employee director’s election or appointment to the Board first becomes effective and in accordance with Harris’ equity grant policy.

 

3

Exhibit 10(j)

AMENDMENT NUMBER ONE

TO THE

HARRIS CORPORATION RETIREMENT PLAN

WHEREAS, Harris Corporation, a Delaware corporation (the “Corporation”), heretofore has adopted and maintains the Harris Corporation Retirement Plan, as amended and restated effective October 1, 2015 (the “Plan”);

WHEREAS, pursuant to Section 17.1 of the Plan, the Management Development and Compensation Committee of the Corporation’s Board of Directors (the “Compensation Committee”) has the authority to amend the Plan;

WHEREAS, pursuant to Section 13.3 of the Plan, the Compensation Committee has delegated to the Employee Benefits Committee of the Corporation (the “Employee Benefits Committee”) the authority to adopt non-material amendments to the Plan;

WHEREAS, the Corporation has determined to implement a discretionary vacation leave policy, providing for unlimited vacation with company approval (the “Discretionary Vacation Leave Policy”), for certain U.S. exempt, non-union employees of the Corporation and its affiliates, effective as of December 26, 2015;

WHEREAS, the Corporation also has determined to implement a new paid time off policy applicable to certain U.S. non-exempt, non-union employees of the Corporation and its affiliates, effective as of December 26, 2015;

WHEREAS, in connection therewith, as of 11:59 p.m. on December 25, 2015, the Corporation will value and convert all or a portion of the so-called vacation and paid time off “bank” of such employees as in effect at that time to a deferred lump-sum amount with payment to be made: (1) during 2015, in an amount sufficient to satisfy any FICA taxation and related income tax withholding triggered by such conversion, and (2) following separation from service, in an amount equal to the balance of the deferral (such converted lump-sum amount, the “2015 Deferral”);

WHEREAS, at the time that certain U.S. non-exempt, non-union employees of the Corporation and its affiliates convert to U.S. exempt, non-union status, the Corporation similarly will value and convert all or a portion of such employees’ so-called paid time off


“bank” as in effect at that time to a deferred lump-sum amount with payment to be made: (1) during the year of conversion, in an amount sufficient to satisfy any FICA taxation and related income tax withholding triggered by such conversion, and (2) following separation from service, in an amount equal to the balance of the deferral (such converted lump-sum amount, the “Future Deferral”); provided, however, that the Future Deferral will be given effect only if the Corporation maintains a Discretionary Vacation Leave Policy applicable to such an employee at the time of his or her conversion to a U.S. exempt, non-union status;

WHEREAS, the Employee Benefits Committee has clarified that the 2015 Deferral and any Future Deferral shall be classified as nonqualified deferred compensation for purposes of the Plan;

WHEREAS, the Employee Benefits Committee therefore desires to amend the Plan to clarify that the 2015 Deferral and any Future Deferral shall be considered payments under a nonqualified deferred compensation plan and shall not be eligible compensation under the definition of Compensation in Article 2 of the Plan; and

WHEREAS, the Employee Benefits Committee has determined that the above-described amendment is non-material.

NOW, THEREFORE, BE IT RESOLVED, that the second paragraph of the definition of Compensation in Article 2 of the Plan is hereby amended, effective as of the date hereof, to insert a new sentence as the final sentence thereof, to read as follows:

“For the avoidance of doubt, compensation which is attributable to the conversion, effective as of December 25, 2015 or such later date as determined from time to time, of certain accrued vacation and paid time off to a deferred lump-sum amount, shall be considered nonqualified deferred compensation for purposes of the Plan and shall be excluded from “Compensation.”

APPROVED by the HARRIS CORPORATION EMPLOYEE BENEFITS COMMITTEE on this 9th day of December, 2015.

 

/s/ Adam Histed

Adam Histed, Chairperson

 

2

Exhibit 10(k)

HARRIS CORPORATION RETIREMENT PLAN

(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2016)


Harris Corporation Retirement Plan

(Amended and Restated Effective January 1, 2016)

Table of Contents

 

         Page  

ARTICLE 1 TITLE

     1   

ARTICLE 2 DEFINITIONS

     2   

ARTICLE 3 PARTICIPATION

     20   

Section 3.1.

 

Eligibility for Participation

     20   

Section 3.2.

 

Election of Pre-Tax Contributions, Designated Roth Contributions and After-Tax Contributions

     20   

Section 3.3.

 

Transfers to Affiliates

     22   

ARTICLE 4 PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE AND FRINGE CONTRIBUTIONS

     23   

Section 4.1.

 

Pre-Tax Contributions and Designated Roth Contributions

     23   

Section 4.2.

 

Matching Contributions

     25   

Section 4.3.

 

Profit Sharing Contributions

     28   

Section 4.4.

 

Company Base Contributions

     28   

Section 4.5.

 

Fringe Contributions

     28   

Section 4.6.

 

Deposit of Contributions

     28   

Section 4.7.

 

Form of Contributions

     29   

ARTICLE 5 AFTER-TAX AND ROLLOVER CONTRIBUTIONS

     29   

Section 5.1.

 

After-Tax Contributions

     29   

Section 5.2.

 

Rollover Contributions

     30   

ARTICLE 6 LIMITATIONS ON CONTRIBUTIONS

     31   

Section 6.1.

 

Annual Limit on Pre-Tax Contributions and Designated Roth Contributions

     31   

Section 6.2.

 

Limits on Contributions for Highly Compensated Employees

     34   

Section 6.3.

 

Maximum Annual Additions under Section 415 of the Code

     44   

Section 6.4.

 

Other Limitations on Employer Contributions

     46   

ARTICLE 7 TRUST AND INVESTMENT FUNDS

     47   

Section 7.1.

 

Trust

     47   

Section 7.2.

 

Investments

     47   


ARTICLE 8 PARTICIPANT ACCOUNTS AND INVESTMENT ELECTIONS

     48   

Section 8.1.

 

Participant Accounts

     48   

Section 8.2.

 

Investment Elections

     49   

Section 8.3.

 

Valuation of Funds and Plan Accounts

     51   

Section 8.4.

 

Valuation of Units within the Harris Stock Fund

     52   

Section 8.5.

 

Allocation of Contributions Other than Profit Sharing Contributions

     52   

Section 8.6.

 

Allocation of Profit Sharing Contributions

     53   

Section 8.7.

 

Correction of Error

     53   

ARTICLE 9 WITHDRAWALS AND DISTRIBUTIONS

     54   

Section 9.1.

 

Withdrawals Prior to Termination of Employment

     54   

Section 9.2.

 

Distribution of Account upon Termination of Employment

     60   

Section 9.3.

 

Time and Form of Distribution upon Termination of Employment

     62   

Section 9.4.

 

Payment of Small Account Balances

     65   

Section 9.5.

 

Medium and Order of Withdrawal or Distribution

     66   

Section 9.6.

 

Direct Rollover Option

     67   

Section 9.7.

 

Designation of Beneficiary

     68   

Section 9.8.

 

Missing Persons

     69   

Section 9.9.

 

Distributions to Minor and Disabled Distributees

     70   

Section 9.10.

 

Payment of Group Insurance Premiums

     71   

Section 9.11.

 

Dividends in Respect of the Harris Stock Fund

     71   

ARTICLE 10 LOANS

     72   

Section 10.1.

 

Making of Loans

     72   

Section 10.2.

 

Restrictions

     73   

Section 10.3.

 

Default

     73   

Section 10.4.

 

Applicability

     74   

ARTICLE 11 SPECIAL PARTICIPATION AND DISTRIBUTION RULES

     74   

Section 11.1.

 

Change of Employment Status

     74   

Section 11.2.

 

Reemployment of a Terminated Participant

     74   

Section 11.3.

 

Employment by Affiliates

     75   

Section 11.4.

 

Leased Employees

     75   

Section 11.5.

 

Reemployment of Veterans

     76   

 

ii


ARTICLE 12 SHAREHOLDER RIGHTS WITH RESPECT TO HARRIS STOCK

     79   

Section 12.1.

 

Voting Shares of Harris Stock

     79   

Section 12.2.

 

Tender Offers

     80   

ARTICLE 13 ADMINISTRATION

     83   

Section 13.1.

 

The Administrative Committee

     83   

Section 13.2.

 

Named Fiduciaries

     85   

Section 13.3.

 

Allocation and Delegation of Responsibilities

     86   

Section 13.4.

 

Professional and Other Services

     86   

Section 13.5.

 

Indemnification and Expense Reimbursement

     86   

Section 13.6.

 

Claims Procedure

     86   

Section 13.7.

 

Notices to Participants

     89   

Section 13.8.

 

Notices to Administrative Committee or Employers

     89   

Section 13.9.

 

Electronic Media

     89   

Section 13.10.

 

Records

     90   

Section 13.11.

 

Reports of Trustee and Accounting to Participants

     90   

Section 13.12.

 

Limitations on Investments and Transactions/Conversions

     90   

ARTICLE 14 PARTICIPATION BY EMPLOYERS

     91   

Section 14.1.

 

Adoption of Plan

     91   

Section 14.2.

 

Withdrawal from Participation

     92   

Section 14.3.

 

Company, Administrative Committee, Compensation Committee, Finance Committee and Investment Committee as Agents for Employers

     92   

Section 14.4.

 

Continuance by a Successor

     92   

ARTICLE 15 MISCELLANEOUS

     93   

Section 15.1.

 

Expenses

     93   

Section 15.2.

 

Non-Assignability

     94   

Section 15.3.

 

Employment Non-Contractual

     95   

Section 15.4.

 

Merger or Consolidation with Another Plan; Transfer Contributions; Transferred Employees; Divestitures

     95   

Section 15.5.

 

Gender and Plurals

     97   

Section 15.6.

 

Statute of Limitations for Actions under the Plan

     97   

Section 15.7.

 

Applicable Law

     97   

Section 15.8.

 

Severability

     98   

Section 15.9.

 

No Guarantee

     98   

 

iii


Section 15.10.

 

Plan Voluntary

     98   

Section 15.11.

 

Legal Fees

     98   

ARTICLE 16 TOP-HEAVY PLAN REQUIREMENTS

     99   

Section 16.1.

 

Top-Heavy Plan Determination

     99   

Section 16.2.

 

Definitions and Special Rules

     99   

Section 16.3.

 

Minimum Contribution for Top-Heavy Years

     101   

ARTICLE 17 AMENDMENT, ESTABLISHMENT OF SEPARATE PLAN, PLAN TERMINATION AND CHANGE IN CONTROL

     102   

Section 17.1.

 

Amendment

     102   

Section 17.2.

 

Establishment of Separate Plan

     102   

Section 17.3.

 

Termination

     102   

Section 17.4.

 

Change in Control

     103   

Section 17.5.

 

Trust Fund to Be Applied Exclusively for Participants and Their Beneficiaries

     104   

SCHEDULE A Special Rules Applying to Transfer Contributions and Transferred Employees

     A-1   

SCHEDULE B Special Rules Applying to Divestiture Accounts and Divestiture Participants

     B-1   

APPENDIX 1 Money Purchase Pension Accounts

     1-1   

APPENDIX 2 Former Exelis Information Systems Professional Benefits Employees’ Savings Plan

     2-1   

APPENDIX 3 ES/IEWS Employees

     3-1   

APPENDIX 4 Night Vision Employees

     4-1   

APPENDIX 5 Electronic Systems Employees

     5-1   

APPENDIX 6 PMRF Employees

     6-1   

APPENDIX 7 Benefit Group Employees

     7-1   

 

iv


ARTICLE 1

TITLE

The title of this Plan shall be the “Harris Corporation Retirement Plan.” This Plan is an amendment and restatement of the Plan in effect as of December 31, 2015. This amendment and restatement shall be effective as of January 1, 2016 and was adopted, in part, to reflect the merger of the Exelis Retirement Savings Plan into this Plan, effective as of December 31, 2015.

The rights and benefits of any Participant whose employment with all Employers and Affiliates terminates on or after January 1, 2016, and the rights and benefits of any Beneficiary of any such Participant, shall be determined solely by reference to the terms of the Plan as amended and restated herein, as such plan may be amended from time to time.

The Plan is designated as a “profit sharing plan” within the meaning of U.S. Treasury Regulation section 1.401-1(a)(2)(ii). In addition, the portion of the Plan invested in the Harris Stock Fund is designated as an “employee stock ownership plan” within the meaning of section 4975(e)(7) of the Code and, as such, is designed to invest primarily in “qualifying employer securities” within the meaning of section 4975(e)(8) of the Code.

Certain provisions of the Plan applicable solely to a specified group of Employees are set forth in an Appendix hereto, all of which Appendices are incorporated herein and considered to be part of this Plan. The provisions of an Appendix which modify the Plan’s terms with respect to the Employees covered thereby shall be construed in a manner that harmonizes the Appendix with the Plan to the maximum extent possible, and to the extent that the Plan’s terms are not expressly inconsistent with the terms of an Appendix, the Employees who participate in the Plan pursuant to such Appendix shall be governed by the Plan’s terms.

 

1


ARTICLE 2

DEFINITIONS

As used herein, the following words and phrases shall have the following respective meanings when capitalized:

Account. The aggregate of a Participant’s subaccounts described in Section 8.1 and such other subaccounts that may be established from time to time on behalf of a Participant, to be credited with contributions made by or on behalf of the Participant, adjusted for earnings and losses, and debited by distributions to and withdrawals of the Participant and expenses.

Administrative Committee. The Employee Benefits Committee of the Company or any successor thereto that is appointed pursuant to Section 13.1 to administer the Plan. Reference herein to the Administrative Committee also shall include any person or entity to whom the Administrative Committee has delegated any of its authority pursuant to Section 13.3 to the extent of the delegation.

Affiliate. (a) A corporation that is a member of the same controlled group of corporations (within the meaning of section 414(b) of the Code) as an Employer, (b) a trade or business (whether or not incorporated) under common control (within the meaning of section 414(c) of the Code) with an Employer, (c) any organization (whether or not incorporated) that is a member of an affiliated service group (within the meaning of section 414(m) of the Code) that includes an Employer, a corporation described in clause (a) of this subdivision or a trade or business described in clause (b) of this subdivision, or (d) any other entity that is required to be aggregated with an Employer pursuant to Regulations promulgated under section 414(o) of the Code.

After-Tax Account. The subaccount established pursuant to Section 8.1 to which (i) any after-tax contributions made for the benefit of a Participant pursuant to Section 5.1 and

 

2


(ii) any amounts that are attributable to after-tax contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

Beneficiary. A person entitled under Section 9.7 to receive benefits in the event of the death of a Participant. For the avoidance of doubt, any designation of a beneficiary under the Exelis Retirement Savings Plan in effect at the time of the merger of that plan into this Plan shall be void and of no effect.

Board. The Board of Directors of the Company.

Break in Service. A period other than a period included in an Employee’s Service; provided, however, that a Break in Service shall not include a period of absence from employment not in excess of 24 consecutive months because of (a) the Employee’s pregnancy, (b) the birth of the Employee’s child, (c) the placement of a child with the Employee in connection with the Employee’s adoption of such child or (d) the need of the Employee to care for any such child for a period beginning immediately following such birth or placement. The immediately preceding sentence shall not apply unless the Employee timely furnishes to the Administrative Committee or its delegate such information as it may reasonably require to establish the reason for such absence and its duration.

CapRock Employee. An Eligible Employee of Harris CapRock Communications, Inc. or a subsidiary thereof (including without limitation, CapRock Government Solutions, Inc.).

Change in Control. For the purposes hereof, a “Change in Control” shall be deemed to have occurred if:

(i) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and

 

3


14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s 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 pursuant to an offering of such securities, or (d) pursuant to a Non-Control Transaction (as defined in paragraph (iii));

(ii) individuals who, on January 1, 2016, 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 January 1, 2016, whose appointment, 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 shall be deemed to be an Incumbent Director;

(iii) there is consummated 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 Company’s shareholders

 

4


(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 60% of the total voting power of the corporation 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 corporation 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, or any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such 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 corporation resulting from such Business Combination, and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the conditions specified in (a), (b) and (c) shall be deemed to be a “Non-Control Transaction”);

(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company; or

(v) the Company consummates a direct or indirect sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries.

 

5


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.

For the purposes of this definition of “Change in Control” the term “Subsidiary” shall mean any entity of which the Company owns or controls, either directly or indirectly, 50% or more of the outstanding shares of stock normally entitled to vote for the election of directors or of comparable equity participation and voting power.

Code. The Internal Revenue Code of 1986, as amended, and the rules and Regulations promulgated thereunder. References to any section of the Code shall include any successor provision thereto.

Company. Harris Corporation, a Delaware corporation, and any successor thereto.

Company Base Account. The subaccount established pursuant to Section 8.1 to which (i) any company base contributions made for the benefit of a Participant pursuant to Appendix 7 and (ii) any amounts that are attributable to company base contributions made to a qualified defined contribution plan with respect to the Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

 

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Compensation. Except as otherwise provided in an Appendix for a specified group of Participants, the following items of remuneration which a Participant is paid for work or personal services performed for an Employer: (a) salary or wages, including lump sum merit increases; (b) commission paid pursuant to a sales incentive plan; (c) overtime premium, shift differential or additional compensation in lieu of overtime premium; (d) compensation in lieu of vacation; (e) any bonus or incentive compensation payable in the form of cash pursuant to an Employer’s Annual Incentive Plan, an Employer’s Performance Reward Plan, or other similar plan or award program adopted from time to time by an Employer; and (f) any differential wage payment (within the meaning of Section 3401(h)(2) of the Code) paid with respect to a period during which the Participant is performing service in the uniformed services while on active duty for more than 30 days; provided, however, that Compensation also shall include any remuneration which would have been paid to the Participant for work or personal services performed for an Employer but for the Participant’s election to have his or her compensation reduced pursuant to a qualified cash or deferred arrangement described in section 401(k) of the Code, a cafeteria plan described in section 125 of the Code or an arrangement providing qualified transportation fringes described in section 132(f) of the Code; provided further that the remuneration described in this paragraph shall be Compensation for purposes of the Plan only if it is paid on or before the later of (i) 2  12 months after the Participant’s severance from employment and (ii) the last day of the Plan Year during which the Participant’s severance from employment occurs (the “Timing Limitation”), except that the Timing Limitation shall not apply to payments to a Participant who does not perform services for an Employer at the time of payment by reason of Qualified Military Service to the extent that such payments do not exceed the amounts such Participant would have received if the Participant had continued to perform services for the Employer rather than entering Qualified Military Service.

 

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Notwithstanding the foregoing, and except as otherwise provided in an Appendix for a specified group of Participants, the following items also shall be excluded from “Compensation”: (1) any extraordinary compensation of a recurring or non-recurring nature, including one-time recognition awards and rewards under a referral program of an Employer; (2) any award made or amount paid pursuant to the Harris Corporation Equity Incentive Plan or any predecessor or successor thereto, including, but not limited to, performance shares, stock options, restricted stock, stock appreciation rights or other stock-based awards or dividend equivalents; (3) severance pay, separation pay, special retirement pay or parachute payments; (4) retention bonuses or completion bonuses, unless authorized by the Administrative Committee in a uniform and nondiscriminatory manner to be included in Compensation; (5) reimbursement or allowances with respect to expenses incurred in connection with employment, such as tax equalization, reimbursement for moving expenses, mileage or expense allowance or education expenses; (6) indirect compensation such as employer-paid group insurance premiums or contributions under this Plan or any other qualified employee benefit plan, other than contributions described in the immediately preceding paragraph or (7) payments under a nonqualified unfunded deferred compensation plan. For the avoidance of doubt, compensation which is attributable to the conversion, effective as of December 25, 2015 or such later date as determined from time to time, of certain accrued vacation and paid time off to a deferred lump-sum amount, shall be considered nonqualified deferred compensation for purposes of the Plan and shall be excluded from “Compensation”.

 

8


Notwithstanding any provision herein to the contrary, the Compensation of a Participant taken into account for any purpose under the Plan shall not exceed $265,000 (as adjusted pursuant to section 401(a)(17)(B) of the Code). In addition, in the Plan Year in which an Eligible Employee becomes a Participant, only Compensation received on or after the date he or she becomes a Participant shall be taken into account under the Plan. Finally, in no event shall Compensation for purposes of this Plan include any amount that is not “compensation” within the meaning of section 415(c)(3) of the Code and Treasury Regulation section 1.415(c)-2.

Compensation Committee. The Management Development and Compensation Committee of the Board (or such other committee of the Board as the Board may designate from time to time). Reference herein to the Compensation Committee also shall include any person or entity to whom the Compensation Committee has delegated any of its authority pursuant to Section 13.3 to the extent of the delegation.

Designated Roth Account. The subaccount established pursuant to Section 8.1 to which (i) any designated Roth contributions made for the benefit of a Participant pursuant to Section 4.1 and (ii) any amounts that are attributable to designated Roth contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

Disability. A Participant’s total and permanent physical or mental disability, as evidenced by the Participant’s eligibility for disability benefits under Title II or Title XVI of the Federal Social Security Act. A Participant’s Disability shall be deemed to occur as of the effective date determined by the Social Security Administration.

Effective Date. The effective date of this amendment and restatement of the Plan, which, with respect to the Company and any other Employer as of December 31, 2015, shall,

 

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except as otherwise provided herein, be January 1, 2016 and, with respect to an entity that becomes an Employer on or after January 1, 2016, shall be the effective date as of which the Plan is adopted by such entity.

Eligible Employee. An Employee other than an Employee (a) the terms of whose employment are subject to a collective bargaining agreement which does not provide for the participation of such Employee in the Plan; (b) who does not receive any Compensation payable in United States dollars; (c) who is not treated as an Employee of an Employer on such Employer’s payroll records (notwithstanding any determination by a court or administrative agency that such individual is an Employee); (d) who is not a United States citizen or a resident alien and who provides services in a location other than the United States; (e) who is eligible to participate in, or will be eligible to participate in after satisfaction of applicable age, service or entry date requirements, any other United States tax-qualified defined contribution plan sponsored or maintained by the Company or any of its subsidiaries or (f) who is a bona fide resident of Puerto Rico. No individual who renders services for an Employer shall be an Eligible Employee if such individual renders services pursuant to an agreement or arrangement (written or oral) (1) that such services are to be rendered by the individual as an independent contractor; (2) with an entity, including a leasing organization, that is not an Employer or Affiliate or (3) that contains a waiver of participation in the Plan.

Eligible Matching Participant. A Participant who is an Eligible Employee and who is not accruing “Benefit Service” under the Exelis Salaried Retirement Plan (as such term is defined in such plan and determined without regard to the 40-year maximum limit on Benefit Service).

 

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Eligible Profit Sharing Participant. For any Plan Year, a Participant who has completed a Year of Service on or prior to the last day of the applicable Plan Year and who is actively employed as an Eligible Employee on the last day of such Plan Year; (b) was actively employed as an Eligible Employee during such Plan Year but is not actively employed on the last day of such Plan Year due to Leave of Absence or a period of Qualified Military Service; or (c) was actively employed as an Eligible Employee during such Plan Year but terminated employment during such Plan Year (1) on or after the attainment of age 55, (2) due to death or Disability, (3) as a result of a Reduction in Force or (4) as a result of a transfer from employment with an Employer to employment with an Affiliate that is not an Employer.

Eligible Retirement Plan. Any of (i) an individual retirement account described in section 408(a) of the Code (including a Roth IRA described in section 408A of the Code), (ii) an individual retirement annuity described in section 408(b) of the Code (including a Roth IRA described in section 408A of the Code, and excluding any endowment contract), (iii) an employees’ trust described in section 401(a) of the Code which is exempt from tax under section 501(a) of the Code, (iv) an annuity plan described in section 403(a) of the Code; (v) an eligible deferred compensation plan described in section 457(b) of the Code which is maintained by a state, political subdivision of a state or any agency or instrumentality of a state or political subdivision of a state which agrees to account separately for amounts transferred into such plan and (vi) an annuity contract described in section 403(b) of the Code.

Employee. An individual whose relationship with an Employer is, under common law, that of an employee.

Employer. The Company or any other entity that, with the consent of the Compensation Committee, elects to participate in the Plan in the manner described in Section

 

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14.1, including any successor entity that is substituted for an Employer pursuant to Section 14.4. If an Employer withdraws from participation in the Plan pursuant to Section 14.2, or terminates its participation in the Plan pursuant to Section 17.3, it shall thereupon cease to be an Employer. An entity automatically shall cease being an Employer as of the date it ceases to be an Affiliate, unless the Compensation Committee consents to such entity’s continued participation in the Plan.

ERISA. The Employee Retirement Income Security Act of 1974, as amended, and the rules and Regulations promulgated thereunder. References to any section of ERISA shall include any successor provision thereto.

Finance Committee. The Finance Committee of the Board (or such other committee of the Board as the Board may designate from time to time). Reference herein to the Finance Committee also shall include any person or entity to whom the Finance Committee has delegated any of its authority pursuant to Section 13.3 to the extent of the delegation.

Fiscal Year. The fiscal year of the Company.

Fringe Account. The subaccount established pursuant to Section 8.1 to which (i) any fringe contributions made for the benefit of a Participant pursuant to Section 4.5 and (ii) any amounts that are attributable to fringe contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

Full-Time Employee. An Employee who regularly is scheduled by an Employer to work 30 or more hours per week and who is not designated on the payroll records of an Employer as a temporary employee, intern, or co-op employee.

Harris Stock. Common stock of the Company.

 

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Harris Stock Fund. An investment option, the assets of which consist primarily of shares of Harris Stock.

Highly Compensated Employee. For a Plan Year, any Employee who (a) is a 5%-owner (as determined under section 416(i)(1) of the Code) at any time during the current Plan Year or the preceding Plan Year or (b) for the preceding Plan Year, was paid compensation in excess of $120,000 (as adjusted in accordance with section 414(q)(1)(B) of the Code) from an Employer or Affiliate and was a member of the “top-paid group” (as defined in section 414(q)(3) of the Code).

HITS Business Unit Employee. An Eligible Employee of Harris IT Services Corporation.

Hour of Service. Each hour for which an Employee is paid or entitled to payment for the performance of duties for an Employer.

Investment Committee. The Investment Committee of the Company. Reference herein to the Investment Committee also shall include any person or entity to whom the Investment Committee has delegated any of its authority pursuant to Section 13.3 to the extent of the delegation.

Leave of Absence. A period of interruption of the active employment of an Employee granted by an Employer or Predecessor Company with the understanding that the Employee will return to active employment at the expiration of such period (or such extension thereof granted by the Employer or Predecessor Company). The term “Leave of Absence” does not include a period of Qualified Military Service.

 

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Legacy Crucial Employee. A HITS Business Unit Employee who as of June 28, 2013 was an Employee of Crucial Security Inc. and who is designated by Harris IT Services Corporation as a “program support employee.”

Legacy HCS GS Employee. A HITS Business Unit Employee who as of December 28, 2013 was an Employee of the government solutions division of Harris Patriot Healthcare Solutions LLC and who is designated by Harris IT Services Corporation as a “program support employee.”

Legacy HTSC Employee. An Eligible Employee who as of June 30, 2007 (i) was an Employee of Harris Technical Services Corporation and (ii) was a Participant in the Plan.

Legacy MCS Employee. An Eligible Employee who as of July 1, 2011 was a MCS Employee.

Matching Account. The subaccount established pursuant to Section 8.1 to which (i) any matching contributions made for the benefit of a Participant pursuant to Section 4.2 and (ii) any amounts that are attributable to matching contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

Maximum Contribution Percentage. The maximum percentage of a Participant’s Compensation (other than PRP Compensation) for a payroll period that may be contributed to the Plan pursuant to Section 5.1(a), as determined from time to time by the Administrative Committee. The Administrative Committee in its sole discretion may establish different Maximum Contribution Percentages with respect to Participants who are not Highly Compensated Employees for a given Plan Year and Participants who are Highly Compensated Employees for such Plan Year, and with respect to classes of Highly Compensated Employees for a given Plan Year.

 

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Maximum Deferral Percentage. The maximum percentage of a Participant’s Compensation (other than PRP Compensation) for a payroll period that may be contributed to the Plan pursuant to Section 4.1(a), as determined from time to time by the Administrative Committee. The Administrative Committee in its sole discretion may establish different Maximum Deferral Percentages with respect to Participants who are not Highly Compensated Employees for a given Plan Year and Participants who are Highly Compensated Employees for such Plan Year, and with respect to classes of Highly Compensated Employees for a given Plan Year.

MCS Employee. An Eligible Employee of Maritime Communication Services, Inc. or a subsidiary thereof.

Money Purchase Pension Account. The subaccount established pursuant to Section 8.1 attributable to money purchase pension plan contributions and earnings thereon that were transferred to the Plan in connection with the merger of the Exelis Retirement Savings Plan into the Plan, as adjusted for earnings and losses thereon.

Participant. An Eligible Employee who has satisfied the requirements set forth in Section 3.1 or an applicable Appendix. An individual shall cease to be a Participant upon the complete distribution of his or her vested Account.

Plan. The plan herein set forth, as from time to time amended.

Plan Year. The calendar year.

Predecessor Company. Any entity (a) of which an Affiliate is a successor by reason of having acquired all or substantially all of its business and assets or (b) from which an

 

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Affiliate acquired a business formerly conducted by such entity; provided, however, that in the case of any such entity that continues to conduct a trade or business subsequent to the acquisition by an Affiliate referred in (a) or (b) above, the status of such entity as a Predecessor Company relates only to the period of time prior to the date of such acquisition.

Pre-Tax Account. The subaccount established pursuant to Section 8.1 to which (i) any pre-tax contributions made for the benefit of a Participant pursuant to Section 4.1 and (ii) any amounts that are attributable to pre-tax contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

Prior Company Contribution Account. The subaccount established pursuant to Section 8.1 attributable to (i) Company Matching Contributions that were made under the Exelis Retirement Savings Plan prior to January 1, 2012; (ii) Company “Floor Contributions” that were made under the Exelis Retirement Savings Plan prior to January 1, 2012; and (iii) any other company or employer contributions that were made to the Exelis Retirement Savings Plan or any predecessor plan thereto prior to October 31, 2011, or any other amounts attributable to company or employer contributions transferred to the Exelis Retirement Savings Plan or any predecessor plan thereto from another qualified plan in connection with a plan merger or consolidation within the meaning of Section 414(l) of the Code.

Profit Sharing Account. The subaccount established pursuant to Section 8.1 to which (i) any profit sharing contributions made for the benefit of a Participant pursuant to Section 4.3 and (ii) any amounts that are attributable to profit-sharing contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.

 

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PRP Compensation. Compensation payable to a Participant pursuant to an Employer’s Performance Reward Plan or any similar broad-based cash incentive plan, or any successor plan thereto.

QNEC Account. The subaccount established pursuant to Section 8.1 to which (i) any “qualified nonelective contributions” within the meaning of section 401(m)(4)(C) of the Code made for the benefit of a Participant under the Plan and (ii) any amounts that are attributable to qualified nonelective contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon

Qualified Military Service. An individual’s service in the uniformed services (as defined in 38 U.S.C. § 4303) if such individual is entitled to reemployment rights under USERRA with respect to such service.

Reduction in Force. An involuntary or voluntary reduction in force, as defined in the Company’s Severance Pay Plan.

Regulations. Written regulations promulgated by the Department of Labor construing Title I of ERISA or by the Internal Revenue Service construing the Code.

Rollover Account. The subaccount established pursuant to Section 8.1 to which (i) any rollover contributions made by or for the benefit of a Participant pursuant to Section 5.2 and (ii) any amounts that are attributable to rollover contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon. Rollovers attributable to after-tax contributions and rollovers attributable to designated Roth contributions shall be accounted for separately from other amounts in the Rollover Account.

 

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Savings Account. The subaccount established pursuant to Section 8.1 to which any savings contributions under the Plan as in effect prior to July 1, 1983 are credited, as adjusted for earnings and losses thereon.

Service. The aggregate of the periods during which an Employee is employed by an Employer and any periods of employment or service taken into account pursuant to Sections 11.3 and 11.4, subject to the following:

(a) An Employee shall be deemed to be employed by an Employer during (1) any period of absence from employment by an Employer that is of less than twelve months’ duration, (2) the first twelve months of any period of absence from employment by an Employer for any reason other than the Employee’s quitting, retiring, being discharged or death, and (3) any period of absence from employment by an Employer due to or necessitated by the Employee’s Qualified Military Service, provided that the Employee returns to the employ of an Employer within the period prescribed by USERRA.

(b) An Employee’s period of employment by an entity other than an Affiliate that becomes a Predecessor Company shall be included as Service only to the extent expressly provided in the documents effecting the acquisition or otherwise required by law.

(c) An Employee’s period of employment by an entity in which the Company owns less than 80% but more than 1% of the outstanding equity interest (a “joint venture”) shall be included as Service if (1) the Company or its delegate designates employment with the joint venture as eligible for service credit under the Plan; (2) such Employee was employed by an Affiliate prior to such Employee’s employment by the

 

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joint venture and was not employed by any person or entity other than an Affiliate (an “unrelated employer”) between such Employee’s employment by an Affiliate and the joint venture; and (3) such Employee returns to employment with an Affiliate following the Employee’s termination of employment with the joint venture without having been employed by an unrelated employer between such Employee’s employment by the joint venture and an Affiliate.

(d) Solely for purposes of determining the nonforfeitable portion of a Participant’s Account under Section 9.2(b) or an Appendix hereto, if an Employee (1) is terminated by an Employer or Affiliate in connection with a Reduction in Force and (2) has, as of the date of such termination, completed at least one Year of Service, the Service of the Employee shall include the first twelve months of absence from employment, effective as of the date of such termination of employment.

Service shall be computed in terms of completed years, completed months and completed days.

Spouse. A person who is legally married to a Participant under the laws of any domestic or foreign jurisdiction that has the legal authority to sanction marriages. For the avoidance of doubt, the term “Spouse” shall not include a person who, with a Participant, is in a domestic partnership, civil union or other similar formal relationship recognized by applicable law.

TARS Employee. An Eligible Employee performing services under the Tethered Aerostat Radar Systems Contract who is not subject to a collective bargaining agreement.

Trust. The trust described in Section 7.1 and created by agreement between the Company and the Trustee.

 

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Trust Fund. All money and property of every kind of the Trust held by the Trustee pursuant to the terms of the agreement governing the Trust.

Trustee. The person or entity appointed by the Finance Committee and serving as trustee of the Trust or, if there is more than one such trustee acting at a particular time, all of such trustees collectively.

USERRA. The Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.

Valuation Date. Each day on which the New York Stock Exchange is open for trading and any other day determined by the Administrative Committee.

Wage Determination Employee. An Eligible Employee performing services for Harris IT Services Corporation who is a non-exempt employee assigned to the GSA9/CDC Contract or the STATE-6 Contract.

Year of Service. A period of Service of 365 days.

ARTICLE 3

PARTICIPATION

Section 3.1. Eligibility for Participation. Each Eligible Employee who was a Participant immediately before the Effective Date shall continue to be a Participant as of the Effective Date. Except as otherwise provided in an Appendix for a specified group of Employees, each other Eligible Employee shall become a Participant on the day he or she first performs an Hour of Service.

Section 3.2. Election of Pre-Tax Contributions, Designated Roth Contributions and After-Tax Contributions. (a) Participant Election. A Participant who desires to make pre-tax contributions, designated Roth contributions or after-tax contributions to the Plan shall make an election, in accordance with procedures prescribed by the Administrative Committee,

 

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specifying the Participant’s chosen rate of such contributions. Such election shall authorize the Participant’s Employer to reduce the Participant’s Compensation by the amount of any such pre-tax contributions, shall authorize the Participant’s Employer to make regular payroll deductions of any such designated Roth contributions or after-tax contributions, and shall evidence the Participant’s acceptance and agreement to all provisions of the Plan. Any election made pursuant to this Section 3.2(a) shall be effective only with respect to Compensation not currently available to the Participant as of the effective date of such election and shall be effective as soon as administratively practical after the date on which the election is received; provided, however, that an election with respect to PRP Compensation shall be effective for the first payment of PRP Compensation following the election.

(b) Deemed Election for Full-Time Employees. Except as otherwise provided in an Appendix for a specified group of Employees, a Participant who is a Full-Time Employee and who does not at the time and in the manner prescribed by the Administrative Committee elect otherwise (including for this purpose a reemployed Eligible Employee who is a Full-Time Employee and who does not elect otherwise following the Eligible Employee’s reemployment date) shall be deemed to have elected to make pre-tax contributions to the Plan each payroll period at the rate of 6% of the Participant’s Compensation (other than PRP Compensation) for such payroll period and to have authorized the Participant’s Employer to reduce his or her Compensation by the amount thereof. Any deemed election described in this Section 3.2(b) shall be effective only with respect to Compensation not currently available to the Participant as of the effective date of the deemed election and shall be effective thirty (30) days following the date that the Participant first performs an Hour of Service, or as soon as administratively practicable thereafter. The deemed election described in this Section 3.2(b) shall not apply with respect to any deferral of PRP Compensation.

 

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(c) Elections under the Exelis Retirement Savings Plan. Notwithstanding any provision within the Plan to the contrary, in the case of a Participant who participated in the Exelis Retirement Savings Plan as of December 31, 2015, such Participant’s deferral elections under the Exelis Retirement Savings Plan in effect as of such date (i.e., the date that the Exelis Retirement Savings Plan was merged into this Plan) with respect to pre-tax contributions, designated Roth contributions and after-tax contributions (including for this purpose an election not to make such contributions and any deemed election), shall continue in effect under this Plan until the Participant changes or suspends such elections in accordance with procedures established by the Administrative Committee. For the avoidance of doubt, the provisions of Section 3.2(b) with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to employees of Exelis, Inc. and its subsidiaries as of December 31, 2015.

Section 3.3. Transfers to Affiliates. If a Participant is transferred from one Employer to another Employer or from an Employer to an Affiliate that is not an Employer, such transfer shall not terminate the Participant’s participation in the Plan, and such Participant shall continue to participate in the Plan until an event occurs which would have entitled the Participant to a complete distribution of the Participant’s vested interest in his or her Account had the Participant continued to be employed by an Employer until the occurrence of such event. Notwithstanding the foregoing, a Participant shall not be entitled to make pre-tax contributions, designated Roth contributions or after-tax contributions, or to receive under the Plan allocations of matching contributions, profit sharing contributions, company base contributions or fringe

 

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contributions during any period of employment by an Affiliate that is not an Employer, and periods of employment by an Affiliate that is not an Employer shall be taken into account only to the extent set forth in Section 11.3. Payments that are received by a Participant from an Affiliate that is not an Employer shall not be treated as Compensation for any purpose under the Plan.

ARTICLE 4

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE

AND FRINGE CONTRIBUTIONS

Section 4.1. Pre-Tax Contributions and Designated Roth Contributions. (a) Initial Election. Subject to the limitations set forth in Article 6, each Employer shall make a pre-tax contribution and/or a designated Roth contribution for each payroll period on behalf of each Participant who is an Eligible Employee of such Employer in an amount equal to a whole percentage of such Participant’s Compensation (other than PRP Compensation) for such payroll period as elected by the Participant pursuant to Section 3.2. The percentage of Compensation so designated by a Participant for a payroll period may not be less than 1% and may not be more than the Maximum Deferral Percentage with respect to such Participant. Notwithstanding the foregoing, the aggregate of a Participant’s pre-tax contributions and designated Roth contributions for a payroll period pursuant to this Section 4.1(a) and a Participant’s after-tax contributions for a payroll period pursuant to Section 5.1(a) may not exceed an amount equal to the Maximum Deferral Percentage with respect to such Participant.

(b) Changes in the Rate or Suspension of Pre-Tax Contributions and Designated Roth Contributions. A Participant’s pre-tax contributions and designated Roth contributions pursuant to Section 4.1(a) shall continue in effect at the rate elected by the Participant pursuant to Section 3.2 until the Participant changes or suspends such election. A Participant may change or suspend such election at such time and in such manner as may be

 

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prescribed by the Administrative Committee, provided that only the last change made by a Participant during a payroll period shall be effectuated. Such change or suspension shall be effective as soon as administratively practicable after the date on which the change or suspension is received. A Participant who has suspended pre-tax contributions or designated Roth contributions pursuant to this subsection may resume pre-tax contributions or designated Roth contributions by making an election at such time and in such manner as may be prescribed by the Administrative Committee.

(c) Performance Reward Plan Deferral Election. Subject to the limitations set forth in Article 6, a Participant may elect, in accordance with procedures prescribed by the Administrative Committee, to have his or her Employer make a pre-tax contribution on his or her behalf of PRP Compensation, if any. The percentage of PRP Compensation so elected by a Participant pursuant to this Section 4.1(c) shall be 0%, 50% or 100% (net of applicable tax withholding).

(d) Catch-Up Contributions. Each Participant who (i) is eligible to make pre-tax contributions or designated Roth contributions under the Plan and (ii) will attain age 50 before the end of the Plan Year shall be eligible to have pre-tax contributions and/or designated Roth contributions made on his or her behalf in addition to those described in Sections 4.1(a) and (c) (“catch-up contributions”). Catch-up contributions shall be elected, made, suspended, resumed and credited in accordance with and subject to the rules and limitations of section 414(v) of the Code and such other rules and limitations prescribed by the Administrative Committee from time to time; provided, however, that (i) the amount of catch-up contributions made on behalf of a Participant during a Plan Year shall not exceed the maximum amount permitted under section 414(v)(2) of the Code for the calendar year ($6,000 for 2016) and (ii) the

 

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amount of catch-up contributions made on behalf of a Participant for a payroll period shall not exceed the percentage of the Participant’s Compensation that is established from time to time by the Administrative Committee. Catch-up contributions shall not be taken into account for purposes of Sections 6.1 and 6.3, and the Plan shall not be treated as failing to satisfy its provisions implementing the requirements of section 401(k)(3), 401(k)(11), 401(k)(12), 410(b) or 416 of the Code, as applicable, by reason of the making of catch-up contributions.

(e) Designation of Contributions as Pre-Tax Contributions or Designated Roth Contributions. Elections by Participants to commence, change, suspend or resume contributions under this Section 4.1 shall designate (i) the portion of such contributions that are to be pre-tax contributions excludable from the Participant’s gross income pursuant to section 402(g) of the Code and (ii) the portion of such contributions that are to be designated Roth contributions includable in the Participant’s gross income pursuant to section 402A of the Code. Such designations shall be irrevocable with respect to contributions made pursuant to such elections.

Section 4.2. Matching Contributions. (a) In General. Subject to the limitations set forth in Article 6, and except as otherwise provided in an Appendix for a specified group of Employees, each Employer shall make a matching contribution for each payroll period on behalf of each of its Eligible Matching Participants who has been credited with one Year of Service. Except as otherwise provided in an Appendix for a specified group of Employees, the rate of such matching contribution shall be as set forth in Section 4.2(b), (c), (d), (e) or (f), as applicable.

(b) Legacy Employees. The rate of matching contribution with respect to a Legacy HTSC Employee, a Legacy MCS Employee, a Legacy Crucial Employee or a Legacy HCS GS Employee shall equal 100% of the aggregate of (i) the pre-tax contribution and/or

 

25


designated Roth contribution made on behalf of such Participant pursuant to Section 4.1(a) and (ii) the after-tax contribution made on behalf of such Participant pursuant to Section 5.1(a); provided, however, that pre-tax, designated Roth and after-tax contributions in excess of 6% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions.

(c) Wage Determination Employees and TAR Employees. The rate of matching contribution with respect to a Wage Determination Employee or a TARS Employee shall equal 50% of the aggregate of (i) the pre-tax contribution and/or designated Roth contribution made on behalf of such Participant pursuant to Section 4.1(a) and (ii) the after-tax contribution made on behalf of such Participant pursuant to Section 5.1(a); provided, however, that pre-tax, designated Roth and after-tax contributions in excess of 4% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions.

(d) HITS Business Unit Employees Other Than Legacy HTSC Employees, Legacy Crucial Employees, Legacy HCS GS Employees and Wage Determination Employees. The rate of matching contribution with respect to a HITS Business Unit Employee who is not a Legacy HTSC Employee, a Legacy Crucial Employee, a Legacy HCS GS Employee or a Wage Determination Employee shall equal 50% of the aggregate of (i) the pre-tax contribution and/or designated Roth contribution made on behalf of such Participant pursuant to Section 4.1(a) and (ii) the after-tax contribution made on behalf of such Participant pursuant to Section 5.1(a); provided, however, that pre-tax, designated Roth and after-tax contributions in excess of 6% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions.

 

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(e) CapRock Employees and MCS Employees Other than Legacy MCS Employees. The rate of matching contribution with respect to a CapRock Employee or a MCS Employee who is not a Legacy MCS Employee shall equal 100% of the aggregate of (i) the pre-tax contribution and/or designated Roth contribution made on behalf of such Participant pursuant to Section 4.1(a) and (ii) the after-tax contribution made on behalf of such Participant pursuant to Section 5.1(a); provided, however, that pre-tax, designated Roth and after-tax contributions in excess of 5% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions.

(f) Other Eligible Matching Participants. The rate of matching contribution with respect to an Eligible Matching Participant who is not a Legacy HTSC Employee, a Legacy MCS Employee, a Legacy Crucial Employee, a Legacy HCS GS Employee, a HITS Business Unit Employee, a TARS Employee, a CapRock Employee or a MCS Employee shall equal 100% of the aggregate of (i) the pre-tax contribution and/or designated Roth contribution made on behalf of such Eligible Matching Participant pursuant to Section 4.1(a) and (ii) the after-tax contribution made on behalf of such Eligible Matching Participant pursuant to Section 5.1(a); provided, however, that pre-tax, designated Roth and after-tax contributions in excess of 6% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions.

(g) Contributions Not Eligible for Match. Notwithstanding the foregoing or any other provision within this Plan (including the Appendices hereto) to the contrary, an Employer shall not make a matching contribution with respect to (i) any contribution to the Plan of PRP Compensation or (ii) any catch-up contribution made pursuant to Section 4.1(d).

 

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Section 4.3. Profit Sharing Contributions. Subject to the limitations set forth in Article 6, each Plan Year the Employers in their discretion may make a profit sharing contribution to the Trust in such amount as the Employers in their discretion may determine. Such discretionary profit sharing contribution shall be allocated pursuant to Section 8.6 among Eligible Profit Sharing Participants for the Plan Year.

Section 4.4. Company Base Contributions. Subject to the limitations set forth in Article 6, each Plan Year the Employers shall make company base contributions to the Trust to the extent required by Appendix 7 hereto and in the amount set forth in Appendix 7 hereto.

Section 4.5. Fringe Contributions. Subject to the limitations set forth in Article 6, each Plan Year the Employers in their discretion may make, (i) on behalf of a Participant who is covered by the Davis-Bacon Act (40 U.S.C. Section 276(a) at seq., as amended) or the McNamara-O’Hara Service Contract Act (41 U.S.C. Section 351 et seq., as amended), a fringe contribution that shall be an amount equal to the fringe rate determined under the prevailing wage determination for services performed under the aforesaid acts, less any fringe benefit provided outside of the Plan or (ii) on behalf of a Participant who is subject to a collective bargaining agreement or similar contact, a fringe contribution in the amount determined by the Employer which shall be in lieu of certain fringe benefits.

Section 4.6. Deposit of Contributions. An Employer shall deliver to the Trustee any pre-tax contributions and designated Roth contributions as soon as administratively practicable after the date such contributions otherwise would have been paid to the Participants as cash compensation, but in no event later than the 15th business day of the month following the month during which such contributions otherwise would have been paid to the Participants. Except with respect to true-up matching contributions made pursuant to an Appendix hereto, an

 

28


Employer shall deliver to the Trustee any matching contributions concurrently with the delivery of the pre-tax contributions, designated Roth contributions or after-tax contributions to which such matching contributions relate. An Employer shall deliver to the Trustee any profit sharing contribution, company base contributions, fringe contributions or true-up matching contributions for a Plan Year no later than the date prescribed by the Code, including any authorized extensions thereof, for filing such Employer’s federal income tax return for the Fiscal Year which ends within or with such Plan Year.

Section 4.7. Form of Contributions. Subject to Section 7.2(b) with respect to contributions invested in the Harris Stock Fund, all contributions to the Plan shall be made in cash.

ARTICLE 5

AFTER-TAX AND ROLLOVER CONTRIBUTIONS

Section 5.1. After-Tax Contributions. (a) Initial Election. Subject to the limitations set forth in Article 6, each Participant may elect in accordance with Section 3.2 to make an after-tax contribution of Compensation (other than PRP Compensation) for each payroll period by payroll deduction. After-tax contributions of PRP Compensation are not permitted under the Plan. The percentage of Compensation so designated for a payroll period shall be a whole percentage not less than 1% and not more than the Maximum Contribution Percentage with respect to such Participant. Notwithstanding the foregoing, the aggregate of a Participant’s pre-tax contributions and designated Roth contributions for a payroll period pursuant to Section 4.1(a) and a Participant’s after-tax contributions for a payroll period pursuant to this Section 5.1(a) may not exceed an amount equal to the Maximum Contribution Percentage with respect to such Participant. An Employer shall deliver to the Trustee any after-tax contributions as soon as administratively practicable after the date such contributions otherwise would have been paid to the Participants as cash compensation, but in no event later than the 15th business day of the month following the month during which such contributions otherwise would have been paid to the Participants.

 

29


(b) Changes in the Rate or Suspension of After-Tax Contributions. A Participant’s after-tax contributions pursuant to Section 5.1(a) shall continue in effect at the rate elected by the Participant pursuant to Section 3.2 until the Participant changes or suspends such election. A Participant may change or suspend such election at such time and in such manner as may be prescribed by the Administrative Committee, provided that only the last change made by a Participant during a payroll period shall be effectuated. Such change or suspension shall be effective as soon as administratively practicable after the date on which the change or suspension is received. A Participant who has suspended after-tax contributions pursuant to this subsection may resume after-tax contributions by making an election at such time and in such manner as may be prescribed by the Administrative Committee.

(c) Form of Contributions. Subject to Section 7.2(b) with respect to contributions invested in the Harris Stock Fund, after-tax contributions to the Plan shall be made in cash.

Section 5.2. Rollover Contributions. (a) Requirements for Rollover Contributions. If a Participant receives an “eligible rollover distribution” (within the meaning of section 402(c)(4) of the Code) from an Eligible Retirement Plan, then such Participant may contribute to the Plan an amount that does not exceed the amount of such eligible rollover distribution (including the proceeds from the sale of any property received as part of such eligible rollover distribution). A rollover contribution may be in the form of cash or, with the consent of the Administrative Committee or its delegate, a promissory note evidencing an outstanding loan balance.

 

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(b) Delivery of Rollover Contributions. Any rollover contribution made pursuant to this Section shall be delivered by the Participant to the Trustee on or before the 60th day after the day on which the Participant receives the distribution (or on or before such later date as may be prescribed by law) or shall be transferred to the Trustee on behalf of the Participant directly from the trust from which the eligible rollover distribution is made. Any such contribution must be accompanied by any information or documentation in connection therewith requested by the Administrative Committee or the Trustee. Notwithstanding the foregoing, the Administrative Committee shall not permit a rollover contribution if in its judgment accepting such contribution would cause the Plan to violate any provision of the Code or Regulations.

ARTICLE 6

LIMITATIONS ON CONTRIBUTIONS

Section 6.1. Annual Limit on Pre-Tax Contributions and Designated Roth Contributions. (a) General Rule. Notwithstanding the provisions of Section 4.1, the aggregate of pre-tax contributions and designated Roth contributions made on behalf of a Participant for any calendar year pursuant to such Section and pursuant to any other plan or arrangement described in section 401(k) of the Code which is maintained by an Employer or Affiliate shall not exceed the dollar limitation in effect for such calendar year under section 402(g) of the Code, except to the extent permitted under Section 4.1(d) of the Plan and section 414(v) of the Code with respect to “catch-up contributions.”

 

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(b) Excess Pre-Tax Contributions and Designated Roth Contributions.

(1) Characterization as After-Tax Contributions. Except to the extent set forth in Section 4.1(d) of the Plan and section 414(v) of the Code with respect to “catch-up contributions,” if for any calendar year the pre-tax contributions and designated Roth contributions to the Plan reach the limit imposed by subsection (a) of this Section for such calendar year, any contributions under the Plan during the calendar year that exceed such limit shall be characterized as after-tax contributions. The Participant for whom any contributions are recharacterized as after-tax contributions pursuant to this paragraph shall designate the extent to which the contributions to be recharacterized shall be pre-tax contributions or designated Roth contributions (but only up to the extent that such types of contributions were made by the Participant to the Plan for the Plan Year) and, in the event that any such designation is not made or is incomplete, the Participant’s pre-tax contributions shall be recharacterized up to the extent pre-tax contributions were made to the Plan for the Plan Year and, to the extent that the Participant’s contributions to be recharacterized exceed such pre-tax contributions, the Participant’s designated Roth contributions made to the Plan for the Plan Year shall be recharacterized.

(2) Distribution. Notwithstanding the foregoing, and except to the extent set forth in Section 4.1(d) of the Plan and section 414(v) of the Code with respect to “catch-up contributions,” if for any calendar year the aggregate of the pre-tax contributions and the designated Roth contributions to the Plan plus elective deferrals contributed under other plans or arrangements described in

 

32


section 401(k), 403(b), 408(k) or 408(p) of the Code for the Participant exceed the limit imposed by subsection (a) of this Section for such calendar year and are not characterized as after-tax contributions, because of the limitation set forth in Section 5.1 on the amount of after-tax contributions that may be made to the Plan or otherwise, such Participant shall, pursuant to such rules and at such time following such calendar year as determined by the Administrative Committee, be allowed to submit a written request that the excess deferrals, plus any income and minus any loss allocable thereto, be distributed to the Participant. The amount of any income or loss allocable to such excess deferrals shall be determined pursuant to Regulations. Such amount of excess deferrals, as adjusted for income or loss, shall be distributed to the Participant no later than April 15 following the calendar year for which such contributions were made. Any excess deferrals that are distributed in accordance with this subsection (b)(2) shall not be treated as “annual additions” for purposes of Section 6.3. The amount of excess deferrals that may be distributed under this subsection (b)(2) with respect to a Participant for a calendar year shall be reduced by any amounts previously distributed pursuant to Section 6.2(d)(1) with respect to such Participant for such year. The Participant to whom any excess deferrals are distributed pursuant to this paragraph shall designate the extent to which such distributed excess deferrals are treated as pre-tax contributions or designated Roth contributions (but only up to the extent that such types of contributions were made by the Participant to the Plan for the Plan Year) and, in the event that any such designation is not made or is incomplete, such distributed excess deferrals shall be treated as pre-tax

 

33


contributions up to the extent pre-tax contributions were made to the Plan for the Plan Year and, to the extent that such distributed excess deferrals exceed such pre-tax contributions, such excess deferrals shall be treated as distributions of designated Roth contributions made to the Plan for the Plan Year. Any matching contributions attributable to excess deferrals that are distributed pursuant to this Section 6.1(b), as adjusted for income or loss, shall be forfeited.

Section 6.2. Limits on Contributions for Highly Compensated Employees.

(a) Actual Deferral Percentage Test Imposed by Section 401(k)(3) of the Code. Notwithstanding the provisions of Section 4.1, if the pre-tax contributions and designated Roth contributions made pursuant to Section 4.1 for a Plan Year fail, or in the judgment of the Administrative Committee are likely to fail, to satisfy both of the tests set forth in paragraphs (1) and (2) of this subsection, the adjustments prescribed in Section 6.2(d)(1) shall be made. Any pre-tax contributions or designated Roth contributions which are “catch-up contributions” described in Section 4.1(d) shall not be considered to be pre-tax contributions or designated Roth contributions for purposes of determining whether the tests set forth in paragraphs (1) and (2) of this subsection are satisfied or for purposes of making any adjustments prescribed by Section 6.2(d)(1).

(1) The HCE average deferral percentage for such year does not exceed the product of the NHCE average deferral percentage for such year and 1.25.

(2) The HCE average deferral percentage for such year (i) does not exceed the NHCE average deferral percentage for such year by more than two percentage points and (ii) does not exceed the product of the NHCE average deferral percentage for such year and 2.0.

 

34


(b) Actual Contribution Percentage Test Imposed by Section 401(m) of the Code. Notwithstanding the provisions of Sections 4.2 and 5.1, if the aggregate of the matching contributions made pursuant to Section 4.2 and the after-tax contributions made pursuant to Section 5.1 for a Plan Year fail, or in the judgment of the Administrative Committee are likely to fail, to satisfy both of the tests set forth in paragraphs (1) and (2) of this subsection, the adjustments prescribed in Section 6.2(d)(2) shall be made.

(1) The HCE average contribution percentage for such year does not exceed the product of the NHCE average contribution percentage for such year and 1.25.

(2) The HCE average contribution percentage for such year (i) does not exceed the NHCE average contribution percentage for such year by more than two percentage points and (ii) does not exceed the product of the NHCE average contribution percentage for such year and 2.0.

(c) Definitions and Special Rules. For purposes of this Section, the following definitions and special rules shall apply:

(1) The “actual deferral percentage test” refers collectively to the tests set forth in paragraphs (1) and (2) of subsection (a) of this Section relating to pre-tax contributions and designated Roth contributions. The actual deferral percentage test shall be satisfied if either of such tests are satisfied.

(2) The “HCE average deferral percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who are eligible to

 

35


make pre-tax contributions or designated Roth contributions for the current Plan Year and who are Highly Compensated Employees for the current Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the employer contributions for the benefit of such Eligible Employee for the current Plan Year (if any) to the total compensation for the current Plan Year paid to such Eligible Employee. For this purpose, “employer contributions” shall mean pre-tax contributions and designated Roth contributions (including excess deferrals), but excluding any pre-tax contributions and designated Roth contributions that are taken into account under the actual contribution percentage test (provided that the actual deferral percentage test is satisfied both with and without exclusion of such contributions).

(3) The “NHCE average deferral percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who were eligible to make pre-tax contributions or designated Roth contributions for the immediately preceding Plan Year and who were not Highly Compensated Employees for the immediately preceding Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the employer contributions for the benefit of such Eligible Employee for the immediately preceding Plan Year (if any) to the total compensation for the immediately preceding Plan Year paid to such Eligible Employee. For this purpose, “employer contributions” shall mean pre-tax contributions and designated Roth contributions (including excess deferrals), but

 

36


excluding (i) excess deferrals that arise solely from pre-tax contributions and designated Roth contributions made under this Plan or other plans maintained by the Employers and Affiliates and (ii) any pre-tax contributions and designated Roth contributions that are taken into account under the actual contribution percentage test (provided that the actual deferral percentage test is satisfied both with and without exclusion of such pre-tax contributions and designated Roth contributions). Notwithstanding the foregoing, in the event of a “plan coverage change” during a Plan Year (as such term is defined in Treasury Regulation §1.401(k)-2(c)(4)(iii)(A)), the “NHCE average deferral percentage” for such Plan Year shall be determined in accordance with Treasury Regulation §1.401(k)-2(c)(4).

(4) The “actual contribution percentage test” refers collectively to the tests set forth in paragraphs (1) and (2) of subsection (b) of this Section relating to matching contributions and after-tax contributions. The actual contribution percentage test shall be satisfied if either of such tests are satisfied.

(5) The “HCE average contribution percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who are eligible to have matching contributions, after-tax contributions, or in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for their benefit for the current Plan Year and who are Highly Compensated Employees for the current Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately

 

37


for each such Eligible Employee to the nearest one-hundredth of one percent, of the matching contributions, after-tax contributions and, in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for the benefit of such Eligible Employee for the current Plan Year (if any) to the total compensation for the current Plan Year paid to such Eligible Employee.

(6) The “NHCE average contribution percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who were eligible to have matching contributions, after-tax contributions, or in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for their benefit for the immediately preceding Plan Year and who were not Highly Compensated Employees for the immediately preceding Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the matching contributions, after-tax contributions and, in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for the benefit of such Eligible Employee for the immediately preceding Plan Year (if any) to the total compensation for the immediately preceding Plan Year paid to such Eligible Employee. Notwithstanding the foregoing, in the event

 

38


of a “plan coverage change” during a Plan Year (as such term is defined in Treasury Regulation §1.401(m)-2(c)(4)(iii)(A)), the “NHCE average contribution percentage” for such Plan Year shall be determined in accordance with Treasury Regulation §1.401(m)-2(c)(4).

(7) The term “compensation” shall have the meaning set forth in section 414(s) of the Code or, in the discretion of the Administrative Committee, any other meaning in accordance with the Code for these purposes. In any event, the term “compensation” shall not include any amount excludable under Treasury Regulation section 1.415(c)-2(g)(5)(ii).

(8) If the Plan and one or more other plans of an Employer to which pre-tax contributions, designated Roth contributions, matching contributions or employee contributions (as such terms are defined for purposes of section 401(m) of the Code), or qualified nonelective contributions (as such term is defined in section 401(m)(4)(C) of the Code), are made are treated as one plan for purposes of section 410(b) of the Code, such plans shall be treated as one plan for purposes of this Section. If a Highly Compensated Employee participates in the Plan and one or more other plans of an Employer to which any such contributions are made, all such contributions shall be aggregated for purposes of this Section.

(d) Adjustments to Comply with Limits.

(1) Adjustments to Comply with Actual Deferral Percentage Test. The Administrative Committee shall cause to be made such periodic computations as it shall deem necessary or appropriate to determine whether the actual deferral percentage test will be satisfied during a Plan Year, and, if it appears to the

 

39


Administrative Committee that such test will not be satisfied, the Administrative Committee shall take such steps as it deems necessary or appropriate to adjust the pre-tax contributions and designated Roth contributions made pursuant to Section 4.1 for all or a portion of the remainder of such Plan Year for the benefit of some or all of the Highly Compensated Employees to the extent necessary in order for the actual deferral percentage test to be satisfied. If, after the end of the Plan Year, the Administrative Committee determines that, notwithstanding any adjustments made pursuant to the preceding sentence, the actual deferral percentage test was not satisfied, the Administrative Committee shall calculate a total amount by which pre-tax contributions and designated Roth contributions must be reduced in order to satisfy such test in the manner prescribed by section 401(k)(8)(B) of the Code (the “excess contributions amount”). The amount of pre-tax contributions and designated Roth contributions to be reduced for each Participant who is a Highly Compensated Employee shall be determined by first reducing the pre-tax contributions and designated Roth contributions of each Participant whose actual dollar amount of pre-tax contributions and designated Roth contributions for such Plan Year is highest until such reduced dollar amount equals the next highest actual dollar amount of pre-tax contributions and designated Roth contributions made for such Plan Year on behalf of any Highly Compensated Employee or until the total reduction equals the excess contributions amount. If further reductions are necessary, then the pre-tax contributions and designated Roth contributions on behalf of each Participant who is a Highly Compensated Employee and whose actual dollar amount of pre-tax

 

40


contributions and designated Roth contributions for such Plan Year is the highest (determined after the reduction described in the preceding sentence) shall be reduced in accordance with the preceding sentence. Such reductions shall continue to be made to the extent necessary so that the total reduction equals the excess contributions amount. The portion of a Participant’s pre-tax contributions and designated Roth contributions to be reduced in accordance with this Section 6.2(d)(1) shall be recharacterized as an after-tax contribution, and the Participant shall be notified of such recharacterization and the tax consequences thereof no later than 2 12 months after the end of the Plan Year. The amount of a Participant’s pre-tax contributions and designated Roth contributions to be reduced in accordance with this Section shall be reduced by any excess deferrals previously distributed to such Participant pursuant to Section 6.1 in order to comply with the limitations of section 402(g) of the Code. The amount of any income or loss allocable to any such reductions shall be determined pursuant to the applicable Regulations promulgated by the U.S. Treasury Department. The Participant for whom any contributions are recharacterized as after-tax contributions pursuant to this paragraph shall designate the extent to which the contributions to be recharacterized contributions shall be pre-tax contributions or designated Roth contributions (but only up to the extent that such types of contributions were made by the Participant to the Plan for the Plan Year) and, in the event that any such designation is not made or is incomplete, the Participant’s pre-tax contributions shall be recharacterized up to the extent pre-tax contributions were made to the Plan for the Plan Year and, to the extent that the

 

41


Participant’s excess contributions exceed such pre-tax contributions, the Participant’s designated Roth contributions made to the Plan for the Plan Year shall be recharacterized.

(2) Adjustments to Comply with Actual Contribution Percentage Test. The Administrative Committee shall cause to be made such periodic computations as it shall deem necessary or appropriate to determine whether the average contribution percentage test will be satisfied during a Plan Year, and, if it appears to the Administrative Committee that such test will not be satisfied, the Administrative Committee shall take such steps as it deems necessary or appropriate to adjust the matching contributions and the after-tax contributions made pursuant to Section 4.2 and 5.1, respectively, for all or a portion of the remainder of such Plan Year on behalf of some or all of the Highly Compensated Employees to the extent necessary in order for the average contribution percentage test to be satisfied. If the Administrative Committee determines that, notwithstanding any adjustments made pursuant to the preceding sentence, the average contribution percentage test was or will not satisfied, the Administrative Committee shall, in its discretion, (1) allocate a qualified nonelective contribution pursuant to Section 6.2(e) or (2) reduce the matching contributions and after-tax contributions made on behalf of each Participant who is a Highly Compensated Employee and whose actual dollar amount of matching contributions and after-tax contributions for such Plan Year is the highest in the same manner described in subparagraph (1) of this paragraph to the extent necessary to comply with the average contribution percentage test. The reduction described in the preceding

 

42


sentence shall be made first with respect to a Participant’s after-tax contributions in excess of six percent of Compensation, second with respect to any remaining after-tax contributions and any matching contributions attributable thereto, and third with respect to any other matching contributions. With respect to contributions to be so reduced, no later than 2 12 months after the end of the Plan Year (or if correction by such date is administratively impracticable, no later than the last day of the subsequent Plan Year), the Administrative Committee shall cause to be distributed to each such Participant the amount of such reductions made with respect to vested matching contributions to which such Participant would be entitled under the Plan if such Participant had terminated service on the last day of the Plan Year for which such contributions are made (or on the date of the Participant’s actual termination of employment, if earlier) and with respect to after-tax contributions (plus any income and minus any loss allocable thereto), and any remaining amount of such reductions (plus any income and minus any loss allocable thereto) shall be forfeited. Any amounts forfeited pursuant to this paragraph shall be treated in the same manner as forfeitures described in Section 9.2(b). The amount of any such income or loss allocable to any such reduction to be so distributed or forfeited shall be determined pursuant to applicable Regulations promulgated by the U.S. Treasury Department.

(e) Qualified Nonelective Contributions. Subject to the limitations set forth in Sections 6.3 and 6.4, and to the extent permitted by Regulations or other pronouncements of the Internal Revenue Service, for purposes of satisfying the actual contribution percentage test set forth in Section 6.2(b), the Employers may contribute for a Plan Year such amount, if any, as

 

43


may be designated as a “qualified nonelective contribution” within the meaning of section 401(m)(4)(C) of the Code. Any such qualified nonelective contribution to the Plan must be contributed no later than the last day of the Plan Year immediately following the Plan Year to which it relates. Any such qualified nonelective contribution to the Plan shall be allocated to the Accounts of those Participants who are not Highly Compensated Employees for the Plan Year with respect to which such qualified nonelective contribution is made and who are actively employed by the contributing Employer on the last day of the Plan Year with respect to which such qualified nonelective contribution is made, beginning with the Participant with the lowest Compensation for such Plan Year and allocating the maximum amount that may be taken into account under Treasury Regulation §1.401(m)-2(a)(6)(v) (and that is permissible under Section 6.3) before allocating any portion of such qualified nonelective contribution to the Participant with the next lowest Compensation for the Plan Year.

Section 6.3. Maximum Annual Additions under Section 415 of the Code. Notwithstanding any other provision of the Plan, the amounts allocated to the Account of each Participant for any limitation year shall be limited so that the aggregate annual additions for such year to the Participant’s Account and to the Participant’s accounts in all other defined contribution plans maintained by an employer shall not exceed the lesser of:

 

  (i) $53,000 (as adjusted pursuant to section 415(d) of the Code); and

 

  (ii) 100% of the Participant’s compensation for such limitation year (or such other percentage of compensation set forth in section 415(c) of the Code).

 

44


The “annual additions” to a Participant’s Account and to the Participant’s account in any other defined contribution plan maintained by an employer is the sum for such limitation year of:

(a) the amount of employer contributions (including pre-tax contributions and designated Roth contributions) allocated to the Participant’s account, excluding, however, (X) pre-tax contributions and designated Roth contributions that are “catch-up contributions” made pursuant to section 414(v) of the Code, (Y) excess deferrals that are distributed in accordance with section 402(g) of the Code and (Z) restorative payments (within the meaning of Treasury Regulation section 1.415(c)-1(b)(2)(ii)(C)),

(b) the amount of forfeitures allocated to the Participant’s account,

(c) the amount of contributions by the Participant to any such plan, but excluding any rollover contributions or loan repayments,

(d) the amount allocated on behalf of the Participant to any individual medical benefit account (as defined in section 415(l) of the Code) or, if the Participant is a key employee within the meaning of section 419A(d)(3) of the Code, to any post-retirement medical benefits account established pursuant to section 419A(d)(1) of the Code, and

(e) the amount of mandatory employee contributions within the meaning of section 411(c)(2)(C) of the Code by such Participant to a defined benefit plan, regardless of whether such plan is subject to the requirements of section 411 of the Code.

For purposes of this Section, the “limitation year” shall be the Plan Year, the term “compensation” shall have the meaning set forth in Treasury Regulation section 1.415(c)-2(d)(4), the term “defined contribution plan” shall have the meaning set forth in Treasury Regulation section 1.415(c)-1(a)(2), and a Participant’s employer shall include entities that are members of the same controlled group (within the meaning of section 414(b) of the Code as modified by section 415(h) of the Code) or affiliated service group (within the meaning of section 414(m) of the Code) as the Participant’s employer or under common control (within the meaning of section 414(c) of the Code as modified by section 415(h) of the Code) with the Participant’s employer or such entities.

 

45


Section 6.4. Other Limitations on Employer Contributions. The contributions of the Employers for a Plan Year shall not exceed the maximum amount for which a deduction is allowable to such Employers for federal income tax purposes for the fiscal year of such Employers that ends within or with such Plan Year.

Any contribution made by an Employer by reason of a good faith mistake of fact, or the portion of any contribution made by an Employer that exceeds the maximum amount for which a deduction is allowable to such Employer for federal income tax purposes by reason of a good faith mistake in determining the maximum allowable deduction, shall upon the request of such Employer be returned by the Trustee to the Employer. An Employer’s request and the return of any such contribution must be made within one year after such contribution was mistakenly made or after the deduction of such excess portion of such contribution was disallowed, as the case may be. The amount to be returned to an Employer pursuant to this paragraph shall be the excess of (i) the amount contributed over (ii) the amount that would have been contributed had there not been a mistake of fact or a mistake in determining the maximum allowable deduction. Earnings attributable to the mistaken contribution shall not be returned to the Employer, but losses attributable thereto shall reduce the amount to be so returned. If the return to the Employer of the amount attributable to the mistaken contribution would cause the balance of any Participant’s Account as of the date such amount is to be returned (determined as if such date coincided with the close of a Plan Year) to be reduced to less than what would have been the balance of such Account as of such date had the mistaken amount not been contributed, the amount to be returned to the Employer shall be limited so as to avoid such reduction.

 

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ARTICLE 7

TRUST AND INVESTMENT FUNDS

Section 7.1. Trust. A Trust shall be created by the execution of a trust agreement between the Company (acting on behalf of the Employers) and the Trustee. All contributions under the Plan shall be paid to the Trustee. The Trustee shall hold all monies and other property received by it and invest and reinvest the same, together with the income therefrom, on behalf of the Participants collectively in accordance with the provisions of the trust agreement. The Trustee shall make distributions from the Trust Fund at such time or times to such person or persons and in such amounts as the Administrative Committee directs in accordance with the Plan.

Section 7.2. Investments. (a) In General. The Investment Committee shall establish an investment policy for the Plan. The Investment Committee shall cause the Trustee to establish and maintain three or more separate investment funds exclusively for the collective investment and reinvestment as directed by Participants of amounts credited to their Accounts. Additional investment funds may be established as determined by the Investment Committee from time to time in its sole discretion. The Investment Committee, in its sole discretion, may appoint investment managers to provide services in connection with the investment funds established under the Plan.

(b) Harris Stock Fund. In addition to the investment funds established at the direction of the Investment Committee pursuant to Section 7.2(a), the Trustee shall establish and maintain a Harris Stock Fund. The assets of the Harris Stock Fund shall be invested primarily in shares of Harris Stock. The assets of the Harris Stock Fund also may be invested in short-term liquid investments. Each Participant’s interest in the Harris Stock Fund shall be represented by units of participation, and each such unit shall represent a proportionate interest in all the assets

 

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of such fund. Amounts invested in the Harris Stock Fund generally shall be contributed in cash; provided, however, that the Company, in its discretion, may contribute such amounts in shares of Harris Stock. The Trustee is authorized to purchase shares of Harris Stock on the open market. Except as permitted by section 401(a)(35) of the Code, restrictions (either direct or indirect) or conditions will not be imposed on investment in the Harris Stock Fund if such restrictions or conditions are not imposed on investment in the other investment funds available under the Plan.

(c) Self-Directed Brokerage Account. In addition to the investment funds established at the direction of the Investment Committee pursuant to Section 7.2(a), a Participant may establish a self-directed brokerage account, subject to the terms and conditions set forth in this Plan and such other terms and conditions as deemed appropriate by the Administrative Committee or Investment Committee from time to time. In no event shall Harris Stock be a permitted investment in the self-directed brokerage account.

ARTICLE 8

PARTICIPANT ACCOUNTS

AND INVESTMENT ELECTIONS

Section 8.1. Participant Accounts. The Administrative Committee shall establish and maintain, or cause the Trustee or such other agent as the Administrative Committee may select to establish and maintain, a separate Account for each Participant. Such Account shall be solely for accounting purposes, and no segregation of assets of the Trust Fund among the separate Accounts shall be required. Each Account shall consist of the following subaccounts (and such other subaccounts as may be established by or at the direction of the Administrative Committee from time to time):

 

  (a) a Pre-Tax Account;

 

  (b) a Designated Roth Account;

 

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  (c) a Matching Account;

 

  (d) a Profit Sharing Account;

 

  (e) an After-Tax Account;

 

  (f) a Rollover Account ;

 

  (g) a Savings Account;

 

  (h) a QNEC Account;

 

  (i) a Company Base Account;

 

  (j) a Fringe Account;

 

  (k) a Prior Company Contribution Account; and

 

  (l) a Money Purchase Pension Account.

The Administrative Committee shall establish and maintain, or cause the Trustee or such other agent as the Administrative Committee may select to establish and maintain, investment subaccounts with respect to each investment fund described in Section 7.2 to which amounts contributed under the Plan shall be credited according to each Participant’s investment elections pursuant to Section 8.2. All such investment subaccounts shall be solely for accounting purposes, and there shall be no segregation of assets within the investment funds among the separate investment subaccounts.

Section 8.2. Investment Elections. (a) Initial Election. Each Participant shall make, in the manner prescribed by the Administrative Committee, an investment election that shall apply to the investment of contributions made for a Participant’s benefit and any earnings on such contributions, subject to such limitations set forth herein or imposed by the Administrative Committee from time to time. Such election shall specify that such contributions be invested either (i) wholly in one of the funds maintained by the Trustee pursuant to Section 7.2,

 

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or (ii) divided among two or more of such funds in increments of 1% (or such larger percentage established by the Administrative Committee from time to time). Unless otherwise determined by the Investment Committee, during any period in which no direction as to the investment of a Participant’s Account is on file with the Administrative Committee (a “Default Period”), contributions made for a Participant’s benefit shall be invested in an age-appropriate LifeCycle Fund (or, if the Employers have no record of the Participant’s age, in the LifeCycle Retirement Fund until such Participant’s age can be determined, at which time all such contributions made for such Participant’s benefit during the Default Period shall be transferred to an age-appropriate LifeCycle Fund). A Participant may enroll in a managed account program under which investment professionals will monitor the Participant’s Account and manage all investment elections and transactions.

(b) Change of Election. A Participant may change his or her investment election as of any Valuation Date, subject to such limitations as the Administrative Committee from time to time may impose (including restrictions on investment election changes that apply solely to a particular investment fund or option). A Participant’s investment election change shall be limited to the investment funds or options then maintained by the Trustee pursuant to Section 7.2. A change in investment election made pursuant to this Section shall apply to a Participant’s existing Account or contributions made for the benefit of the Participant after such change, or both. Any such change shall specify that such Account or contributions be invested either (i) wholly in one of the funds or options maintained by the Trustee pursuant to Section 7.2 or (ii) divided among two or more of such funds or options in increments of 1% (or such larger percentage established by the Administrative Committee from time to time) or, solely with respect to a Participant’s existing Account, in fixed dollar amounts. A Participant’s change of

 

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investment election must be made in the manner prescribed by the Administrative Committee. The Administrative Committee shall prescribe rules regarding the time by which such an election must be made in order to be effective for a particular Valuation Date.

(c) Special Rules Concerning the Harris Stock Fund. Notwithstanding any provision of the Plan to the contrary, (i) a Participant may not elect to invest in the Harris Stock Fund more than 20% of the aggregate contributions newly made for his or her benefit and (ii) a Participant may not transfer any portion of the Participant’s existing Account from investment in funds other than the Harris Stock Fund to investment in the Harris Stock Fund if such transfer would cause more than 20% of the Participant’s existing Account to be invested in the Harris Stock Fund.

(d) Special Rules Concerning the Self-Directed Brokerage Account. Contributions newly made for a Participant’s benefit may not be directly invested in the self-directed brokerage account. Any amounts to be invested in the self-directed brokerage account must be transferred from one or more of the investment funds then maintained by the Trustee pursuant to Section 7.2, and any such transfer shall be in an amount that is no less than $500. In no event may such a transfer cause more than 20% of the Participant’s Account to be invested in the self-directed brokerage account.

(d) ERISA Section 404(c) Plan. The Plan is intended to meet the requirements of section 404(c) of ERISA and the Regulations thereunder, and the provisions of the Plan shall be construed and interpreted to meet such requirements.

Section 8.3. Valuation of Funds and Plan Accounts. The value of an investment fund as of any Valuation Date shall be the market value of all assets (including any uninvested cash) held by the fund on such Valuation Date as determined by the Trustee, reduced

 

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by the amount of any accrued liabilities of the fund on such Valuation Date. The Trustee’s determination of market value shall be binding and conclusive upon all parties. The value of a Participant’s Account as of any Valuation Date shall be the sum of the values of his or her investment subaccounts in each of the subaccounts described in Section 8.1.

Section 8.4. Valuation of Units within the Harris Stock Fund. As soon as practicable after the close of business on each Valuation Date, the Trustee shall determine the value of the Harris Stock Fund on such Valuation Date in the manner prescribed in Section 8.3, and the value so determined shall be divided by the total number of Harris Stock Fund participating units allocated to the investment subaccounts of Participants. The resulting quotient shall be the value of a participating unit in the Harris Stock Fund as of such Valuation Date and shall constitute the “price” of a participating unit as of such Valuation Date. Participating units shall be credited, at the price so determined, to the investment subaccounts of Participants with respect to moneys contributed or transferred to such investment subaccounts on their behalf on such Valuation Date. The price of such participating units shall be debited to the investment subaccounts of Participants with respect to moneys divested from such investment subaccounts on their behalf on such Valuation Date. The value of all participating units credited to Participants’ investment subaccounts shall be redetermined in a similar manner as of each Valuation Date.

Section 8.5. Allocation of Contributions Other than Profit Sharing Contributions. Any pre-tax contribution, designated Roth contribution, matching contribution, company base contribution, fringe contribution, after-tax contribution, rollover contribution or qualified nonelective contribution shall be allocated to the Pre-Tax Account, Designated Roth Account, Matching Account, Company Base Account, Fringe Account, After-Tax Account,

 

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Rollover Account or QNEC Account, as applicable, of the Participant for whom such contribution is made on or as soon as practicable after the Valuation Date coinciding with or next following the date on which such contribution is delivered to the Trustee. Notwithstanding any provision of this Article 8 to the contrary, any Designated Roth Account shall be maintained in a manner that satisfies the separate accounting requirement, and any Regulations or other requirements promulgated, under section 402A of the Code.

Section 8.6. Allocation of Profit Sharing Contributions. Any profit sharing contribution made by the Employers pursuant to Section 4.3 for a Plan Year shall be allocated among the Eligible Profit Sharing Participants in the proportion that the Compensation of each Eligible Profit Sharing Participant for such Plan Year bears to the total Compensation of all Eligible Profit Sharing Participants for such Plan Year; provided, however, that in the Plan Year during which a Participant becomes an Eligible Profit Sharing Participant, only Compensation received on or after the date he or she becomes an Eligible Profit Sharing Participant shall be taken into account for purposes of this Section 8.6. Any such contribution shall be allocated to the Profit Sharing Accounts of Eligible Profit Sharing Participants as of the last day of the Plan Year but credited as of the Valuation Date coinciding with or next following the date on which the profit sharing contribution is delivered to the Trustee.

Section 8.7. Correction of Error. If it comes to the attention of the Administrative Committee that an error has been made in any of the allocations prescribed by this Article 8, appropriate adjustment shall be made to the Accounts of all Participants and Beneficiaries that are affected by such error, except that, unless otherwise required by law, no adjustment need be made with respect to any Participant or Beneficiary whose Account has been distributed in full prior to the discovery of such error.

 

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ARTICLE 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.1. Withdrawals Prior to Termination of Employment. (a) Withdrawals from After-Tax Account and Savings Account. As of any Valuation Date, a Participant may withdraw all or any portion of his or her After-Tax Account or Savings Account; provided, however, that (i) only one such withdrawal may be made in any three-month period; (ii) such withdrawal shall be in the form of a lump sum payment; (iii) a Participant may not withdraw any amount from his or her Savings Account until the entire balance of his or her After-Tax Account has been withdrawn; and (iv) a Participant’s election under the Plan to make after-tax contributions, if any, shall be suspended, and no after-tax contributions or matching contributions attributable to after-tax contributions shall be allocated to the Participant’s Account, for a period of three months after the date of such withdrawal from the Participant’s After-Tax Account. At the expiration of such three-month suspension period, unless a Participant elects otherwise at the time and in the manner prescribed by the Administrative Committee, after-tax contributions to the Plan by the Participant automatically shall resume at the same rate as in effect immediately prior to such suspension.

(b) Hardship Withdrawals. Subject to the provisions of this subsection, a Participant who has taken all loans currently available to the Participant under Article 10 and under all other plans of the Employers and Affiliates, has taken all withdrawals (other than hardship withdrawals) currently available to the Participant under this Section 9.1, under Section 9.11 or otherwise under this Plan and under all other plans of the Employers and Affiliates and has incurred a financial hardship may withdraw as of any Valuation Date all or any portion of the combined balance of his or her (i) pre-tax contributions, (ii) designated Roth contributions , (iii) vested Profit Sharing Account , (iv) Company Base Account and (v) Fringe Account (in each case, excluding any portion of such account attributable to dividends paid on or after May 20, 2010 with respect to an investment in the Harris Stock Fund).

 

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(1) The amount of such withdrawal shall not exceed the amount needed to satisfy the financial hardship, including amounts necessary to pay any federal, state or local taxes or any penalties reasonably anticipated to result from the hardship withdrawal. The determination of the existence of a financial hardship and the amount required to be distributed to satisfy such hardship shall be made in a non-discriminatory and objective manner. A financial hardship shall be deemed to exist if and only if the Participant certifies that the financial need is on account of:

 

  (i) expenses for (or necessary to obtain) medical care that would be deductible under section 213(d) of the Code (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);

 

  (ii) costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);

 

  (iii) payment of tuition, room and board and related educational fees for up to the next 12 months of post-secondary education for the Participant, or the Participant’s Spouse, children or dependents (as defined in section 152 of the Code, and without regard to sections 152(b)(1), (b)(2) and (d)(1)(B));

 

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  (iv) payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure of the mortgage on that residence;

 

  (v) payments for burial or funeral expenses for the Participant’s deceased parent, Spouse, children or dependents (as defined in section 152 of the Code, and without regard to section 152(d)(1)(B));

 

  (vi) expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under section 165 of the Code (determined without regard to whether the loss exceeds 10% of adjusted gross income); or

 

  (vii) the occurrence of any other event determined by the Commissioner of Internal Revenue pursuant to Treasury Regulation section 1.401(k)-1(d)(3)(v).

(2) The Participant shall be required to submit any supporting documentation as may be requested by the Administrative Committee.

(3) Any hardship withdrawal pursuant to this Section 9.1(b) shall be in the form of a lump sum payment.

(4) A Participant may receive a hardship withdrawal pursuant to this Section 9.1(b) no more than once during any six-month period.

(5) Amounts distributed to a Participant pursuant to this Section 9.1(b) shall be withdrawn first from the Participant’s pre-tax contributions, second from

 

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the vested portion of the Participant’s Profit Sharing Account, third from the Participant’s Company Base Account, fourth from the Participant’s Fringe Account and last from the Participant’s designated Roth contributions, and shall not be taken from the next source until the previous source has been depleted.

(6) Notwithstanding any provision of the Plan to the contrary, a Participant who receives a hardship withdrawal hereunder shall be prohibited from making any pre-tax contributions, designated Roth contributions or after-tax contributions under Section 4.1 or Section 5.1, respectively, and under all other plans of the Employers and Affiliates until the first payroll period commencing coincident with or next following the date which is six months after the date the hardship withdrawal was made (or such earlier date as may be permitted by applicable Regulations). Unless a Participant elects otherwise at the time and in the manner prescribed by the Administrative Committee, following the period of suspension of the Participant’s contributions prescribed by this Section 9.1(b)(6), contributions to the Plan by the Participant automatically shall resume in the same form and at the same rate as in effect immediately prior to such suspension.

(7) For purposes of this Section 9.1(b), “all other plans of the Employers and Affiliates” shall include stock option plans, stock purchase plans, qualified and nonqualified deferred compensation plans and such other plans as may be designated under Regulations, but shall not include health and welfare plans and the mandatory employee contribution portion of a defined benefit plan.

(c) Withdrawals On or After Age 59 12. As of any Valuation Date, a Participant who has attained age 59 12 may withdraw all or any portion of his or her vested

 

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Account. Notwithstanding the foregoing, in no event shall a Participant’s Money Purchase Pension Account be withdrawn prior to the Participant’s attainment of age 62 and if the Participant is married, the Participant’s Spouse must consent in writing (or by such other method permitted by the Internal Revenue Service) to the withdrawal of the Participant’s Money Purchase Pension Account pursuant to this Section 9.1(c) and such consent must be witnessed by a notary public. Any withdrawal pursuant to this Section 9.1(c) shall be made at the Participant’s election in any form of payment provided under Section 9.3(c).

(d) Withdrawals from Rollover Account. As of any Valuation Date, a Participant may withdraw all or any portion of his or her Rollover Account. Any withdrawal pursuant to this Section 9.1(d) shall be in the form of a lump sum payment.

(e) Military Leave Withdrawals. As of any Valuation Date, a Participant who is performing service in the uniformed services (as described in Section 3401(h)(2)(A) of the Code) while on active duty for more than 30 days may withdraw all or any portion of the Participant’s Account attributable to pre-tax contributions and designated Roth contributions. Any withdrawal pursuant to this Section 9.1(e) shall be in the form of a lump sum payment. A Participant who receives such a withdrawal shall be prohibited from making any pre-tax contributions or designated Roth contributions under Section 4.1 or after-tax contributions under Section 5.1 until the first payroll period commencing coincident with or next following the date which is six months after the date such withdrawal was made (or such earlier date as may be permitted by applicable Regulations). Unless a Participant elects otherwise at the time and in the manner prescribed by the Administrative Committee, following the period of suspension of the Participant’s contributions prescribed by this Section 9.1(e), contributions to the Plan by the Participant automatically shall resume in the same form and at the same rate as in effect immediately prior to such suspension.

 

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(f) Withdrawals from Prior Company Contribution Account. As of any Valuation Date, a Participant may withdraw all or any portion of his or her Prior Company Contribution Account. Any withdrawal pursuant to this Section 9.1(f) shall be made at the Participant’s election in any form of payment provided under Section 9.3(c).

(g) Conditions Applicable to All Withdrawals. A Participant’s request for a withdrawal pursuant to this Section 9.1 shall be made at such time and in such manner as may be prescribed by the Administrative Committee. The amount available for withdrawal pursuant to this Section 9.1 shall be reduced by the amount of any loan made pursuant to Article 10 that is outstanding at the time of withdrawal, and no withdrawal pursuant to this Section 9.1 shall be permitted to the extent that such withdrawal would cause the aggregate amount of such outstanding loan to exceed the limits described in Section 10.1. The amount available for withdrawal under this Section 9.1 is subject to reduction in the sole discretion of the Administrative Committee to take into account the investment experience of the Trust Fund between the date of the withdrawal election and the date of the withdrawal.

(h) Repayment of Withdrawal from Exelis Retirement Savings Plan. If a Participant made a withdrawal under the Exelis Retirement Savings Plan prior to September 30, 1996, as a result of which he or she forfeited all or a portion of the value of the Participant’s “Company Contribution Account” under such plan at such time, he or she shall be permitted to repay in full the amounts previously withdrawn from the Participant’s “Company Contribution Account” by providing to the Administrative Committee prior written notice on a form approved by the Administrative Committee for such purpose. Such repayment may be made at any time

 

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provided the Participant is then eligible for the Plan and further provided the Participant has not incurred a Break in Service of five consecutive years. Such repayment amounts shall be deposited into the Participant’s Prior Company Contribution Account.

Section 9.2. Distribution of Account upon Termination of Employment. (a) Termination of Employment under Circumstances Entitling Participant to Full Distribution of Account. If a Participant’s employment with all Employers and Affiliates terminates under any of the following circumstances, then the Participant or his or her designated Beneficiary, as the case may be, shall be entitled to receive the Participant’s entire Account:

(1) on or after the date the Participant attains age 55;

(2) on account of the Participant’s death;

(3) on account of the Participant’s Disability; or

(4) on or after the date the Participant is credited with at least four Years of Service (or such other number of Years of Service required for full vesting as set forth in an Appendix hereto).

For purposes of this Section 9.2(a), a Participant who dies while performing Qualified Military Service with respect to an Employer shall be treated as if the Participant had resumed employment in accordance with his or her reemployment rights under chapter 43 of title 38, United States Code, on the day preceding the Participant’s death and then terminated employment on account of the Participant’s death.

(b) Termination of Employment under Circumstances Resulting in Partial Forfeiture of the Participant’s Account. If a Participant’s employment with all Employers and Affiliates terminates under circumstances other than those set forth in Section 9.2(a), then the Participant shall be entitled to receive (i) the entire balance of the Participant’s Pre-Tax Account,

 

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Designated Roth Account, After-Tax Account, Rollover Account, Savings Account, QNEC Account, Company Base Account, Fringe Account, Prior Company Contribution Account and Money Purchase Pension Account and (ii) a percentage of the balance of the Participant’s Matching Account and Profit Sharing Account, which percentage shall be determined as follows by reference to the Participant’s Years of Service as of the date of the Participant’s termination of employment:

 

Years of Service

   Percentage

Less than 1

   0%

At least 1 but less than 2

   25%

At least 2 but less than 3

   50%

At least 3 but less than 4

   75%

4 or more

   100%

Notwithstanding the foregoing, (i) the portion of a Participant’s Account attributable to cash dividends in respect of the Harris Stock Fund payable on or after May 20, 2010 shall be 100% nonforfeitable; (ii) the Account of a Participant who was an employee of Exelis Inc. or a subsidiary thereof on or before December 31, 2015, who was not subject to a collective bargaining agreement and who did not participate in the Exelis Retirement Savings Plan pursuant to Appendix 6 thereto shall be 100% nonforfeitable; and (iii) if an individual participates in this Plan pursuant to an Appendix hereto, the vesting schedule applicable to such Participant shall be the schedule set forth in such Appendix, to the extent inconsistent with this Section 9.2(b).

In the event of the sale or disposition of a business or the sale of substantially all of the assets of a trade or business, the Account of a Participant affected by such sale may become 100% nonforfeitable, irrespective of the Participant’s Years of Service, if expressly provided in the documents effecting the transaction or otherwise authorized by the Company or the Administrative Committee.

 

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Any portion of a Participant’s Matching Account and Profit Sharing Account which the Participant is not entitled to receive pursuant to this Section 9.2(b) shall be charged to such accounts and forfeited as of the earlier of (i) the date the Participant’s vested Account is distributed and (ii) the date the Participant incurs a Break in Service of five consecutive years. If a Participant who receives a distribution of the Participant’s vested Account is reemployed prior to incurring a Break in Service of five consecutive years, then such forfeiture shall be reinstated as prescribed in Section 11.2(b). Amounts forfeited by a Participant pursuant to this Section shall be used (i) first, to restore the Accounts of recently located Participants previously employed by such Participant’s Employer (or the recently located Beneficiaries of Participants previously employed by such Participant’s Employer) whose Accounts were forfeited as described in Section 9.8, (ii) next, to restore the Accounts of Participants who are reemployed by such Participant’s Employer as described in Section 11.2(b), (iii) next, to fund any matching contributions, profit sharing contributions, company base contributions or fringe contributions to be allocated to Participants who are reemployed by such Participant’s Employer after a period of Qualified Military Service as described in Section 11.5 and (iv) finally, to reduce future contributions to the Plan by such Participant’s Employer.

Section 9.3. Time and Form of Distribution upon Termination of Employment. (a) In General. A Participant shall be entitled to a distribution of his or her vested Account upon the Participant’s termination of employment with all Employers and Affiliates.

(b) Time of Distribution. A Participant shall be entitled to a distribution of his or her vested Account as soon as administratively practicable after the date of the Participant’s termination of employment, or, subject to Section 9.4, may defer distribution to a later date, in

 

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which case distribution shall occur as soon as administratively practicable after the date of the Participant’s distribution election; provided, however, that:

(1) subject to Section 9.4, a Participant’s Account shall not be distributed prior to the Participant’s 65th birthday unless the Participant has consented in writing to such distribution;

(2) if a Participant dies before the commencement of distribution of his or her Account, distributions paid or commencing after the Participant’s death shall be completed no later than December 31 of the calendar year which contains the fifth anniversary of the Participant’s death, except that (i) if the Participant’s Beneficiary is the Participant’s Spouse, distribution may be deferred until December 31 of the calendar year in which the Participant would have attained age 70 12 and (ii) if the Participant’s Beneficiary is a person other than the Participant’s Spouse and distributions commence on or before December 31 of the calendar year immediately following the calendar year in which the Participant died, such distributions may be made over a period not longer than the life expectancy of such Beneficiary; provided, however, that calendar year 2009 shall be disregarded for purposes of this Section 9.3(b)(2) to the extent permitted by section 401(a)(9)(H) of the Code;

(3) if at the time of a Participant’s death, distribution of his or her Account has commenced, the remaining portion of the Participant’s Account shall be paid at least as rapidly as under the method of distribution being used prior to the Participant’s death, as determined pursuant to Regulation section 1.401(a)(9)-2;

 

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(4) unless a Participant files a written election to defer distribution, distribution shall be made to a Participant by payment in a single lump sum no later than 60 days after the end of the Plan Year which contains the latest of (i) the date of the Participant’s termination of employment, (ii) the tenth anniversary of the date the Participant commenced participation in the Plan and (iii) the Participant’s 65th birthday; provided, however, that if the Participant does not elect a distribution prior to the latest to occur of the events listed above, the Participant shall be deemed to have elected to defer such distribution until a date no later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 12; and

(5) with respect to a Participant who continues in employment after attaining age 70 12, distribution of the Participant’s Account shall commence no later than the Participant’s required beginning date. For purposes of this paragraph, the term “required beginning date” shall mean (A) with respect to a Participant who is a 5%-owner (within the meaning of section 416(i) of the Code), April 1 of the calendar year following the calendar year in which the Participant attains age 70 12 and (B) with respect to any other Participant, April 1 of the calendar year following the calendar year in which the Participant terminates employment with all Employers and Affiliates. Distributions made under this paragraph shall be made in accordance with Section 9.3(d).

(c) Form of Distribution. Except as otherwise provided in Appendix 1 hereto, any distribution to which a Participant (or in the event of the Participant’s death, his or her Beneficiary) becomes entitled upon the Participant’s termination of employment shall be

 

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distributed by the Trustee by whichever of the following methods the Participant (or Beneficiary) elects:

(1) an amount not greater than the vested balance of the Participant’s Account, provided, however, that only one such payment may be made in any single month;

(2) substantially equal periodic installment payments, payable not less frequently than annually and not more frequently than monthly, over a period to be elected by the Participant (or Beneficiary); provided, however, that such period shall not exceed the life expectancy of the Participant or, to the extent permitted by Regulation section 1.401(a)(9)-5, the joint and last survivor expectancy of the Participant and the Participant’s Beneficiary; or

(3) a combination of (1) and (2).

In accordance with procedures established by the Administrative Committee, a Participant (or Beneficiary) may change his or her election with respect to the form of distribution, or elect to cancel installment payments, at any time before or after distribution of benefits commences.

(d) Required Minimum Distributions. Notwithstanding any provision of the Plan to the contrary, all distributions under the Plan will be made in accordance with the minimum distribution requirements of section 401(a)(9) of the Code and the final Regulations promulgated thereunder.

Section 9.4. Payment of Small Account Balances. Notwithstanding any provision of Section 9.3 to the contrary and subject to Section 9.6, if a Participant’s vested Account does not exceed $5,000, then such Account shall be distributed as soon as practicable after the Participant’s termination of employment in the form of a lump sum payment to the Participant.

 

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In the event that a Participant is subject to the immediately preceding paragraph, has a vested Account that exceeds $1,000 and fails to make an affirmative election to either receive the lump sum payment directly in cash or have it directly rolled over pursuant to the provisions of Section 9.6 within such election period as shall be prescribed by the Administrative Committee, the Administrative Committee shall direct the Trustee to transfer such lump sum payment in a direct rollover to an individual retirement plan (within the meaning of section 7701(c)(37) of the Code) selected by the Administrative Committee (an “Automatic Rollover”). The Automatic Rollover provisions of this paragraph shall not apply to a distribution to a Participant who has attained age 62. The provisions of this paragraph are intended to comply with the requirements of section 401(a)(30) of the Code and shall be interpreted consistent therewith.

Section 9.5. Medium and Order of Withdrawal or Distribution. (a) Medium of Withdrawal or Distribution. All withdrawals and distributions under the Plan shall be made in cash; provided, however, that a Participant or Beneficiary may elect, in accordance with procedures established by the Administrative Committee, to receive the vested portion of his or her Account that is invested in the Harris Stock Fund, if any, in shares of Harris Stock (with fractional shares distributed in cash).

(b) Order of Withdrawal or Distribution. To the extent not otherwise set forth in Section 9.1, any withdrawal pursuant to Section 9.1 or an Appendix hereto and any distribution pursuant to Section 9.3 or an Appendix hereto shall be charged against a Participant’s contribution and investment subaccounts in the order determined by the

 

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Administrative Committee; provided, however, that in order to maximize the tax benefits associated with participation in the Plan, any such withdrawal or distribution first shall be charged against the Participant’s After-Tax Account. Amounts invested in a Participant’s self-directed brokerage account are not available as a source of withdrawal or distribution; provided, however, that a Participant may reallocate his or her balance in the self-directed brokerage account to the other investment options under the Plan as provided in Section 8.2 to permit such amounts to be available for withdrawal or distribution.

Section 9.6. Direct Rollover Option. In the case of a distribution that is an “eligible rollover distribution” within the meaning of section 402(c)(4) of the Code, a Participant, a Beneficiary or a Spouse or former Spouse who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, may elect that all or any portion of such distribution to which he or she is entitled shall be directly transferred from the Plan to an Eligible Retirement Plan. Notwithstanding the foregoing, (i) any portion of an eligible rollover distribution that consists of after-tax contributions may be transferred only to (X) an individual retirement account or annuity described in section 408(a) or (b) of the Code or (Y) a qualified plan described in section 401(a) or 403(a) of the Code or an annuity contract described in section 403(b) of the Code that agrees to account separately for amounts so transferred; (ii) a Participant’s Designated Roth Account may be transferred only to another designated Roth contributions account under an applicable retirement plan described in section 402A(e)(1) of the Code or to a Roth IRA described in section 408A of the Code, and only to the extent the rollover is permitted by the rules of section 402(c)(2) of the Code; and (iii) if the distributee is a nonspouse Beneficiary, the eligible rollover distribution may be transferred only to an individual retirement account or annuity described in section 408(a) or (b) of the Code and

 

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only if such account or annuity has been established for the purpose of receiving such distribution on behalf of the nonspouse Beneficiary and will be treated as an inherited individual retirement account or annuity pursuant to the provisions of section 402(c)(11) of the Code.

Section 9.7. Designation of Beneficiary. (a) In General. Each Participant shall have the right to designate a Beneficiary or Beneficiaries (who may be designated contingently or successively and that may be an entity other than a natural person) to receive any distribution to be made under this Article or an Appendix hereto upon the death of such Participant or, in the case of a Participant who dies after his or her termination of employment but prior to the distribution of the entire amount to which he or she is entitled under the Plan, any undistributed balance to which such Participant would have been entitled. No such designation of a Beneficiary other than a Participant’s Spouse shall be effective if the Participant was married through the one-year period ending on the date of his or her death unless such designation was consented to in writing (or by such other method permitted by the Internal Revenue Service) at the time of such designation by the person who was the Participant’s Spouse during such period, acknowledging the effect of such consent and witnessed by a notary public or, prior to October 1, 1993, a Plan representative, or it is established to the satisfaction of the Administrative Committee that such consent could not be obtained because the Participant’s Spouse could not be located or because of the existence of other circumstances as the Secretary of the Treasury may prescribe as excusing the requirement of such consent. Subject to the immediately preceding sentence, a Participant may from time to time, without the consent of any Beneficiary, change or cancel any such designation. Such designation and each change thereof shall be made in the manner prescribed by the Administrative Committee and shall be filed with the Administrative Committee. If (i) no Beneficiary has been named by a deceased Participant, (ii) a Beneficiary

 

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designation is not effective pursuant to the second sentence of this section or (iii) all Beneficiaries designated by a Participant have predeceased the Participant, then any undistributed Account of the deceased Participant shall be distributed by the Trustee (a) to the surviving Spouse of such deceased Participant, if any, (b) if there is no surviving Spouse, to the then living descendants, if any, of the deceased Participant, per stirpes, or (c) if there is no surviving Spouse and there are no living descendants, to the estate of such deceased Participant. The divorce of a Participant shall be deemed to revoke any prior designation of the Participant’s former Spouse as a Beneficiary if written evidence of such divorce shall be received by the Administrative Committee before distribution of the Participant’s Account has been made in accordance with such designation.

(b) Successor Beneficiaries. A Beneficiary who has been designated in accordance with Section 9.7(a) may name a successor beneficiary or beneficiaries in the manner prescribed by the Administrative Committee. Unless otherwise set forth in the applicable form pursuant to which a Participant designates a Beneficiary or the instructions thereto, if such Beneficiary dies after the Participant and before distribution of the entire amount of the Participant’s benefit under the Plan in which the Beneficiary has an interest, then any remaining amount shall be distributed, as soon as practicable after the death of such Beneficiary, in the form of a lump sum payment to the successor beneficiary or beneficiaries or, if there is no such successor beneficiary, to the estate of such deceased Beneficiary.

Section 9.8. Missing Persons. If following the date on which pursuant to Section 9.3(b) or 9.4 a Participant’s Account may be distributed without the Participant’s consent, the Administrative Committee in the exercise of reasonable diligence has been unable to locate the person or persons entitled to the Participant’s Account, then the Participant’s Account

 

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shall be forfeited; provided, however, that to the extent required by law the Plan shall reinstate and pay to such person or persons the amount so forfeited upon a claim for such amount made by such person or persons. The amount to be so reinstated shall be obtained from the total amount that shall have been forfeited pursuant to this Section and Section 9.2(b) or an Appendix hereto during the Plan Year that the claim for such forfeited benefit is made, and shall not include any earnings or losses from the date of the forfeiture under this Section. If the amount to be reinstated exceeds the amount of such forfeitures, the Employer in respect of whose Eligible Employee the claim for forfeited benefit is made shall make a contribution in an amount equal to such excess. To the extent the forfeitures under this Section exceed any claims for forfeited benefits made pursuant to this Section, such excess shall be utilized (i) first, to restore the Accounts as described in Section 11.2(b) of Participants who are reemployed by the Employer in respect of whose Eligible Employee experienced the forfeiture hereunder, (ii) next, to fund any matching contributions, profit sharing contributions, company base contributions or fringe contributions to be allocated to Participants who are reemployed by such Employer after a period of Qualified Military Service as described in Section 11.5 and (iii) finally, to reduce future contributions to the Plan by such Employer.

Section 9.9. Distributions to Minor and Disabled Distributees. Any distribution that is payable to a distributee who is a minor or to a distributee who has been legally determined to be unable to manage his or her affairs by reason of illness or mental incompetency may be made to, or for the benefit of, any such distributee at such time consistent with the provisions of this Plan and in such of the following ways as the legal representative of such distributee shall direct: (a) directly to any such minor distributee if, in the opinion of such legal representative, he or she is able to manage his or her affairs, (b) to such legal representative, (c) to a custodian

 

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under a Uniform Gifts to Minors Act for any such minor distributee, or (d) as otherwise directed by such legal representative. Neither the Administrative Committee nor the Trustee shall be required to oversee the application by any third party other than the legal representative of a distributee of any distribution made to or for the benefit of such distributee pursuant to this Section.

Section 9.10. Payment of Group Insurance Premiums. The Administrative Committee may, in its sole discretion, permit a Participant who (i) is eligible to be included in any contributory group insurance program maintained or sponsored by an Employer, (ii) elects to be covered under such contributory group insurance program and (iii) is receiving benefits under the Plan in monthly installments to direct that a specified portion of the installment payments be withheld and paid by the Trustee on the Participant’s behalf to the Employer as the Participant’s contribution under such contributory group insurance program. Such direction by a Participant, if permitted by the Administrative Committee, shall be made at the time and in the manner prescribed by the Administrative Committee. Any such direction may be revoked by a Participant upon at least 15 days’ prior written notice to the Administrative Committee (or such other period of prior written notice acceptable to the Administrative Committee). Any withholding and payment of insurance costs on behalf of a Participant shall be made in accordance with Treasury Regulation section 1.401(a)-13.

Section 9.11. Dividends in Respect of the Harris Stock Fund. Dividends in respect of the Harris Stock Fund, if any, shall be allocated to the Accounts of Participants and Beneficiaries invested in the Harris Stock Fund, based upon their proportionate share of the Harris Stock Fund as of such date as may be determined by the Administrative Committee on or before each dividend record date. Cash dividends shall be reinvested in the Harris Stock Fund

 

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unless the Participant or Beneficiary elects, at the time and in the manner prescribed by the Administrative Committee, to receive a cash distribution in an amount equal to such dividend. Any such cash distribution shall be made at the time determined by the Administrative Committee not later than 90 days after the end of the Plan Year in which the dividend was paid. Dividends in respect of the Harris Stock Fund in a form other than cash shall be invested in the Harris Stock Fund.

ARTICLE 10

LOANS

Section 10.1. Making of Loans. Subject to the provisions of this Article 10, the Administrative Committee shall establish a loan program whereby any Participant who is an Employee may request, by such method prescribed by the Administrative Committee, to borrow funds from the Participant’s Pre-Tax Account, Designated Roth Account, After-Tax Account, Savings Account, Rollover Account and QNEC Account, and which loan program hereby is incorporated into this Plan by reference. The principal balance of such loan, when aggregated with the outstanding balances of all other loans of the Participant from plans maintained by the Employers and Affiliates, shall not exceed the least of:

(a) $50,000, reduced by the excess, if any, of (x) the highest outstanding loan balance of the Participant under all plans maintained by the Employers and Affiliates during the period beginning one year and one day prior to the date on which such loan is made and ending on the day prior to the date on which such loan is made, over (y) the outstanding loan balance from all such plans on the date on which such loan is made;

(b) fifty percent (50%) of the vested portion of the Participant’s Account as of the Valuation Date coinciding with or immediately preceding the date on which the loan is made; and

 

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(c) the aggregate value of the Participant’s Pre-Tax Account, Designated Roth Account, After-Tax Account, Savings Account, Rollover Account and QNEC Account as of the Valuation Date coinciding with or immediately preceding the date on which the loan is made.

Section 10.2. Restrictions. An application for a loan shall be made at the time and in the manner prescribed by the Administrative Committee. The action of the Administrative Committee or its delegate in approving or disapproving a request for a loan shall be final. Any loan under the Plan shall be subject to the terms, conditions and restrictions set forth in the loan program established by the Administrative Committee.

Section 10.3. Default. If any loan or portion of a loan made to a Participant under the Plan, together with the accrued interest thereon, is in default, the Trustee, upon direction from the Administrative Committee, shall take appropriate steps to collect the outstanding balance of the loan and to foreclose on the security; provided, however, that the Trustee shall not levy against any portion of the Participant’s Account until such time as a distribution from such Account otherwise could be made under the Plan. Default shall occur (i) if the Participant fails to make any scheduled loan payment by the last day of the calendar quarter following the calendar quarter in which such payment is due (or within such other grace period as permitted under applicable law and by the Administrative Committee) or (ii) upon the occurrence of any other event that is considered a default event under the loan program established by the Administrative Committee. On the date a Participant is entitled to receive a distribution of his or her Account pursuant to Article 9, any defaulted loan or portion thereof, together with the accrued interest thereon, shall be charged to the Participant’s Account after all other adjustments required under the Plan, but before any distribution pursuant to Article 9.

 

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Section 10.4. Applicability. Notwithstanding the foregoing, for purposes of this Article 10, any Participant or Beneficiary who is a “party in interest” as defined in section 3(14) of ERISA may apply for a loan from the Plan, regardless of such Participant’s or Beneficiary’s employment status. As a condition of receiving a loan from the Plan, such a Participant or Beneficiary who is not an Employee shall consent to have such loan repaid in substantially equal installments at the times and in the manner determined by the Administrative Committee, but not less frequently than quarterly.

ARTICLE 11

SPECIAL PARTICIPATION AND DISTRIBUTION RULES

Section 11.1. Change of Employment Status. If an Employee who is not an Eligible Employee becomes an Eligible Employee, then the Employee shall become a Participant as of the date such Employee becomes an Eligible Employee, provided that the Eligible Employee has satisfied any eligibility period set forth in an Appendix applicable to such Eligible Employee, if any.

Section 11.2. Reemployment of a Terminated Participant. (a) Participation. If a terminated Participant is reemployed as an Eligible Employee, then the terminated Participant again shall become a Participant as of the date of the terminated Participant’s reemployment. If a terminated Participant is receiving installment payments pursuant to Section 9.3(c), such payments shall be suspended upon such terminated Participant’s reemployment unless such Participant has attained age 59 12 on or before the date of such reemployment.

(b) Restoration of Forfeitures. If a terminated Participant is reemployed prior to incurring a Break in Service of five consecutive years, and, at or after the Participant’s termination of employment, any portion of the Participant’s Account was forfeited pursuant to Section 9.2(b), then an amount equal to the portion of the Participant’s Account that was

 

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forfeited shall be credited to the Participant’s Account as soon as administratively practicable after the Participant is reemployed. Any amount to be restored pursuant to this subsection shall be obtained from the total amounts that have been forfeited pursuant to Sections 9.2(b) and 9.8 during the Plan Year in which such Participant is reemployed from the Accounts of Participants employed by the same Employer as the reemployed Participant. If the aggregate amount to be so restored to the Accounts of Participants who are Employees of a particular Employer exceeds the amount of such forfeitures, such Employer shall make a contribution in an amount equal to such excess. Any such contribution shall be made without regard to whether or not the limitations set forth in Article 6 will be exceeded by such contribution.

Section 11.3. Employment by Affiliates. If an individual is employed by an Affiliate that is not an Employer, then any period of such employment shall be taken into account under the Plan solely for the purposes of (i) measuring such individual’s Service and (ii) determining when such individual has terminated his or her employment for purposes of Article 9, to the same extent it would have been had such period of employment been as an Employee.

Section 11.4. Leased Employees. If an individual who performed services as a leased employee (defined as any person (other than an Employee of an Employer) who pursuant to an agreement between an Employer and a leasing organization has performed services for the Employer (or for the Employer and related persons determined in accordance with section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one year, where such services are performed under the primary direction or control of the Employer) of an Employer or an Affiliate becomes an Employee, or if an Employee becomes such a leased employee, then any period during which such services were so performed shall be taken into account under the Plan solely for the purposes of (i) satisfying any eligibility period set forth in

 

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an Appendix applicable to such individual, if any, (ii) measuring such individual’s Service and (iii) determining when such individual has terminated his or her employment for purposes of Article 9, to the same extent it would have been had such period of service been as an Employee. This Section shall not apply to any period of service during which such a leased employee was covered by a plan described in section 414(n)(5) of the Code.

Section 11.5. Reemployment of Veterans. The provisions of this Section shall apply in the case of the reemployment (or deemed reemployment) by an Employer of an Eligible Employee, within the period prescribed by USERRA, after the Eligible Employee’s completion of a period of Qualified Military Service. The provisions of this Section are intended to provide such Eligible Employee with the rights required by USERRA and section 414(u) of the Code, and shall be interpreted in accordance with such intent. Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with section 414(u) of the Code.

(a) Make-Up of Pre-Tax, Designated Roth and After-Tax Contributions. Such Eligible Employee shall be entitled to make contributions under the Plan (“make-up participant contributions”), in addition to any pre-tax, designated Roth and after-tax contributions which the Eligible Employee elects to have made under the Plan pursuant to Sections 4.1 and 5.1. From time to time while employed by an Employer, such Eligible Employee may elect to contribute such make-up participant contributions during the period beginning on the date of such Eligible Employee’s reemployment and ending on the earlier of:

(1) the end of the period equal to the product of three and such Eligible Employee’s period of Qualified Military Service, and

(2) the fifth anniversary of the date of such reemployment.

 

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Such Eligible Employee shall not be permitted to contribute make-up participant contributions to the Plan in excess of the amount which the Eligible Employee could have elected to have made under the Plan in the form of pre-tax, designated Roth and after-tax contributions if the Eligible Employee had continued in active employment with his or her Employer during such period of Qualified Military Service. The manner in which an Eligible Employee may elect to contribute make-up participant contributions pursuant to this subsection (a) shall be prescribed by the Administrative Committee.

(b) Make-Up of Matching Contributions. An Eligible Employee who contributes make-up participant contributions as described in subsection (a) of this Section shall be entitled to an allocation of matching contributions to his or her Account in an amount equal to the amount of matching contributions that would have been allocated to the Account of such Eligible Employee during the period of Qualified Military Service if such make-up participant contributions had been made in the form of pre-tax, designated Roth and after-tax contributions during such period. The amount necessary to make such allocation of matching contributions shall be derived from forfeitures during the Plan Year in which such matching contributions are made, and if such forfeitures are not sufficient for this purpose, then the Eligible Employee’s Employer shall make a special contribution to the Plan which shall be utilized solely for purposes of such allocation.

(c) Make-Up of Profit Sharing Contributions, Company Base Contributions and Fringe Contributions. Upon the timely reemployment of an Eligible Employee following the completion of a period of Qualified Military Service, such Eligible Employee shall be entitled to an allocation of profit sharing contributions, company base contributions or fringe contributions, as applicable, to his or her Account in an amount equal to the difference between (i) the amount

 

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of profit sharing contributions, company base contributions or fringe contributions, if any, that would have been allocated to the Account of such Eligible Employee during the period of Qualified Military Service if the Eligible Employee had continued in active employment with his or her Employer during such period and (ii) the amount of profit sharing contributions, company base contributions or fringe contributions that was allocated to the Account of such Eligible Employee during the period of Qualified Military Service pursuant to Section 8.5 or Section 8.6, as applicable. Such allocation shall be made by the Eligible Employee’s Employer no later than the later of (i) the date that is 90 days after the date of the Eligible Employee’s reemployment and (ii) the date that profit sharing contributions, company base contributions or fringe contributions, as applicable, normally are due for the Plan Year in which the Qualified Military Service was performed (or, if allocation by such latest date is impossible or unreasonable, as soon as practicable thereafter). The amount necessary to make such allocation of profit sharing contributions, company base contributions or fringe contributions shall be derived from forfeitures during the Plan Year in which such profit sharing contributions, company base contributions or fringe contributions are made, and if such forfeitures are not sufficient for this purpose, then the Eligible Employee’s Employer shall make a special contribution to the Plan which shall be utilized solely for purposes of such allocation.

(d) Miscellaneous Rules Regarding Make-Up Contributions. For purposes of determining the amount of contributions to be made under this Section, an Eligible Employee’s “Compensation” during any period of Qualified Military Service shall be determined in accordance with section 414(u) of the Code. Any contributions made by an Eligible Employee or an Employer pursuant to this Section on account of a period of Qualified Military Service in a prior Plan Year shall not be subject to the limitations prescribed by Sections 6.1, 6.3 and 6.4 of

 

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the Plan (relating to sections 402(g), 415, and 404 of the Code) for the Plan Year in which such contributions are made. The Plan shall not be treated as failing to satisfy the nondiscrimination rules of Section 6.2 of the Plan (relating to sections 401(k)(3) and 401(m) of the Code) for any Plan Year solely on account of any make-up contributions made by an Eligible Employee or an Employer pursuant to this Section. Earnings (or losses) on make-up contributions pursuant to this Section 11.5 shall be credited commencing with the date the contributions are made.

(e) Deemed Reemployment following Death or Disability. In accordance with section 414(u)(9) of the Code, for purposes of crediting of Service under the Plan and accrual of contributions under Article 4 or an Appendix hereto, a Participant who dies or suffers a Disability while performing Qualified Military Service with respect to an Employer shall be treated as if the Participant had resumed employment in accordance with his or her reemployment rights under chapter 43 of title 38, United States Code, on the day preceding the Participant’s death or Disability, as applicable, and terminated employment on the actual date of his or her death or Disability (and on account of such death or Disability).

ARTICLE 12

SHAREHOLDER RIGHTS WITH RESPECT TO HARRIS STOCK

Section 12.1. Voting Shares of Harris Stock. The Trustee, or the Company upon written notice to the Trustee, shall furnish to each Participant (and Beneficiary) whose Account is credited with participating units in the Harris Stock Fund the date and purpose of each meeting of the shareholders of the Company at which Harris Stock is entitled to be voted. The Trustee, or the Company if it has furnished such information to such Participants (and Beneficiaries) with respect to a particular shareholders’ meeting, shall request from each such Participant (or Beneficiary) instructions to be furnished to the Trustee (or to a tabulating agent appointed by the Trustee, which may be the Company’s transfer agent) regarding the voting at such meeting of

 

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Harris Stock represented by participating units credited to the Participant’s (or Beneficiary’s) Account. If the Participant (or Beneficiary) furnishes such instructions to the Trustee or its agent within the time specified in the notification, then the Trustee shall vote Harris Stock represented by such participating units in accordance with such instructions. All Harris Stock represented by participating units credited to Accounts as to which the Trustee or its agent do not receive instructions as specified above and all unallocated Harris Stock held in the Harris Stock Fund shall be voted by the Trustee proportionately in the same manner as it votes Harris Stock as to which the Trustee or its agent have received voting instructions as specified above.

Section 12.2. Tender Offers. (a) Rights of Participants. In the event a tender offer is made generally to the shareholders of the Company to transfer all or a portion of their shares of Harris Stock in return for valuable consideration, including, but not limited to, offers regulated by section 14(d) of the Securities Exchange Act of 1934, as amended, the Trustee shall respond to such tender offer in respect of shares of Harris Stock held by the Trustee in the Harris Stock Fund in accordance with instructions obtained from Participants (or Beneficiaries). Each Participant (or Beneficiary) shall be entitled to instruct the Trustee regarding how to respond to any such tender offer with respect to the number of shares of Harris Stock represented by the participating units in the Harris Stock Fund then allocated to his or her Account. Each Participant (or Beneficiary) who does not provide timely instructions to the Trustee shall be presumed to have directed the Trustee not to tender shares of Harris Stock represented by the participating units then allocated to his or her Account. A Participant (or Beneficiary) shall not be limited in the number of instructions to tender or withdraw from tender which he or she can give, but a Participant (or Beneficiary) shall not have the right to give instructions to tender or withdraw from tender after a reasonable time established by the Trustee pursuant to subsection

 

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(c) of this Section. For purposes of this Section, the shares of Harris Stock held in the Harris Stock Fund shall be treated as allocated to the accounts of Participants in proportion to their respective participating units in the Harris Stock Fund as of the immediately preceding record date for ownership of Harris Stock for stockholders entitled to tender. The Administrative Committee may direct the Trustee to make a special valuation of the Harris Stock Fund in connection with such tender offer. Any securities or other property received by the Trustee as a result of having tendered Harris Stock shall be held, and any cash so received shall be invested in short term investments, pending any further action which the Trustee may be required or directed to take pursuant to the Plan. Notwithstanding anything to the contrary, during the period of any public offer for Harris Stock, the Trustee shall refrain from making purchases of Harris Stock in connection with the Plan and the Trust. In addition to compensation otherwise payable, the Trustee shall be entitled to reasonable compensation and reimbursement for its reasonable out-of-pocket expenses for any services attributable to the duties and responsibilities described in this Section.

(b) Duties of the Administrative Committee. Within a reasonable time after the commencement of a tender offer, the Administrative Committee shall cause the Trustee to provide to each Participant or Beneficiary, as the case may be:

(1) the offer to purchase as distributed by the offeror to the shareholders of the Company;

(2) a statement of the number of shares of Harris Stock represented by the participating units in the Harris Stock Fund allocated to his or her Account; and

 

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(3) directions as to the means by which instructions with respect to the tender offer can be given.

The Administrative Committee shall establish, and the Company shall pay for, a means by which instructions with respect to a tender offer expeditiously can be delivered to the Trustee. The Administrative Committee at its election may engage an agent to receive such instructions and transmit them to the Trustee. All such individual instructions shall be confidential and shall not be disclosed to any person, including any Employer.

For purposes of allocating the proceeds of any sale or exchange pursuant to a tender offer, the Trustee shall treat as having been sold or exchanged from each of the Accounts of Participants (and Beneficiaries) who provided timely directions to the Trustee under this Section to tender that number of shares of Harris Stock represented by participating units in the Harris Stock Fund subject to such directions and the proceeds of such sale or exchange shall be allocated accordingly. Any cash proceeds from the sale or exchange of shares of Harris Stock in the Harris Stock Fund shall be invested in a commingled fund maintained by the Trustee designated to hold such amounts, and any securities or other property received as a result of such a sale or exchange shall be held by the Trustee, in each case pending investment instructions from the Participants (and Beneficiaries) or the Investment Committee, as the case may be.

(c) Duties of the Trustee. The Trustee shall follow the instructions of the Participants (and Beneficiaries) with respect to the tender offer as transmitted to the Trustee. The Trustee may establish a reasonable time, taking into account the time restrictions of the tender offer, after which it shall not accept instructions of Participants (or Beneficiaries).

 

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ARTICLE 13

ADMINISTRATION

Section 13.1. The Administrative Committee. (a) The Compensation Committee shall appoint at least two members to the Administrative Committee. The Administrative Committee shall be the “administrator” of the Plan within the meaning of such term as used in ERISA and shall be responsible for the administration of the Plan. The Compensation Committee shall have the right at any time, with or without cause, to remove any member of the Administrative Committee. In addition, any member of the Administrative Committee at any time may resign by giving at least fifteen (15) days’ advance written notice to the Compensation Committee (or such shorter period of advance written notice acceptable to the Compensation Committee). An Employee who serves on the Administrative Committee shall be deemed to have resigned from such committee upon the termination of the Employee’s employment with the Company and its Affiliates, effective as of the date of the termination of employment. Upon the removal or resignation of any member of the Administrative Committee, or the failure or inability for any reason of any member of the Administrative Committee to act hereunder, the Compensation Committee shall appoint a successor member of the Administrative Committee if such removal, resignation, failure or inability causes the Administrative Committee to have fewer than two members. Any successor member of the Administrative Committee shall have all the rights, privileges and duties of the predecessor, but shall not be held accountable for the acts of the predecessor.

(b) Any member of the Administrative Committee may, but need not, be an employee, director, officer or shareholder of an Employer and such status shall not disqualify him or her from taking any action hereunder or render him or her accountable for any distribution or other material advantage received by such member under the Plan, provided that no member of the Administrative Committee who is a Participant shall take part in any action of the Administrative Committee or any matter involving solely his or her rights under the Plan.

 

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(c) Promptly after the appointment of the members of the Administrative Committee and promptly after the appointment of any successor member of the Administrative Committee, the Trustee shall be notified in writing as to the names of the persons so appointed as members or successor members.

(d) The Administrative Committee shall have the duty and authority to interpret and construe, in its sole discretion, the terms of the Plan in all respects, including, but not limited to, all questions of eligibility, the status and rights of Participants, distributees and other persons under the Plan, and the manner, time and amount of payment of any distribution under the Plan. Each Employer shall, from time to time, upon request of the Administrative Committee, furnish to the Administrative Committee such data and information as the Administrative Committee shall require in the performance of its duties. All determinations and actions of the Administrative Committee shall be conclusive and binding upon all affected parties, except that the Administrative Committee may revoke or modify a determination or action that it determines to have been in error. Benefits will be paid under the Plan only if the Administrative Committee decides in its sole discretion that the applicant is entitled to the benefits.

(e) The Administrative Committee shall direct the Trustee to make payments of amounts to be distributed from the Trust under Article 9 or an Appendix hereto.

(f) The Administrative Committee may act at a meeting by the vote of a majority of a quorum of its members or without a meeting by the unanimous written consent of its members. The Administrative Committee shall keep records of all of its meetings and

 

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forward all necessary communications to the Trustee. The Administrative Committee may adopt such rules and procedures as it deems desirable for the conduct of its affairs and the administration of the Plan, provided that any such rules and procedures shall be consistent with the provisions of the Plan and ERISA.

(g) The members of the Administrative Committee shall discharge their duties with respect to the Plan (i) solely in the interest of the Participants and Beneficiaries, (ii) for the exclusive purpose of providing benefits to the Participants and Beneficiaries and of defraying reasonable expenses of administering the Plan and (iii) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

(h) The members of the Administrative Committee shall not receive any compensation or fee for services as members of the Administrative Committee.

Section 13.2. Named Fiduciaries. The Investment Committee shall be a “named fiduciary” of the Plan within the meaning of such term as used in ERISA solely with respect to its power to appoint certain fiduciaries under the Plan and its management of the assets of the Plan. The Administrative Committee shall be a “named fiduciary” of the Plan within the meaning of such term as used in ERISA solely with respect to its power to appoint certain fiduciaries under the Plan and the exercise of its administrative duties set forth in the Plan that are fiduciary acts. Each of the Compensation Committee and the Finance Committee shall be a “named fiduciary” of the Plan within the meaning of such term as used in ERISA solely with respect to its power to appoint certain fiduciaries under the Plan. Each fiduciary has only those duties and responsibilities specifically assigned to such fiduciary under the Plan.

 

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Section 13.3. Allocation and Delegation of Responsibilities. Each of the Administrative Committee, the Compensation Committee, the Finance Committee and the Investment Committee may allocate its responsibilities among its members and may designate any person, partnership, corporation or another committee to carry out any of its responsibilities with respect to the Plan (in each case irrespective of whether such responsibilities are fiduciary or settlor in nature).

Section 13.4. Professional and Other Services. The Company may employ counsel (who may be counsel for an Employer) to advise the Administrative Committee, the Compensation Committee, the Finance Committee and the Investment Committee and their agents and may arrange for clerical and other services as the Administrative Committee, the Compensation Committee, the Finance Committee and the Investment Committee and their agents may require in carrying out their duties hereunder.

Section 13.5. Indemnification and Expense Reimbursement. The Employers hereby jointly and severally indemnify the members of the Administrative Committee, the members of the Compensation Committee, the members of the Finance Committee and the members of the Investment Committee from the effects and consequences of their acts, omissions and conduct in their official capacity, except to the extent that such effects and consequences result from their own willful or gross misconduct or criminal acts. The Employers shall reimburse the members of each of the Administrative Committee, Compensation Committee, Finance Committee and Investment Committee for any necessary expenditures incurred in the discharge of their duties hereunder.

Section 13.6. Claims Procedure. If any Participant or distributee believes he or she is entitled to benefits in an amount greater than those which he or she is receiving or has

 

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received, he or she (or his or her duly authorized representative) may file a claim with the Administrative Committee. Such a claim shall be in writing and state the nature of the claim, the facts supporting the claim, the amount claimed and the address of the claimant. The Administrative Committee shall review the claim and, unless special circumstances require an extension of time, within 90 days after receipt of the claim give written or electronic notice to the claimant of its decision with respect to the claim. If special circumstances require an extension of time, the claimant shall be so advised in writing or by electronic means within the initial 90-day period and in no event shall such an extension exceed 90 days. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrative Committee expects to render a decision. The notice of the decision of the Administrative Committee with respect to the claim shall be written in a manner calculated to be understood by the claimant and, if the claim is wholly or partially denied, shall set forth the specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and an explanation of the claim review procedure under the Plan and the time limits applicable to such procedure (including a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following the final denial of a claim).

The claimant (or his or her duly authorized representative) may request a review of the denial by filing with the Administrative Committee a written request for such review within 60 days after notice of the denial has been received by the claimant. Within the same 60-day period, the claimant may submit to the Administrative Committee written comments, documents, records and other information relating to the claim. Upon request and free of charge,

 

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the claimant also may have reasonable access to, and copies of, documents, records and other information relevant to the claim. If a request for review is so filed, review of the denial shall be made by the Administrative Committee and the claimant shall be given written or electronic notice of the Administrative Committee’s final decision within, unless special circumstances require an extension of time, 60 days after receipt of such request. If special circumstances require an extension of time, the claimant shall be so advised in writing or by electronic means within the initial 60-day period and in no event shall such an extension exceed 60 days. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrative Committee expects to render a decision. If the appeal of the claim is wholly or partially denied, the notice of the Administrative Committee’s final decision shall include specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based and a statement that the claimant is entitled, upon request and free of charge, to reasonable access to, and copies of, all relevant documents, records and information. The notice shall be written in a manner calculated to be understood by the claimant and shall notify the claimant of (i) his or her right to bring a civil action under section 502(a) of ERISA and (ii) the limitations for actions under the Plan as set forth in Section 15.6.

In making determinations regarding claims for benefits, the Administrative Committee shall consider all of the relevant facts and circumstances, including, without limitation, governing plan documents, consistent application of Plan provisions with respect to similarly situated claimants and any comments, documents, records and other information with respect to the claim submitted by the claimant (the “Claimant’s Submissions”). The Claimant’s Submissions shall be considered by the Administrative Committee without regard to whether the Claimant’s Submissions were submitted or considered by the Administrative Committee in the

 

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initial benefit determination. In no event shall a Participant or distributee be entitled to challenge a decision of the Administrative Committee in court or in any administrative proceeding unless and until the claims procedures set forth in this Section 13.6 have been complied with and exhausted.

Section 13.7. Notices to Participants. All notices, reports and statements given, made, delivered or transmitted to a Participant or distributee or any other person entitled to or claiming benefits under the Plan shall be deemed to have been duly given, made, delivered or transmitted when provided via such written or other means as may be permitted by applicable Regulations. A Participant, distributee or other person may record any change of his or her address by written notice filed with his or her Employer.

Section 13.8. Notices to Administrative Committee or Employers. Written directions and notices and other written or electronic communications from Participants, distributees or other persons entitled to or claiming benefits under the Plan to the Administrative Committee or the Employers shall be deemed to have been duly given, made, delivered or transmitted when given, made, delivered or transmitted in the manner and to the location prescribed by the Administrative Committee or the Employers for the giving of such directions, notices and other communications.

Section 13.9. Electronic Media. Notwithstanding any provision of the Plan to the contrary, the use of electronic technologies shall be deemed to satisfy any written notice, consent, delivery, signature or disclosure requirement under the Plan, the Code or ERISA to the extent permitted by the Administrative Committee and permissible under and consistent with applicable law and regulations.

 

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Section 13.10. Records. The Administrative Committee shall keep a record of all of its proceedings with respect to the Plan and shall keep or cause to be kept all books of account, records and other data as may be necessary or advisable in its judgment for the administration of the Plan.

Section 13.11. Reports of Trustee and Accounting to Participants. The Administrative Committee shall keep on file, in such form as it shall deem convenient and proper, all reports concerning the Trust Fund received by it from the Trustee, and, at least once each calendar quarter, each Participant (or, in the event of the death of a Participant, each Beneficiary) shall be provided a written or electronic benefit statement indicating the balance credited to any Account for such individual. Any Participant or Beneficiary claiming that an error has been made with respect to such balance shall notify the Administrative Committee in writing within ninety (90) days following the delivery of such benefit statement. If no notice of error timely is provided, the benefit statement shall be presumed to be correct.

Section 13.12. Limitations on Investments and Transactions/Conversions. Notwithstanding any provision of the Plan to the contrary:

(a) The Administrative Committee, in its sole and absolute discretion, may temporarily suspend, limit or restrict, in whole or in part, certain Plan transactions, including without limitation, the right to change or suspend contributions and/or the right to receive a distribution, loan or withdrawal from an Account in the event of any conversion, change in recordkeeper, change in investment funds, Plan merger or spinoff or other appropriate event.

(b) The Administrative Committee, in its sole and absolute discretion, may temporarily suspend, limit or restrict, in whole or in part, Plan transactions dealing with investments, including without limitation, the right to change investment elections or reallocate Account balances in the event of any conversion, change in recordkeeper, change in investment funds, Plan merger or spinoff or other appropriate event.

 

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(c) In the event of a change in investment funds, Plan merger or spinoff or other appropriate event, the Administrative Committee, in its sole and absolute discretion, may decide to map investments from a Participant’s prior investment fund elections to the then available investment funds under the Plan. In the event that investments are mapped in this manner, the Participant shall be permitted to reallocate funds among the investment funds (in accordance with Article 8 and any relevant rules and procedures adopted for this purpose) after the suspension period (if any) is lifted.

(d) Notwithstanding any provision of the Plan to the contrary, the investment funds shall be subject to, and governed by, (1) all applicable legal rules and restrictions, (2) the rules specified by the investment fund providers in the fund prospectus(es) or other governing documents thereof and/or (3) any rules or procedures adopted by the Administrative Committee governing the transfers of assets into or out of such funds. Such rules, procedures and restrictions in certain cases may limit the ability of a Participant to make transfers into or out of a particular investment fund and/or may result in additional transaction fees or other costs relating to such transfers. In furtherance of, but without limiting the foregoing, the Plan may decline to implement any investment election or instruction where it deems appropriate.

ARTICLE 14

PARTICIPATION BY EMPLOYERS

Section 14.1. Adoption of Plan. With the consent of the Compensation Committee, any entity may become an Employer under the Plan by (a) taking such action as shall be necessary to adopt the Plan and (b) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan and Trust into effect with

 

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respect to such entity, as prescribed by the Compensation Committee. The powers and control of the Company, as provided in the Plan and the trust agreement, shall not be diminished by reason of participation of any such adopting entity in the Plan.

Section 14.2. Withdrawal from Participation. An Employer may withdraw from participation in the Plan at any time by filing with the Compensation Committee a duly certified copy of a written instrument duly adopted by the Employer to that effect and giving notice of its intended withdrawal to the Compensation Committee, the Employers and the Trustee prior to the effective date of withdrawal.

Section 14.3. Company, Administrative Committee, Compensation Committee, Finance Committee and Investment Committee as Agents for Employers. Each entity which becomes an Employer pursuant to Section 14.1 or Section 14.4 by so doing shall be deemed to have appointed the Company, the Administrative Committee, the Compensation Committee, the Finance Committee and the Investment Committee as its agents to exercise on its behalf all of the powers and authorities conferred upon the Company, the Administrative Committee, the Compensation Committee, the Finance Committee and the Investment Committee by the terms of the Plan. The authority of the Company, the Administrative Committee, the Compensation Committee, the Finance Committee or the Investment Committee to act as such agent shall continue unless and until the portion of the Trust Fund held for the benefit of Employees of the particular Employer and their Beneficiaries is set aside in a separate Trust Fund as provided in Section 17.2.

Section 14.4. Continuance by a Successor. In the event that an Employer other than the Company is reorganized by way of merger, consolidation, transfer of assets or otherwise, so that another entity other than an Employer succeeds to all or substantially all of

 

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such Employer’s business, such successor entity may, with the consent of the Compensation Committee, be substituted for such Employer under the Plan by adopting the Plan. Contributions by such Employer automatically shall be suspended from the effective date of any such reorganization until the date upon which the substitution of such successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, such successor entity shall not have elected to adopt the Plan or the Compensation Committee fails to consent to such adoption, or an Employer adopts a plan of complete liquidation other than in connection with a reorganization, the Plan automatically shall be terminated with respect to employees of such Employer as of the close of business on the 90th day following the effective date of such reorganization or as of the close of business on the date of adoption of such plan of complete liquidation, as the case may be, and the Administrative Committee shall direct the Trustee to distribute the portion of the Trust Fund applicable to such Employer in the manner provided in Section 17.3.

If such successor entity is substituted for an Employer as described above, then, for all purposes of the Plan, employment of each Employee with such Employer, including service with and compensation paid by such Employer, shall be considered to be employment with such successor entity.

ARTICLE 15

MISCELLANEOUS

Section 15.1. Expenses. All costs and expenses of administering the Plan and the Trust, including the expenses of the Company, the Administrative Committee, the Compensation Committee, the Finance Committee and the Investment Committee, the fees of counsel and of any agents for the Company or such committees, investment advisory, recordkeeping and audit fees, the fees and expenses of the Trustee, the fees of counsel for the

 

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Trustee and other administrative expenses, shall be paid under the direction of the Administrative Committee from the Trust Fund to the extent such expenses are not paid by the Employers. The Administrative Committee, in its sole discretion, having regard to the nature of a particular expense, shall determine the portion of such expense that is to be borne by each Employer or the manner in which such expense is to be allocated among Accounts. An Employer may seek reimbursement of any expense paid by such Employer that the Administrative Committee determines is properly payable from the Trust Fund.

Section 15.2. Non-Assignability.

(a) In General. No right or interest of any Participant or Beneficiary in the Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, but excluding devolution by death or mental incompetency, and any attempt to do so shall be void, and no right or interest of any Participant or Beneficiary in the Plan shall be liable for, or subject to, any obligation or liability of such Participant or Beneficiary, including claims for alimony or the support of any Spouse, except as provided below.

(b) Exception for Qualified Domestic Relations Orders. Notwithstanding any provision of the Plan to the contrary, if a Participant’s Account under the Plan, or any portion thereof, is the subject of one or more qualified domestic relations orders (as defined in section 414(p) of the Code), such Account or portion thereof shall be paid to the person, at the time and in the manner specified in any such order. The Administrative Committee shall adopt rules and procedures, in accordance with section 414(p) of the Code, relating to its (i) review of any domestic relations order for purposes of determining whether the order is a qualified domestic

 

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relations order and (ii) administration of a qualified domestic relations order. A domestic relations order shall not fail to constitute a qualified domestic relations order solely because such order provides for distribution to an alternate payee of the benefit assigned to the alternate payee under the Plan prior to the applicable Participant’s earliest retirement age (as defined in section 414(p) of the Code) under the Plan.

(c) Other Exception. Notwithstanding any provision of the Plan to the contrary, if a Participant is ordered or required to pay an amount to the Plan pursuant to (i) a judgment in a criminal action, (ii) a civil judgment in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA or (iii) a settlement agreement between the Secretary of Labor and the Participant in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA, the Participant’s Account under the Plan may, to the extent permitted by law, be offset by such amount.

Section 15.3. Employment Non-Contractual. The Plan confers no right upon an Employee to continue in employment.

Section 15.4. Merger or Consolidation with Another Plan; Transfer Contributions; Transferred Employees; Divestitures.

(a) The Administrative Committee shall have the right to merge or consolidate all or a portion of the Plan with, or transfer all or part of the assets or liabilities of the Plan to, any other plan; provided, however, that the terms of such merger, consolidation or transfer are such that each Participant, distributee, Beneficiary or other person entitled to receive benefits from the Plan would, if the Plan were to terminate immediately after the merger, consolidation or transfer, receive a benefit equal to or greater than the benefit such person would be entitled to receive if the Plan were to terminate immediately before the merger, consolidation or transfer.

 

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(b) Amounts transferred to the Plan pursuant to Subsection (a) above (“Transfer Contributions”) and participation in the Plan by Employees who become eligible for the Plan in anticipation or at the time of a plan merger, consolidation or transfer or in connection with a business acquisition by an Employer (“Transferred Employees”) shall be subject to all terms and conditions of the Plan as in effect from time to time, except to the extent provided on Schedule A or an Appendix to the Plan which may contain additional terms and conditions governing the application of the Plan to the Transfer Contributions and Transferred Employees. The terms of Schedule A and the Appendices hereby are incorporated and made part of the Plan and, in the event of any inconsistency between the terms of the Plan and the terms of Schedule A or an Appendix, Schedule A or the Appendix, as applicable, shall control with respect to the Transfer Contributions and Transferred Employees covered by the Schedule or Appendix; provided, however, that if such inconsistency results from changes made in the provisions of the Plan to comply with applicable law, then such provisions of the Plan shall control.

(c) The Accounts of Employees who will cease to participate in the Plan as a result of a divestiture or similar corporate transaction (such Accounts, “Divestiture Accounts”, and such Employees, “Divestiture Participants”) shall be subject to all terms and conditions of the Plan as in effect from time to time, except to the extent provided on Schedule B to the Plan which may contain additional terms and conditions governing the application of the Plan to the Divestiture Accounts and Divestiture Participants. The terms of Schedule B hereby are incorporated and made part of the Plan and, in the event of any inconsistency between the terms of the Plan and the terms of Schedule B, Schedule B shall control with respect to the Divestiture

 

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Accounts and Divestiture Participants covered by the Schedule; provided, however, that if such inconsistency results from changes made in the provisions of the Plan to comply with applicable law, then such provisions of the Plan shall control.

Section 15.5. Gender and Plurals. Wherever used in the Plan, words in the masculine gender shall include the masculine or feminine gender, and, unless the context otherwise requires, words in the singular shall include the plural, and words in the plural shall include the singular.

Section 15.6. Statute of Limitations for Actions under the Plan. Except for actions to which the statute of limitations prescribed by section 413 of ERISA applies, (a) no legal or equitable action relating to a claim under section 502 of ERISA may be commenced later than one (1) year after the claimant receives a final decision from the Administrative Committee in response to the claimant’s request for review of an adverse benefit determination and (b) no other legal or equitable action involving the Plan 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. This provision shall not bar the Plan or its fiduciaries from recovering overpayments of benefits or other amounts incorrectly paid to any person under the Plan at any time or bringing any legal or equitable action against any party.

Section 15.7. Applicable Law. The Plan and all rights hereunder shall be governed by and construed in accordance with the laws of the State of Florida (without regard to principles of conflicts of law) to the extent such laws have not been preempted by applicable federal law. Venue for any action arising under the Plan shall be in Brevard County, Florida.

 

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Section 15.8. Severability. If any provision of the Plan is held illegal or invalid, the illegality or invalidity shall not affect the remaining provisions of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included in the Plan.

Section 15.9. No Guarantee. None of the Company, the Employers, the Administrative Committee, the Compensation Committee, the Finance Committee, the Investment Committee or the Trustee in any way guarantees the Trust from loss or depreciation nor the payment of any benefit that may be or become due to any person from the Trust Fund. Nothing in the Plan shall be deemed to give any Participant, distributee or Beneficiary an interest in any specific part of the Trust Fund or any other interest except the right to receive benefits from the Trust Fund in accordance with the provisions of the Plan and the trust agreement.

Section 15.10. Plan Voluntary. Although it is intended that the Plan shall be continued and that contributions shall be made as herein provided, the Plan is entirely voluntary on the part of the Employers and the continuance of the Plan and the contributions hereunder are not and shall not be regarded as contractual obligations of the Employers.

Section 15.11. Legal Fees. Any award of legal fees in connection with an action involving the Plan shall be calculated pursuant to a method that results in the lowest amount of fees being paid, which amount shall be no more than the amount that is reasonable. In no event shall legal fees be awarded for work related to: (a) administrative proceedings under the Plan; (b) unsuccessful claims brought by a Participant or any other person; or (c) actions that are not brought under ERISA. In calculating any award of legal fees, there shall be no enhancement for the risk of contingency, nonpayment or any other risk, nor shall there be applied a contingency multiplier or any other multiplier. In any action brought by a Participant or any other person against the Plan, the Administrative Committee, the Compensation Committee, the Finance

 

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Committee, the Investment Committee, any Plan fiduciary, any Employer or their respective affiliates or their or their affiliates’ respective officers, directors, trustees, employees, or agents (collectively, the “Plan Parties”), legal fees of the Plan Parties in connection with such action shall be paid by the Participant or other person bringing the action, unless the court specifically finds that there was a reasonable basis for the action

ARTICLE 16

TOP-HEAVY PLAN REQUIREMENTS

Section 16.1. Top-Heavy Plan Determination. If as of the determination date (as hereinafter defined) for any Plan Year the aggregate of (a) the account balances under the Plan and all other defined contribution plans in the aggregation group (as hereinafter defined) and (b) the present value of accrued benefits under all defined benefit plans in such aggregation group of all participants in such plans who are key employees (as hereinafter defined) for such Plan Year exceeds 60% of the aggregate of the account balances and the present value of accrued benefits of all participants in such plans as of the determination date, then the Plan shall be a “top-heavy plan” for such Plan Year, and the requirements of Section 16.3 shall be applicable for such Plan Year as of the first day thereof. If the Plan is a top-heavy plan for any Plan Year and is not a top-heavy plan for any subsequent Plan Year, the requirements of Section 16.3 shall not be applicable for such subsequent Plan Year.

Section 16.2. Definitions and Special Rules.

(a) Definitions. For purposes of this Article 16, the following definitions shall apply:

(1) Determination Date. The determination date for all plans in the aggregation group shall be the last day of the preceding Plan Year, and the valuation date applicable to a determination date shall be (i) in the case of a

 

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defined contribution plan, the date as of which account balances are determined that coincides with or immediately precedes the determination date, and (ii) in the case of a defined benefit plan, the date as of which the most recent actuarial valuation for the Plan Year that includes the determination date is prepared, except that if any such plan specifies a different determination or valuation date, such different date shall be used with respect to such plan.

(2) Aggregation Group. The aggregation group shall consist of (a) each plan of an Employer in which a key employee is a participant, (b) each other plan that enables such a plan to be qualified under section 401(a) of the Code, and (c) any other plans of an Employer that the Company designates as part of the aggregation group.

(3) Key Employee. Key employee shall have the meaning set forth in section 416(i) of the Code.

(4) Compensation. Compensation shall have the meaning set forth in Treasury Regulation section 1.415(c)-2(d)(4). Compensation for this purpose shall not include any amount excludable under Treasury Regulation section 1.415(c)-2(g)(5)(ii).

(b) Special Rules. For the purpose of determining the accrued benefit or account balance of a participant, (i) the accrued benefit or account balance of any person who has not performed services for an Employer at any time during the one-year period ending on the determination date shall not be taken into account pursuant to this Section, and (ii) any person who received a distribution from a plan (including a plan that has terminated) in the aggregation group during the one-year period ending on the determination date shall be treated as a

 

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participant in such plan, and any such distribution shall be included in such participant’s account balance or accrued benefit, as the case may be; provided, however, that in the case of a distribution made for a reason other than a person’s severance from employment, death or disability, clause (ii) of this Section 16.2(b) shall be applied by substituting “five-year period” for “one-year period.”

Section 16.3. Minimum Contribution for Top-Heavy Years. Notwithstanding any provision of the Plan to the contrary, for any Plan Year for which the Plan is a top-heavy plan, a minimum contribution shall be made on behalf of each Participant (other than a key employee) who is an Employee on the last day of the Plan Year in an amount equal to the lesser of (i) 3% of such Participant’s compensation during such Plan Year and (ii) the highest percentage at which Employer contributions (including pre-tax contributions) are made on behalf of any key employee for such Plan Year. If during any Plan Year for which this Section 16.3 is applicable a defined benefit plan is included in the aggregation group and such defined benefit plan is a top-heavy plan for such Plan Year, the percentage set forth in clause (i) of the first sentence of this Section 16.3 shall be 5%. The percentage referred to in clause (ii) of the first sentence of this Section 16.3 shall be obtained by dividing the aggregate of Employer contributions made pursuant to Article 4 or any Appendix hereto and pursuant to any other defined contribution plan that is required to be included in the aggregation group (other than a defined contribution plan that enables a defined benefit plan that is required to be included in such group to be qualified under section 401(a) of the Code) during the Plan Year on behalf of such key employee by such key employee’s compensation for the Plan Year. Notwithstanding the foregoing, the minimum contribution described in this Section 16.3 for any Plan Year for which the Plan is a top-heavy plan shall not be made under this Plan with respect to any Participant who receives a minimum contribution or minimum benefit for purposes of section 416(c) of the Code under another plan maintained by an Affiliate.

 

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ARTICLE 17

AMENDMENT, ESTABLISHMENT OF

SEPARATE PLAN, PLAN TERMINATION AND CHANGE IN CONTROL

Section 17.1. Amendment. The Compensation Committee may, at any time and from time to time, amend or modify the Plan. Any such amendment or modification shall become effective as of such date determined by the Compensation Committee, including retroactively to the extent permitted by law, and may apply to Participants in the Plan at the time thereof as well as to future Participants.

Section 17.2. Establishment of Separate Plan. If an Employer withdraws from the Plan pursuant to Section 14.2, then the Administrative Committee shall determine the portion of each of the funds of the Trust Fund that is applicable to the Participants of such Employer and their Beneficiaries and direct the Trustee to segregate such portions in a separate trust. Such separate trust thereafter shall be held and administered as a part of the separate plan of such Employer. The portion of a fund of the Trust Fund applicable to the Participants (and Beneficiaries) of a particular Employer shall be an amount that bears the same ratio to the value of such fund as the total value of the fund accounts of Participants (and Beneficiaries) of such Employer bears to the total value of the fund accounts of all Participants (and Beneficiaries).

Section 17.3. Termination. The Company at any time may terminate the Plan by resolution of an appropriate committee of the Board. An Employer at any time may terminate its participation in the Plan by resolution of its board of directors. In the event of any such termination, or in the event of the partial termination of the Plan with respect to a group of Participants, the Accounts of Participants with respect to whom the Plan is terminated shall

 

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become fully vested and thereafter shall not be subject to forfeiture. In the event that an Employer terminates its participation in the Plan, the Administrative Committee shall determine, in the manner provided in Section 17.2, the portion of each of the funds of the Trust Fund that is applicable to the Participants of such Employer and their Beneficiaries and direct the Trustee to distribute such portions to such Participants and Beneficiaries ratably in proportion to the balances of their respective Accounts.

A complete discontinuance of contributions by an Employer shall be deemed a termination of such Employer’s participation in the Plan for purposes of this Section.

Section 17.4. Change in Control. (a) Effect. Notwithstanding any provision of the Plan to the contrary, during the period commencing on the date of a Change in Control and ending at the close of business on the last day of the Fiscal Year during which the Change in Control occurs (the “Restriction Period”), the Plan may not be terminated, and the Plan may not be amended to:

(1) revise the definition of Eligible Employee such that fewer Employees are eligible to participate in the Plan, lengthen the service requirement for participation in the Plan, create an age requirement or entry dates for participation in the Plan or otherwise reduce coverage under the Plan;

(2) reduce the amount of pre-tax contributions, designated Roth contributions or after-tax contributions that a Participant is permitted to make under the Plan; or

(3) reduce the amount of matching contributions, company base contributions or fringe contributions required to be made under the Plan.

 

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(b) Miscellaneous. Any person who was an Eligible Employee on the day immediately preceding a Change in Control shall be deemed to be an Eligible Employee during the Restriction Period so long as the person is employed by a member of a “controlled group of corporations” which includes, or by a trade or business that is under common control with (as those terms are defined in sections 414(b) and (c) of the Code), the Company, any corporation which is the survivor of any merger or consolidation to which the Company was a party, or any corporation into which the Company has been liquidated.

Section 17.5. Trust Fund to Be Applied Exclusively for Participants and Their Beneficiaries. Subject only to the provisions of Article 6 and Sections 15.2(b) and (c), and any other provision of the Plan to the contrary notwithstanding, no part of the Trust Fund shall be used for or diverted to any purpose not for the exclusive benefit of the Participants and their Beneficiaries either by operation or termination of the Plan, power of amendment or other means.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent this 23rd day of December, 2015.

 

HARRIS CORPORATION
By:  

/s/ Adam Histed

Title:   VP, Human Resources

 

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SCHEDULE A

Special Rules Applying to Transfer Contributions and Transferred Employees

This Schedule A sets forth special rules applying to Transfer Contributions and Transferred Employees (each as defined in Section 15.4 of the Plan). Each of the provisions of the Plan shall be fully applicable to the Transfer Contributions and Transferred Employees, to the extent that such provisions are not inconsistent with this Schedule A. All capitalized terms used in this Schedule A and not otherwise defined herein shall have the meanings assigned to them by the Plan.

 

1. Encoda Systems, Inc. Profit Sharing Plan and Trust

(a) In General. Effective March 31, 2005, the Encoda Systems, Inc. Profit Sharing Plan and Trust (the “Encoda Plan”) was merged with and into the Plan. The portion of a Participant’s Account attributable to Transfer Contributions from the Encoda Plan shall be designated herein as the “Encoda Plan Account”.

(b) Vesting. A Participant’s Encoda Plan Account shall be 100% vested and nonforfeitable.

(c) Age 70  12 Distributions. A Participant who continues employment after attaining age 70 12 will be entitled to elect to commence distribution of his Encoda Plan Account no later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 12 even if such Participant remains employed. Distributions under this paragraph will be made in accordance with Section 9.1(c) (age 59 12 withdrawals) or Section 9.3(d) (age 70 12 minimum distributions), as elected by the Participant.

 

2. Harris Broadcast Communications Division 401(k) Plan

(a) In General. The Company, Leitch Incorporated (“Leitch”), Optimal Solutions, Inc. (“OSI”) and Viewbridge, Inc. (“Viewbridge”) formerly participated in the Harris Broadcast Communications Division 401(k) Plan (the “Broadcast Plan”), which plan was frozen as to new contributions and new participants effective June 30, 2007. Effective as of June 30, 2007, Leitch and OSI were liquidated into the Company. Effective July 1, 2007, Viewbridge became an Employer under the Plan. The Broadcast Plan shall be merged with and into the Plan, effective September 30, 2007.

(b) Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to former participants in the Broadcast Plan who become eligible to participate in the Plan effective July 1, 2007.

(c) Vesting. Former participants in the Broadcast Plan who were hired by Leitch, OSI or Videotek, Inc. prior to January 1, 2006 shall be 100% vested in their Accounts under the Plan.

 

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(d) In-Service Withdrawal of Certain Profit Sharing Contributions. A former participant in the Videotek, Inc. 401(k) Plan, which plan was merged into the Broadcast Plan effective June 30, 2006 (the “Videotek Plan”) who has completed at least 10 Years of Service may elect an in-service withdrawal of an amount not to exceed 50% of the portion of his or her Account attributable to employer non-elective discretionary profit sharing contributions made to the Videotek Plan; provided, however, that in no event shall dividends paid on or after May 20, 2010 with respect to an investment of such employer non-elective discretionary profit sharing contributions in the Harris Stock Fund be available for withdrawal. Notwithstanding any provision of the Plan to the contrary, for this purpose, a “Year of Service” is a Plan Year during which the Participant is credited with at least 1,000 Hours of Service.

(e) Service. Service shall be credited for purposes of the Plan with Aastra Digital Video and Aastra Telecom U.S., Inc. (in the latter case, provided that the Participant commenced employment by the Company in connection with the acquisition by the Company of the assets of Aastra Telecom U.S., Inc.).

(f) Qualified Nonelective Contributions. The Broadcast Plan contained certain “qualified nonelective contributions” within the meaning of section 401(m)(4)(C) of the Code.

 

3. Harris Technical Services Corporation 401(k) Plan

(a) In General. Harris Technical Services Corporation (“HTSC”) maintained the Harris Technical Services Corporation 401(k) Plan (the “HTSC Plan”) on behalf of its Harris Enterprise Services business unit (business unit 00211) (the “HES Business Unit”). The HTSC Plan was frozen as to new contributions and new participants, effective July 31, 2007, and HTSC adopted the Plan on behalf of its HES Business Unit, effective August 1, 2007. The HTSC Plan was merged with and into the Plan, effective October 31, 2007.

(b) Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to former participants in the HTSC Plan who become eligible to participate in the Plan effective August 1, 2007 (or such later date determined by the Administrative Committee).

(c) Match Eligibility. Former participants in the HTSC Plan who become eligible to participate in the Plan effective August 1, 2007 (or such later date determined by the Administrative Committee) shall be eligible to receive a matching contribution pursuant to Section 4.2 of the Plan, irrespective of whether such participants have completed six months of Service.

(d) Service. Service with “Resource Consultants, Inc. USPS MTSC (effective March 1, 2004)” shall be credited for purposes of the Plan.

 

4. Multimax, Inc. 401(k) Retirement Savings Plan

(a) In General. Multimax Incorporated (“Multimax”) formerly sponsored the Multimax, Inc. 401(k) Retirement Savings Plan (the “Multimax Plan”), which plan was frozen as to new participants and new contributions effective September 7, 2007. Effective September 8, 2007, Multimax became an Employer under this Plan. The Multimax Plan shall be merged with and into this Plan effective December 31, 2007.

 

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(b) Match Eligibility. Participants who were employed by Multimax on September 7, 2007 shall be eligible to receive a matching contribution pursuant to Section 4.2 of the Plan effective as of the first day of the calendar month coinciding with or following 30 days of employment with Multimax or any Affiliate thereof.

(c) Vesting. The Profit Sharing Accounts of Participants who were employed by Multimax on September 7, 2007 shall be 100% vested and nonforfeitable. The vested and nonforfeitable percentage of the Matching Accounts of Participants who were employed by Multimax on September 7, 2007 shall be determined as follows by reference to a Participant’s Years of Service as of the date of the Participant’s termination of employment:

 

Years of Service

   Percentage

Less than 1

   0%

At least 1 but less than 2

   33%

At least 2 but less than 3

   66%

3 or more

   100%

(d) Service. Service with “Legacy Multimax Inc.” shall be credited for purposes of the Plan.

(e) Qualified Nonelective Contributions. The Accounts of certain Participants who formerly participated in the Multimax Plan contain qualified nonelective contributions within the meaning of section 401(m)(4)(C) of the Code attributable to their participation in such plan.

 

5. Crucial Security, Inc. 401(k) Plan

Crucial Security, Inc. (“Crucial”) maintains the Crucial Security, Inc. 401(k) Plan (the “Crucial Plan”), which plan was frozen as to new participants and new contributions effective April 15, 2009. Effective April 16, 2009, Crucial became an Employer under this Plan. The Crucial Plan shall be merged with and into this Plan effective August 28, 2009.

 

6. Patriot Technologies, LLC 401(k) Plan

(a) In General. Harris Patriot Healthcare Solutions, LLC (“Harris Patriot”) maintains the Patriot Technologies, LLC 401(k) Plan (the “Patriot Plan”), which plan was frozen as to new participants and new contributions effective November 30, 2009. Effective December 1, 2009, Harris Patriot became an Employer under this Plan. The Patriot Plan shall be merged with and into this Plan effective June 16, 2010.

(b) Service. For purposes of the Plan, service with Global Technologies Group, Inc. shall be credited to former participants in the Patriot Plan.

 

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7. CapRock Communications, Inc. 401(k) Plan

(a) In General. CapRock Communications, Inc. (“CapRock”) maintains the CapRock Communications, Inc. 401(k) Plan (the “CapRock Plan”), which plan was frozen as to new participants and new contributions effective September 30, 2010. Effective October 1, 2010, CapRock and it subsidiaries (including without limitation, CapRock Government Solutions, Inc.) became Employers under this Plan. The CapRock Plan shall be merged with and into this Plan effective as of December 31, 2010.

(b) Service. For purposes of the Plan, service with McLeod USA and Arrowhead Global Solutions, Inc. shall be credited to former participants in the Caprock Plan.

(c) Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to former participants in the CapRock Plan who become eligible to participate in the Plan effective October 1, 2010.

(d) Qualified Reservist Distributions. A former participant in the CapRock Plan shall be eligible to receive a qualified reservist distribution (as defined in section 72(t)(2)(G)(iii) of the Code) with respect to the portion of his or her Account attributable to pre-tax contributions and designated Roth contributions.

 

8. ADP TotalSource Retirement Savings Plan

(a) In General. Prior to April 4, 2011, Carefx Corporation (“Carefx”) participated in the ADP TotalSource Retirement Savings Plan, a multiple employer defined contribution plan sponsored by ADP TotalSource, Inc. (the “ADP Plan”). Effective as of April 4, 2011, Carefx became an Employer under this Plan. The assets and liabilities of the ADP Plan attributable to the employees and former employees of Carefx shall be transferred to this Plan in a trust-to-trust transfer effective as of September 1, 2011.

(b) Vesting. Notwithstanding any other provision in this Plan, former participants in the ADP Plan whose accounts under such plan were transferred to this Plan in a trust-to-trust transfer effective as of September 1, 2011 (“Former ADP Plan Participants”) shall be 100% vested in their Matching Accounts under this Plan.

(c) Military Leave Withdrawals. In the case of a military leave withdrawal pursuant to Section 9.1(e) of this Plan, a Former ADP Plan Participant shall be permitted to withdraw not only all or any portion of his or her Account attributable to pre-tax contributions and designated Roth contributions, but also all or any portion of his or her Account attributable to matching contributions. Except as otherwise set forth in this item (c), any such withdrawal shall be subject to the terms and conditions of Section 9.1(e).

 

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SCHEDULE B

Special Rules Applying to Divestiture Accounts and Divestiture Participants

This Schedule B sets forth special rules applying to Divestiture Accounts and Divestiture Participants (each as defined in Section 15.4 of the Plan). Each of the provisions of the Plan shall be fully applicable to the Divestiture Accounts and Divestiture Participants, to the extent that such provisions are not inconsistent with this Schedule B. All capitalized terms used in this Schedule B and not otherwise defined herein shall have the meanings assigned to them by the Plan.

 

1. Divestiture of the Broadcast Communications Division

(a) In General. The Company has entered into an Asset Sale Agreement with HBC Solutions, Inc. (formerly known as Gores Broadcast Solutions, Inc.) dated as of December 5, 2012 pursuant to which the Company will sell its Broadcast Communications Division (such agreement, as it may be amended from time to time, the “BCD Asset Sale Agreement”). The Employees who will cease to be employed by the Company as a result of such transaction shall be designated herein as “BCD Employees.”

(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Initial Closing Date” (as such term is defined in the BCD Asset Sale Agreement), the BCD Employees shall be 100% vested in their Accounts under the Plan.

 

2. Divestiture of the Healthcare Solutions Business Unit

(a) In General. The Company has entered into an Asset Sale Agreement with Nant Health, LLC dated as of June 16, 2015 pursuant to which the Company will sell its Healthcare Solutions Business Unit (such agreement, as it may be amended from time to time, the “HCS Asset Sale Agreement”). The Employees who will cease to be employed by the Company as a result of such transaction shall be designated herein as “HCS Employees.”

(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Closing Date” (as such term is defined in the HCS Asset Sale Agreement), the HCS Employees shall be 100% vested in their Accounts under the Plan.

 

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APPENDIX 1

MONEY PURCHASE PENSION ACCOUNTS

This Appendix 1 shall apply solely to a Participant with an Account that is attributable, in total or in part, to a Money Purchase Pension Account (such Participant, a “Money Purchase Participant”).

 

  A. Form of Distribution. Except as otherwise set forth in this Appendix 1, the Account of a Money Purchase Participant shall be distributed in the form of a single life annuity or, in the case of a Money Purchase Participant who is legally married on his or her annuity commencement date, in the form of a Joint and Survivor Annuity or, if the Money Purchase Participant has died prior to the annuity commencement date, a Pre-Retirement Survivor Annuity. Any annuity payable under this Appendix 1 shall be satisfied by purchase of a nonforfeitable annuity contract for the Money Purchase Participant or Spouse, as applicable.

 

  B. Joint and Survivor Annuity. The term “Joint and Survivor Annuity” means an annuity for the life of the Money Purchase Participant with a survivor annuity for the life of his or her surviving Spouse which is equal to 50, 75 or 100 percent of the amount of the annuity payable during the joint lives of the Money Purchase Participant and his or her Spouse and which is the actuarial equivalent of a single life annuity for the life of the Money Purchase Participant.

As soon as practicable after a married Money Purchase Participant’s annuity commencement date, the Administrative Committee will provide him or her with election information consisting of:

 

  (1) a written description of the Joint and Survivor Annuity and the relative financial effect of payment of his or her Account in that form; and

 

  (2) a notification of the right to waive payment in that form, the rights of his or her Spouse with respect to such waiver and the right to revoke such waiver.

During an election period commencing on the date the Money Purchase Participant receives such election information and ending on the later of the 180th day thereafter or the date as of which his or her benefits are to commence, a Money Purchase Participant may waive payment in the Joint and Survivor Annuity form and elect payment in a form permitted under Section 9.3(c) of the Plan provided that the Money Purchase Participant’s surviving Spouse, if any, has consented in writing to such waiver and the Spouse’s consent acknowledges the effect of such revocation and is witnessed by a notary public. A Money Purchase Participant may, at any time during his or her election period, revoke any prior waiver of the Joint and Survivor Annuity form. A Money Purchase Participant may request, in a writing filed with the Administrative Committee during his or her election period, an explanation, written in nontechnical language, of the terms, conditions and financial effect (in terms of dollars per monthly benefit payment) of payment in the Joint and Survivor Annuity form. If not previously provided to

 

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the Money Purchase Participant, the Administrative Committee shall provide the Money Purchase Participant with such explanation within 30 days of his or her request, and the Money Purchase Participant’s election period will be extended, if necessary, to include the 180th day following the date on which he or she receives such explanation. No distribution shall be made from the Account until the Money Purchase Participant’s election period has terminated. Notwithstanding the foregoing, if the Money Purchase Participant’s Account balance does not exceed $5,000, the Account will be distributed in accordance with Section 9.4 of the Plan.

 

  C. Pre-Retirement Survivor Annuity. The term “Pre-Retirement Survivor Annuity” means an annuity for the life of the Money Purchase Participant’s surviving Spouse, the payments under which must be equal to the amount of benefit that can be purchased with the balance in the Money Purchase Participant’s Account as of the date of his or her death. Payment of such benefits will commence as soon as practicable after the date of the Money Purchase Participant’s death, unless the surviving Spouse elects a later date. Any election to waive the Pre-Retirement Survivor Annuity must be made by the Money Purchase Participant in writing during the election period described herein and shall require the Spouse’s consent in the same manner provided for in paragraph B. The election period to waive the Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the Money Purchase Participant attains age 35 and end on the date of the Money Purchase Participant’s death. In the event a Money Purchase Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. In connection with the election, the Administrative Committee shall provide each Money Purchase Participant, within the period beginning with the first day of the Plan Year in which the Money Purchase Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Money Purchase Participant attains age 35, a written explanation of the Pre-Retirement Survivor Annuity containing comparable information to that required pursuant to the provisions of paragraphs B(1) and B(2). If the Money Purchase Participant enters the Plan after such election period has terminated, the Administrative Committee shall provide such explanation no later than one year following the entry of the Money Purchase Participant into the Plan. If the Money Purchase Participant is not married as of the date of his or her death, the Money Purchase Participant’s Account shall be distributed to his or her Beneficiary in the form elected by the Beneficiary pursuant to Section 9.3(c) of the Plan. Notwithstanding the foregoing, if the Participant’s distributable Account balance does not exceed $5,000, the Account will be distributed in a lump sum.

 

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APPENDIX 2

FORMER EXELIS INFORMATION SYSTEMS

PROFESSIONAL BENEFITS EMPLOYEES’ SAVINGS PLAN

This Appendix 2 applies to a Participant who was regularly employed by the Information Systems division of Exelis Inc. under the contracts listed below and who was hired on or after the date set forth below for such person’s specific contract but prior to January 1, 2016 (an “Information Systems Participant”). Certain Information Systems Participants previously participated in the Exelis Information Systems Professional Benefits Employees’ Savings Plan (the “Professional Employees’ Savings Plan”), of which this Plan is a successor. The provisions of this Appendix 2 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 2 with the Plan. Capitalized terms not otherwise defined in this Appendix 2 are defined in Article 2 of the Plan.

 

Contract Name

  

Effective Date

Business and Financial Management Support (BFMS)    July 15, 2004
Electromagnetic Spectrum Engineering Services (ESES)    August 5, 2005
Engineering, Technical and Programmatic Support Services Electronic Warfare (EW) – Surface and Airborne (“Crane”)    March 24, 2007
Advisory and Assistance Services (A&AS) for United States Strategic Command (USSTRATCOM) Systems and Mission Support (“USAMS II”)    March 9, 2009
Commander, Navy Installations Command (CNIC)    August 24, 2009
JTF-GN Cyber Defense, Analysis, Operations and Strategic Planning Support (JTF-GN)    October 2, 2009
JIEDDO Omnibus (Omnibus)    April 1, 2010
Solutions for Intelligence Analysis, US Forces to Afghanistan    September 15, 2010
Space Communications Network Services (SCNS)    April 11, 2011
Enterprise Communications Support Systems (ECSS)    September 30, 2011
US INSCOM OMNIB III Program    November 12, 2011
Wideband Satellite Operations and Technical Support (WSOTS)    February 1, 2012
JIEDDO Operations Support Services    March 26, 2012
FAA Command and Control Communications Program Support    April 2, 2012
Global Combat Support System – Marine Corps Sustainment Training (GCSS MC Sustainment Training)    October 15, 2013
Deep Space Network (DSN)    January 1, 2014

 

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Article 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.1 Withdrawals Prior to Termination of Employment

Notwithstanding any other provision in this Plan, an Information Systems Participant may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Professional Employees’ Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

Section 9.2 Vested Share of Account

Notwithstanding any other provision in this Plan, the entire Account of an Information Systems Participant shall be 100% vested and nonforfeitable.

 

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APPENDIX 3

ES/IEWS EMPLOYEES

This Appendix 3 applies to any person employed by the Electronic Systems/Integrated Electronic Warfare Systems divisions of the Company who is a member of the bargaining unit represented by the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (I.U.E.)/Communications Workers of America, Local Union 81447, NJ location (an “ES/IEWS Employee”). Certain ES/IEWS Employees previously participated in the Exelis Avionics Division and Exelis Communications Solutions Bargaining Unit Savings Plan (the “Avionics Savings Plan”), of which this Plan is a successor. Any references in this Appendix 3 to the Avionics Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 3 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 3 with the Plan. Capitalized terms not otherwise defined in this Appendix 3 are defined in Article 2 of the Plan.

Article 2

DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 3 means a Participant’s W-2 wages, including overtime, shift premium, etc., which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 3 means an ES/IEWS Employee; provided, however, that an ES/IEWS Employee who is a temporary employee shall not be eligible to participate in the Plan.

For the avoidance of doubt, a Participant who is absent from service due to layoff shall not experience a termination of employment for purposes of this Plan until he or she no longer has recall rights under the Company’s applicable layoff policy.

Article 3

PARTICIPATION

An individual who participated in the Exelis Retirement Savings Plan pursuant to Appendix 3 thereof on December 31, 2015, and who is an Employee entitled to participate in the Plan pursuant to this Appendix 3 on January 1, 2016, shall immediately become a Participant.

Any other individual who is an Employee entitled to participate in the Plan pursuant to this Appendix 3 shall become a Participant as of the first day of the month following one month of Service.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to an ES/IEWS Employee.

 

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Article 4

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE

AND FRINGE CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a)-(f) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 3 shall be entitled to receive matching contributions each payroll period equal to 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such payroll period which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such payroll period, which shall be credited to such Participant’s Matching Account. An Employee who is entitled to participate in the Plan pursuant to this Appendix 3 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 3 is less than 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such Plan Year which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such Plan Year, the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

For the avoidance of doubt, an Employee who is entitled to participate in the Plan pursuant to this Appendix 3 shall not be entitled to receive company base contributions.

Article 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.1 Withdrawals Prior to Termination of Employment

Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 3 may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Avionics Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the Avionics Savings Plan) from the Avionics Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the Avionics Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.

 

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Section 9.2 Vested Share of Account

Notwithstanding any other provision in the Plan, but subject to Section 9.2(a), a Participant who is entitled to matching contributions pursuant to this Appendix 3 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the Avionics Savings Plan) credited in the Avionics Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

 

Service

   Nonforfeitable Percentage

less than 1 year

   0%

1 but less than 2 years

   20%

2 but less than 3 years

   40%

3 but less than 4 years

   60%

4 but less than 5 years

   80%

5 or more years

   100%

Article 10

LOANS

A Participant whose Account is subject to this Appendix 3 shall be charged a fee equal to $35 for each loan originated pursuant to Article 10 of the Plan.

 

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APPENDIX 4

NIGHT VISION EMPLOYEES

This Appendix 4 applies to any person employed by the Night Vision division of the Company who is a member of the bargaining unit represented by the IUE, the Industrial Division of the Communications Workers of America AFL-CIO and Local 82162 (a “Night Vision Employee”). Certain Night Vision Employees previously participated in the Exelis Night Vision Savings Plan for Hourly Employees (the “Night Vision Savings Plan”), of which this Plan is a successor. Any references in this Appendix 4 to the Night Vision Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 4 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 4 with the Plan. Capitalized terms not otherwise defined in this Appendix 4 are defined in Article 2 of the Plan.

Article 2

DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 4 means a Participant’s straight time base pay, excluding overtime, shift premium, etc. (not to exceed 40 hours per week), which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 4 means a Night Vision Employee; provided, however, that a Night Vision Employee who is a temporary employee shall not be eligible to participate in the Plan.

Article 3

PARTICIPATION

An individual who participated in the Exelis Retirement Savings Plan pursuant to Appendix 4 thereof on December 31, 2015, and who is an Employee entitled to participate in the Plan pursuant to this Appendix 4 on January 1, 2016, shall immediately become a Participant.

Any other individual who is an Employee entitled to participate in the Plan pursuant to this Appendix 4 shall become a Participant as of the first day of the month following one month of Service.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to a Night Vision Employee.

 

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Article 4

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE

AND FRINGE CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a)-(f) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 4 shall be entitled to receive matching contributions each payroll period equal to 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such payroll period which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such payroll period, which shall be credited to such Participant’s Matching Account. An Employee who is entitled to participate in the Plan pursuant to this Appendix 4 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 4 is less than 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such Plan Year which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such Plan Year, the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

For the avoidance of doubt, an Employee who is entitled to participate in the Plan pursuant to this Appendix 4 shall not be entitled to receive company base contributions.

Article 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.1 Withdrawals Prior to Termination of Employment

Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 4 may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Night Vision Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the Night Vision Savings Plan) from the Night Vision Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the Night Vision Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.

 

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Section 9.2 Vested Share of Account

Notwithstanding any other provision in the Plan, but subject to Section 9.2(a), a Participant who is entitled to matching contributions pursuant to this Appendix 4 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the Night Vision Savings Plan) credited in the Night Vision Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

 

Service

   Nonforfeitable Percentage

less than 1 year

   0%

1 but less than 2 years

   20%

2 but less than 3 years

   40%

3 but less than 4 years

   60%

4 but less than 5 years

   80%

5 or more years

   100%

Article 10

LOANS

A Participant whose Account is subject to this Appendix 4 shall not be charged an origination fee for loans made pursuant to Article 10 of the Plan.

 

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APPENDIX 5

ELECTRONIC SYSTEMS EMPLOYEES

This Appendix 5 applies to any person employed by the Electronic Systems division of the Company who is a member of the bargaining unit represented by the IUE-CWA Local 84999 (an “Electronic Systems Employee”). Certain Electronic Systems Employees previously participated in the Exelis Communications Solutions Savings Plan for Hourly Employees (the “Communications Solutions Savings Plan”), of which this Plan is a successor. Any references in this Appendix 5 to the Communications Solutions Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 5 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 5 with the Plan. Capitalized terms not otherwise defined in this Appendix 5 are defined in Article 2 of the Plan.

Article 2

DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 5 means a Participant’s straight time base pay, excluding overtime, shift premium, etc. (not to exceed 40 hours per week), which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 5 means an Electronic Systems Employee; provided, however, that an Electronic Systems Employee who is a temporary employee shall not be eligible to participate in the Plan.

For the avoidance of doubt, a Participant who is absent from service due to layoff shall not experience a termination of employment for purposes of the Plan until he or she no longer has recall rights under the Company’s applicable layoff policy.

Article 3

PARTICIPATION

An individual who participated in the Exelis Retirement Savings Plan pursuant to Appendix 5 thereof on December 31, 2015, and who is an Employee entitled to participate in the Plan pursuant to this Appendix 5 on January 1, 2016, shall immediately become a Participant.

Any other individual who is an Employee entitled to participate in the Plan pursuant to this Appendix 5 shall become a Participant as of the first day of the month following his or her completion of a 90-day probationary period with the Company.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to an Electronic Systems Employee.

 

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Article 4

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE

AND FRINGE CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a)-(f) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 5 shall be entitled to receive matching contributions each payroll period equal to 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such payroll period which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such payroll period, which shall be credited to such Participant’s Matching Account. An Employee who is entitled to participate in the Plan pursuant to this Appendix 5 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 5 is less than 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such Plan Year which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such Plan Year, the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

For the avoidance of doubt, an Employee who is entitled to participate in the Plan pursuant to this Appendix 5 shall not be entitled to receive company base contributions.

Article 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.1 Withdrawals Prior to Termination of Employment

Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 5 may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Communications Solutions Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the Communications Solutions Savings Plan) from the Communications Solutions Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the Communications Solutions Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.

 

5-2


Section 9.2 Vested Share of Account

Notwithstanding any other provision in the Plan, but subject to Section 9.2(a) of the Plan, a Participant who is entitled to matching contributions pursuant to this Appendix 5 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the Communications Solutions Savings Plan) credited in the Communications Solutions Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

 

Service

   Nonforfeitable Percentage

less than 1 year

   0%

1 but less than 2 years

   20%

2 but less than 3 years

   40%

3 but less than 4 years

   60%

4 but less than 5 years

   80%

5 or more years

   100%

Article 10

LOANS

A Participant whose Account is subject to this Appendix 5 shall not be charged an origination fee for loans made pursuant to Article 10 of the Plan.

 

5-3


APPENDIX 6

PMRF EMPLOYEES

This Appendix 6 applies to any person employed by the Exelis Information Systems Pacific Missile Range Facility of the Company who is: (a) a member of the bargaining unit represented by the IBEW – Main Unit, IBEW – Security Unit or the IBU; (b) covered by a Service Contract Act; or (c) a salaried individual covered by project benefits, other than an Excluded PMRF Individual (a “PMRF Employee”). For this purpose, an Excluded PMRF Individual means an individual who is engaged by an Employer to perform services in a relationship (i) that the Employer characterizes as other than an employment relationship, or (ii) that the individual has agreed is not an employment relationship and has waived his or her rights to coverage as an employee, such as where the Employer engages the individual to perform services as an independent contractor, even if a determination is made by the Internal Revenue Service or other governmental agency or court, after the individual is engaged to perform such services, that the individual is an employee of the Employer for purposes of the Code.

Certain PMRF Employees previously participated in the Exelis Information Systems Pacific Missile Range Facility Savings Plan for Hourly Employees (the “PMRF Savings Plan”), of which this Plan is a successor. Any references in this Appendix 6 to the PMRF Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 6 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 6 with the Plan. Capitalized terms not otherwise defined in this Appendix 6 are defined in Article 2 of the Plan.

Article 2

DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 6 means a Participant’s straight time base pay, overtime, including double time, and compensation payable through a formal sales incentive plan, but excluding shift premiums, bonuses, living and other allowances, etc., which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 6 means a PMRF Employee; provided, however, that a PMRF Employee who is a temporary employee shall not be eligible to participate in the Plan.

For the avoidance of doubt, a Participant who is absent from service due to layoff shall not experience a termination of employment for purposes of the Plan until he or she no longer has recall rights under the Company’s applicable layoff policy.

 

6-1


Article 3

PARTICIPATION

An individual who participated in the Exelis Retirement Savings Plan pursuant to Appendix 6 thereof on December 31, 2015, and who is an Employee entitled to participate in the Plan pursuant to this Appendix 6 on January 1, 2016, shall immediately become a Participant.

Any other individual who is an Employee entitled to participate in the Plan pursuant to this Appendix 6 shall become a Participant as of the first day of the month following one month of Service.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to a PMRF Employee.

Article 4

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE

AND FRINGE CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a)-(f) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 6 shall be entitled to receive matching contributions each payroll period equal to 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such payroll period which are at least 1 percent of his or her Compensation and no more than 4 percent of his or her Compensation for such payroll period, which shall be credited to such Participant’s Matching Account. An Employee who is entitled to participate in the Plan pursuant to this Appendix 6 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 6 is less than 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such Plan Year which are at least 1 percent of his or her Compensation and no more than 4 percent of his or her Compensation for such Plan Year, the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

For the avoidance of doubt, an Employee who is entitled to participate in the Plan pursuant to this Appendix 6 shall not be entitled to receive company base contributions.

Article 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.1 Withdrawals Prior to Termination of Employment

Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 6 may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the PMRF Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

 

6-2


If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the PMRF Savings Plan) from the PMRF Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the PMRF Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.

Section 9.2 Vested Share of Account

Notwithstanding any other provision in the Plan, but subject to Section 9.2(a) of the Plan, a Participant who is entitled to matching contributions pursuant to this Appendix 6 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the PMRF Savings Plan) credited in the PMRF Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

 

Service

   Nonforfeitable Percentage

less than 1 year

   0%

1 but less than 2 years

   20%

2 but less than 3 years

   40%

3 but less than 4 years

   60%

4 but less than 5 years

   80%

5 or more years

   100%

Article 10

LOANS

A Participant who is a member of the bargaining unit represented by the IBEW – Main Unit, IBEW – Security Unit or the IBU and whose Account is subject to this Appendix 6 shall not be charged an origination fee for loans made pursuant to Article 10 of the Plan.

 

6-3


APPENDIX 7

BENEFIT GROUP EMPLOYEES

This Appendix 7 applies to any individual who is regularly employed by the Company and included in a benefit group specified in Exhibit A hereto (such an employee, a “Benefit Group Employee”). Certain Benefit Group Employees previously participated in the Exelis IS Retirement Savings Plan (the “IS Savings Plan”), of which this Plan is a successor. Any references in this Appendix 7 to the IS Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 7 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 7 with the Plan. Capitalized terms not otherwise defined in this Appendix 7 are defined in Article 2 of the Plan.

Article 2

DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 7 means a Participant’s regular or base salary, which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 7 means a Benefit Group Employee; provided, however, that (i) a Benefit Group Employee who is a temporary employee, other than a Deep Space Network temporary employee, shall not be eligible to participate in the Plan and (ii) a Benefit Group Employee shall not be eligible to participate in the Plan if he or she is eligible to participate in a multiemployer plan to which the Company or its Affiliate is obligated to make contributions.

Article 3

PARTICIPATION

An individual who participated in the Exelis Retirement Savings Plan pursuant to Appendix 7 thereof on December 31, 2015, and who is an Employee entitled to participate in the Plan pursuant to this Appendix 7 on January 1, 2016, shall immediately become a Participant.

Any other individual who is an Employee entitled to participate in the Plan pursuant to this Appendix 7 shall become a Participant as of the first day of the month following the date he or she completes 30 days of employment. For the avoidance of doubt, an Employee shall not be eligible to receive company base contributions prior to the date he or she becomes a Participant under this Appendix 7.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to a Benefit Group Employee.

 

7-1


Article 4

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, COMPANY BASE

AND FRINGE CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a)-(f) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 7 shall be entitled to receive matching contributions equal to the amount, if any, set forth in Exhibit A (as applied to the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions), which shall be credited to such Participant’s Matching Account each payroll period. An Employee who is entitled to participate in the Plan pursuant to this Appendix 7 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 7 is less than the amount that would have been allocated to such Employee had the matching contributions been calculated and contributed on a Plan Year, as opposed to a payroll, basis the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

An Employee who is entitled to participate in the Plan pursuant to this Appendix 7 shall be entitled to receive company base contributions equal to the amount set forth in Exhibit A, if any.

Article 9

WITHDRAWALS AND DISTRIBUTIONS

Section 9.2 Vested Share of Account

Notwithstanding any other provision in this Plan, the entire Account of a Benefit Group Employee shall be 100% vested and nonforfeitable.

 

7-2


EXHIBIT A – BENEFIT GROUPS AND PROJECTS

(Effective 1/1/16)

This list identifies all union contracts in which the Benefit Group Employees are employed. This list will be amended from time to time to reflect changes in union contracts.

 

Benefit Group

 

Description

 

Matching

Contributions

 

Company Base

Contributions

Deep Space Network Contract

     

1. DSNUNION

  1. Union EEs   1. 50% to 10%   1. $220 per month

Space Communications Network Services (SCNS)

     

1. SCNS UN

  1. Union EEs   1. No Match   1. No Base

Tethered Aerostat Radar Systems (TARS)

     

1. TARSUNYUM

  1. Union EEs   1. No Match   1. 3%

2. TARSUNHUA

  2. Union EEs   2. No Match   2. 3%

3. RARSUNDEM

  3. Union EEs   3. No Match   3. 3%

4. TARUNEAGL

  4. Union EEs   4. No Match   4. 1%

5. TARSUNRIO

  5. Union EEs   5. No Match   5. 1%

6. TARSUNCUJ

  6. Union EEs   6. No Match   6. 3%

7. TARSUNMAR

  7. Union EEs   7. No Match   7. 1%

 

7-3

Exhibit 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

 

     Two Quarters Ended  
     January 1,
2016
     January 2,
2015
 
     (In millions, except ratios)  

Earnings:

     

Income from continuing operations

   $ 13      $ 264  

Plus: Income taxes

     114        101  

Fixed charges

     96        50  

Amortization of capitalized interest

     —          —    

Less: Interest capitalized during the period

     —          (2

Undistributed earnings in equity investments

     —          —    
  

 

 

    

 

 

 
   $ 223      $ 413  
  

 

 

    

 

 

 

Fixed Charges:

     

Interest expense

   $ 93      $ 45  

Plus: Interest capitalized during the period

     —          2  

Interest portion of rental expense

     3        3  
  

 

 

    

 

 

 
   $ 96      $ 50  
  

 

 

    

 

 

 

Ratio of Earnings to Fixed Charges

     2.32        8.26  

Exhibit 15

ACKNOWLEDGEMENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Harris Corporation

We are aware of the incorporation by reference in the following Registration Statements:

 

Form S-3ASR

  

No. 333-186929

  

Harris Corporation Debt and Equity Securities

Form S-4

  

No. 333-202539

  

Harris Corporation Shares of Common Stock

Form S-8

  

No. 333-192735

  

Harris Corporation Retirement Plan

Form S-8

  

No. 333-130124

  

Harris Corporation 2005 Equity Incentive Plan

Form S-8

  

No. 333-207774

  

Harris Corporation 2015 Equity Incentive Plan

of our report dated February 3, 2016 relating to the unaudited condensed consolidated interim financial statements of Harris Corporation that are included in its Form 10-Q for the quarter ended January 1, 2016.

/s/ Ernst & Young LLP

Orlando, Florida

February 3, 2016

Exhibit 31.1

CERTIFICATION

I, William M. Brown, Chairman, President and Chief Executive Officer of Harris Corporation, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended January 1, 2016 of Harris Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 3, 2016     /s/ William M. Brown
    Name:   William M. Brown
    Title:   Chairman, President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Miguel A. Lopez, Senior Vice President and Chief Financial Officer of Harris Corporation, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended January 1, 2016 of Harris Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 3, 2016     /s/ Miguel A. Lopez
    Name:   Miguel A. Lopez
    Title:   Senior Vice President and Chief Financial Officer

Exhibit 32.1

Certification

Pursuant to Section 1350 of Chapter 63 of Title 18 of the

United States Code as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Quarterly Report on Form 10-Q of Harris Corporation (“Harris”) for the quarter ended January 1, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, William M. Brown, Chairman, President and Chief Executive Officer of Harris, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Harris as of the dates and for the periods expressed in the Report.

 

Date: February 3, 2016     /s/ William M. Brown
    Name:   William M. Brown
    Title:   Chairman, President and Chief Executive Officer

Exhibit 32.2

Certification

Pursuant to Section 1350 of Chapter 63 of Title 18 of the

United States Code as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Quarterly Report on Form 10-Q of Harris Corporation (“Harris”) for the quarter ended January 1, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Miguel A. Lopez, Senior Vice President and Chief Financial Officer of Harris, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Harris as of the dates and for the periods expressed in the Report.

 

Date: February 3, 2016     /s/ Miguel A. Lopez
    Name:   Miguel A. Lopez
    Title:   Senior Vice President and Chief Financial Officer
v3.3.1.900
Document and Entity Information - shares
6 Months Ended
Jan. 01, 2016
Jan. 29, 2016
Document and Entity Information [Abstract]    
Entity Registrant Name HARRIS CORP /DE/  
Trading Symbol HRS  
Entity Central Index Key 0000202058  
Document Type 10-Q  
Document Period End Date Jan. 01, 2016  
Amendment Flag false  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q2  
Current Fiscal Year End Date --07-01  
Entity Well-known Seasoned Issuer Yes  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding (actual number)   124,654,177
v3.3.1.900
Condensed Consolidated Statement of Income (Unaudited) - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Condensed Consolidated Statement of Income [Abstract]        
Revenue from product sales and services $ 1,843 $ 1,206 $ 3,654 $ 2,361
Cost of product sales and services (1,281) (808) (2,501) (1,570)
Engineering, selling and administrative expenses (239) (188) (568) (383)
Impairment of goodwill and other assets (367)   (367)  
Non-operating income 0 0 1 0
Interest income 0 1 1 2
Interest expense (45) (22) (93) (45)
Income (loss) from continuing operations before income taxes (89) 189 127 365
Income taxes (46) (50) (114) (101)
Income (loss) from continuing operations (135) 139 13 264
Discontinued operations, net of income taxes (17) 0 (17) 0
Net income (loss) $ (152) $ 139 $ (4) $ 264
Basic net income (loss) per common share        
Continuing operations $ (1.09) $ 1.34 $ 0.10 $ 2.52
Discontinued operations (0.14) 0 (0.14) 0
Total basic net income per common share (1.23) 1.34 (0.04) 2.52
Diluted net income (loss) per common share        
Continuing operations (1.09) 1.32 0.10 2.50
Discontinued operations (0.14) 0 (0.13) 0
Total diluted net income per common share (1.23) 1.32 (0.03) 2.50
Cash dividends paid per common share $ 0.50 $ 0.47 $ 1.00 $ 0.94
Basic weighted average common shares outstanding 123.8 103.9 123.6 104.3
Diluted weighted average common shares outstanding 123.8 104.9 124.7 105.3
v3.3.1.900
Condensed Consolidated Statement of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Statement of Income and Comprehensive Income [Abstract]        
Net income (loss) $ (152) $ 139 $ (4) $ 264
Other comprehensive loss:        
Foreign currency translation loss, net of income taxes (15) (45) (47) (74)
Net unrealized gain (loss) on hedging derivatives, net of income taxes 1 0 1 (1)
Net unrecogonized gain (loss) on postretirement obligations, net of income taxes (4) 3 (4) 12
Other comprehensive loss, net of income taxes (18) (42) (50) (63)
Total comprehensive income (loss) $ (170) $ 97 $ (54) $ 201
v3.3.1.900
Condensed Consolidated Balance Sheet (Unaudited) - USD ($)
$ in Millions
Jan. 01, 2016
Jul. 03, 2015
Current Assets    
Cash and cash equivalents $ 511 $ 481
Receivables 935 1,168
Inventories 1,070 1,015
Income taxes receivable 156 87
Current deferred income taxes 0 0
Deferred compensation plan investments 41 267
Other current assets 122 165
Total current assets 2,835 3,183
Non-current Assets    
Property, plant and equipment 1,102 1,165
Goodwill 5,989 6,348
Other intangible assets 1,643 1,775
Non-current deferred income taxes 376 502
Other non-current assets 152 154
Total non-current assets 9,262 9,944
Total assets 12,097 13,127
Current Liabilities    
Short-term debt 198 33
Accounts payable 558 581
Compensation and benefits 159 255
Other accrued items 422 490
Advance payments and unearned income 353 433
Income taxes payable 8 57
Current deferred income taxes 0 0
Deferred compensation plan liabilities 13 267
Current portion of long-term debt 385 130
Liabilities of discontinued operations 43 28
Total current liabilities 2,139 2,274
Non-current Liabilities    
Defined benefit plans 1,739 1,943
Long-term debt 4,443 5,053
Long-term contract liability 64 71
Non-current deferred income taxes 11 12
Other long-term liabilities 449 372
Total non-current liabilities 6,706 7,451
Shareholders' Equity:    
Preferred stock, without par value; 1,000,000 shares authorized; none issued 0 0
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 124,441,448 shares at January 1, 2016 and 123,675,756 shares at July 3, 2015 124 124
Other capital 2,066 2,031
Retained earnings 1,127 1,258
Accumulated other comprehensive loss (66) (16)
Total shareholders' equity 3,251 3,397
Noncontrolling interests 1 5
Total equity 3,252 3,402
Total liabilities and equity $ 12,097 $ 13,127
v3.3.1.900
Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - $ / shares
Jan. 01, 2016
Jul. 03, 2015
Shareholders' Equity:    
Preferred shares, par value $ 0 $ 0
Preferred shares, authorized 1,000,000 1,000,000
Preferred shares, issued 0 0
Common shares, par value $ 1.00 $ 1.00
Common shares, authorized 500,000,000 500,000,000
Common shares, issued 124,411,448 123,675,756
Common shares, outstanding 124,411,448 123,675,756
v3.3.1.900
Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($)
$ in Millions
6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Operating Activities    
Net income (loss) $ (4) $ 264
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 114 104
Amortization of intangible assets from Exelis Inc. acquisition 66  
Share-based compensation 19 17
Pension contributions (97)  
Pension income (12)  
Net liability reduction for certain post-employment benefit plans (101)  
Impairment of goodwill and other assets 367  
Non-current deferred income taxes 0 0
Loss on the sale of discontinued operations 21 0
(Increase) decrease in:    
Accounts receivable 220 (16)
Inventories (91) (31)
Increase (decrease) in:    
Accounts payable and accrued expenses (128) (120)
Advance payments and unearned income (59) (12)
Income taxes 31 8
Other 41 8
Net cash provided by operating activities 387 222
Investing Activities    
Additions of property, plant and equipment (51) (79)
Proceeds from sale of property, plant and equipment 2  
Proceeds from sale of Cyber Integration Center 0 7
Net cash used in investing activities (49) (72)
Financing Activities    
Proceeds from borrowings 209 33
Repayments of borrowings (395) (17)
Proceeds from exercises of employee stock options 33 28
Repurchases of common stock 0 (150)
Cash dividends (127) (99)
Other financing activities (15) (14)
Net cash used in financing activities (295) (219)
Effect of exchange rate changes on cash and cash equivalents (13) (22)
Net increase (decrease) in cash and cash equivalents 30 (91)
Cash and cash equivalents, beginning of year 481 561
Cash and cash equivalents, end of quarter $ 511 $ 470
v3.3.1.900
Significant Accounting Policies and Recent Accounting Standards
6 Months Ended
Jan. 01, 2016
Significant Accounting Policies and Recent Accounting Standards [Abstract]  
Significant Accounting Policies and Recent Accounting Standards

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 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 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 position, results of operations and cash flows in conformity with U.S. 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 position, results of operations and cash flows for the periods presented therein. The results for the second quarter and first two quarters of fiscal 2016 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at July 3, 2015 has been derived from our audited financial statements, but does not include all of the information and footnotes required by U.S. 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 July 3, 2015 (our “Fiscal 2015 Form 10-K”).

Use of Estimates 

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and these Notes. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying condensed consolidated financial statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known.

 

Reclassifications 

Certain prior year amounts have been reclassified in our Condensed Consolidated Financial Statements (Unaudited) to conform to current year classifications.

 

Adoption of New Accounting Standards

In the first quarter of fiscal 2016, we adopted an accounting standard issued by the Financial Accounting Standards Board (“FASB”) that eliminates the requirement for an acquirer in a business combination to retrospectively account for measurement-period adjustments. Instead, the new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This standard is to be applied prospectively. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

 

In the second quarter of fiscal 2016, we adopted an accounting standard issued by the FASB that simplifies the presentation of deferred income taxes by requiring entities to classify all deferred tax assets and liabilities as non-current in a classified statement of financial position instead of separating deferred tax assets and liabilities into current and non-current amounts. Consequently, entities may no longer allocate valuation allowances between current and non-current deferred tax assets because those allowances also will be classified as non-current. This standard was applied retrospectively, and as a result, we reclassified certain prior-period amounts in the accompanying Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications as follows:

  • In the accompanying Condensed Consolidated Balance Sheet (Unaudited), we reclassified $341 million of current deferred income tax assets from the “Current deferred income taxes” line item in the assets section and $7 million of current deferred income tax liabilities from the “Current deferred income taxes” line item in the liabilities and equity section, which resulted in an increase of $339 million to the “Non-current deferred income taxes” line item in the assets section and a net increase of $5 million to the “Non-current deferred income taxes” line item in the liabilities and equity section.
  • In the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited), we reclassified $7 million from the “Non-current deferred income taxes” line item to the Income taxes” line item in the operating activities section.

 

Other than those reclassifications, the adoption of this standard did not have any impact on our financial position, results of operations or cash flows.

 

Accounting Standards Issued But Not Yet Effective

In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under U.S. 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 will be 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 guidance in this standard is applicable to all contracts with customers, regardless of industry-specific or transaction-specific fact patterns. Additionally, this standard provides guidance for transactions that were not previously addressed comprehensively (e.g., service revenue, contract modifications and licenses of intellectual property) and modifies guidance for multiple-element arrangements. 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, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures. This standard allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to only the most current period presented in the financial statements, as well as certain additional required footnote disclosures). In August 2015, the FASB issued an accounting standards update that defers the effective date of this standard by one year, while permitting entities to elect to adopt one year earlier on the original effective date. As a result, this standard is now effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which for us is our fiscal 2019. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows.

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Discontinued Operations
6 Months Ended
Jan. 01, 2016
Discontinued Operations [Abstract]  
Discontinued Operations

Note B — Discontinued Operations

 

On February 4, 2013, we completed the sale of Broadcast Communications to an affiliate of The Gores Group, LLC (the “Buyer”) pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Broadcast Communications was recorded as discontinued operations in connection with the sale.

 

Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer's favor. As a result of such determination, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 of $21 million ($17 million after-tax or $0.14 per diluted share) and adjusted current liabilities of discontinued operations to $43 million. We did not restate our historical financial results of operations to account for Broadcast Communications as discontinued operations for the periods prior to the second quarter of fiscal 2016 presented in this Report because the amounts were not material. Unless otherwise specified, the information set forth in these Notes, other than this Note B — Discontinued Operations, relates solely to our continuing operations.

v3.3.1.900
Stock Options and Other Share-Based Compensation
6 Months Ended
Jan. 01, 2016
Stock Options and Other Share-Based Compensation [Abstract]  
Stock Options and Other Share-Based Compensation

Note C — Stock Options and Other Share-Based Compensation

 

During the two quarters ended January 1, 2016, 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. We have granted the following types of share-based awards under these SIPs: stock options, restricted stock awards, restricted stock unit awards, performance share awards, performance share unit awards and awards of immediately vested shares of our common stock. 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 SIPs). The compensation cost related to our share-based awards that was charged against income was $9 million and $19 million for the quarter and two quarters ended January 1, 2016, respectively. The compensation cost related to our share-based awards that was charged against income was $9 million and $17 million for the quarter and two quarters ended January 2, 2015, respectively.

 

Grants to employees under our SIPs during the second quarter ended January 1, 2016 consisted of 10,110 stock options, 33,600 restricted stock awards and 10,070 performance share unit awards. Grants to employees under our SIPs during the two quarters ended January 1, 2016 consisted of 1,658,000 stock options, 100,270 restricted stock awards and 292,665 performance share unit awards. The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model, which used the following assumptions: expected dividend yield of 2.50 percent; expected volatility of 23.01 percent; risk-free interest rates averaging 1.52 percent; and expected term in years of 5.05. The fair value as of the grant date of each restricted stock 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 share unit award was determined based on a fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to other 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.

v3.3.1.900
Accumulated Other Comprehensive Loss
6 Months Ended
Jan. 01, 2016
Accumulated Other Comprehensive Loss [Abstract]  
Accumulated Other Comprehensive Loss

Note D Accumulated Other Comprehensive Loss

 

The components of accumulated other comprehensive loss are summarized below:

  January 1, July 3,
  2016 (1) 2015 (1)
       
  (In millions)
Foreign currency translation, net of income taxes of $27 million and $15 million     
 at January 1, 2016 and July 3, 2015, respectively$ (109) $ (62)
Net unrealized loss on hedging derivatives, net of income taxes of $12 million     
 at January 1, 2016 and July 3, 2015  (18)   (19)
Unrecognized postretirement obligations, net of income taxes of $40 million and $42 million     
 at January 1, 2016 and July 3, 2015, respectively  61   65
  $ (66) $ (16)
________________     

(1) Reclassifications out of accumulated other comprehensive loss to earnings were not material for the two quarters ended January 1, 2016 or January 2, 2015.

v3.3.1.900
Receivables
6 Months Ended
Jan. 01, 2016
Receivables [Abstract]  
Receivables

Note E Receivables

 

Receivables are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Accounts receivable$ 666 $ 837
Unbilled costs and accrued earnings on cost-plus contracts  277   343
   943   1,180
Less allowances for collection losses  (8)   (12)
 $ 935 $ 1,168
v3.3.1.900
Inventories
6 Months Ended
Jan. 01, 2016
Inventories [Abstract]  
Inventories

Note F Inventories

 

Inventories are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Unbilled costs and accrued earnings on fixed-price contracts$ 543 $ 463
Finished products  100   100
Work in process  228   256
Raw materials and supplies  199   196
 $ 1,070 $ 1,015

Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of $70 million at January 1, 2016 and $85 million at July 3, 2015.

v3.3.1.900
Property, Plant and Equipment
6 Months Ended
Jan. 01, 2016
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment

Note G Property, Plant and Equipment

 

Property, plant and equipment are summarized below:

 

 January 1, July 3,
 2016 2015
      
 (In millions)
Land$ 45 $ 45
Software capitalized for internal use  147   155
Buildings  640   587
Machinery and equipment  1,467   1,526
   2,299   2,313
Less accumulated depreciation and amortization  (1,197)   (1,148)
 $ 1,102 $ 1,165

Depreciation and amortization expense related to property, plant and equipment was $49 million and $99 million for quarter and two quarters ended January 1, 2016, respectively. Depreciation and amortization expense related to property, plant and equipment was $38 million and $73 million for the quarter and two quarters ended January 2, 2015, respectively.

v3.3.1.900
Goodwill
6 Months Ended
Jan. 01, 2016
Goodwill [Abstract]  
Goodwill

Note H Goodwill

 

As discussed in Note R — Business Segments, we adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016, which resulted in changes to our operating segments, which are also our reportable segments and are referred to as our business segments. In accordance with GAAP, we have reassigned goodwill using a relative fair value approach. Because our accounting for our acquisition of Exelis Inc. and its subsidiaries (collectively, “Exelis”) in the fourth quarter of fiscal 2015 is still preliminary, we assigned the goodwill acquired as a result of the acquisition on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed.

 

In addition, we test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be an impairment. See Note N — Impairment of Goodwill and Other Assets in these Notes for information regarding a preliminary estimate for a non-cash charge for impairment of goodwill and other assets related to Harris CapRock Communications recorded in the second quarter of fiscal 2016 in our Critical Networks segment.

 

The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the two quarters ended January 1, 2016, by business segment, were as follows:

        Space and           
   Communication Intelligence Electronic Critical    
   Systems Systems Systems  Networks Total
     (In millions)
Balance at July 3, 2015 $ 760   $ 1,446   $ 1,718   $ 2,424   $ 6,348
 Impairment of goodwill               (290)     (290)
 Currency translation adjustments        (9)     (8)     (25)     (42)
 Other (including true-ups of previously estimated                       
  purchase price allocations) (1) 12     (9)     12     (42)     (27)
Balance at January 1, 2016 $ 772   $ 1,428   $ 1,722   $ 2,067   $ 5,989
________________                       

(1)       Our accounting for the Exelis acquisition is still preliminary. The fair value estimates for the assets acquired and liabilities assumed were based on preliminary calculations, and our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of these preliminary estimates that are not yet finalized relate to certain tangible assets and liabilities acquired, identifiable intangible assets and tax-related items. During the two quarters ended January 1, 2016, we recorded several purchase price adjustments which impacted goodwill, the largest of which reduced current liabilities by $82 million related to previously unrecognized tax benefits and to deferred revenue based on the fair value of a customer contract.

v3.3.1.900
Accrued Warranties
6 Months Ended
Jan. 01, 2016
Accrued Warranties [Abstract]  
Accrued Warranties

Note I — Accrued Warranties

 

Changes in our liability for standard product warranties, which is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited), during the two quarters ended January 1, 2016 were as follows:

  (In millions)
Balance at July 3, 2015$ 36
Warranty provision for sales  9
Settlements  (9)
Other adjustments to warranty liability, including those for foreign currency translation  (2)
Balance at January 1, 2016$ 34

We also sell extended product warranties and recognize revenue from these arrangements over the warranty period. Costs of warranty services under these arrangements are recognized as incurred. Deferred revenue associated with extended product warranties at January 1, 2016 and July 3, 2015 was $36 million and is included as a component of the “Advance payments and unearned income” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited).

v3.3.1.900
Long-Term Debt
6 Months Ended
Jan. 01, 2016
Long-Term Debt [Abstract]  
Long-term Debt [Text Block]

Note J Long-Term Debt

 

As disclosed in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K, in connection with our acquisition of Exelis, Harris Corporation fully and unconditionally guaranteed all of the long-term fixed-rate debt securities issued by Exelis Inc. outstanding at the time of the acquisition, consisting of $250 million in aggregate principal amount of 4.25% senior notes due October 1, 2016 and $400 million in aggregate principal amount of 5.55% senior notes due October 1, 2021 (together, the “Exelis Notes”), as indicated in the table in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. In addition, Exelis Inc. fully and unconditionally guaranteed all of the long-term fixed-rate debt securities issued by Harris Corporation outstanding at the time of the acquisition, consisting of the nine other series of fixed-rate debt securities listed in the “2015” column in the table in Note 13: “Long-Term Debt” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K, in an aggregate principal amount of $3.226 billion. On December 31, 2015, Exelis Inc. merged with and into Harris Corporation, with Harris Corporation being the surviving corporation in the merger, the separate existence of Exelis Inc. ceased, Harris Corporation assumed the obligations of Exelis under the Exelis Notes, and the cross guarantees of our outstanding long-term fixed-rate debt securities as described above terminated.

 

v3.3.1.900
Postretirement Benefit Plans
6 Months Ended
Jan. 01, 2016
Compensation and Retirement Disclosure [Abstract]  
Pension and Other Postretirement Benefits

Note K Postretirement Benefit Plans

The following table provides the components of our net periodic benefit cost for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:

  Quarter Ended January 1, 2016 Two Quarters Ended January 1, 2016
     Other        Other   
  Pension Benefits Total  Pension  Benefits  Total
                   
  (In millions)
Net periodic benefit cost                 
 Service cost$ 20 $ 2 $ 22 $ 38 $ 3 $ 41
 Interest cost  61   3   64   123   7   130
 Expected return on plan assets  (85)   (4)   (89)   (171)   (9)   (180)
 Amortization of net actuarial loss          2   2
 Amortization of prior service cost    (4)   (4)     (7)   (7)
Net periodic benefit cost$ (4) $ (3) $ (7)   (10)   (4)   (14)
Effect of curtailments or settlements (1)    (121)   (121)     (121)   (121)
Total net periodic benefit cost$ (4) $ (124) $ (128) $ (10) $ (125) $ (135)
_____________                 

  • We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment and curtailment during the quarter ended January 1, 2016, a settlement as of December 31, 2015, and a net liability reduction of $101 million.

We contributed $97 million to our qualified defined benefit pension plans during the two quarters ended January 1, 2016. We currently anticipate making additional contributions to our qualified defined benefit pension plans of approximately $76 million during the remainder of fiscal 2016.

v3.3.1.900
Net Income (Loss) From Continuing Operations Per Common Share
6 Months Ended
Jan. 01, 2016
Net Income (Loss) From Continuing Operations Per Common Share [Abstract]  
Net income per common share

Note LIncome (Loss) From Continuing Operations Per Common Share

 

The computations of income (loss) from continuing operations per common share are as follows:

  Quarter Ended  Two Quarters Ended
  January 1, January 2, January 1, January 2,
  2016 2015 2016 2015
             
  (In millions, except per share amounts)
Income (loss) from continuing operations$ (135) $ 139 $ 13 $ 264
Adjustments for participating securities outstanding        (1)
Income (loss) from continuing operations used in per basic           
 and diluted common share calculations (A)$ (135) $ 139 $ 13 $ 263
             
Basic weighted average common shares outstanding (B)   123.8   103.9   123.6   104.3
Impact of dilutive share-based awards    1.0   1.1   1.0
Diluted weighted average common shares outstanding (C)   123.8   104.9   124.7   105.3
             
Income (loss) from continuing operations per basic common share (A)/(B)$ (1.09) $ 1.34 $ 0.10 $ 2.52
Income (loss) from continuing operations per diluted common share (A)/(C)$ (1.09) $ 1.32 $ 0.10 $ 2.50

For purposes of the computations of loss from continuing operations per common share in the quarter ended January 1, 2016, due to the loss, the numerator was not adjusted to consider the effect of participating securities outstanding, and also basic weighted average common shares outstanding was used in the computation of the loss from continuing operations per diluted common share because the use of diluted weighted average common shares outstanding would have been antidilutive.

 

Potential dilutive common shares primarily consist of employee stock options and performance share unit awards. Employee stock options to purchase approximately 1,482,261 and 678,650 shares of our common stock were outstanding at January 1, 2016 and January 2, 2015, respectively, but were not included as dilutive stock options in the computations of income (loss) from continuing operations per diluted common share because the effect would have been antidilutive.

v3.3.1.900
Income Taxes
6 Months Ended
Jan. 01, 2016
Income Taxes [Abstract]  
Income Taxes

Note M — Income Taxes

 

In the second quarter of fiscal 2016, we recorded income tax expense of $46 million coupled with an $89 million loss from continuing operations before income taxes, compared with our effective tax rate (income taxes as a percentage of income (loss) from continuing operations before income taxes) of 26.5 percent in the second quarter of fiscal 2015. In the second quarter of fiscal 2016, our effective tax rate was negatively impacted by the non-deductibility for tax purposes of portions of the impairment charge described in Note N Impairment of Goodwill and Other Assets in these Notes. This negative impact was partially offset by the effect of legislation enacted in the second quarter of fiscal 2016 that restored the U.S. Federal income tax credit for qualifying research and development (“R&D”) expenses for calendar year 2015 and made the credit permanent for the periods following December 31, 2015. This resulted in a benefit of approximately $12 million in calculating our effective tax rate in the second quarter of fiscal 2016. Approximately 40 percent of this benefit related to R&D expenses in the second half of fiscal 2015 and the remainder related to R&D expenses in fiscal 2016. Additionally, in the second quarter of fiscal 2016, our effective tax rate benefited from the settlement of a state tax issue for an amount lower than the previously recorded estimate and several differences between GAAP and tax accounting for investments. In the second quarter of fiscal 2015, legislation was enacted that restored the U.S. Federal income tax credit for qualifying R&D expenses for calendar year 2014. This resulted in a benefit of approximately $7 million (approximately 3.7 percent of income from continuing operations before income taxes) in calculating our effective tax rate in the second quarter of fiscal 2015. Approximately half of this benefit related to R&D expenses in the second half of fiscal 2014 and the remainder related to R&D expenses in the first half of fiscal 2015. Additionally, in the second quarter of fiscal 2015, our effective tax rate benefited by approximately $8 million (approximately 4.2 percent of income from continuing operations before income taxes) due to finalizing issues with Canadian and U.S. tax authorities for amounts lower than previously recorded estimates.

 

Our effective tax rate was 89.8 percent in the first two quarters of fiscal 2016 compared with 27.7 percent in the first two quarters of fiscal 2015. In the first two quarters of fiscal 2016, our effective tax rate was impacted as described above by the discrete items noted above regarding the second quarter of fiscal 2016 and by a benefit recorded in the first quarter of fiscal 2016 from the settlement of several items for amounts lower than previously recorded estimates. In the first two quarters of fiscal 2015, our effective tax rate benefited from the discrete items noted above regarding the second quarter of fiscal 2015, as well as from the recognition, in the first quarter of fiscal 2015, of foreign tax credits resulting from a dividend paid by a foreign subsidiary during fiscal 2013 that exceeded the U.S. tax liability in respect of the dividend. These discrete items resulted in an aggregate benefit of approximately $23 million (approximately 6 percent of income from continuing operations before income taxes) in calculating our effective tax rate in the first two quarters of fiscal 2015.

v3.3.1.900
Impairment of Goodwill and Other Assets
6 Months Ended
Jan. 01, 2016
Impairment Of Goodwill And Other Assets [Abstract]  
Impairment Of Goodwill And Other Long-Lived Assets

Note N — Impairment of Goodwill and Other Assets

 

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Indications of potential impairment of goodwill related to Harris CapRock Communications (which is part of our Critical Networks segment) were present at the end of the quarter ended January 1, 2016 due to the downturn in the energy market and its impact on customer operations, which also resulted in a decrease in the fiscal 2016 outlook for Harris CapRock Communications. Consequently, in connection with the preparation and review of our financial statements for the quarter ended January 1, 2016, we performed an interim review of Harris CapRock Communications' goodwill for impairment as of the end of the quarter ended January 1, 2016.

To test for potential impairment of goodwill related to Harris CapRock Communications, we prepared a preliminary estimate of the fair value of the reporting unit based on projected discounted cash flows. The current carrying value of the Harris CapRock Communications reporting unit exceeded its estimated fair value, and accordingly, we preliminarily allocated the estimated fair value to the assets and liabilities of the Harris CapRock Communications reporting unit to estimate the implied fair value of goodwill.

In conjunction with the above-described impairment review, we also conducted a review for impairment of other assets related to Harris CapRock Communications, including amortizable intangible assets and fixed assets, and impairment of these assets was considered prior to the conclusion of the goodwill impairment review. The estimated fair value of these other assets related to Harris CapRock Communications was determined based, in part, on an analysis of projected cash flows.

As a result of these impairment reviews, we concluded that goodwill and other assets related to Harris CapRock Communications were impaired as of the end of the quarter ended January 1, 2016, and we recorded an estimated non-cash impairment charge of $367 million ($328 million after-tax), of which $290 million related to goodwill. Due to the length of time necessary to measure the impairment of goodwill and other assets, our impairment analysis is not complete and is subject to change. We expect to complete our analysis prior to reporting our financial results for the third quarter of fiscal 2016 and will record any adjustments to our preliminary estimate at that time. Most of the $367 million estimated impairment charge is not deductible for tax purposes. The tax effect of that non-deductibility was treated as a discrete item in the quarter ended January 1, 2016 for purposes of calculating our effective tax rate. We do not expect to make any current or future cash expenditures as a result of the impairment. The estimated impairment will not cause us to be in noncompliance with the covenants under our credit arrangements, and we do not expect the impairment to impact our ongoing financial performance, although no assurances can be given.

v3.3.1.900
Fair Value Measurements
6 Months Ended
Jan. 01, 2016
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note O Fair Value Measurements

 

Fair value is defined 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. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value, and to utilize 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 using the best information available in the circumstances.

 

The following table presents the fair value hierarchy of our assets and liabilities measured at fair value on a recurring basis (at least annually) as of January 1, 2016:

   Level 1  Level 2  Level 3  Total
              
   (In millions)
Assets           
 Deferred compensation plan investments: (1)            
  Corporate-owned life insurance$ $ 17 $ $ 17
  Stock fund  55       55
  Equity security  40       40
Liabilities           
 Deferred compensation plans (2)  48   82     130
____________           

(1)       Represents investments held in a “Rabbi Trust associated with our non-qualified deferred compensation plans, which we include in the “Deferred compensation plan investments” and “Other non-current assets” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited).

(2)       Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Deferred compensation plan liabilities” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited). Under these plans, participants designate investment options (including money market, stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.

We had certain assets measured and recorded at fair value on a nonrecurring basis using level 3 inputs during the quarter and two quarters ended January 1, 2016. Goodwill and other assets held and used related to Harris CapRock Communications with a carrying amount of $714 million were written down to their preliminary estimate of fair value of $347 million, resulting in a preliminary estimate of $367 million for a non-cash impairment charge, which was included in income (loss) from continuing operations for the quarter and two quarters ended January 1, 2016. See Note N — Impairment of Goodwill and Other Assets in these Notes for additional information.

The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):

  January 1, 2016 July 3, 2015
  Carrying Fair Carrying Fair
  Amount  Value  Amount  Value
             
  (In millions)
Financial Liabilities           
 Long-term debt (including current portion) (1) $ 4,828 $ 4,902 $ 5,183 $ 5,230
____________           

(1)       The fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If our long-term debt in our balance sheet were measured at fair value, it would be categorized in Level 2 of the fair value hierarchy.

v3.3.1.900
Derivative Instruments and Hedging Activities
6 Months Ended
Jan. 01, 2016
Derivative Instruments and Hedging Activities [Abstract]  
Derivative Instruments and Hedging Activities

Note P Derivative Instruments and Hedging Activities

 

In the normal course of doing business, we are exposed to global market risks, including the effect of changes in foreign currency exchange rates. We use derivative instruments to manage our exposure to such risks and formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions. We recognize all derivatives in the accompanying Condensed Consolidated Balance Sheet (Unaudited) at fair value. We do not hold or issue derivatives for speculative trading purposes.

 

At January 1, 2016, we had open foreign currency forward contracts with an aggregate notional amount of $79 million, of which $73 million were classified as fair value hedges and $6 million were classified as cash flow hedges. This compares with open foreign currency forward contracts with an aggregate notional amount of $74 million at July 3, 2015, of which $73 million were classified as fair value hedges and $1 million were classified as cash flow hedges. At January 1, 2016, contract expiration dates ranged from less than 1 month to 5 months with a weighted average contract life of 1 month.

 

Exchange-Rate Risk Balance Sheet Hedges

To manage the exposure in our balance sheet to risks from changes in foreign currency exchange rates, we implement fair value hedges. More specifically, we use foreign currency forward contracts and options to hedge certain balance sheet items, including foreign currency denominated accounts receivable and inventory. Changes in the value of the derivatives and the related hedged items are reflected in earnings in the “Cost of product sales and services” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). As of January 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound, Australian Dollar, Singapore Dollar, Brazilian Real, Norwegian Krone, Canadian Dollar and Mexican Peso to hedge certain balance sheet items. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in the quarter and two quarters ended January 1, 2016 or in the quarter and two quarters ended January 2, 2015. In addition, no amounts were recognized in earnings in the quarter and two quarters ended January 1, 2016 or in the quarter and two quarters ended January 2, 2015 related to hedged firm commitments that no longer qualify as fair value hedges.

 

Exchange-Rate Risk Cash Flow Hedges

To manage our exposure to currency risk and market fluctuation risk associated with anticipated cash flows that are probable of occurring in the future, we implement cash flow hedges. More specifically, we use foreign currency forward contracts and options to hedge off-balance sheet future foreign currency commitments, including purchase commitments to suppliers, future committed sales to customers and intersegment transactions. These derivatives are being used to hedge currency exposures from cash flows anticipated across our business segments. We also have hedged U.S. Dollar payments to suppliers to maintain our anticipated profit margins in our international operations. As of January 1, 2016, we had outstanding foreign currency forward contracts denominated in the British Pound and Euro to hedge certain forecasted transactions.

 

These derivatives have only nominal intrinsic value at the time of purchase and have a high degree of correlation to the anticipated cash flows they are designated to hedge. Hedge effectiveness is determined by the correlation of the anticipated cash flows from the hedging instruments and the anticipated cash flows from the future foreign currency commitments through the maturity dates of the derivatives used to hedge these cash flows. These financial instruments are marked-to-market using forward prices and fair value quotes with the offset to accumulated other comprehensive loss, net of hedge ineffectiveness. Gains and losses from other comprehensive loss are reclassified to earnings when the related hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The cash flow impact of our derivatives is included in the same category in the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited) as the cash flows of the related hedged items.

 

The net gains or losses from cash flow hedges recognized in earnings or recorded in other comprehensive loss, including gains or losses related to hedge ineffectiveness, were not material in the quarter and two quarters ended January 1, 2016 or in the quarter and two quarters ended January 2, 2015. We do not expect the net gains or losses recognized in the “Accumulated other comprehensive loss” line item in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of January 1, 2016 that will be reclassified to earnings from other comprehensive income (loss) within the next 12 months to be material.

 

Credit Risk

We are exposed to the risk of credit losses from non-performance by counterparties to the financial instruments discussed above, but we do not expect any of the counterparties to fail to meet their obligations. To manage credit risks, we select counterparties based on credit ratings, limit our exposure to any single counterparty under defined guidelines and monitor the market position with each counterparty.

 

The amount of assets and liabilities related to foreign currency forward contracts in the accompanying Condensed Consolidated Balance Sheet (Unaudited) as of January 1, 2016 was immaterial.

v3.3.1.900
Changes in Estimates
6 Months Ended
Jan. 01, 2016
Changes in Estimates [Abstract]  
Changes in Estimates

Note Q — Changes in Estimates 

 

Estimates and assumptions, and changes therein, are important in connection with, among others, our segments' revenue recognition policies related to development and production contracts. Revenue and profits related to development and production contracts are recognized using the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total costs at completion (i.e., the cost-to-cost method) or the ratio of actual units delivered to estimated total units to be delivered under the contract (i.e., the “units-of-delivery” method) with consideration given for risk of performance and estimated profit. Revenue and profits on cost-reimbursable development and production contracts are recognized as allowable costs are incurred on the contract, and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs.

 

Development and production contracts are combined when specific aggregation criteria are met. Criteria generally include closely interrelated activities performed for a single customer within the same economic environment. Development and production contracts are generally not segmented. If development and production contracts are segmented, we have determined that they meet specific segmenting criteria. Change orders, claims or other items that may change the scope of a development and production contract are included in contract value only when the value can be reliably estimated and realization is probable. Possible incentives or penalties and award fees applicable to performance on development and production contracts are considered in estimating contract value and profit rates and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions that increase earnings based solely on a single significant event are generally not recognized until the event occurs.

 

Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each development and production contract over its period of performance. Recognition of profit on development and production fixed-price contracts requires estimates of the total cost at completion and the measurement of progress toward completion. The estimated profit or loss on a development and production contract is equal to the difference between the estimated contract value and the estimated total cost at completion. Due to the long-term nature of many of our programs, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance, the risk and impact of delayed performance, availability and timing of funding from the customer and the recoverability of any claims outside the original development and production contract included in the estimate to complete. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which management reviews the progress and performance on our ongoing development and production contracts at least quarterly and, in many cases, more frequently. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, at the outset of a cost-reimbursable contract (for example, contracts containing award or incentive fees), we establish an estimated total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimated total contract value may increase or decrease if, for example, we receive higher or lower than expected award fees. When adjustments in estimated total costs at completion or in estimated total contract value are determined, the related impact to operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Anticipated losses on development and production contracts or programs in progress are charged to operating income when identified. Net EAC adjustments resulting from changes in estimates favorably impacted our operating income by $24 million ($0.12 per diluted share) and $41 million ($0.20 per diluted share) in the quarter and two quarters ended January 1, 2016, respectively, and by $16 million ($0.11 per diluted share) and $38 million ($0.26 per diluted share) in the quarter and two quarters ended January 2, 2015, respectively.

v3.3.1.900
Business Segments
6 Months Ended
Jan. 01, 2016
Business Segments [Abstract]  
Business Segments

Note R Business Segments

 

We adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016. We structure our operations primarily around the products and services we sell and the markets we serve, and commencing with the first quarter of fiscal 2016, we report the financial results of our operations in the following four operating segments, which are also our reportable segments and are referred to as our business segments:

 

  • Communication Systems, serving markets in tactical and airborne radios, night vision technology, and defense and public safety networks;
  • Space and Intelligence Systems, providing complete earth observation, environmental, geospatial, space protection, and intelligence solutions from advanced sensors and payloads, as well as ground processing and information analytics;
  • Electronic Systems, offering an extensive portfolio of solutions in electronic warfare, avionics, wireless technology, command, control, communications, computers and intelligence (“C4I), undersea systems and aerostructures; and
  • Critical Networks, providing managed services supporting air traffic management, energy and maritime communications, and ground network operation and sustainment, as well as high-value information technology (“IT”) and engineering services.

 

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 adjustments 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 these adjustments.

 

The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. We evaluate each segment's performance based on its operating income or loss, which we define as profit or loss from operations before income taxes excluding interest income and expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment recognizes a profit that is eliminated. The “Corporate eliminations” line items in the tables below represent the elimination of intersegment sales and their related profits. The “Unallocated corporate expense” line item in the tables below represents the portion of corporate expenses not allocated to our business segments.

 

Total assets by business segment are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Total Assets     
Communication Systems$ 1,722 $ 1,906
Space and Intelligence Systems  2,078   2,096
Electronic Systems  2,511   2,513
Critical Networks  2,999   3,492
Corporate (1)  2,787   3,120
 $ 12,097 $ 13,127
_____________     

(1)       Because the acquisition of Exelis in the fourth quarter of fiscal 2015 benefited the entire Company as opposed to any individual segments, the approximately $1.6 billion of identifiable intangible assets acquired in the Exelis acquisition was recorded as Corporate assets.

Segment revenue, segment operating income (loss) and a reconciliation of segment operating income (loss) to total income (loss) from continuing operations before income taxes follow:

  Quarter Ended  Two Quarters Ended
  January 1, January 2, January 1, January 2,
  2016 2015 2016 2015
             
  (In millions)
Revenue           
Communication Systems$ 489 $ 435 $ 943 $ 824
Space and Intelligence Systems  446   221   881   474
Electronic Systems  382   128   756   237
Critical Networks  541   423   1,107   830
Corporate eliminations  (15)   (1)   (33)   (4)
  $ 1,843 $ 1,206 $ 3,654 $ 2,361
Income (Loss) From Continuing Operations Before Income Taxes           
Segment Operating Income (Loss):           
 Communication Systems (1) 121 $ 126 $ 259 $ 242
 Space and Intelligence Systems 67   34   135   71
 Electronic Systems 63   24   132   46
 Critical Networks (2)  (308)   50   (245)   92
Unallocated corporate income (expense) (3)  14   (21)   (61)   (38)
Corporate eliminations  (1)   (3)   (2)   (5)
Non-operating income      1  
Net interest expense  (45)   (21)   (92)   (43)
  $ (89) $ 189 $ 127 $ 365
____________           

(1)       Communication Systems operating income included $17 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions, facility consolidation and other items. We recorded $14 million of these charges in the “Cost of product sales and services” line item and the remaining $3 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).

 

(2)       Critical Networks operating loss in the quarter and two quarters ended January 1, 2016 included a preliminary estimate of $367 million for a non-cash impairment charge to write down goodwill and other assets related to Harris CapRock Communications. We recorded this charge in the “Impairment of goodwill and other assets” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). Additionally, operating loss included $12 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions and facility consolidation. We recorded these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).

 

(3)       Unallocated corporate income (expense) included: (i) the impact of a net liability reduction of $101 million in the quarter and two quarters ended January 1, 2016 for certain post-employment benefit plans, (ii) charges of $46 million and $69 million in the quarter and two quarters ended January 1, 2016, respectively, for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, and (iii) $33 million and $66 million of expense in the quarter and two quarters ended January 1, 2016, respectively, for amortization of intangible assets acquired as a result of our acquisition of Exelis. Because the acquisition of Exelis benefited the entire Company as opposed to any individual segments, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense.

v3.3.1.900
Legal Proceedings And Contingencies
6 Months Ended
Jan. 01, 2016
Legal Proceedings And Contingencies [Abstract]  
Legal Matters and Contingencies [Text Block]

Note S Legal Proceedings and Contingencies

From time to time, as a normal incident of the nature and kind of businesses in which we are, and were, engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. At January 1, 2016, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us is not material. Although it is not feasible to predict the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be disposed of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in litigation or arbitration in existence at January 1, 2016 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

 

Legal Proceedings

On February 4, 2013, we completed the sale of Broadcast Communications to the Buyer pursuant to a definitive Asset Sale Agreement entered into December 5, 2012 for $225 million, including $160 million in cash, subject to customary adjustments (including a post-closing working capital adjustment), a $15 million subordinated promissory note (which was collected in fiscal 2014) and an earnout of up to $50 million based on future performance. Based on a dispute between us and the Buyer over the amount of the post-closing working capital adjustment, we and the Buyer previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29, 2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in the Buyer's favor. As further discussed in Note B Discontinued Operations in these Notes, as a result of such determination we recorded a loss in discontinued operations of $21 million ($17 million after-tax) in the second quarter of fiscal 2016.

 

International

As an international company, we are, from time to time, the subject of investigations relating to our international operations, including under U.S. export control laws and the Foreign Corrupt Practices Act (“FCPA”) and other similar U.S. and international laws. On April 4, 2011, we completed the acquisition of Carefx Corporation (“Carefx”) and thereby also acquired its subsidiaries, including in China (“Carefx China”). Following the closing, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, we initiated an internal investigation and learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers, potential customers, consultants, and government regulators, after which we took certain remedial actions. The results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and voluntarily to the U.S. Department of Justice (“DOJ”) and the SEC. The SEC and DOJ initiated investigations with respect to this matter. During the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter. The DOJ further advised us that its decision was based on its overall view of the evidence as to our level of acquisition due diligence and integration efforts, our voluntary disclosure to the DOJ and SEC, our remediation efforts and our cooperation throughout the investigation, which is continuing. At this time we also are continuing to cooperate with the SEC regarding its investigation. We cannot predict at this time the duration or scope of, developments in, results of, or any regulatory action or other potential consequences from, such investigation or otherwise in connection with this matter. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.

 

Environmental Matters

We are subject to numerous U.S. Federal, state, local and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of multiple sites, including as a result of our acquisition of Exelis. These sites are in various stages of investigation and/or remediation and in some of these proceedings our liability is considered de minimis. We have received notices from the U.S. Environmental Protection Agency (the “EPA”) or equivalent state or international environmental agencies that a number of sites formerly or currently owned and/or operated by us or companies we have acquired, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent state and international laws. For example, Exelis received notice in June 2014 from the Department of Justice, Environment and Natural Resources Division, that it may be potentially responsible for contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, the EPA issued on April 11, 2014 a proposed plan for remedial alternatives to address the cleanup of the lower eight mile stretch of the Passaic River. The EPA estimates the cost for the alternatives will range from $0.4 billion to $3.2 billion. The EPA's preferred alternative would involve dredging the river bank to bank and installing an engineered cap at an estimated cost of $1.7 billion. The EPA is currently evaluating input from a public comment period that ended in August 2014 before it makes its final record of decision, which is expected in our fiscal 2016. Therefore, the ultimate remedial approach and associated costs and the parties who will participate in funding the remediation and their respective allocations have not been determined. We have found no evidence that Exelis contributed any of the primary contaminants of concern to the Passaic River. We intend to vigorously defend ourselves in this matter and we believe our ultimate costs will not be material. Although it is not feasible to predict the outcome of these environmental claims, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims in existence at January 1, 2016 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.

v3.3.1.900
Subsequent Events
6 Months Ended
Jan. 01, 2016
Subsequent Event [Abstract]  
Subsequent Events

Note TSubsequent Events

As further discussed in Note B — Discontinued Operations in these Notes, we recorded a loss in discontinued operations in the second quarter of fiscal 2016 of $21 million ($17 million after-tax) based on a final determination rendered on January 29, 2016 in a dispute over the amount of the post-closing working capital adjustment to the purchase price for Broadcast Communications, which we sold on February 4, 2013.

 

Following the end of the second quarter of fiscal 2016, we announced that we are in the process of divesting our aerostructures business, which has less than $150 million of net assets, excluding goodwill, and is not strategic to our business. We currently expect to reach a definitive agreement for a divestiture in fiscal 2016. The aerostructures business, which was part of Exelis, manufactures advanced, lightweight composite aerospace assembly structures, subassemblies and components for defense and commercial industries.

v3.3.1.900
Significant Accounting Policies and Recent Accounting Standards (Policies)
6 Months Ended
Jan. 01, 2016
Significant Accounting Policies and Recent Accounting Standards (Policies) [Abstract]  
Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements 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 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 position, results of operations and cash flows in conformity with U.S. 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 position, results of operations and cash flows for the periods presented therein. The results for the second quarter and first two quarters of fiscal 2016 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at July 3, 2015 has been derived from our audited financial statements, but does not include all of the information and footnotes required by U.S. 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 July 3, 2015 (our “Fiscal 2015 Form 10-K”).

Use of Estimates

Use of Estimates 

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and these Notes. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying condensed consolidated financial statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known.

Adoption of New Accounting Standards

Adoption of New Accounting Standards

In the first quarter of fiscal 2016, we adopted an accounting standard issued by the Financial Accounting Standards Board (“FASB”) that eliminates the requirement for an acquirer in a business combination to retrospectively account for measurement-period adjustments. Instead, the new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This standard is to be applied prospectively. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

 

In the second quarter of fiscal 2016, we adopted an accounting standard issued by the FASB that simplifies the presentation of deferred income taxes by requiring entities to classify all deferred tax assets and liabilities as non-current in a classified statement of financial position instead of separating deferred tax assets and liabilities into current and non-current amounts. Consequently, entities may no longer allocate valuation allowances between current and non-current deferred tax assets because those allowances also will be classified as non-current. This standard was applied retrospectively, and as a result, we reclassified certain prior-period amounts in the accompanying Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications as follows:

  • In the accompanying Condensed Consolidated Balance Sheet (Unaudited), we reclassified $341 million of current deferred income tax assets from the “Current deferred income taxes” line item in the assets section and $7 million of current deferred income tax liabilities from the “Current deferred income taxes” line item in the liabilities and equity section, which resulted in an increase of $339 million to the “Non-current deferred income taxes” line item in the assets section and a net increase of $5 million to the “Non-current deferred income taxes” line item in the liabilities and equity section.
  • In the accompanying Condensed Consolidated Statement of Cash Flows (Unaudited), we reclassified $7 million from the “Non-current deferred income taxes” line item to the Income taxes” line item in the operating activities section.

 

Other than those reclassifications, the adoption of this standard did not have any impact on our financial position, results of operations or cash flows.

Accounting Standards Issued But Not Yet Effective

Accounting Standards Issued But Not Yet Effective

In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under U.S. 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 will be 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 guidance in this standard is applicable to all contracts with customers, regardless of industry-specific or transaction-specific fact patterns. Additionally, this standard provides guidance for transactions that were not previously addressed comprehensively (e.g., service revenue, contract modifications and licenses of intellectual property) and modifies guidance for multiple-element arrangements. 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, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures. This standard allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to only the most current period presented in the financial statements, as well as certain additional required footnote disclosures). In August 2015, the FASB issued an accounting standards update that defers the effective date of this standard by one year, while permitting entities to elect to adopt one year earlier on the original effective date. As a result, this standard is now effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which for us is our fiscal 2019. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows.

Stock Options and Other Share-Based Compensation

The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model, which used the following assumptions: expected dividend yield of 2.50 percent; expected volatility of 23.01 percent; risk-free interest rates averaging 1.52 percent; and expected term in years of 5.05. The fair value as of the grant date of each restricted stock 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 share unit award was determined based on a fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to other 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.

Extended Product Warranty

We also sell extended product warranties and recognize revenue from these arrangements over the warranty period. Costs of warranty services under these arrangements are recognized as incurred.

Fair Value Measurements, Recurring Basis

Fair value is defined 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. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value, and to utilize 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 using the best information available in the circumstances.

Revenue Recognition

Estimates and assumptions, and changes therein, are important in connection with, among others, our segments' revenue recognition policies related to development and production contracts. Revenue and profits related to development and production contracts are recognized using the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total costs at completion (i.e., the cost-to-cost method) or the ratio of actual units delivered to estimated total units to be delivered under the contract (i.e., the “units-of-delivery” method) with consideration given for risk of performance and estimated profit. Revenue and profits on cost-reimbursable development and production contracts are recognized as allowable costs are incurred on the contract, and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs.

 

Development and production contracts are combined when specific aggregation criteria are met. Criteria generally include closely interrelated activities performed for a single customer within the same economic environment. Development and production contracts are generally not segmented. If development and production contracts are segmented, we have determined that they meet specific segmenting criteria. Change orders, claims or other items that may change the scope of a development and production contract are included in contract value only when the value can be reliably estimated and realization is probable. Possible incentives or penalties and award fees applicable to performance on development and production contracts are considered in estimating contract value and profit rates and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions that increase earnings based solely on a single significant event are generally not recognized until the event occurs.

 

Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each development and production contract over its period of performance. Recognition of profit on development and production fixed-price contracts requires estimates of the total cost at completion and the measurement of progress toward completion. The estimated profit or loss on a development and production contract is equal to the difference between the estimated contract value and the estimated total cost at completion. Due to the long-term nature of many of our programs, developing the estimated total cost at completion often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance, the risk and impact of delayed performance, availability and timing of funding from the customer and the recoverability of any claims outside the original development and production contract included in the estimate to complete. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which management reviews the progress and performance on our ongoing development and production contracts at least quarterly and, in many cases, more frequently. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, at the outset of a cost-reimbursable contract (for example, contracts containing award or incentive fees), we establish an estimated total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimated total contract value may increase or decrease if, for example, we receive higher or lower than expected award fees. When adjustments in estimated total costs at completion or in estimated total contract value are determined, the related impact to operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Anticipated losses on development and production contracts or programs in progress are charged to operating income when identified.

Evaluation of performance and intersegment sales policy

The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in our Notes to Consolidated Financial Statements in our Fiscal 2015 Form 10-K. We evaluate each segment's performance based on its operating income or loss, which we define as profit or loss from operations before income taxes excluding interest income and expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment recognizes a profit that is eliminated. The “Corporate eliminations” line items in the tables below represent the elimination of intersegment sales and their related profits. The “Unallocated corporate expense” line item in the tables below represents the portion of corporate expenses not allocated to our business segments.

Goodwill

In accordance with GAAP, we have reassigned goodwill using a relative fair value approach. Because our accounting for our acquisition of Exelis Inc. and its subsidiaries (collectively, “Exelis”) in the fourth quarter of fiscal 2015 is still preliminary, we assigned the goodwill acquired as a result of the acquisition on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed.

 

In addition, we test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be an impairment.

Goodwill and Intangible Assets

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment.

v3.3.1.900
Accumulated Other Comprehensive Loss (Tables)
6 Months Ended
Jan. 01, 2016
Accumulated Other Comprehensive Loss (Tables) [Abstract]  
Components of accumulated other comprehensive loss

The components of accumulated other comprehensive loss are summarized below:

  January 1, July 3,
  2016 (1) 2015 (1)
       
  (In millions)
Foreign currency translation, net of income taxes of $27 million and $15 million     
 at January 1, 2016 and July 3, 2015, respectively$ (109) $ (62)
Net unrealized loss on hedging derivatives, net of income taxes of $12 million     
 at January 1, 2016 and July 3, 2015  (18)   (19)
Unrecognized postretirement obligations, net of income taxes of $40 million and $42 million     
 at January 1, 2016 and July 3, 2015, respectively  61   65
  $ (66) $ (16)
________________     

(1) Reclassifications out of accumulated other comprehensive loss to earnings were not material for the two quarters ended January 1, 2016 or January 2, 2015.

v3.3.1.900
Receivables (Tables)
6 Months Ended
Jan. 01, 2016
Receivables (Tables) [Abstract]  
Receivables

Receivables are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Accounts receivable$ 666 $ 837
Unbilled costs and accrued earnings on cost-plus contracts  277   343
   943   1,180
Less allowances for collection losses  (8)   (12)
 $ 935 $ 1,168
v3.3.1.900
Inventories (Tables)
6 Months Ended
Jan. 01, 2016
Inventories (Tables) [Abstract]  
Inventories

Inventories are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Unbilled costs and accrued earnings on fixed-price contracts$ 543 $ 463
Finished products  100   100
Work in process  228   256
Raw materials and supplies  199   196
 $ 1,070 $ 1,015
v3.3.1.900
Property Plant and Equipment (Tables)
6 Months Ended
Jan. 01, 2016
Property, Plant and Equipment (Tables) [Abstract]  
Property, Plant and Equipment

Property, plant and equipment are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Land$ 45 $ 45
Software capitalized for internal use  147   155
Buildings  640   587
Machinery and equipment  1,467   1,526
   2,299   2,313
Less accumulated depreciation and amortization  (1,197)   (1,148)
 $ 1,102 $ 1,165
v3.3.1.900
Goodwill (Tables)
6 Months Ended
Jan. 01, 2016
Goodwill (Tables) [Abstract]  
Changes in carrying amount of Goodwill

The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the two quarters ended January 1, 2016, by business segment, were as follows:

        Space and           
   Communication Intelligence Electronic Critical    
   Systems Systems Systems  Networks Total
     (In millions)
Balance at July 3, 2015 $ 760   $ 1,446   $ 1,718   $ 2,424   $ 6,348
 Impairment of goodwill               (290)     (290)
 Currency translation adjustments        (9)     (8)     (25)     (42)
 Other (including true-ups of previously estimated                       
  purchase price allocations) (1) 12     (9)     12     (42)     (27)
Balance at January 1, 2016 $ 772   $ 1,428   $ 1,722   $ 2,067   $ 5,989
________________                       

(1)       Our accounting for the Exelis acquisition is still preliminary. The fair value estimates for the assets acquired and liabilities assumed were based on preliminary calculations, and our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of these preliminary estimates that are not yet finalized relate to certain tangible assets and liabilities acquired, identifiable intangible assets and tax-related items. During the two quarters ended January 1, 2016, we recorded several purchase price adjustments which impacted goodwill, the largest of which reduced current liabilities by $82 million related to previously unrecognized tax benefits and to deferred revenue based on the fair value of a customer contract.

v3.3.1.900
Accrued Warranties (Tables)
6 Months Ended
Jan. 01, 2016
Accrued Warranties (Tables) [Abstract]  
Changes in warranty liability

Changes in our liability for standard product warranties, which is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited), during the two quarters ended January 1, 2016 were as follows:

  (In millions)
Balance at July 3, 2015$ 36
Warranty provision for sales  9
Settlements  (9)
Other adjustments to warranty liability, including those for foreign currency translation  (2)
Balance at January 1, 2016$ 34
v3.3.1.900
Postretirement Benefit Plans (Tables)
6 Months Ended
Jan. 01, 2016
Compensation and Retirement Disclosure [Abstract]  
Components of Net Periodic Benefit Cost
  Quarter Ended January 1, 2016 Two Quarters Ended January 1, 2016
     Other        Other   
  Pension Benefits Total  Pension  Benefits  Total
                   
  (In millions)
Net periodic benefit cost                 
 Service cost$ 20 $ 2 $ 22 $ 38 $ 3 $ 41
 Interest cost  61   3   64   123   7   130
 Expected return on plan assets  (85)   (4)   (89)   (171)   (9)   (180)
 Amortization of net actuarial loss          2   2
 Amortization of prior service cost    (4)   (4)     (7)   (7)
Net periodic benefit cost$ (4) $ (3) $ (7)   (10)   (4)   (14)
Effect of curtailments or settlements (1)    (121)   (121)     (121)   (121)
Total net periodic benefit cost$ (4) $ (124) $ (128) $ (10) $ (125) $ (135)
_____________                 

  • We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment and curtailment during the quarter ended January 1, 2016, a settlement as of December 31, 2015, and a net liability reduction of $101 million.

 

v3.3.1.900
Net Income (Loss) From Continuing Operations Per Common Share (Tables)
6 Months Ended
Jan. 01, 2016
Income From Continuing Operations Per Share (Tables) [Abstract]  
Net income per common share

The computations of income (loss) from continuing operations per common share are as follows:

  Quarter Ended  Two Quarters Ended
  January 1, January 2, January 1, January 2,
  2016 2015 2016 2015
             
  (In millions, except per share amounts)
Income (loss) from continuing operations$ (135) $ 139 $ 13 $ 264
Adjustments for participating securities outstanding        (1)
Income (loss) from continuing operations used in per basic           
 and diluted common share calculations (A)$ (135) $ 139 $ 13 $ 263
             
Basic weighted average common shares outstanding (B)   123.8   103.9   123.6   104.3
Impact of dilutive share-based awards    1.0   1.1   1.0
Diluted weighted average common shares outstanding (C)   123.8   104.9   124.7   105.3
             
Income (loss) from continuing operations per basic common share (A)/(B)$ (1.09) $ 1.34 $ 0.10 $ 2.52
Income (loss) from continuing operations per diluted common share (A)/(C)$ (1.09) $ 1.32 $ 0.10 $ 2.50
v3.3.1.900
Fair Value Measurements (Tables)
6 Months Ended
Jan. 01, 2016
Fair Value Measurements (Tables) [Abstract]  
Assets and liabilities measured at fair value on a recurring basis

The following table presents the fair value hierarchy of our assets and liabilities measured at fair value on a recurring basis (at least annually) as of January 1, 2016:

   Level 1  Level 2  Level 3  Total
              
   (In millions)
Assets           
 Deferred compensation plan investments: (1)            
  Corporate-owned life insurance$ $ 17 $ $ 17
  Stock fund  55       55
  Equity security  40       40
Liabilities           
 Deferred compensation plans (2)  48   82     130
____________           

(1)       Represents investments held in a “Rabbi Trust associated with our non-qualified deferred compensation plans, which we include in the “Deferred compensation plan investments” and “Other non-current assets” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited).

(2)       Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Deferred compensation plan liabilities” and “Other long-term liabilities” line items in the accompanying Condensed Consolidated Balance Sheet (Unaudited). Under these plans, participants designate investment options (including money market, stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.

Carrying amounts and estimated fair values of financial instruments not measured at fair value

The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):

  January 1, 2016 July 3, 2015
  Carrying Fair Carrying Fair
  Amount  Value  Amount  Value
             
  (In millions)
Financial Liabilities           
 Long-term debt (including current portion) (1) $ 4,828 $ 4,902 $ 5,183 $ 5,230
____________           

(1)       The fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If our long-term debt in our balance sheet were measured at fair value, it would be categorized in Level 2 of the fair value hierarchy.

v3.3.1.900
Business Segments (Tables)
6 Months Ended
Jan. 01, 2016
Business Segments (Tables) [Abstract]  
Summary of total assets by business segment

Total assets by business segment are summarized below:

 January 1, July 3,
 2016 2015
      
 (In millions)
Total Assets     
Communication Systems$ 1,722 $ 1,906
Space and Intelligence Systems  2,078   2,096
Electronic Systems  2,511   2,513
Critical Networks  2,999   3,492
Corporate (1)  2,787   3,120
 $ 12,097 $ 13,127
_____________     

(1)       Because the acquisition of Exelis in the fourth quarter of fiscal 2015 benefited the entire Company as opposed to any individual segments, the approximately $1.6 billion of identifiable intangible assets acquired in the Exelis acquisition was recorded as Corporate assets.

Revenue and income from continuing operations before income taxes by segment

Segment revenue, segment operating income (loss) and a reconciliation of segment operating income (loss) to total income (loss) from continuing operations before income taxes follow:

  Quarter Ended  Two Quarters Ended
  January 1, January 2, January 1, January 2,
  2016 2015 2016 2015
             
  (In millions)
Revenue           
Communication Systems$ 489 $ 435 $ 943 $ 824
Space and Intelligence Systems  446   221   881   474
Electronic Systems  382   128   756   237
Critical Networks  541   423   1,107   830
Corporate eliminations  (15)   (1)   (33)   (4)
  $ 1,843 $ 1,206 $ 3,654 $ 2,361
Income (Loss) From Continuing Operations Before Income Taxes           
Segment Operating Income (Loss):           
 Communication Systems (1) 121 $ 126 $ 259 $ 242
 Space and Intelligence Systems 67   34   135   71
 Electronic Systems 63   24   132   46
 Critical Networks (2)  (308)   50   (245)   92
Unallocated corporate income (expense) (3)  14   (21)   (61)   (38)
Corporate eliminations  (1)   (3)   (2)   (5)
Non-operating income      1  
Net interest expense  (45)   (21)   (92)   (43)
  $ (89) $ 189 $ 127 $ 365
____________           

(1)       Communication Systems operating income included $17 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions, facility consolidation and other items. We recorded $14 million of these charges in the “Cost of product sales and services” line item and the remaining $3 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).

 

(2)       Critical Networks operating loss in the quarter and two quarters ended January 1, 2016 included a preliminary estimate of $367 million for a non-cash impairment charge to write down goodwill and other assets related to Harris CapRock Communications. We recorded this charge in the “Impairment of goodwill and other assets” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). Additionally, operating loss included $12 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions and facility consolidation. We recorded these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).

 

(3)       Unallocated corporate income (expense) included: (i) the impact of a net liability reduction of $101 million in the quarter and two quarters ended January 1, 2016 for certain post-employment benefit plans, (ii) charges of $46 million and $69 million in the quarter and two quarters ended January 1, 2016, respectively, for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, and (iii) $33 million and $66 million of expense in the quarter and two quarters ended January 1, 2016, respectively, for amortization of intangible assets acquired as a result of our acquisition of Exelis. Because the acquisition of Exelis benefited the entire Company as opposed to any individual segments, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense.

v3.3.1.900
Significant Accounting Policies and Recent Accounting Standards (Details)
$ in Millions
6 Months Ended
Jan. 01, 2016
USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Current deferred income taxes, assets $ 0
Current deferred income taxes, liabilities 0
Non-current deferred income taxes, assets 376
Non-current deferred income taxes, liabilities 11
Non-current deferred income taxes 0
Income taxes 31
Tax reclassifications related to adoption of accounting standard  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Current deferred income taxes, assets (341)
Current deferred income taxes, liabilities (7)
Non-current deferred income taxes, assets 339
Non-current deferred income taxes, liabilities 5
Non-current deferred income taxes (7)
Income taxes $ 7
v3.3.1.900
Discontinued Operations (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Dec. 28, 2012
Jan. 01, 2016
Jan. 02, 2015
Jul. 03, 2015
Additional Discontinued Operation (Textuals) [Abstract]            
Loss on the sale of discontinued operations       $ (21) $ 0  
Loss on the sale of discontinued operations after-tax $ (17) $ 0   (17) $ 0  
Liabilities of discontinued operations $ 43     $ 43   $ 28
Earnings Per Share, Diluted $ (1.23) $ 1.32   $ (0.03) $ 2.50  
Broadcast Communications [Member]            
Additional Discontinued Operation (Textuals) [Abstract]            
Asset Sale Agreement     $ 225      
Asset Sale Agreement, cash     160      
Asset Sale Agreement, promissory note     15      
Asset Sale Agreement, earnout     $ 50      
Loss on the sale of discontinued operations $ (21)          
Loss on the sale of discontinued operations after-tax (17)          
Liabilities of discontinued operations $ 43     $ 43    
Earnings Per Share, Diluted $ (0.14)          
v3.3.1.900
Stock Options and Other Share-Based Compensation (Details)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
USD ($)
shares
Jan. 02, 2015
USD ($)
Jan. 01, 2016
USD ($)
shares
Jan. 02, 2015
USD ($)
Stock Options and Other Share Based Compensation (Textuals)        
Number of shareholder approved employee stock incentive plans 2   2  
Compensation cost for share-based awards | $ $ 9 $ 9 $ 19 $ 17
Stock options granted, shares 10,110   1,658,000  
Expected dividend yield     2.50%  
Expected volatility     23.01%  
Risk free interest rates     1.52%  
Expected term (years)     5 years 18 days  
Performance Share And Performance Share Unit [Member]        
Share-based awards        
Share-based awards 10,070   292,665  
Restricted Stock Awards [Member]        
Share-based awards        
Share-based awards 33,600   100,270  
v3.3.1.900
Accumulated Other Comprehensive Loss (Details) - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Jan. 01, 2016
Jul. 03, 2015
Components of accumulated other comprehensive loss    
Foreign currency translation, net of income taxes of $27 million and $15 million at January 1, 2016 and July 3, 2015, respectively $ (109) $ (62)
Net unrealized loss on hedging derivatives, net of income taxes of $12 million at January 1, 2016 and July 3, 2015 (18) (19)
Unrecognized postretirement obligations, net of income taxes of $40 million and $42 million at January 1, 2016 and July 3, 2015, respectively 61 65
Accumulated other comprehensive loss (66) (16)
Tax effect on foreign currency translation 27 15
Tax effect on unrealized loss on hedging derivatives 12 12
Tax effect on unrecognized post-retirement obligations $ 40 $ 42
v3.3.1.900
Receivables (Details) - USD ($)
$ in Millions
Jan. 01, 2016
Jul. 03, 2015
Receivables    
Accounts receivable $ 666 $ 837
Unbilled costs and accrued earnings on cost-plus contracts 277 343
Receivables, gross 943 1,180
Less allowances for collection losses (8) (12)
Receivables, net $ 935 $ 1,168
v3.3.1.900
Inventories (Details) - USD ($)
$ in Millions
Jan. 01, 2016
Jul. 03, 2015
Inventories    
Unbilled costs and accrued earnings on fixed-price contracts $ 543 $ 463
Finished products 100 100
Work in process 228 256
Raw materials and supplies 199 196
Inventories 1,070 1,015
Inventories (Textuals)    
Progress payments $ 70 $ 85
v3.3.1.900
Property, Plant and Equipment (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Jul. 03, 2015
Property, Plant and Equipment          
Land $ 45   $ 45   $ 45
Software capitalized for internal use 147   147   155
Buildings 640   640   587
Machinery and equipment 1,467   1,467   1,526
Property, plant and equipment, gross 2,299   2,299   2,313
Less accumulated depreciation and amortization (1,197)   (1,197)   (1,148)
Property, plant and equipment 1,102   1,102   $ 1,165
Property Plant and Equipment (Textuals)          
Depreciation and amortization expense related to property, plant and equipment $ 49 $ 38 $ 99 $ 73  
v3.3.1.900
Goodwill (Details) - USD ($)
$ in Millions
6 Months Ended
Jan. 01, 2016
Jul. 03, 2015
Changes in the carrying amount of goodwill    
Balance at July 3, 2015 $ 6,348  
Impairment of goodwill (290)  
Currency translation adjustments (42)  
Other (including true-ups of previously estimated purchase price allocations) (27)  
Balance at January 1, 2016 5,989  
Goodwill Details (Textuals) [Abstract]    
Liabilities, Current 2,139 $ 2,274
Exelis [Member]    
Goodwill Details (Textuals) [Abstract]    
Liabilities, Current 82  
Communication Systems [Member]    
Changes in the carrying amount of goodwill    
Balance at July 3, 2015 760  
Currency translation adjustments 0  
Other (including true-ups of previously estimated purchase price allocations) 12  
Balance at January 1, 2016 772  
Space and Intelligence Systems [Member]    
Changes in the carrying amount of goodwill    
Balance at July 3, 2015 1,446  
Currency translation adjustments (9)  
Other (including true-ups of previously estimated purchase price allocations) (9)  
Balance at January 1, 2016 1,428  
Electronic Systems [Member]    
Changes in the carrying amount of goodwill    
Balance at July 3, 2015 1,718  
Currency translation adjustments (8)  
Other (including true-ups of previously estimated purchase price allocations) 12  
Balance at January 1, 2016 1,722  
Critical Networks [Member]    
Changes in the carrying amount of goodwill    
Balance at July 3, 2015 2,424  
Impairment of goodwill (290)  
Currency translation adjustments (25)  
Other (including true-ups of previously estimated purchase price allocations) (42)  
Balance at January 1, 2016 $ 2,067  
v3.3.1.900
Accrued Warranties (Details) - USD ($)
$ in Millions
6 Months Ended
Jan. 01, 2016
Jul. 03, 2015
Changes in warranty liability    
Balance at July 3, 2015 $ 36  
Warranty provision for sales 9  
Settlements (9)  
Other adjustments to warranty liability, including those for foreign currency translation (2)  
Balance at January 1, 2016 34  
Extended Product Warranty Disclosure [Abstract]    
Extended Product Warranty Accrual $ 36 $ 36
v3.3.1.900
Long-Term Debt (Details)
$ in Millions
Jan. 01, 2016
USD ($)
Fixed rate debt securities | Financial guarantee by Exelis Inc. (terminated on Dec 31, 2015)  
Guarantor Obligations [Line Items]  
Notes Payable $ 3,226
5.55% notes, due October 1, 2021 (Exelis) | Financial guarantee by Harris Corporation (terminated on Dec 31, 2015)  
Guarantor Obligations [Line Items]  
Notes Payable $ 400
Interest rate on fixed rate debt 5.55%
4.25% notes, due October 1, 2016 (Exelis) | Financial guarantee by Harris Corporation (terminated on Dec 31, 2015)  
Guarantor Obligations [Line Items]  
Notes Payable $ 250
Interest rate on fixed rate debt 4.25%
v3.3.1.900
Postretirement Benefit Plans (Details Textual1) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 01, 2016
Defined Benefit Plan Disclosure [Line Items]    
Service cost $ 22 $ 41
Interest cost 64 130
Expected return on plan assets (89) (180)
Amortization of net actuarial loss   2
Amortization of prior service cost (4) (7)
Net periodic benefit cost (7) (14)
Effect of curtailments or settlements (121) (121)
Total net periodic benefit cost (128) (135)
Pension    
Defined Benefit Plan Disclosure [Line Items]    
Service cost 20 38
Interest cost 61 123
Expected return on plan assets (85) (171)
Net periodic benefit cost (4) (10)
Total net periodic benefit cost (4) (10)
Other Benefits    
Defined Benefit Plan Disclosure [Line Items]    
Service cost 2 3
Interest cost 3 7
Expected return on plan assets (4) (9)
Amortization of net actuarial loss   2
Amortization of prior service cost (4) (7)
Net periodic benefit cost (3) (4)
Effect of curtailments or settlements (121) (121)
Total net periodic benefit cost $ (124) $ (125)
v3.3.1.900
Postretirement Benefit Plans (Details 1) - USD ($)
$ in Millions
6 Months Ended
Jul. 01, 2016
Jan. 01, 2016
Defined Benefit Plan Disclosure [Line Items]    
Defined benefit plan, contributions by employer   $ 97
Defined benefit plan, estimated future employer contributions in remaining fiscal year $ 76  
Net liability reduction for certain post-employment benefit plans   $ (101)
v3.3.1.900
Net Income (Loss) From Continuing Operations Per Common Share (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Net Income (Loss) From Continuing Operations Per Common Share [Abstract]        
Income (loss) from continuing operations $ (135) $ 139 $ 13 $ 264
Adjustments for participating securities outstanding 0 0 0 (1)
Income (loss) from continuing operations used in per basic and diluted common share calculations (A) $ (135) $ 139 $ 13 $ 263
Basic weighted average common shares outstanding (B) 123,800,000 103,900,000 123,600,000 104,300,000
Impact of dilutive share-based awards 0 1,000,000 1,100,000 1,000,000
Diluted weighted average common shares outstanding (C) 123,800,000 104,900,000 124,700,000 105,300,000
Income (loss) from continuing operations per basic common share (A)/(B) $ (1.09) $ 1.34 $ 0.10 $ 2.52
Income (loss) from continuing operations per diluted common share (A)/(C) $ (1.09) $ 1.32 $ 0.10 $ 2.50
Net Income Per Common Share (Textuals) [Abstract]        
Outstanding antidilutive employee stock options     1,482,261 678,650
v3.3.1.900
Income Taxes (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Income Taxes (Textuals) [Abstract]        
Income taxes $ 46 $ 50 $ 114 $ 101
Income before income taxes $ (89) $ 189 $ 127 $ 365
Effective tax rate   26.50% 89.80% 27.70%
Income tax benefit attributable to research tax credit   $ 7    
Income tax benefit attributable to research tax credit - percentage 40.00% 3.70%    
Income tax settlements   $ 8    
Income tax settlements - percentage   4.20%    
Aggregate income tax benefit, various settlements and tax credits $ 12     $ 23
Aggregate income tax benefit (percentage), various settlements and tax credits       6.00%
v3.3.1.900
Impairment of Goodwill and Other Assets (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 01, 2016
Impairment of goodwill and other assets $ 367 $ 367
Impairment of goodwill   (290)
Harris CapRock Communications [Member]    
Impairment of goodwill and other assets   367
Impairment of goodwill and other assets, after taxes   328
Impairment of goodwill   $ 290
v3.3.1.900
Fair Value Measurements (Details)
$ in Millions
Jan. 01, 2016
USD ($)
Deferred Compensation Plan Stock Fund [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities $ 55
Deferred Compensation Plan Equity Securities [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 40
Deferred Compensation Plan Corporate Owned Life Insurance [Member]  
Assets measured at fair value on recurring basis  
Corporate-owned life insurance 17
Deferred Compensation Plan [Member]  
Liabilities measured at fair value on recurring basis  
Deferred compensation plans 130
Fair Value, Inputs, Level 1 [Member] | Deferred Compensation Plan Stock Fund [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 55
Fair Value, Inputs, Level 1 [Member] | Deferred Compensation Plan Equity Securities [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 40
Fair Value, Inputs, Level 1 [Member] | Deferred Compensation Plan Corporate Owned Life Insurance [Member]  
Assets measured at fair value on recurring basis  
Corporate-owned life insurance 0
Fair Value, Inputs, Level 1 [Member] | Deferred Compensation Plan [Member]  
Liabilities measured at fair value on recurring basis  
Deferred compensation plans 48
Fair Value, Inputs, Level 2 [Member] | Deferred Compensation Plan Stock Fund [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 0
Fair Value, Inputs, Level 2 [Member] | Deferred Compensation Plan Equity Securities [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 0
Fair Value, Inputs, Level 2 [Member] | Deferred Compensation Plan Corporate Owned Life Insurance [Member]  
Assets measured at fair value on recurring basis  
Corporate-owned life insurance 17
Fair Value, Inputs, Level 2 [Member] | Deferred Compensation Plan [Member]  
Liabilities measured at fair value on recurring basis  
Deferred compensation plans 82
Fair Value, Inputs, Level 3 [Member] | Deferred Compensation Plan Stock Fund [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 0
Fair Value, Inputs, Level 3 [Member] | Deferred Compensation Plan Equity Securities [Member]  
Assets measured at fair value on recurring basis  
Available-for-sale securities 0
Fair Value, Inputs, Level 3 [Member] | Deferred Compensation Plan Corporate Owned Life Insurance [Member]  
Assets measured at fair value on recurring basis  
Corporate-owned life insurance 0
Fair Value, Inputs, Level 3 [Member] | Deferred Compensation Plan [Member]  
Liabilities measured at fair value on recurring basis  
Deferred compensation plans $ 0
v3.3.1.900
Fair Value Measurements (Details 2) - USD ($)
$ in Millions
Jan. 01, 2016
Jul. 03, 2015
Carrying amounts and estimated fair values of financial instruments not measured at fair value [Abstract]    
Financial Liabilities, Long-term debt (including current portion), Carrying amount $ 4,828 $ 5,183
Financial Liabilities, Long-term debt (including current portion), Fair value $ 4,902 $ 5,230
v3.3.1.900
Derivative Instruments and Hedging Activities (Details) - USD ($)
$ in Millions
3 Months Ended
Jan. 01, 2016
Jul. 03, 2015
Derivative Instruments and Hedging Activities (Textuals)    
Contract expiration dates lower range 1 month  
Contract expiration dates upper range 5 months  
Weighted average contract life 1 month  
ForeignExchangeForwardMember    
Derivative Instruments and Hedging Activities (Textuals)    
Derivative, Notional Amount $ 79 $ 74
Fair Value Hedge [Member] | ForeignExchangeForwardMember    
Derivative Instruments and Hedging Activities (Textuals)    
Derivative, Notional Amount 73 73
Cash Flow Hedge [Member] | ForeignExchangeForwardMember    
Derivative Instruments and Hedging Activities (Textuals)    
Derivative, Notional Amount $ 6 $ 1
v3.3.1.900
Changes in Estimate (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Change In Accounting Estimate [Line Items]        
Earnings Per Share, Diluted $ (1.23) $ 1.32 $ (0.03) $ 2.50
Contracts Accounted for under Percentage of Completion [Member]        
Change In Accounting Estimate [Line Items]        
Operating Income $ 24 $ 16 $ 41 $ 38
Earnings Per Share, Diluted $ 0.12 $ 0.11 $ 0.20 $ 0.26
v3.3.1.900
Business Segments (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Jul. 03, 2015
Segment Reporting Information [Line Items]          
Total assets $ 12,097   $ 12,097   $ 13,127
Revenue and income from continuing operations before income taxes by segment          
Revenue from product sales and services 1,843 $ 1,206 3,654 $ 2,361  
Unallocated corporate income (expense) 14 (21) (61) (38)  
Corporate eliminations (1) (3) (2) (5)  
Non-operating income 0 0 1 0  
Net interest expense (45) (21) (92) (43)  
Income from continuing operations before income taxes (89) 189 127 365  
Business Segments (Textuals)          
Identifiable intangible assets (approximate) 1,643   1,643   1,775
Cost of product sales and services 1,281 808 2,501 1,570  
Engineering, selling and administrative expenses 239 188 568 383  
Impairment of goodwill and other assets 367   367    
Net liability reduction for certain post-employment benefit plans     (101)    
Amortization of intangible assets from Exelis Inc. acquisition     66    
Communication Systems [Member]          
Segment Reporting Information [Line Items]          
Total assets 1,722   1,722   1,906
Revenue and income from continuing operations before income taxes by segment          
Revenue from product sales and services 489 435 943 824  
Segment operating income 121 126 259 242  
Communication Systems [Member] | Workforce reductions, facility consolidation and other items [Member]          
Revenue and income from continuing operations before income taxes by segment          
Segment operating income     17    
Business Segments (Textuals)          
Cost of product sales and services     14    
Engineering, selling and administrative expenses     3    
Space and Intelligence Systems [Member]          
Segment Reporting Information [Line Items]          
Total assets 2,078   2,078   2,096
Revenue and income from continuing operations before income taxes by segment          
Revenue from product sales and services 446 221 881 474  
Segment operating income 67 34 135 71  
Electronic Systems [Member]          
Segment Reporting Information [Line Items]          
Total assets 2,511   2,511   2,513
Revenue and income from continuing operations before income taxes by segment          
Revenue from product sales and services 382 128 756 237  
Segment operating income 63 24 132 46  
Critical Networks [Member]          
Segment Reporting Information [Line Items]          
Total assets 2,999   2,999   3,492
Revenue and income from continuing operations before income taxes by segment          
Revenue from product sales and services 541 423 1,107 830  
Segment operating income (308) 50 (245) 92  
Business Segments (Textuals)          
Impairment of goodwill and other assets     367    
Critical Networks [Member] | Workforce reductions, facility consolidation and other items [Member]          
Business Segments (Textuals)          
Engineering, selling and administrative expenses     12    
Corporate [Member]          
Segment Reporting Information [Line Items]          
Total assets 2,787   2,787   $ 3,120
Revenue and income from continuing operations before income taxes by segment          
Revenue from product sales and services (15) $ (1) (33) $ (4)  
Business Segments (Textuals)          
Net liability reduction for certain post-employment benefit plans     101    
Corporate [Member] | Exelis [Member]          
Business Segments (Textuals)          
Identifiable intangible assets (approximate) 1,600   1,600    
Amortization of intangible assets from Exelis Inc. acquisition 33   66    
Corporate [Member] | Integration and other costs associated with our acquisition of Exelis [Member] | Exelis [Member]          
Business Segments (Textuals)          
Engineering, selling and administrative expenses $ 46   $ 69    
v3.3.1.900
Legal proceedings and contingencies (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 01, 2016
Jan. 02, 2015
Dec. 28, 2012
Jan. 01, 2016
Jan. 02, 2015
Loss Contingencies [Line Items]          
Loss on the sale of discontinued operations       $ (21) $ 0
Loss on the sale of discontinued operations after-tax $ (17) $ 0   $ (17) $ 0
Broadcast Communications [Member]          
Loss Contingencies [Line Items]          
Asset Sale Agreement     $ 225    
Asset Sale Agreement, cash     160    
Asset Sale Agreement, promissory note     15    
Asset Sale Agreement, earnout     $ 50    
Loss on the sale of discontinued operations (21)        
Loss on the sale of discontinued operations after-tax (17)        
Passaic River Alaska [Member] | Exelis [Member]          
Loss Contingencies [Line Items]          
Estimated cost for all participating parities of remedial alternatives low range 400        
Estimated cost for all participating parties of remedial alternatives high range 3,200        
Estimated cost for all participating parties of EPA's preferred alternative $ 1,700        
v3.3.1.900
Subsequent Events (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jan. 29, 2016
Jan. 01, 2016
Jan. 02, 2015
Jan. 01, 2016
Jan. 02, 2015
Feb. 02, 2016
Subsequent Event [Line Items]            
Loss on the sale of discontinued operations       $ (21) $ 0  
Loss on the sale of discontinued operations after-tax   $ (17) $ 0 $ (17) $ 0  
Broadcast Communications [Member]            
Subsequent Event [Line Items]            
Loss on the sale of discontinued operations   (21)        
Loss on the sale of discontinued operations after-tax   $ (17)        
Announcement of divestiture of aerostructures business            
Subsequent Event [Line Items]            
Net assets, excluding goodwill, of aerostructures business           $ 150
Final determination of dispute over the amount of post-closing working capital adjustment | Broadcast Communications [Member]            
Subsequent Event [Line Items]            
Loss on the sale of discontinued operations $ (21)          
Loss on the sale of discontinued operations after-tax $ (17)          
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