UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2017
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
HARRISWRBLACK3X1.JPG
HARRIS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
34-0276860
(I.R.S. Employer Identification No.)
1025 West NASA Boulevard
Melbourne, Florida
 
32919
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (321) 727-9100
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $1.00 per share
 
Name of each exchange on which registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   þ    No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes   ¨    No   þ
Indicate by check mark whether the registrant (1) 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.   Yes   þ    No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).   Yes   þ   No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨   (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Emerging growth company
 
¨   
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   þ
The aggregate market value of the voting common equity held by non-affiliates of the registrant was $12,707,474,800 (based on the quoted closing sale price per share of the stock on the New York Stock Exchange) on the last business day of the registrant’s most recently completed second fiscal quarter (December 30, 2016). For purposes of this calculation, the registrant has assumed that its directors and executive officers as of December 30, 2016 are affiliates.
The number of shares outstanding of the registrant’s common stock as of August 25, 2017 was 119,762,879 .
Documents Incorporated by Reference:
Portions of the registrant’s definitive Proxy Statement for the 2017 Annual Meeting of Shareholders scheduled to be held on October 27, 2017 , which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended June 30, 2017 , are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described therein.



HARRIS CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2017
TABLE OF CONTENTS
 
 
Page No.
 
 
 
Part I:
 
 
 
 
 
 
 
 
 
 
 
 
Part II:
 
 
 
 
 
 
 
 
 
 
 
 
 
Part III:
 
 
 
 
 
 
 
 
 
 
Part IV:
 
 
 
 
ITEM 16. Form 10-K Summary
 
 
Signatures
Exhibits
This Annual Report on Form 10-K contains trademarks, service marks and registered marks of Harris Corporation and its subsidiaries. Bluetooth ® is a registered trademark of Bluetooth SIG, Inc. All other trademarks are the property of their respective owners.



Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this “Report”), including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that may not materialize or prove correct, which 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; future political conditions; the outcome of contingencies; the potential level of share repurchases, dividends or pension contributions; potential acquisitions or divestitures; the value of 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 filing of this Report and are not guarantees of future performance or actual results. Factors that might cause our results to differ materially from those expressed in or implied by these forward-looking statements, from our current expectations or projections or from our historical results include, but are not limited to, those discussed in “Item 1A. Risk Factors” of this Report. All forward-looking statements are qualified by, and should be read in conjunction with, those risk factors. 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”), and are made as of the date of filing of this Report, and we disclaim any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events or developments or otherwise, after the date of filing of this Report or, in the case of any document incorporated by reference, the date of that document.

Amounts contained in this Report may not always add to totals due to rounding.
PART I
 
ITEM 1.
BUSINESS.
HARRIS
Harris Corporation, together with its subsidiaries, is a leading technology innovator, solving customers’ toughest mission-critical challenges by providing solutions that connect, inform and protect. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products, systems and services have defense and civil government applications, as well as commercial applications. As of the end of fiscal 2017 , we had approximately 17,000 employees, including approximately 7,700 engineers and scientists.
Harris Corporation was incorporated in Delaware in 1926 as the successor to three companies founded in the 1890s. Our principal executive offices are located at 1025 West NASA Boulevard, Melbourne, Florida 32919, and our telephone number is (321) 727-9100. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HRS.” Unless the context otherwise requires, the terms “we,” “our,” “us,” “Company” and “Harris” as used in this Report refer to Harris Corporation and its subsidiaries.
General
We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the following three reportable segments, which are also referred to as our business segments:
Communication Systems, serving markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks;
Electronic Systems, providing electronic warfare, avionics, and command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”) solutions for the defense industry and air traffic management (“ATM”) solutions for the civil aviation industry; and
Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, positioning, navigation and timing (“PNT”), and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics.



In connection with our divestitures of two significant businesses in fiscal 2017 that were part of our former Critical Networks segment, our other remaining operations that had been part of our former Critical Networks segment were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. The historical results, discussion and presentation of our business segments as set forth in this Report reflect the impact of these changes for all periods presented in order to present all segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these segment changes. See Note 3: Discontinued Operations and Divestitures in the Notes to Consolidated Financial Statements in this Report (the “Notes”) for additional information related to our divestitures.
Financial Information About Our Business Segments
Financial information with respect to our business segments, including revenue, operating income and total assets, and with respect to our operations outside the United States, is contained in Note 24: Business Segments in the Notes and is incorporated herein by reference.
Recent Acquisitions and Divestitures
The following paragraphs summarize recent acquisitions and divestitures. For additional information related to acquisitions, see Note 4: Business Combinations in the Notes. For additional information related to divestitures, some of which were reported as discontinued operations, see Note 3: Discontinued Operations and Divestitures in the Notes. Our historical financial results for all periods presented in this Report have been restated to account for businesses reported as discontinued operations in this Report. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in this Report relate solely to our continuing operations.
Acquisition of Exelis Inc. On May 29, 2015, we acquired publicly held Exelis Inc. (collectively with its subsidiaries, “Exelis”), a diversified, top-tier global aerospace, defense, information and services company leveraging its deep customer knowledge and technical expertise to deliver affordable, mission-critical solutions to military, government and commercial customers in the United States and globally. Exelis was a leader in positioning and navigation, sensors, air traffic management solutions, image processing and distribution, communications and information systems; and focused on strategic growth in the areas of critical networks, intelligence, surveillance and reconnaissance (“ISR”) and analytics, electronic warfare and composite aerostructures. Each outstanding share of Exelis common stock converted into the right to receive $16.625 in cash and 0.1025 of a share of Harris common stock. Upon closing, legacy Harris shareholders owned 84 percent of the combined company and legacy Exelis shareholders owned 16 percent. Based on the closing price of $79.22 per share of Harris common stock on the NYSE on May 29, 2015, the date of the closing of the acquisition, the aggregate implied value of the consideration paid to former holders of Exelis common stock in connection with the acquisition was approximately $4.7 billion, including approximately $1.5 billion in Harris common stock and approximately $3.2 billion in cash (including cash paid in respect of share-based awards and net of cash acquired). The source of funds for such cash payment was cash on hand and third-party debt financing, including a combination of borrowings under our senior unsecured term loan facility in an aggregate principal amount of $1.3 billion and a portion of the proceeds from our issuance of debt securities in an aggregate principal amount of $2.4 billion. Our acquisition of Exelis created significantly greater scale, bringing together two engineering-driven companies that value technology leadership. Together, the two companies’ complementary technologies and capabilities strengthened core franchises and provide new opportunities for innovation to solve customers’ most complex challenges. Exelis had annual sales of $3.277 billion in calendar 2014. Our Consolidated Financial Statements in this Report include operating results from Exelis operations following May 29, 2015.
Divestiture of Government IT Services Business. On April 28, 2017, we completed the divestiture to an affiliate of Veritas Capital Management, L.L.C. (“Veritas”) of our government information technology (“IT”) services business (“IT Services”), which primarily provided IT and engineering managed services to U.S. Government customers, for net cash proceeds of $646 million, after estimated transaction expenses and estimated purchase price adjustments in respect of net cash and working capital, and subject to post-closing finalization of those adjustments as set forth in the definitive sale agreement. The decision to divest IT Services was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses. IT Services was part of our former Critical Networks segment and is reported as discontinued operations in this Report. In connection with entering into the definitive agreement to sell IT Services, as described above, our other remaining operations that had been part of our former Critical Networks segment, including our ATM business, primarily serving the Federal Aviation Administration (“FAA”), and our Pacific Missile Range Facility (“PMRF”) program, were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated.
Divestiture of Harris CapRock Communications Commercial Business. On January 1, 2017, we completed the divestiture to SpeedCast International Ltd. (“SpeedCast”) of our Harris CapRock Communications commercial business (“CapRock”), which provided wireless, terrestrial and satellite communications services to energy and maritime customers, for net cash proceeds of $ 370 million , after transaction expenses and purchase price adjustments in respect of net cash and working capital as set forth in the definitive sale agreement. The decision to divest CapRock was part of our strategy to simplify our operating

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model to focus on technology-differentiated, high-margin businesses. CapRock was part of our former Critical Networks segment and is reported as discontinued operations in this Report.
Divestiture of Composite Aerostructures Business. On April 8, 2016, we completed the divestiture of our composite aerostructures business (“Aerostructures”), which designed and manufactured technically advanced, lightweight composite aerospace assembly structures, sub-assemblies and components for defense and commercial industries. Aerostructures was not strategic to our business and was part of our Company as a result of our acquisition of Exelis in May 2015. The operating results of Aerostructures through the date of divestiture are reported as part of our Electronic Systems segment.
Divestiture of Commercial Healthcare Solutions Business . On July 1, 2015, we completed the divestiture of our commercial healthcare solutions business (“HCS”). The operating results of HCS through the date of divestiture were part of our former Integrated Network Solutions segment, but are included as part of corporate in this Report.
Divestiture of Broadcast Communications Business.     In the fourth quarter of fiscal 2012, our Board of Directors approved a plan to divest our broadcast communications business (“Broadcast Communications”), which provided digital media management solutions in support of broadcast customers, pursuant to which Broadcast Communications was reported as discontinued operations. In the third quarter of fiscal 2013, we completed the sale of Broadcast Communications to an affiliate of The Gores Group, LLC (the “Buyer”). In the third quarter of fiscal 2016, a nationally recognized accounting firm previously appointed by us and the Buyer rendered its final determination as to a dispute between us and the Buyer over the amount of the post-closing working capital adjustment to the purchase price, and consequently, we recorded the related activity in discontinued operations for fiscal 2016.
Divestiture of Cyber Integrated Solutions Business.     In the third quarter of fiscal 2012, our Board of Directors approved a plan to exit our cyber integrated solutions business (“CIS”), which provided remote cloud hosting, and to dispose of the related assets, pursuant to which CIS was reported as discontinued operations. We completed the sale of the remaining assets of CIS in the first quarter of fiscal 2014 and received payment in full on a promissory note that formed part of the purchase price in the first quarter of fiscal 2015. We recorded the related activity in discontinued operations for the respective periods.
Description of Business by Segment
Communication Systems
Communication Systems serves markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks.
Tactical Communications:     We are a leading global supplier of secure radio communications, tactical communication networks and embedded high-grade encryption solutions for a diverse portfolio of U.S. military and allied international forces and commercial customers. We design, develop and manufacture a comprehensive line of current and next-generation secure and protected radio communications products and systems, with capabilities to operate across numerous radio frequency bands and using an extensive range of waveforms. Our radio systems are highly flexible, interoperable and capable of supporting diverse mission requirements. Our tactical radios are built on software-defined radio platforms that include “headroom” to add future capabilities through software upgrades and that also have the highest grade embedded encryption. Product capabilities include secure transmission of voice, high-speed data and full-motion video, including streaming video to the tactical edge of the battlefield. Supporting virtually all military domains, our products include handheld, manpack and vehicular, fixed-site and airborne form factors. Together, our products create a highly mobile, secure, reliable networked battlefield environment that connects land, air and sea echelons and does not rely on a fixed infrastructure. This networking capability allows warfighters, for example, to remain connected with each other and their command structures and support organizations and to communicate information and maintain situational awareness of both friendly and opposing forces, which are critical to mission safety and success. Our radio systems have been widely deployed throughout all branches of the U.S. Department of Defense (“DoD”) and have been sold to more than 100 countries through our international distribution channels, consisting of regional sales offices and a broad dealer network, becoming the standard in many of those countries.
Our next-generation radios include multiband, multi-mission, legacy-system compatible tactical radios, which address the full range of current mission and interoperability requirements and are fully upgradeable to address changing technical standards and mission requirements of the future. Advances in these radios include the support of wideband networking waveforms, extended frequency range and significant reductions in size, weight and power compared with previous generations. Wideband networking capability enables enhanced situational awareness through high-bandwidth applications such as streaming video, simultaneous voice and data feeds, collaborative chat and connectivity to secure networks. Our comprehensive line of current and next-generation radios includes the following:
Our widely deployed Single Channel Ground and Airborne Radio System (“SINCGARS”) family of backpack, vehicular-mounted, handheld and airborne radios currently used by U.S. and allied military forces — these Combat Net Radios, over 600,000 of which have been purchased and deployed worldwide, operate in the very

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high frequency band, have single-frequency and frequency-hopping modes, handle voice and data communications and are designed to be reliable, secure and easily maintained.
Our multiband manpack radio, the AN/PRC-117G, which is National Security Agency (“NSA”) Type-1-certified for narrowband communications, as well as for wideband communications using our Harris-developed Adaptive Networking Wideband waveform and the U.S. military Joint Tactical Radio System (“JTRS”) Soldier Radio Waveform and Mobile User Objective System (“MUOS”) waveform, which provides connectivity to DoD’s next-generation MUOS satellite system;
Our 2-channel vehicular radio system, the AN/VRC-118, which uses the DoD-developed Wideband Networking Waveform and was selected as the U.S. Army’s solution for its JTRS Mid-Tier Networking Vehicular Radio program;
Our multiband handheld radios, the AN/PRC-152, which is a widely fielded JTRS-approved software-defined handheld radio, and the AN/PRC-152A, which adds wideband, networked communications capability and supports both a full range of narrowband legacy waveforms and wideband networking waveforms in a handheld platform;
Our multi-channel manpack radio, the AN/PRC-158, which is a commercially developed, NSA Type-1-certified radio offering two channels integrated into the same chassis;
Our wideband rifleman team radio, the RF-330E, which is the commercially developed U.S. variant of our widely fielded international soldier personal radio;
Our wideband ground radio family for international customers, the RF-7850x, which covers all echelons of the battlefield with soldier handheld, vehicular and fixed-site radio products;
Our wideband high frequency (“HF”) manpack radios, the NSA Type-1-certified RF-300H for the U.S. military and the RF-7800H for international customers, which are wideband-capable tactical HF radios that are smaller, lighter and deliver data faster than prior generations of HF radios and can serve as an alternative for beyond-line-of-sight transmission of classified images, maps and other large data files in circumstances where satellite communication (“SATCOM”) is denied;
Our single-channel airborne radios, which include the NSA Type-1-certified RF-300M-DL Small Secure Data Link multiband radio for integration in size, weight and power-constrained environments, as well as the ARC-201D and ARC-201E radios for DoD and international very high frequency network interoperability; and
Our multi-channel airborne radios, which include the RF-7850A for interoperability with our RF-7800 family of international ground radios, as well as a 2-channel airborne radio platform we provide to ViaSat, Inc. to be built into the KOR-24A multi-channel, Link-16 Small Tactical Terminal.
Unlike many of our competitors operating on a government-funded programs-driven business model, we operate in this market principally on a “commercial” market-driven business model. This means that we anticipate market needs, invest our internal research and development resources, build to our internal forecast and provide ready-to-ship, commercial off-the-shelf (“COTS”) products to customers, enabling us to bring products to market faster and adapt to changing customer requirements. We believe that the need to connect disparate networks using Internet Protocol (“IP”)-based technology is driving a modernization cycle in the U.S. and internationally. We believe our business model, which drives speed and innovation, coupled with the scale provided by our international presence, will continue to make us competitive in the global market.
We have been investing to position ourselves for tactical radio modernization opportunities, including in our next-generation manpack and handheld solutions for the JTRS Handheld, Manpack and Small Form Fit (“HMS”) program and U.S. Special Operations Command (“SOCOM”) Special Operations Forces Tactical Communications (“STC”) programs. We also believe the demand to extend ground tactical networks to the air, combined with our ARC-201 SINCGARS airborne radios, creates opportunities for us in manned and unmanned airborne applications.
Examples of significant recent awards for us include the following:
A 10-year (5-year base, 5 option years), multi-award Indefinite Delivery Indefinite Quantity (“IDIQ”) contract from the U.S. Army in fiscal 2015 for rifleman radios and associated services under the HMS program;
A 10-year (5-year base, one 5-year option), multi-award IDIQ contract from the U.S. Army in fiscal 2016 for multi-channel manpack radios under the HMS program;
A 6-year, single-award IDIQ contract from SOCOM in fiscal 2016 for a new integrated 2-channel handheld tactical radio;
A 5-year, single-award follow-on foreign military sales IDIQ contract from the U.S. Army Communications-Electronics Command (“CECOM”) in fiscal 2016 to supply secure tactical communication solutions;
A 5-year, single-award foreign military sales IDIQ contract from CECOM in fiscal 2016 to supply SINCGARS tactical solutions;
A 5-year, single-award IDIQ contract from the U.S. Defense Logistics Agency in fiscal 2017 to provide tactical radio spare parts to the U.S. Army and federal civilian agencies;

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A 10-year (5-year base, one 5-year option), multi-award IDIQ contract from the U.S. Air Force in fiscal 2017 for cryptographic and information assurance products; and
A 6-year, single-award IDIQ contract from SOCOM in fiscal 2017 to supply next-generation multi-channel multiband manpack radios to enable superior communications for U.S. Special Operations Forces.
In addition, we produce high-performance, advanced, vision-enhancing products for U.S. and allied military and security forces, incorporating our image intensification and sensor fusion technology. We develop, produce and supply Generation 3 image intensification technology for U.S. and allied military and security forces. We provide AN/PVS-14 and AN/PVS-7 ground night vision goggles and spare image intensifier tubes to the U.S. and allied militaries, via foreign military sales, and we are the primary supplier to the U.S. military for the AN/AVS-6 and AN/AVS-9 aviation night vision goggles, which provide rotary- and fixed-wing aircraft pilots the ability to operate in extreme low-light situations. We also developed the Enhanced Night Vision Goggle (“ENVG”) system, which optically overlays traditional night vision imagery with longwave thermal infrared imagery. The ENVG system enables users to effectively operate in extreme low-light and obscured battlefield conditions. We also design and manufacture other communications-related products which, when combined with night vision and intelligence dissemination products, form the Individual Soldier System integrated solution.
Public Safety and Professional Communications:     We are a global supplier of mission-critical secure communication systems and equipment for Federal, state and local public safety, utility, commercial and transportation organizations.
We design, build, supply and maintain wireless communications systems. Our Voice, Interoperability, Data and Access (“VIDA”) network platform is a unified IP-based voice and data communication system that provides network-level interoperable communications among public safety agencies by supporting a full line of communication systems, including P25 IP industry wide open standard technology. Our VIDA ® network solutions currently serve as the backbone in some of the largest and most advanced statewide and regional communication networks in North America. We also are investing in next-generation, secure public safety-grade Long Term Evolution (“LTE”) solutions for voice, video and data applications.
We offer a full range of single-band land mobile radio (“LMR”) terminals, as well as multiband radios that include a handheld radio and a full-spectrum mobile radio for vehicles. Our multiband radios cover all public safety frequency bands in a single radio; operate on Association of Public Safety Communications Officials - International (“APCO”) P25 conventional and trunked systems; and include advanced capabilities, such as an internal Global Positioning System receiver for situational awareness, internal secure Bluetooth ® wireless technology and background noise suppression features. They also have true software-defined radio architecture that allows flexibility for future growth, including an upgrade to APCO P25 Phase 2, the next-generation standard for mission-critical communications. Our radios’ multiband, multi-mode capabilities enable a single radio to communicate with multiple organizations, jurisdictions and agencies operating on different frequencies and systems. Our XL-200P multiband radio adds WiFi, WiFi Hotspot and LTE capabilities, as well as push-to-talk voice over IP in both WiFi and LTE, to P25/LMR capabilities and provides first responders the ability to communicate outside of their LMR coverage jurisdiction.
We also offer our Symphony TM dispatch console system, which features a space-saving hardware platform and an advanced user interface to simplify workflow and is customizable to enhance efficiencies. Our BeOn ® secure group communications application is designed to enable emergency response teams and public safety users to connect to their network seamlessly from a smartphone, tablet or personal computer for P25 push-to-talk interoperability without the added expense of an additional LMR terminal and provides a direct connection to the network backbone of many LMR systems.
Other examples of our Public Safety and Professional Communications solutions and services include the following:
Deploying digital trunked, statewide, multi-agency systems for the States of Florida, Maine and Nevada;
Deploying large, wide-area and multi-state LMR systems for some of the largest utility companies in the U.S.;
Deploying for the DoD-National Capitol Region network in the Washington, D.C. area a wide-area, IP-based P25 network that links nearly 20 military bases, providing wireless communications for military bases throughout the National Capitol Region, and that allows interoperability with local public safety agencies to provide one integrated regional network;
Designing and building the Alberta First Responders Radio Communications System for public safety communications within the 256,000 square-mile Province of Alberta, Canada; and
Designing, deploying and maintaining an APCO P25 system for the New York Metropolitan Transportation Authority Police to connect their police operations throughout 14 counties in New York and Connecticut and to help them support more than 14 million daily commuters.
Revenue, Operating Income and Backlog:     Revenue for our Communication Systems segment in fiscal 2017 , 2016 and 2015 was $1,753 million , $1,864 million and $1,836 million , respectively. Segment operating income in fiscal 2017 , 2016 and 2015 was $524 million , $522 million and $553 million , respectively. The percentage of our revenue contributed by this segment in fiscal 2017 , 2016 and 2015 was 30 percent , 31 percent and 47 percent , respectively. The percentage of this segment’s revenue in fiscal 2017 that was derived outside of the U.S. was approximately 50 percent . The percentage of this segment’s revenue in

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fiscal 2017 that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was approximately 42 percent . For a general description of our U.S. Government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see “Item 1. Business - Principal Customers; Government Contracts” of this Report.
In general, this segment’s domestic products are sold and serviced directly to customers through its sales organization and through established distribution channels. Internationally, this segment markets and sells its products and services through regional sales offices and established distribution channels. For a general description of our international business, see “Item 1. Business - International Business” of this Report.
The funded backlog for this segment was approximately $1.1 billion at the end of fiscal 2017 compared with approximately $1.0 billion at the end of fiscal 2016. Additional information regarding funded backlog is provided under “Item 1. Business - Funded Backlog” of this Report. For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Electronic Systems
Electronic Systems provides electronic warfare, avionics and C4ISR solutions, including robotics, advanced communications, integrated battle management solutions and maritime systems, for the defense industry and ATM solutions for the civil aviation industry. Many of our Electronic Systems segment solutions include reliable, resilient and innovative cyber capabilities.
We design, develop, produce and sell electronic warfare solutions for airborne, maritime and ground applications to most U.S. military service branches and to classified customers and allied nations. Our electronic warfare capabilities include threat identification, electronic countermeasures, decoys and expendables, strategic and situational support, electronic attack, passive coastal defense, radar, counter-improvised explosive devices (“IEDs”) and border surveillance. We have provided electronic warfare solutions for strategic and tactical fixed-wing and rotary aircraft such as the F/A-18E/F Super Hornet (“F/A-18”), F-16, B1-B, B-52, MC-130H, AC-130U, MH-60, MH-47 and CV-22 aircraft, and we also provide maritime electronic support measures (“ESM”) for surface and subsurface vessels.
Examples of our airborne electronic warfare technology include sophisticated sensor fusion for multispectral situational awareness, as well as internal and podded self-protection and jamming capabilities. Examples of our maritime electronic warfare technology include ESM systems for situational awareness and threat detection, including emitter identification to support tactical decisions and indications of possible hostile intentions; integrated self-protection systems and decoys that operate at every layer of shipboard defense; and electronic attack capabilities to disrupt and deny enemy operations. An example of our ground electronic warfare technology is counter-radio controlled IED technology that protects ground forces in asymmetrical combat environments by continually scanning for threatening radio frequency signals and denying enemy use of these portions of the electromagnetic spectrum, without disrupting friendly signals and keeping lines of communication open. We also develop and supply state-of-the-art wireless voice and data products and solutions.
We supply to the U.S. Navy and allied navies a broad range of undersea warfare systems for maritime platforms and environments, including minesweeping systems, shipboard command and control systems, anti-submarine warfare sonar systems, data link systems, submarine flank and passive towed arrays, and acoustic sensors for military and commercial uses. We produce influence and mechanical minesweeping systems and mine countermeasures that detect and neutralize subsurface threats to military and commercial maritime vessels. For example, our minesweeping technologies identify and safely detonate acoustic, magnetic and multiple-influence sea mines to enable naval operations and keep commercial vessels safe. Our transducer arrays are used in sonar and acoustic systems to support navigation and situational awareness, through search, detection, tracking and classification of targets, as well as capabilities for anti-submarine and torpedo self-defense.
We have decades of experience designing, testing and integrating advanced avionics equipment, electronics and software, including cockpit communications, digital maps, processors, sensors, data buses, fiber optics, microelectronics and conformal wideband antennas. We are a supplier of avionics systems and products on a variety of aircraft platforms, including the F-35 Lightning II (“F-35”) and the F/A-18. For F-35 and F/A-18 aircraft, we provide high-performance, advanced avionics such as high-speed fiber optic networking and switching, image processing, digital map software and other electronic components, including Multifunction Advanced Data Link communication subsystems primarily intended for stealth platform air-to-air communications with other network nodes without revealing positions. Our advanced antenna technologies provide communication, navigation, direction-finding and electronic warfare capabilities for military aircraft.
We design and produce aircraft carriage and release equipment and weapons interface systems for fighter jets, surveillance aircraft and unmanned aerial vehicles for the U.S. military and allied forces. Our carriage and release technology provides capabilities necessary for aircraft to successfully deliver mission payloads and support a variety of aircraft stores, including weapons, sonobuoys, electronics pods, fuel tanks and even unmanned vehicles. Our racks and launchers are components on

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aircraft including the F-35, F-22 Raptor, F/A-18, F-15E Strike Eagle, F-16 Fighting Falcon, P-8A Poseidon and MQ-9 Reaper. In addition to current pyrotechnic release technology, we have developed next-generation pneumatic and electronically actuated release systems. Our control electronics provide aircraft with the ability to communicate directly with smart and precision-guidance payloads and create compatibility between a wide range of stores and platforms.
We provide C4ISR solutions based on our major technology capabilities that include advanced ground control systems; SATCOM terminals for highly mobile, man-portable tactical, strategic fixed-site ground installation and shipboard receiver applications; and platform integration for battlefield management systems. Our SATCOM terminals connect forces with communication satellites to deliver mission-critical data, including high-resolution imagery and video requiring enormous bandwidth, securely and reliably to any platform. As an example, under the U.S. Army Modernization of Enterprise Terminals (“MET”) program, we developed next-generation large satellite Earth stations to provide the worldwide backbone for high-priority military communications and missile defense systems and to support IP and dedicated circuit connectivity within the Global Information Grid, providing critical reach-capability for the warfighter. We also serve as a platform integrator for battlefield management systems for U.S. and allied military forces in order to integrate data from a variety of platforms and sensors in support of planning and execution of operations, including terrain analysis, route management and global distribution of tactical and operational information, and to help military forces digitize their operations, providing a continuous, real-time platform for situational awareness and staff functions, including hostile and Blue Force Tracking, radio communications, planning, personnel, intelligence, local weather and other data. For example, we are providing an integrated battle management system to the United Arab Emirates Armed Forces under a 2-year contract awarded in fiscal 2017 for the Emirates Command & Control System Land Tactical Systems (“BMS-ELTS”) program.
We design and manufacture high-performance radar systems and signal intelligence systems for both domestic and international military customers. Our core radar capabilities include air defense radar, air traffic control (“ATC”) radar and airborne multifunction radar. Our advanced radar technologies support military and domestic operation missions in homeland security, law enforcement, search and rescue, disaster relief and environmental science. We provide electronic warfare and signals intelligence systems for reconnaissance and surveillance for electronic intelligence, ESM, electronic counter measures and signals intelligence applications.
We develop advanced, custom solutions that provide our government and commercial customers with self-protection, data protection, enhanced communications and situational awareness. We specialize in satellite-based communication systems, ground electronic warfare systems, commercial wireless technologies, tagging, tracking and locating, and information assurance. To combat the anti-access/area denial (“A2/AD”) threat, we leverage an adaptive multi-platform approach to ensure that users can connect and share data globally without being constrained by terrain or distance. We integrate data devices into A2/AD-resilient architectures that provide a secure global backbone for C4ISR capabilities against sophisticated adversaries.
Our ATM solutions include implementing and managing large, complex programs and integrating secure, advanced, standards-based communications and information processing technologies in order to provide highly reliable, customized, mission-critical communication systems, and surveillance solutions that meet the most demanding needs for our customers, including the FAA and other civil and military air navigation service providers (“ANSPs”), airports, airlines and system integrators.
As an example of our capabilities, we are the prime contractor and system architect for the FAA Telecommunications Infrastructure (“FTI”) program to integrate, modernize, operate and maintain the communications infrastructure for the U.S. ATC system. We designed and deployed, and are currently operating and maintaining, the FTI network, which is a fully operational, modern, secure and efficient network providing voice, data and video communications deployed at approximately 4,500 FAA sites across the U.S. (including administrative sites supported by the FTI network).
As part of the FAA’s Next Generation Air Transportation System (“NextGen”) initiative to transform the U.S. ATC system to meet future requirements, we are:
Transforming voice-based ATC to automated ATM under the Data Communications Integrated Services (“Datacomm”) program (including the Data Communications Network Service component);
Delivering systems for modern Voice Over Internet Protocol (“VoIP”) communications among air traffic controllers, pilots and ground personnel under the National Airspace System (“NAS”) Voice System contract;
Designing and implementing a system that provides real-time weather information across the NAS under the Common Support Services Weather program;
Providing enterprise-wide data sharing for critical information such as flight planning, traffic flow, surface radar and weather under a NAS Enterprise Messaging Service IDIQ contract for the Systems-Wide Information Management program; and
Designing, building and operating a nationwide system of radio communications, telecommunications networks, IT and software to deliver highly accurate, networked, real-time surveillance data to the automated systems of the FAA,

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as the prime contractor on the Automatic Dependent Surveillance-Broadcast (“ADS-B”) program to modernize from a ground-based to a satellite-based system of ATM.
We also have developed a number of other solutions under FAA programs, including a voice switching and control system providing the critical air-to-ground communication links between en-route aircraft and air traffic controllers throughout the continental U.S.; an integrated weather briefing and flight planning system for Alaska’s general aviation community; a meteorological data processing system that generates radar mosaic data for air traffic controller displays and delivers weather data to critical subsystems within the NAS; and a satellite-based, interfacility communication system linking the Alaskan Air Route Traffic Control Center in Anchorage with FAA facilities throughout the region.
We have extended our integrated network systems capabilities to the commercial aviation market with Symphony ® , our comprehensive, web-based application suite that enables key business functions, such as flight information display systems, billing, auditing, resource allocation, environmental monitoring and situational awareness, for airports and airlines to improve efficiencies in their operations.
In addition, we were awarded a 14-year (7-year base, 7-year option), single-award IDIQ contract from the State of Florida in fiscal 2017 to provide MyFloridaNet-2, a state-wide secure communications network with about 4,000 sites connecting public safety, law enforcement and other state and local government agencies.
As noted above, in the fourth quarter of fiscal 2016, we completed the divestiture of Aerostructures.
Revenue, Operating Income and Backlog:     Revenue for our Electronic Systems segment in fiscal 2017 , 2016 and 2015 was $2,251 million , $2,233 million and $1,019 million , respectively. Segment operating income in fiscal 2017 , 2016 and 2015 was $464 million , $430 million and $163 million , respectively. The percentage of our revenue contributed by this segment in fiscal 2017 , 2016 and 2015 was 38 percent , 37 percent and 26 percent , respectively. The percentages of this segment’s revenue under contracts directly with end customers and under contracts with prime contractors in fiscal 2017 were approximately 73 percent and 27 percent , respectively. In fiscal 2017 , this segment had a diverse portfolio of over 200 programs. Some of this segment’s more significant programs in fiscal 2017 included FTI, F-35, ADS-B, F/A-18E/F, MET and BMS-ELTS. The percentages of this segment’s revenue in fiscal 2017 represented by this segment’s largest program by revenue and ten largest programs by revenue were approximately 12 percent and 55 percent , respectively. The percentage of this segment’s revenue in fiscal 2017 that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was approximately 82 percent . For a general description of our U.S. Government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see “Item 1. Business - Principal Customers; Government Contracts” of this Report.
The funded backlog for this segment was approximately $1.9 billion at the end of each of fiscal 2017 and 2016. Additional information regarding funded backlog is provided under “Item 1. Business - Funded Backlog” of this Report. For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Space and Intelligence Systems
Space and Intelligence Systems provides intelligence, space protection, geospatial, complete Earth observation, universe exploration, PNT, and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics. Many of our Space and Intelligence Systems segment solutions include reliable, resilient and innovative cyber capabilities.
We develop, supply and integrate communication and information processing products, systems and networks for a diverse base of classified programs. Serving primarily U.S. Intelligence Community customers, including the NSA, the National Geospatial Intelligence Agency (“NGA”), the National Reconnaissance Office and the Defense Intelligence Agency, we provide integrated ISR solutions that improve situational awareness and intelligence value to decision makers. In addition, we have advanced capabilities in the architecture, design and development of highly specialized satellite antennas, structures, phased arrays and on-board reconfigurable processors that are used to enable next-generation satellite systems to provide the U.S. military and Intelligence Community with strategic and tactical advantages. Although classified programs generally are not discussed in this Report, the operating results relating to classified programs are included in our Consolidated Financial Statements. We believe that the business risks associated with our classified programs do not differ materially from the business risks associated with our other U.S. Government programs.
To help our U.S. Government customers gain, maintain and exploit space superiority, we provide the full spectrum of enterprise architecture services that support the long-term planning, development, integration and sustainment of highly advanced, mission-critical space-based and ground-based surveillance systems. We provide space situational awareness and design, integrate and sustain space control systems. For example, we sustain, maintain and modernize large radar installations

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globally and provide engineering support and sustainment for ground-based systems that support U.S. missile warning, missile defense and space surveillance missions for the U.S. Air Force under the System Engineering and Sustainment Integrator (“SENSOR”) program.
We provide integrated real-time, autonomous geospatial solutions, extending from image and data collection through processing, exploitation and dissemination of actionable intelligence. Our specialized capabilities include highly reliable remote sensing systems for ground, air, sea and space; data encryption; information processing; real-time forensic and predictive analytics; and system performance modeling and simulation. We also provide ground processing and analytics solutions that map and monitor Earth for a variety of government and commercial users.
Our geospatial solutions suite of products and services are designed to make it easier and more cost effective for customers to analyze the physical environment and obtain actionable information for more informed decisions, through advanced data collection sources, innovative software tools, and high-volume, high-accuracy processing services. Examples of these advanced products and solutions include:
Providing geospatial content management and imagery products for two of three regions for the Foundation GEOINT Content Management (“FGCM”) program under two 5-year, single-award IDIQ contracts awarded in fiscal 2014 by the NGA; and
Developing software for faster and more efficient search and retrieval of data from intelligence systems under a 5-year, single-award IDIQ contract awarded in fiscal 2017 by the NGA.
Our complete Earth observation solutions encompass comprehensive space, airborne, ground and sea remote sensing capabilities, from end-to-end remote sensing systems for global and regional situational awareness to integrated processing solutions on the ground and on airborne platforms that extract critical information and reduce time to high-confidence decisions. We specialize in remote sensing payloads that offer weather and environmental imagery, radar, video, tracking and multi-spectral information, as well as the processing, exploitation and dissemination of the data from these payloads to support our customers’ missions.
Our environmental solutions monitor and evaluate our global environment with ground-based and space-based remote sensing, change detection and data processing. We design, develop and build instruments to help measure, understand and monitor real-time weather and environmental trends to support decision making for government agencies, scientists, businesses and policy makers. In space, advanced environmental satellite systems utilize our imagers and sounders to deliver weather and environmental data back to Earth at high resolutions and speeds. On the ground, our satellite ground data processing systems, consisting of suites of hardware and software, receive sensor data from satellites and turn it into actionable information. Our weather ground systems, for example, are capable of handling multiple missions simultaneously across a common architecture and enable users to maximize the benefits of our new environmental imaging technology.
An example of our capabilities is our complete, end-to-end solution under the National Oceanic and Atmospheric Administration (“NOAA”) Geostationary Operational Environmental Satellite - Series R (“GOES-R”) Ground and Antenna Segment weather programs. We designed, developed and delivered to NOAA the ground segment system that receives and processes satellite data, generates and distributes weather data to more than 10,000 direct users, and commands and controls the GOES-R satellites. We are also supplying antennas and control systems that will provide communication links for command, telemetry and sensor data, as well as the communication link to direct data users. As an additional example, we are providing satellite sensors to measure pressure, moisture and thermal radiation for NASA’s Joint Polar Satellite System program.
We are a global provider of PNT products, systems and solutions. For example, our U.S. Global Positioning System (“GPS”) navigation systems comprise high-performance, reliable, cost-effective GPS payload, control and interference location solutions. Our navigation payload technology is an integral component of GPS satellites and supports GPS availability, accuracy and integrity. We currently are deploying advanced technologies under the GPS III program to improve the accuracy and reliability of the next generation of GPS satellites.
We also develop small, affordable, high-resolution, commercial imaging systems. We design, develop, manufacture and integrate agile and high-performance modular, reconfigurable space payloads that maximize mission performance. We help our customers achieve their space missions more quickly and cost effectively by brokering, designing and integrating multimission satellite hosted payloads. For example, we supplied Aireon, LLC with ADS-B receiver payloads that will be part of a satellite-based aircraft tracking system to enhance global ATC. The payloads will be hosted on the Iridium NEXT satellite constellation, but will provide a capability separate from the main mission of the constellation. We are placing additional commercial missions on the Iridium NEXT constellation by partnering with exactEarth Ltd. to track maritime vessels and deliver robust global shipping information through access to Satellite Automated Identification System data. Using our experience with hosted payloads, we are expanding into agile and resilient small satellite solutions, which we believe are aligned with the U.S. Government’s disaggregation and affordability initiatives.
We also provide space antenna systems and precision space structures. We are an experienced space reflector manufacturer and specialize in large, high-accuracy reflectors. From unfurlable and fixed-mesh reflector antennas to solid spot

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beam antennas, our solutions deliver significantly higher data rates and access greater amounts of bandwidth than standard satellite antenna technologies.
Other examples of our solutions for commercial customers include the following:
Our commercial tool suite to enable customers to extract information from geospatial imagery products, which consists of our Jagwire™ web-based geospatial data management software that quickly discovers data, transforms it into information and delivers it to decision makers, even in low bandwidth environments; and our ENVI® image analysis software that analyzes virtually any geospatial data type;
Our geospatial marketplace, which offers online access to geospatial imagery and data, off-the-shelf data products such as digital elevation models and orthomosaics, and customized geospatial products for visual simulation databases or to meet customer-specific project requirements; and
Our unique, Company-owned high-value commercial information for commercial and civil government markets, such as data from our Geiger-mode light detection and ranging (“LiDAR”) sensor that measures distance by illuminating a target with a laser, making large-scale and high-density point-cloud images possible at affordable prices.
Revenue, Operating Income and Backlog:     Revenue for our Space and Intelligence Systems segment in fiscal 2017 , 2016 and 2015 was $1,902 million , $1,899 million and $1,007 million , respectively. Segment operating income in fiscal 2017 , 2016 and 2015 was $311 million , $288 million and $136 million , respectively. The percentage of our revenue contributed by this segment in fiscal 2017 , 2016 and 2015 was 32 percent , 32 percent and 26 percent , respectively. The percentages of this segment’s revenue under contracts directly with end customers and under contracts with prime contractors in fiscal 2017 were approximately 72 percent and 28 percent , respectively. In fiscal 2017 , this segment had a diverse portfolio of over 200 programs. Some of this segment’s more significant programs in fiscal 2017 included SENSOR, GOES-R, GPS and various classified programs. The percentages of this segment’s revenue in fiscal 2017 represented by this segment’s largest program by revenue and ten largest programs by revenue were approximately 8 percent and 46 percent , respectively. The percentage of this segment’s revenue in fiscal 2017 that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was approximately 95 percent . For a general description of our U.S. Government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see “Item 1. Business - Principal Customers; Government Contracts” of this Report.
The funded backlog for this segment was approximately $1.1 billion at the end of each of fiscal 2017 and 2016. Additional information regarding funded backlog is provided under “Item 1. Business - Funded Backlog” of this Report. For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
International Business
Revenue from products and services exported from the U.S., including foreign military sales, or manufactured or rendered abroad in fiscal 2017 , 2016 and 2015 was $1.3 billion ( 22 percent of our revenue), $1.2 billion ( 20 percent of our revenue) and $1.1 billion ( 29 percent of our revenue), respectively. Most of our international sales were derived from our Communication Systems segment. Direct export sales are primarily denominated in U.S. Dollars, whereas sales from foreign subsidiaries are generally denominated in the local currency of the subsidiary. Financial information regarding our domestic and international operations, including long-lived assets, is contained in Note 24: Business Segments in the Notes and is incorporated herein by reference.
The majority of our international marketing activities are conducted through subsidiaries that operate in Europe, Asia, the Middle East, Africa, Australia and Canada. We have also established international marketing organizations and several regional sales offices. For further information regarding our international subsidiaries, see Exhibit 21 of this Report.
We utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or government customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. Our dealers and distributors generally receive a discount from our list prices and may mark up those prices in setting the final sales prices paid by the customer. The percentages of our total revenue and international revenue represented by revenue from indirect sales channels in fiscal 2017 , 2016 and 2015 were approximately 11 percent and 38 percent ; 15 percent and 62 percent ; and 20 percent and 57 percent , respectively.
Fiscal 2017 international revenue came from a large number of countries, and no single foreign country accounted for more than 5 percent of our total revenue. Some of our exports are paid for by letters of credit, with the balance carried either on an open account or installment note basis. Advance payments, progress payments or other similar payments received prior to or

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upon shipment often cover most of the related costs incurred. Significant foreign government contracts generally require us to provide performance guarantees. In order to remain competitive in international markets, we also sometimes enter into offset agreements or recourse or vendor financing arrangements to facilitate sales to certain customers.
The particular economic, social and political conditions for business conducted outside the U.S. differ from those encountered by domestic businesses. We believe that the overall business risk for our international business as a whole is somewhat greater than that faced by our domestic businesses as a whole. A description of the types of risks to which we are subject in our international business is contained in “Item 1A. Risk Factors” of this Report. In our opinion, these risks are partially mitigated by the diversification of our international business and the protection provided by letters of credit and advance payments, progress payments and other similar payments.
Competition
We operate in highly competitive markets that are sensitive to technological advances. Many of our competitors in each of our markets are larger than we are and can maintain higher levels of expenditures for research and development. In each of our markets, we concentrate on the opportunities that we believe are compatible with our resources, overall technological capabilities and objectives. Principal competitive factors in these markets are product quality and reliability; technological capabilities, including reliable, resilient and innovative cyber capabilities; service; past performance; ability to develop and implement complex, integrated solutions; ability to meet delivery schedules; the effectiveness of third-party sales channels in international markets; and cost-effectiveness. We frequently “partner” or are involved in subcontracting and teaming relationships with companies that are, from time to time, competitors on other programs.
In our Communication Systems segment, principal competitors include Aselsan, Elbit Systems, General Dynamics, L-3 Technologies, Motorola Solutions, Rockwell Collins, Raytheon, Rohde & Schwarz, Selex and Thales Group.
In our Electronic Systems segment, principal competitors include AT&T, BAE Systems, Boeing, General Dynamics, L-3 Technologies, Leidos, Lockheed Martin, Northrop Grumman, Raytheon and Rockwell Collins.
In our Space and Intelligence Systems segment, principal competitors include BAE Systems, Boeing, General Dynamics, L-3 Technologies, Lockheed Martin, Northrop Grumman, Raytheon and Rockwell Collins.
Principal Customers; Government Contracts
The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, in fiscal 2017 , 2016 and 2015 was approximately 74 percent , 77 percent and 66 percent , respectively. No other customer accounted for more than 5 percent of our revenue in fiscal 2017 . Additional information regarding customers for each of our segments is provided under “Item 1. Business — Description of Business by Segment” of this Report. Our U.S. Government sales are predominantly derived from contracts with agencies of, and prime contractors to, the U.S. Government. Most of the sales in our Electronic Systems and Space and Intelligence Systems segments are made directly or indirectly to the U.S. Government under contracts or subcontracts containing standard government contract clauses providing for redetermination of profits, if applicable, and for termination for the convenience of the U.S. Government or for default based on performance.
Our U.S. Government contracts and subcontracts include both cost-reimbursable and fixed-price contracts. Government-wide Acquisition Contracts (“GWACs”) and multi-vendor IDIQ contracts, which can include task orders for each contract type, require us to compete both for the initial contract and then for individual task or delivery orders under such contracts.
Our U.S. Government cost-reimbursable contracts provide for the reimbursement of allowable costs plus payment of a fee and fall into three basic types: (i) cost-plus fixed-fee contracts, which provide for payment of a fixed fee irrespective of the final cost of performance; (ii) cost-plus incentive-fee contracts, which provide for payment of a fee that may increase or decrease, within specified limits, based on actual results compared with contractual targets relating to factors such as cost, performance and delivery schedule; and (iii) cost-plus award-fee contracts, which provide for payment of an award fee determined at the customer’s discretion based on our performance against pre-established performance criteria. Under our U.S. Government cost-reimbursable contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract progress. Some overhead costs have been made partially or wholly unallowable for reimbursement by statute or regulation. Examples include certain merger and acquisition costs, lobbying costs, charitable contributions, interest expense and certain litigation defense costs.
Our U.S. Government fixed-price contracts are either firm fixed-price contracts or fixed-price incentive contracts. Under our U.S. Government firm fixed-price contracts, we agree to perform a specific scope of work for a fixed price and, as a result, benefit from cost savings and carry the burden of cost overruns. Under our U.S. Government fixed-price incentive contracts, we share with the U.S. Government both savings accrued for performance at less than target cost as well as costs incurred in excess of target cost up to a negotiated ceiling price, which is higher than the target cost, but carry the entire burden of costs exceeding the negotiated ceiling price. Accordingly, under such incentive contracts, profit may also be adjusted up or down depending on

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whether specified performance objectives are met. Under our U.S. Government firm fixed-price and fixed-price incentive contracts, we generally receive from the U.S. Government either milestone payments totaling 100 percent of the contract price or monthly progress payments in amounts equaling 80 percent of costs incurred under the contract. The remaining amounts, including profits or incentive fees, are billed upon delivery and final acceptance of end items and deliverables under the contract. Our production contracts are mainly fixed-price contracts, and development contracts are generally cost-reimbursable contracts.
As stated above, U.S. Government contracts are terminable for the convenience of the U.S. Government, as well as for default based on performance. Companies supplying goods and services to the U.S. Government are dependent on Congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies resulting from various military, political, economic and international developments. Long-term U.S. Government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods become unavailable. Under contracts terminable for the convenience of the U.S. Government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts that are terminable for default generally provide that the U.S. Government pays only for the work it has accepted and may require the contractor to pay for the incremental cost of re-procurement and may hold the contractor liable for damages. In many cases, there is also uncertainty relating to the complexity of designs, necessity for design improvements and difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work. Under many U.S. Government contracts, we are required to maintain facility and personnel security clearances complying with DoD and other Federal agency requirements. For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Funded Backlog
Total Company-wide funded backlog at the end of fiscal 2017 and 2016 was approximately $4.2 billion and $4.0 billion , respectively. The determination of backlog involves substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a cost-reimbursable or incentive nature. The level of order activity related to U.S. Government programs can be affected by timing of U.S. Government funding authorizations and project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.
We define funded backlog as unfilled firm orders for products and services for which funding has been authorized and, in the case of U.S. Government customers, appropriated. In fiscal 2018, we expect to convert to revenue approximately 64 percent of our total funded backlog as of the end of fiscal 2017. However, we can give no assurance of such fulfillment or that our funded backlog will become revenue in any particular period, if at all. Backlog is subject to delivery delays and program cancellations, which are beyond our control.
Research and Development
Company-sponsored research and development (“R&D”) costs, which included R&D for commercial products and services and independent R&D related to government products and services, as well as concept formulation studies and technology development that occurs on certain bid and proposal efforts, in fiscal 2017 , 2016 and 2015 were approximately $310 million, $305 million and $276 million, respectively. A portion of our independent R&D costs are allocated among contracts and programs in process under U.S. Government contractual arrangements. Company-sponsored R&D costs not otherwise allocable are charged to expense when incurred. Company-sponsored research is directed to the development of new products and services and to building technological capability in various markets.
Customer-sponsored R&D costs are incurred pursuant to contractual arrangements, principally U.S. Government-sponsored contracts requiring us to provide a product or service meeting certain defined performance or other specifications (such as designs). This research helps strengthen and broaden our technical capabilities. Customer-sponsored research costs are accounted for principally by the cost-to-cost percentage-of-completion method and included in our revenue and cost of product sales and services.
Patents and Other Intellectual Property
We consider our patents and other intellectual property, in the aggregate, to constitute an important asset. We own a large portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property, including reliable, resilient and innovative cyber capabilities, and we routinely apply for new patents, trademarks and copyrights. We also license intellectual property to and from third parties. As of June 30, 2017 , we held approximately 1,800 U.S. patents and 1,240 foreign patents, and had approximately 160 U.S. patent applications pending and 390  foreign patent applications pending. Unpatented research, development and engineering skills also make an important contribution to our business. Although our intellectual property rights in the aggregate are important to our business and the operations of our business segments, we do not consider our business or any business segment to be materially dependent on any single patent, license or other intellectual property right, or any group of related patents, licenses or other intellectual property rights. We are

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engaged in a proactive patent licensing program and have entered into a number of licenses and cross-license agreements, some of which generate royalty income. Although existing license agreements have generated income in past years and may do so in the future, there can be no assurances we will enter into additional income-producing license agreements. From time to time we engage in litigation to protect our patents and other intellectual property. Any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. For further discussion of risks relating to intellectual property, see “Item 1A. Risk Factors” of this Report. With regard to certain patents, the U.S. Government has an irrevocable, non-exclusive, royalty-free license, pursuant to which the U.S. Government may use or authorize others to use the inventions covered by such patents. Pursuant to similar arrangements, the U.S. Government may consent to our use of inventions covered by patents owned by other persons. Numerous trademarks used on or in connection with our products are also considered to be a valuable asset.
Environmental and Other Regulations
Our facilities and operations are subject to numerous domestic and international laws and regulations designed to protect the environment, particularly with regard to wastes and emissions. The applicable environmental laws and regulations are common within the industries and markets in which we operate and serve. We believe that we have complied with these requirements and that such compliance has not had a material adverse effect on our financial condition, results of operations or cash flows. We have installed waste treatment facilities and pollution control equipment to satisfy legal requirements and to achieve our waste minimization and prevention goals. A portion of our environmental expenditures relates to businesses or operations we no longer own, but for which we have retained certain environmental liabilities. We did not spend material amounts on environmental-related capital projects in fiscal 2017 , 2016 or 2015 . Based on currently available information, we do not expect capital expenditures in fiscal 2018 or over the next several years to protect the environment and to comply with current environmental laws and regulations, as well as to comply with current and pending climate control legislation, regulation, treaties and accords, to be material or to have a material impact on our competitive position or financial condition, but we can give no assurance that such expenditures will not exceed current expectations, and such expenditures may increase in future years. If future treaties, laws and regulations contain more stringent requirements than presently anticipated, actual expenditures may be higher than our present estimates of those expenditures.
Additional information regarding environmental and regulatory matters is set forth in “Item 3. Legal Proceedings” of this Report and in Note 1: Significant Accounting Policies and Note 25: Legal Proceedings and Contingencies in the Notes.
Electronic products are subject to governmental environmental regulation in a number of jurisdictions, such as domestic and international requirements requiring end-of-life management and/or restricting materials in products delivered to customers, including the European Union’s Directive 2012/19/EU on Waste Electrical and Electronic Equipment and Directive 2011/65/EU on the Restriction of the use of certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), as amended. Other jurisdictions have adopted similar legislation. Such requirements typically are not applicable to most equipment produced by our segments. We believe that we have complied with such rules and regulations, where applicable, with respect to our existing products sold into such jurisdictions. We intend to comply with such rules and regulations with respect to our future products.
Wireless communications, whether radio, satellite or telecommunications, are also subject to governmental regulation. Equipment produced in our Communication Systems segment, in particular, is subject to domestic and international requirements to avoid interference among users of radio and television frequencies and to permit interconnection of telecommunications equipment. We are also required to comply with technical operating and licensing requirements that pertain to our wireless licenses and operations. We believe that we have complied with such rules and regulations and licenses with respect to our existing products and services, and we intend to comply with such rules and regulations and licenses with respect to our future products and services. Governmental reallocation of the frequency spectrum also could impact our business, financial condition and results of operations.
Raw Materials and Supplies
Because of the diversity of our products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources for the wide array of raw materials, such as electronic components, printed circuit boards, metals and plastics, needed for our operations and for our products. We are dependent on suppliers and subcontractors for a large number of components and subsystems and the ability of our suppliers and subcontractors to adhere to customer or regulatory materials restrictions and to meet performance and quality specifications and delivery schedules. In some instances, we are dependent on one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. Although we have been affected by financial and performance issues of some of our suppliers and subcontractors, we have not been materially adversely affected by the inability to obtain raw materials or products. On occasion, we have experienced component shortages from vendors as a result of natural disasters, or the RoHS environmental regulations in the European Union or similar regulations in other jurisdictions. These events or regulations may cause a spike in demand for certain electronic components, such as lead-free components, resulting in industry-

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wide supply chain shortages. As of June 30, 2017 , these component shortages have not had a material adverse effect on our business. For further discussion of risks relating to subcontractors and suppliers, see “Item 1A. Risk Factors” of this Report.
Seasonality
We do not consider any material portion of our business to be seasonal. Various factors can affect the distribution of our revenue between accounting periods, including the timing of contract awards and the timing and availability of U.S.  Government funding, as well as the timing of product deliveries and customer acceptance.
Employees
We had approximately 17,000 employees at the end of fiscal 2017 . Approximately 95 percent of our employees as of the end of fiscal 2017 were located in the U.S. A significant number of our employees possess a U.S. Government security clearance. We also utilize a number of independent contractors. Approximately 600 of our U.S. employees are working under collective bargaining agreements with labor unions and worker representatives. These collective bargaining agreements will be renegotiated at various times over the next three years as they expire. We have historically renegotiated these agreements without significant disruption to operating activities. For certain international subsidiaries, our employees are represented by workers’ councils or statutory labor unions. In general, we believe that our relations with our employees are good.
Website Access to Harris Reports; Available Information
General.     We maintain an Internet website at https://www.harris.com . Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or furnished pursuant to Section 
13(a) or 15(d) of the Exchange Act, are available free of charge on our website as soon as reasonably practicable after these reports are electronically filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). We also will provide the reports in electronic or paper form free of charge upon request to our Secretary at Harris Corporation, 1025 West NASA Boulevard, Melbourne, Florida 32919. We also make available free of charge on our website our annual report to shareholders and proxy statement. Our website and the information posted thereon are not incorporated into this Report or any current or other periodic report that we file with or furnish to the SEC. All reports we file with or furnish to the SEC also are available free of charge via the SEC’s electronic data gathering and retrieval, or EDGAR, system available through the SEC’s website at https://www.sec.gov.
Additional information relating to our business, including our business segments, is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
Corporate Governance Guidelines and Committee Charters.     We previously adopted Corporate Governance Guidelines, which are available on the Corporate Governance section of our website at https://www.harris.com/about/corporate-governance . In addition, the charters of each of the standing committees of our Board, namely, the Audit Committee, Finance Committee, Governance and Corporate Responsibility Committee and Management Development and Compensation Committee, are also available on the Corporate Governance section of our website. A copy of the charters is also available free of charge upon written request to our Secretary at Harris Corporation, 1025 West NASA Boulevard, Melbourne, Florida 32919.
Certifications.     We have filed with the SEC the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Report. In addition, an annual CEO certification was submitted by our Chief Executive Officer to the NYSE in November 2016 in accordance with the NYSE’s listing standards, which included a certification that he was not aware of any violation by Harris of the NYSE’s corporate governance listing standards.
 
ITEM 1A.
RISK FACTORS.
We have described many of the trends and other factors that we believe could impact our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. In addition, our business, financial condition, results of operations and cash flows are subject to, and could be materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or our anticipated future results.
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 are highly dependent on sales to U.S. Government customers. The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, in fiscal 2017 , 2016 and 2015 was approximately 74 percent , 77 percent and 66 percent , respectively. Therefore, any significant disruption or deterioration of our relationship with the U.S. Government would significantly reduce our revenue. Our competitors continuously engage in efforts to expand their business relationships with the

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U.S. Government and will continue these efforts in the future, and the U.S. Government may choose to use other contractors. We expect that a majority of the business that we seek will be awarded through competitive bidding. The U.S. Government has increasingly relied on certain types of contracts that are subject to multiple competitive bidding processes, including multi-vendor IDIQ, GWAC, General Services Administration Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure. We operate in highly competitive markets, many of our competitors having greater financial resources than we do, and our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas, and we may not be able to continue to win competitively awarded contracts or to obtain task orders under multi-award contracts. Further, the competitive bidding process involves significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors, as well as the risk that we may fail to accurately estimate the resources and costs required to fulfill any contract awarded to us. The current competitive environment has resulted in unsuccessful bidders more frequently initiating bid protests. Following any contract award, we may experience significant expense or delay, contract modification or contract rescission as a result of our competitors protesting or challenging contracts awarded to us in competitive bidding. Our U.S. Government programs must compete with programs managed by other government contractors and with other policy imperatives for consideration for limited resources and for uncertain levels of funding during the budget and appropriations process. Budget and appropriations decisions made by the U.S. Government are outside of our control and have long-term consequences for our business. U.S. Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors, including sequestration (automatic, across-the-board U.S. Government budgetary spending cuts) and potential alternative funding arrangements. A change in U.S. Government spending priorities or an increase in non-procurement spending at the expense of our programs, or a reduction in total U.S. Government spending, could have material adverse consequences on our current or future business. The inability of the U.S. Government to pass a budget, potentially leading to a “continuing resolution” (flat funding levels) or to a U.S. Government shutdown, also could have material adverse consequences on our current or future business. For more information regarding sequestration, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Considerations — Industry-Wide Opportunities, Challenges and Risks” of this Report.
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.
Over its lifetime, a U.S. Government program may be implemented by the award of many different individual contracts and subcontracts. The funding of U.S. Government programs is subject to Congressional appropriations. Although multi-year contracts may be authorized and appropriated in connection with major procurements, Congress generally appropriates funds on a government fiscal year basis. Procurement funds are typically made available for obligation over the course of one to three years. Consequently, programs often receive only partial funding initially, and additional funds are obligated only as Congress authorizes further appropriations. The termination of funding for a U.S. Government program would result in a loss of anticipated future revenue attributable to that program, which could have an adverse impact on our operations. In addition, the termination of a program or the failure to commit additional funds to a program that already has been started could result in lost revenue and increase our overall costs of doing business.
Generally, U.S. Government contracts are subject to oversight audits by U.S. Government representatives. Such audits could result in adjustments to our contract costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs already reimbursed must be refunded. We have recorded contract revenue based on costs we expect to realize upon final audit. However, we do not know the outcome of any future audits and adjustments, and we may be required to materially reduce our revenue or profits upon completion and final negotiation of audits. Negative audit findings could also result in termination of a contract, forfeiture of profits, suspension of payments, fines and suspension or debarment from U.S. Government contracting or subcontracting for a period of time.
In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part, without prior notice at the U.S. Government’s convenience upon payment only for work done and commitments made at the time of termination. We can give no assurance that one or more of our U.S. Government contracts will not be terminated under these circumstances. Also, we can give no assurance that we would be able to procure new contracts to offset the revenue or backlog lost as a result of any termination of our U.S. Government contracts. Because a significant portion of our revenue is dependent on our performance and payment under our U.S. Government contracts, the loss of one or more large contracts could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Our government business also is subject to specific procurement regulations and a variety of socioeconomic and other requirements. These requirements, although customary in U.S. Government contracts, increase our performance and compliance costs. These costs might increase in the future, thereby reducing our margins, which could have an adverse effect on our business, financial condition, results of operations and cash flows. Failure to comply with these regulations and

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requirements could lead to fines, penalties, repayments, or compensatory or treble damages, or suspension or debarment from U.S. Government contracting or subcontracting for a period of time. Among the causes for debarment are violations of various laws, including those related to procurement integrity, export control, U.S. Government security regulations, employment practices, protection of the environment, accuracy of records, proper recording of costs and foreign corruption. The termination of a U.S. Government contract or relationship as a result of any of these acts would have an adverse impact on our operations and could have an adverse effect on our standing and eligibility for future U.S. Government contracts.
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.
We face the risk, as does any company, of a security breach, whether through cyber attack or cyber intrusion over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or with access to systems inside our organization, or other significant disruption of our IT networks and related systems. We face an added risk of a security breach or other significant disruption of the IT networks and related systems that we develop, install, operate and maintain for certain of our customers, which may involve managing and protecting information relating to national security and other sensitive government functions or personally identifiable or protected health information. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. As an advanced technology-based solutions provider, and particularly as a government contractor, we face a heightened risk of a security breach or disruption from threats to gain unauthorized access to our and our customers’ proprietary or classified information on our IT networks and related systems and to the IT networks and related systems that we operate and maintain for certain of our customers. These types of information and IT networks and related systems are critical to the operation of our business and essential to our ability to perform day-to-day operations, and, in some cases, are critical to the operations of certain of our customers. Although we make significant efforts to maintain the security and integrity of these types of information and IT networks and related systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. In some cases, the resources of foreign governments may be behind such attacks due to the nature of our business and the industries in which we operate. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. A security breach or other significant disruption involving these types of information and IT networks and related systems could:
Disrupt the proper functioning of these networks and systems and, therefore, our operations and/or those of certain of our customers;
Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
Compromise national security and other sensitive government functions;
Require significant management attention and resources to remedy the damages that result;
Subject us to claims for contract breach, damages, credits, penalties or termination; and
Damage our reputation with our customers (particularly agencies of the U.S. Government) and the public generally.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of operations and cash flows.
The U.S. Government’s budget deficit, the national debt and sequestration could have an adverse impact on our business, financial condition, results of operations and cash flows.
The U.S. Government’s budget deficit, the national debt and sequestration could have an adverse impact on our business, financial condition, results of operations and cash flows in a number of ways, including the following:
The U.S. Government could reduce or delay its spending on, or reprioritize its spending away from, the government programs in which we participate;
The U.S. Government may be unable to complete its budget process before the end of its fiscal year on September 30 and thus would be required either to shut down or be funded pursuant to a “continuing resolution” that authorizes agencies of the U.S. Government to continue operations but does not authorize new spending initiatives, either of which could result in reduced or delayed orders or payments for products and services we

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provide, which may decrease our revenue, profitability or cash flows or otherwise have a material adverse effect on our business, financial condition and results of operations;
U.S. Government spending could be impacted by sequestration or alternate arrangements, which increases the uncertainty as to, and the difficulty in predicting, U.S. Government spending priorities and levels; and
We may experience declines in revenue, profitability and cash flows as a result of reduced or delayed orders or payments or other factors caused by economic difficulties of our customers and prospective customers, including U.S. Federal, state and local governments.
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.
A substantial portion of our current and retired employee population is covered by defined benefit pension and other postretirement defined benefit plans (collectively, “defined benefit plans”), as a result of our acquisition of Exelis. We may experience significant fluctuations in costs related to defined benefit plans as a result of macro-economic factors, such as interest rates, that are beyond our control. The cost of our defined benefit plans is incurred over long periods of time and involves various factors and uncertainties during those periods that can be volatile and unpredictable, including the rates of return on defined benefit plan assets, discount rates used to calculate liabilities and expenses, mortality of plan participants and trends for future medical costs. We develop our assumptions using relevant plan experience and expectations in conjunction with market-related data. Our financial position and results of operations could be materially affected by significant changes in key economic indicators, financial market volatility, future legislation and other governmental regulatory actions.
We will make contributions to fund our defined benefit plans when considered necessary or advantageous to do so. The macro-economic factors discussed above, including the rates of return on defined benefit plan assets and the minimum funding requirements established by government funding or taxing authorities, or established by other agreement, may influence future funding requirements. A significant decline in the fair value of our plan assets, or other adverse changes to our overall defined benefit plans, could require us to make significant funding contributions and affect cash flows in future periods.
U.S. Government Cost Accounting Standards (“CAS”) govern the extent to which postretirement costs and plan contributions are allocable to and recoverable under contracts with the U.S. Government. As a result, we expect to continue to seek reimbursement from the U.S. Government for a portion of our postretirement costs and plan contributions.
On December 27, 2011 the U.S. Government’s Cost Accounting Standards Board published a final rule that harmonizes CAS pension cost reimbursement rules with the Pension Protection Act of 2006 (“PPA”) funding requirements. The rule is expected to eventually mitigate the mismatch between CAS costs and PPA-amended Employee Retirement Income Security Act of 1974 (“ERISA”) minimum funding requirements, and result in an acceleration of allowable CAS pension costs as compared to the prior rules. The final rule applied to Exelis’ contracts starting in 2013, including a five-year phase in. The full phase-in was achieved in 2017. We anticipate that government contractors will be entitled to an equitable adjustment for any additional CAS contract costs resulting from the final rule, although we can give no assurances in this regard.
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 have a number of fixed-price contracts, which allow us to benefit from cost savings, but subject us to the risk of potential cost overruns, particularly for firm fixed-price contracts because we assume all of the cost burden. If our initial estimates are incorrect, we can lose money on these contracts. U.S. Government contracts can expose us to potentially large losses because the U.S. Government can hold us responsible for completing a project or, in certain circumstances, paying the entire cost of its replacement by another provider regardless of the size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these contracts involve new technologies and applications and can last for years, unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, problems with our suppliers and cost overruns, can result in the contractual price becoming less favorable or even unprofitable to us over time. The U.S. and other countries also may experience a significant increase in inflation. A significant increase in inflation rates could have a significant adverse impact on the profitability of these contracts. Furthermore, if we do not meet contract deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts we may not realize their full benefits. Our results of operations are dependent on our ability to maximize our earnings from our contracts. Cost overruns could have an adverse impact on our financial results. The potential impact of such risk on our financial results would increase if the mix of our contracts and programs shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts.
We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our future financial results.
Accounting for our contracts requires judgment relative to assessing risks, including risks associated with customer directed delays and reductions in scheduled deliveries, unfavorable resolutions of claims and contractual matters, judgments

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associated with estimating contract revenue and costs, and assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. For example, we must make assumptions regarding: (i) the length of time to complete the contract because costs also include expected increases in wages and prices for materials; (ii) whether the intent of entering into multiple contracts was effectively to enter into a single project in order to determine whether such contracts should be combined or segmented; (iii) incentives or penalties related to performance on contracts in estimating revenue and profit rates, and record them when there is sufficient information for us to assess anticipated performance; and (iv) estimates of award fees in estimating revenue and profit rates based on actual and anticipated awards. Because of the significance of the judgments and estimation processes involved in accounting for our contracts, materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future results of operations and financial condition.

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.
We are dependent on sales to customers outside the U.S. The percentage of our total revenue represented by revenue from products and services exported from the U.S., including foreign military sales, or manufactured or rendered abroad in fiscal 2017 , 2016 and 2015 was 22 percent , 20 percent and 29 percent , respectively. Approximately 20 percent of our international business in fiscal 2017 was transacted in local currency. Losses resulting from currency rate fluctuations can adversely affect our results. We expect that international revenue will continue to account for a significant portion of our total revenue. Also, a significant portion of our international revenue is from, and a significant portion of our business activity is being conducted with or in, less-developed countries and sometimes countries with unstable governments, or in areas of military conflict or at military installations. We are subject to risks of doing business internationally, including:
Currency exchange controls, fluctuations of currency and currency revaluations;
The laws, regulations and policies of foreign governments relating to investments and operations, as well as U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act (“FCPA”);
Import and export licensing requirements and regulations, as well as unforeseen changes in export controls and other trade regulations;
Changes in regulatory requirements, including business or operating license requirements, imposition of tariffs or embargoes;
Uncertainties and restrictions concerning the availability of funding, credit or guarantees;
Risk of non-payment or delayed payment by foreign governments;
Contractual obligations to non-U.S. customers may include specific in-country purchases, investments, manufacturing agreements or financial or other support arrangements or obligations, known as offset obligations, that may extend over several years, may require teaming with local companies and may result in significant penalties if not satisfied;
The complexity and necessity of using, and disruptions involving our, international dealers, distributors, sales representatives and consultants;
The difficulties of managing a geographically dispersed organization and culturally diverse workforces, including compliance with local laws and practices;
Difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner and changes in tax laws;
Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional requirements for onerous contract terms;
Rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation; and
Increased risk of an incident resulting in damage or destruction to our facilities or products or resulting in injury or loss of life to our employees, subcontractors or other third parties.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.
We have implemented compliance controls, policies and procedures designed to prevent reckless or criminal acts from being committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which we operate, including laws governing payments to government officials, such as the FCPA, and to detect any such reckless or criminal acts committed. We cannot ensure, however, that our controls, policies and procedures will prevent or detect all such reckless or criminal acts, and we have been adversely impacted by such acts in the past. If not prevented, such reckless or criminal acts could subject us to civil or criminal investigations, monetary and non-monetary penalties and suspension and debarment by the U.S. Government and could have a material adverse effect on our ability to conduct business, our results of

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operations and our reputation. In addition, misconduct involving data security lapses resulting in the compromise of personal information or the improper use of our customer’s sensitive or classified information could result in remediation costs, regulatory sanctions against us and serious harm to our reputation and could adversely impact our ability to continue to contract with the U.S. Government.
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.
We must first obtain export and other licenses and authorizations from various U.S. Government agencies before we are permitted to sell certain products and technologies outside of the U.S. For example, the U.S. Department of State must notify Congress at least 15 to 60 days, depending on the size and location of the proposed sale, prior to authorizing certain sales of defense equipment and services to foreign governments. During that time, Congress may take action to block the proposed sale. We can give no assurance that we will continue to be successful in obtaining the necessary licenses or authorizations or that Congress will not prevent or delay certain sales. Any significant impairment of our ability to sell products or technologies outside of the U.S. could negatively impact 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.
Our businesses are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our performance depends on a number of factors, including our ability to:
Identify emerging technological trends in our current and target markets;
Develop and maintain competitive products, systems, services and technologies;
Enhance our offerings by adding innovative hardware, software or other features that differentiate our products, systems, services and technologies from those of our competitors; and
Develop, manufacture and bring to market cost-effective offerings quickly.
We believe that, in order to remain competitive in the future, we will need to continue to develop new products, systems, services and technologies, requiring the investment of significant financial resources. The need to make these expenditures could divert our attention and resources from other projects, and we cannot be sure that these expenditures ultimately will lead to the timely development of new products, systems, services or technologies. Due to the design complexity of some of our products, systems, services and technologies, we may experience delays in completing development and introducing new products, systems, services or technologies in the future. Any delays could result in increased costs of development or redirect resources from other projects. In addition, we cannot provide assurances that the markets for our products, systems, services or technologies will develop as we currently anticipate. The failure of our products, systems, services or technologies to gain market acceptance could significantly reduce our revenue and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing products, systems, services or technologies that gain market acceptance in advance of our products, systems, services or technologies, or that our competitors will not develop new products, systems, services or technologies that cause our existing products, systems, services or technologies to become non-competitive or obsolete, which could adversely affect our results of operations. The future direction of the domestic and global economies, including its impact on customer demand, also will have a significant impact on our overall performance.
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 participate in U.S. and international markets that are subject to uncertain economic conditions. In particular, U.S. Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors, including sequestration and potential alternative funding arrangements. In addition, certain of our non-U.S. customers, including in the Middle East and other oil or natural-gas producing countries, could be adversely affected by weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, which could adversely affect demand for tactical communications or other products. As a result, it is difficult to estimate the level of growth in the markets in which we participate. Because all components of our budgeting and forecasting are dependent on estimates of growth in the markets we serve, the uncertainty renders estimates of or guidance relating to future revenue, income and expenditures even more difficult. As a result, we may make significant investments and expenditures but never realize the anticipated benefits.
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.
Ongoing instability and current conflicts in global markets, including in the Middle East and Asia, and the potential for other conflicts and future terrorist activities and other recent geo-political events throughout the world, including the pending voluntary exit of the United Kingdom from the European Union (commonly referred to as “Brexit”), have created economic and political uncertainties that could have a material adverse effect on our business, operations and profitability. These matters cause uncertainty in the world’s financial and insurance markets and may significantly increase the political, economic and

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social instability in the geographic areas in which we operate. These matters may cause us to incur increased costs or experience difficulty with future borrowings under our commercial paper program or credit facilities or in the debt markets, or otherwise with financing our operating, investing (including any future acquisitions) or financing activities. These matters also may cause our insurance coverages and performance bonds to increase in cost, or in some cases, to be unavailable altogether.
We have made, and may continue to make, strategic acquisitions and divestitures that involve significant risks and uncertainties.
Strategic acquisitions and divestitures that we have made in the past, and may continue to make, present significant risks and uncertainties, which include:
Difficulty in identifying and evaluating potential acquisitions, including the risk that our due diligence does not identify or fully assess valuation issues, potential liabilities or other acquisition risks;
Difficulty and expense in integrating newly acquired businesses and operations, including combining product and service offerings, and in entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures, and the risk that we encounter significant unanticipated costs or other problems associated with integration;
Difficulty and expense in consolidating and rationalizing IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code;
Challenges in achieving strategic objectives, cost savings and other benefits expected from acquisitions;
Risk that our markets do not evolve as anticipated and that the strategic acquisitions and divestitures do not prove to be those needed to be successful in those markets;
Risk that we assume significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties;
Risk that indemnification related to divested businesses that we may be required to provide to acquirers of such businesses or that applicable purchase price adjustments related to such divestitures may be significant and could negatively impact our business;
Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions, including non-competition arrangements applicable to certain of our business lines, or within expected timeframes; 
Potential loss of key employees or customers of the businesses acquired or to be divested; and
Risk of diverting the attention of senior management from our existing operations.
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.
We engage subcontractors on many of our contracts. We may have disputes with our subcontractors, including regarding the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontract or subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract, our hiring of the personnel of a subcontractor or vice versa or the subcontractor’s failure to comply with applicable law. In addition, there are certain parts, components and services for many of our products and services that we source from other manufacturers or vendors. Some of our suppliers, from time to time, experience financial and operational difficulties, which may impact their ability to supply the materials, components, subsystems and services that we require. Our supply chain could also be disrupted by external events, such as natural disasters or other significant disruptions (including extreme weather conditions, medical epidemics, acts of terrorism, cyber attacks and labor disputes), governmental actions and legislative or regulatory changes, including product certification or stewardship requirements, sourcing restrictions, product authenticity and climate change or greenhouse gas emission standards. Any inability to develop alternative sources of supply on a cost-effective and timely basis could materially impair our ability to manufacture and deliver products and services to our customers. We can give no assurances that we will be free from disputes with our subcontractors, material supply problems or component, subsystems or services problems in the future. Also, our subcontractors and other suppliers may not be able to acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result in greater product returns, service problems and warranty claims and could harm our business, financial condition, results of operations and cash flows. In addition, in connection with our government contracts, we are required to procure certain materials, components and parts from supply sources approved by the U.S. Government and we rely on our subcontractors and suppliers to comply with applicable laws, regulations and other requirements regarding procurement of counterfeit, unauthorized or otherwise non-compliant parts or materials, including parts or materials they supply to us, and in some circumstances, we rely on their certifications as to their compliance. From time to time, there are components for which there may be only one supplier. The inability of a sole source supplier to meet our needs could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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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.
Many of the markets we serve are characterized by vigorous protection and pursuit of intellectual property rights, which often has resulted in protracted and expensive litigation. 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 we may be found to be infringing or to have infringed directly or indirectly upon those intellectual property rights. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products, services and solutions. Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing arrangements to establish and protect our intellectual property rights. If we fail to successfully protect and enforce these rights, our competitive position could suffer. Our pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of our patents or trademark registrations. In addition, our patents may not provide us a significant competitive advantage. We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and our competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop competing technologies.
The outcome of litigation or arbitration in which we are involved from time to time 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.
From time to time, we are defendants in a number of litigation matters and are involved in a number of arbitrations. These actions may divert financial and management resources that would otherwise be used to benefit our operations. No assurances can be given that the results of these or new matters will be favorable to us. An adverse resolution of lawsuits or arbitrations 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.
We are exposed to liabilities that are unique to the products and services we provide. A significant portion of our business relates to designing, developing and manufacturing advanced defense, technology and communications systems and products. New technologies associated with these systems and products may be untested or unproven. Components of certain of the defense systems and products we develop are inherently dangerous. Failures of satellites, missile systems, air traffic control systems, electronic warfare systems, space superiority systems, C4ISR systems, homeland security applications and aircraft have the potential to cause loss of life and extensive property damage. Other examples of unforeseen problems that could result, either directly or indirectly, in the loss of life or property or otherwise negatively affect revenue and profitability include loss on launch of spacecraft, premature failure of products that cannot be accessed for repair or replacement, problems with quality and workmanship, country of origin, delivery of subcontractor components or services and unplanned degradation of product performance. In addition, problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions or materials and components could prevent us from achieving contractual requirements. In many circumstances, we may receive indemnification from the U.S. Government. We generally do not receive indemnification from foreign governments. Although we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of U.S. Government indemnity and our insurance coverage would harm our financial condition, results of operations and cash flows. Other factors that may affect revenue and profits include loss of follow-on work, and, in the case of certain contracts, liquidated damages, penalties and repayment to the customer of contract cost and fee payments we previously received. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.

Changes in our effective tax rate may have an adverse effect on our results of operations.
Our future effective tax rate may be adversely affected by a number of factors including:
The jurisdictions in which profits are determined to be earned and taxed;
Adjustments to estimated taxes upon finalization of various tax returns;
Increases in expenses not fully deductible for tax purposes, including write-offs of acquired in-process R&D and impairment of goodwill or other long-term assets in connection with acquisitions;
Changes in available tax credits;
Changes in share-based compensation expense;
Changes in the valuation of our deferred tax assets and liabilities;
Changes in domestic or international tax laws or the interpretation of such tax laws; and

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The resolution of issues arising from tax audits with various tax authorities.
Any significant increase in our future effective tax rates could adversely impact our results of operations for future periods.
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit plans liability may adversely affect our financial and operating activities or our ability to incur additional debt.
At the end of fiscal 2017 , we had $3.9 billion in aggregate principal amount of outstanding debt and approximately $1.3 billion of unfunded defined benefit plans liability. In the future we may increase our borrowings; however, our ability to do so will be subject to limitations imposed on us by our debt agreements. Our ability to make payments on and to refinance our indebtedness as well as any future debt that we may incur and our ability to make contributions to our unfunded defined benefit plans liability, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are not able to repay or refinance our debt as it becomes due or make contributions to our unfunded defined benefit plans liability, we may be forced to sell assets or take other disadvantageous actions, including reducing financing in the future for working capital, capital expenditures and general corporate purposes; reducing our cash dividend rate and/or share repurchases; or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the defense technology industry could be impaired. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of any of our other debt.
A downgrade in our credit ratings could materially adversely affect our business.
The credit ratings assigned to our debt securities could change based on, among other things, our results of operations, financial condition, mergers, acquisitions or dispositions. These ratings are subject to ongoing evaluation by credit rating agencies, and there can be no assurance that any rating will not be changed or withdrawn by a rating agency in the future. Moreover, these credit ratings are not recommendations to buy, sell or hold any of our debt securities. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade or have been assigned a negative outlook, would likely increase our borrowing costs and affect our ability to incur new indebtedness or refinance our existing indebtedness, which in turn could have a material adverse effect on our financial condition, results of operations and cash flows and the market value of our common stock and outstanding debt securities.
Unforeseen environmental issues could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our operations are subject to and affected by many Federal, state, local and foreign environmental laws and regulations. In addition, we could be affected by future environmental laws or regulations, including, for example, new restrictions on materials used in our operations. Compliance with current and future environmental laws and regulations may require significant operating and capital costs. Environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to address violations, and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations related to remediation of conditions in the environment. In addition, if violations of environmental laws result in our, or in one or more of our operations, being identified as an excluded party in the U.S. Government’s System for Award Management, then we or one or more of our operations would become ineligible to receive certain contracts, subcontracts and other benefits from the Federal government or to perform work under a government contract or subcontract. Generally, such ineligibility would continue until the basis for the listing has been appropriately addressed. Developments such as the adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments under previously priced contracts, or financial insolvency of other responsible parties 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.
Our corporate headquarters and significant business operations are located in Florida, which is subject to the risk of major hurricanes. Our worldwide operations and operations of our suppliers could be subject to natural disasters or other significant disruptions, including hurricanes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power shortages and blackouts, telecommunications failures, cyber attacks and other natural and manmade disasters or disruptions. In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our operations or the operations of our suppliers, subcontractors, distributors, resellers

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or customers; destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses and materially adversely affect 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.
As part of our overall strategy, we will, from time to time, acquire a minority or majority interest in a business. These investments are made upon careful analysis and due diligence procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining acquisition price. After acquisition, such assumptions and judgment may prove to have been inaccurate and unforeseen issues could arise, which could adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. Goodwill accounted for approximately 53 percent of our recorded total assets as of June 30, 2017 . We evaluate the recoverability of recorded goodwill annually, as well as when we change reporting units and when events or circumstances indicate there may be an impairment. The impairment test is based on several factors requiring judgment. Principally, a decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill. Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could have a material adverse effect on our results of operations and financial condition. For additional information on accounting policies we have in place for impairment of goodwill, see our discussion under “Critical Accounting Policies and Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report and Note 1: Significant Accounting Policies and Note 8: Goodwill in the Notes.
Some of our workforce is represented by labor unions, so our business could be harmed in the event of a prolonged work stoppage.
Approximately 600 of our U.S. employees are unionized, which represented approximately 4 percent of our employee-base at the end of fiscal 2017 . As a result, we may experience work stoppages, which could adversely affect our business. We cannot predict how stable our union relationships will be or whether we will be able to successfully negotiate successor collective bargaining agreements without impacting our financial condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce. Work stoppages could negatively impact our ability to manufacture our products on a timely basis, which could negatively impact our business, financial condition, results of operations and cash flows.
We must attract and retain key employees, and failure to do so could seriously harm us.
Our business has a continuing need to attract and retain significant numbers of skilled personnel, including personnel holding security clearances, to support our growth and to replace individuals whose employment has terminated due to retirement or other reasons. To the extent that the demand for qualified personnel exceeds supply, as has been the case from time to time in recent years, we could experience higher labor, recruiting or training costs in order to attract and retain such employees, or could experience difficulties in performing under our contracts if our needs for such employees were unmet.
Risks Relating to the Spin-off of Vectrus Completed by Exelis
On September 27, 2014, before being acquired by Harris, Exelis completed the spin-off of Vectrus, Inc. (“Vectrus”). After the spin-off, Exelis and Vectrus operated independently of each other and neither company had an ownership interest in the other. Prior to the completion of the spin-off, Exelis and Vectrus entered into a Distribution Agreement and related separation agreements that provided mechanisms for an orderly separation and govern the post-separation relationship between Exelis and Vectrus. These agreements generally provide that each party is responsible for its respective assets, liabilities and obligations following the spin-off, including employee benefits, intellectual property, IT, insurance and tax-related assets and liabilities. The agreements also set forth Exelis’ obligation to provide Vectrus with certain temporary transition services. The agreements include the Distribution Agreement, Employee Matters Agreement, Tax Matters Agreement, Transition Services Agreement and several intellectual property agreements. The following are among the risks we face in connection with the spin-off of Vectrus completed by Exelis:
We may be responsible for U.S. Federal income tax liabilities that relate to the spin-off of Vectrus completed by Exelis.
In connection with the spin-off of Vectrus, completed by Exelis prior to our acquisition of Exelis, Exelis received an opinion of tax counsel substantially to the effect that, for U.S. Federal income tax purposes, the spin-off will qualify for tax-free treatment under section 355 of the Internal Revenue Code. However, if the factual assumptions or representations made in the opinion are inaccurate or incomplete in any material respect, including those relating to the past and future conduct of our business, we will not be able to rely on the opinion. Furthermore, the opinion is not binding on the Internal Revenue Service (“IRS”) or the courts. Accordingly, the IRS or the courts may challenge the conclusions stated in the opinion and such challenge could prevail. If, notwithstanding receipt of the opinion, the spin-off is determined to be taxable, we would be subject to a substantial tax liability. In addition, if the spin-off transaction is taxable, each holder of Exelis common stock who received

23


shares of Vectrus in the spin-off would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares received, thereby potentially increasing such holder’s tax liability. Even if the Vectrus spin-off otherwise qualifies as a tax-free transaction, the distribution could be taxable to us (but not to holders of Exelis common stock who received shares of Vectrus in the spin-off) in certain circumstances if subsequent significant acquisitions of Exelis stock or the stock of Vectrus were deemed to be part of a plan or series of related transactions that include the Vectrus spin-off. In this event, the resulting tax liability could be substantial.
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.
As part of the Distribution Agreement, Exelis and Vectrus indemnified each other with respect to such parties’ assumed or retained liabilities pursuant to the Distribution Agreement and breaches of the Distribution Agreement or related separation agreements. There can be no assurance that the indemnity from Vectrus will be sufficient to protect us against the full amount of these and other liabilities, or that Vectrus will be able to fully satisfy its indemnification obligations. Third parties also could seek to hold us responsible for any of the liabilities that Vectrus has agreed to assume. Even if we ultimately succeed in recovering from Vectrus any amounts for which we are held liable, we may be temporarily required to bear those losses ourselves. In addition, performance on indemnities that Exelis provided Vectrus may be significant and could negatively impact our business. Each of these risks could negatively affect our business, financial condition, results of operations and cash flows.
The Vectrus spin-off may expose us to potential liabilities arising out of state and Federal fraudulent conveyance laws and legal distribution requirements.
The Vectrus spin-off could be challenged under various U.S. state and Federal fraudulent conveyance laws. An unpaid creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that Exelis did not receive fair consideration or reasonably equivalent value in the spin-off, and that the spin-off left Exelis insolvent or with unreasonably small capital or that Exelis intended or believed it would incur debts beyond its ability to pay such debts as they mature. If a court were to agree with such a plaintiff, then such court could void the spin-off as a fraudulent transfer and could impose a number of different remedies, including, without limitation, returning assets or Vectrus shares to Exelis or providing Exelis with a claim for money damages against Vectrus in an amount equal to the difference between the consideration received by Exelis and the fair market value of Vectrus at the time of the spin-off.
The measure of insolvency for purposes of fraudulent conveyance laws may vary depending on which jurisdiction’s law is applied. Generally, however, an entity would be considered insolvent if the fair saleable value of its assets is less than the amount of its liabilities (including the probable amount of contingent liabilities), and such entity would be considered to have unreasonably small capital if it lacked adequate capital to conduct its business in the ordinary course and pay its liabilities as they become due. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that Exelis was solvent at the time of or after giving effect to the spin-off, including the distribution of Vectrus common stock.
The distribution by Exelis of the Vectrus common stock in the spin-off also could be challenged under state corporate distribution statutes. Under the Indiana Business Corporation Law, a corporation may not make distributions to its shareholders if, after giving effect to the distribution, (i) the corporation would not be able to pay its debts as they become due in the usual course of business; or (ii) the corporation’s total assets would be less than the sum of its total liabilities. No assurance can be given that a court will not later determine that the distribution by Exelis of Vectrus common stock in the spin-off was unlawful. Each of these risks could adversely affect our business, financial condition, results of operations and cash flows.
Risks Relating to the Spin-off of Exelis from ITT Corporation
In 2011, ITT Corporation (“ITT”) completed a transaction resulting in the spin-off of Exelis and Xylem, Inc. (“Xylem”). After the spin-off, Exelis, ITT and Xylem operated independently of each other and none of the companies had any ownership interest in the other. In order to govern certain ongoing relationships between Exelis, ITT and Xylem following the spin-off and to provide mechanisms for an orderly transition, Exelis, ITT and Xylem executed various agreements that govern the ongoing relationships between and among the three companies after the spin-off and provide for the allocation of employee benefits, income taxes, and certain other liabilities and obligations attributable to periods prior to the spin-off. The executed agreements include the Distribution Agreement, Benefits and Compensation Matters Agreement, Tax Matters Agreement, several real estate matters agreements and Master Transition Services Agreement.
The Distribution Agreement provides for certain indemnifications and cross-indemnifications among Exelis, ITT and Xylem. The indemnifications address a variety of subjects, including indemnification by ITT of Exelis in respect of certain asserted and unasserted asbestos or silica liability claims. These indemnifications include claims relating to the presence or alleged presence of asbestos or silica in products manufactured, repaired or sold prior to the distribution date, subject to limited exceptions with respect to certain employee claims. These indemnifications also include claims relating to the presence or

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alleged presence of asbestos or silica in the structure or material of any building or facility, subject to exceptions with respect to employee claims relating to Exelis or Xylem buildings or facilities. The indemnifications are absolute and indefinite. The indemnification associated with pending and future asbestos and silica claims does not expire. There can be no assurance, however, that ITT will be able to satisfy its indemnification obligations.
The Tax Matters Agreement governs the respective rights, responsibilities and obligations of Exelis, ITT and Xylem after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. Federal, state, local and foreign income taxes, other tax matters and related tax returns. Exelis has joint and several liability with ITT and Xylem to the IRS for the consolidated U.S. Federal income taxes of the ITT consolidated group relating to the taxable periods in which Exelis was part of that group. However, the Tax Matters Agreement specifies the portion, if any, of this liability for which Exelis bears responsibility, and ITT and Xylem agree to indemnify Exelis against any amounts for which Exelis is not responsible. Though valid as between the parties, the Tax Matters Agreement is not binding on the IRS.
The following are among the risks we face in connection with Exelis’ spin-off from ITT:
The ITT spin-off of Exelis may expose us to potential liabilities arising out of state and Federal fraudulent conveyance laws and legal distribution requirements.
Exelis’ spin-off from ITT could be challenged under various U.S. state and Federal fraudulent conveyance laws. An unpaid creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that the ITT spin-off left Exelis, ITT and/or Xylem insolvent or with unreasonably small capital, or that Exelis, ITT and/or Xylem intended or believed it would incur debts beyond its ability to pay such debts as they mature and that ITT did not receive fair consideration or reasonably equivalent value in the ITT spin-off. If a court were to agree with such a plaintiff, then such court could void the ITT spin-off as a fraudulent transfer and could impose a number of different remedies, which could adversely affect our business, financial condition, results of operations and cash flows.
If we are required to indemnify ITT or 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.
Pursuant to the Distribution Agreement entered into in connection with the ITT spin-off and certain other agreements among Exelis, ITT and Xylem, ITT and Xylem agreed to indemnify Exelis from certain liabilities, and Exelis agreed to indemnify ITT and Xylem for certain liabilities as discussed further above. Indemnities that we may be required to provide ITT and Xylem may be significant and could negatively impact our business. Further, there can be no assurance that the indemnity from ITT and Xylem will be sufficient to protect us against the full amount of such liabilities, or that ITT or Xylem will be able to fully satisfy its indemnification obligations. Each of these risks could negatively affect our business, financial condition, results of operations and cash flows.
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
We have no unresolved comments from the SEC.
 
ITEM 2.
PROPERTIES.
Our principal executive offices are located at owned facilities in Melbourne, Florida. As of June 30, 2017 , we operated approximately 170 locations in the U.S., Canada, Europe, the Middle East and Asia, consisting of approximately 10 million square feet of manufacturing, administrative, R&D, warehousing, engineering and office space, of which we owned approximately 7 million square feet and leased approximately 3 million square feet. There are no material encumbrances on any of our owned facilities. Our leased facilities are, for the most part, occupied under leases for remaining terms ranging from one month to 10 years, a majority of which can be terminated or renewed at no longer than 5-year intervals at our option. As of June 30, 2017 , we had major operations at the following locations:
Communication Systems  — Rochester, New York; Lynchburg and Roanoke, Virginia; and Basingstoke, United Kingdom.
Electronic Systems  — Palm Bay, Panama City, Malabar and Melbourne, Florida; Clifton, New Jersey; Van Nuys, California; Herndon, Virginia; Salt Lake City, Utah; and Amityville, New York.
Space and Intelligence Systems  — Palm Bay, Malabar and Melbourne, Florida; Rochester, New York; Colorado Springs, Colorado; and Fort Wayne, Indiana.
Corporate  — Melbourne, Florida.
The following is a summary of the approximate floor space of our offices and facilities in productive use, by segment, at June 30, 2017 :
Segment
Approximate
Total Sq. Ft.
Owned
 
Approximate
Total Sq. Ft.
Leased
 
Approximate
Total
Sq. Ft.
 
 
 
 
 
 
 
(In millions)
Communication Systems
1.5

 
0.8

 
2.3

Electronic Systems
2.0

 
1.6

 
3.6

Space and Intelligence Systems
2.5

 
0.8

 
3.3

Corporate
0.4

 
0.1

 
0.5

Total
6.4

 
3.3

 
9.7

In our opinion, our facilities, whether owned or leased, are suitable and adequate for their intended purposes and have capacities adequate for current and projected needs. We frequently review our anticipated requirements for facilities and will, from time to time, acquire additional facilities, expand existing facilities and dispose of existing facilities or parts thereof, as management deems necessary. For more information about our lease obligations, see Note 19: Lease Commitments in the Notes. Our facilities and other properties are generally maintained in good operating condition.
 
ITEM 3.
LEGAL PROCEEDINGS.
General.     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 June 30, 2017 , our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us was 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 June 30, 2017 are reserved against or would not 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;

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however, final assessments, if any, could be different from the amounts recorded in our Consolidated Financial Statements. See Note 23: Income Taxes in the Notes for additional information regarding audits and examinations by taxing authorities of our tax filings.
U.S. Government Business.     We are engaged in supplying goods and services to various departments and agencies of the U.S. Government. We are therefore dependent on Congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies. U.S. Government development and production contracts typically involve long lead times for design and development, are subject to significant changes in contract scheduling and may be unilaterally modified or canceled by the U.S. Government. Often these contracts call for successful design and production of complex and technologically advanced products or systems. We may participate in supplying goods and services to the U.S. Government as either a prime contractor or as a subcontractor to a prime contractor. Disputes may arise between the prime contractor and the U.S. Government or between the prime contractor and its subcontractors and may result in litigation or arbitration between the contracting parties.
Generally, U.S. Government contracts are subject to procurement laws and regulations, including the Federal Acquisition Regulation (“FAR”), which outline uniform policies and procedures for acquiring goods and services by the U.S. Government, and specific agency acquisition regulations that implement or supplement the FAR, such as the Defense Federal Acquisition Regulation Supplement. As a U.S. Government contractor, our contract costs are audited and reviewed on a continuing basis by the Defense Contract Audit Agency (“DCAA”). The DCAA also reviews the adequacy of, and a U.S. Government contractor’s compliance with, the contractor’s business systems and policies, including the contractor’s property, estimating, compensation and management information systems. In addition to these routine audits, from time to time, we may, either individually or in conjunction with other U.S. Government contractors, be the subject of audits and investigations by other agencies of the U.S. Government. These audits and investigations are conducted to determine if our performance and administration of our U.S. Government contracts are compliant with applicable contractual requirements and procurement and other applicable Federal laws and regulations. These investigations may be conducted without our knowledge. We are unable to predict the outcome of such investigations or to estimate the amounts of resulting claims or other actions that could be instituted against us or our officers or employees. Under present U.S. Government procurement laws and regulations, if indicted or adjudged in violation of procurement or other Federal laws, a contractor, such as us, or one or more of our operating divisions or subdivisions, could be subject to fines, penalties, repayments, or compensatory or treble damages. U.S. Government regulations also provide that certain findings against a contractor may lead to suspension or debarment from eligibility for awards of new U.S. Government contracts for a period of time to be determined by the U.S. Government. Suspension or debarment would have a material adverse effect on us because of our reliance on U.S. Government contracts. In addition, our export privileges could be suspended or revoked, which also would have a material adverse effect on us. For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors” of this Report.
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, the FCPA and other similar U.S. and international laws.
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 (“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 U.S. Department of Justice (“DOJ”), 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 March 4, 2016, a record of decision selecting a remedy for the lower 8.3 -mile stretch of the Lower Passaic River. The EPA’s selected remedy includes dredging the river bank to bank, installing an engineered cap and long-term monitoring. The EPA estimates the cost of the cleanup project will be $1.38 billion . On March 31, 2016, the EPA notified over 100 potentially responsible parties, including Exelis, of their potential liability for the cost of the cleanup project but 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

26


June 30, 2017 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 4.
MINE SAFETY DISCLOSURES.
Not Applicable.

27


EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, position held with us, and principal occupation and employment during at least the past five years for each of our executive officers as of August 25, 2017 , were as follows:
Name and Age
  
Position Currently Held and Past Business Experience
William M. Brown, 54
  
Chairman, President and Chief Executive Officer since April 2014. President and Chief Executive Officer from November 2011 to April 2014. Formerly with United Technologies Corporation (“UTC”), as Senior Vice President, Corporate Strategy and Development from April 2011 to October 2011; as President of UTC’s Fire & Security division from 2006 to 2011; and in U.S. and international roles at UTC’s Carrier Corporation from 2000 to 2006, including President of the Carrier Asia Pacific Operations; and as Director, Corporate Strategy and Business Development from 1997 to 2000. Before joining UTC in 1997, Mr. Brown worked for McKinsey & Company as a senior engagement manager, and prior to that, at Air Products and Chemicals, Inc. as a project engineer.
Robert L. Duffy, 50
  
Senior Vice President, Human Resources and Administration since July 2012. Formerly with UTC, as Vice President, Human Resources for UTC’s Sikorsky aircraft operation from 2010 to 2011; and in similar roles within UTC’s Fire & Security, Carrier, Hamilton Sundstrand and Pratt & Whitney operations from 1998 to 2009. Before joining UTC in 1998, Mr. Duffy held human resource management positions with Royal Dutch Shell and James River Corporation.
Sheldon J. Fox, 58
  
Senior Vice President, Operations and Information Technology since August 2017. Senior Vice President, Integration and Engineering from July 2015 to August 2017. Group President, Government Communications Systems from June 2010 to July 2015. President, National Intelligence Programs, Government Communications Systems from December 2007 to May 2010. President, Defense Programs, Government Communications Systems from May 2007 to December 2007. Vice President and General Manager, Department of Defense Programs, Government Communications Systems Division from July 2006 to April 2007. Vice President of Programs, Department of Defense Communications Systems, Government Communications Systems Division from July 2005 to June 2006. Mr. Fox joined Harris in 1984.
William H. Gattle, 56
  
President, Space and Intelligence Systems since July 2015. Vice President and General Manager, National Intelligence Programs, Government Communications Systems from June 2013 to July 2015. Vice President, Aerospace Systems, Government Communications Systems from June 2012 to June 2013. Vice President, Space Communication Systems, Government Communications Systems from January 2009 to June 2012. Mr. Gattle joined Harris in 1987.
Rahul Ghai, 45
  
Senior Vice President and Chief Financial Officer since February 2016. Vice President, Finance-Integration from March 2015 to February 2016. Formerly with Aetna Inc., as Vice President, Financial Planning and Integration from August 2013 to February 2015; and Chief Financial Officer for Aetna International from May 2012 to August 2013. Before joining Aetna, Mr. Ghai held positions at UTC from 2000 to 2012, including as Vice President-Financial Planning and Analysis and Treasury for UTC’s Hamilton Sundstrand division (January 2012 to May 2012); Vice President-Financial Planning and Analysis and Operations Finance for UTC’s Fire & Security division (2009-2011); Chief Financial Officer, Americas, Fire & Security Services (2007-2009); and Director, Global Operations Finance, Fire & Security (2005-2007).
Dana A. Mehnert, 55
  
Senior Vice President, Chief Global Business Development Officer since July 2015. Group President, RF Communications from May 2009 to July 2015. President, RF Communications from July 2006 to May 2009. Vice President and General Manager — Government Products Business, RF Communications from July 2005 to July 2006. Vice President and General Manager — Business Development and Operations, RF Communications from January 2005 to July 2005. Vice President — Defense Operations, RF Communications from January 2004 to January 2005. Vice President — International Operations, RF Communications from November 2001 to January 2004. Vice President/Managing Director — International Government Sales Operations for Harris’ regional sales organization from September 1999 to November 2001. Vice President — Marketing and International Sales, RF Communications from August 1997 to September 1999. Vice President — Worldwide Marketing, RF Communications from July 1996 to July 1997. Vice President — International Sales, RF Communications from November 1995 to June 1996. Mr. Mehnert joined Harris in 1984.

28


Name and Age
  
Position Currently Held and Past Business Experience
Scott T. Mikuen, 55
  
Senior Vice President, General Counsel and Secretary since February 2013. Vice President, General Counsel and Secretary from October 2010 to February 2013. Vice President, Associate General Counsel and Secretary from October 2004 to October 2010. Vice President — Counsel, Corporate and Commercial Operations and Assistant Secretary from November 2000 to October 2004. Mr. Mikuen joined Harris in 1996 as Finance Counsel.
Todd A. Taylor, 44
  
Vice President, Principal Accounting Officer since May 2015. Vice President from April 2015 to May 2015. Formerly with Molex, Inc., as Vice President, Chief Accounting Officer and Corporate Controller from September 2012 to April 2015, Director of Finance and Corporate Controller from September 2010 to September 2012 and Director of Accounting from June 2008 to September 2010; with PricewaterhouseCoopers, as Internal Audit Advisory Director from March 2003 to June 2008; and with Wells Fargo, as Internal Controls Manager from September 1999 to February 2003. Mr. Taylor began his career in public accounting with RSM McGladrey in 1996.
Christopher D. Young, 57
  
President, Communication Systems since July 2015. Previously with Exelis (formerly known as ITT Defense and Information Solutions) as President, Geospatial Systems and Executive Vice President, Exelis from October 2011 to July 2015 and President and General Manager of ITT Space Systems Division from April 2006 to October 2011. Mr. Young first joined ITT Defense and Information Solutions in 1982 where he assumed positions of increasing responsibility.
Edward J. Zoiss, 52
  
President, Electronic Systems since July 2015. Vice President and General Manager, Defense Programs, Government Communications Systems from June 2013 to July 2015. Vice President, C4ISR Electronics, Government Communications Systems from June 2012 to June 2013; Vice President, Advanced Programs and Technology, Government Communications Systems from July 2010 to June 2012. Mr. Zoiss joined Harris in 1995.
There is no family relationship between any of our executive officers or directors. There are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our directors or officers acting solely in their capacities as such. All of our executive officers are elected annually and serve at the pleasure of our Board of Directors.

29


PART II
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information and Price Range of Common Stock
Our common stock, par value $1.00 per share, is listed and traded on the NYSE, under the ticker symbol “HRS.” According to the records of our transfer agent, as of August 25, 2017 , there were approximately 13,075 holders of record of our common stock. The high and low sales prices of our common stock as reported in the NYSE consolidated transaction reporting system and the cash dividends paid on our common stock for each quarterly period in our last two fiscal years are reported below:
 
High
 
Low
 
Cash
Dividends
 
 
High
 
Low
 
Cash
Dividends
Fiscal 2017
 
 
 
 
 
 
Fiscal 2016
 
 
 
 
 
First Quarter
$
94.09

 
$
80.78

 
$
0.53

 
First Quarter
$
84.78

 
$
70.10

 
$
0.50

Second Quarter
$
107.54

 
$
88.89

 
0.53

 
Second Quarter
$
89.78

 
$
73.72

 
0.50

Third Quarter
$
113.00

 
$
99.13

 
0.53

 
Third Quarter
$
89.35

 
$
70.97

 
0.50

Fourth Quarter
$
114.32

 
$
106.18

 
0.53

 
Fourth Quarter
$
84.75

 
$
73.32

 
0.50

 
 
 
 
 
$
2.12

 
 
 
 
 
 
$
2.00

On August 25, 2017 , the last sale price of our common stock as reported in the NYSE consolidated transaction reporting system was $119.66 per share.
Dividends
The cash dividends paid on our common stock for each quarterly period in our last two fiscal years are set forth in the tables above. On August 25, 2017, our Board of Directors increased the quarterly cash dividend rate on our common stock from $.53 per share to $.57 per share, for an annualized cash dividend rate of $2.28 per share, which was our sixteenth consecutive annual increase in our quarterly cash dividend rate. Our annualized cash dividend rate in fiscal 2017, 2016 and 2015 was $2.12 per share, $2.00 per share and $1.88 per share, respectively. Quarterly cash dividends are typically paid in March, June, September and December. We currently expect that quarterly 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 quarterly cash 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.
Harris Stock Performance Graph
The following performance graph and table do not constitute soliciting material and the performance graph and table should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the performance graph and table by reference therein.
The performance graph and table below compare the 5-year cumulative total shareholder return of our common stock with the comparable 5-year cumulative total returns of the Standard & Poor’s 500 Composite Stock Index (“S&P 500”) and the Standard & Poor’s 500 Aerospace & Defense Index (“S&P 500 Aerospace & Defense”). The figures in the performance graph and table below assume an initial investment of $100 at the close of business on June 29, 2012 in Harris common stock, the S&P 500 and the S&P 500 Aerospace & Defense and the reinvestment of all dividends.











30



COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
HARRIS, S&P 500 AND S&P 500 AEROSPACE & DEFENSE

HRS6302017_CHART-32938.JPG
HARRIS FISCAL YEAR END
2012
2013
2014
2015
2016
2017
Harris
$
100

$
121

$
191

$
201

$
219

$
295

S&P 500
$
100

$
121

$
150

$
163

$
168

$
198

S&P 500 Aerospace & Defense
$
100

$
132

$
174

$
188

$
211

$
271


Sales of Unregistered Securities
During fiscal 2017 , we did not issue or sell any unregistered securities.

31


Issuer Purchases of Equity Securities
During fiscal 2017 , we repurchased 6,340,287 shares of our common stock under our repurchase programs for $710 million , including $600 million pursuant to fixed-dollar accelerated share repurchase (“ASR”) agreements. During fiscal 2016, we did not repurchase any shares of our common stock under our repurchase programs. 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. The following table sets forth information with respect to repurchases by us of our common stock during the fiscal quarter ended June 30, 2017 :
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
 
 
 
 
(April 1, 2017-April 28, 2017)
 
 
 
 
Repurchase Programs




$1,223,390,297

Employee Transactions (3)
34,592


$111.92



Month No. 2
 
 
 
 
(April 29, 2017-May 26, 2017)
 
 
 
 
Repurchase Programs (2)
2,209,175

(2)
2,209,175


$973,390,297

Employee Transactions (3)
18,904


$109.25



Month No. 3
 
 
 
 
(May 27, 2017-June 30, 2017)
 
 
 
 
Repurchase Programs




$973,390,297

Employee Transactions (3)
16,941


$110.35



Total
2,279,612

 
2,209,175


$973,390,297

*
Periods represent our fiscal months.
(1)
On August 26, 2013, we announced that on August 23, 2013, our Board of Directors approved a 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. On February 2, 2017, we announced that on January 26, 2017, our Board of Directors approved a new share repurchase program (our “2017 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. Our 2017 Repurchase Program does not have a stated expiration date and is in addition to our 2013 Repurchase Program, which also did not have a stated expiration date. Our repurchases during the quarter ended June 30, 2017 used the entire remaining dollar amount of the authorization under our 2013 Repurchase Program and a portion of the dollar amount of the authorization under our 2017 Repurchase Program. As of June 30, 2017, $973,390,297 (as reflected in the table above) was the approximate dollar amount of our common stock that may yet be purchased under our 2017 Repurchase Program.
(2)
On May 5, 2017, we entered into a fixed-dollar ASR agreement (“May ASR”), pursuant to which, on May 5, 2017 we paid $250 million and received from the counterparty an initial delivery of 1,931,818 shares of our common stock based on a price of $110.00 per share, representing approximately 85 percent of the total number of shares of our common stock we expect to repurchase under the May ASR. The specific total number of shares we ultimately repurchase under the May ASR will be based on the average of the daily volume-weighted average price per share of our common stock during the term of the transaction, less a discount, and subject to adjustments pursuant to the terms and conditions of the May ASR. Upon settlement of the May ASR, we may receive additional shares of our common stock from the counterparty or, under certain limited circumstances, be required to deliver shares of our common stock to the counterparty. Settlement of the May ASR is expected to occur no later than the end of the first quarter of fiscal 2018. On May 11, 2017, the second tranche of a fixed-dollar ASR agreement to repurchase an unspecified total number of shares of our common stock for $350 million that we entered into on February 6, 2017 (“February ASR”) settled, and we received from the counterparty 277,357 additional shares of our common stock. In total, we repurchased 3,207,236 shares of our common stock pursuant to the February ASR at an average price of $109.13 per share.
(3)
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.
The information required by this Item with respect to securities authorized for issuance under our equity compensation plans is included in “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Report. See Note 15: Stock Options and Other Share-Based Compensation in the Notes for a general description of our share-based incentive plans.

32


ITEM 6.
SELECTED FINANCIAL DATA.
The following table summarizes our selected historical financial information for each of the last five fiscal years. Amounts pertaining to our results of operations are presented on a continuing operations basis. See Note 3: Discontinued Operations and Divestitures in the Notes for information regarding discontinued operations. The selected financial information shown below has been derived from our audited Consolidated Financial Statements, which for data presented for fiscal 2017 and 2016 are included elsewhere in this Report. This table should be read in conjunction with our other financial information, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying Notes, included elsewhere in this Report.
 
Fiscal Years Ended
 
2017 (1)
 
2016 (2)
 
2015   (3)
 
2014
 
2013 (4)
 
(In millions, except per share amounts)
Results of Operations:
 
 
 
 
 
 
 
 
 
Revenue from product sales and services
$
5,900

 
$
5,992

 
$
3,885

 
$
3,622

 
$
3,828

Cost of product sales and services
3,811

 
3,900

 
2,370

 
2,189

 
2,371

Interest expense
172

 
183

 
130

 
94

 
109

Income from continuing operations before income taxes
905

 
884

 
396

 
642

 
569

Income taxes
267

 
273

 
109

 
202

 
168

Income from continuing operations
638

 
611

 
287

 
440

 
401

Discontinued operations, net of income taxes
(85
)
 
(287
)
 
47

 
94

 
(292
)
Net income
553

 
324

 
334

 
534

 
109

Noncontrolling interests, net of income taxes

 

 

 
1

 
4

Net income attributable to Harris Corporation
553

 
324

 
334

 
535

 
113

Average shares outstanding (diluted)
124.3

 
125.0

 
106.8

 
107.3

 
111.2

Per Share Data (Diluted):
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
5.12

 
$
4.87

 
$
2.67

 
$
4.08

 
$
3.58

Income (loss) from discontinued operations, net of income taxes
(0.68
)
 
(2.28
)
 
0.44

 
0.87

 
(2.57
)
Net income
4.44

 
2.59

 
3.11

 
4.95

 
1.01

Cash dividends
2.12

 
2.00

 
1.88

 
1.68

 
1.48

Financial Position at Fiscal Year-End:
 
 
 
 
 
 
 
 
 
Net working capital (5)
$
147

 
$
643

 
$
909

 
$
877

 
$
651

Net property, plant and equipment
904

 
924

 
1,031

 
576

 
499

Long-term debt, net
3,396

 
4,120

 
5,053

 
1,564

 
1,564

Total assets
10,090

 
12,009

 
13,127

 
4,919

 
4,845

Equity
2,928

 
3,057

 
3,402

 
1,825

 
1,561

Book value per share
24.48

 
24.53

 
27.51

 
17.30

 
14.60

 ___________
(1)
Results for fiscal 2017 included a $51 million after-tax ( $.41 per diluted common share) charge for Exelis acquisition-related and other items.
(2)
Results for fiscal 2016 included: (i) $121 million for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015, including $11 million for amortization of a step-up in inventory; (ii) $33 million of charges for restructuring and other items; (iii) a net liability reduction of $101 million for certain post-employment benefit plans; and (iv) a $10 million net gain on the sale of Aerostructures. Income taxes on the above items were $8 million. Income from continuing operations included an after-tax impact of $34 million or $.27 per diluted common share from the above items.
(3)
Results for fiscal 2015 included results of Exelis following the close of the acquisition on May 29, 2015 and a $205 million after-tax ($1.91 per diluted share) charge for transaction, financing, integration, restructuring and other costs, primarily related to our acquisition of Exelis.
(4)
Results for fiscal 2013 included a $71 million after-tax ($.64 per diluted share) charge, net of government cost reimbursement, for Company-wide restructuring and other actions, including prepayment of long-term debt, asset impairments, a write-off of capitalized software, facility consolidation, workforce reductions and other associated costs.
(5)
Net working capital decreased in fiscal 2017 compared with fiscal 2016 primarily due to a $172 million increase in current portion of long-term debt and a $161 million decrease associated with net working capital of discontinued operations.

33


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The following Management’s Discussion and Analysis (“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 Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report. 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:
Business Considerations — a general description of our business; the value drivers of our business; fiscal 2017 results of operations and liquidity and capital resources key indicators; and industry-wide opportunities, challenges and risks that are relevant to us in defense, government and commercial markets.
Operations Review — an analysis of our consolidated results of operations and of the results in each of our business segments, to the extent the segment operating results are helpful to an understanding of our business as a whole, for the three years presented in our financial statements.
Liquidity, Capital Resources and Financial Strategies — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, contractual obligations, off-balance sheet arrangements, commercial commitments, financial risk management, impact of foreign exchange and impact of inflation.
Critical Accounting Policies and Estimates — a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by 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.
BUSINESS CONSIDERATIONS
General
We generate revenue, income and cash flows by developing, manufacturing or providing, and selling advanced, technology-based solutions that solve government and commercial customers’ mission-critical challenges. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products, systems and services have defense and civil government applications, as well as commercial applications. As of the end of fiscal 2017 , we had approximately 17,000 employees, including approximately 7,700 engineers and scientists. We generally sell directly to our customers, and we utilize agents and intermediaries to sell and market some products and services, especially in international markets.
We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the following three reportable segments, which are also referred to as our business segments:
Communication Systems, serving markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks;
Electronic Systems, providing electronic warfare, avionics and C4ISR solutions for the defense industry and ATM solutions for the civil aviation industry; and
Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, PNT, and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics.
As described above and in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation” and in Note 3: Discontinued Operations and Divestitures in the Notes, we completed the divestiture of CapRock in the third quarter of fiscal 2017 and the divestiture of IT Services in the fourth quarter of fiscal 2017. CapRock

34


and IT Services were part of our former Critical Networks segment and are reported as discontinued operations in this Report. Our historical financial results have been restated for all periods presented in this Report to account for businesses reported as discontinued operations in this Report. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in this Report relate solely to our continuing operations.
In connection with entering into the definitive agreement to sell IT Services, our other remaining operations that had been part of our former Critical Networks segment, including our ATM business and our PMRF program, were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. The historical results, discussion and presentation of our business segments as set forth in this Report reflect the impact of these changes for all periods presented in order to present all segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these segment changes.
Financial information with respect to all of our other activities, including corporate costs not allocated to our business segments or discontinued operations, is reported as part of the “Engineering, selling and administrative expenses,” “Non-operating income (loss),” “Interest income,” “Interest expense” or “Discontinued operations, net of income taxes” line items in our Consolidated Financial Statements and accompanying Notes.
Value Drivers of Our Business
Fiscal 2017 represented a critical inflection point for us. We entered the year undergoing a multi-year transformation to reposition the Company and deliver against our strategic priorities. Through disciplined execution, we were able to capture annual run-rate savings from the Exelis acquisition a full year ahead of schedule, while driving operational efficiencies and optimizing our portfolio to focus on businesses where technology is a differentiator. We completed the IT Services and CapRock divestitures during the fiscal year and used the proceeds along with our net cash provided by operating activities to repurchase shares of our common stock, pay down debt and make a voluntary contribution to our pension plans. In fiscal 2018, we intend to focus on continuing to create long-term, sustainable shareholder value by building on the positive momentum from our solid fiscal 2017 performance that included delivering against all of our strategic priorities. We expect the combination of our strong competitive position, differentiated technologies that address our customers’ most critical challenges and excellent operational execution to drive top-line growth and higher earnings in the medium-term.
Our strategic focus includes:
Growing revenue across all three business segments;
Driving flawless execution while maintaining margins through operational excellence; and
Maximizing cash flow with balanced capital deployment while continuing to invest for the future.
As we have seen in the Government Fiscal Year (“GFY”) 2017 Omnibus Appropriations Bill, as well as the President’s 2018 budget request and Congressional markups, the U.S. Government funding outlook is improving, and our programs are expected to be largely well-supported, especially within the DoD for our tactical communications business, electronic systems and in intelligence community budgets. An important part of our strategy is to grow revenue across the business in fiscal 2018 and beyond, and we expect all segments will contribute to this growth. For Communication Systems, we expect to begin seeing the benefits of DoD modernizations towards the second half of fiscal 2018 as we start to deliver next-generation tactical radios with new features and capabilities to the U.S. Special Operations Forces and the U.S. Army, and we believe this will continue into fiscal 2019 and beyond. Our international tactical business began to stabilize in the second half of fiscal 2017, and we expect to return to growth in the medium-term as the Middle East comes out of a trough and Australia and U.K. modernizations get underway. In Electronic Systems, we expect to see growth across the board. Our electronic warfare business has a solid and growing pipeline of opportunities on the F-35, F-16 and F-18 platforms, as well as for the B-52 and C-130J platforms. For Space and Intelligence Systems, we expect to see continued strong growth in the classified area, driven by budget increases and expansion into new adjacencies. We also expect increasing momentum in commercial space from recapitalizations.
Our operational excellence program, Harris Business Excellence (“HBX”), is focused on streamlining processes, optimizing program execution, and increasing customer satisfaction. HBX incorporates standardized, industry-proven processes and tools based on the principles of Lean Six Sigma. Since implementation, we have made significant strides in customer satisfaction, productivity and asset velocity through our efforts to optimize processes, eliminate waste, reduce costs and enhance quality across multiple aspects of our business. One method we use to drive continuous improvement is “value engineering” — continuously evaluating new materials, processes and technologies to insert into products already in production, helping to reduce costs and improve both quality and customer satisfaction.
Innovation is at the core of our success, and R&D investment represents the foundation for innovation. Our R&D investments are focused on leveraging our existing technology portfolio to introduce new solutions or expand customer-centric features and functions on existing solutions. Innovation also leads to natural extensions of our core capabilities for

35


capturing new opportunities in adjacent markets. Innovation provides differentiation and is a key competitive advantage for our business.
We have adopted a portfolio management approach designed to optimize investment in R&D at the Company level rather than the business unit level. This approach is intended to ensure our R&D investment is cost-effective, supports innovation across the entire Company and maximizes efficiency while maintaining our technological edge. We introduced standardized processes and common metrics to track progress and gauge success, and established Core Technology Centers to more fully leverage R&D investment across our Company.
During fiscal 2017, we thoughtfully deployed proceeds from divestitures and net cash provided by operating activities. We returned $710 million to our shareholders through share repurchases and another $262 million in dividends. We also used $499 million for net repayment of borrowings (including retiring $575 million of debt) and $400 million for a voluntary contribution to our U.S. defined benefit plans which helped reduce our unfunded defined benefit plans liability by 44 percent to $1.3 billion at the end of fiscal 2017. In fiscal 2018, we expect to improve our operating cash flow and to use our capital to achieve our debt repayment commitment, as well as for share repurchases and dividends.
Key Indicators
We believe our value drivers, when implemented, will improve our financial results, including: revenue; income from continuing operations and income from continuing operations per diluted common share; income from continuing operations as a percentage of revenue; net cash provided by operating activities; return on invested capital; return on average equity; and consolidated total indebtedness to total capital ratio. The measure of our success is reflected in our results of operations and liquidity and capital resources key indicators as discussed below.
Fiscal 2017 Results of Operations Key Indicators:     Revenue, income from continuing operations, income from continuing operations per diluted common share and income from continuing operations as a percentage of revenue represent key measurements of our value drivers:
Revenue decreased 2 percent to $5.9 billion in fiscal 2017 from $6.0 billion in fiscal 2016 ;
Income from continuing operations increased 4 percent to $638 million in fiscal 2017 from $611 million in fiscal 2016 ;
Income from continuing operations per diluted common share increased 5 percent to $5.12 in fiscal 2017 from $4.87 in fiscal 2016 , reflecting both the increase in income from continuing operations as noted above and fewer diluted common shares outstanding due to repurchases of shares of common stock under our repurchase program during the third and fourth quarters of fiscal 2017; and
Income from continuing operations as a percentage of revenue increased to 11 percent in fiscal 2017 from 10 percent in fiscal 2016 .
Refer to MD&A heading “Operations Review” below in this Report for more information.
Liquidity and Capital Resources Key Indicators:      Net cash provided by operating activities, return on invested capital, return on average equity and our consolidated total indebtedness to total capital ratio also represent key measurements of our value drivers:
Net cash provided by operating activities decreased to $569 million in fiscal 2017 from $924 million in fiscal 2016 primarily due to a $400 million voluntary contribution to our defined benefit plans in the fourth quarter of fiscal 2017;
Return on invested capital (defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the fiscal year, where invested capital equals equity plus debt, less cash and cash equivalents) increased to 11 percent in fiscal 2017 from 10 percent in fiscal 2016 ;
Return on average equity (defined as income from continuing operations divided by the two-point average of equity at the beginning and end of the fiscal year) increased to 21 percent in fiscal 2017 from 19 percent in fiscal 2016 ;
Our consolidated total indebtedness to total capital ratio at June 30, 2017 was 58 percent , compared to our 65 percent covenant limitation under our senior unsecured revolving credit facility;
Our cash used for net repayment of borrowings decreased to $499 million (including retiring $575 million of debt) in fiscal 2017 from $669 million in fiscal 2016 ; and
Our unfunded defined benefit plans liability decreased $1.0 billion in fiscal 2017 to $1.3 billion at June 30, 2017 compared to $2.3 billion at July 1, 2016 .
Refer to MD&A heading “Liquidity, Capital Resources and Financial Strategies” below in this Report for more information on net cash provided by (used in) operating, investing and financing activities.

36


Industry-Wide Opportunities, Challenges and Risks
Department of Defense and Other U.S. Federal Markets:     Our largest customers are various departments and agencies of the U.S. Government — the percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, in fiscal 2017 , 2016 and 2015 was approximately 74 percent , 77 percent and 66 percent , respectively. The GFY 2017 (U.S. Government fiscal years begin October 1 and end September 30) budget cycle ended with the Omnibus Appropriations Bill being passed by Congress and signed by President Trump on May 5, 2017. Our programs were fully funded and continue to remain priorities for U.S. Government customers. In addition, President Trump’s GFY 2018 budget request fully funded all of our major programs in both the DoD and civil agencies. Specifically, the GFY 2018 budget request included $574 billion in DoD base funding with an additional $65 billion in Overseas Contingency Operations (“OCO”) funding. The DoD budget request increases funding across all of the services, including SOCOM, from the 2017 GFY continuing resolution (“CR”) levels and provides a 19.2 percent increase in R&D funding and a 4.6 percent increase in procurement funding from 2017 GFY CR levels. The budget request funds the DoD with $52 billion over the limits mandated in the Budget Control Act of 2011 (“BCA”), which established limits on discretionary spending and reduced planned defense spending by $487 billion over a ten-year period beginning with GFY 2012. In addition, the BCA provided for additional automatic spending reductions, known as sequestration, that went into effect March 1, 2013, that would have resulted in an additional $500 billion reduction to planned defense spending over a nine-year period beginning with GFY 2013.
In November 2015, President Obama signed into law the Bipartisan Budget Act of 2015 (“BBA 2015”), which raised the limit on the U.S. Government’s debt through March 2017 and increased the sequester caps on discretionary spending imposed by the BCA by $80 billion over GFY 2016 - 2017, providing more certainty in the near-term budget planning process. However, budget caps for GFYs 2018 through 2022 remain intact after the enactment of BBA 2015 as does the across-the-board spending reduction methodology provided under the BCA.
We anticipate debate and negotiations will continue within the U.S. Government over defense spending for GFY 2018 and beyond, which may have a significant impact on defense spending broadly and on our specific programs. However, as described in further detail in the “Value Drivers of Our Business” section of this MD&A, our programs have been well supported in both the GFY 2017 Omnibus Appropriations Bill as well as the President’s GFY 2018 budget request.
Government Oversight and Risk:     As a U.S. Government contractor, we are subject to U.S. Government oversight. The U.S. Government may investigate our business practices and audit our compliance with applicable rules and regulations. Depending on the results of those investigations and audits, the U.S. Government could make claims against us. Under U.S. Government procurement regulations and practices, an indictment or conviction of a government contractor could result in that contractor being fined and/or suspended from being able to bid on, or from being awarded, new U.S. Government contracts for a period of time determined by the U.S. Government. Similar government oversight exists in most other countries where we conduct business.
For a discussion of risks relating to U.S. Government contracts and subcontracts, see “Item 1. Business — Principal Customers; Government Contracts” and “Item 1A. Risk Factors” of this Report. We are also subject to other risks associated with U.S. Government business, including technological uncertainties, dependence on annual appropriations and allotment of funds, extensive regulations and other risks, which are discussed in “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
State and Local:     We also provide products to state and local government agencies that are committed to protecting our homeland and public safety. The public safety market was highly competitive and dependent on state and local government budgets during fiscal 2017. Future market opportunities include upgrading aging analog infrastructure to new digital standards, as well as opportunities associated with next-generation LTE solutions for high data-rate applications, an emerging market in the early stages of development.
International:    We believe there is continuing international demand from military and government customers for tactical radios, public safety communications, electronic warfare equipment, air traffic management, electronic attack and release systems and ISR. We believe we can leverage our domain expertise and proven technology provided in the U.S. to further expand our international business.
We believe that our experience, technologies and capabilities are well aligned with the demand and requirements of the markets noted above in this Report. However, we remain subject to the spending levels, pace and priorities of the U.S. Government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers. We also remain subject to other risks associated with these markets, including technological uncertainties, adoption of our new products and other risks that are discussed below in this Report under “Forward-Looking Statements and Factors that May Affect Future Results” and in “Item 1A. Risk Factors” of this Report.

37



OPERATIONS REVIEW
Consolidated Results of Operations
 
Fiscal Years Ended
 
2017
 
2016
 
2017/2016
Percent
Increase/
(Decrease)
 
2015
 
2016/2015
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
 
 
Communication Systems
$
1,753

 
$
1,864

 
(6
%)
 
$
1,836

 
2
%
Electronic Systems
2,251

 
2,233

 
1
%
 
1,019

 
119
%
Space and Intelligence Systems
1,902

 
1,899

 
%
 
1,007

 
89
%
Corporate eliminations
(6
)
 
(4
)
 
*

 
23

 
*

Total revenue
5,900

 
5,992

 
(2
%)
 
3,885

 
54
%
Cost of product sales and services:
 
 
 
 
 
 
 
 
 
Cost of product sales
(3,029
)
 
(3,136
)
 
(3
%)
 
(1,946
)
 
61
%
% of revenue from product sales
65
%
 
65
%
 
 
 
59
%
 
 
Cost of services
(782
)
 
(764
)
 
2
%
 
(424
)
 
80
%
% of revenue from services
63
%
 
65
%
 
 
 
70
%
 
 
Total cost of product sales and services
(3,811
)
 
(3,900
)
 
(2
%)
 
(2,370
)
 
65
%
% of total revenue
65
%
 
65
%
 
 
 
61
%
 
 
Gross margin
2,089

 
2,092

 
%
 
1,515

 
38
%
% of total revenue
35
%
 
35
%
 
 
 
39
%
 
 
Engineering, selling and administrative expenses
(1,016
)
 
(1,037
)
 
(2
%)
 
(883
)
 
17
%
% of total revenue
17
%
 
17
%
 
 
 
23
%
 
 
Non-operating income (loss)
2

 
10

 
*

 
(108
)
 
*

Net interest expense
(170
)
 
(181
)
 
(6
%)
 
(128
)
 
41
%
Income from continuing operations before income taxes
905

 
884

 
2
%
 
396

 
123
%
Income taxes
(267
)
 
(273
)
 
(2
%)
 
(109
)
 
150
%
Effective tax rate
30
%
 
31
%
 
 
 
28
%
 
 
Income from continuing operations
$
638

 
$
611

 
4
%
 
$
287

 
113
%
% of total revenue
11
%
 
10
%
 
 
 
7
%
 
 
Income from continuing operations per diluted common share
$
5.12

 
$
4.87

 
5
%
 
$
2.67

 
82
%
 
 
* Not meaningful

Revenue
Fiscal 2017 Compared With Fiscal 2016 :     The decrease in revenue in fiscal 2017 compared with fiscal 2016 was primarily due to lower Tactical Communications revenue in our Communication Systems segment and lower revenue due to the impact of the divestiture of our Aerostructures business in the fourth quarter of fiscal 2016, which contributed $60 million of revenue in fiscal 2016 in our Electronic Systems segment, and the impact of certain environmental and commercial space programs in our Space and Intelligence Systems segment transitioning from a build-out to a sustainment phase, partially offset by higher revenue from the ramp up of the United Arab Emirates integrated battle management system (BMS-ELTS) program and from electronic warfare in our Electronic Systems segment and by $36 million of higher revenue from classified customers in our Space and Intelligence Systems segment.
Fiscal 2016 Compared With Fiscal 2015 :     The increase in revenue in fiscal 2016 compared with fiscal 2015 was primarily due to the inclusion in our operating results of revenue from a full year of Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015. Revenue in fiscal 2016 also reflected weakness in our Communication Systems segment related to DoD and international tactical radio markets.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

38


Gross Margin Percentage
Fiscal 2017 Compared With Fiscal 2016 :     Gross margin as a percentage of revenue (“gross margin percentage”) in fiscal 2017 was comparable with fiscal 2016 reflecting cost containment and integration-related synergy savings and higher pension income, mostly offset by lower margins from the ADS-B program as it transitions from a build-out to a sustainment phase and the margin impact of lower revenue in our Communication Systems segment.
Fiscal 2016 Compared With Fiscal 2015 :     The decrease in gross margin percentage in fiscal 2016 compared with fiscal 2015 was primarily due to a shift in the mix of contract types, toward an increased percentage of lower-margin cost-plus contracts. Additionally, gross margin percentage in fiscal 2016 reflected a lower gross margin percentage in Exelis legacy tactical radio and night vision product lines and write-downs, recorded in the second quarter of fiscal 2016, of certain assets related to restructuring programs.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Engineering, Selling and Administrative Expenses
Fiscal 2017 Compared With Fiscal 2016 :     The decrease in engineering, selling and administrative (“ESA”) expenses in fiscal 2017 compared with fiscal 2016 was primarily due to cost containment, integration-related synergy savings and a $63 million reduction in integration and other costs associated with our acquisition of Exelis in the fourth quarter of 2015, partially offset by the benefit in fiscal 2016 of $101 million net liability reduction for certain post-employment benefit plans recorded during the second quarter of fiscal 2016. ESA expenses as a percentage of revenue (“ESA percentage”) in fiscal 2017 was comparable with fiscal 2016.
Overall Company-sponsored R&D costs were $310 million in fiscal 2017 compared with $305 million in fiscal 2016 .
Fiscal 2016 Compared With Fiscal 2015 :     The increase in ESA expenses in fiscal 2016 compared with fiscal 2015 was primarily due to the inclusion in our operating results of ESA expenses from a full year of Exelis operations as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015, $109 million of amortization of intangible assets acquired, $121 million of integration and other costs associated with the acquisition (including $11 million for amortization of a step-up in inventory) and $33 million of charges, recorded in fiscal 2016, for restructuring and other items. These drivers of the increase in ESA expenses were partially offset by a net liability reduction of $101 million, recorded in the second quarter of fiscal 2016, for certain post-employment benefit plans. The decrease in ESA percentage in fiscal 2016 compared with fiscal 2015 was primarily due to the net liability reduction for certain post-employment benefits described in the preceding sentence, lower ESA percentage from Exelis businesses and cost savings realized after our acquisition of Exelis, partially offset by the amortization, integration and other costs and charges for restructuring noted in this paragraph.
Overall Company-sponsored R&D costs were $305 million in fiscal 2016 compared with $276 million in fiscal 2015 .
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Non-Operating Income (Loss)
Fiscal 2017 Compared With Fiscal 2016 :     Non-operating income in fiscal 2017 was primarily due to an adjustment to the net gain on the sale of Aerostructures. Non-operating income in fiscal 2016 was primarily due to a $10 million net gain on the divestiture of Aerostructures during the fourth quarter of fiscal 2016.
Fiscal 2016 Compared With Fiscal 2015 :     Non-operating income in fiscal 2016 was primarily due to the same reasons as noted above for fiscal 2016 non-operating income. Non-operating loss in fiscal 2015 was primarily due to $118 million of charges associated with our optional redemption on May 27, 2015 of the entire outstanding $400 million principal amount of our 5.95% Notes due December 1, 2017 and the entire outstanding $350 million principal amount of our 6.375% Notes due June 15, 2019, including a total of $5 million of unamortized debt issuance costs and discounts related to these notes that were written off in connection with our redemption of the notes. These charges were partially offset by a pre-tax gain of $9 million related to our divestiture of HCS in the fourth quarter of fiscal 2015.
See Note 21: Non-Operating Income (Loss) in the Notes for further information.
Net Interest Expense
Fiscal 2017 Compared With Fiscal 2016 :     Our net interest expense decreased in fiscal 2017 compared with fiscal 2016 primarily due to lower average debt levels as a result of $499 million of net repayment of borrowings, which included $313 million of repayment of our variable-rate term loans and our repayment of the entire outstanding $250 million aggregate principal amount of our 4.25% notes due October 1, 2016.

39


Fiscal 2016 Compared With Fiscal 2015 :     Our net interest expense increased in fiscal 2016 compared with fiscal 2015 primarily due to higher average debt levels as a result of our issuance of $2.4 billion of debt securities and our borrowing of $1.3 billion under a term loan agreement to finance our acquisition of Exelis in fourth quarter of fiscal 2015.
See Note 18: Interest Expense in the Notes for further information.
Income Taxes
Fiscal 2017 Compared With Fiscal 2016 :     In fiscal 2017 , our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) benefited from the net favorable impact of:
The adoption of the accounting standard issued by the Financial Accounting Standards Board (“FASB”) that changed the accounting for certain aspects of stock options and other share-based compensation and resulted in a $23 million income tax benefit, as discussed in Note 2: Accounting Changes or Recent Accounting Pronouncements in the Notes;
Several differences between GAAP and tax accounting related to investments; and
Additional deductions and additional research credits claimed on our fiscal 2016 tax return compared with our recorded estimates at the end of fiscal 2016.
In fiscal 2016, our effective tax rate benefited from:
Settlement of several items for amounts that were lower than previously recorded estimates;
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;
Recognition of a tax loss, net of valuation allowances, upon the divestiture of Aerostructures;
State tax reductions resulting from our integration of Exelis operations; and
Several differences between GAAP and tax accounting related to investments.
Fiscal 2016 Compared With Fiscal 2015 : The major discrete items from which our fiscal 2016 effective tax rate benefited are those noted for fiscal 2016 in the preceding discussion under “Income Taxes.” In fiscal 2015, our effective tax rate benefited from foreign tax credits resulting from a dividend paid by a foreign subsidiary, finalizing issues with various foreign and domestic tax authorities for amounts lower than estimates previously recorded, additional deductions (primarily related to manufacturing) and additional research credits claimed on our fiscal 2014 tax return compared with our recorded estimates at the end of fiscal 2014. These benefits were partially offset in the fourth quarter by the tax cost of repatriating offshore funds, the impact of non-deductible goodwill in our divestiture of HCS and the non-deductibility of some acquisition-related costs.
See Note 23: Income Taxes in the Notes for further information.
Income From Continuing Operations
Fiscal 2017 Compared With Fiscal 2016 : The increase in income from continuing operations in fiscal 2017 compared with 2016 was primarily due to the combined effects of the reasons noted above in this “Consolidated Results of Operations” discussion regarding fiscal 2017 and 2016.
Fiscal 2016 Compared With Fiscal 2015 : The increase in income from continuing operations in fiscal 2016 compared with 2015 was primarily due to the combined effects of the reasons noted above in this “Consolidated Results of Operations” discussion regarding fiscal 2016 and 2015.
Income From Continuing Operations Per Diluted Common Share
Fiscal 2017 Compared With Fiscal 2016 :     The increase in income from continuing operations per diluted common share in fiscal 2017 compared with fiscal 2016 was due to the increase in income from continuing operations in fiscal 2017 compared with fiscal 2016 and fewer diluted weighted average common shares outstanding due to significant levels of repurchases of shares of common stock under our repurchase program during fiscal 2017.
Fiscal 2016 Compared With Fiscal 2015 :     The increase in income from continuing operations per diluted common share in fiscal 2016 compared with fiscal 2015 was due to the increase in income from continuing operations in fiscal 2016 compared with fiscal 2015 , partially offset by greater diluted weighted average common shares outstanding as a result of the issuance of shares in connection with the acquisition of Exelis.
See the “Common Stock Repurchases” discussion and the “Common Stock” paragraph of the “Capital Structure and Resources” discussion below in this MD&A for further information.


40


Discontinued Operations, Net of Income Taxes
See Note 3: Discontinued Operations and Divestitures in the Notes for information regarding IT Services and CapRock, which are reported as discontinued operations in this Report. As a result, our historical financial results have been restated to account for IT Services and CapRock as discontinued operations for all periods presented in this Report.
Discussion of Business Segment Results of Operations
Communication Systems Segment
 
2017
 
2016
 
2017/2016
Percent
Increase/
(Decrease)
 
2015
 
2016/2015
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
1,753

 
$
1,864

 
(6
%)
 
$
1,836

 
2
%
Cost of product sales and services
(895
)
 
(941
)
 
(5
%)
 
(890
)
 
6
%
Gross margin
858

 
923

 
(7
%)
 
946

 
(2
%)
% of revenue
49
%
 
50
%
 
 
 
52
%
 
 
ESA expenses
(334
)
 
(401
)
 
(17
%)
 
(393
)
 
2
%
% of revenue
19
%
 
22
%
 
 
 
21
%
 
 
Segment operating income
$
524

 
$
522

 
%
 
$
553

 
(6
%)
% of revenue
30
%
 
28
%
 
 
 
30
%
 
 
Fiscal 2017 Compared With Fiscal 2016 :     Segment revenue in fiscal 2017 included Tactical Communications revenue of $1,341 million , a 6 percent decrease from $1,429 million in fiscal 2016 ; and Public Safety and Professional Communications revenue of $412 million , a 5 percent decrease from $435 million in fiscal 2016 . The decrease in Tactical Communications revenue in fiscal 2017 compared to fiscal 2016 was primarily due to $85 million lower revenue from legacy Exelis tactical radios and night vision products. The decrease in Public Safety and Professional Communications revenue was primarily due to the wind-down of a significant international network project.
The decrease in segment gross margin in fiscal 2017 compared with fiscal 2016 was primarily attributable to the decrease in revenue, partially offset by lower restructuring charges. Segment gross margin percentage decreased 1 percentage point in fiscal 2017 compared with fiscal 2016 , despite 6 percent lower revenue and a less favorable revenue mix, primarily due to cost containment and Exelis acquisition integration-related synergy savings. The decreases in segment ESA expenses and ESA percentage in fiscal 2017 compared with fiscal 2016 were primarily due to cost containment, lower restructuring costs and Exelis acquisition integration-related synergy savings. The slight increase in segment operating income and the increase in segment operating income as a percentage of revenue (“operating margin percentage”) in fiscal 2017 compared with fiscal 2016 reflected the combined effects of the items discussed above regarding this segment. Segment operating margin percentage increased 2 percentage points in fiscal 2017 compared with fiscal 2016 despite the impact of 6 percent lower revenue over the same period.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was approximately 42 percent in fiscal  2017 and 52 percent in fiscal 2016 .
Fiscal 2016 Compared With Fiscal 2015 :     The increase in segment revenue in fiscal 2016 compared to fiscal 2015 was 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.
Segment revenue in fiscal 2016 also reflected weakness related to DoD and international tactical radio markets. The decrease in segment gross margin percentage in fiscal 2016 compared with fiscal 2015 was primarily due to a less favorable mix among products and programs, $14 million of restructuring and other charges and lower gross margin percentage in Exelis legacy tactical radio and night vision product lines. Segment ESA percentage in fiscal 2016 was slightly higher compared with fiscal 2015 primarily due to $6 million of charges, recorded during fiscal 2016, for restructuring and other items, mostly offset by lower ESA percentage from Exelis businesses and cost savings realized after our acquisition of Exelis. The decreases in segment operating income and segment operating margin percentage in fiscal 2016 compared with fiscal 2015 reflected the combined effects of the items discussed above regarding this segment for fiscal 2016 compared with fiscal 2015.

41


Electronic Systems Segment
 
2017
 
2016
 
2017/2016
Percent
Increase/
(Decrease)
 
2015
 
2016/2015
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
2,251

 
$
2,233

 
1
%
 
$
1,019

 
119
%
Cost of product sales and services
(1,562
)
 
(1,569
)
 
%
 
(736
)
 
113
%
Gross margin
689

 
664

 
4
%
 
283

 
135
%
% of revenue
31
%
 
30
%
 
 
 
28
%
 
 
ESA expenses
(225
)
 
(234
)
 
(4
%)
 
(120
)
 
95
%
% of revenue
10
%
 
10
%
 
 
 
12
%
 
 
Segment operating income
$
464

 
$
430

 
8
%
 
$
163

 
164
%
% of revenue
21
%
 
19
%
 
 
 
16
%
 
 
Fiscal 2017 Compared With Fiscal 2016 :     The increase in segment revenue in fiscal 2017 compared with fiscal 2016 was primarily due to higher revenue from the ramp up of the United Arab Emirates integrated battle management system (BMS-ELTS) program and from electronic warfare solutions, partially offset by $60 million of lower revenue attributable to the divestiture of Aerostructures in the fourth quarter of fiscal 2016 and $41 million of lower revenue from the impact of the ADS-B program transitioning from a build-out to a sustainment phase.
The increases in segment gross margin and gross margin percentage in fiscal 2017 compared with fiscal 2016 were primarily due to continued strong program performance principally in the electronic warfare solutions business and higher pension income, partially offset by a $21 million unfavorable margin impact from the ADS-B program as it transitions from a build-out to a sustainment phase. The decrease in segment ESA expenses in fiscal 2017 compared with fiscal 2016 was primarily due to Exelis acquisition integration-related synergy savings and $8 million of charges for restructuring and other costs recorded in fiscal 2016, partially offset by $13 million of higher R&D expenses. Segment ESA percentage for fiscal 2017 was comparable with fiscal 2016. The increases in segment operating income and operating margin percentage in fiscal 2017 compared with fiscal 2016 reflected the combined effects of the items discussed above regarding this segment. Segment operating margin percentage increased 2 percentage points in fiscal 2017 compared with fiscal 2016 despite revenue increasing only 1 percent over the same period.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was approximately 82 percent in fiscal  2017 and 83 percent in fiscal 2016 .
Fiscal 2016 Compared With Fiscal 2015 :     The increases in segment revenue, gross margin, ESA expenses and operating income in fiscal 2016 compared with 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; composites operations; and ATM solutions for the aviation industry) as a result of our acquisition of Exelis in the fourth quarter of fiscal 2015.
Segment revenue also reflected higher revenue from FAA NextGen modernization programs, electronic warfare and counter-IED systems, partially offset by lower revenue from Commercial Broadband Satellite Program terminals. The increase in segment gross margin percentage in fiscal 2016 compared with fiscal 2015 was due to a more favorable mix of programs. The segment ESA percentage in fiscal 2016 was slightly lower compared with fiscal 2015 as $8 million of charges for restructuring and other costs recorded in fiscal 2016 were partially offset by cost savings realized after our acquisition of Exelis. The increase in segment operating margin percentage in fiscal 2016 compared with fiscal 2015 reflected the combined effects of the items discussed above regarding this segment for fiscal 2016 and fiscal 2015.


42


Space and Intelligence Systems Segment
 
2017
 
2016
 
2017/2016
Percent
Increase/
(Decrease)
 
2015
 
2016/2015
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
1,902

 
$
1,899

 
%
 
$
1,007

 
89
%
Cost of product sales and services
(1,360
)
 
(1,393
)
 
(2
%)
 
(715
)
 
95
%
Gross margin
542

 
506

 
7
%
 
292

 
73
%
% of revenue
28
%
 
27
%
 
 
 
29
%
 
 
ESA expenses
(231
)
 
(218
)
 
6
%
 
(156
)
 
40
%
% of revenue
12
%
 
11
%
 
 
 
15
%
 
 
Segment operating income
$
311

 
$
288

 
8
%
 
$
136

 
112
%
% of revenue
16
%
 
15
%
 
 
 
14
%
 
 
Fiscal 2017 Compared With Fiscal 2016 :     Segment revenue in fiscal 2017 increased slightly compared with fiscal 2016, primarily due to $36 million of higher revenue from classified customers, mostly offset by lower revenue from the impact of certain environmental and commercial space programs transitioning from a build-out to a sustainment phase.
The increases in segment gross margin and gross margin percentage in fiscal 2017 compared with fiscal 2016 were primarily attributable to improved program performance and higher pension income, partially offset by a $30 million impact due to lower revenue from relatively higher-margin environmental and commercial space programs. The increases in segment ESA expenses and ESA percentage in fiscal 2017 compared with fiscal 2016 were primarily due to higher R&D and proposal expenses. The increases in segment operating income and operating margin percentage in fiscal 2017 compared with fiscal 2016 reflected the combined effects of the items discussed above regarding this segment. Segment operating margin percentage increased 1 percentage point in fiscal 2017 compared with fiscal 2016 despite slight revenue growth over the same period.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was approximately 95 percent in both fiscal  2017 and fiscal 2016 .
Fiscal 2016 Compared With Fiscal 2015 :     The increases in segment revenue, gross margin, ESA expenses and operating income in fiscal 2016 compared with 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 PNT; 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 new classified programs, including programs in space superiority and protection, partially offset by the completion of several other classified programs. The decrease in segment gross margin percentage in fiscal 2016 compared with fiscal 2015 was due to a less favorable mix of cost-plus intelligence and space payload programs, as well as the retirement of risk on certain space programs in fiscal 2015. The decrease in segment ESA percentage in fiscal 2016 compared with fiscal 2015 was primarily due to lower ESA percentage from Exelis businesses. The increase in segment operating margin percentage in fiscal 2016 compared to fiscal 2015 reflected the combined effects of the items discussed above regarding this segment for fiscal 2016 compared with fiscal 2015.
Unallocated Corporate Expense and Corporate Eliminations
 
 
2017
 
2016
 
2017/2016
Percent
Increase/
(Decrease)
 
2015
 
2016/2015
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Unallocated corporate expense
$
114

 
$
71

 
61
%
 
$
201

 
(65
%)
Amortization of intangible assets from Exelis Inc. acquisition
109

 
109

 
%
 
9

 
*

Corporate eliminations
3

 
5

 
(40
%)
 
10

 
(50
%)
 
 
 
 
 
 
 
 
 
 
 
* Not meaningful
Fiscal 2017 Compared With Fiscal 2016 : The increase in unallocated corporate expense in fiscal 2017 compared with fiscal 2016 was primarily due to a net liability reduction of $101 million for certain post-employment benefit plans

43


in the second quarter of fiscal 2016, partially offset by a $63 million decrease in Exelis acquisition-related and other charges. Because the Exelis acquisition benefited our entire Company as opposed to any individual segment, we recorded the acquired intangible assets as Corporate assets and the related amortization expense as unallocated corporate expense.
Fiscal 2016 Compared With Fiscal 2015 : The decrease in unallocated corporate expense in fiscal 2016 compared with fiscal 2015 was primarily due to a net liability reduction of $101 million for certain post-employment benefit plans, a $14 million decrease in acquisition-related costs associated with the acquisition of Exelis, including transaction, integration, restructuring and other costs, and cost savings realized after our acquisition of Exelis.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES
Cash Flows
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(Dollars in millions)
Net cash provided by operating activities
$
569

 
$
924

 
$
854

Net cash provided by (used in) investing activities
870

 
(1
)
 
(3,284
)
Net cash provided by (used in) financing activities
(1,438
)
 
(893
)
 
2,373

Effect of exchange rate changes on cash and cash equivalents
(4
)
 
(24
)
 
(23
)
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(3
)
 
6

 
(80
)
Cash and cash equivalents, beginning of year
487

 
481

 
561

 
 
 
 
 
 
Cash and cash equivalents, end of year
$
484

 
$
487

 
$
481

Cash and cash equivalents:     The $3 million decrease in cash and cash equivalents from fiscal 2016 to fiscal 2017 was primarily due to $710 million used to repurchase shares of our common stock, $584 million used to repay borrowings (which included $313 million of repayment of our variable-rate term loans and our repayment at maturity of the entire outstanding $250 million aggregate principal amount of our 4.25% Notes due October 1, 2016), $262 million used to pay cash dividends and $119 million used for net additions of property, plant and equipment, mostly offset by $1,014 million of net proceeds from sales of businesses, $569 million of net cash provided by operating activities, $85 million of proceeds from borrowings and $54 million of proceeds from exercises of employee stock options. The $6 million increase in cash and cash equivalents from fiscal 2015 to fiscal 2016 was primarily due to $924 million of net cash provided by operating activities, $181 million of net proceeds from the sale of businesses, $61 million of proceeds from borrowings and $44 million of proceeds from exercises of employee stock options, mostly offset by $730 million used to repay borrowings, $252 million used to pay cash dividends and $152 million used for net additions of property, plant and equipment.
We ended fiscal 2017 with cash and cash equivalents of $484 million , and we have a senior unsecured $1 billion revolving credit facility that expires in July 2020 ($925 million of which was available to us as of June 30, 2017 as a result of $75 million of short-term debt outstanding under our commercial paper program). Additionally, we had $3.9 billion of long-term debt outstanding at June 30, 2017 , 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 the Notes. Our $484 million of cash and cash equivalents at June 30, 2017 included $171 million held by our foreign subsidiaries, of which $132 million is considered permanently reinvested. Of the $132 million, $96 million was available for use in the U.S. without incurring additional U.S. income taxes. We would be required to recognize U.S. income taxes of $11 million on the remaining $36 million if we were to repatriate such funds to the U.S., but we have no current plans to repatriate such funds.
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 to date, 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 current level of debt, 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, repurchases under our share repurchase program and repayments of our term loans and debt securities at maturity for the next 12 months and for the reasonably foreseeable future thereafter. Our total capital expenditures in fiscal 2018 are expected to be approximately $130 million. We anticipate tax payments in fiscal 2018 to be approximately equal to or marginally less than our tax expense for the same period, subject to adjustment for certain timing differences. For additional information regarding our income taxes, see Note 23: Income Taxes in the Notes. Other than those cash outlays noted in the “Contractual Obligations” discussion below in this MD&A, capital

44


expenditures, dividend payments, payments under our term loans and repurchases of common stock, no other significant cash outlays are anticipated in fiscal 2018 .
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 $355 million decrease in net cash provided by operating activities in fiscal 2017 compared with fiscal 2016 was primarily due to $415 million more in qualified pension plan contributions, including a $400 million voluntary contribution, and $127 million less of impairment of goodwill and other assets, partially offset by $229 million more in net income. Cash flow from operations was positive in all of our business segments in fiscal 2017 , 2016 and 2015 .
Net cash provided by (used in) investing activities:     The $871 million increase in net cash provided by investing activities in fiscal 2017 compared with fiscal 2016 was primarily due to $833 million more in net proceeds from sales of businesses (consisting of $646 million of net proceeds from the sale of IT Services and $370 million of net proceeds from the sale of CapRock in fiscal 2017 , compared with $181 million in net proceeds from the sale of Aerostructures in fiscal 2016), as well as $33 million less used for net additions of property, plant and equipment and capitalized software. The $3.3 billion decrease in net cash used in investing activities in fiscal 2016 compared with fiscal 2015 was primarily due to $3.2 billion in net cash used to acquire Exelis in the fourth quarter of fiscal 2015.
Net cash provided by (used in) financing activities:     The $545 million increase in net cash used in financing activities in fiscal 2017 compared with fiscal 2016 was primarily due to $710 million more cash used to repurchase our common stock and $10 million more cash used to pay dividends, partially offset by $170 million less cash used for net repayment of borrowings (reflecting $499 million of cash used for net repayment of borrowings in fiscal 2017 compared with $669 million of cash used to repay borrowings in fiscal 2016).
The $3.3 billion increase in net cash flows used in financing activities in fiscal 2016 compared with fiscal 2015 was primarily due to $3.6 billion less proceeds from borrowings (primarily reflecting the debt issued in connection of our acquisition of Exelis in the fourth quarter of fiscal 2015) and $54 million more net cash used to pay dividends, partially offset by: (i) $224 million less net cash used to repay borrowings (reflecting $730 million of net cash used to repay borrowings in fiscal 2016 compared with $954 million of net cash used to repay borrowings in fiscal 2015 including the redemption of two series of our notes), (ii) $150 million less net cash used to repurchase our common stock, and (iii) $39 million less net cash used in other financing activities.
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 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 our 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”) and BBA 2015 further extended the interest rate stabilization provision of MAP -21 until 2020. We made a $400 million voluntary contribution to our U.S. qualified pension plans during fiscal 2017. As a result, we currently do not anticipate making any contributions to our U.S. qualified pension plans during fiscal 2018.
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. We have net unfunded defined benefit plan obligations of approximately $1.3 billion as of June 30, 2017 compared with approximately $2.3 billion as of July 1, 2016. See Note 14: Pension and Other Postretirement Benefits in the Notes for further information regarding our defined benefit plans.

45


Common Stock Repurchases
During fiscal 2017, we used  $710 million  to repurchase shares of our common stock under our 2013 Repurchase Program and our 2017 Repurchase Program, including (i) $600 million pursuant to ASR agreements, as described below; (ii) approximately $100 million to repurchase 1,100,203 shares of our common stock in the open market at an average price per share of $90.45, including commissions; and (iii) approximately $11 million to repurchase 101,030 shares of our common stock from our Rabbi Trust, which is associated with our non-qualified deferred compensation plans, at an average price per share of $110.34. During fiscal 2016, we did not repurchase any shares of our common stock under our repurchase program. In fiscal 2017 and fiscal 2016, $21 million and $16 million, respectively, in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. Shares repurchased by us are cancelled and retired.
On February 6, 2017, we entered into the February ASR — a fixed-dollar ASR transaction to repurchase an unspecified total number of shares of our common stock for $350 million — and on May 5, 2017, we entered into the May ASR — a fixed-dollar ASR transaction to repurchase an unspecified total number of shares of our common stock for $250 million. Pursuant to each of these ASR transactions, the counterparty delivers to us shares of our common stock during the term of the transaction in exchange for an up-front fixed dollar payment. The specific total number of shares ultimately delivered, and therefore the average price paid per share, is determined at the end of the transaction based on the average of the daily volume-weighted average price per share of our common stock during the term of the transaction, less a discount. Shares delivered pursuant to ASR transactions are retired in the period of delivery, and the up-front payment is accounted for as a reduction to the “Other capital” and “Retained earnings” line items in our Consolidated Balance Sheet in the period the payment is made.
The following table summarizes our ASR transactions in fiscal 2017:
 
 
Total number of shares repurchased
 
Average price paid per share
 
Fixed dollar amount (in millions)
February ASR
3,207,236
 
$109.13
 
$350
May ASR
(1)
 
(1)
 
$250
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Pursuant to the May ASR, on May 5, 2017, we paid $250 million and received an initial delivery of 1,931,818 shares of our common stock based on a price of $110.00 per share, representing approximately 85 percent of the total number of shares of our common stock we expect to repurchase under the May ASR. The specific total number of shares we ultimately repurchase under the May ASR will be based on the average of the daily volume-weighted average price per share of our common stock during the term of the transaction, less a discount, and subject to adjustments pursuant to the terms and conditions of the May ASR. Upon settlement of the May ASR (expected no later than the end of the first quarter of fiscal 2018), we may receive additional shares of our common stock from the counterparty or, under certain limited circumstances, be required to deliver shares of our common stock to the counterparty.
On January 26, 2017, our Board of Directors approved our 2017 Repurchase Program — a new $1 billion share repurchase program that does not have a stated expiration date and is in addition to our 2013 Repurchase Program — a $1 billion share repurchase program approved by our Board of Directors on August 23, 2013 that also did not have a stated expiration date. Our repurchases during the fourth quarter of fiscal 2017 used the entire remaining authorization under our 2013 Repurchase Program (approximately $233 million) and a portion of the authorization under our 2017 Repurchase Program, and consequently, we will not make further repurchases under our 2013 Repurchase Program. As of June 30, 2017, we had a remaining, unused authorization of approximately $973 million under our 2017 Repurchase Program. Repurchases under our repurchase program 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 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. Additional information regarding our repurchase programs is set forth above under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.
Dividends
On August 25, 2017, our Board of Directors increased the quarterly cash dividend rate on our common stock from $.53 per share to $.57 per share, for an annualized cash dividend rate of $2.28 per share, which was our sixteenth consecutive annual increase in our quarterly cash dividend rate. Our annualized cash dividend rate in fiscal 2017, 2016 and 2015 was $2.12 per share, $2.00 per share and $1.88 per share, respectively. 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

46


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. Additional information concerning our dividends is set forth above under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.
Capital Structure and Resources
2015 Credit Agreement:     As discussed in Note 11: Credit Arrangements in the Notes, on July 1, 2015, we established a new $1 billion 5-year senior unsecured revolving credit facility (the “2015 Credit Facility”) by entering into a Revolving Credit Agreement (the “2015 Credit Agreement”) with a syndicate of lenders. The 2015 Credit Facility replaced our prior $1 billion five-year senior unsecured revolving credit facility. The description of the 2015 Credit Facility and the 2015 Credit Agreement set forth in Note 11: Credit Arrangements in the Notes is incorporated herein by reference.
Short-Term Debt:      Our short-term debt at June 30, 2017 and July 1, 2016 was $80 million and $15 million , respectively. Our short-term debt at July 1, 2016 consisted of local borrowings by international subsidiaries for working capital needs. During fiscal 2017, our short-term debt increased to a fiscal quarter-end high of $233 million as of March 31, 2017, primarily due to commercial paper issued to partially fund repayment of the entire outstanding $250 million aggregate principal amount of our 4.25% Notes due October 1, 2016. During the fourth quarter of fiscal 2017, we used net proceeds from the CapRock and IT Services divestitures to repay commercial paper, and as of June 30, 2017 , our short-term debt consisted of $75 million under our commercial paper program and $5 million of local borrowings of international subsidiaries. Our commercial paper program was supported at June 30, 2017 and July 1, 2016 by the 2015 Credit Facility.
Long-Term Variable-Rate Debt:     The description of the Term Loan Agreement set forth in Note 13: Long-Term Debt in the Notes is incorporated herein by reference. As discussed in Note 13: Long-Term Debt in the Notes, on May 29, 2015, in order to fund a portion of the cash consideration and other amounts payable in connection with our acquisition of Exelis, we borrowed $1.3 billion under our Term Loan Agreement, comprised of two tranches:
$650 million in a 3-year tranche due May 29, 2018, and
$650 million in a 5-year tranche due May 29, 2020.
As discussed in Note 13: Long-Term Debt in the Notes, we repaid $313 million and $650 million of the principal amount of our variable-rate term loans during fiscal 2017 and 2016, respectively.
Long-Term Fixed-Rate Debt:     The description of our long-term fixed-rate debt set forth in Note 13: Long-Term Debt in the Notes is incorporated herein by reference. As discussed in Note 13: Long-Term Debt in the Notes, on May 27, 2015, we completed our optional redemption of the entire outstanding $400 million principal amount of our 5.95% Notes due December 1, 2017 at a “make-whole” redemption price of $448 million and the entire outstanding $350 million principal amount of our 6.375% Notes due June 15, 2019 at a “make-whole” redemption price of $415 million. The notes were terminated and cancelled.
As discussed in Note 13: Long-Term Debt in the Notes, on April 27, 2015, in order to fund a portion of the cash consideration and other amounts payable in connection with our acquisition of Exelis, and to fund our optional redemption of our two series of notes described above, we issued debt securities in an aggregate principal amount of $2.4 billion, comprised of several tranches with principal amounts, interest rates and maturity dates as follows:
$500 million of 1.999% Notes due April 27, 2018,
$400 million of 2.700% Notes due April 27, 2020,
$600 million of 3.832% Notes due April 27, 2025,
$400 million of 4.854% Notes due April 27, 2035 and
$500 million of 5.054% Notes due April 27, 2045.
As discussed in Note 13: Long-Term Debt in the Notes, during the second quarter of fiscal 2017, we repaid at maturity the entire outstanding $250 million aggregate principal amount of our 4.25% Notes due October 1, 2016.
Common Stock:     On May 29, 2015, in connection with our acquisition of Exelis, we issued 19,270,836 new shares of our common stock as part of the merger consideration payable to Exelis shareholders in accordance with the terms of the merger agreement. For additional information, see “Item 1. Business — Recent Acquisitions and Divestitures” of this Report.

47


Contractual Obligations
At June 30, 2017 , we had contractual cash obligations to repay debt, to purchase goods and services and to make payments under operating leases. Payments due under these long-term obligations are as follows:
 
 
 
 
Obligations Due by Fiscal Year
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
2018
 
2019
and
2020
 
2021
and
2022
 
After
2022
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Long-term debt
$
3,945

 
$
556

 
$
658

 
$
806

 
$
1,925

Purchase obligations (1)
1,019

 
847

 
151

 
21

 

Operating lease commitments
283

 
60

 
96

 
69

 
58

Interest on long-term debt
1,883

 
145

 
267

 
208

 
1,263

Minimum pension contributions (2)
1

 
1

 

 

 

Total contractual cash obligations (3)
$
7,131

 
$
1,609

 
$
1,172

 
$
1,104

 
$
3,246

 
 
 
 
 
 
 
 
 
 
 
(1) The purchase obligations of $1.0 billion included $166 million of purchase obligations related to cost-plus type contracts where our costs are fully reimbursable.
(2) Amount includes fiscal 2018 minimum contributions to a non-U.S. pension plan. Contributions beyond fiscal 2018 have not been determined. During fiscal 2017, we made a voluntary contribution of $400 million to our U.S. qualified pension plans, and as a result, we currently do not anticipate making any contributions to our U.S. qualified pension plans during fiscal 2018.
(3) The above table does not include unrecognized tax benefits of $90 million .
 
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 in an unconsolidated entity that is held by, and material to, the registrant, where such entity provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or R&D services with the registrant.
As of June 30, 2017, we were not participating in any material transactions that generated 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 June 30, 2017 , we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect our financial position, results of operations or cash flows, and we were not a party to any related party transactions that materially affect our financial position, results of operations 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 financial position, results of operations 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. If 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 financial position, results of operations or cash flows.

48


Commercial Commitments
We have entered into commercial commitments in the normal course of business including surety bonds, standby letter of credit agreements and other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers or to obtain insurance policies with our insurance carriers. At June 30, 2017 , we had commercial commitments on outstanding surety bonds, standby letters of credit and other arrangements, as follows:
 
 
 
Expiration of Commitments
by Fiscal Year
 
Total
 
2018
 
2019
 
2020
 
After 2020
 
(Dollars in millions)
Surety bonds used for:
 
 
 
 
 
 
 
 
 
Bids
$
7

 
$
7

 
$

 
$

 
$

Performance
491

 
423

 
27

 
41

 

 
498

 
430

 
27

 
41

 

Standby letters of credit used for:
 
 
 
 
 
 
 
 
 
Down payments
93

 
36

 
47

 

 
10

Performance
148

 
93

 
24

 
2

 
29

Warranty
42

 
32

 
1

 

 
9

 
283

 
161

 
72

 
2

 
48

Total commitments
$
781

 
$
591

 
$
99

 
$
43

 
$
48

The surety bonds and standby letters of credit used for performance are primarily related to Public Safety and Professional Communications. As is customary in bidding for and completing network infrastructure projects for public safety systems, contractors are required to procure surety bonds and/or standby letters of credit for bids, performance, warranty and other purposes (collectively, “Performance Bonds”). Such Performance Bonds normally have maturities of up to three years and are standard in the industry as a way to provide customers a mechanism to seek redress if a contractor does not satisfy performance requirements under a contract. Typically, a customer is permitted to draw on a Performance Bond if we do not fulfill all terms of a project contract. In such an event, we would be obligated to reimburse the financial institution that issued the Performance Bond for the amounts paid. It has been rare for our Public Safety and Professional Communications business to have a Performance Bond drawn upon. In addition, pursuant to the terms under which we procure Performance Bonds, if our credit ratings are lowered to below “investment grade,” we may be required to provide collateral to support a portion of the outstanding amount of Performance Bonds. Such a downgrade could increase the cost of the issuance of Performance Bonds and could make it more difficult to procure Performance Bonds, which would adversely impact our ability to compete for contract awards. Such collateral requirements could also result in less liquidity for other operational needs or corporate purposes. In addition, any future disruptions, uncertainty or volatility in financial and insurance markets could also adversely affect our ability to obtain Performance Bonds and may result in higher funding costs.
Financial Risk Management
In the normal course of 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 (particularly with respect to the United Kingdom due to Brexit) and the cost and availability of hedging instruments. A 10 percent change in currency exchange rates for our foreign currency derivatives held at June 30, 2017 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 20: Derivative Instruments and Hedging Activities in the Notes for additional information.
Interest Rates:     As of June 30, 2017 , 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 June 30, 2017 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,

49


because the interest rates are fixed, and because our long-term fixed-rate debt is not putable to us (i.e., not 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 fixed-rate debt obligations over the next twelve months.
As of June 30, 2017 , we also had long-term variable-rate debt obligations of $305 million under our senior unsecured term loan facility in connection with our acquisition of Exelis, comprised of term loans of $36 million in a 3-year tranche due May 29, 2018 and $269 million in a 5-year tranche due May 29, 2020. 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 at June 30, 2017 would not have had a material impact on our results of operations or cash flows. 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. As a result of our prepayments, we have effectively prepaid all mandatory quarterly principal amortization payments and are no longer required to make such payments for the remaining term until maturity on each tranche of the term loans. See Note 13: Long-Term Debt in the Notes for further information.
As of June 30, 2017 , we also had short-term variable-rate debt outstanding, primarily under our commercial paper program, subject to interest rate risk. We utilize our commercial paper program to satisfy short-term cash requirements, including bridge financing for strategic acquisitions until longer-term financing arrangements are put in place, temporarily funding repurchases under our share repurchase programs and temporarily funding redemption of long-term debt. The interest rate risk associated with such debt on our results of operations and cash flows is not material due to its temporary nature.
Impact of Foreign Exchange
Approximately 20 percent of our international business was transacted in local currency environments in fiscal 2017 compared with 16 percent in fiscal 2016 . The impact of translating the assets and liabilities of these operations to U.S. dollars is included as a component of shareholders’ equity. As of June 30, 2017 , the cumulative foreign currency translation adjustment included in shareholders’ equity was a $113 million loss compared with a $131 million loss at July 1, 2016 . We utilize foreign currency hedging instruments to minimize the currency risk of international transactions. Gains and losses resulting from currency rate fluctuations did not have a material effect on our results in fiscal 2017 , 2016 or 2015 .
Impact of Inflation
To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. Inflation and changing prices did not materially adversely impact our gross margin, revenue or operating income in fiscal 2017 , 2016 or 2015 .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following is not intended to be a comprehensive list of our accounting policies or estimates. Our significant accounting policies are more fully described in Note 1: Significant Accounting Policies in the Notes. In preparing our financial statements and accounting for the underlying transactions and balances, we apply our accounting policies and estimates as disclosed in the Notes. We consider the policies and estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. The impact and any associated risks related to these estimates on our business operations are discussed throughout this MD&A where such estimates affect our reported and expected financial results. Senior management has discussed the development and selection of the critical accounting policies and estimates and the related disclosure included herein with the Audit Committee of our Board of Directors. Preparation of this Report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed “critical,” affect reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.”

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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 certain extent, revenue in our Communication Systems segment) 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. We are party to certain contracts with incentive provisions or award fees that are subject to uncertainty until the conclusion of the contract, and our customers may be entitled to reclaim and receive previous award fee payments.
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 we review 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 estimate of total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our estimates of 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:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Favorable adjustments
$
118

 
$
187

 
$
114

Unfavorable adjustments
(104
)
 
(119
)
 
(60
)
Net operating income adjustments
$
14

 
$
68

 
$
54

There were no individual impacts to operating income due to estimate at completion adjustments in fiscal 2017 , 2016 or 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

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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 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 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.
The FASB has issued a comprehensive new revenue recognition standard that supersedes nearly all existing revenue recognition guidance under GAAP and will be effective for us in fiscal 2019. See Note 2: Accounting Changes or Recent Accounting Pronouncements in the Notes for additional information.

Postretirement Benefit Plans
Former Exelis employees participate in numerous defined benefit pension and other postretirement defined benefit plans (collectively, referred to as “defined benefit plans”) in the United States, which are sponsored by Harris. The determination of projected benefit obligations and the recognition of expenses related to defined benefit pension plans are dependent on various assumptions. These major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality, termination and other factors (some of which are disclosed in Note 14: Pension and Other Postretirement Benefit Plans in the Notes). Actual results that differ from our assumptions are accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants. In fiscal 2017, we adopted updated mortality tables, which resulted in a decrease in the defined benefit plans’ projected benefit obligation as of June 30, 2017 and estimated net periodic benefit cost beginning fiscal 2018.
Significant Assumptions
We develop assumptions using relevant experience, in conjunction with market-related data for each plan. Assumptions are reviewed annually with third party consultants and adjusted as appropriate. The table included below provides the weighted average assumptions used to estimate projected benefit obligations and net periodic benefit cost as they pertain to our defined benefit pension plans.
Obligation assumptions as of:
June 30, 2017
 
July 1, 2016
Discount rate
3.76%
 
3.62%
Rate of future compensation increase
2.76%
 
2.75%
 
 
 
 
Cost assumptions for fiscal years:
2017
 
2016
Discount rate to determine service cost
3.80%
 
4.06%
Discount rate to determine interest cost
2.94%
 
4.06%
Expected return on plan assets
7.65%
 
7.91%
Rate of future compensation increase
2.75%
 
2.76%

Key assumptions for the U.S. Salaried Retirement Plan (“U.S. SRP”) (our largest defined benefit plan with approximately 90% of the total projected benefit obligation) included a discount rate for obligation assumptions of 3.78% and expected return on plan assets of 7.75% for fiscal 2017, which is being maintained at 7.75% for fiscal 2018. Effective December 31, 2016, accruals under the U.S. SRP benefit formula were frozen for all employees and replaced with a 1% cash balance benefit formula for certain non-highly compensated employees.
 
Expected Return on Plan Assets
Substantially all of our plan assets are managed on a commingled basis in a master investment trust. We determine our expected return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets over the past 15, 20 and 25 years and historical broad market returns over long-term time frames based on our strategic allocation, which is detailed in Note 14: Pension and Other Postretirement Benefit Plans in the Notes. Future returns are based on independent estimates of long-term asset class

52


returns. Based on this approach, the long-term annual rate of return on assets was estimated at 7.65% and 7.91% for fiscal 2017 and 2016 , respectively.
Discount Rate
The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and generally decreases pension expense. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan’s characteristics.
In fiscal 2017, we changed the approach used to estimate the service and interest components of net periodic benefit cost of the U.S. defined benefit plans. The new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates derived from the yield curve used to discount the cash flows used to measure the benefit obligation. Prior to fiscal 2017, we estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.
We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. We accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. Although the benefit obligation measured under this approach was unchanged, the more granular application of the spot rates reduced the fiscal 2017 service and interest costs for the U.S. defined benefit plans by approximately $46 million as a result of this change.
In tandem with our change to the alternative spot rate approach to estimate service cost and interest cost for fiscal 2017 expense, we changed, as of July 1, 2016, the underlying yield curve from a published median yield curve to our actuaries’ above median yield curve to improve our ability to make such estimates. We believe we will be better able to explain changes of individual spot rates between periods with details from our actuaries supporting the underlying yield curve. If we had continued to use a median yield curve, our projected benefit obligation would have been approximately $339 million , or 5 percent , higher as of July 1, 2016.
Sensitivity Analysis
Pension Expense
A 25 basis point change in the long-term expected rate of return on plan assets and discount rate would have the following effect on the combined U.S. defined benefit pension plans’ fiscal 2018 pension expense:
 
Increase/(Decrease)
in Pension Expense
 
25 Basis
Point Increase
 
25 Basis
Point Decrease
 
 
 
 
 
(In millions)
Long-term rate of return on assets used to determine net periodic benefit cost
$
(11.8
)
 
$
11.8

Discount rate used to determine net periodic benefit cost
$
8.1

 
$
(8.6
)
Projected Benefit Obligation
Funded status is derived by subtracting the respective year-end values of the projected benefit obligations (“PBO”) from the fair value of plan assets. The sensitivity of the PBO to changes in the discount rate varies depending on the magnitude and direction of the change in the discount rate. We estimate that a decrease of 25  basis points in the discount rate of the combined U.S. defined benefit pension plans would increase the PBO by approximately $167 million and an increase of 25 basis points would decrease the PBO by approximately $ 159 million .
Fair Value of Plan Assets
The plan assets of our defined benefit plans comprise a broad range of investments, including domestic and international equity securities, fixed income investments, interests in private equity and hedge funds and cash and cash equivalents.
A portion of our defined benefit plans asset portfolio is comprised of investments in private equity and hedge funds. The private equity and hedge fund investments are generally measured using the valuation of the underlying investments or at net asset value. However, in certain instances, the values reported by the asset managers were not current at the measurement date. Consequently, we have estimated adjustments to the last reported value where necessary to measure the assets at fair value at the measurement date. These adjustments consider information received from the asset

53


managers, as well as general market information. Asset values for other positions were generally measured using market observable prices. See Note 14: Pension and Other Postretirement Benefits in the Notes for further information.
Provisions for Excess and Obsolete Inventory Losses
We value our inventory at the lower of cost or market. We balance the need to maintain prudent inventory levels to ensure competitive delivery performance with the risk of excess or obsolete inventory due to changing technology and customer requirements. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements. The review of excess and obsolete inventory applies to all of our business segments. Several factors may influence the sale and use of our inventories, including our decision to exit a product line, technological change and new product development. These factors could result in a change in the amount of obsolete inventory quantities on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if we determine that our inventory is overvalued, we would be required to recognize such costs in the “Cost of product sales” line item in our Consolidated Statement of Income at the time of such determination. In the case of goods that have been written down below cost, such reduced amount is to be considered the cost for subsequent accounting purposes. We have not made any material changes in the reserve methodology used to establish our inventory loss reserves during the past three fiscal years.
As of June 30, 2017 , our reserve for excess and obsolete inventory was $52 million , or 12 percent of our gross inventory balance, which compares with our reserve of $51 million , or 11 percent of our gross inventory balance, as of July 1, 2016 . We recorded $6 million , $29 million and $2 million in inventory write-downs that either reduced our reserve for excess and obsolete inventory or our income from continuing operations before income taxes during fiscal 2017 , 2016 and 2015 , respectively. Although we make reasonable efforts to ensure the accuracy of our forecasts of future product demand, including the impact of planned future product launches, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results.
Goodwill
Goodwill in our Consolidated Balance Sheet as of June 30, 2017 and July 1, 2016 was $5,366 million and $5,352 million , respectively. Goodwill is not amortized. We perform annual (or under certain circumstances, more frequent) impairment tests of our goodwill. We identify potential impairment by comparing the fair value of each of our reporting units with its carrying amount, including goodwill, which is adjusted for allocations of corporate assets and liabilities as appropriate. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
IT Services Goodwill Allocation and Impairment
As described in more detail in Note 3: Discontinued Operations and Divestitures in the Notes, we entered into a definitive agreement to sell IT Services on January 26, 2017 and completed the sale on April 28, 2017.
Because the then-pending divestiture of IT Services represented the disposal of a portion of a reporting unit within our former Critical Networks segment, we assigned $487 million of goodwill to the IT Services disposal group on a relative fair value basis during the third quarter of fiscal 2017, when the held for sale criteria were met. The fair value of the IT Services disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses (which comprised the remaining portion of the reporting unit) was determined based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs.
In conjunction with the relative fair value allocation, we tested goodwill assigned to the disposal group and goodwill assigned to the retained businesses for impairment. As a result, we concluded, in connection with the preparation of our financial statements for the third quarter of fiscal 2017, that goodwill and other assets related to IT Services were impaired as of March 31, 2017, and we recorded a non-cash impairment charge of $240 million in discontinued operations, $228 million of which related to goodwill. The goodwill impairment charge is non-deductible for tax purposes.

54


Fiscal 2015 , 2016 and 2017 Impairment Tests
We estimate fair values of our reporting units based on projected cash flows, and sales and/or earnings multiples applied to the latest twelve months’ sales and earnings of our reporting units. Projected cash flows are based on our best estimate of future sales, operating costs and balance sheet metrics reflecting our view of the financial and market conditions of the underlying business; and the resulting cash flows are discounted using an appropriate discount rate that reflects the risk in the forecasted cash flows. The sales and earnings multiples applied to the sales and earnings of our reporting units are based on current multiples of sales and earnings for similar businesses, and based on sales and earnings multiples paid for recent acquisitions of similar businesses made in the marketplace. We then assess whether any implied control premium, based on a comparison of fair value based purely on our stock price and outstanding shares with fair value determined by using all of the above-described models, is reasonable. We have not made any material changes during the past three fiscal years in the methodology used in the assessment of whether or not goodwill is impaired.
In the fourth quarter of fiscal 2015 , 2016 and 2017 , we performed our annual impairment tests of our reporting units’ goodwill. We completed these tests with no adjustment required to the goodwill of any of our reporting units. As of the date of our fiscal 2017 impairment test, the estimated fair values for each of our reporting units exceeded their carrying values. However, the fair value of one of the reporting units, which had approximately $1,450 million of goodwill as of June 30, 2017 , within our Electronic Systems segment exceeded its carrying value by less than 10 percent. Although no impairment exists for this reporting unit, an impairment of goodwill could result from a number of circumstances, including different assumptions used in determining the fair value of the reporting units, future deterioration of the business or a sharp increase in interest rates without a corresponding increase in future revenue.
Income Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in our Consolidated Balance Sheet, as well as operating loss and tax credit carryforwards. We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. We have not made any material changes in the methodologies used to determine our tax valuation allowances during the past three fiscal years.
Our Consolidated Balance Sheet as of June 30, 2017 included deferred tax assets of $409 million and deferred tax liabilities of $34 million . This compares with deferred tax assets of $549 million and deferred tax liabilities of $4 million as of July 1, 2016 . For all jurisdictions for which we have net deferred tax assets, we expect that our existing levels of pre-tax earnings are sufficient to generate the amount of future taxable income needed to realize these tax assets. Our valuation allowance related to deferred income taxes, which is reflected in our Consolidated Balance Sheet, was $183 million as of June 30, 2017 and $271 million as of July 1, 2016 . The decrease in valuation allowance was primarily due to our divestitures of IT Services and CapRock in fiscal 2017, which allowed us to utilize capital loss carryforwards, which had a full valuation allowance against tax gains on those transactions. Although we make reasonable efforts to ensure the accuracy of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, or if the potential impact of tax planning strategies changes, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.
Impact of Recently Issued Accounting Pronouncements
Accounting pronouncements that have recently been issued but have not yet been implemented by us are described in Note 2: Accounting Changes or Recent Accounting Pronouncements in the Notes, which describes the potential impact that these pronouncements are expected to have on our financial position, results of operations and cash flows.

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FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
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. Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” of this Report for more information regarding factors that might cause our results to differ materially from those expressed in or implied by the forward-looking statements contained in this Report.
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 U.S. Government’s budget deficit, the national debt and sequestration could have an adverse impact on our business, financial condition, results of operations and cash flows.
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.
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.
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 from time to time 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 defined benefit plans 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.

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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 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 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 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.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, we are exposed to the 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. For a discussion of such policies and procedures and the related risks, see “Financial Risk Management” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report, which is incorporated by reference into this Item 7A.
In addition, we are exposed to market return fluctuations on our defined benefit pension plans and other postretirement defined benefit plans. A material adverse decline in the value of these assets and/or the discount rate for projected benefit obligations would result in a decrease in the funded status of the defined benefit pension plans and other postretirement defined benefit plans, an increase in net periodic benefit cost and an increase in required funding. To protect against declines in the discount rate (i.e., interest rates), we will continue to monitor the performance of these assets and market conditions as we evaluate the amount of future contributions. For further information, see Note 14: Pension and Other Postretirement Benefits in the Notes, which information is incorporated by reference into this Item 7A.


57


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Page
Consolidated Statement of Income — Fiscal Years ended June 30, 2017; July 1, 2016; and July 3, 2015
Consolidated Balance Sheet — Ju ne 30, 2017 and July 1, 2016
Consolidated Statement of Cash Flows — Fiscal Years ended Ju ne 30, 2017; July 1, 2016; and July 3, 2015
Consolidated Statement of Equity — Fiscal Years ended Ju ne 30, 2017; July 1, 2016; and July 3, 2015


58


MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
The management of Harris Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance, based on an appropriate cost-benefit analysis, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2017 . In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on management’s assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of June 30, 2017 .
The Company’s independent registered certified public accounting firm, Ernst & Young LLP, has issued a report on the effectiveness of the Company’s internal control over financial reporting. This report appears on page 61 of this Annual Report on Form 10-K.


59


REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Harris Corporation
We have audited the accompanying consolidated balance sheets of Harris Corporation as of June 30, 2017 and July 1, 2016 , and the related consolidated statements of income, comprehensive income (loss), cash flows, and equity, for each of the three fiscal years in the period ended June 30, 2017 . Our audits also included the financial statement schedule listed in the Index at Item 15(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harris Corporation at June 30, 2017 and July 1, 2016 , and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended June 30, 2017 , in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Harris Corporation’s internal control over financial reporting as of June 30, 2017 , based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 29, 2017 expressed an unqualified opinion thereon.
/s/         E RNST  & Y OUNG LLP
Orlando, Florida
August 29, 2017


60


REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Harris Corporation
We have audited Harris Corporation’s internal control over financial reporting as of June 30, 2017 , based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Harris Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Harris Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2017 , based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Harris Corporation as of June 30, 2017 and July 1, 2016 , and the related consolidated statements of income, comprehensive income (loss), cash flows, and equity, for each of the three fiscal years in the period ended June 30, 2017 of Harris Corporation and our report dated August 29, 2017 expressed an unqualified opinion thereon.
/s/         E RNST  & Y OUNG LLP
Orlando, Florida
August 29, 2017


61


CONSOLIDATED STATEMENT OF INCOME
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
(In millions, except per share amounts)
Revenue from product sales and services
 
 
 
 
 
Revenue from product sales
$
4,667

 
$
4,814

 
$
3,278

Revenue from services
1,233

 
1,178

 
607

 
5,900

 
5,992

 
3,885

Cost of product sales and services
 
 
 
 
 
Cost of product sales
(3,029
)
 
(3,136
)
 
(1,946
)
Cost of services
(782
)
 
(764
)
 
(424
)
 
(3,811
)
 
(3,900
)
 
(2,370
)
Engineering, selling and administrative expenses
(1,016
)
 
(1,037
)
 
(883
)
Non-operating income (loss)
2

 
10

 
(108
)
Interest income
2

 
2

 
2

Interest expense
(172
)
 
(183
)
 
(130
)
Income from continuing operations before income taxes
905

 
884

 
396

Income taxes
(267
)
 
(273
)
 
(109
)
Income from continuing operations
638

 
611

 
287

Discontinued operations, net of income taxes
(85
)
 
(287
)
 
47

Net income
$
553

 
$
324

 
$
334

Net income per common share
 
 
 
 
 
Basic
 
 
 
 
 
Continuing operations
$
5.19

 
$
4.91

 
$
2.70

Discontinued operations
(0.69
)
 
(2.30
)
 
0.45

 
$
4.50

 
$
2.61

 
$
3.15

Diluted
 
 
 
 
 
Continuing operations
$
5.12

 
$
4.87

 
$
2.67

Discontinued operations
(0.68
)
 
(2.28
)
 
0.44

 
$
4.44

 
$
2.59

 
$
3.11

See accompanying Notes to Consolidated Financial Statements.


62


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
(In millions)
Net income
$
553

 
$
324

 
$
334

Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation loss, net of income taxes
(34
)
 
(69
)
 
(69
)
Net unrealized gain (loss) on hedging derivatives, net of income taxes
1

 
1

 
(19
)
Amortization of gain on treasury lock, net of income taxes

 

 
2

Net unrecognized gain (loss) on postretirement obligations, net of income taxes
200

 
(411
)
 
85

Other comprehensive income (loss), net of income taxes
167

 
(479
)
 
(1
)
Total comprehensive income (loss)
$
720

 
$
(155
)
 
$
333

See accompanying Notes to Consolidated Financial Statements.


63


CONSOLIDATED BALANCE SHEET
 
June 30,
2017
 
July 1,
2016
 
 
 
 
 
(In millions, except shares)
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
484

 
$
487

Receivables
623

 
674

Inventories
841

 
867

Income taxes receivable
24

 
75

Other current assets
101

 
124

Current assets of discontinued operations

 
397

Total current assets
2,073

 
2,624

Non-current Assets
 
 
 
Property, plant and equipment
904

 
924

Goodwill
5,366

 
5,352

Other intangible assets
1,104

 
1,231

Non-current deferred income taxes
409

 
549

Other non-current assets
234

 
252

Non-current assets of discontinued operations

 
1,077

Total non-current assets
8,017

 
9,385

 
$
10,090

 
$
12,009

Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
Short-term debt
$
80

 
$
15

Accounts payable
540

 
494

Compensation and benefits
140

 
165

Other accrued items
317

 
379

Advance payments and unearned income
252

 
294

Income taxes payable
31

 
4

Current portion of long-term debt
554

 
382

Current liabilities of discontinued operations
12

 
248

Total current liabilities
1,926

 
1,981

Non-current Liabilities
 
 
 
Defined benefit plans
1,278

 
2,296

Long-term debt, net
3,396

 
4,120

Non-current deferred income taxes
34

 
4

Other long-term liabilities
507

 
506

Non-current liabilities of discontinued operations
21

 
45

Total non-current liabilities
5,236

 
6,971

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 119,628,884 shares at June 30, 2017 and 124,643,407 shares at July 1, 2016
120

 
125

Other capital
1,741

 
2,096

Retained earnings
1,343

 
1,330

Accumulated other comprehensive loss
(276
)
 
(495
)
Total shareholders’ equity
2,928

 
3,056

Noncontrolling interests

 
1

Total equity
2,928

 
3,057

 
$
10,090

 
$
12,009

See accompanying Notes to Consolidated Financial Statements.

64


CONSOLIDATED STATEMENT OF CASH FLOWS
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Operating Activities
 
 
 
 
 
Net income
$
553

 
$
324

 
$
334

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
183

 
229

 
233

Amortization of intangible assets from Exelis Inc. acquisition
128

 
132

 
11

Share-based compensation
42

 
39

 
37

Qualified pension plan contributions
(589
)
 
(174
)
 
(1
)
Pension income
(97
)
 
(26
)
 
(1
)
Net liability reduction for certain post-employment benefit plans

 
(101
)
 

Settlement of Exelis Inc. excess pension plan

 
(244
)
 

Impairment of goodwill and other assets
240

 
367

 
46

(Gain) loss on sales of businesses, net
14

 
(10
)
 
(9
)
Adjustment to loss on sales of businesses, net

 
20

 

Loss on prepayment of long-term debt

 

 
118

(Increase) decrease in:
 
 
 
 
 
Accounts and notes receivable
111

 
192

 
(17
)
Inventories
28

 
(28
)
 
20

Increase (decrease) in:
 
 
 
 
 
Accounts payable
18

 
(10
)
 
68

Advance payments and unearned income
(42
)
 
(96
)
 
(48
)
Income taxes
131

 
199

 
(2
)
Other
(151
)
 
111

 
65

Net cash provided by operating activities
569

 
924

 
854

Investing Activities
 
 
 
 
 
Net cash paid for acquired businesses

 

 
(3,186
)
Cash paid for fixed income securities

 
(19
)
 

Net additions of property, plant and equipment
(119
)
 
(152
)
 
(148
)
Proceeds from sales of businesses, net
1,014

 
181

 
50

Adjustment to proceeds from sales of businesses, net
(25
)
 
(11
)
 

Net cash provided by (used in) investing activities
870

 
(1
)
 
(3,284
)
Financing Activities
 
 
 
 
 
Proceeds from borrowings, net of issuance costs
85

 
61

 
3,683

Repayments of borrowings
(584
)
 
(730
)
 
(954
)
Proceeds from exercises of employee stock options
54

 
44

 
47

Repurchases of common stock
(710
)
 

 
(150
)
Cash dividends
(262
)
 
(252
)
 
(198
)
Other financing activities
(21
)
 
(16
)
 
(55
)
Net cash provided by (used in) financing activities
(1,438
)
 
(893
)
 
2,373

Effect of exchange rate changes on cash and cash equivalents
(4
)
 
(24
)
 
(23
)
Net increase (decrease) in cash and cash equivalents
(3
)
 
6

 
(80
)
Cash and cash equivalents, beginning of year
487

 
481

 
561

Cash and cash equivalents, end of year
$
484

 
$
487

 
$
481

See accompanying Notes to Consolidated Financial Statements.

65


CONSOLIDATED STATEMENT OF EQUITY
 
Common
Stock
 
Other
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Balance at June 27, 2014
$
106

 
$
509

 
$
1,226

 
$
(15
)
 
$
(1
)
 
$
1,825

Net income

 

 
334

 

 

 
334

Other comprehensive loss

 

 

 
(1
)
 

 
(1
)
Shares issued under stock incentive plans
1

 
46

 

 

 

 
47

Shares issued to acquire new businesses
19

 
1,508

 

 

 

 
1,527

Share-based compensation expense

 
37

 

 

 

 
37

Equity issuance costs

 
(9
)
 

 

 

 
(9
)
Repurchases and retirement of common stock
(2
)
 
(60
)
 
(104
)
 

 

 
(166
)
Cash dividends ($1.88 per share)

 

 
(198
)
 

 

 
(198
)
Other activity related to noncontrolling interests

 

 

 

 
6

 
6

Balance at July 3, 2015
124

 
2,031

 
1,258

 
(16
)
 
5

 
3,402

Net income

 

 
324

 

 

 
324

Other comprehensive loss

 

 

 
(479
)
 

 
(479
)
Shares issued under stock incentive plans
1

 
43

 

 

 

 
44

Share-based compensation expense

 
37

 

 

 

 
37

Repurchases and retirement of common stock

 
(15
)
 

 

 

 
(15
)
Cash dividends ($2.00 per share)

 

 
(252
)
 

 

 
(252
)
Other activity related to noncontrolling interests

 

 

 

 
(4
)
 
(4
)
Balance at July 1, 2016
125

 
2,096

 
1,330

 
(495
)
 
1

 
3,057

Net income

 

 
553

 

 

 
553

Other comprehensive income

 

 

 
167

 

 
167

Net accumulated foreign currency loss reclassified to earnings

 

 

 
52

 

 
52

Shares issued under stock incentive plans
1

 
53

 

 

 

 
54

Share-based compensation expense

 
40

 

 

 

 
40

Repurchases and retirement of common stock
(6
)
 
(410
)
 
(278
)
 

 

 
(694
)
Forward contract component of accelerated share repurchase

 
(38
)
 

 

 

 
(38
)
Cash dividends ($2.12 per share)

 

 
(262
)
 

 

 
(262
)
Other activity related to noncontrolling interests

 

 

 

 
(1
)
 
(1
)
Balance at June 30, 2017
$
120

 
$
1,741

 
$
1,343

 
$
(276
)
 
$

 
$
2,928

See accompanying Notes to Consolidated Financial Statements.


66


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:  SIGNIFICANT ACCOUNTING POLICIES
Organization — Harris Corporation, together with its subsidiaries, is a leading technology innovator, solving customers’ toughest mission-critical challenges by providing solutions that connect, inform and protect. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products, systems and services have defense and civil government applications, as well as commercial applications. As of the end of fiscal 2017 , we had approximately 17,000 employees, including approximately 7,700 engineers and scientists.
Principles of Consolidation  — Our Consolidated Financial Statements include the accounts of Harris Corporation and its consolidated subsidiaries. As used in these Notes to Consolidated Financial Statements (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 connection with our divestitures in fiscal 2017 of two significant businesses that were part of our former Critical Networks segment, our remaining operations that had been part of our former Critical Networks segment were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. The historical results, discussion and presentation of our business segments as set forth in our Consolidated Financial Statements and these Notes reflect the impact of these changes for all periods presented in order to present all segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these segment changes. See Note 3: Discontinued Operations and Divestitures for additional information related to divestitures, some of which were reported as discontinued operations. Our historical results for all periods presented have been restated to account for businesses reported as discontinued operations in our Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in our Consolidated Financial Statements and these Notes relate solely to our continuing operations.
Use of Estimates  — Our Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require us to make estimates and assumptions that affect the amounts reported in the accompanying Consolidated Financial Statements and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the Consolidated Financial Statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known.
Fiscal Year  — Our fiscal year ends on the Friday nearest June 30. Fiscal 2017 included 52 weeks, fiscal 2016 included 52 weeks and fiscal 2015 included 53 weeks.
Cash and Cash Equivalents  — Cash equivalents are temporary cash investments with a maturity of three or fewer months when purchased. These investments include accrued interest and are carried at the lower of cost or market.
Fair Value of Financial Instruments — The carrying amounts reflected in our Consolidated Balance Sheet for cash and cash equivalents, accounts receivable, non-current receivables, notes receivable, accounts payable, short-term debt and long-term variable-rate debt approximate their fair values. Fair values for long-term fixed-rate debt are primarily based on quoted market prices for those or similar instruments. See Note 13: Long-Term Debt for additional information regarding fair values for our long-term fixed-rate debt. A discussion of fair values for our derivative financial instruments is included under the caption “Financial Instruments and Risk Management” in this Note 1: Significant Accounting Policies .
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.

67


In certain instances, fair value is estimated using quoted market prices obtained from external pricing services. In obtaining such data from the pricing service, we have evaluated the methodologies used to develop the estimate of fair value in order to assess whether such valuations are representative of fair value, including net asset value (“NAV”). Additionally, in certain circumstances, the NAV reported by an asset manager may be adjusted when sufficient evidence indicates NAV is not representative of fair value.
Accounts Receivable  — We record receivables at net realizable value and they generally do not bear interest. This value includes an allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances which is charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and economic status of the customers. We consider a receivable delinquent if it is unpaid after the term of the related invoice has expired. Write-offs are recorded at the time a customer receivable is deemed uncollectible. See Note 5: Receivables for additional information regarding accounts receivable.
Inventories  — Inventories are valued at the lower of cost (determined by average and first-in, first-out methods) or market. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements. See Note 6: Inventories for additional information regarding inventories.
Property, Plant and Equipment  — Property, plant and equipment are carried on the basis of cost and include software capitalized for internal use. Depreciation of buildings, machinery and equipment is computed by the straight-line and accelerated methods. The estimated useful lives of buildings, including leasehold improvements, generally range between 2 and 45  years. The estimated useful lives of machinery and equipment generally range between 2 and 10  years. Amortization of internal-use software begins when the software is put into service and is based on the expected useful life of the software. The useful lives over which we amortize internal-use software generally range between 3 and 10  years. See Note 7: Property, Plant and Equipment for additional information regarding property, plant and equipment.
Goodwill  — We follow the acquisition method of accounting to record the assets and liabilities of acquired businesses at their estimated fair value at the date of acquisition. We initially record goodwill for the amount costs exceed the acquisition-date fair value of net identifiable assets acquired.
We test our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Such events or circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business or the disposal of all or a portion of a reporting unit. We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business segment level or, in some cases, one level below the business segment.
We identify goodwill impairment and measure any loss from an impairment by comparing the fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and an impairment loss is recognized in an amount equal to that excess. See Note 3: Discontinued Operations and Divestitures, Note 4: Business Combinations and Note 8: Goodwill for additional information regarding goodwill.
Long-Lived Assets, Including Finite-Lived Intangible Assets  — Long-lived assets, including finite-lived intangible assets, are amortized on a straight-line basis over their useful lives. We assess the recoverability of the carrying value of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. We evaluate the recoverability of such assets based on the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount. See Note 7: Property, Plant and Equipment and Note 9: Intangible Assets for additional information regarding long-lived assets and intangible assets.
Other Assets and Liabilities  — No assets within the “Other current assets” or “Other non-current assets” line items in our Consolidated Balance Sheet exceeded 5 percent of our total current assets or total assets, respectively, as of June 30, 2017 or July 1, 2016 . No accrued liabilities or expenses within the “Other accrued items” or “Other long-term liabilities” line items in our Consolidated Balance Sheet exceeded 5 percent of our total current liabilities or total liabilities, respectively, as of June 30, 2017 or July 1, 2016 .
Income Taxes  — We follow the liability method of accounting for income taxes. We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in our Consolidated Balance Sheet, as well as operating loss and tax credit carryforwards. We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation

68


allowances as required. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. See Note 23: Income Taxes for additional information regarding income taxes.
Warranties  — On development and production contract sales in our Electronic Systems and Space and Intelligence Systems segments, the value or price of our warranty is generally included in the contract and funded by the customer. A provision for warranties is built into the estimated program costs when determining the profit rate to accrue when applying the cost-to-cost percentage-of-completion revenue recognition method. Warranty costs, as incurred, are charged to the specific program’s cost, and both revenue and cost are recognized at that time. Factors that affect the estimated program cost for warranties include terms of the contract, complexity of the delivered product or service, number of installed units, historical experience and management’s assumptions regarding anticipated rates of warranty claims and cost per claim.
On product sales in all our segments, we provide for future standard warranty costs upon product delivery. The specific terms and conditions of those warranties vary depending on the product sold, customer and country in which we do business. In the case of products sold by us, our warranties start from the shipment, delivery or customer acceptance date and continue as follows:
Segment
  
Average Warranty Period
Communication Systems
  
One to five years
Electronic Systems
  
One to two years
Space and Intelligence Systems
  
60 days to two years
Because our products are manufactured, in many cases, to customer specifications and their acceptance is based on meeting those specifications, we historically have experienced minimal warranty costs. Factors that affect our warranty liability include the number of installed units, historical experience, anticipated delays in delivery of products to end customers, in-country support for international sales and our assumptions regarding anticipated rates of warranty claims and cost per claim. We assess the adequacy of our recorded warranty liabilities every quarter and make adjustments to the liability as necessary. See Note 10: Accrued Warranties for additional information regarding warranties.
Foreign Currency Translation  — The functional currency for most international subsidiaries is the local currency. Assets and liabilities are translated at current rates of exchange and income and expense items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.
Stock Options and Other Share-Based Compensation  — We measure compensation cost for all share-based payments (including employee stock options) at fair value and recognize cost over the vesting period, with forfeitures recognized as they occur. It is our practice to issue shares when options are exercised. See Note 15: Stock Options and Other Share-Based Compensation for additional information regarding share-based compensation.
Restructuring, Exelis Acquisition-Related Integration and Other Charges  — We record restructuring charges for sales or terminations of product lines, closures or relocations of business activities, changes in management structure, and fundamental reorganizations that affect the nature and focus of operations. Such charges include termination benefits, contract termination costs and costs to consolidate facilities or relocate employees. We record these charges at their fair value when incurred. In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period. These charges are included as a component of the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income.
In fiscal 2017, we recorded $58 million of charges for integration and other costs in connection with our acquisition of Exelis Inc. (collectively with its subsidiaries, “Exelis”), substantially all of which were included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. As of the end of fiscal 2017, we had liabilities of $43 million associated with this integration activity and the fiscal 2016 and 2015 restructuring actions described below, of which the majority will be paid within the next twelve months.
In fiscal 2016, we recorded $33 million of restructuring charges for workforce reductions, facility consolidation and other costs and $121 million of charges at our corporate headquarters for integration and other costs (including $11 million for amortization for a step-up in inventory) in connection with our acquisition of Exelis. These charges are included as a component of the “Cost of products and services” and “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. As of the end of fiscal 2016, we had liabilities of $52 million associated with these and previous restructuring actions.

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In fiscal 2015, we recorded restructuring charges of $54 million for workforce reductions (including severance and other employee-related exit costs) and $14 million for facility consolidation and contract terminations, substantially all of which were included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. This resulted in charges of $65 million recorded at our corporate headquarters related to the Exelis acquisition and $3 million in our Communication Systems segment.
In fiscal 2015, we also recorded $281 million of charges at our corporate headquarters, consisting of financing, restructuring, integration, transaction and other costs in connection with our acquisition of Exelis as follows:
$146 million of financing costs, primarily consisting of $118 million of charges associated with our optional redemption on May 27, 2015 of our 5.95% Notes due December 1, 2017 and 6.375% Notes due June 15, 2019 (see Note 21: Non-Operating Income (Loss) for additional information) and $18 million of debt issuance costs related to financing commitments for a senior unsecured bridge loan facility (see Note 18: Interest Expense for additional information);
$65 million of restructuring costs as referenced in the discussion above of fiscal 2015 restructuring charges;
$34 million of integration costs, recognized as incurred;
$23 million of transaction costs, recognized as incurred; and
$13 million of other costs, including impairments of capitalized software (see “Long-Lived Assets, Including Finite-Lived Intangible Assets” in this Note above for additional information).
All of these $281 million of charges were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for the $146 million of financing costs.
Revenue Recognition  — Our segments have the following revenue recognition policies:
Development and Production Contracts:     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 (“POC”) 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. We are party to certain contracts with incentive provisions or award fees that are subject to uncertainty until the conclusion of the contract and our customers may be entitled to reclaim and receive previous award fee payments.
Under the POC 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 a development and production fixed-price contract 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 we review 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 estimate of total contract value, or revenue, based on our expectation of performance on the contract. As the cost-reimbursable contract progresses, our

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estimates of 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 $14 million ( $8 million after-tax or $.07 per diluted share) in fiscal 2017 , $68 million ( $42 million after-tax or $.33 per diluted share) in fiscal 2016 and $54 million ( $38 million after-tax or $.35 per diluted share) in fiscal 2015 .
Products and Services Other Than Development and Production Contracts:     Revenue from product sales other than development and production contracts and revenue from service arrangements are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectibility is reasonably assured, and delivery of a product has occurred and title has transferred or services have been rendered. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. Also, if contractual obligations related to customer acceptance exist, revenue is not recognized for a product or service unless these obligations are satisfied.
Multiple-Element Arrangements:     We have entered into arrangements other than development and production contracts that require the delivery or performance of multiple deliverables or elements under a bundled sale. These arrangements are most prevalent in our Communication Systems segment. For example, in our Communication Systems segment, in addition to delivering secure tactical radios and accessories, we may be required to perform or provide installation, design and development solutions for custom communication infrastructures, and extended warranties.
For arrangements with multiple elements, 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. We recognize revenue for contractual deliverables as separate units of accounting when the delivered items have value to the customer on a standalone basis (i.e., if they are sold separately by any vendor or the customer could resell the delivered items on a standalone basis) and, if the arrangement includes a general right of return relative to the delivered items, we consider delivery or performance of the undelivered items as probable and substantially in our control.
Deliverables that are not separable are accounted for as a combined unit of accounting, and revenue generally is recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectibility is reasonably assured, and delivery of a product has occurred and title has transferred or services have been rendered. If we determine that the 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 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 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.
Bill-and-Hold Arrangements:     Certain contracts include terms and conditions through which we recognize revenue upon completion of equipment production, which is subsequently stored at our location at the customer’s request. Revenue is recognized on such contracts upon the customer’s assumption of title and risk of ownership and when collectibility is reasonably assured. At the time of revenue recognition, there is a schedule of delivery of the product consistent with the customer’s business practices, the product has been separated from our inventory, and we do not have any remaining performance obligations such that the earnings process is not complete.
Other:     Net income or expense related to intellectual property matters is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income and is recognized on the basis of terms specified in contractual agreements. Shipping and handling fees billed to customers are included in the “Revenue from product sales” line item in our Consolidated Statement of Income and the associated costs are included in the “Cost of product sales” line item in our Consolidated Statement of Income. Also, we record taxes collected from customers and remitted to governmental authorities on a net basis in that they are excluded from revenue.

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Retirement and Post-Employment Benefits  — Defined benefit plans that we sponsor are accounted for as defined benefit pension and other postretirement defined benefit plans (collectively referred to as “defined benefit plans”). Accordingly, the funded or unfunded position of each defined benefit plan is recorded on our Consolidated Balance Sheet. Actuarial gains and losses and prior service costs or credits that have not yet been recognized through income are recorded in “accumulated other comprehensive loss” within equity, net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to defined benefit plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality, termination, and healthcare cost trend rates. We develop each assumption using relevant Company experience in conjunction with market-related data. Actuarial assumptions are reviewed annually with third-party consultants and adjusted as appropriate. For the recognition of net periodic benefit cost, the calculation of the long-term expected return on plan assets is generally derived using a market-related value of plan assets based on yearly average asset values at the measurement date over the last five years, to be phased in over five years. Actual results that differ from our assumptions are accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement date. The measurement date for valuing defined benefit plan assets and obligations is the end of the month closest to our fiscal year end.
For fiscal 2017, we changed the approach used to estimate the service and interest components of net periodic benefit cost of the U.S. defined benefit plans. The new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates derived from the yield curve used to discount the cash flows in determining the benefit obligation. Prior to fiscal 2017, the service and interest cost components were determined by a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. We accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. This change resulted in approximately $46 million of lower service and interest costs for our U.S. defined benefit plans in fiscal 2017 compared with the single weighted-average discount rate method.
In tandem with our change to the alternative spot rate approach to estimate service cost and interest cost for fiscal 2017 expense, we changed, as of July 1, 2016, the underlying yield curve from a published median yield curve to our actuaries’ above median yield curve to improve our ability to make such estimates. We believe we will be better able to explain changes of individual spot rates between periods with details from our actuaries supporting the underlying yield curve. If we had continued to use a median yield curve, our projected benefit obligation would have been approximately $339 million , or 5 percent , higher as of July 1, 2016.
See Note 14: Pension and Other Postretirement Benefits for additional information regarding our defined benefit plans.
We also provide retirement benefits to many of our U.S.-based employees through defined contribution retirement plans, including 401(k) plans and certain non-qualified deferred compensation plans. The defined contribution retirement plans have matching and savings elements. Company contributions to the retirement plans are based on employees’ savings with no other funding requirements. We may make additional contributions to the retirement plans at our discretion. Retirement and postretirement benefits also include unfunded limited healthcare plans for U.S.-based retirees and employees on long-term disability. We estimate benefits for these plans using actuarial valuations that are based in part on certain key assumptions we make, including the discount rate, the expected long-term rate of return on plan assets, the rates of increase in future compensation levels, healthcare cost trend rates and employee turnover and mortality, each appropriately based on the nature of the plans. We accrue the cost of these benefits during an employee’s active service life, except in the case of our healthcare plans for disabled employees, the costs of which we accrue when the disabling event occurs.
Environmental Expenditures  — We capitalize environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. We accrue environmental expenses resulting from existing conditions that relate to past or current operations. Our accruals for environmental expenses are recorded on a site-by-site basis when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies available to us. Our accruals for environmental expenses represent the best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees, and are reviewed periodically, at least annually at the year-end balance sheet date, and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. If the timing and amount of future cash payments for environmental liabilities are fixed or reliably determinable, we generally discount such cash flows in estimating our accrual.

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As of June 30, 2017, we were named, and continue to be named, as a potentially responsible party at 60 sites where future liabilities could exist. These sites included 5 sites owned by us, 46 sites associated with our former locations or operations and 9 hazardous waste treatment, storage or disposal facility sites not owned by us that contain hazardous substances allegedly attributable to us from past operations.
Based on an assessment of relevant factors, we estimated that our liability under applicable environmental statutes and regulations for identified sites was approximately $106 million , consisting of (1) approximately $99 million for environmental liabilities related to Exelis operations; and (2) approximately $7 million for other environmental liabilities, which we recorded on a discounted basis, using a 2.31 percent discount rate, because the associated payment stream is relatively certain, and for which the estimated aggregate undiscounted amount that will be incurred over the next 10 years is approximately $8 million , with estimated payments for the next five years of approximately $0.7 million per year and an aggregate amount thereafter of approximately $4 million . In each case, the current portion of our estimated environmental liability is included in the “Other accrued items” line item and the non-current portion is included in the “Other long-term liabilities” line item in our Consolidated Balance Sheet.
The relevant factors we considered in estimating our potential liabilities under applicable environmental statutes and regulations included some or all of the following as to each site: incomplete information regarding particular sites and other potentially responsible parties; uncertainty regarding the extent of investigation or remediation; our share, if any, of liability for such conditions; the selection of alternative remedial approaches; changes in environmental standards and regulatory requirements; potential insurance proceeds; cost-sharing agreements with other parties and potential indemnification from successor and predecessor owners of these sites. We do not believe that any uncertainties regarding these relevant factors will materially affect our potential liability under applicable environmental statutes and regulations. We believe the total amount accrued is appropriate based on existing facts and circumstances, although we note the total amount accrued may increase or decrease in future years.
Financial Guarantees and Commercial Commitments  — Financial guarantees are contingent commitments issued to guarantee the performance of a customer to a third party in borrowing arrangements, such as commercial paper issuances, bond financings and similar transactions. As of June 30, 2017 , we did not have material financial guarantees and there were no such contingent commitments accrued for in our Consolidated Balance Sheet.
We have entered into commercial commitments in the normal course of business including surety bonds, standby letter of credit agreements and other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers and to obtain insurance policies with our insurance carriers.
Financial Instruments and Risk Management  — In the normal course of 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 our Consolidated Balance Sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. We do not hold or issue derivatives for trading purposes. See Note 20: Derivative Instruments and Hedging Activities for additional information regarding our use of derivative instruments.
Income From Continuing Operations Per Share  — For all periods presented in our Consolidated Financial Statements and these Notes, income from continuing operations per share is computed using the two-class method. The two-class method of computing income from continuing operations per share is an earnings allocation formula that determines income from continuing operations per share for common stock and any participating securities according to dividends paid and participation rights in undistributed earnings. Our restricted stock awards and restricted stock unit awards meet the definition of participating securities and are included in the computations of income from continuing operations per basic and diluted common share. Our performance share awards and performance share unit awards do not meet the definition of participating securities because they do not contain rights to receive nonforfeitable dividends and, therefore, are excluded from the computations of income from continuing operations per basic and diluted common share. Under the two-class method, income from continuing operations per common share is computed by dividing the sum of earnings distributed to common shareholders and undistributed earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period. Income from continuing operations per diluted common share is computed using the more dilutive of the two-class method or the treasury stock method. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted-average shares outstanding during the period. See Note 16: Income From Continuing Operations Per Share for additional information.

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Business Segments  — 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 Note 24: Business Segments represent the elimination of intersegment sales and their related profits. The “Unallocated corporate expense” line item in Note 24: Business Segments represents the portion of corporate expenses not allocated to our business segments.
Reclassifications — Certain prior-year amounts have been reclassified in our Consolidated Financial Statements to conform to current-year classifications.
NOTE 2:  ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
In the first quarter of fiscal 2017, we adopted an accounting standard issued by the Financial Accounting Standards Board (“FASB”) that changed the accounting for certain aspects of stock options and other share-based compensation. This accounting standard requires companies to recognize excess tax benefits or expenses related to the vesting or settlement of employee share-based awards (i.e., the difference between the actual tax benefit realized and the tax benefit initially recognized for financial reporting purposes) as income tax benefit or expense in our Consolidated Statement of Income. Prior to adoption of this accounting standard, we were required to recognize these amounts directly in our Consolidated Balance Sheet as additional paid-in capital. This accounting standard also requires classification of cash flows resulting from excess tax benefits or expenses related to employee share-based awards as cash flows from operating activities in our Consolidated Statement of Cash Flows. Prior to adoption of this accounting standard, we classified cash flows resulting from excess tax benefits or expenses related to employee share-based awards as cash flows from financing activities in our Consolidated Statement of Cash Flows. We applied all significant changes required by this accounting standard on a prospective basis from the beginning of fiscal 2017. Adopting this accounting standard did not have a material impact on our financial position, results of operations or cash flows, except as follows:
We recognized  $23 million  ( $.18  per diluted share) of income tax benefit in our Consolidated Statement of Income for fiscal 2017; and
We classified  $23 million  of cash flows resulting from excess tax benefits related to employee share-based awards as net cash provided by operating activities in our Consolidated Statement of Cash Flows for fiscal 2017.
In the fourth quarter of fiscal 2017, we adopted an accounting standard issued by the FASB that simplified measurement of goodwill impairment. The accounting standard simplified the goodwill impairment calculation by eliminating step 2 from the former two-step impairment test under existing GAAP. The new standard does not change how a goodwill impairment is identified. We will continue to perform our quantitative goodwill impairment test by comparing the fair value of each reporting unit to its carrying amount, but if we are required to recognize a goodwill impairment charge, under the new standard the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount. Prior to adoption of this standard, if the fair value of a reporting unit was lower than its carrying amount (Step 1), we were required to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge was calculated by subtracting the reporting unit’s implied fair value of goodwill from its actual goodwill balance (Step 2). The new guidance simplifies financial reporting because it eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill impairment. We applied all significant changes required by this accounting standard on a prospective basis from the fourth quarter of fiscal 2017. Adopting this accounting standard did not have a material impact on our financial position, results of operations or cash flows.
In fiscal 2017, we adopted an accounting standard issued by the FASB that removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using NAV per share practical expedient. Adopting this accounting standard did not have a material 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 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 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,

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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, with certain additional required footnote disclosures). In August 2015, the FASB issued an accounting standards update that deferred the effective date of the standard by one year, while continuing to permit entities to elect to adopt the standard as early as 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.
In preparation for the adoption of the new standard, the project team we formed has made progress against the detailed implementation plan we developed, including in the following areas:
Completing an accounting guidance gap analysis, consisting of a review of significant revenue streams and representative contracts to determine potential changes to our existing accounting policies and potential impacts to our consolidated financial statements;
Completing an inventory of our outstanding contracts and revenue streams;
Drafting a Company-wide revenue recognition policy reflecting the requirements of the new standard and tailored to our businesses;
Providing Company-wide training to affected employees, including in the areas of accounting, finance, contracts, tax and segment management;
Applying the five-step model of the new standard to our contracts and revenue streams to evaluate the quantitative and qualitative impacts the new standard will have on our consolidated financial statements, accounting and operating policies, accounting systems, internal control structure and business practices; and
Initiating the process of reviewing the additional disclosure requirements of the new standard and the potential impact on our accounting systems and internal control structure.
Although we are still in the process of evaluating and quantifying the impact of the new standard as described above, we have identified certain changes we expect the new standard to have on our consolidated financial statements. A significant portion of our revenue is derived from contracts with the U.S. Government, with revenue recognized using the POC method. We expect to recognize revenue on an “over time” basis for most of these contracts by using cost inputs to measure progress toward the completion of our performance obligations, which is similar to the POC cost-to-cost method currently used on the majority of these contracts. Consequently, we expect the adoption of the new standard primarily to impact certain of these contracts that recognize revenue using the POC units-of-delivery or milestone methods, resulting in recognition of revenue (and costs) earlier in the performance period as costs are incurred, as opposed to when units are delivered or milestones are achieved. We also are continuing to evaluate the impact of the new standard in other areas, including:
The number of distinct performance obligations within our contractual arrangements;
Contract modifications;
The potential impact to timing of revenue recognition for certain non-U.S. Government contracts based on existing contractual language; and
Estimation and recognition of variable consideration for contracts to provide services.
Because of the broad scope of the new standard, it could impact revenue and cost recognition across all of our business segments as well as related business processes and IT systems. As a result, our evaluation of the impact of the new standard will continue over future periods. We also have not yet made a determination regarding the use of a full retrospective or modified retrospective adoption approach for the new standard, as this determination is primarily dependent on the completion of our analysis of the effect the adoption will have on our consolidated financial statements.
In July 2015, the FASB issued a new standard that simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. The standard applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. The standard is effective for public business entities for fiscal years beginning after December 15, 2016, which for us is fiscal 2018. We do not expect that adopting this accounting standard will have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to existing lease guidance under GAAP. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with the option to use certain relief. Full retrospective application is prohibited. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows.
In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This update requires that entities present components of net periodic pension cost

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and net periodic postretirement benefit cost other than the service cost component separately from the service cost component and outside the subtotal of income from operations. This update must be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, which for us is our fiscal 2019. Adopting this accounting standard will result in a decrease in operating income and an increase in the net non-operating components of income from continuing operations of $164 million and $183 million for fiscal 2017 and 2018, respectively. We do not expect that adopting this accounting standard will have a material impact on our financial position or cash flows.
NOTE 3:  DISCONTINUED OPERATIONS AND DIVESTITURES
Discontinued Operations
We completed two significant divestitures during fiscal 2017, the divestiture of our government information technology (“IT”) services business (“IT Services”) and the divestiture of our Harris CapRock Communications commercial business (“CapRock”), which are described in more detail below. These divestitures individually and collectively represented a strategic shift away from non-core markets (for example, energy, maritime and government IT services). The decision to divest these businesses was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses, and will have a major effect on our operations and financial results.
As a result, CapRock and IT Services are reported as discontinued operations in the Consolidated Financial Statements and these Notes, and our historical financial results have been restated to account for CapRock and IT Services as discontinued operations for all periods presented in the Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in the accompanying Consolidated Financial Statements and these Notes relate solely to our continuing operations.
The major components of the discontinued operations in our Consolidated Statement of Income include the following:
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(In millions)
Revenue from product sales and services
$
1,039

 
$
1,529

 
$
1,245

Cost of product sales and services
(885
)
 
(1,286
)
 
(1,025
)
Engineering, selling and administrative expenses
(91
)
 
(150
)
 
(123
)
Impairment of goodwill and other assets
(240
)
 
(367
)
 
(16
)
Non-operating loss, net (1)
(7
)
 
(4
)
 

Income (loss) before income taxes
(184
)
 
(278
)
 
81

Loss on sale of discontinued operations, net (2)
(11
)
 
(21
)
 

Income tax benefit (expense), net (3)
110

 
12

 
(34
)
Discontinued operations, net of income taxes
$
(85
)
 
$
(287
)
 
$
47

 
 
 
 
 
 
 
(1) “Non-operating loss, net” included losses of $2 million in fiscal 2017 and $4 million in fiscal 2016 related to our former broadcast communications business (“Broadcast Communications”), which was divested in fiscal 2013.
(2) “Loss on sale of discontinued operations, net” included a $3 million decrease and $21 million increase to the loss on the sale of Broadcast Communications in fiscal 2017 and 2016, respectively.
(3) “Income tax benefit (expense), net” included a $4 million income tax benefit in fiscal 2016 related to Broadcast Communications.


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The carrying amounts of the major classes of assets and liabilities included in discontinued operations in our Consolidated Balance Sheet are as follows:
 
 
June 30, 2017
 
July 1, 2016
 
 
 
 
 
 
 
(In millions)
Assets
 
 
 
Receivables
$

 
$
263

Inventories

 
97

Other current assets

 
37

Current assets of discontinued operations
$

 
$
397

Property, plant and equipment
$

 
$
91

Goodwill

 
623

Non-current deferred income taxes

 
47

Other intangible assets

 
311

Other non-current assets

 
5

Non-current assets of discontinued operations
$

 
$
1,077

Liabilities
 
 
 
Accounts payable
$

 
$
109

Advance payments and unearned income

 
25

Other current liabilities (1)
12

 
114

Current liabilities of discontinued operations
$
12

 
$
248

Non-current liabilities of discontinued operations (2)
$
21

 
$
45

 
 
 
 
 
(1) “Other current liabilities” included $4 million and $30 million of liabilities related to Broadcast Communications as of June 30, 2017 and July 1, 2016, respectively.
(2) “Non-current liabilities of discontinued operations” included $7 million and $6 million of liabilities related to Broadcast Communications as of June 30, 2017 and July 1, 2016, respectively.

Depreciation and amortization, capital expenditures, and significant noncash items of discontinued operations included the following:
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Depreciation and amortization
$
39

 
$
78

 
$
84

Capital expenditures
4

 
19

 
34

Significant noncash items:
 
 
 
 
 
Impairment of goodwill and other assets
(240
)
 
(367
)
 
(16
)
Loss on sale of discontinued operations, net
(11
)
 
(21
)
 

IT Services
On April 28, 2017, we completed the divestiture to an affiliate of Veritas Capital Fund Management, L.L.C. (“Veritas”) of IT Services, which primarily provided IT and engineering managed services to U.S. Government customers, for net cash proceeds of $646 million , after estimated transaction expenses and estimated purchase price adjustments in respect of net cash and working capital, and subject to post-closing finalization of those adjustments as set forth in the definitive sales agreement entered into January 26, 2017. We recognized a pre-tax loss of $28 million on the sale of IT Services (and an after-tax gain of $55 million or $.44 per diluted share). The decision to divest IT Services was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses. IT Services was part of our former Critical Networks segment and in connection with the definitive agreement to sell IT Services, as described above, the other remaining operations that had been apart of the Critical Networks segment, including our air traffic management (“ATM”) business, primarily serving the Federal Aviation Administration (“FAA”), and our Pacific Missile Range Facility (“PMRF”) program were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was

77


eliminated. We agreed to provide various transition services to Veritas for a period of up to 18 months following the closing of the transaction pursuant to a separate agreement.
Because the then-pending divestiture of IT Services represented the disposal of a portion of a reporting unit within our former Critical Networks segment, we assigned $487 million of goodwill to the IT Services disposal group on a relative fair value basis during the third quarter of fiscal 2017, when the held for sale criteria were met. The fair value of the IT Services disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses (which comprised the remaining portion of the reporting unit) was determined based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs. See Note 1: Significant Accounting Policies for additional information regarding the fair value hierarchy.
In conjunction with the allocation, we tested goodwill assigned to the disposal group and goodwill allocated to the retained businesses for impairment. As a result, we concluded that goodwill and other assets related to IT Services were impaired as of March 31, 2017, and we recorded a non-cash impairment charge of $240 million in discontinued operations, $228 million of which related to goodwill. The goodwill impairment charge is non-deductible for tax purposes.
The following table presents the key financial results of IT Services included in “Discontinued operations, net of income taxes” in our Consolidated Statement of Income:
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Revenue from product sales and services
$
895

 
$
1,168

 
$
781

Cost of product sales and services
(777
)
 
(1,002
)
 
(665
)
Engineering, selling and administrative expenses
(68
)
 
(84
)
 
(64
)
Impairment of goodwill and other assets
(240
)
 

 
(2
)
Non-operating loss
(9
)
 

 

Income (loss) before income taxes
(199
)
 
82

 
50

Loss on sale of discontinued operation
(28
)
 

 

Income tax benefit (expense)
69

 
(30
)
 
(16
)
Discontinued operations, net of income taxes
$
(158
)
 
$
52

 
$
34


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The following table presents assets and liabilities related to IT Services included in “Current assets of discontinued operations,” “Non-current assets of discontinued operations,” “Current liabilities of discontinued operations” and “Non-current liabilities of discontinued operations” in our Consolidated Balance Sheet:
 
June 30, 2017
 
July 1, 2016
 
 
 
 
 
(In millions)
Assets
 
 
 
Receivables
$

 
$
196

Inventories

 
83

Other current assets

 
6

Current assets of discontinued operations
$

 
$
285

Property, plant and equipment
$

 
$
18

Goodwill

 
487

Other intangible assets

 
287

Non-current deferred income taxes

 
4

Other non-current assets

 
2

Non-current assets of discontinued operations
$

 
$
798

Liabilities
 
 
 
Accounts payable
$

 
$
98

Advance payments and unearned income

 
20

Other current liabilities
2

 
40

Current liabilities of discontinued operations
$
2

 
$
158

Non-current liabilities of discontinued operations
$

 
$
13

CapRock
On January 1, 2017, we completed the divestiture to SpeedCast International Ltd. (“SpeedCast”) of CapRock, which provided wireless, terrestrial and satellite communications services to energy and maritime customers, for net cash proceeds of $370 million , after transaction expenses and purchase price adjustments in respect of net cash and working capital as set forth in the definitive sales agreement. We recognized a pre-tax gain of $14 million on the sale of CapRock ( $61 million after certain tax benefits related to the transaction, including reversal of valuation allowances on capital losses and net operating losses, or $.49 per diluted share). We agreed to provide various transition services to SpeedCast for a period of up to 12 months following the closing of the transaction pursuant to a separate agreement.
The following table presents the key financial results of CapRock included in “Discontinued operations, net of income taxes” included in our Consolidated Statement of Income:
 
Fiscal Years Ended
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Revenue from product sales and services
$
144

 
$
361

 
$
464

Cost of product sales and services
(108
)
 
(284
)
 
(360
)
Engineering, selling and administrative expenses
(23
)
 
(66
)
 
(59
)
Impairment of goodwill and other assets

 
(367
)
 
(14
)
Non-operating income
4

 

 

Income (loss) before income taxes
17

 
(356
)
 
31

Gain on sale of discontinued operation
14

 

 

Income tax benefit (expense)
41

 
38

 
(18
)
Discontinued operations, net of income taxes
$
72

 
$
(318
)
 
$
13


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Indications of potential impairment of goodwill related to CapRock (which was part of our former Critical Networks segment) were present at the end of the second quarter of fiscal 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 CapRock. Consequently, in connection with the preparation of our financial statements for the second quarter of fiscal 2016, we performed an interim test of CapRock’s goodwill for impairment as of the end of the second quarter of fiscal 2016.
To test for potential impairment of goodwill related to CapRock, we prepared an estimate of the fair value of the reporting unit based on projected discounted cash flows. The current carrying value of the CapRock reporting unit exceeded its estimated fair value, and accordingly, we allocated the estimated fair value to the assets and liabilities of the CapRock reporting unit to estimate the implied fair value of goodwill.
In conjunction with the above-described impairment test, we also conducted a test for impairment of other assets related to CapRock, including amortizable intangible assets and fixed assets, and impairment of these assets was considered prior to the conclusion of the goodwill impairment test. The estimated fair value of these other assets related to CapRock was determined based, in part, on an analysis of projected cash flows.
As a result of these impairment tests, we concluded that goodwill and other assets related to CapRock were impaired as of January 1, 2016, and we recorded an estimated non-cash impairment charge of $367 million , of which $290 million related to goodwill, which is included in the “Discontinued operations, net of income taxes” line item in our Consolidated Statement of Income for fiscal 2016 . Most of the $367 million impairment charge is not deductible for tax purposes.
The following table presents assets and liabilities related to CapRock included in “Current assets of discontinued operations,” “Non-current assets of discontinued operations,” “Current liabilities of discontinued operations” and “Non-current liabilities of discontinued operations” in our Consolidated Balance Sheet:
 
June 30, 2017
 
July 1, 2016
 
 
 
 
 
(In millions)
Assets
 
 
 
Receivables
$

 
$
67

Inventories

 
14

Other current assets

 
31

Current assets of discontinued operations
$

 
$
112

Property, plant and equipment
$

 
$
73

Goodwill

 
136

Other intangible assets

 
24

Non-current deferred income taxes

 
43

Other non-current assets

 
3

Non-current assets of discontinued operations
$

 
$
279

Liabilities
 
 
 
Accounts payable
$

 
$
11

Advance payments and unearned income

 
5

Other current liabilities
6

 
44

Current liabilities of discontinued operations
$
6

 
$
60

Non-current liabilities of discontinued operations
$
14

 
$
26

Broadcast Communications
On February 4, 2013, we completed the divestiture of Broadcast Communications, which provided digital media management solutions in support of broadcast customers, to an affiliate of The Gores Group, LLC (“Gores”) 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 Gores over the amount of the post-closing working capital adjustment, we and Gores previously appointed a nationally recognized accounting firm to render a final determination of such dispute. On January 29,

80


2016, the accounting firm rendered its final determination as to the disputed items, in which it concluded substantially in our favor and partly in Gores’ favor. As a result of such determination, we recorded a loss in the second quarter of fiscal 2016 of $21 million ( $17 million after-tax or $.14 per diluted share).
Cyber Integrated Solutions
Pursuant to a plan approved by our Board of Directors to exit our cyber integrated solutions business (“CIS”), which provided remote cloud hosting, and to dispose of the related assets, we completed the sale of the remaining assets in the first quarter of fiscal 2014 for $35 million , including $28 million in cash and a $7 million subordinated promissory note, which we collected in the first quarter of fiscal 2015.
Divestitures
Aerostructures
On April 8, 2016, we completed the divestiture of our composite aerostructures business (“Aerostructures”), which designed and manufactured technically advanced, lightweight composite aerospace assembly structures, sub-assemblies and components for defense and commercial industries, for $187 million in cash at closing and the assumption of a $23 million capitalized lease. The operating results of Aerostructures through the date of divestiture are reported as part of our Electronic Systems segment. We recognized a net gain of $10 million on the sale, which is included in the “Non-operating income (loss)” line item in our Consolidated Statement of Income. Summarized financial information for Aerostructures is as follows:
 
Fiscal Years Ended
 
2016
 
2015
 
 
 
 
 
(In millions)
Revenue from product sales and services
$
60

 
$
8

Income before income taxes
5

 

Net gain on sale of business
10

 

Commercial Healthcare Solutions
On July 1, 2015, we completed the divestiture of our commercial healthcare solutions business (“HCS”). The operating results of HCS through the date of divestiture were part of our former Integrated Network Solutions segment, but are included as part of corporate in these Notes.
NOTE 4:  BUSINESS COMBINATIONS
During fiscal 2015, we made one significant acquisition. On May 29, 2015, we acquired Exelis, a diversified, top-tier global aerospace, defense, information and services company leveraging its deep customer knowledge and technical expertise to deliver affordable, mission-critical solutions for global customers. We acquired 100 percent of Exelis in a cash and stock transaction. The total net purchase price was approximately $4.7 billion , including approximately $1.5 billion in Harris common stock and $3.2 billion in cash, net of cash acquired. The source of funds for the cash payment was cash on hand and third-party debt financing, including a combination of borrowings under an unsecured term loan facility in an aggregate amount of $1.3 billion and a portion of the proceeds from the issuance of debt securities in an aggregate principal amount of $2.4 billion . See Note 13: Long-Term Debt for additional information.
The following table provides further detail of the fair value of consideration paid related to the Exelis acquisition in fiscal 2015 (dollars in millions):
Date of acquisition
May 29, 2015

Cash consideration paid for Exelis outstanding common stock
$
3,128

Cash consideration paid for Exelis outstanding stock options
125

Cash consideration paid for Exelis outstanding restricted stock units
38

Cash consideration paid for dividends to Exelis shareholders
21

Total cash consideration paid
3,312

Less cash acquired
(130
)
Net cash consideration paid
3,182

Fair value of Harris common stock issued for Exelis common stock
1,527

Total net purchase price paid
$
4,709


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Pro Forma Results (Unaudited)
The following summary, prepared on a pro forma basis, presents our unaudited consolidated results of operations for fiscal 2015 as if the acquisition of Exelis had been completed as of the beginning of fiscal 2014, after including any post-acquisition adjustments directly attributable to the acquisition, and after including the impact of adjustments such as amortization of intangible assets, interest expense on related borrowings and new shares issued and, in each case, the related income tax effects. This pro forma presentation is on a continuing operations basis and does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our results of operations had we owned Exelis for the entire period presented.
 
2015
 
 
 
(In millions)
Revenue from product sales and services — as reported
$
3,885

Revenue from product sales and services — pro forma
$
6,285

Income from continuing operations — as reported
$
287

Income from continuing operations — pro forma
$
384

NOTE 5:  RECEIVABLES
Receivables are summarized below:
 
2017
 
2016
 
 
 
 
 
(In millions)
Accounts receivable
$
368

 
$
398

Unbilled costs and accrued earnings on cost-plus contracts
258

 
280

 
626

 
678

Less allowances for collection losses
(3
)
 
(4
)
 
$
623

 
$
674

We expect to bill during fiscal 2018 substantially all unbilled costs and accrued earnings outstanding at June 30, 2017 .
NOTE 6:  INVENTORIES
Inventories are summarized below:
 
2017
 
2016
 
 
 
 
 
(In millions)
Unbilled costs and accrued earnings on fixed-price contracts
$
454

 
$
436

Finished products
96

 
129

Work in process
96

 
110

Raw materials and supplies
195

 
192

 
$
841

 
$
867

Unbilled costs and accrued earnings on fixed-price contracts were net of progress payments of $90 million and $91 million at June 30, 2017 and July 1, 2016 , respectively.


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NOTE 7:  PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below:
 
2017
 
2016
 
 
 
 
 
(In millions)
Land
$
43

 
$
43

Software capitalized for internal use
141

 
113

Buildings
617

 
592

Machinery and equipment
1,270

 
1,185

 
2,071

 
1,933

Less accumulated depreciation and amortization
(1,167
)
 
(1,009
)
 
$
904

 
$
924

Depreciation and amortization expense related to property, plant and equipment was $147 million , $160 million and $109 million in fiscal 2017 , 2016 and 2015 , respectively.
NOTE 8:  GOODWILL
The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the fiscal years ended June 30, 2017 and July 1, 2016 , by business segment, were as follows:
 
 
Communication
Systems
 
Electronic
Systems
 
Space and
Intelligence
Systems
 
Critical Networks (2)
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance at July 3, 2015  as reported
$
760

 
$
1,718

 
$
1,446

 
$
2,424

 
$
6,348

Decrease from reclassification to assets of discontinued operations (1)

 

 

 
(943
)
 
(943
)
Transfer of goodwill in segment realignment

 
1,481

 

 
(1,481
)
 

Balance at July 3, 2015   — after reallocation
760

 
3,199

 
1,446

 

 
5,405

Goodwill decrease from divestitures (3)

 
(61
)
 

 

 
(61
)
Currency translation adjustments
7

 
(46
)
 
(1
)
 

 
(40
)
Other (including adjustments to previously estimated fair value of assets acquired and liabilities assumed)
14

 
1

 
33

 

 
48

Balance at July 1, 2016
781

 
3,093

 
1,478

 

 
5,352

Currency translation adjustments
2

 
(4
)
 
(1
)
 

 
(3
)
Other
2

 
15

 

 

 
17

Balance at June 30, 2017
$
785

 
$
3,104

 
$
1,477

 
$

 
$
5,366

 
 
 
 
 
 
 
 
 
 
 
(1) CapRock and IT Services are reported as discontinued operations in the Consolidated Financial Statements and these Notes as a result of our divestitures in fiscal 2017 of those businesses, which were part of our former Critical Networks segment. In order to restate changes in the carrying amount of goodwill by business segment on a continuing operations basis to the earliest period presented in this Note, our goodwill balance as of July 3, 2015 has been adjusted by $943 million , consisting of a $449 million adjustment related to CapRock and a $494 million adjustment related to IT Services. The $449 million adjustment related to CapRock included $136 million of goodwill transferred to discontinued operations in the second quarter of fiscal 2017, as well as associated changes in the carrying amount of CapRock goodwill for earlier periods. The $494 million adjustment related to IT Services included $487 million of goodwill transferred to discontinued operations in the third quarter of fiscal 2017 when the held for sale criteria were met, as well as associated changes in the carrying amount of IT Services goodwill for earlier periods. The $487 million of goodwill transferred to discontinued operations in the third quarter of fiscal 2017 was determined on a relative fair value basis, because the then-pending divestiture of IT Services represented the disposal of a portion of a reporting unit within our former Critical Networks segment. The carrying amount of each of CapRock goodwill and IT Services goodwill is included as a component of the “Non-current assets of discontinued operations” line item in our Consolidated Balance Sheet as of July 1, 2016, however the carrying amount of each was subsequently derecognized through the loss on sale of discontinued operations and is not in our Consolidated Balance Sheet as of June 30, 2017. See Note 3: Discontinued Operations and Divestitures for additional information.
(2) In connection with our divestitures of CapRock and IT Services, our Critical Networks segment was eliminated effective for the third quarter of fiscal 2017, and our operations that had been part of our Critical Networks segment, other than CapRock and IT Services, were integrated with our Electronic Systems segment. In order to restate changes in the carrying amount of goodwill by business segment on a continuing operations basis to the earliest period presented in this Note, our Electronic Systems goodwill balance as of July 3, 2015 has been adjusted by $1,481 million , which included $1,443 million of goodwill transferred from our former Critical Networks segment during the third quarter of fiscal 2017, as well as associated changes in the carrying amount of this goodwill for earlier periods.
(3) We completed the divestiture of Aerostructures during the fourth quarter of fiscal 2016. In accordance with GAAP, we determined $61 million of goodwill

83


to be a part of the carrying value of Aerostructures in determining the gain or loss on divestiture. See Note 3: Discontinued Operations and Divestitures for additional information.

NOTE 9:  INTANGIBLE ASSETS
We assess the recoverability of the carrying value of our long-lived assets, including intangible assets with finite useful lives, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable.
Intangible assets are summarized below:
 
2017
 
2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Customer relationships
$
1,205

 
$
233

 
$
972

 
$
1,206

 
$
139

 
$
1,067

Developed technologies
208

 
101

 
107

 
209

 
82

 
127

Contract backlog

 

 

 
25

 
25

 

Trade names
58

 
34

 
24

 
55

 
19

 
36

Other
2

 
1

 
1

 
9

 
8

 
1

Total intangible assets
$
1,473

 
$
369

 
$
1,104

 
$
1,504

 
$
273

 
$
1,231

Amortization expense related to intangible assets was $126 million , $129 million and $29 million in fiscal 2017 , 2016 and 2015 , respectively, including approximately $109 million , $109 million and $9 million , respectively, of amortization expense for intangible assets related to our acquisition of Exelis.
Future estimated amortization expense for intangible assets is as follows:
 
Total
 
(In millions)
Fiscal Years:
 
2018
$
116

2019
115

2020
102

2021
101

2022
101

Thereafter
569

Total
$
1,104

NOTE 10:  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 our Consolidated Balance Sheet, during fiscal 2017 and 2016 , were as follows:
 
2017
 
2016
 
 
 
 
 
(In millions)
Balance at beginning of fiscal year
$
32

 
$
36

Warranty provision for sales
14

 
20

Settlements
(16
)
 
(19
)
Other, including adjustments for acquisitions and foreign currency translation
(4
)
 
(5
)
Balance at end of fiscal year
$
26

 
$
32

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 June 30, 2017 and July 1, 2016 was $23 million and $37 million , respectively, and is included as a component of the “Advance payments and unearned income” and “Other long-term liabilities” line items in our Consolidated Balance Sheet.

84


NOTE 11:  CREDIT ARRANGEMENTS
On July 1, 2015, we established a new $1 billion 5 -year senior unsecured revolving credit facility (the “2015 Credit Facility”) by entering into a Revolving Credit Agreement (the “2015 Credit Agreement”) with a syndicate of lenders. The 2015 Credit Facility replaced our prior $1 billion 5 -year senior unsecured revolving credit facility established under the Revolving Credit Agreement, dated as of September 28, 2012, as amended by Amendment No. 1 thereto dated as of February 25, 2015 (as so amended, the “2012 Credit Agreement”). No loans or letters of credit under the 2012 Credit Agreement were outstanding at the time of, or were repaid in connection with, such termination, and we incurred no early termination penalties as a result of such termination.
The 2015 Credit Agreement provides for the extension of credit to us in the form of revolving loans, including swingline loans and letters of credit, at any time and from time to time during the term of the 2015 Credit Agreement, in an aggregate principal amount at any time outstanding not to exceed $1 billion for both revolving loans and letters of credit, with a sub-limit of $70 million for swingline loans and a sub-limit of $175 million for letters of credit. Borrowings under the 2015 Credit Agreement may be denominated in U.S. Dollars, Euros, Sterling and any other currency acceptable to the administrative agent and the lenders, with a non-U.S. currency sub-limit of $200 million . The 2015 Credit Agreement includes a provision pursuant to which, from time to time, we may request that the lenders in their discretion increase the maximum amount of commitments under the 2015 Credit Agreement by an amount not to exceed $500 million . Only consenting lenders (including new lenders reasonably acceptable to the administrative agent) will participate in any increase. In no event will the maximum amount of credit extensions available under the 2015 Credit Agreement exceed $1.5 billion . The proceeds of loans or letters of credit borrowings under the 2015 Credit Agreement are restricted from being used for hostile acquisitions (as defined in the 2015 Credit Agreement) or for any purpose in contravention of applicable laws. We are not otherwise restricted under the 2015 Credit Agreement from using the proceeds of loans or letters of credit borrowings under the 2015 Credit Agreement for working capital and other general corporate purposes or from using the 2015 Credit Facility to refinance existing debt and to repay maturing commercial paper issued by us from time to time. Subject to certain conditions stated in the 2015 Credit Agreement (including the absence of any default and the accuracy of certain representations and warranties), we may borrow, prepay and re-borrow amounts under the 2015 Credit Agreement at any time during the term of the 2015 Credit Agreement.
The 2015 Credit Agreement provides that we may designate wholly-owned subsidiaries organized in the United States, Canada or the United Kingdom (or such other jurisdictions as all lenders shall approve) as borrowers under the 2015 Credit Agreement. The obligations of any such subsidiary borrower shall be guaranteed by us.
The 2015 Credit Agreement provides that we may from time to time designate certain of our subsidiaries as unrestricted subsidiaries, which means certain of the representations and covenants in the 2015 Credit Agreement do not apply in respect of such subsidiaries.
At our election, borrowings under the 2015 Credit Agreement denominated in U.S. Dollars will bear interest either at (i) the eurocurrency rate for the applicable interest period plus an applicable margin, or (ii) the base rate plus an applicable margin. The eurocurrency rate for an interest period is the rate per annum equal to (a) the London interbank offered rate (“LIBOR”) for such interest period, divided by (b) a percentage equal to 1.00 minus the daily average eurocurrency reserve rate for such interest period. The applicable interest rate margin over the eurocurrency rate is initially equal to 1.500% , but may increase (to a maximum amount of 2.000% ) or decrease (to a minimum amount of 1.125% ) based on changes in the ratings of our senior unsecured long-term debt securities (“Senior Debt Ratings”). The base rate is a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 0.50% , (ii) SunTrust Bank’s publicly announced prime lending rate for U.S. Dollars, or (iii) the eurocurrency rate determined on a daily basis for a one-month interest period plus 100 basis points. The applicable interest rate margin over the base rate is initially equal to 0.500% , but may increase (to a maximum amount of 1.000% ) or decrease (to a minimum amount of 0.125% ) based on changes in our Senior Debt Ratings. Borrowings under the 2015 Credit Agreement denominated in a currency other than U.S. Dollars will bear interest at the eurocurrency rate for the applicable interest period plus an applicable margin, as described above, plus, in some cases, additional costs. Letter of credit fees are also determined based on our Senior Debt Ratings.
In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the 2015 Credit Agreement and letter of credit fees, we are required to pay a quarterly unused commitment fee, which shall accrue at an applicable rate per annum multiplied by the actual daily amount of the lenders’ aggregate unused commitments under the 2015 Credit Agreement. The applicable rate per annum for the unused commitment fee is initially equal to 0.200% , but may increase (to a maximum amount of 0.300% ) or decrease (to a minimum amount of 0.125% ) based on changes in our Senior Debt Ratings.

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The 2015 Credit Agreement contains certain representations and warranties for the benefit of the administrative agent and the lenders, including representations relating to: due incorporation and good standing; due authorization of the 2015 Credit Agreement documentation; absence of any requirement for governmental or third party authorization for the due execution, delivery and performance of the 2015 Credit Agreement documentation; enforceability of the 2015 Credit Agreement documentation; accuracy of financial statements; no material adverse effect since June 27, 2014; absence of material undisclosed litigation on July 1, 2015; compliance with the Employee Retirement Income Security Act of 1974 (“ERISA”) and environmental, anti-money laundering, sanctions, anti-corruption and certain other laws; payment of taxes; and solvency.
The 2015 Credit Agreement contains certain affirmative covenants, including covenants relating to: reporting obligations; maintenance of corporate existence and good standing; compliance with laws; maintenance of properties and insurance; payment of taxes; compliance with ERISA and environmental, anti-money laundering, sanctions, export controls, anti-corruption and certain other laws; visitation and inspection by the administrative agent and the lenders; and subsidiary guarantees. The 2015 Credit Agreement also contains certain negative covenants, including covenants: limiting certain liens on assets; limiting certain mergers, consolidations or sales of assets; limiting certain sale and leaseback transactions; limiting certain vendor financing investments; and limiting certain investments in unrestricted subsidiaries. The 2015 Credit Agreement also requires that we not permit our ratio of consolidated total indebtedness (excluding defined benefit plan liabilities) to total capital, each as defined in the 2015 Credit Agreement, to be greater than 0.65 : 1.00 . We were in compliance with the covenants in the 2015 Credit Agreement at June 30, 2017.
The 2015 Credit Agreement contains certain events of default, including: failure to make payments under the 2015 Credit Agreement; failure to perform or observe terms, covenants or agreements contained in the 2015 Credit Agreement; material inaccuracy of any representation or warranty under the 2015 Credit Agreement; payment default by us or certain of our subsidiaries under other indebtedness with a principal amount in excess of $100 million or acceleration of or ability to accelerate such other indebtedness; occurrence of one or more final judgments or orders for the payment by us or certain of our subsidiaries of money in excess of $100 million that remain unsatisfied; incurrence by us or certain of our subsidiaries of certain ERISA liability in excess of $100 million ; any bankruptcy or insolvency of Harris or any material subsidiary; invalidity of 2015 Credit Agreement documentation; or a change of control (as defined in the 2015 Credit Agreement) of Harris. If an event of default occurs, then the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees.
All principal amounts borrowed or outstanding under the 2015 Credit Agreement are due on July 1, 2020, unless (i) the commitments are terminated earlier either at the request of us or if certain events of default described in the 2015 Credit Agreement occur or (ii) the maturity date is extended pursuant to provisions allowing us, from time to time after July 1, 2016, but at least 45 days prior to the scheduled maturity date then in effect, to request that the scheduled maturity date then in effect be extended by one calendar year (with no more than one such extension permitted in any calendar year and no more than two such extensions during the term of the 2015 Credit Agreement), subject to approval by lenders holding a majority of the commitments under the 2015 Credit Agreement and satisfaction of certain conditions stated in the 2015 Credit Agreement (including the absence of any default and the accuracy of certain representations and warranties); provided, however, that all revolving loans of those lenders declining to participate in the requested extension and whose commitments under the 2015 Credit Agreement have not been replaced pursuant to customary replacement rights in favor of us shall remain due and payable in full, and all commitments under the 2015 Credit Agreement of such declining lenders shall terminate, on the maturity date in effect prior to the requested extension. At June 30, 2017, we had no borrowings outstanding under the 2015 Credit Agreement, but we had $75 million of short-term debt outstanding under our commercial paper program that was supported by the 2015 Credit Facility.
NOTE 12:  SHORT-TERM DEBT
Our short-term debt at June 30, 2017 and July 1, 2016 was $80 million (including $75 million outstanding under our commercial paper program) and $15 million , respectively. Interest expense incurred on our short-term debt was not material at June 30, 2017 or July 1, 2016 .


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NOTE 13:  LONG-TERM DEBT
Long-term debt is summarized below:
 
2017
 
2016
 
 
 
 
 
(In millions)
Variable-rate term loans:
 
 
 
3-year tranche, due May 29, 2018
$
36

 
$
300

5-year tranche, due May 29, 2020
269

 
318

Total variable-rate term loans
305

 
618

Fixed-rate debt:
 
 
 
4.25% notes, due October 1, 2016

 
250

1.999% notes, due April 27, 2018
500

 
500

2.7% notes, due April 27, 2020
400

 
400

4.4% notes, due December 15, 2020
400

 
400

5.55% notes, due October 1, 2021
400

 
400

3.832% notes, due April 27, 2025
600

 
600

7.0% debentures, due January 15, 2026
100

 
100

6.35% debentures, due February 1, 2028
26

 
26

4.854% notes, due April 27, 2035
400

 
400

6.15% notes, due December 15, 2040
300

 
300

5.054% notes, due April 27, 2045
500

 
500

Other
14

 

Total fixed-rate debt
3,640

 
3,876

Total debt
3,945

 
4,494

Current portion of long-term debt
(556
)
 
(380
)
Plus: current portion of unamortized debt issuance costs
2

 

Less: current portion of unamortized bond premium

 
(2
)
Total current portion of long-term debt
(554
)
 
(382
)
Total long-term debt
3,391

 
4,112

Plus: unamortized bond premium
29

 
38

Less: unamortized discounts
(2
)
 
(3
)
Less: unamortized debt issuance costs
(22
)
 
(27
)
Total long-term debt, net
$
3,396

 
$
4,120


The potential maturities of long-term debt, including the current portion, for the five years following fiscal 2017 and, in total, thereafter are: $556 million in fiscal 2018 ; $133 million in fiscal 2019 ; $525 million in fiscal 2020 ; $403 million in fiscal 2021 ; $403 million in fiscal 2022 ; and $1,925 million thereafter. In connection with our acquisition of Exelis in May 2015, 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 (which we repaid at maturity) and $400 million in aggregate principal amount of 5.55% senior notes due October 1, 2021 (together, the “Exelis Notes”). 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. 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 Inc. under the Exelis Notes, and the cross guarantees of our outstanding long-term fixed-rate debt securities as described above terminated.
Long-Term Debt Issued/Assumed in Fiscal 2015
Variable-rate Term Loans:     On May 29, 2015, in connection with the closing of our acquisition of Exelis, we borrowed $1.3 billion under our Term Loan Agreement (the “Term Loan Agreement”), dated as of March 16, 2015, with a syndicate of lenders. The Term Loan Agreement provides for total term loan commitments of $650 million in a 3 -year tranche and $650 million in a 5 -year tranche, for an aggregate principal amount of $1.3 billion . The proceeds of the term loans were used for consummating our acquisition of Exelis and other transactions and payments related thereto. At our election, borrowings under the Term Loan Agreement will bear interest either at (i) the eurodollar rate plus an applicable margin, or (ii) the base rate plus an applicable margin. The eurodollar rate for an interest period is the rate per annum equal to (a) LIBOR for such interest period, divided by (b) a percentage equal to 1.00 minus the daily average eurodollar reserve rate for such interest period. For

87


both tranches of term loans, the applicable interest rate margin over the eurodollar rate may range from a minimum of 1.125% to a maximum of 2.00% based on our Senior Debt Ratings. The base rate is a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 0.50% , (ii) the prime lending rate published in The Wall Street Journal, and (iii) the eurodollar rate determined on a daily basis for a one-month interest period plus 100 basis points. For both tranches of term loans, the applicable interest rate margin over the base rate may range from a minimum of 0.125% to a maximum of 1.00% based on our Senior Debt Ratings. Borrowings under the Term Loan Agreement are denominated in U.S. Dollars.
Under the Term Loan Agreement, we may, at any time or from time to time, voluntarily prepay term loans of either tranche in whole or in part without premium or penalty, but we may not re-borrow amounts thereunder. The Term Loan Agreement contains certain representations and warranties for the benefit of the administrative agent and the lenders, including representations relating to: due incorporation and good standing; due authorization of the Term Loan Agreement documentation; absence of any requirement for governmental or third party authorization for the due execution, delivery and performance of any Term Loan Agreement documentation; enforceability of the Term Loan Agreement documentation; accuracy of financial statements; no material adverse effect since June 27, 2014; absence of material undisclosed litigation on March 16, 2015; compliance with ERISA and certain other laws; payment of taxes; and solvency. The Term Loan Agreement contains certain affirmative covenants, including covenants relating to: reporting obligations; maintenance of corporate existence and good standing; compliance with laws; maintenance of properties and insurance; payment of taxes; compliance with environmental laws and ERISA; and visitation and inspection by the administrative agent and the lenders. The Term Loan Agreement also requires that certain of our subsidiaries that incur, borrow or guarantee debt in a principal amount exceeding $100 million become guarantors under the Term Loan Agreement. The Term Loan Agreement also contains certain negative covenants, including covenants: limiting certain liens on assets; limiting certain mergers, consolidations or sales of assets; limiting certain sale and leaseback transactions; limiting certain vendor financing investments; and limiting certain investments in unrestricted subsidiaries. The Term Loan Agreement also requires that we not permit at any time our ratio of consolidated total indebtedness to total capital, each as defined in the Term Loan Agreement, to be greater than  0.65 : 1.00 . We were in compliance with the covenants in the Term Loan Agreement at June 30, 2017.
The Term Loan Agreement contains certain events of default, including: failure to make payments under the Term Loan Agreement; failure to perform or observe terms, covenants or agreements contained in the Term Loan Agreement; material inaccuracy of any representation or warranty under the Term Loan Agreement; payment default by us or certain of our subsidiaries under other indebtedness with a principal amount in excess of $100 million or acceleration of or ability to accelerate such other indebtedness; occurrence of one or more final judgments or orders for the payment by us of money in excess of $100 million that remain unsatisfied; incurrence by us or certain of our subsidiaries of certain ERISA liabilities in excess of $100 million ; any bankruptcy or insolvency of Harris or any material subsidiary; invalidity of Term Loan Agreement documentation; or a change of control (as defined in the Term Loan Agreement). If any event of default occurs, then the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees.
The Term Loan Agreement requires, for each tranche of term loans, quarterly principal amortization payments equal to 2.50% of the initial principal amount of the term loans in such tranche on May 29, 2015, with the balance of the term loans payable in full on May 29, 2018 for loans in the 3 -year tranche and on May 29, 2020 for loans in the 5 -year tranche, unless the commitments are terminated earlier either at our request or if certain events of default described in the Term Loan Agreement occur. We incurred $6 million of debt issuance costs related to the issuance of the term loans, which are being amortized using the effective interest rate method over the respective lives of the two tranches, and such amortization is reflected as a portion of interest expense in our Consolidated Statement of Income.
Fixed-rate Debt:     On April 27, 2015, in connection with the then-pending acquisition of Exelis, to fund a portion of the cash consideration and other amounts payable under the terms of the merger agreement and to redeem certain of our existing notes, we completed the issuance of new long-term fixed-rate debt securities in an aggregate principal amount of $2.4 billion , comprised of five tranches with principal amounts, interest rates and maturity dates as follows:
$500 million in aggregate principal amount of 1.999% Notes due April 27, 2018 (the “New 2018 Notes”),
$400 million in aggregate principal amount of 2.700% Notes due April 27, 2020 (the “New 2020 Notes”),
$600 million in aggregate principal amount of 3.832% Notes due April 27, 2025 (the “New 2025 Notes”),
$400 million in aggregate principal amount of 4.854% Notes due April 27, 2035 (the “New 2035 Notes”), and
$500 million in aggregate principal amount of 5.054% Notes due April 27, 2045 (the “New 2045 Notes” and collectively with the New 2018 Notes, New 2020 Notes, New 2025 Notes and New 2035 Notes, the “New Notes”).
Interest on each series of the New Notes is payable semi-annually in arrears on April 27 and October 27 of each year, commencing October 27, 2015. At any time and from time to time prior to April 27, 2018 (in the case of the New 2018 Notes), March 27, 2020 (in the case of the New 2020 Notes), January 27, 2025 (in the case of the New 2025 Notes), October 27, 2034 (in the case of the New 2035 Notes) and October 27, 2044 (in the case of the New 2045 Notes), we may redeem the applicable

88


series of notes, in whole or in part, at our option, at the applicable “make-whole” redemption price. The applicable “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the notes being redeemed or the sum of the present values of the remaining scheduled payments of the principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as defined, plus (i)  20 basis points in the case of the New 2018 Notes, (ii)  20 basis points in the case of the New 2020 Notes, (iii)  30 basis points in the case of the New 2025 Notes, (iv)  35 basis points in the case of the New 2035 Notes, and (v)  40 basis points in the case of the New 2045 Notes. In each case, we will pay accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. Except as set forth above, the New 2018 Notes are not redeemable prior to maturity. At any time and from time to time on or after March 27, 2020 (in the case of the New 2020 Notes), January 27, 2025 (in the case of the New 2025 Notes), October 27, 2034 (in the case of the New 2035 Notes) and October 27, 2044 (in the case of the New 2044 Notes), we may redeem the applicable series of notes, in whole or in part, at our option, at a redemption price equal to 100 percent of the principal amount of the notes being redeemed, plus accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. In addition, upon a change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the New Notes at a price equal to 101 percent of the aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not including, the date of repurchase. We incurred $23 million of debt issuance costs related to the issuance of the New Notes, respectively, which are being amortized on a straight-line basis over the respective lives of the notes, which approximates the effective interest rate method, and such amortization is reflected as a portion of interest expense in our Consolidated Statement of Income.
Exelis Fixed-rate Debt Outstanding at Time of Acquisition:  Our long-term debt includes the Exelis Notes, which are long-term fixed-rate debt securities issued by Exelis Inc. that were outstanding when we acquired Exelis on May 29, 2015, consisting of $250 million in aggregate principal amount of 4.25% senior notes due October 1, 2016 (the “Exelis 2016 Notes”) and $400 million in aggregate principal amount of 5.55% senior notes due October 1, 2021 (the “Exelis 2021 Notes”), and were assumed by Harris Corporation after Exelis Inc. merged with and into Harris Corporation on December 31, 2015. As part of our purchase accounting, the Exelis Notes were recorded at fair value ( $702 million on a combined basis, representing a premium of $52 million ), and unamortized debt issuance costs related to the Exelis Notes were written off as of May 29, 2015. This premium is being amortized to interest expense over the lives of the related Exelis Notes on a straight-line basis which approximates the effective interest rate method, and such amortization is reflected as a reduction of interest expense in our Consolidated Statement of Income. Accrued interest payable on the Exelis Notes is payable on April 1 and October 1 of each year. We repaid the entire outstanding $250 million aggregate principal amount of the Exelis 2016 Notes at maturity during the second quarter of fiscal 2017.
The Exelis 2021 Notes are subject to the terms of an indenture with Union Bank, N.A., as trustee (the “Exelis Indenture”). The Exelis Indenture includes covenants that restrict our ability, subject to exceptions, to incur indebtedness secured by liens or engage in sale and leaseback transactions. The Exelis Indenture also provides for customary events of default, including but not limited to: failure to pay interest for 30 days; failure to pay principal when due; failure to perform any other covenant in the Exelis Indenture for 90 days after receipt of notice from the trustee or from holders of 25 percent of the outstanding principal amount; and certain events of bankruptcy, insolvency or reorganization of Harris Corporation. We may redeem the Exelis 2021 Notes at any time in whole or, from time to time, in part at the applicable “make-whole” redemption price. The applicable “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the Exelis 2021 Notes being redeemed or the sum of the present values of the remaining scheduled payments of principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis at the Treasury Rate, as defined, plus 50 basis points, plus in each case accrued and unpaid interest to the date of redemption.
Long-Term Debt Redeemed in Fiscal 2015
On May 27, 2015, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of our 5.95% Notes due December 1, 2017, which we issued on December 5, 2007, at a “make-whole” redemption price as set forth in the notes. The “make-whole” redemption price was $448 million , and after adjusting for the carrying value of our debt issuance costs and discounts, we recorded a $51 million loss on prepayment of long-term debt in the fourth quarter of fiscal 2015, which we included in the “Non-operating income (loss)” line item in our Consolidated Statement of Income.
On May 27, 2015, we completed our optional redemption of the entire outstanding $350 million aggregate principal amount of our 6.375% Notes due June 15, 2019, which we issued on June 9, 2009, at a “make-whole” redemption price as set forth in the notes. The “make-whole” redemption price was $415 million , and after adjusting for the carrying value of our debt issuance costs and discounts, we recorded a $67 million loss on prepayment of long-term debt in the fourth quarter of fiscal 2015, which we included in the “Non-operating income (loss)” line item in our Consolidated Statement of Income.

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Long-Term Debt Repaid in Fiscal 2017
We repaid the entire outstanding $250 million aggregate principal amount of the Exelis 2016 Notes (the 4.25% notes due October 1, 2016) at maturity during the second quarter of fiscal 2017. We also repaid $313 million of the principal amount of our variable-rate term loans during fiscal 2017 .
Long-Term Debt From Prior to Fiscal 2015 That Remained Outstanding at June 30, 2017
On December 3, 2010, we completed the issuance of $400 million in aggregate principal amount of 4.4% Notes due December 15, 2020 (the “2020 Notes”) and $300 million in aggregate principal amount of 6.15% Notes due December 15, 2040 (the “2040 Notes”). Interest on each of the 2020 Notes and the 2040 Notes is payable semi-annually in arrears on June 15 and December 15 of each year. We may redeem the 2020 Notes and/or the 2040 Notes at any time in whole or, from time to time, in part at the applicable “make-whole” redemption price. The applicable “make-whole” redemption price is equal to the greater of 100 percent of the principal amount of the notes being redeemed or the sum of the present values of the remaining scheduled payments of the principal and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360 -day year consisting of twelve 30 -day months) at the Treasury Rate, as defined, plus 25 basis points in the case of the 2020 Notes and 35 basis points in the case of the 2040 Notes. In each case, we will pay accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. In addition, upon a change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the notes at a price equal to 101 percent of the aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not including, the date of repurchase. We incurred $6 million and $5 million in debt issuance costs and discounts related to the issuance of the 2020 Notes and 2040 Notes, respectively, which are being amortized on a straight-line basis over the respective lives of the notes, which approximates the effective interest rate method, and are reflected as a portion of interest expense in our Consolidated Statement of Income.
In January 1996, we completed the issuance of $100 million in aggregate principal amount of 7.0%  Debentures due January 15, 2026. The debentures are not redeemable prior to maturity.
In February 1998, we completed the issuance of $150 million in aggregate principal amount of 6.35%  Debentures due February 1, 2028. On December 5, 2007, we repurchased and retired $25 million in aggregate principal amount of the debentures. On February 1, 2008, we redeemed $99 million in aggregate principal amount of the debentures pursuant to the procedures for redemption at the option of the holders of the debentures. We may redeem the remaining $26 million in aggregate principal amount of the debentures in whole, or in part, at any time at a pre-determined redemption price.
The following table presents the carrying amounts and estimated fair values of our long-term debt:
 
 
June 30, 2017
 
July 1, 2016
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Long-term debt (including current portion) (1)
$
3,950

 
$
4,252

 
$
4,502

 
$
4,873

 
 
 
 
 
 
 
 
 
(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 14: PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined Contribution Plan
We sponsor a defined contribution savings plan, which allows our eligible employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The plan includes several match contribution formulas which requires us to match a percentage of the employee contributions up to certain limits and make base contributions, generally totaling between 2.0%  to 6.0% of employee eligible pay. Matching contributions and base contributions charged to expense were $80 million , $82 million and $58 million for fiscal 2017 , 2016 and 2015 , respectively, including both continuing and discontinued operations.

Deferred Compensation Plan
We also sponsor a supplemental executive retirement plan, which is a nonqualified deferred compensation arrangement for highly compensated employees (within the meaning of section 201(2) of ERISA). The plan obligations are funded by investments held in a Rabbi Trust.

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The following table provides the fair value of our deferred compensation plan investments and liabilities by category and by fair value hierarchy level as of June 30, 2017 :
 
 
Total
 
Level 1
 
 
 
 
 
 
 
(In millions)
Assets
 
 
 
  Deferred compensation plan investments: (1)
 
 
 
Equity security
$
37

 
$
37

  Investments Measured at NAV:
 
 
 
Corporate-owned life insurance
25

 
 
Equity fund
50

 
 
Total
75

 
 
Total fair value of deferred compensation plan assets
$
112

 
 
 
 
 
 
 
Liabilities
 
 
 
  Deferred compensation plan liabilities: (2)
 
 
 
Equity securities and mutual funds
$
46

 
$
46

Investments Measured at NAV:
 
 
 
Common/collective trusts and guaranteed investment contracts
80

 
 
Total fair value of deferred compensation plan liabilities
$
126

 
 
 
 
 
 
 
(1)
Represents investments held in a Rabbi Trust associated with our non-qualified deferred compensation plans, which we include in the “Other current assets” and “Other non-current assets” line items in our Consolidated Balance Sheet.
(2)
Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and benefits” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. 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.
Defined Benefit Plans
Some of our employees participate in numerous defined benefit pension plans, and benefits for most participants under the terms of these plans are based on the employee’s years of service and compensation. We fund these plans as required by statutory regulations and through voluntary contributions. Some of our employees also participate in other postretirement defined benefit plans such as health care and life insurance plans.
The U.S. Salaried Retirement Plan (“U.S. SRP”) is our largest defined benefit pension plan, with assets valued at $4.4 billion and a projected benefit obligation of $5.6 billion as of June 30, 2017 . Effective December 31, 2016, accruals under the U.S. SRP benefit formula were frozen for all employees and replaced with a 1% cash balance benefit formula for certain non-highly compensated employees.
Balance Sheet Information
Amounts recognized in our Consolidated Balance Sheet for defined benefit pension plans and other postretirement defined benefit plans (collectively, “defined benefit plans”) reflect the funded status of our plans. The following table provides a summary of the funded status of our defined benefit plans and the presentation of such balances within our Consolidated Balance Sheet:
 
June 30, 2017
 
July 1, 2016
 
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
(In millions)
Fair value of plan assets
$
4,921

 
$
212

 
$
5,133

 
$
4,273

 
$
216

 
$
4,489

Projected benefit obligation
(6,140
)
 
(265
)
 
(6,405
)
 
(6,471
)
 
(311
)
 
(6,782
)
Funded status
(1,219
)
 
(53
)
 
(1,272
)
 
(2,198
)
 
(95
)
 
(2,293
)
Amounts reported within:
 
 
 
 
 
 
 
 
 
 
 
Other non-current assets
9

 

 
9

 
5

 

 
5

Compensation and benefits
(2
)
 
(1
)
 
(3
)
 
(2
)
 

 
(2
)
Defined benefit plans
$
(1,226
)
 
$
(52
)
 
$
(1,278
)
 
$
(2,201
)
 
$
(95
)
 
$
(2,296
)
A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense (or reductions of expense) in our results of operations. Such amounts are recorded within accumulated other comprehensive loss

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until they are amortized as a component of net periodic benefit cost. The following table provides a summary of pre-tax amounts recorded within accumulated other comprehensive loss:
 
June 30, 2017
 
July 1, 2016
 
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
(In millions)
Net actuarial loss (gain)
$
262

 
$
(28
)
 
$
234

 
$
546

 
$
11

 
$
557

Net prior service cost (credit)
2

 
(1
)
 
1

 
3

 
(1
)
 
2

 
$
264

 
$
(29
)
 
$
235

 
$
549

 
$
10

 
$
559

The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:
 
 
2017
 
2016
 
 
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
(In millions)
Change in benefit obligation
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of fiscal year
$
6,471

 
$
311

 
$
6,782

 
$
6,493

 
$
445

 
$
6,938

Service cost
58

 
1

 
59

 
75

 
1

 
76

Interest cost
184

 
8

 
192

 
245

 
13

 
258

Actuarial loss (gain)
(160
)
 
(32
)
 
(192
)
 
303

 
(2
)
 
301

Prior service cost (credit) (1)

 

 

 
3

 
(121
)
 
(118
)
Benefits paid
(376
)
 
(22
)
 
(398
)
 
(358
)
 
(24
)
 
(382
)
Settlements (2)

 

 

 
(244
)
 

 
(244
)
Special termination benefits

 

 

 
1

 

 
1

Expenses paid
(34
)
 

 
(34
)
 
(30
)
 

 
(30
)
Curtailments (3)(4)

 
(1
)
 
(1
)
 
(2
)
 
(1
)
 
(3
)
Foreign exchange
(3
)
 

 
(3
)
 
(15
)
 

 
(15
)
Benefit obligation at end of fiscal year
$
6,140

 
$
265

 
$
6,405

 
$
6,471

 
$
311

 
$
6,782

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment, curtailment and settlement during the year.
(2) We made lump sum distributions to participants covered under one of the Exelis Inc. excess pension plans that became payable within 90 days from the close of the acquisition on May 29, 2015. These distributions resulted in a settlement during the quarter ended October 2, 2015 and a net liability reduction of $244 million .
(3) We discontinued operations at one of our facilities during fiscal 2016, with the facility consolidation completed during the quarter ended July 1, 2016. Under GAAP, this resulted in a curtailment during the quarter ended January 1, 2016, and a net pension liability reduction of $2 million .
(4)
We divested IT Services during fiscal 2017, which resulted in a curtailment under the Salaried Retiree Medical Plan.
   

92


The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
 
 
2017
 
2016
 
 
Pension
 
Other
Benefits
 
Total
 
Pension
 
Other
Benefits
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
(In millions)
Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
Plan assets at beginning of fiscal year
$
4,273

 
$
216

 
$
4,489

 
$
4,500

 
$
257

 
$
4,757

Actual return on plan assets
470

 
22

 
492

 
1

 
(1
)
 

Employer contributions
591

 
(4
)
 
587

 
420

 
1

 
421

Benefits paid
(376
)
 
(22
)
 
(398
)
 
(358
)
 
(25
)
 
(383
)
Settlements

 

 

 
(244
)
 

 
(244
)
Expenses paid
(34
)
 

 
(34
)
 
(30
)
 

 
(30
)
Foreign exchange loss
(3
)
 

 
(3
)
 
(16
)
 

 
(16
)
Other (1)

 

 

 

 
(16
)
 
(16
)
Plan assets at end of fiscal year
$
4,921

 
$
212

 
$
5,133

 
$
4,273

 
$
216

 
$
4,489

 
 
 
 
 
 
 
 
 
 
 
 
Funded status at end of fiscal year
$
(1,219
)
 
$
(53
)
 
$
(1,272
)
 
$
(2,198
)
 
$
(95
)
 
$
(2,293
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. As a result, the remaining assets of the Employee Benefit Trust were designated for other employee benefit costs.
The accumulated benefit obligation for all defined benefit pension plans was $6.1 billion at June 30, 2017 . The following table provides information for defined benefit pension plans with an accumulated benefit obligation in excess of plan assets:
 
June 30,
2017
 
July 1,
2016
 
(In millions)
 
(In millions)
Projected benefit obligation
$
6,061

 
$
6,390

Accumulated benefit obligation
6,061

 
6,379

Fair value of plan assets
4,833

 
4,187


93


Income Statement Information
The following table provides the components of net periodic benefit income and other amounts recognized in other comprehensive income for fiscal 2017 , 2016 , and 2015 as they pertain to our defined benefit plans:
 
 
Pension
 
Other Benefits
 
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net periodic benefit income (1)
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
58

 
$
75

 
$
7

 
$
1

 
$
1

 
$
1

Interest cost
184

 
245

 
23

 
8

 
13

 
2

Expected return on plan assets
(340
)
 
(347
)
 
(32
)
 
(17
)
 
(18
)
 
(2
)
Amortization of prior service credit

 

 

 

 
(5
)
 
(13
)
Amortization of net actuarial loss
1

 
1

 
1

 

 
1

 
6

Net periodic benefit income
(97
)
 
(26
)
 
(1
)
 
(8
)
 
(8
)
 
(6
)
Effect of curtailments, settlements or special termination benefits (2)

 
1

 

 

 
(121
)
 

Total net periodic benefit income
$
(97
)
 
$
(25
)
 
$
(1
)
 
$
(8
)
 
$
(129
)
 
$
(6
)
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income)
 
 
 
 
 
 
 
 
 
 
 
Net actuarial loss (gain)
$
(284
)
 
$
645

 
$
(117
)
 
$
(38
)
 
$
15

 
$
(5
)
Prior service cost (credit) (2)

 
3

 

 

 
(121
)
 
(19
)
Amortization of prior service credit

 

 

 

 
126

 
13

Amortization of net actuarial loss
(1
)
 
(1
)
 
(1
)
 

 
(2
)
 
(6
)
Total change recognized in other comprehensive loss (income)
(285
)
 
647

 
(118
)
 
(38
)
 
18

 
(17
)
Total impact from net periodic benefit cost and changes in other comprehensive loss (income)
$
(382
)
 
$
622

 
$
(119
)
 
$
(46
)
 
$
(111
)
 
$
(23
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Net periodic benefit income presented in this table includes both continuing and discontinued operations. $2 million and $4 million of the service cost component of net periodic benefit income is included as a component of the “Discontinued operations, net of income taxes” line item in our Consolidated Statement of Income for fiscal 2017 and fiscal 2016, respectively.
(2) We discontinued certain significantly underfunded post-employment benefit plans effective December 31, 2015. Under GAAP, this resulted in a negative plan amendment, curtailment and settlement during fiscal 2016.
Defined Benefit Plan Assumptions
The determination of the assumptions related to defined benefit plans are based on the provisions of the applicable accounting pronouncements, review of various market data and discussions with our actuaries. We develop each assumption using relevant Company experience in conjunction with market-related data. Assumptions are reviewed annually and adjusted as appropriate.
The following tables provide the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our defined benefit pension plans:
Obligation assumptions as of:
June 30, 2017
 
July 1, 2016
 
 
Discount rate
3.76
%
 
3.62
%
 
 
Rate of future compensation increase
2.76
%
 
2.75
%
 
 
 
 
 
 
 
 
Cost assumptions for fiscal years:
2017
 
2016
 
2015
Discount rate to determine service cost
3.80
%
 
4.06
%
 
3.77
%
Discount rate to determine interest cost
2.94
%
 
4.06
%
 
3.77
%
Expected return on plan assets
7.65
%
 
7.91
%
 
7.93
%
Rate of future compensation increase
2.75
%
 
2.76
%
 
2.76
%
Key assumptions for the U.S. SRP (our largest defined benefit pension plan with approximately 90% of the total projected benefit obligation) included a discount rate for obligation assumptions of 3.78% and expected return on plan assets of 7.75% for fiscal 2017, which is being maintained at 7.75% for fiscal 2018.

94


The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our other postretirement defined benefit plans:
Obligation assumptions as of:
June 30, 2017
 
July 1, 2016
 
 
Discount rate
3.63
%
 
3.41
%
 
 
Rate of future compensation increase
N/A

 
N/A

 
 
 
 
 
 
 
 
Cost assumptions for fiscal year:
2017
 
2016
 
2015
Discount rate to determine service cost
3.52
%
 
3.86
%
 
3.57
%
Discount rate to determine interest cost
2.60
%
 
3.86
%
 
3.57
%
Rate of future compensation increase
N/A

 
2.75
%
 
2.75
%
The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plans invest, the weight of each asset class in the strategic allocation, the correlations among asset classes and their expected volatilities. Our expected rate of return on plan assets is estimated by evaluating both historical returns and estimates of future returns. Specifically, the determination of the expected long-term rate of return takes into consideration: (1) the plan’s actual historical annual return on assets over the past 15 -, 20 - and 25 -year time periods, (2) historical broad market returns over long-term timeframes weighted by the plan’s strategic allocation, and (3) independent estimates of future long-term asset class returns, weighted by the plan’s strategic allocation. Based on this approach, the long-term annual rate of return on assets is estimated at 7.75% for fiscal 2018 for the U.S. defined benefit plans. The weighted average long-term annual rate of return on assets for all defined benefit pension plans is estimated at 7.66% for fiscal 2018. In fiscal 2017, we adopted updated mortality tables, which resulted in a decrease in the defined benefit plans’ projected benefit obligation as of June 30, 2017 and estimated net periodic benefit cost beginning fiscal 2018.
The assumed rate of future increases in the per capita cost of healthcare (the healthcare trend rate) was 7.25% for fiscal 2017 and is 6.88% for fiscal 2018, with both assumptions decreasing ratably to 4.75% in fiscal 2027. Increasing or decreasing the healthcare cost trend rates by one percent per year would not have a material effect on the benefit obligation or the aggregate annual service and interest cost components. To the extent that actual experience differs from these assumptions, the effect will be accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants.
Investment Policy
The investment strategy for managing defined benefit plan assets is to seek an optimal rate of return relative to an appropriate level of risk. We manage substantially all defined benefit plan assets on a commingled basis in a master investment trust. In making these asset allocation decisions, we take into account recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, we diversify our investments by strategy, asset class, geography and sector and engage a large number of managers to gain broad exposure to the markets.
The following table provides the current strategic target asset allocation ranges by asset category:
 
Target Asset
Allocation
Equity investments
45
%

75
%
Fixed income investments
20
%

42
%
Hedge funds
5
%

15
%
Cash and cash equivalents
0
%

10
%

95


Fair Value of Plan Assets
The following is a description of the valuation techniques and inputs used to measure fair value for major categories of investments as reflected in the table that follows such description:
Domestic and international equities, which include common and preferred shares, domestic listed and foreign listed equity securities, open-ended and closed-ended mutual funds and exchange traded funds, are generally valued at the closing price reported on the major market exchanges on which the individual securities are traded at the measurement date. Because these assets are traded predominantly on liquid, widely traded public exchanges, equity securities are categorized as Level 1 assets.
Private equity funds, which include buy-out, mezzanine, venture capital, distressed asset and secondary funds, are typically limited partnership investment structures. Private equity valuations are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows and market-based comparable data. Private equity funds generally have liquidity restrictions that extend for ten or more years. Valuations are largely based on unobservable inputs and short-term liquidity is restricted; consequently, private equity is categorized as Level 3 assets. At June 30, 2017 and July 1, 2016 , our defined benefit plans had future unfunded commitments totaling $157 million and $178 million , respectively, related to private equity fund investments.
Hedge funds, which include equity long/short, event-driven and fixed-income arbitrage and global macro funds, are typically limited partnership investment structures. Limited partnership interests in hedge funds are primarily valued using a market approach based on NAV calculated by the funds and are not publicly available. Hedge funds that permit redemption on a quarterly or more frequent basis with 90 or fewer days notice are generally categorized as Level 2 assets. All other hedge funds are categorized as Level 3 assets.
Fixed income investments, which include U.S. Government securities and investment and non-investment grade corporate bonds, are generally valued using pricing models that use verifiable, observable market data such as interest rates, benchmark yield curves and credit spreads, bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Fixed income investments are categorized as Level 2 assets.
Other is primarily comprised of guaranteed insurance contracts valued at book value, which approximates fair value, calculated using the prior-year balance adjusted for investment returns and changes in cash flows.
Cash and cash equivalents are primarily comprised of short-term money market funds valued at cost, which approximates fair value, or valued at quoted market prices of identical instruments. Cash and currency are categorized as Level 1 assets; cash equivalents, such as money market funds or short-term commingled funds, are categorized as Level 2 assets.
Certain investments that are valued using the NAV per share (or its equivalent) as a practical expedient are not categorized in the fair value hierarchy and are included in the table to permit reconciliation of the fair value hierarchy to the aggregate postretirement benefit plan assets.


96


The following table provides the fair value of plan assets held by our defined benefit plans by asset category and by fair value hierarchy level:
 
June 30, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
(In millions)
Asset Category
 
 
 
 
 
 
 
Equities:
 
 
 
 
 
 
 
Domestic equities
$
1,062

 
$
1,032

 
$
30

 
$

International equities
838

 
834

 
4

 

Alternative investments:
 
 
 
 
 
 
 
Private equity funds
489

 

 

 
489

Hedge funds
242

 

 

 
242

Commodities and real estate
33

 

 

 
33

Fixed income:
 
 
 
 
 
 
 
Corporate bonds
611

 

 
611

 

Government securities
241

 

 
241

 

Other
2

 

 

 
2

Cash and cash equivalents
597

 
1

 
596

 

Total
4,115

 
$
1,867

 
$
1,482

 
$
766

Investments Measured at NAV
 
 
 
 
 
 
 
Equity funds
632

 
 
 
 
 
 
Fixed income funds
288

 
 
 
 
 
 
Total Investments Measured at NAV
920

 
 
 
 
 
 
Receivables, net
98

 
 
 
 
 
 
Total fair value of plan assets
$
5,133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
July 1, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
(In millions)
Asset Category
 
 
 
 
 
 
 
Equities:
 
 
 
 
 
 
 
Domestic equities
$
1,097

 
$
1,070

 
$
27

 
$

International equities
455

 
452

 
3

 

Alternative investments:

 
 
 
 
 
 
Private equity funds
664

 

 

 
664

Hedge funds
329

 

 
47

 
282

Commodities and real estate
36

 

 

 
36

Fixed income:

 
 
 
 
 
 
Corporate bonds
557

 

 
557

 

Government securities
166

 

 
166

 

Other
2

 

 

 
2

Cash and cash equivalents
197

 
31

 
166

 

Total
$
3,503

 
$
1,553

 
$
966

 
$
984

Investments Measured at NAV
 
 
 
 
 
 
 
Equity funds
582

 
 
 
 
 
 
Fixed income funds
405

 
 
 
 
 
 
Total Investments Measured at NAV
987

 
 
 
 
 
 
Payables, net
(1
)
 
 
 
 
 
 
Total fair value of plan assets
$
4,489

 
 
 
 
 
 

97


The following table presents a reconciliation of the beginning and ending defined benefit plan asset balances that use significant unobservable inputs (Level 3) to measure fair value:
 
Private
Equity Funds, Commodities and Real Estate
 
Hedge
Funds
 
International Equities
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
Level 3 balance — July 3, 2015
$
931

 
$
338

 
$
145

 
$
13

 
$
1,427

Realized gains (losses), net
109

 
(8
)
 
127

 
1

 
229

Unrealized losses, net
(121
)
 
(20
)
 
(137
)
 
(3
)
 
(281
)
Sales, net
(219
)
 
(28
)
 
(135
)
 
(9
)
 
(391
)
Level 3 balance — July 1, 2016
700

 
282

 

 
2

 
984

Realized gains (losses), net
78

 
(23
)
 

 

 
55

Unrealized gains (losses), net
(71
)
 
49

 

 

 
(22
)
Sales, net
(185
)
 
(66
)
 

 

 
(251
)
Level 3 balance — June 30, 2017
$
522

 
$
242

 
$

 
$
2

 
$
766

Contributions
Funding requirements under Internal Revenue Service (“IRS”) rules are a major consideration in making contributions to our postretirement benefit plans. 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”) and the Bipartisan Budget Act of 2015 (“BBA 2015”) further extended the interest rate stabilization provision of MAP -21 until 2020. We made a $400 million voluntary contribution to our U.S. qualified pension plans during fiscal 2017. As a result, we currently do not anticipate making any contributions to our U.S. qualified pension plans during fiscal 2018.
Estimated Future Benefit Payments
The following table provides the projected timing of payments for benefits earned to date and benefits expected to be earned for future service by current active employees under our defined benefit plans:
 
Pension
 
Other
    Benefits (1)
 
Total
 
 
 
 
 
 
 
(In millions)
Fiscal Years:
 
 
 
 
 
2018
$
391

 
$
26

 
$
417

2019
384

 
26

 
410

2020
386

 
25

 
411

2021
386

 
25

 
411

2022
386

 
24

 
410

2023 — 2027
1,891

 
102

 
1,993

(1)
Projected payments for Other Benefits reflect gross payments from the Company, excluding subsidies, which are expected to approximate 10 percent of gross payments.
NOTE 15:  STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION
As of June 30, 2017 , we had options or other share-based compensation outstanding under two shareholder-approved employee stock incentive plans (“SIPs”), the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) and the Harris Corporation 2015 Equity Incentive Plan (the “2015 EIP”) ( prior to July 3, 2015, we had an additional shareholder approved SIP under which options or other share-based compensations was outstanding). Grants of share-based awards after October 23, 2015 were made under our 2015 EIP. We believe that share-based awards more closely align the interests of participants with those of shareholders. Certain share-based awards provide for accelerated vesting if there is a change in control (as defined under our SIPs).

98


Summary of Share-Based Compensation Expense
The following table summarizes the amounts and classification of share-based compensation expense:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Total expense
$
42

 
$
36

 
$
33

Included in:
 
 
 
 
 
Cost of product sales and services
$
3

 
$
4

 
$
3

Engineering, selling and administrative expenses
39

 
32

 
30

Income from continuing operations
42

 
36

 
33

Tax effect on share-based compensation expense
(16
)
 
(14
)
 
(13
)
Total share-based compensation expense after-tax
$
26

 
$
22

 
$
20

Compensation cost related to share-based compensation arrangements that was capitalized as part of inventory or fixed assets in fiscal 2017 , 2016 and 2015 was not material.
As of the end of fiscal 2017 , a total of 29,302,222 shares of common stock remained available under our 2015 EIP for future issuance (excluding shares to be issued in respect of outstanding options and other share-based awards, and with each full-value award (e.g., restricted stock and restricted stock unit awards and performance share and performances share unit awards) counting as 4.6 shares against the total remaining for future issuance). In fiscal 2017 , we issued an aggregate of 1,325,754 shares of common stock under the terms of our SIPs, which is net of shares withheld for tax purposes.
Stock Options
The following information relates to stock options, including performance stock options, that have been granted under shareholder-approved SIPs. Option exercise prices are equal to or greater than the fair market value of our common stock on the date the options are granted, using the closing stock price of our common stock. Options may be exercised for a period set at the time of grant, which generally ranges from seven to ten years after the date of grant, and options, other than performance stock options, generally become exercisable in installments, which are typically 33.3 percent one year from the grant date, 33.3 percent two years from the grant date and 33.3 percent three years from the grant date. In certain instances, vesting and exercisability are also subject to performance criteria.
The fair value as of the grant date of each option award was determined using the Black-Scholes-Merton option-pricing model which uses assumptions noted in the following table. Expected volatility over the expected term of the options is based on implied volatility from traded options on our common stock and the historical volatility of our stock price. The expected term of the options is based on historical observations of our common stock, considering average years to exercise for all options exercised and average years to cancellation for all options canceled, as well as average years remaining for vested outstanding options, which is calculated based on the weighted-average of these three inputs. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of the significant assumptions used in determining the fair value of stock option grants under our SIPs is as follows:
 
2017
 
2016
 
2015
 
 
 
 
 
 
Expected dividends
2.4
%
 
2.5
%
 
2.7
%
Expected volatility
21.8
%
 
23.0
%
 
24.3
%
Risk-free interest rates
1.2
%
 
1.5
%
 
1.7
%
Expected term (years)
5.03

 
5.05

 
5.02



99


A summary of stock option activity under our SIPs as of June 30, 2017 and changes during fiscal 2017 is as follows:
 
Shares
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
 
 
 
 
 
(In years)
 
(In millions)
Stock options outstanding July 1, 2016
4,935,845

 
$
62.28

 
 
 
 
Stock options forfeited or expired
(272,129
)
 
$
81.23

 
 
 
 
Stock options granted
1,230,480

 
$
90.88

 
 
 
 
Stock options exercised
(984,054
)
 
$
54.81

 
 
 
 
Stock options outstanding June 30, 2017
4,910,142

 
$
69.89

 
7.23
 
$
192.41

Stock options exercisable June 30, 2017
2,313,860

 
$
55.09

 
5.83
 
$
124.92

The weighted-average grant-date fair value was $13.82 per share, $12.68 per share and $12.51 per share for options granted during fiscal 2017 , 2016 and 2015 , respectively. The total intrinsic value of options exercised during fiscal 2017 , 2016 and 2015 was $47 million , $20 million and $20 million , respectively, at the time of exercise.
A summary of the status of our nonvested stock options at June 30, 2017 and changes during fiscal 2017 is as follows:
 
Shares
 
Weighted-
Average
Grant-Date
Fair Value
Per Share
Nonvested stock options July 1, 2016
2,683,709

 
$
12.64

Stock options granted
1,230,480

 
$
13.82

Stock options vested
(1,317,907
)
 
$
12.59

Nonvested stock options June 30, 2017
2,596,282

 
$
13.23

As of June 30, 2017 , there was $34 million of total unrecognized compensation expense related to nonvested stock options granted under our SIPs. This expense is expected to be recognized over a weighted-average period of 1.47  years. The total fair value of stock options that vested during fiscal 2017 , 2016 and 2015 was approximately $17 million , $15 million and $16 million , respectively.
Restricted Stock and Restricted Stock Unit Awards
The following information relates to awards of restricted stock and restricted stock units that have been granted to employees under our SIPs. These awards are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment over a specified time period.
The fair value as of the grant date of these awards was based on the closing price of our common stock on the grant date and is amortized to compensation expense over the vesting period. At June 30, 2017 , there were 154,215  shares of restricted stock and 106,749 restricted stock units outstanding, substantially all of which were payable in shares.
A summary of the status of these awards at June 30, 2017 and changes during fiscal 2017 is as follows:
 
Shares
 
Weighted-
Average
Grant
Price
Per Share
Restricted stock and restricted stock units outstanding at July 1, 2016
411,875

 
$
71.07

Restricted stock and restricted stock units granted
99,155

 
$
94.60

Restricted stock and restricted stock units vested
(222,667
)
 
$
63.90

Restricted stock and restricted stock units forfeited
(27,399
)
 
$
82.52

Restricted stock and restricted stock units outstanding at June 30, 2017
260,964

 
$
84.92

As of June 30, 2017 , there was $12 million of total unrecognized compensation expense related to these awards under our SIPs. This expense is expected to be recognized over a weighted-average period of 1.44 years. The weighted-average grant date price per share or per unit of these awards granted during fiscal 2017 , 2016 and 2015 was $94.60 , $81.53 and $78.05 , respectively. The total fair value of these awards that vested during fiscal 2017 , 2016 and 2015 was approximately $14 million , $7 million and $14 million , respectively.

100


Performance Share Unit Awards
The following information relates to awards of performance share units that have been granted to employees under our SIPs. Generally, these awards are subject to performance criteria, such as meeting predetermined operating income or earnings per share and return on invested capital targets (and market conditions, such as total shareholder return) for a 3 -year performance period. These awards also generally vest at the expiration of the same 3 -year period. The final determination of the number of shares to be issued in respect of an award is made by our Board of Directors or a committee of our Board of Directors.
The fair value as of the grant date of these awards 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. The fair value of these awards is amortized to compensation expense over the vesting period if achievement of the performance measures is considered probable. At June 30, 2017 , there were 633,735 performance share units outstanding, all of which were payable in shares.
A summary of the status of these awards at June 30, 2017 and changes during fiscal 2017 is as follows:
 
Shares
 
Weighted-
Average
Grant
Price
Per Share
Performance share units outstanding at July 1, 2016
681,731

 
$
68.67

Performance share units granted
374,907

 
$
84.40

Performance share units vested
(352,366
)
 
$
59.32

Performance share units forfeited
(70,537
)
 
$
80.99

Performance share units outstanding at June 30, 2017
633,735

 
$
81.81

As of June 30, 2017 , there was $23 million of total unrecognized compensation expense related to these awards under our SIPs. This expense is expected to be recognized over a weighted-average period of 1.28  years. The weighted-average grant date price per share or per unit of these awards granted during fiscal 2017 , 2016 and 2015 was $84.40 , $73.32 and $64.23 , respectively. The total fair value of these awards that vested during fiscal 2017 , 2016 and 2015 was approximately $21 million , $18 million and $7 million , respectively.
NOTE 16:  INCOME FROM CONTINUING OPERATIONS PER SHARE
The computations of income from continuing operations per share are as follows:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions, except per share amounts)
Income from continuing operations
$
638

 
$
611

 
$
287

Adjustments for participating securities outstanding
(2
)
 
(2
)
 
(1
)
Income from continuing operations used in per basic and diluted common share calculations (A)
$
636

 
$
609

 
$
286

Basic weighted average common shares outstanding (B)
122.6

 
123.8

 
105.7

Impact of dilutive share-based awards
1.7

 
1.2

 
1.1

Diluted weighted average common shares outstanding (C)
124.3

 
125.0

 
106.8

Income from continuing operations per basic common share (A)/(B)
$
5.19

 
$
4.91

 
$
2.70

Income from continuing operations per diluted common share (A)/(C)
$
5.12

 
$
4.87

 
$
2.67

Potential dilutive common shares primarily consist of employee stock options and performance share unit awards. Employee stock options to purchase approximately 1,325,754 , 1,671,045 and 605,419 shares of our common stock were outstanding at the end of fiscal 2017 , 2016 and 2015 , respectively, but were not included as dilutive stock options in the computations of income from continuing operations per diluted common share because the effect would have been antidilutive.
NOTE 17:  RESEARCH AND DEVELOPMENT
Company-sponsored research and development costs are expensed as incurred. These costs were $310 million , $305 million and $276 million in fiscal 2017 , 2016 and 2015 , respectively, and are included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. Customer-sponsored research and development costs are incurred pursuant to contractual arrangements, principally U.S. Government-sponsored contracts requiring us to
provide a product or service meeting certain defined performance or other specifications (such as designs), and are accounted for principally by the cost-to-cost percentage-of-completion method. Customer-sponsored research and development is included in our revenue and cost of product sales and services.
NOTE 18:  INTEREST EXPENSE
Total interest expense was $172 million , $183 million and $130 million in fiscal 2017 , 2016 and 2015 , respectively. Fiscal 2015 interest expense included $18 million of debt issuance costs related to financing commitments for a senior unsecured bridge loan facility established (and subsequently terminated when we secured permanent financing) in connection with our acquisition of Exelis. Interest paid was $168 million , $177 million and $89 million in fiscal 2017 , 2016 and 2015 , respectively.
NOTE 19:  LEASE COMMITMENTS
Total rental expense amounted to $65 million , $65 million and $44 million in fiscal 2017 , 2016 and 2015 , respectively. Future minimum rental commitments under leases with an initial lease term in excess of one year, primarily for land and buildings, amounted to approximately $283 million at June 30, 2017 . These commitments for the five years following fiscal 2017 and, in total, thereafter are: fiscal 2018  — $60 million ; fiscal 2019  — $52 million ; fiscal 2020  — $44 million ; fiscal 2021  — $38 million ; fiscal 2022  — $31 million ; and in total thereafter — $58 million . These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions. We do not consider any of these individual leases material to our operations. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the current lease term, or estimated life, if shorter.
NOTE 20:  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of 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 our Consolidated Balance Sheet at fair value. We do not hold or issue derivatives for speculative purposes.
At June 30, 2017 , we had open foreign currency forward contracts with an aggregate notional amount of $33 million , of which $2 million were classified as fair value hedges and $31 million were classified as cash flow hedges. This compares with open foreign currency forward contracts with an aggregate notional amount of $2 million at July 1, 2016 , all of which were classified as fair value hedges. At June 30, 2017 , contract expiration dates ranged from 1 month to 12 months with a weighted average contract life of 8 months.
Additionally, as described below in the “Interest Rate Risk” sections, during the third quarter of fiscal 2015, we entered into interest-rate swap agreements to hedge against interest-rate risk related to the anticipated issuance of long-term fixed-rate debt to redeem certain of our long-term debt securities and to fund a portion of the cash consideration payable under the merger agreement with Exelis, which were terminated during the fourth quarter of fiscal 2015. See Note 4: Business Combinations and Note 13: Long-Term Debt for additional information.
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 services” line item in our Consolidated Statement of Income. As of June 30, 2017 , we had outstanding foreign currency forward contracts denominated in the Canadian Dollar 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 fiscal 2017 , 2016 or 2015 . In addition, no amounts were recognized in earnings in fiscal 2017 , 2016 or 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 June 30, 2017 , we had outstanding foreign currency forward contracts denominated in the Euro and British Pound to hedge certain forecasted transactions.

101


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 other comprehensive income, net of hedge ineffectiveness. Gains and losses in accumulated other comprehensive income 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 our Consolidated Statement of Cash Flows 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 income, including gains or losses related to hedge ineffectiveness, were not material in fiscal 2017 , 2016 or 2015 . We do not expect the net gains or losses recognized in the “Accumulated other comprehensive loss” line item in our Consolidated Balance Sheet as of June 30, 2017 that will be reclassified to earnings from accumulated other comprehensive income within the next 12 months to be material.
Interest Rate Risk — Cash Flow Hedges
As noted above, fixed-rate long-term debt issued in fiscal 2015 was to be used to redeem certain of our fixed-rate long-term debt securities and to fund a portion of the cash consideration payable under the merger agreement with Exelis. More specifically, in the fourth quarter of fiscal 2015, we issued new 10 -year and 30 -year fixed-rate debt, $800 million of which we used to fund the redemption of the entire outstanding $400 million principal amount of our 5.95% notes, due December 1, 2017 and the entire outstanding $350 million principal amount of our 6.375% notes, due June 15, 2019 at the “make-whole” redemption prices determined as set forth in those notes (see Note 13: Long-Term Debt for additional information). The issuance of this debt was not dependent on the closing of the Exelis acquisition. Prior to the issuance of this debt, on March 5, 2015 and March 10, 2015, we entered into six interest-rate swap agreements (“swaps”) with a notional value of $1 billion . We designated four of these swaps, with a notional value of $800 million , as cash flow hedges to mitigate the risk attributable to the benchmark interest rate’s effect on the probable cash flows of 10 -year and 30 -year fixed-rate debt to be issued. These swaps were terminated as planned in connection with the related debt issuance during the fourth quarter of fiscal 2015, and because interest rates decreased during the period of the swaps, we made cash payments to our counterparties and recorded after-tax losses totaling $24 million in the “Accumulated other comprehensive loss” line in our Consolidated Balance Sheet. The accumulated other comprehensive income balances will be amortized to interest expense over the lives of the related fixed-rate debt securities. The ineffective portion of these swaps’ change in fair value was immediately recognized in earnings in the “Interest expense” line item in our Consolidated Statement of Income, and this amount was immaterial. We classified the debt issuance proceeds, together with the cash outflow from the termination of these swaps, as financing cash flows in fiscal 2015 in our Consolidated Statement of Cash Flows.
Interest Rate Risk — Economic Hedges
As noted above, on March 5, 2015 and March 10, 2015, we entered into six swaps with a notional value of $1 billion . We entered into two of these swaps, with a notional value of $200 million , to mitigate the risk attributable to the benchmark interest rate’s effect on the cash flows of 10 -year and 20 -year fixed-rate debt anticipated to be issued to fund a portion of the cash consideration payable under the merger agreement with Exelis. These swaps (economic hedges) were not designated to receive hedge accounting treatment. These swaps were terminated as planned in the fourth quarter of fiscal 2015, and as a result, an immaterial gain was recorded in interest expense. We classified the debt issuance proceeds, together with the cash inflow from the termination of these swaps, as financing cash flows in fiscal 2015 in our Consolidated Statement of Cash Flows.
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 our Consolidated Balance Sheet as of June 30, 2017 was immaterial. See our Consolidated Statement of Comprehensive Income (Loss) for additional information on changes in accumulated other comprehensive loss for the three fiscal years ended June 30, 2017 .

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NOTE 21:  NON-OPERATING INCOME (LOSS)
The components of non-operating income (loss) were as follows:
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(In millions)
Loss on prepayment of long-term debt (1)
$

 
$

 
$
(118
)
Gain on sales of businesses

 
10

 
9

Adjustment to gain on sale of business
2

 

 

Net income related to intellectual property matters

 

 
1

 
$
2

 
$
10

 
$
(108
)
 
 
 
 
 
 
 
(1)
The loss in fiscal 2015 reflected charges associated with our optional redemption on May 27, 2015 of the entire outstanding $400 million principal amount of our 5.95% Notes due December 1, 2017 and the entire outstanding $350 million principal amount of our 6.375% Notes due June 15, 2019.
NOTE 22:  ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss were as follows:
 
 
2017 (1)
 
2016 (2)
 
 
 
 
 
 
 
(In millions)
Foreign currency translation, net of income taxes of $1 million and $29 million at June 30, 2017 and July 1, 2016, respectively
$
(113
)
 
$
(131
)
Net unrealized loss on hedging derivatives, net of income taxes of $11 million at June 30, 2017 and July 1, 2016
(17
)
 
(18
)
Unrecognized postretirement obligations, net of income taxes of $89   million and $213 million at June 30, 2017 and July 1, 2016, respectively
(146
)
 
(346
)
 
 
$
(276
)
 
$
(495
)
 
 
 
 
 
(1)
Accumulated foreign currency translation losses of $52 million (net of income taxes of $14 million ) were reclassified to earnings in fiscal 2017 as a result of the divestitures of CapRock and IT Services and are included in “Discontinued operations, net of income taxes” in our Consolidated Statement of Income.
(2)
Reclassifications out of accumulated other comprehensive loss in fiscal 2016 were not material.

NOTE 23:  INCOME TAXES
The provisions for current and deferred income taxes are summarized as follows:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Current:
 
 
 
 
 
United States
$
117

 
$
(36
)
 
$
114

International
9

 
6

 
1

State and local
6

 
(11
)
 
8

 
132

 
(41
)
 
123

Deferred:
 
 
 
 
 
United States
126

 
279

 
(21
)
International
1

 
(3
)
 
8

State and local
8

 
38

 
(1
)
 
135

 
314

 
(14
)
 
$
267

 
$
273

 
$
109


103


The total income tax provision is summarized as follows:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Continuing operations
$
267

 
$
273

 
$
109

Discontinued operations
(110
)
 
(12
)
 
34

Total income tax provision
$
157

 
$
261

 
$
143

The components of deferred income tax assets (liabilities) were as follows:
 
 
June 30, 2017
 
July 1, 2016
 
 
 
 
 
 
 
(In millions)
Deferred tax assets:
 
 
 
Inventory valuations
$
31

 
$
32

Accruals
292

 
271

Deferred revenue
16

 
23

Domestic tax loss and credit carryforwards
60

 
43

International tax loss and credit carryforwards
35

 
32

Share-based compensation
31

 
29

Capital loss carryforwards
133

 
212

Long-term debt
13

 
16

Pension and other post-employment benefits
509

 
849

Unrealized loss on interest rate hedges
10

 
11

Unrecognized tax benefits
7

 
14

Other
(17
)
 
(8
)
Total deferred tax assets
1,120

 
1,524

Less: valuation allowance (1)
(183
)
 
(271
)
Total deferred tax assets, net of valuation allowance
937

 
1,253

 
 
 
 
Deferred tax liabilities:
 
 
 
Property, plant and equipment
(51
)
 
(66
)
Unbilled receivables
(5
)
 
(31
)
Acquired intangibles
(459
)
 
(559
)
Unremitted earnings of foreign subsidiaries
(47
)
 
(52
)
Total deferred tax liabilities
(562
)
 
(708
)
Total deferred tax assets, net of valuation allowance
$
375

 
$
545

 
 
 
 
 
(1) The valuation allowance has been established to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize them in the future.

104


A reconciliation of the United States statutory income tax rate to our effective income tax rate follows:
 
2017
 
2016
 
2015
U.S. statutory income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes
1.0

 
1.8

 
0.6

International income
(1.3
)
 
(1.2
)
 
(3.2
)
Nondeductible goodwill

 
0.9

 
2.2

Research and development tax credit
(2.0
)
 
(2.3
)
 
(2.1
)
Change in valuation allowance
(0.2
)
 
(2.6
)
 

U.S. production activity benefit
(0.5
)
 
(0.4
)
 
(3.8
)
Adoption of stock-based compensation ASU
(2.6
)
 

 

Cash repatriation

 

 
1.7

Settlement of tax audits

 
(0.3
)
 
(2.1
)
Other items
0.1

 

 
(0.8
)
Effective income tax rate
29.5
 %
 
30.9
 %
 
27.5
 %
State and local income taxes allocable to certain U.S. Government contracts are included in our operating expenses and, therefore, are not included in our provision for income taxes. We have made no provision for U.S. income taxes on $62 million of undistributed earnings of international subsidiaries because of our intention to reinvest those earnings indefinitely. Determination of unrecognized deferred U.S. tax liability for the undistributed earnings of international subsidiaries is not practicable. Tax loss and credit carryforwards as of June 30, 2017 have expiration dates ranging between one year and no expiration in certain instances. The amounts of federal, international and state and local operating loss carryforwards as of June 30, 2017 were $23 million , $69 million and $334 million , respectively. The amount of U.S. capital loss carryforwards as of June 30, 2017 was $335 million . Income from continuing operations before income taxes of international subsidiaries was $42 million , $42 million and $31 million in fiscal 2017 , 2016 and 2015 , respectively. Income taxes paid were $51 million , $53 million and $131 million in fiscal 2017 , 2016 and 2015 , respectively.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Balance at beginning of fiscal year
$
63

 
$
124

 
$
72

Additions based on tax positions taken during current fiscal year
52

 
7

 
5

Additions based on tax positions taken during prior fiscal years

 
9

 
5

Additions for tax positions related to acquired entities

 

 
68

Decreases based on tax positions taken during prior fiscal years
(25
)
 
(73
)
 
(8
)
Decreases from lapse in statutes of limitations

 
(1
)
 
(1
)
Decreases from settlements

 
(3
)
 
(17
)
Balance at end of fiscal year
$
90

 
$
63

 
$
124

As of June 30, 2017 , we had $90 million of unrecognized tax benefits, of which $74 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. Upon recognition of a portion of these benefits, we also expect to recognize an additional $14 million of current expense which will offset the favorable rate impact from the unrecognized tax benefits. As of July 1, 2016 , we had $63 million of unrecognized tax benefits, of which $23 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized and $16 million was reversed through discontinued operations in fiscal 2017.
We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. We had accrued $5 million for the potential payment of interest and penalties as of June 30, 2017 (and this amount was not included in the $90 million of unrecognized tax benefits balance at June 30, 2017 shown above) and $3 million of this total could favorably impact future tax rates. We had accrued $13 million for the potential payment of interest and penalties as of July 1, 2016 (and this amount was not included in the $63 million of unrecognized tax benefits balance at July 1, 2016 shown above) and $11 million of this total could favorably impact future tax rates.
We file numerous separate and consolidated income tax returns reporting our financial results and, where appropriate, those of our subsidiaries and affiliates, in the U.S. Federal jurisdiction and various state, local and foreign jurisdictions. Pursuant to the Compliance Assurance Process, the IRS is examining our returns for fiscal 2010 through fiscal 2014 and fiscal

105


2016 through fiscal 2017. The Canadian Revenue Agency is currently examining our returns for fiscal 2007 through fiscal 2010, and we are appealing portions of a Canadian assessment relating to fiscal 2000 through fiscal 2006. We are currently under examination or contesting proposed adjustments by various state and international tax authorities for fiscal years ranging from 2006 through 2016. It is reasonably possible that there could be a significant decrease or increase to our unrecognized tax benefit balance during the course of the next twelve months as these examinations continue, other tax examinations commence or various statutes of limitations expire. An estimate of the range of possible changes cannot be made for remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business and the number of open tax periods.
NOTE 24:  BUSINESS SEGMENTS
We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the following three reportable segments, which are also referred to as our business segments:
Communication Systems, serving markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks;
Electronic Systems, providing electronic warfare, avionics, and command, control, communications, computers, intelligence, surveillance and reconnaissance solutions for the defense industry and ATM solutions for the civil aviation industry; and
Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, positioning, navigation and timing, and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics.
As described in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation” and in Note 3: Discontinued Operations and Divestitures , we completed the divestiture of CapRock in the third quarter of fiscal 2017 and the divestiture of IT Services in the fourth quarter of fiscal 2017. CapRock and IT Services were part of our former Critical Networks segment and are reported as discontinued operations in the Consolidated Financial Statements and these Notes. Our historical financial results for all periods presented have been restated to account for businesses reported as discontinued operations in the Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in our Consolidated Financial Statements and these Notes relate solely to our continuing operations.
In connection with entering into the definitive agreement to sell IT Services, our other remaining operations that had been part of our former Critical Networks segment, including our ATM business, primarily serving the FAA and our PMRF program, were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated.
Total assets by business segment is as follows:
Total Assets
 
2017
 
2016
 
 
 
 
 
(In millions)
 
 
 
 
Communication Systems
$
1,534

 
$
1,667

Electronic Systems
4,094

 
4,094

Space and Intelligence Systems
2,117

 
2,149

Corporate (1)(2)
2,345

 
4,099

 
$
10,090

 
$
12,009

 
 
 
 
 
(1)
Identifiable intangible assets acquired in connection with our acquisition of Exelis in the fourth quarter of fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segment. Exelis identifiable intangible asset balances of continuing operations recorded as Corporate assets were approximately $1.1 billion and $1.2 billion as of June 30, 2017 and July 1, 2016 , respectively.
(2)
Corporate assets primarily consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment and identifiable intangibles, and also included any assets and liabilities from discontinued operations. See Note 3: Discontinued Operations and Divestitures for additional information regarding discontinued operations.


106


Other selected financial information by business segment and geographical area is summarized below:
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Capital Expenditures
 
 
 
 
 
Communication Systems
$
14

 
$
16

 
$
26

Electronic Systems
40

 
40

 
29

Space and Intelligence Systems
34

 
38

 
52

Corporate
27

 
41

 
7

Discontinued operations
4

 
19

 
34

 
$
119

 
$
154

 
$
148

Depreciation and Amortization
 
 
 
 
 
Communication Systems
$
64

 
$
63

 
$
65

Electronic Systems
29

 
56

 
36

Space and Intelligence Systems
37

 
40

 
32

Corporate
142

 
124

 
27

Discontinued operations
39

 
78

 
84

 
$
311

 
$
361

 
$
244

Geographical Information for Continuing Operations
 
 
 
 
 
U.S. operations:
 
 
 
 
 
Revenue
$
5,639

 
$
5,798

 
$
3,756

Long-lived assets
$
896

 
$
917

 
$
1,020

International operations:
 
 
 
 
 
Revenue
$
261

 
$
194

 
$
129

Long-lived assets
$
8

 
$
7

 
$
11

Depreciation and amortization included intangible asset and capitalized software amortization and debt premium, debt discount, and debt issuance costs amortization of $137 million , $140 million and $48 million in fiscal 2017 , 2016 and 2015 , respectively.
Our products and systems are produced principally in the United States with international revenue derived primarily from exports. No revenue earned from any individual foreign country exceeded 5 percent of our total revenue during fiscal 2017 , 2016 or 2015 .
Sales made to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, by all segments as a percentage of total revenue were 74 percent , 77 percent , and 66 percent in fiscal 2017 , 2016 and 2015 , respectively. Revenue from services in fiscal 2017 was approximately 13 percent , 12 percent and 34 percent of total revenue in our Communication Systems, Electronic Systems and Space and Intelligence Systems segments, respectively.
Revenue from products and services exported from the U.S., including foreign military sales and products manufactured or services rendered abroad in fiscal 2017 , 2016 and 2015 was $1.3 billion ( 22 percent of our revenue), $1.2 billion ( 20 percent of our revenue) and $1.1 billion ( 29 percent of our revenue), respectively. Fiscal 2017 export revenue and revenue from international operations was principally from Europe, Asia, the Middle East, Africa, Australia and Canada.

107


Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:
Revenue
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(In millions)
Communication Systems
$
1,753

 
$
1,864

 
$
1,836

Electronic Systems
2,251

 
2,233

 
1,019

Space and Intelligence Systems
1,902

 
1,899

 
1,007

Corporate eliminations
(6
)
 
(4
)
 
23

 
$
5,900

 
$
5,992

 
$
3,885

Income From Continuing Operations Before Income Taxes
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(In millions)
Segment Operating Income: (1)
 
 
 
 
 
Communication Systems (2)
$
524

 
$
522

 
$
553

Electronic Systems
464

 
430

 
163

Space and Intelligence Systems
311

 
288

 
136

Unallocated corporate expense (3)
(223
)
 
(180
)
 
(210
)
Corporate eliminations
(3
)
 
(5
)
 
(10
)
Non-operating income (loss) (4)
2

 
10

 
(108
)
Net interest expense
(170
)
 
(181
)
 
(128
)
 
 
$
905

 
$
884

 
$
396

 
 
 
 
 
 
 
(1)
Segment operating income includes stranded costs and Financial Accounting Standards (“FAS”) pension income previously reported as part of our former Critical Networks segment but now re-allocated to our remaining three segments.
(2)
Communication Systems operating income in fiscal 2016 included $20 million of charges 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 $6 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Consolidated Statement of Income.
(3)
Unallocated corporate expense included: (i) the impact of a net liability reduction of $101 million in fiscal 2016 for certain post-employment benefit plans, (ii) $58 million and $121 million of Exelis acquisition-related and other charges in fiscal 2017 and fiscal 2016, respectively, and (iii)  $109 million of expense in each of fiscal 2017 and fiscal 2016 for amortization of identifiable 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 segment, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense.
(4)
Non-operating income (loss) in fiscal 2015 included loss on prepayment of long-term debt. Additional information regarding non-operating income (loss) is set forth in Note 21: Non-Operating Income (Loss) .

108


NOTE 25:  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 June 30, 2017, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us was 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 June 30, 2017 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.
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 Consolidated Financial Statements. Additional information regarding audits and examinations by taxing authorities of our tax filings is set in Note 23: Income Taxes.
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 (“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 (“DOJ”), 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 March 4, 2016, a record of decision selecting a remedy for the lower 8.3 -mile stretch of the Lower Passaic River. The EPA’s selected remedy includes dredging the river bank to bank, installing an engineered cap and long-term monitoring. The EPA estimates the cost of the cleanup project will be $1.38 billion . On March 31, 2016, the EPA notified over 100 potentially responsible parties, including Exelis, of their potential liability for the cost of the cleanup project but 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 June 30, 2017 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.


109


SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is summarized below:
 
Quarter Ended
 
Total
Year
 
9/30/2016 (1)
 
12/30/2016 (1)
 
3/31/2017
 
6/30/2017
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Fiscal 2017
 
 
 
 
 
 
 
 
 
Revenue
1,420

 
1,449

 
1,489

 
1,542

 
5,900

Gross profit
517

 
524

 
525

 
523

 
2,089

Income from continuing operations before income taxes
203

 
235

 
233

 
234

 
905

Income from continuing operations (2)
145

 
163

 
164

 
166

 
638

Discontinued operations, net of income taxes
15

 
14

 
(79
)
 
(35
)
 
(85
)
Net income
160

 
177

 
85

 
131

 
553

Per common share data:
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
Income from continuing operations
1.17

 
1.32

 
1.33

 
1.37

 
5.19

Net income
1.29

 
1.42

 
0.70

 
1.09

 
4.50

Diluted
 
 
 
 
 
 
 
 
 
Income from continuing operations
1.16

 
1.30

 
1.31

 
1.35

 
5.12

Net income
1.27

 
1.40

 
0.69

 
1.07

 
4.44

Cash dividends
0.53

 
0.53

 
0.53

 
0.53

 
2.12

Stock prices — High
94.09

 
107.54

 
113.00

 
114.32

 
 
Low
80.78

 
88.89

 
99.13

 
106.18

 
 
 
 
Quarter Ended
 
Total
Year
 
 
10/2/2015
 
1/1/2016 (3)
 
4/1/2016
 
7/1/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Fiscal 2016 (1)
 
 
 
 
 
 
 
 
 
Revenue
$
1,420

 
$
1,489

 
$
1,550

 
$
1,533

 
$
5,992

Gross profit
524

 
499

 
541

 
528

 
2,092

Income from continuing operations before income taxes
188

 
258

 
221

 
217

 
884

Income from continuing operations (4)
129

 
181

 
159

 
142

 
611

Discontinued operations, net of income taxes
19

 
(333
)
 
9

 
18

 
(287
)
Net income
148

 
(152
)
 
168

 
160

 
324

Per common share data:
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
Income from continuing operations
1.04

 
1.46

 
1.27

 
1.14

 
4.91

Net income
1.20

 
(1.23
)
 
1.35

 
1.29

 
2.61

Diluted
 
 
 
 
 
 
 
 
 
Income from continuing operations
1.03

 
1.45

 
1.26

 
1.13

 
4.87

Net income
1.18

 
(1.22
)
 
1.34

 
1.28

 
2.59

Cash dividends
0.50

 
0.50

 
0.50

 
0.50

 
2.00

Stock prices — High
84.78

 
89.78

 
89.35

 
84.75

 
 
Low
70.10

 
73.72

 
70.97

 
73.32

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Fiscal 2016 and first and second quarters of fiscal 2017 vary from amounts previously reported in our periodic reports as a result of our former IT Services and CapRock businesses being classified as discontinued operations in the third quarter of fiscal 2017, which is reflected for all periods presented.
(2) Income from continuing operations included $51 million after-tax ( $.41 per diluted common share) for Exelis acquisition-related and other items.
(3) Discontinued operations, net of income taxes included a $328 million non-cash charge ( $2.61 per diluted common share after-tax) for impairment of goodwill and other assets related to CapRock.
(4) Income from continuing operations included: (i) $121 million for Exelis acquisition-related and other charges (including $11 million for amortization of a step-up in inventory), (ii) $33 million of charges primarily related to workforce reductions, facility consolidation and other items, (iii) a net liability reduction of $101 million for certain post-employment benefit plans, and (iv) a $10 million net gain on the sale of Aerostructures. Income taxes on the above items were $8 million. Income from continuing operations included an after-tax impact of $34 million or $.27 per diluted common share from the above items.

110


ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
 
ITEM 9A.
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 fiscal 2017 , 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 fiscal 2017 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 of our integration activities. As part of our integration of Exelis, we remain in the process of incorporating our controls and procedures with respect to Exelis operations, and we included 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 2017 . During the quarter ended June 30, 2017, we completed the initial phase of implementing a new income tax provision software designed to enhance process stability and further facilitate the computation and recording of tax provisions for our U.S. and international entities. We expect to complete the final phase of the software implementation in fiscal 2018. Other than incorporating our controls and procedures with respect to Exelis operations and implementing a new income tax provision software, there have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c)  Evaluation of Internal Control over Financial Reporting:     Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of the end of fiscal 2017 . In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on our management’s assessment and those criteria, our management concluded that our internal control over financial reporting was effective as of the end of fiscal 2017 . “Management’s Report on Internal Control Over Financial Reporting” is included within “Item 8. Financial Statements and Supplementary Data” of this Report. The effectiveness of our internal control over financial reporting was audited by Ernst & Young LLP, our independent registered public accounting firm, whose unqualified report is included within “Item 8. Financial Statements and Supplementary Data” of this Report.
 
ITEM 9B.
OTHER INFORMATION.
Not applicable.

111


PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
(a)  Identification of Directors:     The information required by this Item with respect to our directors is incorporated herein by reference to the discussion under the heading Proposal 1: Election of Directors in our Proxy Statement for our 2017 Annual Meeting of Shareholders scheduled to be held on October 27, 2017 (our “ 2017 Proxy Statement”), which is expected to be filed within 120 days after the end of our fiscal 2017 .
(b)  Identification of Executive Officers:     Certain information regarding our executive officers is included in Part I of this Report under the heading “Executive Officers of the Registrant” in accordance with General Instruction G(3) of Form 10-K.
(c)  Audit Committee Information; Financial Expert:     The information required by this Item with respect to the Audit Committee of our Board of Directors and “audit committee financial experts” is incorporated herein by reference to the discussions under the headings Summary Information Regarding Each of the Nominees and Board Committees and Committee Charters , Audit Committee in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017 .
(d)  Section 16(a) Beneficial Ownership Reporting Compliance:     Information related to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the discussion under the heading Section 16(a) Beneficial Ownership Reporting Compliance in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017.
(e)  Code of Ethics:     All of our directors and employees, including our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and other senior accounting and financial officers, are required to abide by our Code of Conduct. Our Code of Conduct is posted on our website at https://www.harris.com/content/code-of-conduct and is also available free of charge by written request to our Director of Ethics and Compliance, Harris Corporation, 1025 West NASA Boulevard, Melbourne, Florida 32919. We intend to disclose on the Code of Conduct section of our website at https://www.harris.com/content/code-of-conduct any amendment to, or waiver from, our Code of Conduct that is required to be disclosed to shareholders, within four business days following such amendment or waiver. The information required by this Item with respect to codes of ethics is incorporated herein by reference to the discussion under the heading Code of Conduct in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017 .
(f)  Policy for Nominees:     The information required under Item 407(c)(3) of Regulation S-K is incorporated herein by reference to the discussion concerning procedures by which shareholders may recommend nominees to our Board of Directors contained under the heading Director Nomination Process and Criteria, and Board Diversity in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017. No material changes to those procedures have occurred since the disclosure regarding those procedures in our Proxy Statement for our 2016 Annual Meeting of Shareholders. Additional information concerning requirements and procedures for shareholders directly nominating directors is contained under the heading Shareholder Proposals for 2018 Annual Meeting of Shareholders in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017 .
 
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by this Item with respect to compensation of our directors and executive officers is incorporated herein by reference to the discussions under the headings Director Compensation and Benefits , Executive Compensation and Management Development and Compensation Committee Report in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017 .
 

112


ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information as of June 30, 2017 about our common stock that may be issued, whether upon the exercise of options, warrants and rights or otherwise, under our existing equity compensation plans.
Plan Category
 
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)(2)
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(2)  
 
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)  
 
Equity compensation plans approved by shareholders (1)
5,650,626


$69.89

29,302,222

Equity compensation plans not approved by shareholders

n/a


Total
5,650,626


$69.89

29,302,222

 _____________
(1)      Consists of the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) (the “2005 Equity Incentive Plan”) and the Harris Corporation 2015 Equity Incentive Plan. No additional awards may be granted under the 2005 Equity Incentive Plan.
(2)      Under the 2005 Equity Incentive Plan and the Harris Corporation 2015 Equity Incentive Plan, in addition to options, we have granted share-based compensation awards in the form of performance shares, shares of restricted stock, performance share units, restricted stock units, shares of immediately vested common stock and other similar types of share-based awards. As of June 30, 2017, there were awards outstanding under those plans with respect to 894,699 shares, consisting of (i) awards of 154,215 shares of restricted stock, for which all 154,215 shares were issued and outstanding; and (ii) awards of 740,484 performance share units and restricted stock units, for which all 740,484 were payable in shares but for which no shares were yet issued and outstanding. The 5,650,626 shares to be issued upon exercise of outstanding options, warrants and rights as listed in column (a) consisted of shares to be issued in respect of the exercise of 4,910,142 outstanding options and in respect of awards of 740,484 performance share units and restricted stock units payable in shares. Because there is no exercise price associated with awards of shares of restricted stock, performance share units or restricted stock units, all of which are granted to employees at no cost, such awards are not included in the weighted-average exercise price calculation in column (b).
See Note 15: Stock Options and Other Share-Based Compensation in the Notes for a general description of our share-based incentive plans.
The other information required by this Item with respect to security ownership of certain of our beneficial owners and management is incorporated herein by reference to the discussions under the headings Our Largest Shareholders and Shares Held By Our Directors and Executive Officers in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item is incorporated herein by reference to the discussions under the headings Director Independence and Related Person Transaction Policy in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017 .
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is incorporated herein by reference to the discussion under the heading Proposal 4: Ratification of the Appointment of Independent Registered Public Accounting Firm in our 2017 Proxy Statement, which is expected to be filed within 120 days after the end of our fiscal 2017 .

113


PART IV
 
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this Report:
 
Page
(1)    List of Financial Statements Filed as Part of this Report:
 
The following financial statements and reports of Harris Corporation and its consolidated subsidiaries are included in Item 8. of this Report at the page numbers referenced below:
 
Consolidated Balance Sheet — Ju ne 30, 2017; July 1, 2016
(2)    Financial Statement Schedules:
 
All other schedules are omitted because they are not applicable, the amounts are not significant or the required information is shown in the Consolidated Financial Statements or the Notes thereto.
(3)    Exhibits:
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the SEC:
(2)(a) Sale Agreement, dated as of January 26, 2017, between Harris Corporation and MHVC Acquisition Corp., incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 1, 2017. (Commission File Number 1-3863)
(2)(b) Distribution Agreement, dated as of September 25, 2014, between Vectrus, Inc. and Exelis Inc., incorporated herein by reference to Exhibit 2.1 of Exelis Inc.’s Current Report on Form 8-K filed with the SEC on September 29, 2014. (Commission File No. 1-35228)
(2)(c) Distribution Agreement, dated as of October 25, 2011, among ITT Corporation, Exelis Inc. and Xylem Inc., incorporated herein by reference to Exhibit 10.1 of ITT Corporation’s Quarterly Report on Form 10-Q filed on October 28, 2011. (Commission File No. 1-5672)
(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)
(3)(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)(a) Specimen stock certificate for the Company’s common stock, incorporated herein by reference to Exhibit 4(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004. (Commission File Number 1-3863)
(4)(b)(i) Indenture, dated as of May 1, 1996, between Harris Corporation and The Bank of New York, as Trustee, relating to unlimited amounts of debt securities which may be issued from time to time by the Company when and as authorized by the Company’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4 to the Company’s Registration Statement on Form S-3, Registration Statement No. 333-03111, filed with the SEC on May 3, 1996.

114


(ii)  Instrument of Resignation from Trustee and Appointment and Acceptance of Successor Trustee, dated as of November 1, 2002 (effective November 15, 2002), among Harris Corporation, JP Morgan Chase Bank, as Resigning Trustee, and The Bank of New York, as Successor Trustee, incorporated herein by reference to Exhibit 99.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2002. (Commission File Number 1-3863)
(iii)  Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and The Bank of New York Mellon (as successor to Chemical Bank), to the Indenture dated as of May 1, 1996 between Harris Corporation and The Bank of New York (as successor to Chemical Bank), incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(4)(c)(i) Indenture, dated as of October 1, 1990, between Harris Corporation and U.S. Bank National Association (as successor to National City Bank), as Trustee, relating to unlimited amounts of debt securities which may be issued from time to time by the Company when and as authorized by the Company’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4 to the Company’s Registration Statement on Form S-3, Registration Statement No. 33-35315, filed with the SEC on June 8, 1990.
(ii)  Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and U.S. Bank National Association (as successor to National City Bank), to the Indenture dated as of October 1, 1990 between Harris Corporation and U.S. National Association (as successor to National City Bank), incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(4)(d)(i) Indenture, dated as of September 3, 2003, between Harris Corporation and The Bank of New York Mellon Trust Company, N.A., as successor to The Bank of New York, as Trustee, relating to unlimited amounts of debt securities which may be issued from time to time by the Company when and as authorized by the Company’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4(b) to the Company’s Registration Statement on Form S-3, Registration Statement No. 333-108486, filed with the SEC on September 3, 2003.
(ii)  Instrument of Resignation of Trustee, Appointment and Acceptance of Successor Trustee, dated as of June 2, 2009, among Harris Corporation, The Bank of New York Mellon (formerly known as The Bank of New York) and The Bank of New York Mellon Trust Company, N.A., as to Indenture dated as of September 3, 2003, incorporated herein by reference to Exhibit 4(m) to the Company’s Registration Statement on Form S-3, Registration Statement No. 333-159688, filed with the SEC on June 3, 2009.
(iii)  Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York), to the Indenture dated as of September 3, 2003 between Harris Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York), incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(4)(e)(i) Subordinated Indenture, dated as of September 3, 2003, between Harris Corporation and The Bank of New York Mellon Trust Company, N.A., as successor to The Bank of New York, as Trustee, relating to unlimited amounts of debt securities which may be issued from time to time by the Company when and as authorized by the Company’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4(c) to the Company’s Registration Statement on Form S-3, Registration Statement No. 333-108486, filed with the SEC on September 3, 2003.
(ii) Instrument of Resignation of Trustee, Appointment and Acceptance of Successor Trustee, dated as of June 2, 2009, among Harris Corporation, The Bank of New York Mellon (formerly known as The Bank of New York) and The Bank of New York Mellon Trust Company, N.A., as to Subordinated Indenture dated as of September 3, 2003, incorporated herein by reference to Exhibit 4(n) to the Company’s Registration Statement on Form S-3, Registration Statement No. 333-159688, filed with the SEC on June 3, 2009.
(4)(f)(i) Indenture, dated as of September 20, 2011, between Exelis Inc., ITT Corporation, as initial guarantor, and Union Bank, N.A., as trustee, incorporated herein by reference to Exhibit 4.1 of ITT Corporation’s Current Report on Form 8-K filed with the SEC on September 21, 2011. (Commission File Number 1-5672)
(ii) Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and MUFG Union Bank, N.A. (f/k/a Union Bank, N.A.), to the Indenture dated as of September 20, 2011 among Exelis Inc., ITT Corporation as Guarantor and MUFG Union Bank, N.A. (f/k/a Union Bank, N.A.), incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(iii) Second Supplemental Indenture, dated as of December 31, 2015, between Harris Corporation and MUFG Union Bank, N.A., incorporated herein by reference to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)

115


(4)(g) Form of the Company’s 4.40% Notes due 2020, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2010. (Commission File Number 1-3863)
(4)(h) Form of the Company’s 6.15% Notes due 2040, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2010. (Commission File Number 1-3863)
(4)(i) Form of the Company’s 1.999% Global Note due 2018, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(j) Form of the Company’s 2.700% Global Note due 2020, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(k) Form of the Company’s 3.832% Global Note due 2025, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(l) Form of the Company’s 4.854% Global Note due 2035, incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(m) Form of the Company’s 5.054% Global Note due 2045, incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(n) Form of Exelis Inc. 5.550% Senior Notes due 2021, incorporated herein by reference to Exhibit 4.6 of Exelis Inc.’s Form S-4 Registration Statement, Registration Statement No. 333-181682, filed with the SEC on May 25, 2012.
(4)(o) Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), the Company by this filing agrees, upon request, to furnish to the SEC a copy of other instruments defining the rights of holders of long-term debt of Harris Corporation.
*(10)(a) Form of Director and Executive Officer Indemnification Agreement, for use on or after October 26, 2012, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 31, 2012. (Commission File Number 1-3863)
*(10)(b) Form of Executive Change in Control Severance Agreement, effective as of, and for use after, April 22, 2010, incorporated herein by reference to Exhibit 10(o) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
*(10)(c) 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)
*(10)(d)(i) Harris Corporation 2005 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 November 3, 2005. (Commission File Number 1-3863)
(ii)  Amendment No. 1 to Harris Corporation 2005 Equity Incentive Plan, effective January 1, 2009, incorporated herein by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2009. (Commission File Number 1-3863)
(iii)  Stock Option Award Agreement Terms and Conditions (as of 10/28/05) for grants under the Harris Corporation 2005 Equity Incentive Plan, incorporated herein by reference to Exhibit 10(f) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2005. (Commission File Number 1-3863)
(iv)  Form of Stock Option Award Agreement Terms and Conditions (as of June 30, 2007) for grants under the Harris Corporation 2005 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 August 30, 2007. (Commission File Number 1-3863)
(v)  Form of Stock Option Award Agreement Terms and Conditions (as of June 28, 2008) for grants under the Harris Corporation 2005 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 August 28, 2008. (Commission File Number 1-3863)
(vi)  Form of Stock Option Award Agreement Terms and Conditions (as of July 4, 2009) for grants under the Harris Corporation 2005 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 September 3, 2009. (Commission File Number 1-3863)
*(10)(e)(i) Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2010. (Commission File Number 1-3863)
(ii)  Form of Stock Option Award Agreement Terms and Conditions (as of July 3, 2010) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)

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(iii)  Form of Stock Option Award Agreement Terms and Conditions (as of August 26, 2011) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2011. (Commission File Number 1-3863)
(iv)  Form of Stock Option Award Agreement Terms and Conditions (as of June 29, 2013) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2013. (Commission File Number 1-3863)
(v)  Form of Restricted Stock Unit Award Agreement Terms and Conditions (as of June 29, 2013) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2013. (Commission File Number 1-3863)
(vi)  Form of Performance Share Unit Award Agreement Terms and Conditions (as of June 28, 2014) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 2014. (Commission File Number 1-3863)
(vii)  Form of Restricted Stock Award Agreement Terms and Conditions (as of June 28, 2014) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 2014. (Commission File Number 1-3863)
(viii)  Form of Performance Stock Option Award Agreement Terms and Conditions (as of May 27, 2015) for grants under the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(e)(xi) to the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2015. (Commission File Number 1-3863)
*(10)(f)(i) 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)
(ii) Harris Corporation 2015 Equity Incentive Plan Performance Unit Award Agreement Terms and Conditions (as of October 23, 2015), incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(iii) Harris Corporation 2015 Equity Incentive Plan Restricted Share Award Agreement Terms and Conditions (as of October 23, 2015), incorporated herein by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(iv) Harris Corporation 2015 Equity Incentive Plan Restricted Unit Award Agreement Terms and Conditions (as of October 23, 2015), incorporated herein by reference to Exhibit 10(e) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(v) Harris Corporation 2015 Equity Incentive Plan Stock Option Award Agreement Terms and Conditions (as of October 23, 2015), incorporated herein by reference to Exhibit 10(f) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(vi) Harris Corporation 2015 Equity Incentive Plan Non-Employee Director Restricted Unit Award Agreement Terms and Conditions (as of December 4, 2015), incorporated herein by reference to Exhibit 10(g) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(vii) Harris Corporation 2015 Equity Incentive Plan Non-Employee Director Restricted Share Award Agreement Terms and Conditions (as of December 4, 2015), incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File Number 1-3863)
*10(g)(i) Harris Corporation Retirement Plan (Amended and Restated Effective January 1, 2016), incorporated herein by reference to Exhibit 10(k) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(ii) Amendment Number One to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), effective February 1, 2016 and dated March 7, 2016, incorporated herein by reference to Exhibit 10(g)(ii) to the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2016. (Commission File Number 1-3863)

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(iii) Amendment Number Two to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), dated March 29, 2016, incorporated herein by reference to Exhibit 10(g)(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2016. (Commission File Number 1-3863)
(iv) Amendment Number Three to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), dated August 1, 2016, incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016. (Commission File Number 1-3863)
(v) Amendment Number Four to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), effective August 1, 2016 and dated September 8, 2016, incorporated herein by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016. (Commission File Number 1-3863)
(vi) Amendment Number Five to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), effective November 2, 2016 and dated September 8, 2016, incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016. (Commission File Number 1-3863)
(vii) Amendment Number Six to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), effective November 1, 2016 and dated December 16, 2016, incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File Number 1-3863)
(viii) Amendment Number Seven to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), effective January 1, 2017 and dated December 16, 2016, incorporated herein by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File Number 1-3863)
(ix) Amendment Number Eight to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), dated February 23, 2017, incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2017. (Commission File Number 1-3863)
(x) Amendment Number Nine to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), dated April 28, 2017.
(xi) Amendment Number Ten to the Harris Corporation Retirement Plan (as Amended and Restated Effective January 1, 2016), dated May 24, 2017.
*(10)(h)(i) Harris Corporation Supplemental Executive Retirement Plan (amended and restated effective March 1, 2003), incorporated herein by reference to Exhibit 10(b)(i) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003. (Commission File Number 1-3863)
(ii)  Amendment No. 1 to Harris Corporation Supplemental Executive Retirement Plan, dated April 25, 2003, incorporated herein by reference to Exhibit 10(b)(ii) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003. (Commission File Number 1-3863)
(iii)  Amendment No. 2 to Harris Corporation Supplemental Executive Retirement Plan, dated June 4, 2004, incorporated herein by reference to Exhibit 10(f)(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2004. (Commission File Number 1-3863)
(iv)  Amendment No. 3 to Harris Corporation Supplemental Executive Retirement Plan, dated April 19, 2007, incorporated herein by reference to Exhibit 10(g)(iv) to the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2007. (Commission File Number 1-3863)
(v)  Amendment No. 4 to Harris Corporation Supplemental Executive Retirement Plan, dated October 27, 2010 and effective as of August 28, 2010, incorporated herein by reference to Exhibit 10(j) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
*(10)(i)(i) Harris Corporation 2005 Supplemental Executive Retirement Plan (As Amended and Restated Effective November 28, 2011), incorporated herein by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2011. (Commission File Number 1-3863)
(ii)  Amendment Number One to the Harris Corporation 2005 Supplemental Executive Retirement Plan (Amended and Restated Effective November 28, 2011), dated December 19, 2014, incorporated herein by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2015. (Commission File Number 1-3863)
(iii)  Amendment Number Two to the Harris Corporation 2005 Supplemental Executive Retirement Plan ( as Amended and Restated Effective November 28, 2011), dated December 16, 2016, incorporated herein by reference to

118


Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File Number 1-3863)
*(10)(j)(i) Harris Corporation 1997 Directors’ Deferred Compensation and Annual Stock Unit Award Plan (Amended and Restated Effective January 1, 2006), incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 3, 2005. (Commission File Number 1-3863)
(ii)  Amendment Number One to the Harris Corporation 1997 Directors’ Deferred Compensation and Annual Stock Unit Award Plan (Amended and Restated Effective January 1, 2006), effective January 1, 2009, incorporated herein by reference to Exhibit 10(g) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2009. (Commission File Number 1-3863)
(iii)  Amendment Number Two to the Harris Corporation 1997 Directors’ Deferred Compensation and Annual Stock Unit Award Plan (Amended and Restated Effective January 1, 2006), dated October 27, 2010 and effective as of August 28, 2010, incorporated herein by reference to Exhibit 10(l) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
*(10)(k)(i) Harris Corporation 2005 Directors’ Deferred Compensation Plan (as Amended and Restated Effective January 1, 2009), incorporated herein by reference to Exhibit 10(h) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2009. (Commission File Number 1-3863)
(ii)  Amendment Number One to the Harris Corporation 2005 Directors’ Deferred Compensation Plan (As Amended and Restated Effective January 1, 2009), dated October 27, 2010 and effective as of August 28, 2010, incorporated herein by reference to Exhibit 10(m) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
(iii) Amendment Number Two to the Harris Corporation 2005 Directors’ Deferred Compensation Plan (As Amended and Restated Effective January 1, 2009), dated December 4, 2015, incorporated herein by reference to Exhibit 10(h)to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
*(10)(l)(i) Amended and Restated Master Trust Agreement and Declaration of Trust, made as of December 2, 2003, by and between Harris Corporation and The Northern Trust Company, incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004. (Commission File Number 1-3863)
(ii)  Amendment to the Harris Corporation Master Trust, dated May 21, 2009, incorporated herein by reference to Exhibit 10(m)(ii) to the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2009. (Commission File Number 1-3863)
(iii)  Amendment to the Harris Corporation Master Trust, dated December 8, 2009 and effective December 31, 2009, incorporated herein by reference to Exhibit 4(e)(iii) to the Company’s Registration Statement on Form S-8, Registration Statement No. 333-163647, filed with the SEC on December 10, 2009.
*(10)(m)(i) Master Rabbi Trust Agreement, amended and restated as of December 2, 2003, by and between Harris Corporation and The Northern Trust Company, incorporated herein by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004. (Commission File Number 1-3863)
(ii)  First Amendment to Master Rabbi Trust Agreement, dated September 24, 2004, incorporated herein by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2004. (Commission File Number 1-3863)
(iii)  Second Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated as of December 8, 2004, incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2004. (Commission File Number 1-3863)
(iv)  Third Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated January 15, 2009 and effective January 1, 2009, incorporated herein by reference to Exhibit 10(i) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2009. (Commission File Number 1-3863)
(v)  Fourth Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated October 27, 2010 and effective as of August 28, 2010, incorporated herein by reference to Exhibit 10(n) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
(10)(n) Commercial Paper Issuing and Paying Agent Agreement, dated as of March 30, 2005, between Citibank, N.A. and Harris Corporation, incorporated herein by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2005. (Commission File Number 1-3863)

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(10)(o) Commercial Paper Dealer Agreement, dated as of June 12, 2007, between Citigroup Global Markets Inc. and Harris Corporation, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
(10)(p) Commercial Paper Dealer Agreement, dated June 13, 2007, between Banc of America Securities LLC and Harris Corporation, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
(10)(q) Commercial Paper Dealer Agreement, dated as of June 14, 2007, between SunTrust Capital Markets, Inc. and Harris Corporation, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
*(10)(r) Employment Agreement, dated October 8, 2011 and effective November 1, 2011, by and between Harris Corporation and William M. Brown, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2011. (Commission File Number 1-3863)
*(10)(s) Offer Letter, dated July 20, 2012, by and between Harris Corporation and Robert L. Duffy, incorporated herein by reference to Exhibit 10(x) to the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2013. (Commission File Number 1-3863)
*(10)(t)(i) Offer Letter Agreement, dated February 4, 2014, between Harris Corporation and Miguel A. Lopez, incorporated herein by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2014. (Commission File Number 1-3863)
(ii) Separation Agreement and Release of All Claims, dated January 29, 2016, between Harris Corporation and Miguel A. Lopez, incorporated herein by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2016. (Commission File Number 1-3863)
*(10)(u) Offer Letter Agreement, dated March 6, 2015, between Harris Corporation and Todd Taylor, incorporated herein by reference to Exhibit 10(e) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2015. (Commission File Number 1-3863)
*(10)(v)(i) Offer Letter Agreement, dated December 17, 2014, between Harris Corporation and Rahul Ghai, incorporated herein by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2016. (Commission File Number 1-3863)
(ii) Amendment to Offer Letter Agreement, dated January 29, 2016, between Harris Corporation and Rahul Ghai, incorporated herein by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2016. (Commission File Number 1-3863)
*(10)(w) Summary of Annual Compensation of Non-Employee Directors (Last Modified December 4, 2015), effective as of January 1, 2016, incorporated herein by reference to Exhibit 10(i) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(10)(x)(i) Term Loan Agreement, dated as of March 16, 2015, by and among Harris Corporation and the other parties thereto, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 19, 2015. (Commission File Number 1-3863)
(ii)  Amendment No. 1 to Term Loan Agreement, dated as of July 1, 2015, by and among Harris Corporation and the other parties thereto, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2015. (Commission File Number 1-3863)
(10)(y) Revolving Credit Agreement, dated as of July 1, 2015, by and among Harris Corporation and the other parties thereto, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2015. (Commission File Number 1-3863)
(10)(z) Employee Matters Agreement, dated as of September 25, 2014, between Vectrus, Inc. and Exelis Inc., incorporated herein by reference to Exhibit 10.1 of Exelis Inc.’s Current Report on Form 8-K filed with the SEC on September 29, 2014. (Commission File No. 1-35228)
(10)(aa) Tax Matters Agreement, dated as of September 25, 2014, between Vectrus, Inc. and Exelis Inc., incorporated herein by reference to Exhibit 10.2 of Exelis Inc.’s Current Report on Form 8-K filed with the SEC on September 29, 2014. (Commission File No. 1-35228)
(10)(bb) Master Transition Services Agreement, dated as of September 25, 2014, between Vectrus, Inc. and Exelis Inc., incorporated herein by reference to Exhibit 10.3 of Exelis Inc.’s Current Report on Form 8-K filed with the SEC on September 29, 2014. (Commission File No. 1-35228)

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(10)(cc) Transitional Trademark License Agreement – Vectrus, dated as of September 25, 2014, between Vectrus, Inc. and Exelis Inc., incorporated herein by reference to Exhibit 10.4 of Exelis Inc.’s Current Report on Form 8-K filed with the SEC on September 29, 2014. (Commission File No. 1-35228)
(10)(dd) Technology License Agreement, dated as of September 25, 2014, between Vectrus, Inc. and Exelis Inc., incorporated herein by reference to Exhibit 10.5 of Exelis Inc.’s Current Report on Form 8-K filed with the SEC on September 29, 2014. (Commission File No. 1-35228)
*(10)(ee) Benefits and Compensation Matters Agreement, dated as of October 25, 2011, among ITT Corporation, Exelis Inc. and Xylem Inc., incorporated herein by reference to Exhibit 10.2 of ITT Corporation’s Quarterly Report on Form 10-Q filed with the SEC on October 28, 2011. (Commission File No. 1-5672)
(10)(ff) Tax Matters Agreement, dated as of October 25, 2011 among ITT Corporation, Exelis Inc. and Xylem Inc., incorporated herein by reference to Exhibit 10.3 of ITT Corporation’s Quarterly Report on Form 10-Q filed with the SEC on October 28, 2011. (Commission File No. 1-5672)
(10)(gg) Master Transition Services Agreement, dated as of October 25, 2011 among ITT Corporation, Exelis Inc. and Xylem Inc., incorporated herein by reference to Exhibit 10.4 of ITT Corporation’s Quarterly Report on Form 10-Q filed with the SEC on October 28, 2011. (Commission File No. 1-5672)
(10)(hh) ITT Transitional Trademark License Agreement – Exelis, dated as of October 25, 2011, between ITT Manufacturing Enterprises LLC and Exelis Inc., incorporated herein by reference to Exhibit 10.5 of ITT Corporation’s Quarterly Report on Form 10-Q filed with the SEC on October 28, 2011. (Commission File No. 1-5672)
*(10)(ii)(i) Harris Corporation Salaried Retirement Plan (Amended and Restated as of January 1, 2017).
(ii) Amendment to the Harris Corporation Salaried Retirement Plan (as Amended and Restated effective January 1, 2017), dated July 26, 2017.
(iii) Amendment Number Two to the Harris Corporation Salaried Retirement Plan (as Amended and Restated effective January 1, 2017), dated August 23, 2017.
*(10)(jj) Exelis Inc. Deferred Compensation Plan, incorporated herein by reference to Exhibit 4.5 of Exelis Inc.’s Registration Statement on Form S-8, Registration Statement No. 333-177605, filed with the SEC on October 28, 2011.
*(10)(kk) Exelis Inc. Deferred Compensation Plan for Non-Employee Directors, incorporated herein by reference to Exhibit 10.14 of Exelis Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 18, 2011. (Commission File No. 1-35228)
*(10)(ll)(i) Exelis Excess Pension Plan IA (formerly known as the ITT Excess Pension Plan IA and the ITT Industries Excess Pension Plan IA), as amended and restated as of October 31, 2011, incorporated herein by reference to Exhibit 10.18 of Exelis Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 2, 2013. (Commission File No. 1-35228)
(ii) Amendment to the Exelis Excess Pension Plan IA (as Amended and Restated as of October 31, 2011), dated December 16, 2016, incorporated herein by reference to Exhibit 10(e) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(mm)(i) Exelis Excess Pension Plan IB (formerly known as the ITT Excess Pension Plan IB and the ITT Industries Excess Pension Plan IB), as amended and restated as of October 31, 2011, incorporated herein by reference to Exhibit 10.19 of Exelis Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 2, 2013. (Commission File No. 1-35228)
(ii) Amendment to the Exelis Excess Pension Plan IB (as Amended and Restated as of October 31, 2011), dated December 16, 2016, incorporated herein by reference to Exhibit 10(g) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(nn)(i) Exelis Excess Pension Plan IIA (formerly known as the ITT Excess Pension Plan IIA, the ITT Excess Pension Plan II, and the ITT Industries Excess Pension Plan II), as amended and restated as of October 31, 2011, incorporated herein by reference to Exhibit 10.20 of Exelis Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 2, 2013. (Commission File No. 1-35228)
(ii) Amendment to Exelis Excess Pension Plan IIA (as Amended and Restated as of October 31, 2011), dated December 16, 2016, incorporated herein by reference to Exhibit 10(f) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(oo)(i) Exelis Excess Pension Plan IIB (formerly known as the ITT Excess Pension Plan IIB), as amended and restated as of October 31, 2011, incorporated herein by reference to Exhibit 10.21 to Exelis Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 2, 2013. (Commission File No. 1-35228)

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(ii) Amendment to the Exelis Pension Plan IIB (as Amended and Restated as of October 31, 2011), dated December 16, 2016, incorporated herein by reference to Exhibit 10(h) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(pp) Amendment to the Exelis Excess Pension Plans (as amended and restated as of October 31, 2011), dated April 28, 2017.
(10) (qq) Cooperation Agreement, dated as of July 29, 2016, between Harris Corporation and JANA Partners LLC, incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 2, 2016. (Commission File Number 1-3863)
(12)  Computation of Ratio of Earnings to Fixed Charges.
(21)  Subsidiaries of the Registrant.
(23)  Consent of Ernst & Young LLP, Independent Registered Certified Public Accounting Firm.
(24)  Power of Attorney.
(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.DEF) XBRL Taxonomy Extension Definition Linkbase Document.
(101.LAB) XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE) XBRL Taxonomy Extension Presentation Linkbase Document.
 
*
Management contract or compensatory plan or arrangement.
ITEM 16.
FORM 10-K SUMMARY.
None.

122



SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: August 29, 2017
 
By:
 
/ S /    W ILLIAM  M. B ROWN
 
 
 
 
William M. Brown
 
 
 
 
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
 
Date
 
 
 
/s/    W ILLIAM  M. B ROWN
 
Chairman, President and Chief Executive Officer (Principal Executive Officer)
 
August 29, 2017
William M. Brown
 
 
 
 
 
/s/    R AHUL  G HAI
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 
August 29, 2017
Rahul Ghai
 
 
 
 
 
/s/    T ODD  A. T AYLOR
 
Vice President, Principal Accounting Officer (Principal Accounting Officer)
 
August 29, 2017
Todd A. Taylor
 
 
 
 
 
/s/    J AMES  F. A LBAUGH *
 
Director
 
August 29, 2017
James F. Albaugh
 
 
 
 
 
 
 
/s/    P ETER  W. C HIARELLI *
 
Director
 
August 29, 2017
Peter W. Chiarelli
 
 
 
 
 
/s/    T HOMAS  A. D ATTILO *
 
Director
 
August 29, 2017
Thomas A. Dattilo
 
 
 
 
 
/s/    R OGER  B. F RADIN *
 
Director
 
August 29, 2017
Roger B. Fradin
 
 
 
 
 
/s/    T ERRY  D. G ROWCOCK *
 
Director
 
August 29, 2017
Terry D. Growcock
 
 
 
 
 
 
/s/    L EWIS  H AY  III*
 
Director
 
August 29, 2017
Lewis Hay III
 
 
 
 
 
/s/    V YOMESH  I. J OSHI *
 
Director
 
August 29, 2017
Vyomesh I. Joshi
 
 
 
 
 
/s/    L ESLIE  F. K ENNE *
 
Director
 
August 29, 2017
Leslie F. Kenne
 
 
 
 
 
/s/    J AMES  C. S TOFFEL *
 
Director
 
August 29, 2017
James C. Stoffel
 
 
 
 
 
/s/    G REGORY  T. S WIENTON *
 
Director
 
August 29, 2017
Gregory T. Swienton
 
 
 
 
 
/s/    H ANSEL  E. T OOKES  II*
 
Director
 
August 29, 2017
Hansel E. Tookes II
 
 
 
 
 
 
*By:
 
/s/    S COTT  T. M IKUEN
 
 
 
 
 
 
Scott T. Mikuen
 
 
 
 
 
 
Attorney-in-Fact
 
 
 
 
 
 
pursuant to a power of attorney
 
 
 
 

123


SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
HARRIS CORPORATION AND SUBSIDIARIES
(In thousands)
Col. A
 
Col. B
 
Col. C
 
Col. D
 
Col. E
 
 
 
 
Additions
 
 
 
 
Description
 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Charged to
Other Accounts
— Describe
 
Deductions
—  Describe
 
Balance at
End of Period
Year ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Amounts Deducted From
 
 
 
 
 
 
 
 
 
 
 
 
Respective Asset Accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
7

(A)
 
 
 
 
 
 
 
 
 
 
 
551

(B)
 
 
 
 
 
 
 
 
 
 
 
3,329

(C)
 
 
 
 
 
 
 
 
 
 
 
3,247

(D)
 
 
Allowances for collection losses
 
$
9,949

 
$

 
$

 
 
$
7,134

 
 
$
2,815

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,865

(A)
 
 
 
 
 
 
 
 
 
 
 
103,371

(D)
 
 
 
 
 
 
 
 
$
(354
)
(E)
 
175

(F)
 
 
Allowances for deferred tax assets
 
$
300,159

 
$
(11,626
)
 
$
(354
)
 
 
$
105,411

(D)
 
$
183,279

Year ended July 1, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Amounts Deducted From
 
 
 
 
 
 
 
 
 
 
 
 
Respective Asset Accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
960

(A)
 
 
 
 
 
 
 
 
 
 
 
5,188

(C)
 
 
Allowances for collection losses
 
$
12,169

 
$
3,928

 
$

 
 
$
6,148

 
 
$
9,949

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2,092

(D)
 
$
4,648

(A)
 
 
 
 
 
 
 
 
389

(E)
 
946

(F)
 
 
Allowances for deferred tax assets
 
$
71,866

 
$
231,406

 
$
2,481

 
 
$
5,594

 
 
$
300,159

Year ended July 3, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Amounts Deducted From
 
 
 
 
 
 
 
 
 
 
 
 
Respective Asset Accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
621

(A)
 
 
 
 
 
 
 
 
 
 
 
2,249

(C)
 
 
 
 
 
 
 
 
 
 
 
181

(D)
 
 
Allowances for collection losses
 
$
7,252

 
$
2,154

 
$
5,814

(D)
 
$
3,051

 
 
$
12,169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
10,029

(D)
 
 
 
 
 
 
 
 
 
 
 
7,009

(E)
 
 
 
 
 
Allowances for deferred tax assets
 
$
68,163

 
$
(12,036
)
 
$
17,038

 
 
$
1,299

(A)
 
$
71,866

Note A — Foreign currency translation gains and losses
Note B — Disposals
Note C — Uncollectible accounts charged off, less recoveries on accounts previously charged off
Note D — Acquisitions and divestitures
Note E — Uncertain income tax positions
Note F — Accumulated other comprehensive income

124


Exhibit 10(g)(x)
AMENDMENT NUMBER NINE
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 January 1, 2016 (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 entered into a Sale Agreement with MHVC Acquisition Corp. (“ MHVC ”) dated as of January 26, 2017 pursuant to which the Corporation is selling to MHVC a certain portion of the Corporation’s government services business operated within its Critical Networks segment (such agreement, as it may be amended from time to time, the “ Sale Agreement ”);
WHEREAS, as a result of such contemplated sale and other recent business divestitures, the Employee Benefits Committee desires to amend the Plan (i) to update its provisions with respect to the rate of matching contribution available to certain participants and (ii) in certain other respects; and
WHEREAS, the Employee Benefits Committee has determined that such amendment is non-material.
NOW, THEREFORE, BE IT RESOLVED, that the Plan hereby is amended, contingent upon the occurrence of the “Closing” (for all purposes of this Amendment Number Nine, as such term is defined in the Sale Agreement), and effective as of the Closing Date (as such term is defined in the Sale Agreement), as follows:
1.      Article 2 hereby is amended to delete therefrom the following definitions:
“CapRock Employee”, “Legacy HTSC Employee”, “Legacy MCS Employee”, “MCS Employee”, “Mission Sustainment Employee”, “TARS Employee” and “Wage Determination Employee”.





2.      Article 2 hereby is amended to add thereto the following new definition:

FAA Field Services Employee . An Eligible Employee assigned to perform services primarily in support of, and designated in company records as a member of, the division of the Company and its affiliates identified as “FAA Field Services.”
3.      Section 4.2 hereby is amended in its entirety to read as follows:

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 Employees 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) or (c), as applicable.
(b)      FAA Field Services Employees . The rate of matching contribution with respect to an FAA Field Services 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.
(c)      Other Eligible Employees . The rate of matching contribution with respect to an Eligible Employee other than an FAA Field Services 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 6% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions. Notwithstanding the foregoing, in the case of an Eligible Salaried Retirement Plan Participant, pre-tax, designated Roth and after-tax contributions in excess of 5% of his or her Compensation for a payroll period shall not be considered for purposes of matching contributions under this Section 4.2(c).
(d)      Contributions Not Eligible for Match . Notwithstanding the foregoing or any other provision within this Plan to the contrary (including the Appendices hereto), 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).
4.      The first paragraph of Article 4 of each of Appendix 3 (ES/IEWS Employees), Appendix 4 (Night Vision Employees), Appendix 5 (Electronic Systems Employees), Appendix 6 (PMRF Employees) and Appendix 7 (Benefit Group Employees) hereby is amended to replace the phrase “Section 4.2(a)-(f)” therein with the phrase “Section 4.2(a)-(c)”.
5.      The first sentence of Appendix 6 (PMRF Employees) hereby is amended in its entirety to read as follows:
This Appendix 6 applies to any person employed by Harris Critical Networks, Pacific Missile Range Facility, other than an Excluded PMRF Individual (a “PMRF Employee”).
FURTHER RESOLVED, that for the avoidance of doubt, in the case of an Eligible Employee who ceases to be eligible to participate in the Plan at and as a result of Closing, the rate of matching contribution applicable to any pre-tax, designated Roth and after-tax contributions of such Eligible Employee made with respect to any eligible compensation paid after Closing will be governed by the Plan as in effect immediately prior to this Amendment Number Nine, and this Amendment Number Nine shall be interpreted accordingly.
APPROVED by the HARRIS CORPORATION EMPLOYEE BENEFITS COMMITTEE on this 28 th day of April, 2017.
/s/ James P. Girard         
Jim Girard, Chairperson
 





Exhibit 10(g)(xi)
AMENDMENT NUMBER TEN
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 January 1, 2016 (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, on May 24, 2017, the Employee Benefits Committee adopted “Amendment Number Ten” to the Plan, effective as of July 1, 2017, (i) to update its provisions with respect to the rate of matching contributions available to certain participants and (ii) to document that certain Plan appendices no longer permit new participants and contributions (given the divestiture or other separation of all employees subject thereto);
WHEREAS, subsequent to such adoption, the Corporation determined to delay the implementation of Amendment Number Ten, and therefore on June 28, 2017 the Employee Benefits Committee rescinded Amendment Number Ten as previously adopted on May 24, 2017; and
WHEREAS, the Employee Benefits Committee now desires to update and re-adopt Amendment Number Ten in the form hereof.
NOW, THEREFORE, BE IT RESOLVED, that the Plan hereby is amended, effective as of October 1, 2017 or such other date set forth herein, as follows:
1.      Article 2 hereby is amended to delete therefrom the definition of “FAA Field Services Employee”.
2.      Section 4.2 hereby is amended in its entirety to read as follows (which amendment, for the avoidance of doubt, shall be effective for pay dates occurring on or after October 1, 2017):






Section 4.2.      Matching Contributions . (a) I n 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 Employees 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 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 6% of a Participant’s Compensation for a payroll period shall not be considered for purposes of matching contributions. Notwithstanding the foregoing, in the case of an Eligible Salaried Retirement Plan Participant, pre-tax, designated Roth and after-tax contributions in excess of 5% of his or her Compensation for a payroll period shall not be considered for purposes of matching contributions under this Section 4.2(a).
(b)      Contributions Not Eligible for Match . Notwithstanding the foregoing or any other provision within this Plan to the contrary (including the Appendices hereto), 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).
3.      Effective as of the date hereof, clause (iv) of the last paragraph of Section 9.2(b) hereby is amended to read as follows:
(iv) finally, to reduce future contributions to the Plan (including qualified nonelective contributions, qualified matching contributions and other corrective contributions, and earnings thereon) by such Participant’s Employer
4.      The first paragraph of Article 4 of each of Appendix 3 (ES/IEWS Employees), Appendix 4 (Night Vision Employees), Appendix 5 (Electronic Systems Employees), Appendix 6 (PMRF Employees) and Appendix 7 (Benefit Group Employees) hereby is amended to replace the phrase “Section 4.2(a)-(c)” set forth therein with the phrase “Section 4.2(a)”.
5.      Appendix 5 (Electronic Systems Employees) hereby is amended to include the following new sentence at the end of Article 3 thereof:
Notwithstanding the foregoing, no Employee shall newly participate in the Plan pursuant to this Appendix 5 on or after June 24, 2016.





6.      Appendix 5 (Electronic Systems Employees) hereby is amended to include the following new sentence at the end of Article 4 thereof:
Notwithstanding the foregoing, no matching or other contribution to the Plan shall be made pursuant to this Appendix 5 with respect to service on or after June 24, 2016.
7.      Appendix 7 (Benefit Group Employees) hereby is amended to include the following new sentence at the end of Article 3 thereof:
Notwithstanding the foregoing, no Employee shall newly participate in the Plan pursuant to this Appendix 7 on or after April 28, 2017.
8.      Appendix 7 (Benefit Group Employees) hereby is amended to include the following new sentence at the end of Article 4 thereof:
Notwithstanding the foregoing, no matching or other contribution to the Plan shall be made pursuant to this Appendix 7 with respect to service on or after April 28, 2017.
APPROVED by the HARRIS CORPORATION EMPLOYEE BENEFITS COMMITTEE on this 26 th day of July, 2017.
/s/ James P. Girard         
Jim Girard, Chairperson



Exhibit 10(ii)(i)
HARRIS CORPORATION
SALARIED RETIREMENT PLAN




















Amended and Restated as of January 1, 2017




HARRIS CORPORATION SALARIED RETIREMENT PLAN
FOREWORD
The Plan as set forth in this document is known as the Harris Corporation Salaried Retirement Plan (the ”Plan”), which was formerly known as the Exelis Salaried Retirement Plan, and before that known as the ITT Salaried Retirement Plan.
ITT Corporation adopted the International Telephone Pension and Benefit Plan to be effective January 1, 1929. That Plan has been subsequently amended from time to time and the Plan contained therein constituted an amendment to and restatement of the Plan, effective December 19, 1995. Except as provided therein, events occurring prior to December 19, 1995, are governed by the terms of the Plan in effect at the time the event occurred. As of December 19, 1995, ITT Corporation, a Delaware corporation, distributed to the holders of shares of ITT Corporation common stock, all the outstanding shares of common stock of ITT Destinations, Inc., and all the outstanding shares of common stock of ITT Hartford Group, Inc., ITT Corporation, formerly known as ITT Industries, Inc., an Indiana corporation, was the successor to ITT Corporation.
The Plan was amended and restated, effective as of January 1, 2000, to reflect certain design and administrative changes and to conform the Plan to certain legislative and regulatory changes that went into effect since the date of the last restatement of the Plan.
Effective July 1, 2006, the Plan was renamed the ITT Salaried Retirement Plan.
The Plan was amended and restated, generally effective January 1, 2010, and that restatement incorporated all amendments adopted to the Plan since its last restatement and was intended to reflect current law and regulations, including but not limited to: the Economic Growth and Tax Relief Reconciliation Act of 2002; the Pension Protection Act of 2006; the Heroes Earnings Assistance and Relief Tax Act of 2008; and the Worker, Retiree, and Employer Recovery Act of 2008, to the extent applicable and effective as of the date of that restatement.
Effective August 16, 2011 and October 1, 2011, ITT Corporation amended the Plan to reflect certain design changes, including freezing the Plan to new entrants for salaried employees first hired on or after October 1, 2011, as well as those employees first transferred to salaried status at ITT Corporation on or after October 1, 2011, eliminating the choice between accruing benefits in the pension equity plan formula or the applicable traditional pension plan formula, and ceasing future accruals under the Plan’s pension equity formula, and ceasing accruals under the Plan’s traditional pension formula for active members, other than eligible active members who affirmatively elected to continue to participate in the Plan and receive compensation and benefit service accruals under the traditional pension plan formula. ITT Corporation also amended the Plan in anticipation of the split-up of ITT Corporation into three separate, publically traded companies.
Effective October 31, 2011, ITT Corporation restructured into three separate, publicly-traded companies named ITT Corporation, Exelis Inc., and Xylem Inc. In connection with this restructuring, the Plan was amended, effective October 31, 2011, to reflect the restructuring and to transfer the sponsorship of the Plan to Exelis Inc. (“Exelis”). Effective October 31, 2011, Exelis amended the Plan pursuant to, and in accordance with, Resolutions of the Board of Directors of Exelis adopted by Written Consent on October 11, 2011, and changed the name of the Plan to the Exelis Salaried Retirement Plan. Effective October 31, 2011, Exelis further amended the Plan to designate the individuals who would serve on the Administrative Committee and the Investment Committee.
Effective January 1, 2012, the Plan was amended and restated to reflect certain design change amendments made by ITT Corporation in anticipation of the restructuring of ITT Corporation and amendments to the Plan adopted by Exelis. The Plan, as amended and restated, effective January 1, 2012, constituted a successor plan to the ITT Salaried Retirement Plan and was intended to reflect current law and regulations. The Plan was further amended and restated effective January 1, 2014, to incorporate five amendments into the Plan adopted since its prior amendment and restatement and to cease all future accruals effective December 31, 2016, unless otherwise provided in an Appendix hereto.

i



The Plan is being further amended and restated, effective January 1, 2017, in part to reflect the transfer of Plan sponsorship, effective January 1, 2016, from Exelis to Harris Corporation (the “Company”).
The provisions of the Plan are conditioned upon the Plan’s qualification under Section 401(a) of the Code (as herein defined) and Employer (as herein defined) contributions being deductible under Section 404 of the Code. It is further intended that the Plan conform to the requirements of Title I of ERISA (as herein defined) and that the Investment Master Trust of Exelis Inc. be qualified under Section 501 of the Code.
Subject to the preceding sentence, the Plan shall be construed, regulated and administered under the laws of the State of Florida; to the extent such laws are not superseded by applicable Federal law. Unless otherwise expressly provided in this Plan and consistent with applicable law, (i) the rights and benefits of any Member who retires, or whose employment is terminated, whichever first occurs, are determined in accordance with the provisions of the Plan in effect at the time of such retirement, or termination, and (ii) no revision to the Plan shall deprive any Member (as herein defined) who retires, or whose employment is terminated prior to such revision, of any rights and benefits which theretofore had accrued under the Plan.

ii



TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS
1
1.01

Accrued Benefit
1
1.02

Administrative Committee
1
1.03

Annual Dollar Limit
1
1.04

Annuity Starting Date
1
1.05

Appendix
1
1.06

Associated Company
1
1.07

Beneficiary
1
1.08

Benefit Service
1
1.09

Board of Directors
1
1.10

Code
1
1.11

Company
1
1.12

Compensation
1
1.13

Early Retirement Date
1
1.14

Effective Date of the Plan
1
1.15

Eligibility Service
1
1.16

Employee
1
1.17

Equivalent Actuarial Value
1
1.18

ERISA
1
1.19

Final Average Compensation
1
1.20

Former Pension Plan
1
1.21

Hours of Service
1
1.22

Investment Committee
1
1.23

ITT Corporation
1
1.24

IRS Interest Rate
1
1.25

IRS Mortality Table
1
1.26

Leased Employee
1
1.27

Member
1
1.28

Normal Retirement Date
1
1.29

Parental Leave
1
1.30

Participating Employee
1
1.31

Participating Unit
1
1.32

Plan
1
1.33

Plan Year
1
1.34

Postponed Retirement Date
1
1.35

Prior Salaried Plan
1
1.36

Registered Domestic Partner
1
1.37

Section 401(a)(17) Employee
1
1.38

Severance Date
1
1.39

Social Security Benefit
1
1.40

Social Security Retirement Age
1
1.41

Spousal Consent
1
1.42

Spouse
1
1.43

Stability Period
1

iii



1.44

Statutory Compensation
1
1.45

Trustee
1
ARTICLE 2 - SERVICE
1
2.01

Eligibility Service
1
2.02

Benefit Service
1
2.03

Questions Relating to Service under the Plan
1
ARTICLE 3 - MEMBERSHIP
1
3.01

Persons Employed on December 31, 2013
1
3.02

Persons First Employed as Employees after December 31, 2011
1
3.03

Persons Employed as Leased Employees with the Company or an Associated Company
1
3.04

Persons Employed as other than Employees by the Company
1
3.05

Reemployment of Former Employees, Former Members and Retired Members
1
3.06

Termination of Membership
1
3.07

Questions Relating to Membership in the Plan
1
ARTICLE 4 - BENEFITS
1
4.01

Plan Benefit Formulas
1
4.02

Normal Retirement Allowance
1
4.03

Postponed Retirement Allowance
1
4.04

Standard Early Retirement Allowance
1
4.05

Special Early Retirement Allowance
1
4.06

Vested Benefit
1
4.07

Forms of Benefit Payment after Retirement
1
4.08

Survivor’s Benefit Applicable before Retirement
1
4.09

Maximum Benefits
1
4.10

No Duplication
1
4.11

Payment of Benefits
1
4.12

Reemployment of Former Member or Retired Member
1
4.13

Return of Contributions with Respect to Members who Participated in a Contributory Former Pension Plan
1
4.14

Payment of “Accumulated Benefits” under Former Pension Plans
1
4.15

Top-heavy Provisions
1
4.16

Payment of Medical Benefits for Certain Members who retire Under the Plan
1
4.17

Transfers from Other Qualified Plans
1
4.18

Direct Rollover of Certain Distributions
1
4.19

Delayed Commencement of Benefits
1
4.20

Limitations Based on Funded Status of the Plan
1
4.21

Limitations on Unpredictable Contingent Event Benefit
1
ARTICLE 5 - ADMINISTRATION OF PLAN
1
5.01

Plan Administrator
1
5.02

Appointment of Administrative Committee
1
5.03

Duties and Powers of Administrative Committee
1
5.04

Appointment of Investment Committee
1
5.05

Duties of Investment Committee
1
5.06

Named Fiduciary
1
5.07

Meetings
1
5.08

Claims Procedure
1
5.09

Compensation and Bonding
1

iv



5.10

Electronic Media
1
ARTICLE 6 - CONTRIBUTIONS
1
ARTICLE 7 - MANAGEMENT OF FUNDS
1
ARTICLE 8 - CERTAIN RIGHTS AND LIMITATIONS
1
8.01

Termination of the Plan
1
8.02

Limitation Concerning Highly compensated Employees or Highly compensate Former Employees
1
8.03

Conditions of Employment Not Affected by Plan
1
8.04

Offsets
1
8.05

Denial of Benefits
1
8.06

Limitation on Benefits In the Event of a Liquidity Shortfall
1
8.07

Notice of Address and Missing Persons
1
8.08

Beneficiary’s Ability to Disclaim Interest in Plan
1
8.09

Construction; Venue
1
8.10

Limitations of Time for Submitting Claims and Filing Suits
1
8.11

Legal Fees
1
ARTICLE 9 - NONALIENATION OF BENEFITS
1
ARTICLE 10 - AMENDMENTS
1
APPENDIX A
A-1
APPENDIX B
B-1
APPENDIX C
C-1
APPENDIX D
D-1
APPENDIX E
E-1
APPENDIX F
F-1
APPENDIX G
G-1























v



HARRIS CORPORATION SALARIED RETIREMENT PLAN
ARTICLE 1 - DEFINITIONS

1.01      Accrued Benefit shall mean, as of any date of determination, a Member’s retirement allowance computed under Section 4.01(d) .

1.02     Administrative Committee shall mean, effective May 29, 2015, the Employee Benefits Committee of the Company, or successor thereto, appointed pursuant to Section 5.02 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 5.03 to the extent of the delegation.

1.03     Annual Dollar Limit shall mean the compensation limit set forth in Section 401(a)(17) of the Code, as adjusted from time to time by the Secretary of the Treasury in accordance with Section 401(a)(17) of the Code.

1.04     Annuity Starting Date shall mean the first day of the first period for which an amount is due on behalf of a Member or former Member as an annuity or any other form of payment under the Plan.

1.05     Appendix shall mean (a) those special provisions, attached to the Plan as appendices, which are applicable to certain persons covered by the Plan or (b) the tables of factors which are used in determining the amount of the various forms of benefits payable under the Plan.
1.06     Associated Company shall mean any division, subsidiary or affiliated company of the Company not participating in the Plan and designated by the Administrative Committee as an Associated Company for purposes of the Plan during the period for which such designation exists; provided, however, that any such division, subsidiary or affiliated company not participating in the Plan which is (a) a component member of a controlled group of corporations (as defined in Section 414(b) of the Code), which controlled group of corporations includes as a component member the Company, (b) any trade or business under common control (as defined in Section 414(c) of the Code) with the Company, (c) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company, or (d) any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code, shall automatically be an Associated Company hereunder during the period it is a division, subsidiary or affiliated company of the Company, or during such period as may otherwise be determined by the Administrative Committee. Notwithstanding the foregoing, for purposes of the preceding sentence and Section 4.09, the definitions of Section 414(b) and (c) of the Code shall be modified as provided in Section 415(h) of the Code.

1.07     Beneficiary shall mean any person or entity named by a Member by written designation to receive certain benefits payable in the event of his death as provided under Section 4.07 or 4.08

1.08     Benefit Service shall mean employment recognized as such for the purposes of computing a benefit under the Plan as provided under ARTICLE 2. “TPP Benefit Service” shall mean a Member’s Benefit Service prior to January 1, 2017, to be credited under the TPP Formula as defined pursuant to Section 2.02(b). “PEP Benefit Service” shall mean a Member’s Benefit Service prior to January 1, 2012, to be credited under the PEP Formula as defined in Section 2.02(b). Notwithstanding anything in the Plan to the contrary, no employment with Harris Corporation prior to May 29, 2015 shall be recognized as Benefit Service for purposes of the Plan.

1.09     Board of Directors shall mean the Board of Directors of the Company, or of any successor by merger, purchase or otherwise.

1.10     Code shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.11     Company shall mean, (i) effective as of January 1, 2016, Harris Corporation or any successor by merger, purchase or otherwise (ii) for the period of time beginning October 31, 2011 and ending December 31, 2015,

6



Exelis Inc. and (iii) for the period prior to October 31, 2011, ITT Corporation, and, in each case, any Participating Unit thereof, with respect to its Employees.

1.12     Compensation shall mean, except as otherwise provided below or in an Appendix hereto, the total remuneration paid to a Member prior to January 1, 2012, (whether before or during membership in the Plan) for services rendered to the Company or any Associated Company, including annual base salary, overtime, and shift differential (determined prior to any elective deferrals as defined in Section 402(g)(3) of the Code and including amounts contributed by the Company or an Associated Company pursuant to a salary reduction agreement which are not includible in the gross income of the Employee under Section 125 or 132(f)(4) of the Code), but excluding foreign service pay, automobile allowance, separation pay or other special pay or allowances of similar nature, and unless heretofore or hereafter specifically designated as being included in Compensation for purposes of the Plan by the Administrative Committee under rules or regulations uniformly applicable to all Members similarly situated, all bonuses, commissions and incentive pay and excluding the cost of any public or private employee benefit plan, including the Plan. For the period beginning January 1, 2009, and ending December 31, 2011, Compensation shall include differential wage payments (as defined in Section 3401(h)(2) of the Code) paid by the Company or an Associated Company with respect to any period during which an individual is performing service in the uniformed services (as defined in Section 3401(h)(2)(A) of the Code).

Except as otherwise provided below or in an Appendix hereto, effective on and after January 1, 2012, with respect to a Member who is a Participating Employee, Compensation shall include the total remuneration paid on or after January 1, 2012, and prior to January 1, 2017, to such Member for services rendered to the Company while accruing Benefit Service, including annual base salary, overtime, and shift differential (determined prior to any elective deferrals as defined in Section 402(g)(3) of the Code and including amounts contributed by the Company pursuant to a salary reduction agreement which are not includible in the gross income of the Employee under Section 125 or 132(f)(4) of the Code) but excluding foreign service pay, automobile allowance, separation pay or other special pay or allowances of similar nature, and unless heretofore or hereafter specifically designated as being included in Compensation for purposes of the Plan by the Administrative Committee under rules or regulations uniformly applicable to all Members similarly situated, all bonuses, commissions and incentive pay and excluding the cost of any public or private employee benefit plan, including the Plan.
Effective as of January 1, 2012, Compensation shall also include differential wage payments (as defined in Section 3401(h)(2) of the Code) paid by the Company or an Associated Company with respect to any period during which a Member is accruing Benefit Service, while performing service in the uniformed services (as defined in Section 3401(h)(2)(A) of the Code).
Except as otherwise provided in an Appendix and notwithstanding any Plan provision to the contrary, on or after January 1, 2012, and prior to January 1, 2017, Compensation shall only include remuneration as described above paid by the Company to a Member while such Member is a Participating Employee accruing Benefit Service under the provisions of this Plan.
With respect to any Plan Year commencing on or after January 1, 2002, annual Compensation taken into account for any purpose under the Plan shall not exceed the Annual Dollar Limit.
Notwithstanding the above, any Appendix hereto, or any other provision herein to the contrary, 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 excluded for all purposes of this Plan.
The Administrative Committee shall resolve any questions arising hereunder as to the meaning of Compensation on a basis uniformly applicable to all Employees similarly situated.

1.13     Early Retirement Date shall mean the date as determined in the manner set forth in Section 4.04 or Section 4.05.


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1.14     Effective Date of the Plan shall mean January 1, 1976.

1.15     Eligibility Service shall mean any employment recognized as such for the purposes of meeting the eligibility requirements for membership in the Plan and for eligibility for benefits under the Plan as provided under Article 2. Notwithstanding anything in the Plan to the contrary, no employment with Harris Corporation prior to May 29, 2015 shall be recognized as Eligibility Service for purposes of the Plan.

1.16     Employee shall mean any U.S. citizen or resident alien (as defined in Section 7701(b) of the Code) regularly employed by the Company who is considered a salaried employee for purposes of the Company’s employee benefit plans, who is paid from a payroll maintained in the continental United States, Hawaii, Puerto Rico, or the U.S. Virgin Islands, and who receives regular and stated compensation other than a pension or retainer. However, no person shall be an Employee for purposes of the Plan who is (a) classified as a consultant by the Company, (b) a non-resident alien, (c) paid on an hourly basis and who, under the Company’s employment classification practices, is considered as an hourly-rated employee for purposes of the Company’s employee benefit plans, (d) accruing benefits (or eligible to accrue benefits) in respect of current service under any other pension, retirement, qualified profit-sharing or other similar plan of the Company (other than the Harris Corporation Retirement Plan or any other plan specified by the Administrative Committee from time to time) or of any Associated Company or of any other direct or lower tier subsidiary or affiliated company of the Company, (e) on the payroll of a third party with whom the Company has contracted for the provision of said person’s services, (f) a Leased Employee, or (g) hired by the Company on or after September 1, 2007, and (1) who is regularly employed in a permanent position (as distinguished from a temporary assignment); (2) whose primary place of employment with the Company is outside of the United States; and (3) who has his primary residence outside of the United States and provided further, that no person shall be an Employee for purposes of the Plan whose terms and conditions of employment are determined by a collective-bargaining agreement with the Company which does not make this Plan applicable to him. In addition, any person who is engaged by the Company to perform services for the Company in a relationship (a) that the Company characterizes as other than an employment relationship, or (b) that the individual has agreed is not an employment relationship, such as where the Company 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 Company for purposes of the Code shall not be an Employee for purposes of this Plan. The term “employee” as used in this Plan means any individual who is employed by the Company or an Associated Company as a common law employee of the Company or an Associated Company regardless of whether the individual is an “Employee.”

1.17     Equivalent Actuarial Value shall mean equivalent value of a benefit under the Plan determined on the basis of the applicable factors set forth in Appendix A, except as otherwise specified in the Plan, Appendix E or Appendix F. In any other event, Equivalent Actuarial Value shall be determined on the same actuarial basis utilized to compute the factors set forth in Appendix A.

Notwithstanding any Plan provision to the contrary, except as otherwise specified in Appendix E of the Plan, when determining the Equivalent Actuarial Value of a Member’s retirement allowance or vested benefit based on the IRS Interest Rate and IRS Mortality Table in effect on an Annuity Starting Date on or after January 1, 2005, and prior to January 1, 2006, the Equivalent Actuarial Value of such retirement allowance or vested benefit shall not be less than the amount determined on the basis of the IRS Mortality Table and IRS Interest Rate as defined under the provisions of the Plan as in effect on December 31, 2004.

1.18     ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.19     Final Average Compensation shall mean, except as otherwise provided below, with respect to:


(a) a Post-1999 Member and Pre-2000 Member, the sum of:


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(i) The average of that portion of the Member’s Compensation equal to his annual base salary earned in any five calendar years of (i) Eligibility Service, for calendar years ending prior to January 1, 2012, and (ii) Benefit Service, for calendar years beginning on and after January 1, 2012, and ending prior to January 1, 2017, in which such annual base salary was highest; plus

(ii) The average of that portion of the Member’s Compensation in excess of his annual base salary earned in any five calendar years of (i) Eligibility Service, for calendar years ending prior to January 1, 2012, and (ii) Benefit Service, for calendar years beginning on and after January 1, 2012, and ending prior to January 1, 2017, in which such excess Compensation was highest; provided, however, that the calendar years on which such averages are based shall be any five calendar years during the last 120 calendar months of the Member’s Eligibility Service (earned prior to January 1, 2012) and Benefit Service (earned on and after January 1, 2012, and ending prior to January 1, 2017), as applicable, or, if the sum of a Member’s Eligibility Service (earned prior to January 1, 2012) and Benefit Service (earned on and after January 1, 2012, and ending prior to January 1, 2017) is less than five years, all of his calendar years of such service; provided, further, however, that beginning on and after January 1, 1989 (a) the annual base salary earned in any calendar year and taken into account for purposes of “Final Average Compensation,” and (b) the amount in excess of base annual salary earned in any calendar year and taken into account for purposes of “Final Average Compensation,” and (c) the sum of (a) and (b) taken into account for any calendar year, each shall not exceed the Annual Dollar Limit. In applying the Annual Dollar Limit to a Member’s Total Compensation for the applicable calendar year, the Annual Dollar Limit shall first be applied to the annual base salary earned by the Member in that calendar year, with any remainder then applied to the amount of the Member’s Compensation in excess of his base annual base earned in that calendar year.

(b)    a Post-2004 Member, the average of the Member’s Compensation earned in any five consecutive years of Eligibility Service (earned prior to January 1, 2012) and Benefit Service (earned on or after January 1, 2012, and ending prior to January 1, 2017) in which such Compensation was highest. However, the calendar years on which such average is based shall be any five calendar years during the last 120 calendar months of the Member’s Eligibility Service (for calendar years ending prior to January 1, 2012) and Benefit Service (for calendar years beginning on and after January 1, 2012, and ending prior to January 1, 2017) or, if the sum of a Post-2004 Member’s Eligibility Service (earned prior to January 1, 2012) and Benefit Service (earned on and after January 1, 2012, and ending prior to January 1, 2017) is less than five years, all of his years of such service. Except as otherwise provided by the Administrative Committee under rules uniformly applicable to all Members similarly situated, Compensation paid or received after a Member’s Severance Date shall not be taken into account for purposes of determining Final Average Compensation hereunder.
If the Member terminates employment before the last day of the calendar year or otherwise experiences an interruption in Eligibility Service (with respect to calendar years beginning January 1, 2012) or Benefit Service (with respect to calendar years beginning on and after January 1, 2012, and ending prior to January 1, 2017), the Administrative Committee shall, in accordance with rules uniformly applicable to all persons similarly situated, determine the amount of the Member’s Final Average Compensation. Unless otherwise provided in an Appendix hereto, (i) the term Eligibility Service as used in this Section shall include all service rendered prior to January 1, 2012, recognized as Eligibility Service for purposes of eligibility requirements under Article 2 and (ii) the term Benefit Service as used in this Section shall include all service rendered on and after January 1, 2012, and ending prior to January 1, 2017, recognized as Benefit Service under the provisions of Article 2 for purposes of determining a Member’s Traditional Pension Plan Benefit.
Except as otherwise provided in an Appendix hereto, in no event shall any Compensation paid to a Member (i) prior to January 1, 2012, for services rendered while other than as an employee of the Company or an Associated Company) or (ii) on or after January 1, 2012, and ending prior to January 1, 2017, for services rendered while accruing Eligibility Service but not Benefit Service be taken into account for purposes of determining Final Average Compensation hereunder.
Notwithstanding the foregoing, if an Employee was employed by a Participating Unit when all or part of the Participating Unit was divested by ITT Corporation, and which divestiture included the transfer of pension benefits and related assets from this Plan to the pension plan sponsored by the purchaser of the divested former Participating

9



Unit, only Compensation paid during (i) Eligibility Service rendered on and after such Employee’s subsequent date of rehire by the Company or an Associated Company and prior to January 1, 2012, or (ii) Benefit Service rendered on or after January 1, 2012, and ending prior to January 1, 2017, shall be recognized for determining such Employee’s Final Average Compensation.
Notwithstanding any Plan provision to the contrary, a Member’s Final Average Compensation for purposes of determining a Member’s PEP Formula Benefit under Section 4.01(c) shall be frozen as of December 31, 2011.
Except as otherwise provided above, in Appendix B, or by the Administrative Committee under rules uniformly applicable to all Members similarly situated, Final Average Compensation shall be frozen as of December 31, 2011, with respect to all Members other than Members who are Participating Employees receiving Benefit Service accruals on or after January 1, 2012.
Notwithstanding any Plan provision to the contrary, a Member’s Final Average Compensation for purposes of determining a Member’s TPP Formula Benefit under Section 4.01(b) shall be frozen as of December 31, 2016.
The determination of Final Average Compensation shall be subject to the provisions of Section 401(a)(17) of the Code.

1.20     Former Pension Plan shall mean, except as otherwise provided in an Appendix hereto, any pension or retirement plan or plans which shall have been designated as Former Pension Plans by the Administrative Committee, as such plans were in effect and applicable to salaried Employees of a Participating Unit on the day immediately preceding the date the Employees became Members of the Plan and as such Former Pension Plans are amended to continue as and under the Plan.

1.21     Hours of Service shall mean hours of employment as defined pursuant to the provisions of Section 2.01(c).

1.22     Investment Committee shall mean the Investment Committee of the Company or any successor thereto that is appointed pursuant to Section 5.04. 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 5.05 to the extent of the delegation.

1.23     ITT Corporation shall mean ITT Corporation as in existence prior to October 31, 2011, which was formerly known as ITT Industries, Inc., or any predecessor thereof.

1.24     IRS Interest Rate means, with respect to determining the amount of a benefit with an Annuity Starting Date:

(a) prior to January 1, 2005, the annual rate of interest on 30-Year Treasury Securities published by the Commissioner in the calendar month preceding the Stability Period,

(b)    on or after January 1, 2005, and prior to January 1, 2008, the annual rate of interest on 30-Year Treasury Securities published by the Commissioner in the fourth calendar month preceding the Stability Period, and

(c)    on or after January 1, 2008, for purposes of Sections 4.01(c)(i), 4.01(c)(ii)(2) 4.07(b)(v), 4.08(a)(iii), 4.08(b)(iii), 4.09 and 4.11(b) the interest rate prescribed under Section 417(e)(3)(C) of the Code (as it reads effective on or after January 1, 2008) published by the Commissioner of Internal Revenue in the fourth calendar month immediately preceding the applicable Stability Period, subject to the provisions of the last paragraph of Section 4.01(c)(i), Appendix E and Appendix F.

1.25     IRS Mortality Table means, with respect to determining the amount of a benefit with an Annuity Starting Date:


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(a) prior to December 31, 2002, the mortality table prescribed under Section 417(e)(3)(A)(ii)(I) of the Code (as it read prior to the first day of the 2008 Plan Year) as in effect on the first day of the applicable Stability Period;

(b)    on or after December 31, 2002, and prior to January 1, 2008, the mortality table prescribed by Revenue Ruling 2001-62 as in effect on the first day of the applicable Stability Period, subject to the provisions of the last paragraph of Section 4.01(c)(i) and Appendix E and

(c)    on or after January 1, 2008, for purposes of Sections 4.01(c)(i), 4.01(c)(ii)(2), 4.07(b)(v), 4.08(a)(iii), 4.08(b)(iii) 4.09 and 4.11(b), the mortality table prescribed under Section 417(e)(3)(B) of the Code (as it reads effective on and after the first day of the 2008 Plan Year), subject to the provisions of the last paragraph of Section 4.01(c)(i), Appendix E and Appendix F.

1.26     Leased Employee shall mean any person (other than a common law employee of the Company or an Associated Company) who, pursuant to an agreement between the Company and any other person (“leasing organization”) has performed services for the Company or an Associated Company or any 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 and such services are performed under the primary direction of or control by the Company or an Associated Company.

1.27     Member shall mean any person included in the membership of the Plan as provided in Article 3. The pronoun he, his or him is used in this document solely for convenience and does not in any way connote a limit or restriction to persons of the masculine gender. In all cases, when he, his or him is used it means with equal effect persons of the feminine gender. A “Pre-2000 Member” shall mean, a person who first becomes a Member prior to January 1, 2005, and (a) has an original date of employment with (i) the Company or (ii) an entity while such entity is designated as an Associated Company, which is prior to January 1, 2000, and (b) who was employed, on the date of acquisition, by an entity acquired by the Company prior to February 1, 1999. A “Post-1999 Member” shall mean, a person who first becomes a Member prior to January 1, 2005, and (a) has an original date of hire with (i) the Company or (ii) an entity while such entity is designated as an Associated Company, which is on or after January 1, 2000, and prior to January 1, 2005, or (b) was employed by an entity acquired by the Company on or after February 1, 1999, and prior to January 1, 2005, regardless of his original date of hire with such acquired entity. A “Post-2004 Member” shall mean, a person who first becomes a Member on or after January 1, 2005, and (a) has an original date of hire with (i) the Company or (ii) an entity while such entity is designated as an Associated Company, which is on or after January 1, 2005, (b) first becomes an Employee on or after January 1, 2005, regardless of his original date of hire with the Company, or (c) was employed by an entity acquired by the Company on or after January 1, 2005, regardless of his original date of hire with such acquired entity.

1.28     Normal Retirement Date shall mean the first day of the calendar month coincident with or next following the date the employee attains age 65, which is his Normal Retirement Age.

1.29     Parental Leave shall mean a period in which a person is absent from work because of the person’s pregnancy, the birth of a person’s child, the adoption by a person of a child, or, for purposes of caring for that child, for a period beginning immediately following such birth or adoption.

1.30     Participating Employee shall mean, effective as of January 1, 2012, a person who is an Employee on January 1, 2012, and either (i) was a Member of the Plan on December 31, 2011, or (ii) was hired by the Company on or prior to October 1, 2011, and, in accordance with the procedures established by the Administrative Committee, affirmatively elected to continue to accrue Benefit Service under the provisions of Section 2.02 on and after January 1, 2012, in lieu of participating in the enhanced employer contribution portion of the Exelis Salaried Investment and Savings Plan.

In the event a person who is an Employee on January 1, 2012, and who was a Plan Member on December 31, 2011, was not provided a timely election, as determined by the Administrative Committee, to continue to accrue Benefit Service under the provisions of Section 2.02 on and after January 1, 2012, in lieu of participating in the enhanced employer contribution portion of the Exelis Salaried Investment and Savings Plan, such Member shall be provided an

11



opportunity to make such an election in accordance with the procedures established by the Administrative Committee. During the period January 1, 2012, through the effective date of such election, said Member shall be deemed a Participating Employee and on and after the effective date of such election said Member shall be a Participating Employee only if said Member affirmatively elects to continue to accrue Benefit Service under the provisions of Section 2.02 in lieu of participating in the enhanced employer contribution portion of the Exelis Salaried Investment and Savings Plan.
A Member who became a Participating Employee on or after January 1, 2012, pursuant to the foregoing provisions of this Section 1.29 shall cease to be a Participating Employee on the earliest of (i) the date he ceases to be an Employee, (ii) his Severance Date, (iii) the effective date of his election made in accordance with rules established by the Administrative Committee, to participate in the enhanced employer contribution portion of the Exelis Investment and Savings Plan in lieu of continuing to receive future Benefit Service accruals under this Plan or (iv) unless otherwise provided in an Appendix hereto, December 31, 2016.
A Participating Employee shall also include, in accordance with rules established by the Administrative Committee and uniformly applied to all Employees similarly situated, a person who was a Member on December 31, 2011, is not covered under Appendix B and is (1) absent from active employment with the Company during the election period established by the Administrative Committee due to a military leave or a Company approved unpaid leave of absence, other than a long term disability leave, and (2) accruing Benefit Service under the provisions of Section 2.02(f)(i), (ii), (iv) and (v) during such leave. Upon return to active employment as an Employee, such Member shall be granted, in accordance with procedures established by the Administrative Committee, the right to affirmatively elect to continue to accrue Benefit Service under the provisions of Section 2.02 after his return to active employment on and after January 1, 2012, and prior to January 1, 2017, in lieu of participating in the enhanced employer contribution portion of the Exelis Investment and Savings Plan. Such Member shall become a Participating Employee on January 1, 2012, and shall continue to be a Participating Employee until the earliest of (i) the date he ceases to be an Employee, (ii) his Severance Date, (iii) the effective date of his election, made in accordance with rules established by the Benefits Administrative Committee, to participate in the enhanced employer contribution portion of the Exelis Investment and Savings Plan in lieu of continuing to receive future Benefit Service accruals under this Plan or (iv) unless otherwise provided in an Appendix hereto, December 31, 2016.
For the avoidance of doubt, no person employed by Harris Corporation on May 28, 2015 who was not previously a Member shall be a Participating Employee.

1.31     Participating Unit shall mean the Company and any subsidiary, division or affiliated company of the Company, any designated division(s) only of such subsidiary or affiliated company or any designated unit(s) only of such subsidiary, division or affiliated company which has by appropriate action of the Administrative Committee been designated as a Participating Unit and the board of directors of any such subsidiary or affiliated company shall have taken appropriate action to adopt the Plan.

If persons in a certain group are not already Members of the Plan but are transferred to or assigned to a Participating Unit or are hired by a Participating Unit as the result of the opening or purchase of a plant or the merger of one unit into another, such persons shall not be deemed to be Employees for purposes of the Plan until further action by the Administrative Committee including the determination that such persons are Employees for purposes of the Plan and the establishment of the terms and conditions under which such Employees are to be included in the Plan.
To the extent that the Administrative Committee shall have authorized and established the basis for recognition under the Plan of service with a predecessor corporation(s), if any, reference in this Plan to service with a Participating Unit shall include service with the predecessor corporation(s) of such Participating Unit, provided that all or part of the business and assets of any such corporation shall have been acquired by the Company or by a Participating Unit.

1.32     Plan shall mean the Harris Corporation Salaried Retirement Plan, which was previously known as the Exelis Salaried Retirement Plan from October 31, 2011 to December 31, 2015, and the ITT Salaried Retirement

12



Plan prior to October 31, 2011, as set forth herein or as hereafter amended. The Plan is an amendment to and continuation of the Plan as in effect on December 31, 2016, and of any Prior Salaried Plans and of any Former Pension Plans and certain other plans of the Company.

1.33     Plan Year shall mean the calendar year.
1.34     Postponed Retirement Date shall mean, with respect to an employee who does not retire at Normal Retirement Date but who continues in the employ of the Company or an Associated Company after such date, the first day of the calendar month coincident with or next following his subsequent Severance Date. No retirement allowance shall be paid to the employee until his Postponed Retirement Date, except as otherwise provided in Article 4.

1.35     Prior Salaried Plan shall mean the International Telephone Pension Plan for Salaried Employees as in effect on December 31, 1964, and any other plan or plans for a Participating Unit which shall have been designated as such by the Board of Directors and as such plans were in effect and applicable to salaried Employees on the day immediately preceding the date the Employees became Members of this Plan.

1.36     Registered Domestic Partner shall mean the person who is in a Spouse-like relationship with the Member, provided all of the following requirements are met for at least 12 consecutive months immediately preceding the date as of which the Member registers such person as a Domestic Partner on the form designated by the Administrative Committee for this purpose:

(a) Intend to remain each other’s domestic partner indefinitely;

(b)    Reside together in the same permanent residence;

(c)    Are not legally married or separated and are not the domestic partner of anyone else;

(d)    Are not related by blood closer than would bar marriage under applicable law; and

(e)    Are both at least 18 years of age and mentally competent to enter into a legal contract.

An individual will be treated as a Registered Domestic Partner under the Plan only if he is so registered with the Administrative Committee on or after January 1, 2006.

1.37     Section 401(a)(17) Employee shall mean an employee whose retirement allowance or vested benefit under the Plan accrued as of any date on or after January 1, 1989, is affected by the Annual Dollar Limit.

1.38     Severance Date shall mean the date an Employee is considered to have severed his employment as defined pursuant to the provisions of Section 2.01(b).

1.39     Social Security Benefit shall mean the amount of annual old age or disability insurance benefit under Title II of the Federal Social Security Act as determined by the Administrative Committee under reasonable rules uniformly applied, on the basis of such Act as in effect at the time of retirement or termination to which a Member or former Member is or would upon application be entitled, even though the Member does not receive such benefit because of his failure to apply therefor or he is ineligible therefor by reason of earnings he may be receiving in excess of any limit on earnings for full entitlement to such benefit. In computing the Member’s Social Security Benefit, no wage index adjustment or cost of living adjustment shall be assumed with respect to any period after the end of the calendar year in which the Member retires or terminates service with the Company and all Associated Companies. Notwithstanding any Plan provision to the contrary, in computing a Member’s Social Security Benefit, no wage index adjustment or cost of living adjustment shall be assumed with respect to any period after (a) the earlier of (i) December 31, 2016, or (ii) the end of the calendar year in which the Member first becomes eligible for early retirement under Section 4.04 or 4.05, with respect to a Member who is employed by the Company or an Associated Company on January 1, 2012, as other than a Participating Employee, or (b) the end of the calendar year in which the Member ceases to accrue Benefit Service, with respect to a Member who is employed by the Company or an Associated Company on January 1, 2012, as a Participating Employee. For all years prior to the earlier of (i) the retirement or other termination

13



of employment with the Company and all Associated Companies, or (ii) the date earnings ceased to be recognized for Social Security purposes as set forth in Section 4.04, 4.05 or 4.06 or Appendix B, where actual earnings are not available, the Member’s Social Security Benefit shall be determined on the basis of the Member’s actual earnings in conjunction with a salary increase assumption based on the actual yearly change in national average wages as determined by the Social Security Administration. If, within a reasonable time after the later of (a) the date of retirement or other termination of employment or (b) the date on which a Member is notified of the retirement allowance or vested benefit to which he is entitled, the Member provides documentation from the Social Security Administration as to his actual earnings history with respect to those prior years, his Social Security Benefit shall be redetermined using the actual earnings history. If this recalculation results in a different Social Security Benefit, his retirement allowance or vested benefit shall be adjusted to reflect this change. Any adjustment to his retirement allowance or vested benefit shall be made retroactive to the date his payments commenced. The Administrative Committee shall resolve any questions arising under this Section on a basis uniformly applicable to all Employees similarly situated.

1.40     Social Security Retirement Age shall mean age 65 with respect to a Member who was born before January 1, 1938; age 66 with respect to a Member who was born after December 31, 1937, and before January 1, 1955; and age 67 with respect to a Member who was born after December 31, 1954.

1.41     Spousal Consent shall mean written consent given by a Member’s or former Member’s Spouse to an election made by the Member or former Member which specifies the form of retirement allowance, vested benefit, Beneficiary, or contingent annuitant designated by the Member or former Member. The specified form or specified Beneficiary or contingent annuitant shall not be changed unless further Spousal Consent is given. Spousal Consent shall be duly witnessed by a notary public or, in accordance with uniform rules of the Administrative Committee, by a Plan representative and shall acknowledge the effect on the Spouse of the Member’s or former Member’s election. The requirement for Spousal Consent may be waived by the Administrative Committee in the event that the Member establishes to its satisfaction that the Member is legally separated and the Member has a court order to such effect, or under such other circumstances as may be permitted under applicable Treasury Department regulations. Spousal Consent shall be applicable only to the particular Spouse who provides such consent.

1.42     Spouse shall mean the person to whom the Member is lawfully married as of any applicable date.

1.43     Stability Period shall mean, except as otherwise provided in Appendix F, (i) with respect to an Annuity Starting Date prior to January 1, 2005, the Plan Year in which occurs the Annuity Starting Date for the distribution and (ii) with respect to an Annuity Starting Date on or after January 1, 2005, the calendar month in which occurs the Annuity Starting Date for the distribution.

1.44     Statutory Compensation means compensation from the Company or any Associated Company, as defined in Treas. Reg. § 1.415(c)-2(d)(4) ( i.e. , information required to be reported under Sections 6041, 6051 and 6052 of the Code (“W-2 Pay”) plus amounts that would be included in wages but for an election under Sections 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k) or 457(b) of the Code). For purposes of applying the maximum benefit limitations and the top-heavy provisions under Sections 4.09 and 4.15, Statutory Compensation shall not exceed the Annual Dollar Limit.
For purposes of applying the limitation of Section 415 of the Code, for Plan Years beginning on and after January 1, 2008, “compensation” shall also include:

(a) salary continuation payments for military service as described in Treas. Reg. § 1.415(c)-2(e)(4);

(b)    compensation paid after severance from employment as described in Treas. Reg. §§ 1.415(c)-2(e)(3)(i), (ii) and (iii)(A)

(c)    foreign income as described in Treas. Reg. § 1.415(c)-2(g)(5)(i), excluding amounts described in Treas. Reg. § 1.415(c)-2(g)(5)(ii); and

(d)    differential wage payments for military service as described in Section 414(u)(12) of the Code.

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Payments not described above, including, but not limited to, amounts described in Treas. Reg. § 1.415(c)-2(e)(3)(iii)(B) and (iv), shall not be considered Statutory Compensation if paid after severance from employment, even if such amounts are paid by the later of 2½ months after the date of severance from employment or the end of the Plan Year that includes the date of severance from employment. Effective for Plan Years beginning on and after January 1, 2008, “compensation” shall not exceed the Annual Dollar Limit.
Effective January 1, 2009, Statutory Compensation shall include differential wage payments (as defined in Section 3401(h)(2) of the Code) paid by the Company or an Associated Company with respect to any period during which an individual is performing service in the uniformed services (as defined in Section 3401(h)(2)(A) of the Code).

1.45     Trustee shall mean the trustee or trustees by which the funds of the Plan are held as provided in Article 7.

ARTICLE 2 - SERVICE

2.01     Eligibility Service

(a) Eligibility Service prior to October 31, 2011

Eligibility Service for determining eligibility for benefits shall include any employment rendered by a Member prior to October 31, 2011, to the extent such employment was recognized or would have been recognized for such purposes under the provisions of the Plan (including any Appendix thereto) as in effect as of October 30, 2011, or of any Former Pension Plan.

(b)    Eligibility Service on and after October 31, 2011

Except as otherwise provided in this Article 2 or an Appendix hereto, all uninterrupted employment with the Company or with an Associated Company rendered on and after (i) October 31, 2011, or (ii) date of employment, if later, and prior to a Member’s Severance Date, shall be recognized as Eligibility Service for all Plan purposes. “Severance Date” shall mean, except as otherwise provided in an Appendix hereto, the earlier of (i) the date a Member resigns, is discharged, retires from service with the Company and all Associated Companies or dies or (ii) one year from the date the Member is continuously absent from service for any other reason as provided in this Article 2.

(c)    Eligibility Service for Plan membership by Employees hired on other than a full-time basis

With respect to any Employee whose employment with the Company or with an Associated Company is on a temporary or less than full-time basis, “one year of Eligibility Service” for purposes of meeting the requirements for membership in the Plan as provided in Article 3 shall mean a period of twelve consecutive months of employment and measured from the date on which he first completes an Hour of Service or from any subsequent anniversary thereof and during which he has completed at least 1,000 Hours of Service with the Company or with an Associated Company. After such an Employee has met the requirements for membership in the Plan as provided in Article 3, Eligibility Service for purposes of meeting the eligibility requirements for benefits and for vesting shall be determined in accordance with Section 2.01(a) or (b), whichever is applicable.
“Hours of Service” shall include hours worked and hours for which a person is compensated by the Company or by an Associated Company for the performance of duties for the Company or an Associated Company, although he has not worked (such as: paid holidays, paid vacation, paid sick leave, paid time off, and back pay for the period for which it was awarded), and each such hour shall be computed as only one hour, even though he is compensated at more than the straight time rate. This definition of “Hours of Service” shall be applied in a consistent and non-discriminatory manner in compliance with 29 Code of Federal Regulations, Section 2530.200b-2(b) and (c) as promulgated by the United States Department of Labor and as may hereafter be amended.

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Solely for purposes of this paragraph (c), if a temporary or less than full-time Employee does not complete more than 500 Hours of Service in the twelve month period beginning on the date on which he first completes an Hour of Service or beginning on any subsequent anniversary thereof (which for purposes of this paragraph (c) shall be known as the “computation period”), he shall incur a one-year break in service. Solely for purposes of determining whether such an Employee has incurred a break in service, hours completed on and after January 1, 1985, shall include each Hour of Service for which such Employee would otherwise have been credited under this paragraph (c) were it not for the Employee’s absence due to Parental Leave. Hours of Service credited under the preceding sentence shall not exceed the number of hours needed to avoid a break in service in the computation period in which the Parental Leave first began and shall not exceed 501 hours in any event; if no hours are needed to avoid a break in service in such computation period, then the provisions of the preceding sentence shall apply as though the Parental Leave began in the immediately following computation period. If such an Employee has had a break in service before becoming eligible for membership, Eligibility Service shall begin from the date of his return to the employ of the Company or an Associated Company. Except as otherwise provided in this Article 2, his Eligibility Service before the break in service shall be restored only upon completion of one year of Eligibility Service within the twelve-month period following his break in service.
Hours of Service shall be credited for any period of leave taken under the Family and Medical Leave Act of 1993 solely for purposes of determining whether an Employee has incurred a one-year Break in Service. Hours of Service credited under the immediately preceding sentence will be based on the customary work week of such Employee.

(d)    Employment with the Company or an Associated Company but not as an Employee

Eligibility Service with respect to prior employment rendered by any employee who, on or after October 31, 2011, and prior to the date on which he becomes an Employee, is or was in the employ of the Company or an Associated Company but not as an Employee shall, subject to the provisions of Section 2.01(f) and Section 2.01(g), be equal to:

(i) the number of years credited to him, if any, on the basis of the “1,000 hour rule” under a pension plan maintained by the Company or an Associated Company applicable to him for the period of such prior employment ending on the last day of the calendar year preceding the date on which he becomes an Employee or the date on which such prior employment terminated, plus

(ii)    the greater of (1) the service credited to him, if any, on the basis of the “1,000 hour rule” for the portion of the calendar year ending on the date immediately preceding the date he becomes an Employee or the date on which such prior employment terminated, or (2) the Eligibility Service he would be credited with under this Plan for the entire calendar year in which the transfer or termination of employment took place.

Notwithstanding the foregoing provisions of this paragraph (d), in the event an employee’s prior employment was not covered by or credited under a pension plan which recognized employment on the basis of the “1,000 hour rule,” any such prior employment with the Company or an Associated Company shall be recognized in accordance with the terms of this Article 2 and subject to any limitations set forth in writing by the Board of Directors or Administrative Committee on a basis uniformly applicable to all persons similarly situated.

(e)    Certain absences to be recognized as Eligibility Service

Except as otherwise indicated in this Article 2, the following periods of approved absence shall be recognized as Eligibility Service under the Plan and shall not be considered as breaks in Eligibility Service:

(i) Pursuant to Section 414(u) of the Code, if a Member who is an Employee immediately preceding commencement of a military leave of absence is granted a “Qualified Military Leave” in respect of

16



service in the uniformed services (as defined in chapter 43 of title 38, United States Code) (“Qualified Military Service”), the period of Qualified Military Leave actually served, provided the Employee shall have returned to the service of the Company or an Associated Company in accordance with reemployment rights under applicable law and shall have complied with all of the requirements of such law as to reemployment. Effective January 1, 2007, if an individual who was an Employee dies while performing qualified military service (as defined in Section 414(u) of the Code) and while his reemployment rights are protected by the Uniformed Services Employment and Reemployment Rights Act of 1994 and any related legislation or guidance, such individual’s period of time in Qualified Military Service through the date he died shall be counted as Eligibility Service.

(ii)    Except as provided by law, the period of any leave of absence granted in respect of service, not exceeding two years, with any other agency or department of the United States Government.

(iii)    The period of any total and permanent disability during which an Employee becomes entitled to a disability benefit under Title II of the Federal Social Security Act as amended from time to time or the period of total and permanent disability during which the Employee is entitled to receive disability benefits under the Company’s applicable long-term disability plan or would have been entitled to receive disability benefits under such long-term disability plan had he participated in such plan.

(iv)    The period of any leave of absence during which Company sickness or accident benefits are payable.

(v)    The period of any leave of absence approved by the Company during which an Employee is paid Compensation at a rate which is at least one-half of the Employee’s rate of base pay in effect immediately prior to such leave or the period of any unpaid leave of absence approved by the Company but not in excess of 12 consecutive months.

(vi)    In any event, Eligibility Service shall include the period, with or without Compensation, immediately preceding the Employee’s Severance Date but not in excess of 12 consecutive months inclusive of those periods of approved absences already included in sub-paragraphs (i) through (v) above, during which an Employee is continuously absent from service.

(vii)    The period between an Employee’s Severance Date and his reemployment if he returns to the employ of the Company or an Associated Company before the first anniversary date of his Severance Date; provided, however, that the combined periods recognized under sub-paragraph (vi) above and under this sub-paragraph (vii) shall not exceed 12 consecutive months.

Except to the extent provided under sub-paragraph (vi) and, if applicable, under sub-paragraph (vii) above, if an Employee fails to return to active employment upon expiration of the approved absences specified in sub-paragraphs (i) and (ii) above, such periods of approved absence shall not be considered as Eligibility Service under the Plan.


(f)    Breaks in Service

All absences from the Company or from an Associated Company, other than the absences specified in paragraph (e) above, shall be considered as breaks in Eligibility Service; provided, however, that in no event shall there be a break in Eligibility Service if an Employee (i) is continuously absent from service with the Company or with an Associated Company and returns to the employ of the Company or an Associated Company before the first anniversary of his Severance Date or (ii) is absent from work because of a Parental Leave and returns to the employ of the Company or an Associated Company within two years of his Severance Date. If the provisions of clause (ii) above are applicable, the first year of such absence for Parental Leave, measured from an Employee’s Severance Date, shall not be considered in determining the Employee’s period of break in service for purposes of Section 2.01(g) below.

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(g)    Bridging breaks in service

(i) If an Employee has a break in service and such Employee was eligible for a vested benefit under Section 4.05 at the time of his break in service, except as otherwise provided in Section 4.12, employment both before and after the Employee’s absence shall be immediately recognized as Eligibility Service under the Plan upon his return to the employ of the Company or an Associated Company, excluding any Eligibility Service disregarded under this paragraph (g) by reason of any earlier break in service.

(ii)    If an Employee has a break in service and such Employee was not eligible for a vested benefit under Section 4.05 at the time of his break in service, Eligibility Service shall begin from the date of his return to the employ of the Company or an Associated Company. If such Employee returns to the employ of the Company or an Associated Company and the period of the Employee’s break is less than the greater of (1) five years or (2) the service rendered prior to such break, the service prior to such break shall be included as Eligibility Service only upon completion of at least twelve months of Eligibility Service following his break in service, excluding any Eligibility Service disregarded under this paragraph (g) by reason of any earlier break in service. However, if the period of the Employee’s break in service equals or exceeds the greater of (1) five years or (2) the service rendered prior to such break, the service rendered prior to such break shall be included as Eligibility Service only upon completion of a period of Eligibility Service equal to the lesser of the period of his break in service or ten years.

(iii)    If an employee who has a break in service is restored to service with the Company or an Associated Company as an Employee after incurring a break in service, except as otherwise provided in Section 4.12, service rendered with the Company or an Associated Company prior to said break in service shall be included as Eligibility Service if at the time of his break in service he would have been entitled to a nonforfeitable benefit under the Plan if he were then a Member, or otherwise if his period of break in service does not equal or exceed the greater of (a) five years or (b) his period of Eligibility Service determined at the time of the break in service, excluding any Eligibility Service disregarded under this paragraph (g) by reason of any earlier break in service.

(h)    Eligibility Service for Employees rehired from a divested Participating Unit or Associated Company prior to October 31, 2011

If an Employee (i) was employed with a Participating Unit or an Associated Company when all or part of the Participating Unit or Associated Company was divested by ITT Corporation prior to October 31, 2011, the divestiture of which included (1) the transfer of pension benefits and related assets from this Plan or a qualified salaried defined benefit plan maintained by the Associated Company immediately prior to its divestiture to the pension plan sponsored by the purchaser of the divested Participating Unit or Associated Company or (2) the assumption of the salaried defined benefit plan sponsored by said Associated Company by the purchaser of the Associated Company, and (ii) is subsequently rehired by the Company or an Associated Company prior to October 31, 2011, any employment with the Company or an Associated Company rendered by the Employee prior to the date of such divestiture shall be recognized as Eligibility Service to the extent such employment was recognized or would have been recognized in accordance with the terms of this Article 2, subject, however, to any limitations set forth in writing by the Board of Directors or the Administrative Committee for the Participating Unit at which the Employee was first employed and subject to the further limitation that no period of employment prior to the date of divestiture shall be recognized as Eligibility Service for purposes of Section 1.15

2.02     Benefit Service

(a) Benefit Service; Generally

(i) Benefit Service prior to October 31, 2011 - Except as otherwise provided in this Article 2 or in an Appendix hereto, Benefit Service shall include any employment rendered by a Member prior to October

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31, 2011, to the extent such employment was recognized or would have been recognized for purposes of computing the retirement allowance, vested benefit or other benefit to which a Member, former Member or other person is or would become entitled under the provisions of the Plan (including any Appendix thereto) as in effect as of October 30, 2011.

(ii)    Benefit Service on and after October 31, 2011, and prior to January 1, 2012 - Except as hereinafter otherwise provided in this Article 2 or in an Appendix hereto, all uninterrupted employment with the Company rendered by a Member as an Employee (a) on and after the later of October 31, 2011, or his date of employment, and (b) prior to the earlier of January 1, 2012, or his Severance Date, shall be recognized as Benefit Service under the Plan.

(iii)    Benefit Service rendered prior to January 1, 2012, by an Employee who first becomes a Member after October 30, 2011, and on or prior to January 1, 2012 - Except as otherwise provided in this Article 2 or in an Appendix hereto, Benefit Service shall include any employment rendered by a Member as an Employee prior to January 1, 2012, to the extent such employment would have been recognized for purposes of computing the retirement allowance, vested benefit or other benefit to which such Member, is or would become entitled under the provisions of the Plan (including any Appendix thereto) as in effect as of December 31, 2011.

(iv)    Benefit Service on and after January 1, 2012, and prior to January 1, 2017 - Except as hereinafter otherwise provided in an Appendix hereto, all uninterrupted employment with the Company rendered by a Member as a Participating Employee on or after January 1, 2012, and prior to the earlier of his Severance Date or January 1, 2017, shall be recognized as Benefit Service under the Plan.

(v)    Benefit Service on and after January 1, 2017 - Except as hereinafter otherwise provided in an Appendix hereto, there shall be no Benefit Service recognized on or after January 1, 2017.

(b)    TPP and PEP Benefit Service

(i)    “TPP Benefit Service” shall mean the sum of the Member’s (1) Benefit Service accrued during a Plan Year commencing on or after January 1, 2000, in which his Plan benefit formula election was the TPP Formula, (2) Benefit Service accrued prior to January 1, 2000, as set forth in Section 4.01(a)(v), and (3) Benefit Service accrued under the provisions of Section 2.02(c), Section 2.02(d), or Section 2.02(e) as set forth in Section 4.01(a)(vii). Notwithstanding any Plan provisions to the contrary and unless otherwise provided in an Appendix hereto, effective as of December 31, 2016, all TPP Benefit Service accruals shall cease.

(ii)    “PEP Benefit Service” shall mean the balance of the Member’s Benefit Service not in excess of 40 years which is not recognized as TPP Benefit Service under subparagraph (i) above and accrued during a Plan Year commencing on or after January 1, 2000, and prior to January 1, 2012, in which his Plan benefit formula choice was the PEP Formula. Notwithstanding any Plan provisions to the contrary, effective as of December 31, 2011, all PEP Benefit Service accruals shall cease.

(iii)    Notwithstanding any Plan provision to the contrary, the combined maximum years of TPP Benefit Service used to compute any Member’s TPP Formula Benefit and PEP Benefit Service used to compute his PEP Formula Benefit, including years of Benefit Service rendered prior to January 1, 2000, shall not exceed 40 years.

(c)    Employment with an Associated Company

No employment with an Associated Company rendered by a Member shall be recognized as Benefit Service under the Plan; except, however, if a Member becomes an Employee and completes 36 consecutive months of Eligibility Service as an Employee, any employment rendered at an Associated Company as an employee located outside the United States before classification as an Employee shall be recognized as Benefit Service subject to any limitations set forth in writing by the Administrative Committee for the Associated Company at which the Member

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was employed. If a Member ceases to be an Employee and is again employed at an Associated Company located outside the United States, such future employment will not be recognized as Benefit Service unless and until the Member (i) again becomes an Employee and (ii) again completes 36 consecutive months of Eligibility Service as an Employee. Notwithstanding any Plan provision to the contrary, with respect to an employee who becomes an Employee on or after January 1, 2005, any employment rendered at an Associated Company as an employee located within the United States before classification as an Employee shall not be recognized as Benefit Service.

(d)    Employment with the Company but not as an Employee

Persons reclassified as Employees - Except as otherwise provided in Section 3.03 or in an Appendix hereto, with respect to any employee (i) who first becomes an Employee prior to January 1, 2005, and immediately prior to the date on which he first becomes an Employee is in the employ of the Company but not as an Employee, or (ii) who ceases to be an Employee but remains in the employ of the Company as an employee and, again becomes an Employee prior to January 1, 2005, his uninterrupted employment with the Company rendered otherwise than as an Employee shall be recognized, provided such person is a Member of the Plan, as Benefit Service, subject to the limitations set forth in writing by the Board of Directors or the Administrative Committee for the Participating Unit at which such person was first employed, upon the Member’s subsequent completion of 36 consecutive months of Eligibility Service as an Employee. Notwithstanding any Plan provision to the contrary, if an employee transfers to salaried status as an Employee on or after January 1, 2005, and becomes a Member as a result of such transfer, the period of his employment rendered as other than an Employee shall not be recognized as Benefit Service.

(e)    Benefit Service for Members rehired from a divested Participating Unit or divested Associated Company

(i) If a Member (1) was employed with a Participating Unit when all or part of the Participating Unit was divested by ITT Corporation prior to October 31, 2011, the divestiture of which included the transfer of pension benefits and related assets from this Plan to the pension plan sponsored by the purchaser of the divested Participating Unit, (2) is subsequently rehired by the Company or an Associated Company prior to January 1, 2005, and (3) completes 60 consecutive months of Eligibility Service after his reemployment, any employment with the Company rendered by the Member prior to the date such Participating Unit was divested shall be recognized as Benefit Service to the extent such employment was recognized or would have been recognized in accordance with the terms of this Article 2 absent the divestiture of such Participating Unit, subject to any limitations set forth in writing by the Board of Directors or the Administrative Committee with respect to the Participating Unit at which the Member was first employed.

(ii)    If a Member (1) was employed with an Associated Company when all or part of the Associated Company was divested by ITT Corporation prior to October 31, 2011, the divestiture of which included (A) the assumption of said Associated Company’s qualified salaried defined benefit plan (its liabilities and related assets) by the purchaser of said Associated Company, or (B) the transfer of the pension benefits and related assets from a qualified salaried defined benefit plan maintained by the Associated Company immediately prior to the divestiture to a pension plan sponsored by the purchaser of the divested Associated Company, (2) is subsequently rehired by the Company prior to January 1, 2005, and (3) completes 60 consecutive months of Eligibility Service after his reemployment, any employment with such divested Associated Company as defined above rendered by the Member prior to the date such Associated Company was divested shall be recognized as Benefit Service to the extent such employment would have been recognized for benefit accrual purposes in accordance with the terms of this Article 2 had such service been rendered while employed by the Company, subject to any limitations set forth in writing by the Board of Directors or the Administrative Committee with respect to the Associated Company at which the Member was first employed.


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(f)    Certain absences to be recognized as Benefit Service

Except as the Board of Directors or the Administrative Committee may otherwise determine, the following periods of approved absence shall be recognized as Benefit Service and shall not be considered as breaks in Benefit Service:

(i) Pursuant to Section 414(u) of the Code, if, before January 1, 2012, a Member who is an Employee immediately preceding commencement of a military leave of absence is granted a “Qualified Military Leave” (as defined in chapter 43 of title 38, United States Code) in respect of service in the uniformed services, the period of Qualified Military Leave actually served, provided the Employee shall have returned to the service of the Company or an Associated Company in accordance with reemployment rights under applicable law and shall have complied with all of the requirements of such law as to reemployment. Effective as of January 1, 2012, pursuant to Section 414(u) of the Code, if a Member who is a Participating Employee immediately preceding the commencement of a military leave of absence is granted a Qualified Military Leave commencing on or after January 1, 2012, the period of Qualified Military Leave actually served, provided the Employee shall have returned to the service of the Company or an Associated Company in accordance with reemployment rights under applicable law and shall have complied with all of the requirements of such law as to reemployment. Notwithstanding anything in this clause (i) to the contrary and unless otherwise provided in an Appendix hereto, effective as of January 1, 2017, there shall be no further accruals of Benefit Service under this clause (i).

(ii)    Except as provided by law, the period of any leave of absence commencing prior to January 1, 2012, granted to an Employee in respect of service, not exceeding two years, with any other agency or department of the United States Government. Effective on and after January 1, 2012, except as provided by law, the period of any leave of absence commencing on or after January 1, 2012, granted to a Participating Employee in respect of service, not exceeding two years, with any other agency or department of the United States Government. Notwithstanding anything in this clause (ii) to the contrary and unless otherwise provided in an Appendix hereto, effective as of January 1, 2017, there shall be no further accruals of Benefit Service under this clause (ii).

(iii)    The period, prior to January 1, 2012, of any total and permanent disability during which an Employee becomes entitled to a disability benefit under Title II of the Federal Social Security Act as amended from time to time; provided, however, that, if such disability benefit ceases to be paid solely due to the Employee’s age, Benefit Service shall include the period of total and permanent disability prior to January 1, 2012, during which the Employee is entitled to receive disability benefits under the Company’s applicable long-term disability plan or would have been entitled to receive disability benefits under such long-term disability plan had he participated in such plan. Notwithstanding any Plan provision to the contrary, effective as of January 1, 2012, any period on or after January 1, 2012, of any total and permanent disability during which an Employee (including a Participating Employee) becomes entitled to a disability benefit under Title II of the Federal Social Security Act or is entitled to receive disability benefits under the Company’s applicable long-term disability plan or would have been entitled to receive disability benefits under such long-term disability plan had he participated in such plan shall not count as Benefit Service.

(iv)    The period of any leave of absence commencing prior to January 1, 2012, during which Company sickness or accident benefits are payable to an Employee. Effective as of January 1, 2012, the period of any leave of absence commencing on or after January 1, 2012, during which Company sickness or accident benefits are payable to a Participating Employee. Notwithstanding any Plan provision to the contrary and unless otherwise provided in an Appendix hereto, Benefit Service shall only be credited for a period on or after January 1, 2012, and prior to January 1, 2017, during which Company sickness or accident benefits are payable to an Employee who is a Participating Employee.

(v)    The period of any leave of absence commencing prior to January 1, 2012, approved by the Company during which an Employee is paid Compensation at a rate which is at least one-half of the Employee’s

21



rate of base pay in effect immediately prior to such leave or the period of any unpaid leave of absence approved by the Company not in excess of 12 consecutive months. Effective as of January 1, 2012, the period of any Company-approved leave of absence commencing on or after January 1, 2012, and prior to January 1, 2017, during which a Participating Employee is paid Compensation at a rate which is at least one-half of the Participating Employee’s rate of base pay in effect immediately prior to such leave or the period of any unpaid leave of absence approved by the Company not in excess of 12 consecutive months.

(vi)    In any event, Benefit Service shall include the period prior to January 1, 2012, with or without Compensation, immediately preceding the Employee’s Severance Date not in excess of 12 consecutive months inclusive of those periods of approved absences already included in sub-paragraphs (i) through (v) above, during which an Employee is continuously absent from service. Effective as of January 1, 2012, Benefit Service shall in any event include the period on and after January 1, 2012, and prior to January 1, 2017, with or without Compensation, immediately preceding the Participating Employee’s Severance Date not in excess of 12 consecutive months inclusive of those periods of approved absences already included in sub-paragraphs (i) through (v) above, during which a Participating Employee is continuously absent from service.

Except to the extent provided under sub-paragraph (vi) above, if (a) an Employee who did not become a Participating Employee on January 1, 2012, fails to return to active employment upon expiration of the approved absences specified in sub-paragraphs (i) and (ii) above before January 1, 2012, or (b) a Participating Employee fails to return to active employment upon expiration of the approved absences specified in sub-paragraphs (i) and (ii) above that commenced on or after January 1, 2012, such periods of approved absence shall not be considered as Benefit Service under the Plan.
The Compensation of a Member during the periods of absence covered by sub-paragraph (ii), (iv), (v), or (vi) above shall be the Compensation the Member actually receives during such period; provided, however, effective as of January 1, 1998, with respect to a Member who terminates employment with the Company after January 1, 1998, any short-term disability benefits or workers compensation benefits payable during the first six months of a member’s disability during a period of absence specified in subparagraph (iv) regardless of whether or not such payments were made from a Company payroll or from a third party vendor shall be deemed Compensation. The Compensation of a Member during the period of absence covered by sub-paragraph (iii) above shall be deemed to be the Member’s Final Average Compensation based on his Eligibility Service up to such absence. The Compensation of a Member during the period of absence covered by subparagraph (i) above shall be determined in accordance with Section 414(u) of the Code. Unless the Administrative Committee determines otherwise on a basis uniformly applicable to all persons similarly situated, the Social Security Benefit of a Member covered by sub-paragraph (iii) above shall be based on the benefit awarded by the Social Security Administration at the date of his total and permanent disability.

(g)    All Other Absences

(i) No period of absence approved by the Company other than those specified in Section 2.02(f) above shall be recognized as Benefit Service.

(ii)    No other absence, other than the absence covered by the exception in clause (i) above, shall be recognized as Benefit Service and any such absence shall be considered as a break in Benefit Service. However, subject to the applicable limitations on Benefit Service described in sub-paragraph (f) above, in no event shall there be a break in Benefit Service if an Employee is continuously absent from service with the Company or with an Associated Company for a period not in excess of 12 months and returns as an Employee to the employ of the Company before the first anniversary date of his Severance Date. Further provided, any period between a Severance Date and a reemployment date which is counted as Eligibility Service under Section 2.01(e)(vii) shall not be counted as Benefit Service.

(1) If the Employee was eligible for a vested benefit under Section 4.06 at the time of a break in service, the Benefit Service credited to such Employee immediately prior to such break in service shall, subject to the provisions of Section 4.12, be immediately recognized as Benefit Service

22



under the Plan upon his return to service prior to January 1, 2017; provided, however, that unless otherwise provided in an Appendix hereto, no such Benefit Service shall be credited for periods beginning on or after January 1, 2017.

(2)    If the Employee was not eligible for a vested benefit under Section 4.06 at the time of a break in service, Benefit Service shall begin from the date of the Employee’s return to the employ of the Company prior to January 1, 2012; provided, however, that, unless otherwise provided in an Appendix hereto, no such Benefit Service shall be credited for periods beginning on or after January 1, 2017. However, any Benefit Service rendered prior to such break in service shall be included as Benefit Service only at the time that he bridges his Eligibility Service in accordance with the provisions of Section 2.01(g).

2.03     Questions Relating to Service under the Plan

If any question shall arise hereunder as to an Employee’s or Participating Employee’s Eligibility Service or Benefit Service, such question shall be resolved in writing by the Administrative Committee on a basis uniformly applicable to all Employee(s) similarly situated. The Administrative Committee may determine whether the employment of such person(s) with the Company or any Associated Company shall be recognized under the Plan as Eligibility Service or Benefit Service. Such further documentation is hereby incorporated into the Plan by reference.

ARTICLE 3 - MEMBERSHIP

3.01     Persons Employed on December 31, 2013

Every Member of the Plan on December 31, 2013, shall continue to be a Member of the Plan on and after December 31, 2013, subject to the provisions of Section 3.06.

3.02     Persons First Employed as Employees after December 31, 2011

(a) Unless otherwise provided below or in an Appendix hereto, any person who is first employed as an Employee after December 31, 2011, shall not become a Member of the Plan.

(b)    Unless otherwise provided below, membership in the Plan was frozen as of January 1, 2012.

3.03     Persons Employed as Leased Employees with the Company or an Associated Company

Any person who is a Leased Employee shall not be eligible to participate in the Plan. However, notwithstanding any other Plan provisions to the contrary, if (i) a Leased Employee subsequently becomes an Employee as defined in Section 1.16 or (ii) an Employee as defined in Section 1.16 subsequently becomes employed as a Leased Employee, all uninterrupted employment with the Company or an Associated Company as a Leased Employee, shall be counted for determining Eligibility Service for purposes of determining eligibility for Plan membership and vesting but not for the purpose of determining eligibility for early retirement or determining Benefit Service or Final Average Compensation; provided, however, that Eligibility Service shall not be counted for any Leased Employee for any period of his employment during which the requirements of Section 414(n)(5) of the Code are met.

3.04     Persons Employed as other than Employees by the Company

Unless otherwise provided in this Article 3, every person employed as other than an Employee by a Participating Unit and who becomes employed as an Employee prior to January 1, 2012, shall become a Member of the Plan as of (a) the first day of the calendar month coincident with or next following the date on which he first becomes an Employee, but not unless and until he satisfies the same terms and conditions which would have been applicable had he always been an Employee at such Participating Unit or (b) January 1, 2012, if earlier, provided he is an Employee on that date.

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Unless otherwise provided in this Article 3, any person employed as other than an Employee by a Participating Unit on January 1, 2012, shall be not eligible to become a Member of the Plan on or after January 1, 2012.

3.05     Reemployment of Former Employees, Former Members and Retired Members

(a) Any person reemployed by the Company as an Employee shall be considered a new Employee for membership purposes under the Plan if such Employee was not previously a Member of the Plan, except as provided in paragraph (b) below.

(b)    The membership of any person reemployed by the Company as an Employee shall be immediately resumed if such Employee was previously a Member of the Plan or was a former Employee who (i) was absent from service on January 1, 2012, due to a military leave and (ii) returns to the service of the Company as an Employee after January 1, 2005, in accordance with all of the requirements to retain reemployment rights under applicable law. Provided however, if such person is reemployed on or after January 1, 2012, such Member shall not be eligible to accrue Benefit Service for the period of his employment as an Employee rendered on or after January 1, 2012, except as otherwise provided in the foregoing provisions of the Plan with respect to a former Employee or Member who was (i) absent from service on January 1, 2012, due to a military leave or a Company approved unpaid leave of absence, other than a long-term disability leave, and (ii) accruing Benefit Service under the provisions of Section 2.02(f)(i), (ii), (iv) and (v) during such leave.

(c)    Unless otherwise provided in an Appendix hereto, if a retired Member or a former Member is reemployed as an employee by the Company or by an Associated Company, his membership in the Plan shall be immediately resumed and any payment of a retirement allowance with respect to his original retirement or any payment of a vested benefit with respect to his original employment shall cease in accordance with the provisions of Section 4.11.

3.06     Termination of Membership

Unless otherwise provided in an Appendix hereto, an Employee’s membership in the Plan shall terminate if he ceases to be an Employee and he is not entitled to either a retirement allowance or vested benefit under Sections 4.02, 4.03, 4.04, 4.05, or 4.06 except that an Employee’s membership shall continue (a) during any period while on leave of absence approved by the Company, (b) while absent by reason of temporary disability, (c) during the period of any total and permanent disability which continues to be recognized as Benefit Service and/or Eligibility Service as provided in Article 2, (d) while he is not an Employee as herein defined but is in the employ of the Company or an Associated Company or (e) during a period of employment which continues to be recognized as Eligibility Service as provided in an Appendix hereto. An Employee covered by the Plan may not waive such coverage.

3.07     Questions Relating to Membership in the Plan

If any question shall arise hereunder as to the commencement, duration or termination of the membership of any person or Employee employed by the Company or by an Associated Company, such question shall be resolved by the Administrative Committee in writing under rules uniformly applicable to all persons or Employees similarly situated. Such further documentation is hereby incorporated into the Plan by reference.

ARTICLE 4 - BENEFITS

4.01     Plan Benefit Formulas

(a) Benefit Formula Elections

(i) Annual Benefit Formula Election : Except as otherwise provided in the following provisions of this Article 4, prior to the beginning of each Plan Year commencing on or after January 1, 2000, and prior

24



to January 1, 2012, a Member who is an Employee may elect during the annual election period established by the Administrative Committee, the Plan benefit formula to be used in determining his Accrued Benefit under the Plan with respect to any Benefit Service earned by such Member in the following Plan Year. Except as otherwise provided below, a Member who is an Employee can elect with respect to Plan Years beginning prior to January 1, 2012, either (1) the Traditional Pension Plan Formula (“TPP Formula”) as set forth in Section 4.01(b) or (2) the Pension Equity Plan Formula (“PEP Formula”) as set forth in Section 4.01(c). A new Plan benefit formula election received by the Administrative Committee in a timely manner shall be effective as of the subsequent January 1 and will be applicable only to Benefit Service earned by such Member on and after the effective date of the election.

The Plan benefit formula elections will be communicated by the Member to the Administrative Committee or its delegate at such time and in such manner as established by the Administrative Committee but not later than the end of the Plan Year immediately preceding the Plan Year for which the Plan pension formula election is to be effective (“the Election Cutoff Date”).
(ii)     Continuation of Prior Election : With respect to accruals in Plan Years commencing prior to January 1, 2012, if the Administrative Committee does not receive a new Plan benefit formula election from an Employee by the election cutoff date as determined by the Administrative Committee, the Employee’s current Plan benefit formula election will remain in effect for the immediately following Plan Year and, subject to the provisions of Sections 4.01(a)(i) and (viii), subsequent Plan Years commencing prior to January 1, 2012. Notwithstanding any Plan provision to the contrary, if an Employee who is a participating Member of the Plan on December 31, 1999, does not file a Pension benefit formula election for the Plan Year beginning January 1, 2000, his Plan benefit formula election will be the TPP Formula for Benefit Service earned for the Plan Year beginning January 1, 2000, and, subject to the provisions of Sections 4.01(a)(i) and (viii), subsequent Plan Years commencing prior to January 1, 2012.

Notwithstanding any Plan provision to the contrary, effective as of, August 16, 2011, a Member’s right to make a Plan benefit formula election with respect to any Benefit Service earned during the Plan Years beginning on and after January 1, 2012, shall cease and any Benefit Service earned under the Plan provisions with respect to Plan Years beginning on or after January 1, 2012 and ending December 31, 2016, shall be credited under Plan in accordance with the TPP formula.
(i) First Year of Benefit Service Election : If an individual first becomes an Employee on or after January 1 of a Plan Year commencing on or after January 1, 2000, and prior to the earlier of (a) the commencement date of the annual election period established by the Administrative Committee (“the Solicitation Period Commencement Date”) in such year, or (b) August 16, 2011, in accordance with rules established by the Administrative Committee, the Employee will make his or her Plan benefit formula election with respect to any Benefit Service accrued during that Plan Year upon becoming an Employee. Notwithstanding any Plan provision to the contrary, if an individual becomes an Employee after the Solicitation Period Commencement Date in a year and prior to the end of such Plan Year, in accordance with rules established by the Administrative Committee, such Employee will make a Plan benefit formula election with respect to Benefit Service accrued during the remainder of that Plan Year and the following Plan Year upon becoming an Employee.

Notwithstanding any Plan provision to the contrary, effective as of August 16, 2011, an individual who is first employed as an Employee on or after July 12, 2011, shall not be eligible to make a Plan benefit formula election with respect to any Benefit Service earned during the Plan Years beginning on and after January 1, 2011, and any Benefit Service earned under the Plan provisions with respect to Plan Years beginning on or after January 1, 2011 and ending December 31, 2016, shall be credited under the Plan in accordance with the TPP formula.
(ii) Rehired Employees : With respect to Plan Years commencing prior to January 1, 2012, if a Member terminates employment or transfers to a status other than an Employee and is then rehired in the same Plan Year as an Employee by the Company or is restored to the status of an Employee in the same Plan Year,

25



the Plan benefit formula election in effect at the time of his termination or transfer will continue as the Employee’s Plan benefit formula election for that Plan Year and subsequent Plan Years commencing prior to January 1, 2012, consistent with the provisions of Section 4.01(a)(i), (ii), and (viii). Except as otherwise provided above, if an Employee terminates from employment with the Company and all Associated Companies and is then rehired as an Employee by the Company in a subsequent Plan Year commencing prior to January 1, 2012, the provisions of Section 4.01(a)(iii) will apply to the Employee in the same manner as if the Employee then first became eligible for the Plan, provided that any election in effect for the Plan Year in which he is reemployed shall apply to all Benefit Service recognized during that Plan Year.

(iii) Benefit Service for a Period of Employment Rendered Prior to January 1, 2000 : Notwithstanding any Plan provisions to the contrary, any Benefit Service rendered by a Member prior to January 1, 2000, will be credited under the TPP Pension Formula as determined under the provisions of Section 4.01(b)(i).

(iv) Leave of Absence : Except as otherwise provided in this Section 4.01, with respect to Plan Years beginning prior to January 1 2012, a Member who is on a leave of absence as set forth in Section 2.02(f) shall continue to be eligible to make an annual Plan benefit formula election pursuant to the provisions of Section 4.01(a)(i) with respect to any Benefit Service earned pursuant to the provisions of Section 2.02(f).

(v) Special Rules : Benefit Service accrued by a Member under the provisions of Section 2.02(c), Section 2.02(d), or with respect to service rendered prior to January 1, 2000, Section 2.02(e), shall automatically be credited under the TPP Pension Formula in accordance with the provisions of Section 4.01(b)(i) or Section 4.01(b)(ii), whichever is applicable. Notwithstanding the foregoing, Benefit Service credited for Plan Years commencing on or after January 1, 2000, to a Member who, as of November 30, 1999, was accruing Benefit Service under the provisions of Section 2.02(f)(iii), shall automatically be credited under the TPP Pension Formula in accordance with the provisions of Section 4.01(b)(i), unless such Member elects otherwise in accordance with the provisions of Section 4.01(a)(i).

(vi) Benefit Service for a Period of Employment Rendered as a Participating Employee on or after January 1, 2012 : Notwithstanding any Plan provisions to the contrary, any Benefit Service earned by a Member on and after January 1, 2012 and before December 31, 2016, will be credited under the TPP Pension Formula as determined under the provisions of Section 4.01(b).

(vii) Plan Benefit Formula Choices Maximum : Notwithstanding any Plan provision to the contrary, once a Member has accrued 40 or more years of Benefit Service under the Plan, including any years of Benefit Service rendered prior to January 1, 2000, he shall no longer be permitted to make a Plan benefit formula election. A Member who, as of January 1, 2000, has completed 40 or more years of Benefit Service shall not be permitted to make an initial Plan benefit formula election, and except as otherwise provided in an Appendix, his retirement allowance accrued with respect to such Benefit Service shall be computed solely under the provisions of Section 4.01(b)(i).

(b)    TPP Formula Benefit

Prior to any adjustment in accordance with Section 4.07(a) or 4.07(c) and except as otherwise provided in an Appendix, a Member’s TPP Pension Formula Benefit shall be an annual pension payable as a single life annuity for the Member’s life, commencing on his Normal Retirement Date, equal to the amount determined under clause (i) or (ii) below, whichever is applicable.
(i) The TPP Formula Pension applicable to a Pre-2000 Member shall be equal to:

(1) two percent of the Member’s Final Average Compensation multiplied by the first 25 years of his TPP Benefit Service;


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(2) plus one and one-half percent of the Member’s Final Average Compensation multiplied by the next 15 years of his TPP Benefit Service, to a combined maximum of 40 years of Benefit Service;

(3) reduced by one and one-fourth percent of the Social Security Benefit multiplied by the number of years of his TPP Benefit Service not in excess of 40 years.

The annual normal retirement allowance of a Section 401(a)(17) Employee shall not be less than an amount equal to the sum of (4) and (5):
(4) the Member’s Accrued Benefit on December 31, 1993, under the terms of the Plan as then in effect; and

(5)
(A)
two percent of the Member’s Final Average Compensation multiplied by the balance of that portion of his first 25 years of his TPP Benefit Service which are rendered on and after January 1, 1994;

(B)
plus one and one-half percent of the Member’s Final Average Compensation multiplied by the next 15 years of the balance of that portion of his TPP Benefit Service which are rendered on and after January 1, 1994; and

(C)
reduced by one and one-fourth percent of the Social Security Benefit multiplied by the balance of that portion of his years of TPP Benefit Service not in excess of 40 years which are rendered on and after January 1, 1994 (the “Social Security Offset”).

The combined maximum years of Benefit Service used to compute any Pre-2000 Member’s annual retirement allowance or vested benefit shall not exceed 40 years.
Notwithstanding any Plan provision to the contrary and unless otherwise provided in an Appendix hereto, a Member’s TPP Benefit applicable to a Pre-2000 Member shall be frozen as of January 1, 2017.
(ii) The TPP Formula Benefit applicable to a Post-1999 Member and a Post-2004 Member shall be equal to:

(1) one and one-half percent of the Member’s Final Average Compensation multiplied by his TPP Benefit Service not in excess of 40 years.

(2) reduced by one and one-fourth percent of the Social Security Benefit multiplied by his TPP Benefit Service not in excess of 40 years.

The combined maximum years of Benefit Service used to compute any Post-1999 Member’s and Post-2004 Member’s annual retirement allowance or vested benefit shall not exceed 40 years.
Notwithstanding any Plan provision to the contrary and unless otherwise provided in an Appendix hereto, a Member’s TPP Benefit applicable to a Post-1999 Member and a Post-2004 Member shall be frozen as of January 1, 2017.


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(c)    PEP Formula

(i) PEP Formula Benefit : A Member participating under the PEP Formula in accordance with Section 4.01(a) shall accrue a PEP Formula Benefit as described in this Section 4.01(c). A Member’s PEP Formula Benefit shall be an annual pension payable as a single life annuity for the Member’s life, commencing on his Annuity Starting Date, equal to the Equivalent Actuarial Value of the Member’s PEP Formula Lump Sum Value (as defined below). For purposes of this paragraph (c), Equivalent Actuarial Value shall be determined on the basis of the IRS Mortality Table and the IRS Interest Rate. Notwithstanding any Plan provisions to the contrary, a Member’s PEP Formula Benefit with an Annuity Starting Date on and after January 1, 2008, and prior to July 1, 2008, shall not be less than the Member’s PEP Formula Benefit that would have been provided as of that Annuity Starting Date based on the Plan’s definition of IRS Interest Rate and IRS Mortality Table as in effect prior to January 1, 2008.

(ii) PEP Formula Lump Sum Value : A Member’s PEP Formula Lump Sum Value shall equal the sum of the Member’s Basic PEP Formula Lump Sum Value and the Member’s Supplemental PEP Lump Sum Value as defined below determined as of the Member’s Annuity Starting Date.

(1) Basic PEP Formula Lump Sum Value : A Member’s Basic PEP Formula Lump Sum Value shall be equal to the accumulated total of the Pension Equity Plan Percentages (as set forth in the table below) credited to such Member under the provisions of this clause (1) for each Plan Year (“Total Accumulated Percentages”) multiplied by the Member’s Average Final Compensation determined as of the Member’s Severance Date or December 31, 2011, if earlier. For each given year of PEP Benefit Service earned in a Plan Year commencing prior to January 1, 2012, to the combined maximum described below, the Member will be credited with a Pension Equity Plan Percentage for such Plan Year which corresponds to the Member’s age determined in accordance with the following table:
Age
Pension Equity Plan Percentage
under 30
3.0%
30-39
4.0%
40-49
5.0%
50 and over
6.0%

Notwithstanding the foregoing, once the sum of a Member’s TPP Benefit Service and PEP Benefit Service equals or exceeds 40, the Member, with respect to any Benefit Service he earns thereafter and prior to January 1, 2012, will be credited with a revised Pension Equity Plan Percentage so that the lowest Pension Equity Plan Percentage previously accrued by the Member will be replaced by the Pension Equity Plan Percentage corresponding to the Member’s age during such Benefit Service.
A Member’s Pension Equity Plan Percentage for a given month will be based on 1/12 th of the Pension Equity Plan Percentage applicable to his attained age as of the last day of the immediately preceding month.
Notwithstanding any Plan provision to the contrary, a Member’s Basic PEP Formula Lump Sum Value shall be frozen as of December 31, 2011.

(2) Supplemental PEP Lump Sum Value : A Member’s Supplemental PEP Lump Sum Value, if any, shall be calculated as follows:


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There shall be credited to a Member’s Supplemental Lump Sum Value monthly:
(A)
With respect to Plan Years (i) beginning prior to January 1, 2012, interest on a Member’s Basic PEP Lump Sum Value determined as of the end of the month in which the Member terminates from service from the Company and all Associated Companies for the period beginning with the month following the Member’s termination of employment from the Company and all Associated Companies until his reemployment with the Company or any Associated Company or the end of the month preceding the Annuity Starting Date of his PEP Pension Formula Benefit, whichever occurs first; and (ii) beginning on or after January 1, 2012, interest on a Member’s Basic PEP Lump Sum Value determined as of the end of the month for the period beginning with January 2012, until the end of the month preceding the Annuity Starting Date of his PEP Pension Formula Benefit, and

(B)
Interest on the accumulated total amount credited to the Member’s Supplemental PEP Lump Sum Value as of the end of the preceding month, if any, until the end of the month preceding the Member’s Annuity Starting Date applicable to such PEP Formula Pension.

Except as otherwise provided herein, with respect to a Member who terminated employment prior to October 31, 2011, the rate of interest credited shall be 1.55 percent per annum.
Except as otherwise provided below or in Appendix B, with respect to a Member who was employed by the Company on October 31, 2011, the rate of interest to be credited shall be (i) with respect to Plan Years beginning prior to January 1, 2012, 1.55 percent per annum and (ii) with respect to Plan Years commencing on or after January 1, 2012, the 10-year Treasury rate as in effect on December 31 of the prior calendar year, but not less than 3.25 percent.
Notwithstanding the foregoing, a Member’s PEP Lump Sum Value determined under the preceding provisions of this subparagraph (ii) shall be increased in accordance with the procedures established by the Administrative Committee by an amount equal to the Equivalent Actuarial Value of any increase in the Member’s PEP Formula Benefit portion of his Accrued Benefit as determined under the provisions of Section 4.01(d)(ii). For purposes of the preceding sentence Equivalent Actuarial Value shall be determined on the basis of the IRS Mortality Table and the IRS Interest Rate.

(d)    Accrued Benefit

(i) A Member’s Accrued Benefit, as of any date of determination, means the annual benefit payable as a single life annuity for the Member’s life commencing on his Normal Retirement Date or his Postponed Retirement Date, as applicable, which is equal to the aggregate of his TPP Formula Benefit computed under Section 4.01(b) and his PEP Formula Benefit computed under Section 4.01(c) on the basis of the Member’s Benefit Service not in excess of 40 years and other applicable components of the Plan formula as of such determination date. The Accrued Benefit for a Member eligible for a benefit under Appendix G also shall include the accrued benefit described in Section IV. of Appendix G.

(ii) Notwithstanding any Plan provision to the contrary, a Member’s Accrued Benefit described in the first sentence of clause (i) above as of any determination date, shall not be less than an annual pension payable as a single life annuity for the Member’s life, commencing on his Normal Retirement Date or his Postponed Retirement Date, as applicable, equal to the aggregate of his TPP Formula Benefit computed under Section 4.01(b) and determined as of the last day of the Plan Year immediately preceding such determination date and his PEP Formula Benefit computed under Section 4.01(b) on the basis of the Member’s PEP Formula

29



Lump Sum Value as of the last day of the Plan Year immediately preceding such determination date increased by the rate of interest set forth in Section 4.01(c)(ii) for the period beginning with the first day of the Plan Year in which the determination date occurs and ending on the last day of the calendar month preceding the determination date. For Plan years beginning prior to January 1, 2012, if the amount determined under this clause (ii) exceeds the amount determined under clause (i) above, the difference shall be treated as an increase in the Member’s PEP Formula Benefit portion of his Accrued Benefit.

4.02     Normal Retirement Allowance
(a) Eligibility

Except as otherwise provided in Appendix B, the right of a Member to his normal retirement allowance shall be nonforfeitable as of his Normal Retirement Age provided he is employed by the Company or an Associated Company at that time. A Member, upon termination of employment with the Company and all Associated Companies, may retire from active service and receive a normal retirement allowance beginning on his or her Normal Retirement Date, subject to the notice and timing requirements of Section 4.07. If a Member postpones his retirement and continues in active service after his Normal Retirement Date or returns to service after his Normal Retirement Date, the provisions of this Section 4.02 shall be applicable.
(b) Benefit

Prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), but subject to the minimum provision hereinafter set forth in this Section 4.02 and except as otherwise provided in an Appendix hereto, the annual normal retirement allowance payable on a lifetime basis upon retirement at a Member’s Normal Retirement Date that is attributable to his TPP Formula Benefit and his PEP Formula Benefit shall be equal to the Member’s Accrued Benefit described in the first sentence of Section 4.01(d)(i). In addition, for a Member who is eligible for a benefit under Appendix G, his normal retirement benefit attributable to the benefit under Appendix G shall be the accrued benefit described in Section IV. of Appendix G.
The annual normal retirement allowance determined prior to reduction to be made on account of the Social Security Benefit shall be an amount not less than the greatest annual early retirement allowance which would have been payable to a Member had he retired under Section 4.04 or Section 4.05 at any time before his Normal Retirement Date and as such early retirement allowance would have been reduced to commence at such earlier date but without reduction on account of the Social Security Benefit. The reduction to be made on account of the Social Security Benefit shall in any event be based on the Federal Social Security Act in effect at the time as of the Member’s actual termination or retirement.

(c) Benefit for Former Pension Plan Member

Unless the Administrative Committee determines otherwise and notwithstanding anything to the contrary herein contained, any Member who immediately prior to his membership in the Plan was accruing benefits under a Former Pension Plan shall, prior to adjustment in accordance with Sections 4.07(a) and 4.07(c), receive an annual normal retirement allowance payable on a lifetime basis upon retirement at such Member’s Normal Retirement Date equal to the sum of:
(i) an annual retirement allowance computed in accordance with paragraph (b) above on the basis of the Benefit Service, Social Security Benefit and Final Average Compensation accumulated by him under this Plan, plus

(ii) an amount equal to the annual normal retirement allowance or other benefit accrued to such Member under his Former Pension Plan in respect of service not recognized as Benefit Service hereunder, with such retirement allowance or other benefit being computed in accordance with the provisions of his Former Pension Plan, as modified by Appendix E hereof.

4.03     Postponed Retirement Allowance

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(a) Eligibility

Except as otherwise provided in Appendix B, a Member who continues in service with the Company or an Associated Company after his Normal Retirement Date or returns to service with the Company or an Associated Company on or after his Normal Retirement Date shall retire from service and receive a postponed retirement allowance on his Postponed Retirement Date, subject to the notice and timing requirements of Section 4.07.
(b) Benefit

Except as hereinafter provided and prior to adjustment in accordance with Sections 4.07(a) and 4.07(c), the annual postponed retirement allowance payable on a lifetime basis upon retirement at a Member’s Postponed Retirement Date shall be equal to the greater of:
(i) an annual normal retirement allowance determined in accordance with Section 4.02(b) but based on the Member’s Benefit Service, Social Security Benefit and Final Average Compensation as of his Postponed Retirement Date; or

(ii) the annual normal retirement allowance to which the Member would have been entitled under Section 4.02(b) had he retired on his Normal Retirement Date, increased by an amount which is the Equivalent Actuarial Value of the monthly payments which would have been payable with respect to each month in which he worked fewer than eight days as determined under the provisions of Title 29 of the Code of Federal Regulations Section 2530.203-3 as promulgated by the U.S. Department of Labor. Any monthly payment determined under this sub-paragraph (ii) with respect to any such month in which he worked fewer than eight days shall be computed as if the Member had retired on his Normal Retirement Date and shall reflect additional benefit accruals, if any, recomputed as of the first day of each subsequent Plan Year, during which payment would have been made on the basis of his Final Average Compensation and Benefit Service accrued to such recomputation date.
(c) Benefit for Former Pension Plan Members

Unless the Administrative Committee determines otherwise and notwithstanding anything to the contrary herein contained, any Member who immediately prior to his membership in the Plan was accruing benefits under a Former Pension Plan shall, prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), receive an annual postponed retirement allowance payable on a lifetime basis upon retirement at such Member’s Postponed Retirement Date equal to the sum of:
(i) an annual retirement allowance computed in accordance with Section 4.02(b) but on the basis of the Benefit Service, Social Security Benefit and Final Average Compensation accumulated by him at his Postponed Retirement Date, plus

(ii) an amount equal to the annual postponed retirement allowance or other benefit accrued to such Member under his Former Pension Plan in respect of service not recognized as Benefit Service hereunder, with such retirement allowance or other benefit being computed in accordance with the provisions of his Former Pension Plan, as modified by Appendix E hereof.
(d) Benefit for Member in Service after he attains Age 70½

In the event a Member’s retirement allowance is required to begin under Section 4.11 while the Member is in service with the Company or an Associated Company, the January 1 immediately following the calendar year in which the Member attained age 70½ shall be the Member’s Annuity Starting Date for purposes of this Article 4 and the Member shall receive a postponed retirement allowance commencing as of that January 1 in an amount determined as if he had retired on such date. As of each succeeding January 1 prior to the Member’s actual Postponed Retirement Date and as of his actual Postponed Retirement Date, the Member’s retirement allowance shall be:
(i) recomputed to reflect any additional retirement allowance attributable to his Compensation and Benefit Service earned during the immediately preceding calendar year based on his age at each succeeding January 1 or actual Postponed Retirement Date; and

31




(ii) reduced by the Equivalent Actuarial Value of the total payments of his postponed retirement allowance made with respect to each month of continued employment in which he was credited with at least eight days of service as determined under the provisions of Title 29 of the Code Federal Regulations Section 2530.203-3 as promulgated by the U.S. Department of Labor and which were paid prior to each such recomputation; provided that no such reduction shall reduce the Member’s postponed retirement allowance below the amount of postponed retirement allowance payable to the Member immediately prior to the recomputation of such retirement allowance.

Notwithstanding paragraphs (b) and (c) above, in the event a Member remains in service after the April 1 following the calendar year in which he attains age 70½, and does not commence payment of his Pension while in service under the provisions of Section 4.11, then his retirement allowance shall be the excess, if any, of (i) over (ii) where (i) is the greater of (1) his retirement allowance determined at his actual retirement date taking into account the Member’s Benefit Service and Average Final Compensation at that date, or (2) the amount of Equivalent Actuarial Value to his retirement allowance determined at the end of the Plan Year preceding such April 1 recomputed in accordance with regulations issued by the Secretary of the Treasury as the first day of each subsequent Plan Year (and as of his actual Postponed Retirement Date) as if such date were the Member’s Postponed Retirement Date, and (ii) is the actuarial equivalent of any distributions made with respect to the Member’s retirement benefits after said date.
The retirement allowance payable to a Member who is not a five percent owner as defined in Section 416(i) of the Code of the Company or an Associated Company and who is receiving payments under the provisions of paragraph (d) and Section 4.11 as of April 1, 1999, shall continue to be governed by the foregoing provisions of this paragraph (d) above on and after April 1, 1999.

4.04     Standard Early Retirement Allowance
(a) Eligibility

(i) Except as otherwise provided in Appendix B, a Member who has not reached his Normal Retirement Date but has, prior to his Severance Date, reached the 55 th anniversary of his birth and completed ten years of Eligibility Service is eligible to retire on a standard early retirement allowance on the first day of the calendar month coincident with or next following his Severance Date, which date shall be the Member’s Early Retirement Date.

(ii) Notwithstanding the foregoing, in the event an Employee who is a Member is involuntarily terminated on or after January 1, 2008, and entitled to severance payments under a severance plan or policy maintained by the Company or an Associated Company, said Member shall be credited with additional Eligibility Service and age solely for the purposes of determining eligibility for a standard early retirement allowance under the provisions of this Section 4.04 equal to the greater of (1) six months, or (2) an amount equal to one month for each completed year of Eligibility Service determined as of his termination of employment, but not in excess of 24 months. If the crediting of such additional service and age causes said Member to be eligible for a standard early retirement allowance in lieu of a vested benefit said Member shall not be eligible to commence said standard early retirement allowance until he actually attains age 55.
(b) Benefit

Except as provided in an Appendix or hereinafter and prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), the standard early retirement allowance shall be an allowance equal to the Member’s Accrued Benefit earned up to his Early Retirement Date, computed on the basis of his Final Average Compensation, Social Security Benefit, and Benefit Service credited at his Early Retirement Date, with the Social Security Benefit for a Post-1999 Member or a Pre-2000 Member determined on the assumption that the Member had no earnings after of his Early Retirement Date. Notwithstanding any Plan provision to the contrary and except as otherwise provided in an Appendix, effective on and after January 1, 2012, the Social Security Benefit for a Post-1999 Member or a Pre-2000 Member who is not a Participating Employee shall be determined on the assumption that (i) the Member had no earnings after the earlier of (1) his Early Retirement Date or (2) the later of (A) the date he ceased to accrue Benefit Service

32



under the Plan or (B) the date he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(a) above, but not earlier than January 1, 2012, and (ii) the Member’s earnings for the period beginning with the calendar year following the date he ceases to accrue Benefit Service and ending with the calendar year in which he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(a) above, used to calculate his Social Security Benefit are based on his rate of Compensation in effect as of the date he ceases to accrue Benefit Service.
Notwithstanding the forgoing, the Social Security Benefit for a Post-2004 Member shall be determined on the assumption that he continued in service to his Normal Retirement Date at his rate of Compensation in effect as of his date of termination (or, effective as of January 1, 2012, the date he ceases to accrue Benefit Service).
The Member may, however, elect to receive an early retirement allowance commencing on his Early Retirement Date or the first day of any calendar month before his Normal Retirement Date specified in his later request therefor, provided that an early payment date shall be subject to the notice and timing requirements described in Sections 4.07. With respect to a Post-1999 Member or a Pre-2000 Member, except as otherwise provided in an Appendix hereto, in the case of said early commencement, said Member’s early retirement allowance, prior to adjustment in accordance with Sections 4.07(a) and 4.08(c) and prior to any reduction to be made on account of the Social Security Benefit shall be equal to the sum of (i) his TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date prior to the reduction for the Social Security Benefit, reduced by one-fourth of one percent per month for each month by which the commencement date of his retirement allowance precedes his Normal Retirement Date, and (ii) the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c).
With respect to Post-2004 Member, except as otherwise provided in an Appendix hereto, in the case of said early commencement, said Member’s early retirement allowance, prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), shall be equal to the sum of (i) his TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date, reduced by 1/180th for each month up to 60 months by which the commencement date of his retirement allowance precedes his Normal Retirement Date and further reduced by 1/360th for each such month in excess of 60 months, and (ii) the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c).
In the case of a Member’s early commencement, the PEP Formula Benefit portion of his retirement allowance shall be equal to an annual amount payable as a single life annuity for the Member’s life commencing on his Annuity Starting Date that is of Equivalent Actuarial Value to the Member’s PEP Formula Lump Sum Value determined under Section 4.01(c).
Except as otherwise provided in an Appendix hereto, with respect to the portion of a retirement allowance determined under Section 4.01(b) payable to a Post-1999 Member or a Pre-2000 retiring prior to his 62nd birthday, the reduction to be made on account of the Social Security Benefit shall not be made until such time as the Member is or would upon proper application first be entitled to receive said Social Security Benefit.
(c) Former Pension Plan Members

(i) Benefit for Former Pension Plan Members - Unless the Administrative Committee determines otherwise and notwithstanding anything to the contrary herein contained, any Member who, immediately prior to his membership in the Plan was accruing benefits under a Former Pension Plan shall, upon his retirement, be entitled to receive a deferred early retirement allowance payable on a life-time basis commencing on his Normal Retirement Date equal to, prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), his annual retirement allowance computed in accordance with Section 0 on the basis of the applicable components of the Plan’s and Former Plan’s formula at his Early Retirement Date. The Member may, however, elect to receive his standard early retirement allowance commencing on his Early Retirement Date or the first day of any later calendar month before his Normal Retirement Date. In that case, the Member’s standard early retirement allowance shall be equal to the sum of his retirement allowance payable as of his Annuity Starting Date as determined under paragraph (b) above plus the portion of his retirement allowance determined under

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the Former Plan’s formula otherwise payable at his Normal Retirement Date reduced as provided in paragraph (b) above with respect to his TPP Formula Benefit, except as otherwise provided in Appendix E.

(ii) Notwithstanding the foregoing and except as otherwise provided in Appendix E hereto, the portion of the Member’s standard early retirement allowance calculated on the basis of a Former Pension Plan formula shall not be less than the early retirement benefit which would have been provided under such Former Pension Plan on the date immediately preceding the date such Former Pension Plan was amended to continue as and under the Plan, and the Member may elect to commence such portion of his early retirement allowance before his Early Retirement Date, if such Former Pension Plan provided for an earlier commencement date.
4.05     Special Early Retirement Allowance
(a) Eligibility

(i) Except as otherwise provided in Appendix B, a Pre-2000 Member who has not reached his Normal Retirement Date but who prior to his Severance Date (i) has reached the 55 th anniversary of his birth and completed fifteen years of Eligibility Service or (ii) has reached the 50th anniversary of his birth but not the 55 th anniversary of his birth and whose age plus years of Eligibility Service equals eighty or more, is eligible, in either case, to retire on a special early retirement allowance on the first day of the calendar month coincident with or next following his Severance Date, which date shall be the Member’s Early Retirement Date.

(ii) Except as otherwise provided in Appendix B, a Post-1999 Member who has not reached his Normal Retirement Date but who prior to his Severance Date has reached the 55 th anniversary of his birth and completed fifteen years of Eligibility Service is eligible to retire on a special early retirement allowance on the first day of the calendar month coincident with or next following his Severance Date, which date shall be the Member’s Early Retirement Date.

(iii) Notwithstanding the foregoing, in the event an Employee who is a Pre-2000 Member or a Post-1999 Member is involuntarily terminated on or after January 1, 2008, and entitled to severance payments under a severance plan or policy maintained by the Company or an Associated Company, said Member shall be credited with additional Eligibility Service and age solely for the purposes of determining eligibility for a special early retirement allowance under the provisions of this Section 4.05 equal to the greater of (1) six months, or (2) an amount equal to one month for each completed year of Eligibility Service determined as of his termination of employment, but not in excess of 24 months. If the crediting of such additional service and age causes said Member to be eligible for (1) a special early retirement allowance, other than Rule of 80, in lieu of a standard early retirement allowance or vested benefit, said Member shall not be eligible to commence said early retirement allowance until he or she actually attains the age component of said early retirement allowance eligibility requirement, or (2) a Rule of 80 special early retirement allowance in lieu of a standard early retirement allowance or vested benefit, said Member shall not be eligible to commence his Rule of 80 early retirement allowance until the sum of his actual age and his or her service (including additional service granted under these provisions) meets the Rule of 80.

(iv) A Post-2004 Member shall not be eligible for a special early retirement allowance under the provisions of this Section 4.05.
(b) Benefit

Except as provided in an Appendix or hereinafter and prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), the special early retirement allowance shall be a retirement allowance deferred to commence on the Member’s Normal Retirement Date and shall be equal to his Accrued Benefit earned up to the Member’s Early Retirement Date, computed on the basis of his Final Average Compensation, Social Security Benefit and Benefit Service at his Early Retirement Date, with the Social Security Benefit determined on the assumption that the Member had no earnings after the his Early Retirement Date. Notwithstanding any Plan provision to the contrary and except as otherwise provided in an Appendix, effective on and after January 1, 2012, the Social Security Benefit for a Post-1999 Member or a Pre-2000 Member who is not Participating Employee shall be determined on the assumption that (i) the

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Member had no earnings after the earlier of (1) his Early Retirement Date or (2) the later of (A) the date he ceased to accrue Benefit Service under the Plan or (B) the date he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.05(a) above, but not earlier than January 1, 2012, and (ii) the Member’s earnings for the period beginning with the calendar year following the date he ceases to accrue Benefit Service and ending with the calendar year following the date he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(a) above, used to calculate his Social Security Benefit are based on his rate of Compensation in effect as of the date he ceases to accrue Benefit Service.
Any Member who retires under the provisions of Section 4.05(a) may elect to receive early payment of his special early retirement allowance commencing as of his Early Retirement Date or the first day of any later calendar month before his Normal Retirement Date as specified in his request therefor; provided that such early payment shall be subject to the notice and timing requirements described in Sections 4.07.
(i) Pre-2000 Member - In the event of early payment commencing in accordance with the Member’s election on or after the 62nd anniversary of his birth but prior to the 65 th anniversary of his birth, the Pre-2000 Member’s special early retirement allowance shall be an amount which, prior to any adjustment in accordance with Sections 4.07(a) and 4.08(c), shall be equal to the sum of (1) the TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date, and (2) the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c). In the event of early payment commencing in accordance with the Member’s election on or after the 60 th anniversary of his birth but prior to the 62 nd anniversary of his birth, the Pre-2000 Member’s special early retirement allowance shall be an amount which, prior to any adjustment in accordance with Sections 4.07(a) and 4.08(c) and prior to any reduction to be made on account of the Social Security Benefit in accordance with subparagraph (iii) below, shall be equal to the sum of (1) the TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date prior to the reduction for the Social Security Benefit, and (2) the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c). The TPP Benefit Formula portion of his retirement allowance determined under Section 4.01(b) shall not be increased to reflect a commencement date later than the 60th anniversary of the Member’s birth. In the event of early payment commencing in accordance with the Member’s election prior to the 60 th anniversary of his birth, the Pre-2000 Member’s special early retirement allowance shall be an amount which, prior to any adjustment in accordance with Sections 4.07(a) and 4.08(c) and prior to any reduction to be made on account of the Social Security Benefit in accordance with subparagraph (iii) below shall be equal to the sum of (1) the TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date prior to the reduction for the Social Security Benefit reduced by 5/12ths of one percent per month for each month up to 60 months by which the commencement date of his special early retirement allowance precedes the first day of the calendar month coinciding with or next following the 60 th anniversary of his birth, and (2) the PEP Formula Benefit portion of his retirement allowance determined in accordance with Section 4.01(c).

In the case of early commencement under the foregoing provisions of this subparagraph (i), the PEP Formula Benefit portion of a Pre-2000 Member’s special early retirement allowance shall be equal to an annual amount payable as a single life annuity for the Member’s life, commencing on his Annuity Starting Date, which is of Equivalent Actuarial Value to his PEP Formula Lump Sum Value determined under Section 4.01(c)
(ii) Post-1999 Member - In the event of early payment commencing in accordance with the election of a Post-1999 Member on or after the 62 nd anniversary of his birth but prior to the 65 th anniversary of his birth, the Post-1999 Member’s special early retirement allowance shall be an amount which, prior to any adjustment in accordance with Sections 4.07(a) and 4.08(c), shall be equal to the sum of (1) the TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date and (2) the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c). The TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) shall not be increased to reflect a commencement date later than the 62 nd anniversary of such Member’s birth. In the event of early payment commencing in accordance with such Member’s election prior to the 62 nd anniversary of his

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birth, the Post-1999 Member’s special early retirement allowance shall be an amount which, prior to any adjustment in accordance with Sections 4.07(a) and 4.08(c) and prior to any reduction to be made on account of the Social Security Benefit in accordance with subparagraph (iii) below shall be equal to the sum of (1) the TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) earned up to his Early Retirement Date prior to the reduction for the Social Security Benefit reduced by the percentage shown in the following table for each month by which the commencement date of his special early retirement allowance precedes the first day of the calendar month coinciding with or next following the 62 nd anniversary of his birth, and (2) the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c).
Months Commencement Date
Precedes First Day of Month Coincident With or Next Following
Member’s Attainment of Age 62
TPP Formula Benefit Percentage Reduction Per Month
months 1 to 48
5/12 of 1%
months 49 to 60
4/12 of 1%
months 61 to 84
3/12 of 1%

In the case of early commencement under the foregoing provisions of this subparagraph (ii), the PEP Formula Benefit portion of his retirement allowance shall be equal to an annual amount payable as a single life annuity for the Member’s life, commencing on his Annuity Starting Date, which is of Equivalent Actuarial Value to his PEP Formula Lump Sum Value determined under Section 4.01(c).
(i) With respect to the TPP Benefit Formula portion of a Member’s special early retirement allowance commencing prior to his 62nd birthday, the reduction to be made on account of the Social Security Benefit shall not be made until such time as the Member is or would upon proper application first be entitled to receive said Social Security Benefit.
(c) Benefit for Former Pension Plan Members

(i) Unless the Administrative Committee determines otherwise and notwithstanding anything to the contrary herein contained, any Member who, immediately prior to his membership in the Plan was accruing benefits under a Former Pension Plan shall, upon his retirement, be entitled to receive a deferred early retirement allowance payable on a life-time basis commencing on his Normal Retirement Date equal to, prior to adjustment in accordance with Sections 4.07(a) and 4.08(c), his annual retirement allowance computed in accordance with Section 0 on the basis of the applicable components of the Plan’s and Former Plan’s formula at his Early Retirement Date. The Member may, however, elect to receive his early retirement allowance commencing on his Early Retirement Date or the first day of any later calendar month before his Normal Retirement Date. In that case, the Member’s special early retirement allowance shall be equal to the sum of his retirement allowance payable at his Annuity Starting Date as determined under paragraph (b) above plus the portion of his retirement allowance determined under Former Plan’s formula otherwise payable at his Normal Retirement Date reduced as provided in paragraph (b) above with respect to his TPP Formula Benefit, except as otherwise provided in Appendix E.

(ii) Notwithstanding the foregoing and except as otherwise provided in Appendix E hereto, the portion of the Member’s early retirement allowance calculated on the basis of a Former Pension Plan formula shall not be less than the early retirement benefit which would have been provided under such Former Pension Plan on the date immediately preceding the date such Former Pension Plan was amended to continue as and under the Plan, and the Member may elect to commence such portion of his early retirement allowance before his Early Retirement Date, if such Former Pension Plan provided for an earlier commencement date.
4.06     Vested Benefit
(a) Eligibility

A Member shall be vested in, and have a nonforfeitable right to, his Accrued Benefit upon completion of five years of Eligibility Service. If such Member incurs a Severance Date for reasons other than death or early

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retirement prior to his Normal Retirement Date, he shall be entitled to a vested benefit under the provisions of this Section 4.06. Notwithstanding the foregoing, a Member who completes an “Hour of Service” as defined in Section 2.01(c) on or after January 1, 2008, shall be vested in, and have a nonforfeitable right to, his Accrued Benefit upon completion of three years of Eligibility Service.
(b) Benefit

Prior to adjustment in accordance with Sections 4.07(a) and 4.08(a), the vested benefit payable to a Member shall be a benefit deferred to commence on the former Member’s Normal Retirement Date and shall be equal to his Accrued Benefit earned up to the Member’s Severance Date, computed on the basis of his Final Average Compensation, Social Security Benefit and Benefit Service at his Severance Date, with the Social Security Benefit determined on the assumption that he continued in service to his Normal Retirement Date at his rate of Compensation in effect as of his date of termination (or, effective as of January 1, 2012, the date he ceases to accrue Benefit Service, if earlier).
Notwithstanding any Plan provision to the contrary, the former Member may elect to receive the PEP Formula Benefit portion of his vested benefit determined under Section 4.01(c) commencing on the first day of any month following his Severance Date and prior to his Normal Retirement Date as specified in his request therefor, after receipt by the Administrative Committee of written application therefor made by the former Member and filed with the Administrative Committee, provided that such early payment shall be subject to notice and timing requirements described in Section 4.07. In the case of said early commencement, the PEP Formula Benefit portion of the Member’s vested benefit determined under Section 4.01(c) shall be equal to an annual amount payable as a single life annuity for the Member’s life, commencing on his Annuity Starting Date that is Equivalent Actuarial Value to his PEP Formula Lump Sum Value determined under Section 4.01(c). Any portion of said Member’s retirement allowance determined under Section 4.01(b) shall be eligible for early commencement as set forth in the following paragraph. Notwithstanding the foregoing and except as otherwise provided in an Appendix, if a Member does not elect to receive the PEP Formula Benefit portion of his vested benefit prior to the first day of any calendar month coincident with or next following the 55 th anniversary of his birth, his entire vested benefit shall commence as of the same Annuity Starting Date as set forth below.
Except as otherwise provided in an Appendix hereto, on or after the date on which the former Member shall have reached the 55 th anniversary of his birth he may elect to receive, commencing on the first day of any calendar month coincident with or next following the 55 th anniversary of his birth and prior to his Normal Retirement Date as specified in his request therefor, after receipt by the Administrative Committee of written application therefor made by the former Member and filed with the Administrative Committee, provided that early payment shall be subject to notice and timing requirements described in Sections 4.07, the TPP Formula Benefit portion of his vested benefit determined under Section 4.01(b) and any PEP Formula Benefit portion of his vested benefit determined under Section 4.01(c) for which an Annuity Starting Date has not yet occurred. Except as otherwise provided in an Appendix hereto, upon such earlier payment, his vested benefit shall be equal to the sum of (i) the TPP Formula Benefit portion of his vested benefit determined under Section 4.01(b) otherwise payable at the former Member’s Normal Retirement Date reduced by 1/180th for each month up to 60 months by which the commencement date of such payments precedes his Normal Retirement Date and further reduced by 1/360th for each such month in excess of 60 months and (iii) the PEP Formula Benefit portion of his vested benefit determined under Section 4.01(c). In the case of said early commencement, the PEP Formula Benefit portion of his vested benefit determined under Section 4.01(c) for which an Annuity Starting Date has not yet occurred shall be equal to an annual amount payable as a single life annuity for the Member’s life, beginning on said commencement date, that is Equivalent Actuarial Value to his PEP Formula Lump Sum Value determined under Section 4.01(c).
(c) Benefit for Former Pension Plan Members

Unless the Administrative Committee determines otherwise and notwithstanding anything to the contrary herein contained, any Member who, immediately prior to his membership in the Plan was accruing benefits under a Former Pension Plan shall, prior to adjustment in accordance with Sections 4.06(a) and 4.07(a) upon incurring a Severance Date, be entitled to receive a deferred vested benefit payable on a life-time basis commencing on his Normal Retirement Date equal to his annual retirement allowance computed in accordance with Section 0 on the basis

37



of the applicable components of the Plan’s and Former Plan’s formula as of his Severance Date. Except as otherwise provided in an Appendix hereto and paragraph (b) above, the former Member may, however, elect to receive his vested benefit commencing on the first day of any calendar month occurring on or after his attainment of age 55 but before his Normal Retirement Date. In that case, the Member’s vested benefit shall be equal to the sum of the vested benefit payable at his Annuity Starting Date as determined under paragraph (b) above plus the portion of his vested benefit determined under the Former Plan’s formula otherwise payable at this Normal Retirement Date reduced as provided in paragraph (b) above, except as otherwise provided in Appendix E.
4.07     Forms of Benefit Payment after Retirement
(a) Automatic Forms of Payment

(i) Automatic Joint and Survivor Annuity - If a Member or former Member who on his Annuity Starting Date (1) is married or (2) has a Registered Domestic Partner, has not made an election of an optional form of payment under Section 4.07(b), the retirement allowance or vested benefit payable to such Member or former Member shall automatically be adjusted as follows in order to provide that, after his death, a lifetime benefit as described below shall be payable to the Spouse to whom he is married on his Annuity Starting Date or his Registered Domestic Partner as of his Annuity Starting Date, whichever is applicable:

(1) 90/50 Spouse’s Annuity - If a Post-1999 Member or a Pre-2000 Member retires from active service under Section 4.02, 4.03, 4.04, or 4.05, the automatic joint and survivor annuity payable to such Member shall provide (A) a reduced retirement allowance payable to the Member during his life equal to 90% of the retirement allowance otherwise payable without optional modification to the Member under Section 4.02, 4.03, 4.04, or 4.05, as the case may be, further adjusted, if necessary, as provided in the following sentence and (B) a benefit payable after his death to the Spouse to whom he was married on his Annuity Starting Date or his Registered Domestic Partner as of his Annuity Starting Date, whichever is applicable, equal to 50% of the retirement allowance otherwise payable without optional modification to the Member under Section 4.02, 4.03, 4.04, or 4.05, as the case may be, and without further adjustment as provided in the following sentence. If such Spouse or Registered Domestic Partner is more than five years older than the Member, the reduced retirement allowance payable to the Member shall be increased for each such additional full year in excess of five years, but for not more than 20 years, by one-half of one percent of the retirement allowance payable to the Member prior to optional modification. If such Spouse or Registered Domestic Partner is more than five years younger than the Member, the reduced retirement allowance payable to the Member shall be further reduced for each such additional full year in excess of five years by one-half of one percent of the retirement allowance payable to the Member prior to optional modification.

Notwithstanding the foregoing, the retirement allowance payable to the Member shall not be less than the retirement allowance otherwise payable without optional modification to the Member at retirement under Section 4.02, 4.03, 4.04, or 4.05, as the case may be, multiplied by the appropriate factor contained in Table 3 of Appendix A.
(2) 50% Contingent Annuity with Spouse or Registered Domestic Partner as Contingent Annuitant - If a Post-2004 Member retires from active service under Section 4.02, 4.03, 4.04, or 4.05 or a former Member terminates service and is entitled to a vested benefit under Section 4.06, the automatic joint and survivor annuity payable to said Member shall provide (A) a reduced retirement allowance or vested benefit, computed in accordance with Section 4.02, 4.03, 4.04, 4.05, or 4.06, as the case may be, payable to the Member during his life equal to his retirement allowance computed in accordance under Section 4.02, 4.03, 4.04, or 4.05 or his vested benefit computed in accordance with Section 4.06, as the case may be, multiplied by the appropriate factor contained in Table 1 of Appendix A and (B) a benefit payable after his death to the Spouse to whom he was married on his Annuity Starting Date or his Registered Domestic Partner as of his Annuity Starting Date, whichever is applicable, equal to 50% of the reduced retirement allowance or vested benefit, whichever is applicable, payable to the Member.


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(ii) Life Annuity - If a Member or former Member is not married on his Annuity Starting Date or does not have a Registered Domestic Partner on his Annuity Starting Date, the retirement allowance or vested benefit computed in accordance with Section 4.02, 4.03, 4.04, 4.05, or 4.06, as the case may be, shall be paid to the Member or former Member in the form of a lifetime benefit payable during his own lifetime with no further benefit payable to anyone after his death, unless the Member or former Member is eligible for and makes an election of an optional form of payment under Section 4.07(b).
(b) Optional Forms of Payment

Except as otherwise provided in Appendix E or F hereto, a Member or former Member may elect, subject to the following provisions, to convert his retirement allowance into one of the optional forms of payment described below or his vested benefit into one of the optional forms of payment described in subparagraphs (i), (iii), (iv) or (v) below:
(i) Life Annuity Option - Any Member or former Member who retires or terminates employment with the right to a retirement allowance or vested benefit may elect, in accordance with the provisions of Section 4.07(d), to provide that the retirement allowance payable to him under Section 4.02, 4.03, 4.04, or 4.05 or the vested benefit payable to him under Section 4.06 shall be in the form of a lifetime benefit payable during his own lifetime with no further benefit payable to anyone after his death.

(ii) 80/80 Spouse’s Annuity Option - Any Post-1999 Member or a Pre-2000 Member who retires from active service under Section 4.02, 4.03, 4.04, or 4.05, who is married on his Annuity Starting Date, may elect, in accordance with the provisions of Section 4.07(d), to convert the retirement allowance otherwise payable to him without optional modification under Section 4.02, 4.03, 4.04, or 4.05, as the case may be, into the following alternative benefit in order to provide that, after his death, a lifetime benefit shall be payable to the Spouse to whom he is married on his Annuity Starting Date or his Registered Domestic Partner on his Annuity Starting Date, whichever is applicable.

Such Member shall receive a reduced retirement allowance payable during his life equal to 80% of the retirement allowance otherwise payable without optional modification to the Member at retirement under Section 4.02, 4.03, 4.04, or 4.05, as the case may be, further adjusted, if necessary, as provided below.
The Member’s surviving Spouse or Registered Domestic Partner, as the case may be, shall receive a benefit payable after the Member’s death equal to the Member’s retirement allowance as reduced in this Section 4.07(a)(ii). If such Spouse or Registered Domestic Partner is more than five years older than the Member, the reduced retirement allowance payable to the Member shall be increased for each such additional full year in excess of five years, but for not more than 20 years, by one percent of the retirement allowance payable to the Member prior to optional modification. If such Spouse or Registered Domestic Partner is more than five years younger than the Member, the reduced retirement allowance payable to the Member shall be further reduced for each such additional full year in excess of five years by one percent of the retirement allowance payable to the Member prior to optional modification.
Notwithstanding the foregoing, the retirement allowance payable to the Member and his surviving Spouse or Registered Domestic Partner, whichever is applicable, shall not be less than the retirement allowance that would have been payable if the Member had elected Option 1 under Section 4.07(b)(iii).
(iii) Contingent Annuity Option - Any Member who retires from active service under Section 4.02, 4.03, 4.04, or 4.05 or, except as otherwise provided in Appendix F any Member who terminates service and is entitled to a vested benefit under Section 4.06 and has an Annuity Starting Date occurring on and after July 1, 2005, may elect, in accordance with the provisions of Section 4.07(d), to convert the retirement allowance or vested benefit otherwise payable to him without optional modification under Section 4.02, 4.03, 4.04, 4.05 or 4.06, as the case may be, into one of the following alternative options in order to provide that, after his death, a lifetime benefit shall be payable to the person who, when the option became effective, was designated by him to be his contingent annuitant. The optional benefit elected shall be the Equivalent Actuarial

39



Value of the retirement allowance or vested benefit otherwise payable without optional modification under Section 4.02, 4.03, 4.04, 4.05 or 4.06.

Option 1      A reduced retirement allowance or vested benefit payable during the Member’s life with the provisions that after his death a benefit equal to 100% of his reduced retirement allowance or vested benefit shall be paid during the life of, and to, his surviving contingent annuitant.
Option 2      A reduced retirement allowance or vested benefit payable during the Member’s life with the provision that after his death a benefit equal to 50% of his reduced retirement allowance or vested benefit shall be paid during the life of, and to, his surviving contingent annuitant.
Option 3      With respect to a Member who has an Annuity Starting Date on or after October 1, 2007, a reduced retirement allowance or vested benefit payable during the Member’s life with the provision that after his death a benefit equal to 75% of his reduced retirement allowance or vested benefit shall be paid during the life of, and to, his surviving contingent annuitant.
(iv) Ten Year Certain and Life Annuity - Except as otherwise provided in Appendix F, any Member who retires or terminates under Section 4.02, 4.03, 4.04, 4.05, or 4.06 may elect, in accordance with the provisions of Section 4.07(d) to convert the retirement allowance or vested benefit otherwise payable to him without optional modification under Section 4.02, 4.03, 4.04, 4.05, or 4.06, as the case may be, into a modified amount payable during his own lifetime and if the Member dies within ten years of his Annuity Starting Date, the balance of those payments shall be paid to the Beneficiary named by him when he elected the optional form of payment; provided, however, that if such Beneficiary does not survive the ten-year period, a single lump sum payment of Equivalent Actuarial Value to the remaining payments shall be paid to the estate of the last to survive of the Member and the Beneficiary. A Member may not change the Beneficiary named when he elected this optional form of payment, unless such Beneficiary predeceases the Member prior to the expiration of the ten-year period.

(v) Single Sum Option - Except as otherwise provided in Appendix F, any Member who retires or terminates under Section 4.02, 4.03, 4.04, 4.05, or 4.06 may elect in accordance with the provisions of Section 4.07(d) to convert the PEP Formula Benefit portion of his retirement allowance or vested benefit computed under Section 4.01(c) into a lump sum amount equal to the PEP Pension Formula Lump Sum Value determined as of his Annuity Starting Date. Notwithstanding the foregoing, the amount of such single lump sum payment shall not be less than the Equivalent Actuarial Value of the PEP Formula Benefit portion of his retirement allowance determined under Section 4.02, 4.03, 4.04, or 4.05, whichever is applicable, or his vested benefit determined under Section 4.06 which is deferred to commence on the Member’s Normal Retirement Date. For purposes of the preceding sentence, (1) Equivalent Actuarial Value shall mean in the case of a lump sum benefit payable prior to the Member’s Normal Retirement Date, an amount of equivalent value to the PEP Formula Benefit which would otherwise have been provided commencing on the Member’s Normal Retirement Date and (2) Equivalent Actuarial Value shall be determined under the IRS Mortality Table and the IRS Interest Rate. Effective as of January 1, 2008, and notwithstanding any other provision hereof, the lump sum Equivalent Actuarial Value of a Member’s PEP Formula Benefit as of his Annuity Starting Date on or after January 1, 2008 shall be equal to his PEP Formula Lump Sum Value determined as of such date.
(c) Required Notice

(i) The Administrative Committee shall furnish to each Member or former Member a written explanation in non-technical language of the terms and conditions of the automatic forms of payment as described in Section 4.07(a) and the optional forms of payment described in Section 4.07(b). Such explanation shall include (i) a general description of the eligibility conditions for, the material features of and the relative amounts of the optional forms of payment under the Plan, (ii) any rights the Member or former Member may have to defer commencement of his retirement allowance or vested benefit, (iii) the requirement for Spousal

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Consent as provided in Section 4.07(d), (iv) the consequences of failing to defer receipt of his retirement allowance or vested benefit, and (v) the right of the Member or former Member, prior to his Annuity Starting Date to make and to revoke elections under Section 4.07.

(ii) The Administrative Committee must provide the notice required by subparagraph (i) above no more than 90 days and no less than 30 days prior to the Member’s Annuity Starting Date, subject to the provisions of Section 4.07(d)(ii) or (iii).
(d) Election of Options

(i) A Member or former Member may, subject to the provisions of Section 4.07(b) and this Section 4.07(d), elect to receive his entire retirement allowance or vested benefit in the optional form of payment described in Section 4.07(b)(i), 4.07(b)(iii) or 4.07(b)(iv), and in the case of a Member who retires under the provisions of Section 4.02, 4.03, 4.04, or 4.05, one of the optional forms of payment described in Section 4.07(b)(iii) in lieu of the automatic forms of payment described in Section 4.07(a). Alternatively, a Member or former Member who has accrued all or a portion of his retirement allowance or vested benefit under the PEP Benefit Formula as described in Section 4.01(c) may, subject to the provision of Section 4.07(b) and this Section 4.07(d), elect to receive the PEP Formula Benefit portion of his retirement allowance or vested benefit determined under the provisions of Section 4.01(c) in the optional form of payment described in Section 4.07(b)(v) and any remaining portion of his retirement allowance or vested benefit, subject to the provision of Appendix E, in an optional form of payment pursuant to the provisions of the preceding sentence of this subparagraph (i).

A married Member’s or a married former Member’s election of a Life Annuity form of payment under Section 4.07(b)(i) or Appendix F, a Ten-Year Certain and Life Annuity under Section 4.07(b)(iv), a Single Sum Option under Section 4.07(b)(v) or Appendix F, or any optional form of payment under Section 4.07(b)(iii), which does not provide for monthly payments to his Spouse for life after the Member’s or former Member’s death in an amount equal to at least 50% but not more than 100% of the monthly amount payable under that form of payment to the Member or former Member and which is not of Equivalent Actuarial Value to the applicable Automatic Joint and Survivor Annuity described in Section 4.07(a)(i), shall be effective only with Spousal Consent; provided such Spousal Consent to the election has been received by the Administrative Committee or its delegate.
Any election made under Section 4.07(a) or Section 4.07(b) shall be made on a form approved by the Administrative Committee and may be made during the 90-day period following the date the notice described in Section 4.07(c) is furnished to the Member, except as otherwise provided in subparagraphs (ii) or (iii) below, but not prior to the date the Member or former Member is provided the notice described in Section 4.07(c). An election under this Section 4.07 shall be effective on the Member’s Annuity Starting Date; provided the appropriate form is filed with and received by the Administrative Committee or its delegate. Except as otherwise provided in subparagraph (ii) or (iii) below, any election made under Section 4.07(a) or Section 4.07(b) after having been filed, may be revoked or changed by the Member or former Member only by written notice received by the Administrative Committee or its delegate before his election becomes effective on his Annuity Starting Date and any such election may not be modified or revoked after his Annuity Starting Date. Any subsequent elections and revocations may be made at any time and from time to time during the election period ending on the Member’s or former Member’s Annuity Starting Date or election period described in subparagraph (ii) and (iii) below. A revocation shall be effective when the completed notice is received by the Administrative Committee or its delegate during such election period. An election or re-election shall be effective on the Member’s or former Member’s Annuity Starting Date. If, however, the Member or the Spouse or the contingent annuitant designated in the election dies before the election has become effective, the election shall thereby be revoked except as otherwise provided in Section 4.08.
Notwithstanding the foregoing, an election or re-election made after the Member’s or former Member’s Annuity Starting Date shall be deemed to have been made within the election period if (1) the notice described in Section 4.07(c) is provided to the Member or former Member before the Annuity Starting Date, (2)

41



distributions commence not later than 90 days after the date such written explanation is provided to the Member or former Member, and (3) the Member’s or former Member’s election is made before the date distributions commence. A distribution shall not be deemed to violate the requirement of clause (2) of the preceding sentence merely because, due solely to reasonable administrative delay, it commences more than 90 days after the date such written explanation is provided to the Member or former Member.
(ii) Notwithstanding the provisions of subparagraph (i) above, a Member or former Member may, after having received the notice described in paragraph (c) above, affirmatively elect to have his benefit commence sooner than 30 days following his receipt of the notice, provided all of the following requirements are met:

(1) the Administrative Committee clearly informs the Member or former Member that he has a period of at least 30 days after receiving the notice to decide when to have his benefits begin, and if applicable, to choose a particular optional form of payment;

(2) the Member or former Member affirmatively elects a date for his benefits to begin, and if applicable, an optional form of payment, after receiving the notice;

(3) the Member or former Member is permitted to revoke his election until the later of his Annuity Starting Date or seven days following the day he received the notice;

(4) payment does not commence less than seven days following the day after the notice is received by the Member or former Member; and

(5) the Member’s or former Member’s Annuity Starting Date is after the date the notice is provided.

(iii) Notwithstanding the foregoing provisions of this Section 4.07, in the event a Member or former Member whose Annuity Starting Date is on or after January 1, 2004 elects an Annuity Starting Date that precedes the date he is provided the notice described in paragraph (c) above (the “retroactive Annuity Starting Date”), the Member or former Member may elect to have his retirement allowance or vested benefit commence as of said retroactive Annuity Starting Date provided the following requirements are met:

(1) the Member’s or former Member’s retroactive Annuity Starting Date is on or after the date he terminates employment with the Company and all Associated Companies;

(2) the Member’s or former Member’s benefit must satisfy the provisions of Sections 415 and 417(e)(3) of the Code, both at the retroactive Annuity Starting Date and at the actual commencement date, except that if payments commence within 12 months of the retroactive Annuity Starting Date, the provisions of Section 415 of the Code need only be satisfied as of the retroactive Annuity Starting Date;

(3) a payment equal in amount to the payments that would have been received by the Member or former Member had his benefit actually commenced on his retroactive Annuity Starting Date, plus interest at the IRS Interest Rate for such retroactive Annuity Starting Date, shall be paid to the Member or former Member on his actual commencement date;

(4) Spousal Consent to the retroactive Annuity Starting Date is required for such election to be effective unless:

(A)
the amount of the survivor benefit payable to the Spouse determined as of the retroactive Annuity Starting Date under the form elected by the Member or former Member is no less than the amount the Spouse would have received

42



under the Automatic Qualified Joint and Survivor Annuity if the first day of the month in which payments commence were substituted for the retroactive Annuity Starting Date, or

(B)
the Member’s or former Member’s Spouse on his retroactive Annuity Starting Date is not his Spouse on the first day of the month in which payments commence and is not treated as his Spouse under a qualified domestic relations order;

(5) with respect to a Member or former Member whose retroactive Annuity Starting Date occurs on or after January 1, 2005,

(A)
the Member or former Member, prior to his retroactive Annuity Starting Date, has submitted a request to the Company, in a form approved by the Administrative Committee, to commence Plan payments as of such date, or

(B)
due to an administrative error as determined by the Administrative Committee on a basis uniformly applicable to all members similarly situated, the Member or former Member was not provided the written explanation as described in paragraph (c) as on a timely basis;

(6) the Member’s or former Member’s election is made within the time period prescribed by the Administrative Committee; provided, however, such period may not extend beyond 90 days following date the written explanation as described in paragraph (c) is provided to the Member or former Member; and

(7) distributions commence no earlier than seven days or later than 90 days after the date such written explanation is provided to the Member or former Member, and the Member’s or former Member’s election is made after he is provided such written explanation and before the date distributions commence. For purposes of determining (A) the election period described in subparagraph (i) with respect to the timing of the notice and consent requirements and (B) the effective date of an election made pursuant to the provisions of this paragraph (d), the date the distribution of the benefit based on the retroactive Annuity Starting Date commences shall be substituted for the Member’s or former Member’s Annuity Starting Date. A distribution shall not be deemed to violate the requirements of this paragraph (d) merely because, due solely to reasonable administrative delay, it commences more than 90 days after the date such written explanation is provided to the Member or former Member.

(iv) With respect to a Pre-2000 Member or a Post-1999 Member who retires under the provisions of Section 4.04 or Section 4.05, the reduction on account of the Social Security Benefit to be made to the TPP Formula Benefit portion of his benefit determined under Section 4.01(b), if any, payable in accordance with Section 4.07(a)(i) or Section 4.07(b)(ii) or (iii) to his designated Spouse, Registered Domestic Partner or to his contingent annuitant shall not be made until the earlier of such time as the Member would have, had he survived, upon proper application first been entitled to receive said Social Security Benefit, or January 1, 2017.

(v) If a Member or former Member dies after his Annuity Starting Date, any payment continuing on to his Spouse, Registered Domestic Partner or contingent annuitant shall be distributed at least as rapidly as under the method of distribution being used as of the Member’s date of death.
4.08     Survivor’s Benefit Applicable before Retirement

The term “Beneficiary” for purposes of this Section 4.08 shall mean any natural person, any trust established by the Member, or the Member’s estate, named by the Member by written designation to receive benefits payable under the automatic Pre-Retirement Survivor’s Benefit and under the optional Supplemental Pre-Retirement Survivor’s

43



Benefit; provided, however, if a Member is married or has a Registered Domestic Partner, the term “Beneficiary” shall automatically mean the Member’s Spouse or Registered Domestic partner, as the case may be, and any prior designation to the contrary will be canceled, unless the married Member, with Spousal Consent, designates otherwise. An election of a non-Spouse Beneficiary by a married Member shall be effective only if accompanied by Spousal Consent and such Spousal Consent has been received by the Administrative Committee. If the Member dies without an effective designation of Beneficiary, the Member’s Beneficiary for purposes of this Section 4.08 shall automatically be the Member’s Spouse or Registered Domestic Partner, as applicable, or if the Member does not have a Spouse or Registered Domestic Partner at the time of his death, his estate. If the Member elects the additional optional protection of the Supplemental Pre-Retirement Survivor’s Benefit, the Member’s Beneficiary thereunder shall automatically be the same as the Beneficiary under the Pre-Retirement Survivor’s Benefit. The Administrative Committee shall resolve any questions arising hereunder as to the meaning of “Beneficiary” on a basis uniformly applicable to all Members similarly situated.
(a) Automatic Vested Spouse’s Benefit

(i) Automatic Vested Spouse’s Benefit attributable the portion of the Member’s benefit determined under Section 4.01(b) or under a Former Plan formula applicable before termination of employment - The surviving Spouse or Registered Domestic Partner of a Member, including a Member who is granted a Qualified Military Leave and dies on or after January 1, 2007, in the performance of Qualified Military Service (as defined in Section 2.01(e)(i)), who has completed five years (with respect to a Member who completes an “Hour of Service” as defined in Section 2.01(c) on or after January 1, 2008, 3 years) of Eligibility Service but who has not yet met the age and service eligibility requirements for an early retirement allowance as set forth in Section 4.04(a) or 4.05(a) shall automatically receive a benefit payable under the provisions of this Section 4.08(a)(i) in the event said Member should die after the effective date of coverage hereunder and while accruing Eligibility Service in accordance with Section 2.01. The benefit payable to the Member’s Spouse or Registered Domestic Partner, as applicable, under the provisions of this Section 4.08(a)(i) shall be equal to 50% of the TPP Formula Benefit portion of the Member’s vested benefit determined under Section 4.01(b) and, if applicable, subject to the provisions of Appendix E, any portion of his retirement allowance determined under a Former Plan formula the Member would have received if he had incurred a Severance Date on his date of death, survived to Normal Retirement Date, and, on the day before he would have reached Normal Retirement Date had elected to begin receiving such vested benefit in the form of the Automatic Joint and Survivor Annuity under Section 4.07(a)(i)(2) and adjusted for payment commencing prior to what would have been the Member’s Normal Retirement Date as described below.

Such benefit shall be payable for the life of the Spouse commencing on what would have been the Member’s Normal Retirement Date. However, the Member’s Spouse may elect, by written application filed with the Administrative Committee, to have payments begin as of the first day of any calendar month on or after the date the former Member would have reached the 55 th anniversary of his birth; provided, however, if the Member dies after having reached the 55 th anniversary of his birth, the Member’s Spouse may elect to have payments begin under this portion of his Automatic Vested Spouse’s Benefit as of the first day of any month following the Member’s death. If such benefit is payable to the Member’s Registered Domestic Partner, such benefit shall be payable for the life of the Registered Domestic Partner commencing as of the first day of the month coincident with or next following the date on which the Administrative Committee is officially notified of the Member’s death, but only after written application is made to commence such payment, provided, however such payment shall not commence later than one year following the Member’s date of death.
If the Member’s Spouse or Registered Domestic Partner elects to commence payment of this portion of his Automatic Vested Spouse’s Benefit prior to what would have been the Member’s Normal Retirement Date, the amount of such benefit payable to the Spouse or Registered Domestic Partner shall be based on the reduced portion of his vested benefit determined under Section 4.01(b) and, if applicable, the reduced portion of his vested benefit determined under a Former Plan’s formula, subject to the provisions of Appendix E, to which the Member would have been entitled, had the Member elected to have payments commence to himself on such earlier date in accordance with the provisions of Section 4.06(b). In the event such commencement date is prior to the 55th anniversary of the Member’s birth, the benefit payment to the Registered Domestic

44



Partner shall be of Equivalent Actuarial Value to the benefit otherwise payable hereunder to the Registered Domestic Partner Beneficiary on the date the Member would have attained age 55.
Coverage hereunder shall be applicable to a Member in active service with the Company or an Associated Company who has a Spouse or Registered Domestic Partner, as applicable and who has satisfied the eligibility requirements for a vested benefit under Section 4.06 and shall become effective on the date the Member marries or attains a Registered Domestic Partner and shall cease on the earlier of (1) the date such active Member satisfies the age and service requirement for an early retirement allowance under Section 4.04 or 4.05, (2) the date such active Member reaches the 65th anniversary of his birth, (3) the date such active Member’s marriage is legally dissolved by a divorce decree, (4) the date such active Member’s relationship with his Registered Domestic Partner is terminated and such Member files a Termination of Domestic Relationship form with the Company, or (5) the date such active Member’s Spouse or Registered Domestic Partner dies. Coverage under Section 4.08(b)(i) shall commence on the date a Member in active service meets the age and service requirements for an early retirement allowance as set forth in Section 4.04(a) and 4.05(a) or (2) the 65th anniversary of his birth.
(ii) Automatic Vested Spouse’s Benefit attributable to the portion of the Member’s benefit determined under Section 4.01(b) or, if applicable, under a Former Plan’s formula upon termination of employment - In the case of a former Member who is married or has a Registered Domestic Partner and is entitled to a vested benefit under Section 4.06, the provisions of this Section 4.08(a)(ii) shall apply to the period between (1) his Severance Date or the date, if later, the former Member is married or has a Registered Domestic Partner and (2) his Annuity Starting Date or other cessation of coverage as later specified in this Section 4.08(a)(ii).

In the event of the death of (i) a married former Member, or (ii) a former Member who has a Registered Domestic Partner, during any period in which these provisions have not been waived or revoked by the former Member and, if applicable, his Spouse, the benefit payable to the former Member’s Spouse or Registered Domestic Partner, as applicable, under the provisions of this Section 4.08(a)(ii) prior to any adjustments as set forth below, shall be equal to 50% of the TPP Formula Benefit portion of the vested benefit determined under Section 4.01(b) and, if applicable, the portion of his vested benefit determined under a Former Plan’s formula, subject to Appendix E, the former Member would have received commencing on his Normal Retirement Date if he had elected to receive such benefit in the form of the Automatic Joint and Survivor Annuity under Section 4.07(a)(i)(2) and adjusted for payment commencing prior to what would have been the former Member’s Normal Retirement Date as described below.
This benefit shall be payable for the life of the Spouse commencing on what would have been the former Member’s Normal Retirement Date. However, the former Member’s Spouse may elect, by written application filed with the Administrative Committee, to have payments begin as of the first day of any calendar month on or after the date the former Member would have reached the 55th anniversary of his birth. If such benefit is payable to the former Member’s Registered Domestic Partner, this benefit shall be payable for the life of the Registered Domestic Partner commencing as of the first day of the month coincident with or next following the date on which the Administrative Committee is officially notified of the former Member’s death, but only after written application is made to commence such payment, provided, however such payment shall not commence later than one year following the former Member’s date of death. If the former Member’s Spouse or Registered Domestic Partner elects to commence payment of this Automatic Vested Spouse’s Benefit prior to what would have been the former Member’s Normal Retirement Date, the amount of such benefit payable to the Spouse or Registered Domestic Partner shall be based on the reduced portion of his vested benefit determined under Section 4.01(b) and, if applicable, the portion of his reduced vested benefit determined under a Former Plan’s formula, subject to the provisions of Appendix E, to which the former Member would have been entitled, had the former Member elected to have payments commence to himself on such earlier date in accordance with the provisions of Section 4.06(b). In the event such commencement date is prior to the 55th anniversary of the former Member’s birth, the benefit payment to the Registered Domestic Partner shall be of Equivalent Actuarial Value to the benefit otherwise payable hereunder to the Registered Domestic Partner Beneficiary on the date the former Member would have attained age 55.

45



The portion of the vested benefit determined under Sections 4.01(b) and, if applicable, under the provisions of a Former Plan’s Formula, payable to a former Member whose Spouse is covered under this Section 4.08(a)(ii) or, if applicable, the benefit payable to his Spouse or his Registered Domestic Partner, as applicable, upon his death shall be reduced by the applicable percentages shown below, subject to the provisions of Appendix E. Such reduction shall commence on and after the first of the month coincident with or following the effective date of coverage hereunder and cease when coverage ceases; provided, however, no reduction shall be made with respect to any period before the later of (1) the date the Administrative Committee furnishes the Member the notice of his right to waive the Automatic Vested Spouse’s Benefit or (2) the commencement of the election period specified below.
ANNUAL REDUCTION FOR SPOUSE’S COVERAGE
AFTER TERMINATION OF EMPLOYMENT
Age
Annual Reduction
Less than 40
1/10 of 1%
40 but prior to 50
2/10 of 1%
50 but prior to 55
3/10 of 1%
55 but prior to 60
5/10 of 1%
60 but less than 65
1%

The Administrative Committee shall furnish to each former Member a written explanation which describes (1) the terms and conditions of the Automatic Vested Spouse’s Benefit, (2) the former Member’s right to make, and the effect of, an election to waive the Automatic Vested Spouse’s Benefit provided under this Section 4.08(a)(ii), (3) the rights of the former Member’s Spouse or Registered Domestic Partner, and (4) the right to make, and the effect of, a revocation of such a waiver. Such written explanation shall be furnished to each former Member before the first anniversary of the date he incurs a Severance Date and shall be furnished to such former Member even though he is not married.
The period during which the former Member may make an election to waive the Automatic Vested Spouse’s Benefit provided under this Section 4.08(a)(ii) shall begin not later than his Severance Date and end on his Annuity Starting Date or, if earlier, his date of death. Any waiver, revocation or re-election of the Automatic Vested Spouse’s Benefit shall be made on a form provided by the Administrative Committee and any waiver or revocation shall require Spousal Consent. If, upon termination of employment, the former Member waives coverage hereunder in accordance with administrative procedures established by the Administrative Committee for all Members similarly situated, such waiver shall be effective as of the Member’s Severance Date. Any later re-election or revocation shall be effective on the first day of the month coincident with or next following the date the completed form is received by the Administrative Committee. If a former Member dies during the period after a waiver or revocation is in effect there shall be no benefits payable under the provisions of this Section 4.07.
Except as described above in the event of a waiver or revocation, coverage under this Section 4.08(a)(ii) shall cease to be effective upon a former Member’s Annuity Starting Date, or upon the date a former Member’s marriage is legally dissolved by a divorce decree, or upon termination of the Domestic Partner relationship and the filing of a Termination of Domestic Relationship form with the Company, or upon the death of the Spouse or Registered Domestic Partner, whichever event shall first occur.
(i) Automatic Vested Spouse Benefit attributable to the portion of the Member’s benefit determined under Section 4.01(c) applicable before and after termination of employment - The surviving Spouse or Registered Domestic Partner, as applicable of a (1) Member who has completed five years (with respect to a Member who completes an “Hour of Service” as defined in Section 2.01(c) on or after January 1, 2008, three years) of Eligibility Service but who has not met the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a) or (2) a former Member entitled to a vested

46



benefit under Section 4.06, shall automatically receive a benefit payable under the provisions of this Section 4.08(a)(iii) with respect to the PEP Formula Benefit portion of his vested benefit determined under Section 4.01(c) in the event said Member should die after the effective date of coverage hereunder and prior to his Annuity Starting Date. The benefit payable to the Member’s surviving Spouse under the provisions of this Section 4.08(a)(iii) shall be equal to an amount payable as a single life annuity over the Spouse’s life that is Equivalent Actuarial Value to the Member’s PEP Formula Lump Sum Value determined under Section 4.01(c). In the event the Automatic Vested Spouse Benefit is payable to a Member’s Registered Domestic Partner, the PEP Formula Benefit portion benefit payable to such Registered Domestic Partner under the provisions of this Section 4.08(b)(iii) shall be an amount, payable as a single lump sum, equal to the Member’s PEP Formula Lump Sum Value determined as of the Registered Domestic Partner’s Annuity Starting Date. Payment of such benefit to a Registered Domestic Partner shall be made as soon as practicable following the Member’s date of death, and in no event later than one year after the Member’s date of death.

The Member’s surviving Spouse may elect to receive the benefit payable under this Section 4.08(a)(iii) in the form of an annuity for the life of the Spouse or convert said amount into a single lump sum payment, to be paid or commence as of the first day of any month following the Member’s date of death and not later than what would have been the Member’s Normal Retirement Date. If the Spouse does not make an election regarding the form or timing of payments in accordance with this Section 4.08(a)(iii) on or prior to the Member’s Normal Retirement Date, payment shall be made as an annuity for the life of the Spouse commencing on what would have been the Member’s Normal Retirement Date.
The Member’s PEP Formula Lump Sum Value shall continue to be credited with interest in the manner described in Section 4.01(c) until the Spouse’s or Registered Domestic Partner’s Annuity Starting Date. An annuity benefit payable under this Section 4.08(a)(iii) shall be of Equivalent Actuarial Value to the PEP Formula Lump Sum Value determined as of the Spouse’s or Registered Domestic Partner’s Annuity Starting Date. The lump sum amount payable under this Section 4.08(a)(iii) shall be equal to the Member’s PEP Formula Lump Sum Value as determined as of the Spouse’s Annuity Starting Date; provided, however, the amount of such single lump sum payment shall not be less than the Equivalent Actuarial Value of the annuity benefit payable to the Spouse as determined under this Section 4.08(a)(iii). For purposes of the preceding sentence, Equivalent Actuarial value shall be determined under the IRS Mortality Table and the IRS Interest Rate.
In no event shall a single lump sum payment be made under this Section 4.08(a)(iii) following the date payments under Section 4.08(a) have commenced as an annuity. Notwithstanding the foregoing, the lump sum equivalent actuarial value of the PEP Formula portion of any Vested Spouse’s Benefit payable to the Spouse (or Registered Domestic Partner) of a Member or a former Member as of any commencement date on or after January 1, 2008, shall be equal to the Member’s or former Member’s PEP Formula Lump Sum Value, determined as if the Member or former Member had survived to such date and such date were such Member’s or former Member’s Annuity Starting Date.
(b) Automatic Pre-Retirement Survivor’s Benefit

(i) Automatic Pre-Retirement Survivor’s Benefit attributable to the TPP Formula Benefit portion of a Member’s retirement allowance determined under Section 4.01(b) or, if applicable, the portion of his retirement allowance determined under the provisions of a Former Plan’s formula before a Member retires under the provisions of Section 4.02, 4.03, 4.04, or 4.05 - The Beneficiary of a Member who has reached the 65 th anniversary of his birth or who has satisfied the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a), shall automatically receive a Pre-Retirement Survivor’s benefit payable under the provisions of this Section 4.08(b)(i) in the event said Member should die before he retires under the provisions of Section 4.02, 4.03, 4.04, or 4.05 or reaches his Annuity Starting Date pursuant to the provisions of Section 4.03(d), if earlier. The benefit payable during the life of, and to, the Beneficiary shall be equal to one-half of the portion of the Member’s Accrued Benefit determined under Section 4.01(b) and, if applicable, under the provisions of a Former Plan’s formula, subject to Appendix E, without optional modification in accordance with the provisions of Section 4.07, accrued to the date of his death, adjusted to take into account the Member’s Social Security Benefit. The Social Security Benefit with respect to a Post-1999

47



Member or a Pre-2000 Member shall be determined on the assumption that such Post-1999 Member or Pre-2000 Member had no earnings after his date of death and, if his death occurs prior to the time the Member is or would upon proper application first be entitled to receive such Social Security Benefit, such adjustment shall nevertheless be made at the Member’s date of death. If the Beneficiary is more than five years younger than the Member, the benefit payable to the Beneficiary shall be reduced by one-half of one percent for each full year the Beneficiary is more than five years younger.

Coverage hereunder shall be effective on the date the Member satisfies the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a) or, if earlier, the date he attains age 65. In the case of a married Member or a Member who has a Registered Domestic Partner, coverage under Section 4.08(a)(i) shall cease on the date coverage under this Section 4.08(b)(i) is effective as set forth in the preceding sentence.
(ii) Automatic Pre-Retirement Survivor’s Benefit attributable to portion of Member’s retirement allowance determined under Section 4.01(b) and, if applicable, under the provisions of a Former Plan’s formula, between Early or Special Early Retirement Date and the Member’s Annuity Starting Date - In the case of a Member retired early under Section 4.04 or Section 4.05 of the Plan with the payment of the TPP Formula Benefit portion of his early retirement allowance determined under Section 4.01(b) and, if applicable, the portion of his retirement allowance, determined under a Former Plan’s formula, deferred to commence at a date later than his Early Retirement Date, the provisions of this Section 4.08(b)(ii) shall apply to the period between his Early Retirement Date and his Annuity Starting Date. The Member shall, at his Early Retirement Date, complete such forms as are required under this Section 4.08(b)(ii) and coverage hereunder shall be effective as of his Early Retirement Date.

In the event of the Member’s death during the period in which these provisions are in effect, the benefit payable during the life of, and to, the Beneficiary shall be equal to one-half of the portion of the Member’s Accrued Benefit determined under Section 4.01(b) and, if applicable, under the provisions of a Former Plan’s formula, subject to Appendix E, without optional modification in accordance with the provisions of Section 4.07, accrued to his Early Retirement Date, adjusted to take into account the Member’s Social Security Benefit. If the Member’s death occurs prior to the time the Member is or would upon proper application first be entitled to receive such Social Security Benefit, such adjustment shall nevertheless be made at the Member’s date of death. If the Beneficiary is more than five years younger than the Member, the benefit payable to the Beneficiary shall be reduced by one-half of one percent for each full year the Beneficiary is more than five years younger than the Member.
The automatic Pre-Retirement Survivor’s Benefit determined under Sections 4.08(b)(i) and (ii) shall be payable for the life of the Beneficiary commencing on what would have been the Member’s Normal Retirement Date or date of death, if later. However, if a Member dies prior to his Normal Retirement Date, the Beneficiary may elect, by written application filed with the Administrative Committee, to have such payments begin as of the first day of any calendar month coincident with or next following the Member’s date of death. If the Beneficiary elects to commence payment of the automatic Pre-Retirement Survivor’s Benefit prior to what would have been the Member’s Normal Retirement Date, the amount of such benefit shall be determined in accordance with Sections 4.08(b)(i) and (ii) above, as applicable, and without reduction for such early commencement.
Notwithstanding the foregoing, in the event the Member’s Beneficiary is someone other than his Spouse, payment of the automatic Pre-Retirement Survivor’s Benefit shall commence within one year of the Member’s date of death and in the event such commencement date is prior to the 55th anniversary of the Member’s birth, the benefit payment to the Beneficiary shall be of Equivalent Actuarial Value to the benefit otherwise payable hereunder to the Beneficiary on the date the Member would have attained age 55.
(iii) Automatic Pre-Retirement Survivor Benefit attributable to the portion of a Member’s Retirement Allowance determined under Section 4.01(c) - The Beneficiary of (1) a Member who has reached the 65 th anniversary of his birth or who has satisfied the age and service eligibility requirements for any early

48



retirement allowance under Section 4.04(a) or 4.05(a) or (2) a Member who has retired early under Section 4.04 or 4.05 of the Plan with the payment of his early retirement allowance deferred to commence at a later date than his Early Retirement Date, shall automatically receive a Pre-Retirement Survivor Benefit payable under the provisions of this Section 4.08(b)(iii) with respect to the PEP Formula Benefit portion of his retirement allowance determined under Section 4.01(c) in the event said Member should die after the effective date of coverage hereunder and prior to his Annuity Starting Date.

If the Member’s Beneficiary is his surviving Spouse (or Registered Domestic Partner) the Spouse (or Registered Domestic Partner) may elect to receive the PEP Formula Benefit portion of the Pre-Retirement Survivor Benefit in the form an annuity for the life of the Spouse (or Registered Domestic Partner) or to convert said amount into a single lump sum payment to be paid or commence as of the first day of any month following the Member’s date of death. If the Member’s Beneficiary is his surviving Spouse, payments may not begin later than what would have been the Member’s Normal Retirement Date. If the Spouse does not make an election regarding the timing and form of payments in accordance with this Section 4.08(b)(iii) on or prior to the Member’s Normal Retirement Date, payment of said amount shall be made as an annuity for the life of the Spouse commencing on the Member’s Normal Retirement Date. If Member’s Beneficiary is his Registered Domestic Partner, payment must begin not later than one year following the Member’s date of death and if the Registered Domestic Partner does not make an election regarding the form of payments in accordance with this Section 4.08(b)(iii), payment of said amount shall be made as an annuity for the life of the Registered Domestic Partner. The annuity benefit payable to the Spouse (or Registered Domestic Partner) under this Section 4.08(b)(iii) shall be of Equivalent Actuarial Value to the PEP Formula Lump Sum Value as of the Spouse’s (or Registered Domestic Partner’s) Annuity Starting Date. The Member’s PEP Formula Lump Sum Value shall continue to be credited with interest in the manner described in Section 4.01(c) until the Spouse’s (or Registered Domestic Partner’s) Annuity Starting Date. A single payment payable under the provisions of this Section 4.08(b)(iii) shall be equal to the Member’s PEP Formula Lump Sum Value determined as of the Spouse’s (or Registered Domestic Partner’s) Annuity Starting Date; provided, however, the amount of any single lump sum payment under the provisions of this Section 4.08(b)(iii) shall not be less than the Equivalent Actuarial Value of the Spouse’s (or Registered Domestic Partner’s) annuity benefit as determined under this Section 4.08(b)(iii). For purposes of the preceding sentence, Equivalent Actuarial Value shall be determined under the IRS Mortality Table and the IRS Interest Rate.
In the event the Member’s Beneficiary is other than his Spouse, the PEP Formula Benefit portion benefit payable to such Beneficiary under the provisions of this Section 4.08(b)(iii) shall be an amount, payable as a single lump sum, equal to the Member’s PEP Formula Lump Sum Value determined as of the Beneficiary’s Annuity Starting Date. Payment of such benefit shall be made as soon as practicable following the Member’s date of death, and in no event later than one year after the Member’s date of death.
Notwithstanding the foregoing, the lump sum equivalent actuarial value of the PEP Formula Benefit portion of the benefit payable to a Spouse, Registered Domestic Partner or Beneficiary under the provisions of this Section 4.08(b)(iii) as of any commencement date on or after January 1, 2008, shall be equal to the Member’s PEP Formula Lump Sum Value, determined as if the Member had survived to such date and such date were such Member’s Annuity Starting Date.
(c) Optional Supplemental Pre-Retirement Survivor’s Benefit

(i) Optional Supplemental Pre-Retirement Survivor’s Benefit applicable before a Member retires under the provisions of Section 4.01, Section 4.02, Section 4.03 or Section 4.04 - A Member, who has reached the 65 th anniversary of his birth or who has satisfied the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a), may elect to receive a reduced retirement allowance upon his retirement in order to provide that, if he should die after his election becomes effective but before he retires under the provisions of Section 4.02, 4.03, 4.04, or 4.05 or reaches his Annuity Starting Date pursuant to the provisions of Section 4.03(d), a benefit shall be paid to the Beneficiary designated by him in accordance with the following terms and conditions.

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The Member may elect to reduce the TPP Formula Benefit portion of his retirement allowance determined under Section 4.01(b) and, if applicable, the portion of his retirement allowance determined under a Former Plan’s formula, subject to Appendix E, to which he would otherwise be entitled at retirement under Section 4.02, 4.03, 4.04, or 4.05 by one-half of one percent per year for each year between the first day of the month following the date on which the election becomes effective and the earlier of the Member’s Early Retirement Date, Annuity Starting Date, or the date the election is revoked as provided in Section 4.08(i).
If the Member makes such an election and dies before he retires under the provisions of Section 4.02, 4.03, 4.04, or 4.05, the benefit payable during the life of, and to, his Beneficiary shall be equal to 25% of the TPP Formula Benefit portion of the Member’s Accrued Benefit determined under Section 4.01(b) (and, if applicable, the portion of his retirement allowance determined under a Former Plan’s formula, subject to Appendix E) without optional modification in accordance with the provisions of Section 4.07, accrued to the date of his death adjusted (1) to take into account the Member’s Social Security Benefit and (2) as provided below. The Social Security Benefit with respect to a Post-1999 Member or a Pre-2000 Member shall be determined on the assumption that the Member had no earnings after his date of death and, if his death occurs prior to the time such Post-1999 Member or Pre-2000 Member is or would upon proper application first be entitled to receive such Social Security Benefit, such adjustment shall nevertheless be made at the Member’s date of death. The benefit payable to the Beneficiary shall be reduced by one-half of one percent per year for each year between the first day of the month following the date the Member satisfies the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a) or, if earlier, his Normal Retirement Date and the date of the Member’s death. If the Beneficiary is more than five years younger than the Member, the benefit payable to the Beneficiary shall be further reduced by one-half of one percent for each full year the Beneficiary is more than five years younger.
If the Member makes an election under this Section 4.08(c)(i) at or prior to the time he is first eligible to do so, it shall become effective on the date the Member satisfies the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a) or, if earlier, the date he attains age 65. A Member will be deemed to have waived coverage under this Section 4.08(c)(i) if he does not file the appropriate forms with the Administrative Committee when first eligible to do so. If the Member does not make such election until after he is first eligible to do so, it shall become effective one year after the first day of the calendar month coincident with or next following (1) the date the notice is received by the Administrative Committee or (2) the date specified in such notice, if later.
(ii) Optional Supplemental Pre-Retirement Survivor’s Benefit applicable between Early or Special Early Retirement Date and the Member’s Annuity Starting Date - In the case of a Member retired early under the provisions of Section 4.04 or Section 4.05 of the Plan with the payment of the early retirement allowance deferred to commence at a date later than his Early Retirement Date, the provisions of this Section 4.08(c)(ii) shall apply to the period between his Early Retirement Date and his Annuity Starting Date.

The Member may elect to reduce the TPP Formula Benefit portion of his early retirement allowance determined under Section 4.01(b) (and, if applicable, the portion of his retirement allowance determined under a Former Plan’s formula, subject to Appendix E) to which he would otherwise be entitled under Section 4.03 or Section 4.04 by one-half of one percent per year for each year between his Early Retirement Date and the earlier of the date the election is revoked pursuant to Section 4.08(i) or his Annuity Starting Date.
If the Member makes such an election and dies during the period the election is in effect, the benefit payable during the life of, and to, his Beneficiary shall be equal to 25% of the Member’s Accrued Benefit determined under Section 4.01(b) (and, if applicable, the portion of his retirement allowance determined under a Former Plan’s formula, subject to Appendix E) without optional modification in accordance with the provisions of Section 4.06, accrued to his Early Retirement Date adjusted (1) to take into account the Member’s Social Security Benefit and (2) as provided below. If the Member’s death occurs prior to the time the Member is or would upon proper application first be entitled to receive such Social Security Benefit, such adjustment shall nevertheless be made at the Member’s date of death. The benefit payable to the Beneficiary shall be reduced by one-half of one percent per year for each year between the date on which the election became

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effective and the date of the Member’s death. If the Beneficiary is more than five years younger than the Member, the benefit payable to the Beneficiary shall be further reduced by one-half of one percent for each full year the Beneficiary is more than five years younger.
The Member shall, at his Early Retirement Date, complete such forms as are required under this Section 4.08(c)(ii) and, if he so elects, coverage hereunder shall be effective as of his Early Retirement Date. A Member will be deemed to have waived coverage under this Section 4.08(c)(ii) if he does not file the appropriate forms with the Administrative Committee at his Early Retirement Date. If the Member subsequently makes an election hereunder, it shall become effective one year after the first day of the calendar month coincident with or next following (i) the date the notice is received by the Administrative Committee or (ii) the date specified in such notice, if later.
The optional Supplemental Pre-Retirement Survivor’s Benefit shall be payable for the life of the Beneficiary commencing on what would have been the Member’s Normal Retirement Date or date of death, if later. However, if a Member dies prior to his Normal Retirement Date, the Beneficiary may elect, by written application filed with the Administrative Committee, to have such payments begin as of the first day of any calendar month coincident with or next following the Member’s date of death and prior to what would have been the Member’s Normal Retirement Date; provided, however, payment of the optional Supplemental Pre-Retirement Survivor’s Benefit must commence on the date payment of the automatic Pre-Retirement Survivor’s Benefit payable under Section 4.08(b)(i) or (ii) commences. If the Beneficiary elects to commence payment of the optional Supplemental Pre-Retirement Survivor’s Benefit prior to what would have been the Member’s Normal Retirement Date, the amount of such benefit shall be determined in accordance with Section 4.08(c)(i) and (ii) above, as applicable, and without reduction for such early commencement.
Notwithstanding the foregoing, in the event the Member’s Beneficiary is someone other than his Spouse, payment of the optional Supplemental Pre-Retirement Survivor’s Benefit shall commence as soon as practicable following the Member’s date of death but in no event later than one year after the Member’s date of death.
(d) Notwithstanding any provision of Section 4.08(b) or Section 4.08(c) to the contrary, in no event shall the sum of the automatic Pre-Retirement Survivor’s Benefit payable under the provisions of Section 4.08(b) and the optional Supplemental Pre-Retirement Survivor’s Benefit payable under the provisions of Section 4.08(c) to a Beneficiary who is the Spouse of a Member, be less than the amount of benefit the Spouse would have received if the retirement allowance to which the Member was entitled at his date of death (i) had commenced on the date the Spouse elects to have payment under such Pre-Retirement Survivor’s Benefit commence, (ii) in the form of an Automatic Joint and Survivor Annuity under Section 4.07(a)(i)(1), and (iii) the Member had died immediately thereafter. However, in lieu of the Automatic Joint and Survivor Annuity referred to in the preceding sentence, the 80/80 Spouse’s Annuity Option described in Section 4.07(b)(ii) or the Contingent Annuity Option described in Section 4.07(b)(iii) if the Member’s Spouse is the named contingent annuitant shall be used to compute the amount payable to the Spouse if, within the 90-day period prior to his Annuity Starting Date, the Member had elected such optional form of payment.

(e) Benefits payable to an estate or trust

If a Member’s Beneficiary under this Section 4.08 is his estate or a trust, the benefits otherwise payable under Section 4.08(b)(i), Section 4.08(b)(ii), and if elected under Section 4.08(c), shall be commuted into a single lump sum amount, which amount shall be determined by multiplying the benefits otherwise payable by the appropriate factor in Tables 4 or 5 of Appendix A and calculated by assuming the Beneficiary had been a person of the same age as the Member at the Member’s date of death. In no event shall the amount of the lump sum be less than the amount required by applicable law. The payment of such single lump sum amount and any lump sum amount payable under the provisions of Section 4.08(c)(iii) shall represent the full and total payment of all benefits due under the Plan. The Administrative Committee shall resolve any questions arising hereunder on a basis uniformly applicable to all Members similarly situated.

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(f) If the Member’s Beneficiary dies during the period coverage is effective under Section 4.08(b) and Section 4.08(c), the Beneficiary designation shall thereby be canceled. However, coverage under Section 4.08(b) and, if elected, under Section 4.08(c) shall nevertheless continue in full effect. The Member’s Beneficiary thereafter shall be in accordance with his subsequent designation of a new Beneficiary or in accordance with the term “Beneficiary” as defined herein.

If the Member has designated by written election (i) his Spouse as his Beneficiary and the Member’s marriage to said Spouse is legally dissolved by a divorce decree, or (ii) his Registered Domestic partner as his Beneficiary and the Domestic partnership is terminated and the Member has filed a Termination of Domestic Relationship form with the Company, the Beneficiary designation under Sections 4.08(b) and 4.08(c) shall remain in effect until a subsequent Beneficiary designation is submitted by the Member to the Administrative Committee or until the Member remarries or has another Registered Domestic Partner. Upon the Member’s remarriage, the Member’s Beneficiary shall, subject to the provisions of applicable law, automatically be his new Spouse, unless the Member designates a different Beneficiary, subject to Spousal Consent. Upon the Member’s designation and registration with the Company of a new Registered Domestic Partner, the Member’s Beneficiary shall automatically be his new Registered Domestic Partner unless the Member designates a different Beneficiary. Coverage under Section 4.08(b) and, if elected, under Section 4.08(c) shall continue in full effect.
A Member may change his Beneficiary designation at any time after receiving the written explanation described in Section 4.08(g), subject to Spousal Consent. Any such change shall become effective on the first day of the calendar month coincident with or next following the (i) date the notice of change is received by the Administrative Committee or (ii) the date specified in such notice, if later, and the original designation shall remain in effect until such date.
(g) The Administrative Committee shall furnish to each Member a written explanation in non-technical language which describes (i) the terms and conditions of the automatic Pre-Retirement Survivor’s Benefit and the optional Supplemental Pre-Retirement Survivor’s Benefit, (ii) the Member’s right to make an election to designate a Beneficiary other than his Spouse or his Registered Domestic Partner, as applicable, and the effect of such election, (iii) the right to revoke, prior to the Annuity Starting Date, such designation and the effect of such revocation, and (iv) the rights of the Member’s Spouse and Registered Domestic Partner, as applicable, if any. The Administrative Committee shall furnish this written explanation to each Member during the period beginning one year prior to the earlier of (i) the date the Member satisfies the age and service eligibility requirements for an early retirement allowance under Section 4.04(a) or 4.05(a) or (ii) the Member’s Normal Retirement Date, and ending within one year after such date.

(h) A Member may revoke an election made under Section 4.08(c) at any time prior to his Annuity Starting Date. There shall be no further reduction to the Member’s retirement allowance for any period during which an election under Section 4.08(c) is not in effect. The Member may make a new election at any time thereafter and any subsequent election shall become effective one year after the first day of the calendar month coincident with or next following the (i) date the notice is received by the Administrative Committee or (ii) date specified in such notice, if later. If the Member dies prior to the time an election under Section 4.08(a)(iii) or Section 4.08(c) becomes effective, the election shall thereby be canceled.

Any designation of a Beneficiary and any election made pursuant to the provisions of this Section 4.08 (including any waiver or revocation of either of them) shall be made (i) on a form approved by and filed with the Administrative Committee and (ii) in accordance with the term “Beneficiary” as defined in this Section 4.08.
(i) If a retired Member or a former Member is reemployed before or after his Normal Retirement Date, his rights with respect to this Section 4.08 shall be determined in accordance with Section 4.12(b).
4.09     Maximum Benefits

(a) The provisions of Section 415(b) of the Code are incorporated into the Plan by reference. The following provisions of this Section reflecting the increased limitations of Section 415(b) of the Code effective on and after January 1, 2002, shall apply to all current and former Members (with benefits limited by Section 415(b) of the Code)

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who have an Accrued Benefit under the Plan immediately prior to January 1, 2002, (other than an Accrued Benefit resulting from a benefit increase solely as a result of the increases in limitations under Section 415(b)); provided such increase will not apply to a former Member if such increase will result in a duplication of benefits payable from the Plan and any other qualified or nonqualified plan sponsored by the Company or Associated Company.

(b) Notwithstanding any other provision of the Plan, the annual benefit to which a Member is entitled under the Plan shall not, in any Limitation Year, which shall be the Plan Year, be in an amount which would exceed the applicable limitations under Section 415 of the Code and regulations thereof. If the benefit payable under the Plan would (but for this Section) exceed the limitations of Section 415 of the Code by reason of a benefit payable under another defined benefit plan aggregated with this Plan under Section 415(f) of the Code, the benefit under this Plan shall be reduced only after all reductions have been made under such other plan.

(c) Except as otherwise provided in an Appendix hereto, as of January 1 of each calendar year, the dollar limitation as determined by the Commissioner of Internal Revenue for that calendar year shall become effective as the maximum permissible dollar amount of retirement allowance payable under the Plan during the calendar year, including any retirement allowance payable to Members who retired prior to that calendar year, in lieu of the dollar amount applicable in prior years. Such recomputed retirement allowance shall be payable to a retired Member on and after said date, but only if the Administrative Committee finds that doing so will not result in the duplication of benefits payable from this Plan and any other qualified or nonqualified plan sponsored by the Company.

(d) The benefit payable to a Member’s Spouse under a qualified joint and survivor annuity or under a qualified preretirement survivor annuity shall be subject to the dollar limitation which would apply if the benefits were payable to the Member in the form of a life annuity. The amount of the benefit payable to the Spouse, and which is subject to the preceding sentence, shall be computed from the Member’s Accrued Benefit and the Member’s actual or deemed benefit election, under Section 4.07 and 4.08, before application of this Section 4.09.

(e) The term “compensation” for purposes of applying the applicable limitations of Section 415 of the Code with respect to any Member means Statutory Compensation.

(f) Effective as of January 1, 1995, and notwithstanding the preceding provisions of this Section 4.08, the maximum annual retirement allowance payable to a Member who has a Freeze Date enumerated below shall be equal to his Old Law Benefit. A Member’s “Old Law Benefit” at any date is the maximum benefit he would be entitled to receive at such date, determined without regard to any changes in terms and conditions of the Plan after December 8, 1994, without regard to any benefits that accrue under the Plan after his Freeze Date, and without regard to any cost of living changes that become effective after his Freeze Date. The Freeze Date of a Member whose retirement allowance commences on or after January 1, 1995, and before January 1, 1996, shall be December 31, 1995.

(g) Notwithstanding the preceding paragraphs of this Section, in no event shall a Member’s annual retirement allowance or vested benefit payable under this Plan be less than:

(i) the allowance or benefit which the Member had accrued under the Plan as of the end of the Plan Year beginning in 1982; provided, however, that in determining that benefit no changes in the terms and conditions of the Plan on or after July 1, 1982, shall be taken into account, or

(ii) the allowance or benefit which the Member had accrued under the Plan as of the end of the Plan Year beginning in 1986; provided, however, that in determining that benefit no changes in the terms and conditions of the Plan after May 5, 1986, shall be taken into account.
4.10     No Duplication

Except as otherwise provided in the Plan or in an Appendix hereto, there shall be deducted from any retirement allowance or vested benefit payable under this Plan under rules uniformly applicable to all Members similarly situated the part of any pension or comparable benefit, including any single lump sum payment, provided by employer contributions which the Company, any Participating Unit, (including any former Participating Unit divested by ITT),

53



any Associated Company or any affiliate of the Company is obligated to pay or has paid to or under any defined benefit plan or other agreement which provides for benefits comparable to those benefits paid under a defined benefit plan with respect to any service which is Benefit Service for purposes of computation of benefits under this Plan; provided, however, that in the case the terms of a nonqualified plan provide for the duplication of any service with the Plan, this Section 4.10 will not apply.
4.11     Payment of Benefits

(a) Unless otherwise provided below, or under Section 4.08 or an Appendix hereto, the automatic form of benefit described in Section 4.07(a), an optional benefit described in Section 4.07(b)(i), (ii), (iii), or (iv) elected pursuant to Section 4.07, the survivor’s benefits available under Section 4.08, or the provisions of Section 4.11(e), all retirement allowances, vested benefits or other benefits payable under the Plan will be paid in monthly installments as of the end of each month beginning with (i) the month in which a Member who has incurred a Severance Date reaches his Normal Retirement Date, (ii) the month in which a Member has reached his Postponed Retirement Date, (iii) the month in which a Member who has incurred a Severance Date has, upon proper application, requested commencement of his vested benefit or early retirement allowance, or (iv) the month in which benefits under an optional benefit under Section 4.07 or the survivor’s benefits under Section 4.08 become payable, whichever is applicable. Anything to the contrary notwithstanding, payment of a former Member’s retirement allowance or vested benefit shall not begin prior to the end of the month following the month in which a Member incurs a Severance Date. Monthly installments shall cease with the payment for the full month in which the recipient dies. Notwithstanding any Plan provisions to the contrary, in no event shall a retirement allowance or vested benefit be payable to a Member who continues in or resumes active service with the Company or an Associated Company as a common law employee or continues to accrue Eligibility Service under the provisions of an Appendix hereto, except as provided in Sections 4.03(d), 4.11(e), 412(e) or the 29 Code of Federal Regulations Section 2530.203-3 as promulgated by the Department of Labor.

Unless otherwise provided in this Section 4.11 or Sections 4.05 or 4.08, or a Former Plan or an Appendix hereto, a single Annuity Starting Date shall be applicable to the entire retirement allowance, vested benefit or survivor benefit payable to or on behalf of a Member or Former Member. Notwithstanding any Plan provisions to the contrary, a Member or former Member who has an Accrued Benefit under both Section 4.01(a) and Section 4.01(b) and who retires from service with the Company and all Associated Companies on or after January 1, 2005, under Section 4.04 or 4.05, may elect to receive payment of the PEP Formula Benefit portion of his retirement allowance or vested benefit in a single lump sum in accordance with the provisions of Section 4.07 prior to the commencement of the TPP Formula Benefit portion of his retirement allowance or vested benefit; provided, however the Annuity Starting Date applicable to such single lump sum payment of the PEP Formula Benefit portion of his retirement allowance or vested benefit occurs within 90 days of such Member’s or former Member’s Severance Date.
(b)

(i) In any case, with respect to a Member who incurs a Severance Date prior to January 1, 1996, a single lump sum payment equal to the vested benefit payable under Section 4.06 or the vested Spouse’s benefit payable under Section 4.08(a) multiplied by the appropriate factor contained in Table 4, 5 or 6 of Appendix A shall be made in lieu of any vested benefit payable to a former Member or any vested Spouse’s benefit payable to a Spouse of a Member or a former Member, if the lump sum present value of such benefit amounts to $5,000 ($3,500 prior to January 1, 2005) or less. In no event, however, shall that adjustment factor produce a lump sum that is less than the amount determined by using the interest rate assumption used by the Pension Benefit Guaranty Corporation for valuing benefits for determining single lump sum payments under single employer plans that terminate on January 1 of the Plan Year in which the Annuity Starting Date occurs. Notwithstanding the foregoing, in no event shall the amount of the single payment made on or after January 1, 2000, pursuant to the foregoing provisions of this Section 4.11(b) to a Member who incurs a Severance Date prior to January 1, 1996, be less than the amount determined under the following provisions of this paragraph and by using the IRS Mortality Table and IRS Interest Rate.


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With respect to a Member who incurs a Severance Date on or after January 1, 1996, a single lump sum payment of Equivalent Actuarial Value shall be made in lieu of any vested benefit payable to the former Member or any vested Spouse’s benefit payable to a Spouse or Registered Domestic Partner of a Member or a former Member, if the present value of the vested benefit payable under Section 4.06 or the vested Spouse’s benefit payable under Section 4.08(a) to or on the behalf of the Member or former Member as of the Member’s Normal Retirement Date or actual termination of service, if later, amounts to $5,000 ($3,500 prior to January 1, 2005) or less. In determining the amount of a single lump sum payment payable to a Member who incurs a Severance Date on or after January 1, 1996, (i) Equivalent Actuarial Value shall mean a benefit, in the case of a lump sum benefit payable prior to a Member’s Normal Retirement Date, of equivalent value to the benefit which would otherwise have been provided commencing at the Member’s Normal Retirement Date and (ii) the Equivalent Actuarial Value shall be determined as of the date following the Member’s Severance Date selected by the Administrative Committee or its delegate (the “Determination Date”) and by using the IRS Mortality Table and the IRS Interest Rate. The single payment may be made as soon as practicable following such Determination Date, but in any no event shall such single lump sum payment be made after the date such Member’s benefit payments have commenced as an annuity. A single lump sum payment of Equivalent Actuarial Value shall be made in lieu of (i) any early, normal, or postponed retirement allowance payable to a Member or (ii) any pre-retirement survivor benefit payable to a Member’s or former Member’s Spouse, Registered Domestic Partner or beneficiary under Sections 4.08(b) and 4.08(c), if the lump sum present value of such benefit as of the Determination Date amounts to $5,000 ($3,500 prior to January 1, 2005) or less. In determining this lump sum benefit (i) Equivalent Actuarial Value shall mean a benefit of equivalent value to the benefit which would otherwise have been provided commencing on the Member’s Normal Retirement Date and (ii) the Equivalent Actuarial Value shall be determined by using the IRS Mortality Table and the IRS Interest Rate.
Effective on and after September 4, 2007, in the event the lump sum present value of a retirement allowance or vested benefit payable to a Member or any vested Spouse’s benefit or pre-retirement survivor annuity payable to a Member’s or a former Member’s Spouse, Registered Domestic Partner or Beneficiary, determined in accordance with the above provisions, exceeds $5,000 upon initial determination as to its present value, then with respect to a Member or a Member’s or former Member’s Spouse or Beneficiary who receives the PEP Formula Benefit portion of said benefit in a single lump sum payment, the lump sum present value of the remaining TPP Formula Benefit portion of said benefit shall be redetermined in accordance with the above provisions as of a subsequent date as determined by Administrative Committee or its delegate. If the lump sum present value of the remaining TPP Formula Benefit portion of said benefit is equal to $5,000 or less, the Equivalent Actuarial Value of such TPP Formula Benefit portion of such benefit will be paid to the Member or the Member’s or former Member’s Spouse, Registered Domestic Partner or Beneficiary in lieu of a monthly benefit. Such single lump sum payment shall be made as soon as practicable following the determination that the TPP portion of said benefit qualifies for distribution under this paragraph.

Notwithstanding the foregoing, the portion of any single lump sum payment attributable to the PEP Formula Benefit portion of a Member’s vested Benefit or retirement allowance, whichever is applicable, shall not be less than his PEP Formula Lump Sum Value determined as of its Annuity Starting Date. Effective as of January 1, 2008, and notwithstanding any other provision hereof, the lump sum equivalent actuarial value of a Member’s or former Member’s PEP Formula Benefit as of his Annuity Starting Date shall be equal to his PEP Formula Lump Sum Value determined as of such date.
(ii) In the event a Member is not entitled to any retirement allowance or vested benefit upon his termination of employment, he shall be deemed “cashed-out” under the provisions of this paragraph (b) as of his Severance Date. In the event such Member is credited with an Hour of Service before incurring a Break in Service of five consecutive years following the date he terminated service, his vested benefit previously deemed to be distributed to him hereunder will be deemed repaid to the Plan.


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(b) In the event that the Administrative Committee shall find that a person to whom benefits are payable is unable to care for his affairs because of illness or accident or is a minor or has died, then, unless claim shall have been made therefor by a legal representative, duly appointed by a court of competent jurisdiction, the Administrative Committee may direct that any benefit payment due him be paid to his Spouse, Registered Domestic Partner, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment made shall be a complete discharge of the liabilities of the Plan therefor.

(c) Before any benefit shall be payable to a Member, a former Member, or other person who is or may become entitled to a benefit hereunder, such Member, former Member, or other person shall file with the Administrative Committee such information as it shall require to establish his rights and benefits under the Plan.

(d) Except as otherwise provided in this Article 4, payment of a Member’s retirement allowance or a former Member’s vested benefit shall begin as soon as administratively practicable following the latest of (i) the Member’s Normal Retirement Age or (ii) the date he terminates employment with the Company and all Associated Companies (but not more than 60 days after the close of the Plan Year in which the latest of (i) or (ii) occurs).

Except as otherwise provided under applicable law, in the case of a Member in active service who is a five-percent owner (as defined in Section 416(i) of the Code) of the Company or an Associated Company, payment of such Member’s retirement allowance or vested benefit shall begin not later than April 1 of the calendar year following the calendar year in which the Member attains age 70½. Except as otherwise provided under applicable law, in the case of a Member who is not a five-percent owner (as defined in Section 416(i) of the Code) of the Company or an Associated Company, payment of such Member’s retirement allowance or vested benefit shall begin no later than the April 1 following the calendar year in which the Member attains age 70½ or terminates employment with the Company and all Associated Companies, if later. In the case of any other Member in active service who attains age 70½ prior to January 1, 1999, payment of such Member’s retirement allowance or vested benefit shall begin not later than April 1 of the calendar year following the calendar year in which he attains age 70½.
(e) Notwithstanding any other provision of this Section 4.11, all distributions from this Plan shall conform to the regulations issued under Section 401(a)(9) of the Code, including the incidental death benefit provisions of Section 401(a)(9)(G) of the Code. Distributions under this Section 4.11 shall meet the requirements of Treas. Reg. §§ 1.401(a)(9)-2 through 1.401(a)(9)-9. Further, such regulations shall override any Plan provision that is inconsistent with Section 401(a)(9) of the Code. If a Member dies after his retirement allowance or vested benefit payments have commenced, any payments continuing on to his Spouse, Registered Domestic Partner or Beneficiary shall be distributed at least as rapidly as under the method of distribution being used as of the Member’s date of death.

(f) All distributions shall be subject to the following rules:

(i) Any additional benefits accruing to a Member in a calendar year after the first distribution calendar year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues.

(ii) If the Member’s retirement allowance or vested benefit is being distributed in the form of a joint and survivor annuity for the joint lives of the Member and a non-Spouse beneficiary, annuity payments to be made on or after the Member’s required beginning date to the designated beneficiary after the Member’s death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the Member using the table set forth in Q&A-2 of Treas. Reg. § 1.401(a)(9)-6. If the Annuity Starting Date precedes the year in which the Member reaches age 70, in determining the applicable percentage, the Member/Beneficiary age difference is reduced by the number of years that the Member is younger than age 70.

(iii) If the Member’s retirement allowance or vested benefit is being distributed in the form of a period certain and life annuity option, the period certain may not exceed the applicable distribution period for the Member under the Uniform Lifetime Table set forth in Treas. Reg. § 1.401(a)(9)-9 for the calendar year that contains the Annuity Starting Date. If the Annuity Starting Date precedes the year in which the Member

56



reaches age 70, the applicable distribution period for the Member is the distribution period for age 70 under the Uniform Lifetime Table set forth in Treas. Reg. § 1.401(a)(9)-9 plus the excess of 70 over the age of the Member as of the Member’s birthday in the year that contains the Annuity Starting Date.

(iv) For purposes of this Section, the following definitions shall apply:

(1) Designated beneficiary . The individual who is designated as the beneficiary under Section 1.07 is the designated beneficiary under Section 401(a)(9) of the Code and Treas. Reg. § 1.401(a)(9)-4, Q&A-1.

(2) Distribution calendar year . A calendar year for which a minimum distribution is required. For distributions beginning before the Member’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Member’s required beginning date.

(3) Life expectancy . Life expectancy as computed using the Single Life Table in Treas. Reg. § 1.401(a)(9)-9.

(4) Required beginning date . The date specified in paragraph (e).
4.12     Reemployment of Former Member or Retired Member
(a) Cessation of benefit payments

If a former Member or a retired Member entitled to or in receipt of a vested benefit or retirement allowance is reemployed by the Company or by an Associated Company as a common law employee, or reemployed as provided in an Appendix hereto, any benefit payments he is receiving shall cease, except as otherwise provided in Sections 4.03(d), 4.11(e), 4.12(e) or said Appendix.
(b) Optional forms of pension benefits

(i) If the Member as described in paragraph (a) above is reemployed, any previous election of an optional benefit under Section 4.07 or a survivor’s benefit under Section 4.08 shall be revoked and the terms and conditions of sub-paragraph (ii) of this paragraph (b) shall apply.

(ii) Any Member described in paragraph (a) above who is at least age 55 with ten or more years of Eligibility Service when he is reemployed shall, with respect to the vested benefit or retirement allowance earned prior to his reemployment and with respect to any additional benefits earned during reemployment, be covered by the provisions of Section 4.08(b) - Automatic Pre-Retirement Survivor’s Benefit - and be eligible to elect coverage under Section 4.08(c) - Optional Supplemental Pre-Retirement Survivor’s Benefit. Coverage under Section 4.08(b) shall be effective on the first day of the calendar month coincident with or next following the date of his reemployment and any previous election shall remain in effect until such date. If, within 30 days after reemployment, the Member elects coverage under Section 4.08(c), such coverage shall be effective as of the first day of the calendar month coincident with or next following the date of his reemployment. If the Member does not make an election under Section 4.08(c) within 30 days after his reemployment or he waives such coverage, any later election shall become effective one year after the first day of the calendar month coincident with or next following the date notice is received by the Administrative Committee or on the date specified in such notice, if later.

(iii) Any Member or former Member described in paragraph (a) who has at least five years of Eligibility Service but who has not met the age and service eligibility requirements under Section 4.04(a) and 4.05(a) when he is reemployed shall be covered by the provisions of Sections 4.08(a)(i) - Automatic Vested Spouse’s Benefit - until he meets the age and service eligibility requirements under Section 4.04(a) or 4.05(a) or reaches his Normal Retirement Date, if earlier. Such coverage shall be effective on the first day of the calendar month coincident with or next following the date of his reemployment and any previous election shall remain in effect until such date. Such former Member and any other Member or former Member shall

57



be covered by the provisions of Section 4.08(b) - Automatic Pre-Retirement Survivor’s Benefit - and shall be eligible to elect coverage under Section 4.08(c) - Optional Supplemental Pre-Retirement - Survivor’s Benefit upon the later of the date he reaches the age and service eligibility requirements under Sections 4.04(a) or 4.05(a), or his Normal Retirement Date, and such coverage shall be in accordance with the provisions of such Sections and shall apply with respect to his retirement allowance or vested benefit earned prior to his reemployment, as well as any additional benefits earned during reemployment.
(c) Benefit payments at subsequent termination or retirement

(i) In accordance with the procedure established by the Administrative Committee on a basis uniformly applicable to all Members similarly situated, upon the subsequent retirement of a Member in service after his Normal Retirement Date, payment of such Member’s retirement allowance shall resume no later than the third month after the final month during the reemployment period in which he is credited with at least eight days of service.

(ii) Upon the subsequent retirement or termination of employment of a Member described in paragraph (a), the Administrative Committee shall, in accordance with rules uniformly applicable to all Members similarly situated, determine the amount of vested benefit or retirement allowance which shall be payable to such Member at such subsequent retirement or termination. Except as otherwise provided in the following sentences, such vested benefit or retirement allowance shall not be less than the sum of (1) the original amount of vested benefit or retirement allowance previously earned by such Member in accordance with the terms of the Plan in effect during such previous employment adjusted to reflect the election of any survivor’s benefits pursuant to Section 4.08(a)(ii) or 4.08(c) and (2) any additional vested benefit or retirement allowance earned during his period of reemployment (based on his Benefit Service and Compensation earned during said period), such amounts to be adjusted to reflect the election during reemployment of any survivor’s benefits pursuant to Section 4.08(a)(ii) or 4.08(c); provided, however, if a Member described in paragraph (a) received a lump sum payment of the PEP Formula Benefit portion of his benefit, the PEP Formula Benefit portion of his retirement allowance or vested benefit computed on the basis of the Member’s Benefit Service and Final Average Compensation earned prior to his reemployment shall be reduced by an amount that reflects the PEP Formula Benefit amount he previously received before his restoration to service determined under procedures established by the Administrative Committee and uniformly applicable to all Members similarly situated. Notwithstanding anything to the contrary contained in this Plan, with respect to a Member described in paragraph (a) who had incurred a Break in Service, the vested benefit or retirement allowance previously earned by the Member in accordance with the terms of the Plan in effect during his previous employment and computed on the basis of the Member’s Benefit Service, Eligibility Service, Final Average Compensation and Social Security Benefit credited prior to the date of reemployment shall not be recalculated or increased until the Member, regardless of his vested status, has completed at least twelve months of Eligibility Service following his Break in Service and, in such event, the re-calculated vested benefit or retirement allowance, prior to any optional modification in accordance with the provisions of Section 4.07, shall be reduced by an amount that reflects the amounts previously received by the former Member or retired Member before the earlier of his restoration to service or his Normal Retirement Date determined under procedures established by the Administrative Committee and uniformly applicable to all Members similarly situated; provided that no such reduction shall reduce such retirement allowance or vested benefit below the amount determined pursuant to clause (1) and (2) above.

(d) Questions relating to reemployment of former Members or retired Members

If, at subsequent termination of employment or retirement, any question shall arise under this Section 4.12 as to the calculation or re-calculation of a reemployed former Member’s or retired Member’s vested benefit or retirement allowance or election of an optional form of benefit under the Plan, such question shall be resolved by the Administrative Committee on a basis uniformly applicable to all Members similarly situated.

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(e) No cessation of benefit payments for legacy Harris employees as of December 31, 2015

Notwithstanding anything in this Plan to the contrary, if a former Member or a retired Member is receiving payment of a vested benefit or retirement allowance and such Member was employed by Harris Corporation or its affiliates as of December 31, 2015, any benefit payments he is receiving shall continue.

4.13     Return of Contributions with Respect to Members who Participated in a Contributory Former Pension Plan

(a) The provisions of this 4.13(b) shall apply to any Member who participated in a contributory pension plan which has been designated as a Former Pension Plan hereunder and whose contributions were not refunded to him upon such designation of that plan.

(b) In the event of the termination of service or the death of such a Member, the terms and conditions of the Former Pension Plan with respect to the return of a Member’s contributions under those circumstances shall be operative. For this purpose, the contributions of the Member shall include interest credited thereon as of the date of designation of said plan as a Former Pension Plan and any interest which may subsequently be credited thereon which, for the period on and after January 1, 1976, shall not be less than a rate of five percent per annum or such other rate required pursuant to Section 411(c)(2) of the Code or by any other applicable law.
4.14     Payment of “Accumulated Benefits” under Former Pension Plans

Anything contained herein to the contrary notwithstanding, the “accumulated benefit” of any Member who was a participant under a Former Pension Plan shall be payable from this Plan (unless payable from some other source) under the terms and conditions of this Plan (including but not limited to the terms and conditions of Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, and 4.12) except as modified by an Appendix hereto; provided, however, that in any case in which the application of the terms and conditions of this Plan shall eliminate or reduce an “accumulated benefit” otherwise payable to a Member, the terms and conditions of the Former Pension Plan shall be operative. Eligibility Service rendered to the Company or to an Associated Company by a Member subsequent to the date of his membership in this Plan shall be deemed service under a Former Pension Plan solely for the purpose of determining eligibility for any benefits payable under such Former Pension Plan.
For purposes of this Section 4.14, “accumulated benefit” shall mean, except as otherwise provided in an Appendix hereto, the amount of pension or other benefit computed pursuant to the benefit formula under a Former Pension Plan, whether or not vested, which a Member has earned on account of his service credited for purposes of computing a benefit under such Former Pension Plan prior to the date said plan was amended and continued as this Plan. Recognizing that the amount of benefits earned under a Former Pension Plan may not be directly applicable to particular periods of service or the amounts of compensation actually received while the Member was a participant under such Former Pension Plan, the Administrative Committee may adopt such reasonable rules and methods as may be required for determining the “accumulated benefit,” provided that the rules and methods adopted shall be uniformly applicable to all persons similarly situated.
In order that the duration, frequency and commencement date of payment of such “accumulated benefits” will coincide to the extent possible with the duration, frequency and commencement date of payment of the benefits otherwise payable under this Plan, the Administrative Committee may, under rules uniformly applicable to all persons similarly situated, determine the manner, mode and commencement date of benefit payments under this Section 4.14, provided that such benefits shall be of Equivalent Actuarial Value to such “accumulated benefits” and that the Plan provisions continue to comply with Section 411(d)(6) of the Code.
4.15     Top-heavy Provisions

(a) The following definitions apply to the terms used in this Section:

(i) applicable determination date ” means the last day of the preceding Plan Year;

59




(ii) top-heavy ratio ” means the ratio of (1) the present value of the cumulative Accrued Benefits under the Plan for key employees to (2) the present value of the cumulative Accrued Benefits under the Plan for all key employees and non-key employees; provided, however, that if an individual has not performed services for the Company at any time during the five-year period ending on the applicable determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account and provided further, that the present values of Accrued Benefits under the Plan for an employee as of the applicable determination date shall be increased by the distributions made with respect to the employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the one-year period (five-year period in the case of a distribution made for a reason other than severance from employment, death, or disability) ending on the applicable determination date and any distributions made with respect to the employee under a terminated plan which, had it not been terminated, would have been in the required aggregation group;

(iii) applicable valuation date ” means the date within the preceding Plan Year as of which annual Plan costs are or would be computed for minimum funding purposes;

(iv) key employee ” means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the applicable determination date was an officer of the Company or an Associated Company; having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a five percent owner (as defined in Section 416(i)(1)(B)(i) of the Code) of the Company or an Associated Company, or a one percent owner (as defined in Section 416(i)(1)(B)(ii) of the Code) of the Company or an Associated Company; having annual compensation greater than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee shall be made in accordance with Section 416(i) of the Code and the applicable regulations and other guidance of general applicability issued thereunder;

(v) non-key employee ” means any employee who is not a key employee;

(vi) average remuneration ” means the average annual remuneration of a Member for the five consecutive years of his Eligibility Service after December 31, 1983, during which he received the greatest aggregate remuneration from the Company or Associated Company, excluding any remuneration for service after the last Plan Year with respect to which the Plan is top-heavy;

(vii) required aggregation group ” means each other qualified plan of the Company or an Associated Company (including plans that terminated within the five-year period ending on the determination date) in which there are members who are key employees or which enables the Plan to meet the requirements of Section 401(a)(4) or 410 of the Code; and

(viii) permissive aggregation group ” means each plan in the required aggregation group and any other qualified plan(s) of the Company or an Associated Company in which all members are non-key employees, if the resulting aggregation group continues to meet the requirements of Sections 401(a)(4) and 410 of the Code.

(b) For purposes of this Section 4.15, the Plan shall be “top-heavy” with respect to any Plan Year beginning on or after January 1, 1984, if, as of the applicable determination date, the top-heavy ratio exceeds 60 percent. The top-heavy ratio shall be determined as of the applicable valuation date in accordance with Section 416(g)(3) and (4)(B) of the Code on the basis of the same mortality and interest rate assumptions used to value the Plan. For purposes of determining whether the Plan is top-heavy, the present value of Accrued Benefits under the Plan will be combined with the present value of accrued benefits or account balances under each other plan in the required aggregation group, and, in the Company’s discretion, may be combined with the present value of accrued benefits or account balances under any other qualified plan(s) in the permissive aggregation group. The Accrued Benefit of a non-key employee

60



under the Plan or any other defined benefit plan in the aggregation group shall be (i) determined under the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Company or an Associated Company or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule described in Section 411(b)(i)(C) of the Code.

(c) The following provisions shall be applicable to Members for any Plan Year with respect to which the Plan is top-heavy:

(i) In lieu of the vesting requirements specified in Section 4.05, the following vesting schedule shall apply with respect to a Member who has not completed an “Hour of Service” as defined in Section 2.01(c) on or after January 1, 2008:
Years of Eligibility Service
Percentage Vested
Less than 2 years
0%
2 years
20%
3 years
40%
4 years
60%
5 or more years
100%

(i) The Accrued Benefit of a Member who is a non-key employee shall not be less than two percent of his average “Statutory Compensation” multiplied by the number of years of his Eligibility Service, not in excess of ten, during the Plan Years for which the Plan is top-heavy. For purposes of the preceding sentence, for Plan Years beginning on and after January 1, 2002, Eligibility Service shall be disregarded to the extent that such Eligibility Service occurs during a Plan Year when the Plan benefits (within the meaning of Section 410(b) of the Code) no key employee or former key employee. Such minimum benefit shall be payable at a Member’s Normal Retirement Date. If payments commence at a time other than the Member’s Normal Retirement Date, the minimum Accrued Benefit shall be of Equivalent Actuarial Value to such minimum benefit, as determined on the basis of the actuarial assumptions stated in Section 4.15(b) above.

(a) If the Plan is top-heavy with respect to a Plan Year and ceases to be top-heavy for a subsequent Plan Year, the following provisions shall be applicable:

(i) The Accrued Benefit in any such subsequent Plan Year shall not be less than the minimum Accrued Benefit provided in Section 4.15(c)(ii) above, computed as of the end of the most recent Plan Year for which the Plan was top-heavy.

(ii) If a Member has completed three years of Eligibility Service on or before the last day of the most recent Plan Year for which the Plan was top-heavy, the vesting schedule set forth in Section 4.15(c)(i) above shall continue to be applicable.

(iii) Effective January 1, 2007, if a Member has completed fewer than three years of Eligibility Service on or before the last day of the most recent Plan Year for which the Plan was top-heavy, the vesting provisions set forth in the foregoing provisions of this Section 4.15 shall continue to be applicable to the portion of his accrued benefit determined as of the last day of the Plan Year in which the Plan was top-heavy, and the Plan’s vesting schedule set forth in the preceding Articles of the Plan applicable to years in which the Plan is not top heavy shall again be applicable with respect to the remaining portion of his accrued benefit; provided, however, that in no event shall the vested percentage of such remaining portion be less than the percentage determined under the foregoing provisions of this Section 4.15 as of the last day of the most recent Plan Year for which the Plan was top-heavy.
4.16     Payment of Medical Benefits for Certain Members who retire Under the Plan

This Section 4.16 defines the basis of providing medical benefits to eligible Members or their eligible dependents as defined below for those expenses incurred by such Members or their eligible dependents on or after the

61



date specified in Section 4.16(a) and, effective on and after January 1, 2012, to pay any necessary or appropriate expenses attributable to the administration of such medical benefits not paid by the Company.
(a) Eligibility

(i) In order to be eligible for the benefits provided hereunder, a person must be a Plan Member who retired under the Plan provisions during one of the periods shown below and, with respect to the period prior to October 31, 2011, be eligible for post-retirement medical benefits under the ITT Salaried Retiree Medical Plan including any predecessor plan, and with respect to the period beginning on and after October 31, 2011, the Exelis Salaried Retiree Health Plan, (hereinafter referred to as the “Exelis Medical Plan”) or be an eligible dependent of such a Member. Effective as of January 1, 2012, unless paid by the Company, covered medical expenses incurred during the applicable period shown below by such a Member or his eligible dependents shall be reimbursed hereunder.

Period of Retirement
Medical Expenses Incurred
During Following Period
On or before January 1, 1984
On or after December 31, 1984
After January 1, 1984 and
on or before August 1, 1986
On or after October 1, 1986
After August 1, 1986 and
on or before January 1, 1989
On or after January 1, 1989
After January 1, 1989 and
on or before January 1, 1992
On or after January 1, 1992.

Covered medical expenses incurred on or after March 1, 2011, by a Member who retired under the provisions of the Plan after January 1, 1992, (or his dependents) and, effective as of January 1, 2012, any necessary or appropriate expenses attributable to the administration of such medical benefits, shall be paid hereunder, unless paid by the Company; provided, however, that such Member (i) was an Employee (as such term is defined under the Plan) prior to January 1, 2000, and (ii) satisfied the eligibility requirements for post-retirement medical benefits under (1) with respect to the period prior to October 31, 2011, the ITT Salaried Retiree Medical Plan or a predecessor plan, or (2) with respect to the period on and after October 31, 2012, the Exelis Salaried Retiree Health Plan.
(ii) Notwithstanding any provision in this Section 4.16(a) to the contrary, in no event shall a Member or former Member, who is a “key employee” as defined in Section 416(i)(1) and (5) of the Code, or their dependents be eligible effective as of January 1, 1989, to receive medical benefits under this Section 4.16.

(b) The level of medical benefits covered under the provisions of this Section 4.16 shall be the medical coverage in effect under the terms of the Exelis Medical Plan (and with respect to the period prior to October 31, 2011, the ITT Salaried Retiree Medical Plan or any predecessor plan). Except as provided in this Section 4.16(b), such medical coverage or benefit plan may be withdrawn or amended from time to time as the Company shall determine.

Notwithstanding the foregoing, in the event of the occurrence of an Acceleration Event (as defined in Section 8.01(a)), the following provisions shall be applicable:
(i) The 401(h) Account (as defined in Section 4.16(c)) shall not be used for or diverted to any purpose other than (1) providing health benefits in accordance with the Exelis Medical Plan as in effect on the date of execution of the definitive agreement pursuant to which the Acceleration Event is effectuated (the “Signing Date”) for Members as of the Signing Date who have satisfied or will satisfy applicable eligibility requirements under this Section 4.16 for retiree health benefits (or their eligible dependents) as in effect on

62



the Signing Date and (2) to pay in accordance with Section 4.16 as in effect on the Signing Date any necessary or appropriate expenses attributable to the administration of such health benefits.

(ii) The Company shall maintain the Exelis Medical Plan (as it may be amended from time to time in the discretion of the Company or its parent, provided that, prior to the End Date (as defined herein), no such amendment may, alone or in combination with such other amendments, result in a material reduction in benefits under the Exelis Medical Plan and provided further, however, that the Exelis Medical Plan may be amended if and to the extent necessary to comply with applicable laws or to avoid any excise tax, penalty or similar payment under applicable laws, notwithstanding any reduction in benefits resulting therefrom) for the benefit of eligible Members for a period expiring no earlier than the date that the annual benefit payments and administrative expenses paid from the 401(h) Account in respect of the Exelis Medical Plan during a Plan Year exceed the assets of the 401(h) Account at the end of such Plan Year (in each case as determined by an actuary engaged by the Company or its parent) (the “End Date”).

(iii) Prior to the End Date, neither this Plan nor the Exelis Medical Plan may be amended, modified or otherwise changed in any manner that is inconsistent with the provisions of this Section 4.16(b), except with the written consent of not less than three-quarters (3/4) of the Members and other persons entitled to benefits under the Exelis Medical Plan.

(iv) For the avoidance of doubt, (1) at and after the occurrence of an Acceleration Event, the Company or its parent shall have sole discretion, authority and responsibility with respect to the 401(h) Account and the Exelis Medical Plan, including, subject to the terms set forth in items (i) through (iii) of this Section 4.16(b), administrative, termination and amendment authority and the sole discretion and responsibility regarding any public announcement in the event modifications are made thereto, (2) the Company and its parent shall have no obligation to fund, or cause an affiliate to fund, the 401(h) Account at and after the occurrence of an Acceleration Event and (3) in no event shall the terms set forth in this Section 4.16(b) prohibit or be interpreted to prohibit the Company or its parent from ceasing contributions, terminating or taking other action with respect to this Plan prior to the End Date to the extent legally permissible (as long as the 401(h) Account or successor arrangement as described in Section 8.01(a) remains in effect on the terms described in item (i) of this Section 4.16(b)).

(c) Except as provided in Section 4.16(e), all contributions made to the trust to provide medical benefits under this Section 4.16 shall be maintained in a separate account (or subaccounts thereof) (“401(h) Account”) and such assets may not be used for or diverted to any purpose other than to provide said medical benefits and to pay any necessary or appropriate expenses attributable to the administration of such 401(h) Account, not paid by the Company; provided, however, none of the assets so set aside may be used to provide medical benefits reimbursements for a Member, former Member or their dependents if the Member or former Member is a “key employee” as determined in accordance with the provisions of Section 416(i)(1) and (5) of the Code. Similarly, none of the assets accumulated to provide the retirement allowances or vested benefits set forth in the foregoing provisions of this Article 4 may, prior to the termination of the Plan and satisfaction of all the liabilities for such retirement allowances or vested benefits, be used for or diverted to provide medical benefits under this Section 4.16. The assets, if any, accumulated to provide medical benefits under this Section 4.16 may be invested pursuant to the provisions of Article 7.

(d) It is the intention of the Company to continue to provide medical benefits under this Section 4.16 and to make contributions to the Trustee to fund such medical benefits in such amounts as the Company shall deem necessary or appropriate; provided, however, that the contributions to fund such medical benefits shall not exceed 25 percent of the total contributions made to the Plan (other than contributions to fund past service).” Any forfeitures of a Member’s interest in the medical benefit accounts as provided hereunder prior to any discontinuance of medical benefits by the Board of Directors shall be applied to reduce any subsequent Company contributions made pursuant to this Section 4.16.

(e) Except as provided in Section 4.16(b) in the event of an Acceleration Event, the Board of Directors may discontinue providing medical benefits under this Section 4.16 for any reason at any time, in which event the

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assets allocated to provide medical benefits hereunder, if any remain, shall, unless paid by the Company, be used to continue medical benefits to Members who are eligible for them prior to the discontinuance date and to pay any necessary or appropriate expenses attributable to the administration of such medical benefits, as long as any assets remain. However, if, after the satisfaction of all medical benefits provided hereunder and the payment of all necessary or appropriate expenses attributable to the administration of such medical benefits there remain any assets, the program shall be deemed to be terminated and such remainder shall be returned to the Company, in accordance with Section 401(h)(5) of the Code.
4.17     Transfers from Other Qualified Plans

(a) At the discretion and direction of the Administrative Committee, the Plan may accept from any other pension plan which is qualified under Section 401(a) of the Code (i) a transfer of liabilities with respect to the accrued benefit under such other pension plan of a Member who has employment with the sponsor of such plan and which employment is recognized as Benefit Service pursuant to the provisions of Section 2.02 or an Appendix hereto and (ii) a transfer of any assets determined to be applicable to such liabilities. All such transfers shall be made in accordance with the provisions of the Code and ERISA.

(b) At the discretion and direction of the Administrative Committee, the Plan may transfer to any other pension plan which is qualified under Section 401(a) of the Code (i) the liabilities with respect to any Member’s retirement allowance or vested benefit accrued under this Plan which allowance or benefit is attributable to a period of employment recognized as Benefit Service under Section 2.02 or an Appendix hereto and recognized as service for benefit accruals under the provisions of such other qualified pension plan and (ii) any assets determined to be applicable to such liabilities. All such transfers shall be made in accordance with the provisions of the Code and ERISA.
4.18     Direct Rollover of Certain Distributions

(a) Elective Rollovers

Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Article, a Distributee may elect, at the time and in the manner prescribed by the Administrative Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Distributee in a direct rollover.
(b) Mandatory Rollovers

Notwithstanding any provision of the Plan to the contrary, effective March 28, 2005, if the present value of the Member’s or former Member’s vested benefit amounts to at least $1,001 but not more than $5,000, and if the Member or former Member fails to make an affirmative election to either receive the single lump sum payment in cash or have it directly rolled over to an eligible retirement plan pursuant to the provisions of paragraph (a) within such election period as shall be prescribed by the Administrative Committee, the Administrative Committee shall direct the Trustee to transfer such single lump sum payment to an individual retirement plan (within the meaning of Section 7701(a)(37) of the Code) (“IRA”) selected by the Administrative Committee. The IRA shall be maintained for the exclusive benefit of the Member or former Member on whose behalf such transfer is made. The transfer shall occur as soon as practicable following the end of the election period. The funds in the IRA shall be invested in an investment product designed to preserve principal and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with liquidity. In implementing the provisions of this paragraph:
(i) The Administrative Committee shall enter into a written agreement with each IRA provider setting forth the terms and conditions applicable to the establishment and maintenance of the IRAs in conformity with applicable law;

(ii) The Administrative Committee shall furnish Members or former Members with notice of the Plan’s automatic rollover provisions, including, but not limited to, a description of the nature of the investment product in which the assets of the IRA will be invested and how the fees and expenses attendant to the IRA will be allocated, and a statement that a Member may roll over the assets of the IRA to another eligible retirement

64



plan. Such notice shall be provided to Members or former Members in such time and form as shall be prescribed by the Administrative Committee in accordance with applicable law; and

(iii) The Administrative Committee shall fulfill such other requirements of the safe harbor contained in Department of Labor Regulation §2550.404a-2 and, if applicable, the conditions of Department of Labor Prohibited Transaction Class Exemption 2004-16.

(c) Definitions

The following definitions apply to the terms used in this Section 4.18:
(i) Eligible rollover distribution ” means any distribution of all or any portion of the balance to the credit of the Distributee, except that an eligible rollover distribution does not include:

(1) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten years or more;

(2) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code;

(3) any after-tax amount unless such amount is rolled over or transferred (i.e., directly rolled) to an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, or, effective on or after January 1, 2008, a Roth individual retirement account described in Section 408A(b) of the Code; or transferred (i.e., directly rolled over) to:

(A)
a qualified defined contribution plan described in Section 401(a) of the Code;

(B)
effective on and after January 1, 2007, any qualified plan described in Section 401(a) of the Code; or

(C)
effective on and after January 1, 2007, an annuity plan described in Section 403(b) of the Code;

provided that a plan described in subparagraph (1), (2) or (3) agrees to separately account for such after-tax amount and earnings thereon; and
(4) any in-service withdrawal that is made on account of hardship.

(ii) Eligible retirement plan ” means any of the following types of plans that accept the Distributee’s eligible rollover distribution:
(1) a qualified plan described in Section 401(a) of the Code;

(2) an annuity plan described in Section 403(a) of the Code;

(3) an individual retirement account or individual retirement annuity described in Section 408(a) or 408(b) of the Code, respectively;

(4) an annuity contract described in Section 403(b) of the Code;


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(5) an eligible plan under 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 and which agrees to separately account for amounts transferred into such plan from this Plan; and

(6) effective January 1, 2008, a Roth IRA described in Section 408A of the Code.
(iii) Distributee ” means a Member or former Member. In addition, solely for purposes of paragraph (a) above, the Member’s or former Member’s surviving Spouse and the Member’s or former Member’s Spouse or former Spouse who is the alternate payee under a qualified domestic relations order as defined in Section 414(p) of the Code are Distributees with regard to the interest of the Spouse or former Spouse; and

(iv) Direct rollover ” means a payment by the Plan to the eligible retirement plan specified by the Distributee.

(v) Notwithstanding any provision of this Section to the contrary, effective as of January 1, 2007, a non-Spouse Beneficiary of a deceased Member or former Member may elect, at the time and in the manner prescribed by the Administrative Committee, to directly roll over any portion of a distribution that would constitute an eligible rollover distribution if it were made to a Member, former Member, surviving Spouse, or alternate payee, provided such direct rollover is made to an IRA described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, or, effective for distributions made on or after January 1, 2008, a Roth IRA described in Section 408A of the Code (collectively, “IRA”) that is established on behalf of the non-Spouse Beneficiary and that will be treated as an inherited IRA pursuant to the provisions of Sections 402(c)(11) and 408(d)(3)(C)(ii) of the Code.

(vi) In the event that the provisions of this Section 4.18 or any part thereof cease to be required by law as a result of subsequent legislation or otherwise, this Section or any applicable part thereof shall be ineffective without the necessity of further amendments to the Plan.
4.19     Delayed Commencement of Benefits

(a) In the event the Annuity Starting Date of a Member’s retirement allowance or vested benefit otherwise required to commence on the Member’s Normal Retirement Date, or Postponed Retirement Date, if applicable, is delayed until on or after his “required beginning date” as defined in Section 401(a)(9) of the Code because the Company is unable to locate the Member or for any other reason, the Company shall commence payment as soon as practicable thereafter or, if later, as soon as practicable after the date the Member is located. Unless the Member elects an optional form of payment, as set forth in Section 4.07(b) and in accordance with the provisions of Section 4.07(d), payment shall be in the automatic form as set forth in Section 4.07(a) applicable to the Member on his Annuity Starting Date. Subject to Section 401(a)(9) of the Code, the retirement allowance or vested benefit payable to the Member as of his Annuity Starting Date shall be of “equivalent actuarial value” (as defined below) to the retirement allowance or vested benefit otherwise payable to the Member on his Normal Retirement Date, or Postponed Retirement Date if applicable.

In the event a Member whose retirement allowance or vested benefit is delayed beyond his Normal Retirement Date, or Postponed Retirement Date if applicable, as described above, dies prior to his Annuity Starting Date, and is survived by a Spouse, Registered Domestic Partner, or Beneficiary, the Spouse, Registered Domestic Partner, or Beneficiary shall be entitled to receive a survivor annuity under the provisions of Section 4.08(a) or (b), whichever is applicable computed on the basis of the equivalent actuarial value of the retirement allowance or vested benefit payable to the Member on his Normal Retirement Date, or Postponed Retirement Date, if applicable.
For purposes of this Section 4.19, “equivalent actuarial value” shall be determined on the basis of the IRS Mortality Table and an IRS Interest Rate for such Member’s Normal Retirement Date or Postponed Retirement Date, if applicable.
(b) In lieu of the retirement allowance or vested benefit otherwise payable under paragraph (a) above, a Member described in paragraph (a) whose Annuity Starting Date is delayed because the Administrative Committee is

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unable to locate the Participant or due to an administrative delay, as determined by the Administrative Committee on a basis uniformly applicable to all persons similarly situated, may elect to receive his retirement allowance or vested benefit payable in the amount that would have been payable to the Member if payments had commenced on his Normal Retirement Date, or Postponed Retirement Date, if applicable, (“retroactive Annuity Starting Date”) in the form elected by the Member under the provisions of Section 4.07(a) or (b), as applicable; plus one single lump sum payment equal to the sum of the missed monthly payments the Member would have received during the period beginning on his Normal Retirement Date, or Postponed Retirement Date if applicable, and ending with the month preceding his actual commencement date, together with interest at the IRS Interest Rate in effect for his retroactive Annuity Starting Date. The amount of the payments shall be determined as of the Member’s Normal Retirement Date, or Postponed Retirement Date, if applicable, on the basis of the actual form of payment in which the Member’s retirement allowance or vested benefit is payable under Section 4.07(a) or (b), as applicable. The lump sum shall be paid on or as soon as practicable following the date the Member’s retirement single allowance or vested benefit commences. An election of a form of payment under Section 4.07 shall be subject to the spousal consent requirements based on the Member’s marital status on his actual commencement date.

An election under this paragraph (b) shall be subject to the following requirements:

(i) The Member’s retirement allowance or vested benefit, including any interest adjustment, must satisfy the provisions of Section 415 of the Code, both at the retroactive Annuity Starting Date and at the actual commencement date, except that if payments commence within 12 months of the retroactive Annuity Starting Date, the provisions of Section 415 of the Code need only be satisfied as of the retroactive Annuity Starting Date;

(ii) Spousal Consent to the retroactive Annuity Starting Date is required unless:

(1) the amount of the survivor annuity payable to the Spouse determined as of the retroactive Annuity Starting Date under the form elected by the Member is no less than the amount the Spouse would have received under the Qualified Joint and Survivor Annuity on the first day of the month in which payments commence were substituted for the retroactive Annuity Starting Date; or

(2) the Member’s Spouse on his retroactive Annuity Starting Date is not his Spouse on the first day of the month in which payments commence and is not treated as his Spouse under a qualified domestic relations order;

(iii) The Member’s election is made within the time period prescribed by the Administrative Committee provided, however, such period may not extend beyond 90 days following the date the written explanation as described in Section 4.07(c) is provided to the Member; and distributions commence not earlier than seven days or later than 90 days after the date such written explanation is provided to the Member, and the Member’s election is made after he is provided the written explanation and before the date distributions commence. For purposes of determining (1) the election period described in Section 4.07(d) with respect to the timing of the notice and consent requirements and (2) the effective date of an election made pursuant to the provisions of this Section, the date the distribution of the benefit based on the retroactive Annuity Starting Date commences, shall be substituted for the Member’s Annuity Starting Date. A distribution shall not be deemed to violate the requirements of this clause (iv) merely because, due solely to reasonable administrative delay, it commences more than 90 days after the date such written explanation is provided to the Member.

(c) Subject to the notice requirements of Section 4.07, in the event that a Member fails to timely elect a form of payment pursuant to procedures established by the Administrative Committee in order that payment of his retirement allowance or vested benefit commences no later than his “required beginning date” within the meaning of Section 401(a)(9) of the Code, the Member’s retirement allowance or vested benefit shall be determined in accordance with this paragraph (c).

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(i) The Member’s Annuity Starting Date shall be his required beginning date and payment of his benefits shall automatically commence on such date or as soon as practicable thereafter.

(ii) The Member’s retirement allowance or vested benefit shall be calculated in accordance with Section 4.19(a); provided, however, that to the extent the Member has not certified his marital status to the Administrative Committee during the six months prior to his required beginning date (or, if later, the date of the notice described in Section 4.07), the Member will be presumed married and his retirement allowance or vested benefit shall be in the normal form set forth in Section 4.07(a)(i); provided further, the presumed spousal date of birth used to calculate the retirement allowance or vested benefit will be the Member’s date of birth unless Plan records affirmatively list the date of birth of the Member’s Spouse.

(iii) A Member whose benefit payments commence pursuant to this paragraph (c) may not request an adjustment to his benefit payments thereafter; provided, however, that if a Member certifies that the information used to calculate the retirement allowance or vested benefit was incorrect in a manner acceptable to the Administrative Committee within the reasonable time period prescribed by the Administrative Committee for such certification, such Member shall receive a retirement allowance or vested benefit in the normal form set forth in Section 4.07(a)(i) or (ii), as applicable, calculated based on the correct information; provided, further, that in no event shall a Member be permitted to elect an optional form of payment pursuant to Section 4.07(b) after his payments automatically commence pursuant to this paragraph (c).

(iv) For the avoidance of doubt, this paragraph (c) shall not apply to a Participant described in Section 4.19(b), who is located, or with respect to whom the administrative delay is resolved, after his required beginning date and who, after receipt of the written notice described in Section 4.07, timely elects to commence his benefits pursuant to procedures established by the Administrative Committee in accordance with Section 4.19(a) or (b), as applicable.
4.20     Limitations Based on Funded Status of the Plan

Notwithstanding any provision of the Plan to the contrary, the following provisions shall apply as required by Section 436 of the Code effective for Plan Years beginning on or after January 1, 2008, except to the extent the exception under Section 436(d)(4) of the Code applies:
(a) In the event the Plan’s adjusted funding target attainment percentage for a Plan Year is less than 60 percent (or would be less than 60 percent to the extent described in Section 4.21 below), then the limitations of this paragraph (a) shall apply as follows:
(i) Benefit accruals shall cease as of the applicable Section 436 measurement date under the provisions of Section 436(e) of the Code. In addition, if the Plan is required to cease benefit accruals under this clause (a)(i), the Plan may not be amended in a manner that would increase the liabilities of the Plan by reason of an increase in benefits or the establishment of new benefits. For purposes of determining whether the accrual limitation under this clause (a)(i) applies to the Plan, the adjusted funding target attainment percentage for a Plan Year shall be determined in accordance with “Special Rules for Certain Years” under Section 436(j)(3) of the Code (except as provided under Section 203(b) of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, if applicable).

(ii) A Member or Beneficiary is not permitted to elect, and the Plan shall not pay, a single sum payment or other optional form of benefit that includes a prohibited payment with an annuity starting date on or after the applicable Section 436 measurement date, and the Plan shall not make any payment for the purchase of an irrevocable commitment from an insurer to pay benefits or any other payment or transfer that is a prohibited payment. This clause (a)(ii) shall not apply to any payment of a benefit which under Section 411(a)(11) of the Code may be immediately distributed without the consent of the Member. For purposes of determining whether the limitations under this clause (a)(ii) applies to payments under a social security leveling option, within the meaning of Section 436(j)(3)(C)(i) of the Code, the adjusted funding target attainment

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percentage for a Plan Year shall be determined in accordance with the “Special Rule for Certain Years” under Section 436(j)(3) of the Code and any Treasury Regulations or other published guidance thereunder.

(b) In the event the Plan’s adjusted funding target attainment percentage for a Plan Year is less than 80 percent (or would be less than 80 percent to the extent described in Section 4.20(b)(ii) below) but not less than 60 percent then the limitations of this paragraph (b) shall apply as follows:

(i) A Member or Beneficiary is not permitted to elect, and the Plan shall not pay, a single sum payment or other optional form of benefit that includes a prohibited payment with an annuity starting date on or after the applicable Section 436 measurement date, and the Plan shall not make any payment for the purchase of an irrevocable commitment from an insurer to pay benefits or any other payment or transfer that is a prohibited payment, unless the present value of the portion of the benefit that is being paid in a prohibited payment does not exceed the lesser of:

(1) 50 percent of the present value of the benefit payable in the optional form of benefit that includes the prohibited payment; or

(2) 100% of the PBGC maximum benefit guarantee amount (as defined in Treas. Reg. § 1.436-1(d)(3)(iii)(C)).

The limitation set forth in this clause (b)(i) does not apply to any payment of a benefit which under Section 411(a)(11) of the Code may be immediately distributed without the consent of the Member. If an optional form of benefit that is otherwise available under the terms of the Plan is not available to a Member or Beneficiary as of the annuity starting date because of the application of the requirements of this clause (b)(i), the Member or Beneficiary is permitted to elect to bifurcate the benefit into unrestricted and restricted portions (as described in Treas. Reg. § 1.436-1(d)(3)(iii)(D)). The Member or Beneficiary may also elect any other optional form of benefit otherwise available under the Plan at that annuity starting date that would satisfy the 50%/PBGC maximum benefit guarantee amount limitation described in this clause (b)(i) or may elect to defer the commencement of such benefit in accordance with any general right to defer commencement of benefits under the Plan. For purposes of determining whether the limitations under this clause (b)(i) applies to payments under a social security leveling option, within the meaning of Section 436(j)(3)(C)(i) of the Code, the adjusted funding target attainment percentage for a Plan Year shall be determined in accordance with the “Special Rule for Certain Years” under Section 436(j)(3) of the Code and any Treasury Regulations or other published guidance thereunder.
Notwithstanding the foregoing, Members and Beneficiaries are permitted to elect payment in any optional form of benefit otherwise available under the Plan that provides for the current payment of the unrestricted portion of the benefit (as described in Treas. Reg. § 1.436-1(d)(3)(iii)(D)), with a delayed commencement for the restricted portion of the benefit (subject to other applicable qualification requirements, such as Sections 411(a)(11) and 401(a)(9) of the Code).
(ii) An amendment that has the effect of increasing liabilities of the Plan by reason of increases in benefits, establishment of new benefits, changing the rate of benefit accrual, or changing the rate at which benefits become nonforfeitable shall not become effective during a Plan Year if the adjusted funding target attainment percentage for the Plan Year is:

(1) less than 80 percent; or

(2) 80 percent or more, but would be less than 80 percent if the benefits attributable to the amendment were taken into account in determining the adjusted funding target attainment percentage.


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The limitations of this clause (b)(ii) shall not apply to any amendment to the Plan that provides a benefit increase under a Plan formula that is not based on compensation, provided that the rate of such increase does not exceed the contemporaneous rate of increase in the average wages of Members covered by the amendment.
(c) Notwithstanding any other provisions of this Plan to the contrary, a Member or beneficiary is not permitted to elect, and the Plan shall not pay, a single sum payment or other optional form of benefit that includes a prohibited payment with an annuity starting date that occurs during any period in which the Employer is a debtor in a case under Title 11, United States Code, or similar Federal or State law, except for payments made within a Plan Year with an annuity starting date that occurs on or after the date on which the Plan’s enrolled actuary certifies that the Plan’s adjusted funding target attainment percentage for the Plan Year is not less than 100 percent. In addition, during such period in which the Employer is a debtor, the Plan shall not make any payment for the purchase of an irrevocable commitment from an insurer to pay benefits or any other payment or transfer prior to the date on which the Plan’s enrolled actuary certifies that the Plan’s adjusted funding target benefit percentage for that Plan Year is not less than 100 percent. The limitation set forth in this paragraph (c) does not apply to any payment of a benefit which under Section 411(a)(11) of the Code may be immediately distributed without the consent of the Member.

(d) Notwithstanding any other provisions of this Plan to the contrary, the provisions of this paragraph (d) shall apply after the limitations of paragraphs (a), (b) and (c) above cease to apply:

(i) If a limitation on prohibited payments under clause (a)(ii), clause (b)(i) or paragraph (c) above applied to the Plan as of a Section 436 measurement date, but that limit no longer applies to the Plan as of a different Section 436 measurement date, then that limitation does not apply to benefits with Annuity Starting Dates that are on or after that later Section 436 measurement date.

(ii) If a limitation on benefit accruals under clause (a)(i) above applied to the Plan as of a Section 436 measurement date, but that limitation no longer applies to the Plan as of a later Section 436 measurement date, then benefit accruals shall resume prospectively and that limitation shall not apply to benefit accruals that are based on service on or after that later Section 436 measurement date, except as otherwise provided under the Plan. The Plan shall comply with the rules relating to partial years of participation and the prohibition on double proration under 29 CFR § 2530.204-2(c) and (d).

In addition, benefit accruals that were not permitted to accrue because of the application of clause (a)(i) above shall be restored when that limitation ceases to apply if the continuous period of the limitation was 12 months or less and the Plan’s enrolled actuary certifies that the adjusted funding target attainment percentage for the Plan Year would not be less than 60 percent taking into account any restored benefit accruals for the prior Plan Year.
(iii) If a Plan amendment does not take effect as of the effective date of the amendment because of the limitations of clause (a)(i) or (b)(ii) above, but is permitted to take effect later in the same Plan Year (as a result of additional contributions or pursuant to the enrolled actuary’s certification of the adjusted funding target attainment percentage for the Plan Year that meets the requirements of Treas. Reg. § 1.436-1(g)(5)(ii)(C)), then the Plan amendment must automatically take effect as of the first day of the Plan Year (or, if later, the original effective date of the Plan amendment). If the Plan amendment cannot take effect during the same Plan Year, then it shall be treated as if it were never adopted, unless the Plan amendment provides otherwise.

(e) The limitations on prohibited payments set forth in clauses (a)(ii) and (b)(i) and paragraph (c) do not apply to prohibited payments that are made to carry out the termination of the Plan in accordance with applicable law. Any other limitations under this Section 4.20 do not cease to apply as a result of termination of the Plan.

(f) The limitations on prohibited payments set forth in clauses (a)(ii) and (b)(i) and paragraph (c) do not apply for a Plan Year if the terms of the Plan, as in effect for the period beginning on September 1, 2005, and continuing through the end of the Plan Year, provide for no benefit accruals with respect to any participants. This paragraph (f)

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shall cease to apply as of the date any benefits accrue under the Plan or the date on which a Plan amendment that increases benefits takes effect.

(g) During any period in which none of the presumptions under Section 436(h) of the Code (or Treas. Reg. § 1.436-1(h)) apply to the Plan and the Plan’s enrolled actuary has not yet issued a certification of the Plan’s adjusted funding target attainment percentage for the Plan Year, the limitations under clause (b)(ii) above shall be based on the inclusive presumed adjusted funding target attainment percentage for the Plan, calculated in accordance with the rules of Treas. Reg. § 1.436-1(g)(2)(iii).

(h) For purposes of this Section 4.20, the terms “adjusted funding target attainment percentage,” “section 436 measurement date,” “annuity starting date,” “prohibited payment,” “unrestricted portion of the benefit,” and “restricted portion of the benefit” shall have the meanings given under Section 436 of the Code, the regulations thereunder, and any applicable Internal Revenue Service guidance.

(i) This Section 4.20 and Section 4.21 of the Plan shall be interpreted and administered in accordance with Section 436 of the Code and Section 1.436-1 of the Treasury Regulations, including, without limitation, Treas. Reg. § 1.436-1(f).

(j) In the event that the provisions of this Section 4.20 or any part thereof cease to be required by law as a result of subsequent legislation or otherwise, this Section or any applicable part thereof shall be ineffective without the necessity of further amendments to the Plan.
4.21     Limitations on Unpredictable Contingent Event Benefit

(a) Notwithstanding any provision of the Plan to the contrary, with respect to Plan Years beginning on or after January 1, 2008, an unpredictable contingent event benefit with respect to an unpredictable contingent event occurring during a Plan Year shall not be paid to a Member or Beneficiary if the Plan’s adjusted funding target attainment percentage (as defined in Section 4.20) for such Plan Year is less than 60 percent or would be less than 60 percent if the adjusted funding target attainment percentage were redetermined applying an actuarial assumption that the likelihood of occurrence of the unpredictable contingent event during the Plan Year is 100 percent.

(b) If an unpredictable contingent event benefit with respect to an unpredictable contingent event that occurs during a Plan Year is not permitted to be paid after the occurrence of the event because of the limitations of this Section 4.21, but is permitted to be paid later in the same Plan Year (as a result of additional contributions or pursuant to the enrolled actuary’s certification of the adjusted funding target attainment percentage for the Plan Year that meets the requirements of Treas. Reg. § 1.436-1(g)(5)(ii)(B)), then that unpredictable contingent event benefit shall be paid, retroactive to the period that benefit would have been payable under the terms of the Plan (determined without regard to this Section). If the unpredictable contingent event benefit does not become payable during the Plan Year in accordance with the preceding sentence, then the Plan is treated as if it does not provide for that benefit.

(c) During any period in which none of the presumptions under Section 436(h) of the Code (or Treas. Reg. § 1.436-1(h)) apply to the Plan and the Plan’s enrolled actuary has not yet issued a certification of the Plan’s adjusted funding target attainment percentage for the Plan Year, the limitations under this Section shall be based on the inclusive presumed adjusted funding target attainment percentage for the Plan, calculated in accordance with the rules of Treas. Reg. § 1.436-1(g)(2)(iii).

(d) For purposes of this Section 4.21, the terms “unpredictable contingent event” and “unpredictable contingent event benefit” shall have the meanings given under Section 436 of the Code, the regulations thereunder, and any applicable Internal Revenue Service guidance.

(e) In the event that the provisions of this Section 4.21 or any part thereof cease to be required by law as a result of subsequent legislation or otherwise, this Section or any applicable part thereof shall be ineffective without the necessity of further amendments to the Plan.
ARTICLE 5 - ADMINISTRATION OF PLAN

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5.01    Plan Administrator

The responsibility for carrying out all phases of the administration of the Plan, except those connected with management of assets, shall be placed in an Administrative Committee. The Administrative Committee shall be the administrator of the Plan within the meaning of Section 3(16)(A) of ERISA and shall have authority and responsibility for general supervision of the administration of the Plan.
5.02     Appointment of Administrative Committee

The general administration of the Plan and the responsibility for carrying out the provisions of the Plan shall be placed with the Administrative Committee.
5.03     Duties and Powers of Administrative Committee

(a) The Administrative Committee shall have total and complete discretion to interpret the Plan; including, but not limited to, the discretion to: (i) decide all questions arising in the administration, interpretation and application of the Plan including the power to construe and interpret the Plan; (ii) decide all questions relating to an individual’s eligibility to participate in the Plan and/or eligibility for benefits and the amounts thereof; (iii) decide all facts relevant to the determination of eligibility for benefits or participation; and (iv) determine the amount, form and timing of any distribution to be made hereunder. In making its decisions, the Administrative Committee shall be entitled to, but need not rely upon, information supplied by a Member, Spouse, Registered Domestic Partner, contingent annuitant or beneficiary or representative thereof. The Administrative Committee may correct any defect, supply any omission, or reconcile any inconsistency in such manner and to such extent as it shall deem necessary to carry out the purposes of the Plan. The Administrative Committee’s decisions in such matters shall be binding and conclusive as to all parties.

(b) The members of the Administrative Committee shall elect a Chairman from their number and a Secretary who may be, but need not be, one of the members of the Administrative Committee; may appoint from their number such committees with such powers as they shall determine; may authorize one or more of their number or any agent to execute or deliver any instrument or make any payment on their behalf; may retain counsel and employ agents and such clerical and accounting services as they may require in carrying out the provisions of the Plan; and may allocate among themselves or delegate to other persons all or such portion of their duties hereunder as they in their sole discretion decide. The Administrative Committee may also delegate to any other person or persons the authority and responsibility of administering the Plan including, but not limited to, telephone access by voice response or representatives, and completing Plan transactions using forms or by other means, in accordance with the provisions of the Plan and any policies which, from time to time, may be established by the Administrative Committee.

(c) Subject to the limitations of the Plan, the Administrative Committee from time to time shall establish rules or regulations for the administration of the Plan and the transaction of its business. The Administrative Committee shall have full discretionary authority, except as to matters which the Board of Directors from time to time may reserve to itself, to interpret the Plan and to make factual determinations regarding any and all matters arising hereunder, including but not limited to, the right to determine eligibility for benefits, the right to construe the terms of the Plan and the right to remedy possible ambiguities, inequities, inconsistencies or omissions. The Administrative Committee shall also have the right to exercise powers otherwise exercisable by the Board of Directors hereunder to the extent that the exercise of such powers does not involve the management of Plan assets.

(d) Subject to applicable Federal and State Law, all interpretations, determinations and decisions of the Administrative Committee or the Board of Directors in respect of any matter hereunder shall be final, conclusive and binding on all parties affected thereby.
5.04    Appointment of Investment Committee

The responsibility for the management of the assets of the Plan shall be placed in the Investment Committee.

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5.05     Duties of Investment Committee

The Investment Committee shall be responsible for managing the assets under the Plan. If it deems such action to be advisable, the Investment Committee, subject to the provisions of the trust instrument(s) adopted for use in implementing the Plan pursuant to Section 7.01 hereof, may:
(a) provide direction to the Trustee(s) thereunder, including, but not by way of limitation, the direction of investment of all or part of the Plan assets and the establishment of investment criteria, and

(b) appoint and provide for use of investment advisors and investment managers.

In discharging its responsibility, the Investment Committee shall evaluate and monitor the investment performance of the Trustee(s), investment advisor(s) and investment manager(s), if any.
The members of the Investment Committee shall elect a Chairman from their number and a Secretary who may be, but need not be, one of the members of the Investment Committee; may appoint from their number such committees with such powers as they shall determine; may authorize one or more of their number or any agent to execute or deliver any instrument or make any payment on their behalf; may retain counsel and employ agents and such clerical and accounting services as they may require in carrying out the provisions of the Plan; and may allocate among themselves or delegate to other persons all or such portion of their duties hereunder as they in their sole discretion decide.
5.06     Named Fiduciary

The Administrative Committee and the Investment Committee (hereinafter collectively referred to as the (“Committees”) are designated as named fiduciaries within the meaning of Section 402(a) of ERISA.
5.07     Meetings

The Committees shall hold meetings upon such notice, at such place or places, and at such time or times as each may respectively determine. The action of the members of a Committee expressed from time to time by a vote of a majority of a quorum at a meeting or without a meeting by unanimous written consent, shall constitute the action of that Committee and shall have the same effect for all purposes as if assented to by all members of such Committee at the time in office. No member of either Committee shall receive any compensation for his service as such.
5.08     Claims Procedure

If any Member or distributee believes he is entitled to benefits in an amount greater than those which he is receiving or has received, he (or his 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).

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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, 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 8.10.
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 initial benefit determination. In no event shall a Member 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 5.08 have been complied with and exhausted.
5.09     Compensation and Bonding

The members of the committees shall serve without compensation for his or her services as such. Except as may otherwise be required by law, no bond or other security need be required of any member in that capacity in any jurisdiction.
5.10     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.

ARTICLE 6 -
CONTRIBUTIONS

6.01

It is the intention of the Company to continue the Plan and make regular contributions to the Trustee each year in such amounts as are necessary to maintain the Plan on a sound actuarial basis and to meet minimum funding standards as prescribed by any applicable law. However, subject to the provisions of Article 8, the Company may reduce or suspend its contributions for any reason at any time. Any forfeitures shall be used to reduce the Company contributions otherwise payable, and will not be applied to increase the benefits any Member or other person would otherwise receive under the Plan.

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6.02

(a) The Company’s contributions to the Plan are conditioned upon their deductibility under Section 404 of the Code. In the event that all or part of the Company’s deductions under Section 404 of the Code for contributions to the Plan are disallowed by the Internal Revenue Service, the portion of the contributions to which such disallowance applies shall be returned to the Company without interest but reduced by any investment loss attributable to those contributions. Such return shall be made within one year after the disallowance of deduction.

(b) Notwithstanding any other provisions of this Plan to the contrary, the Company may recover without interest the amount of its contributions to the Plan made on account of a mistake in fact, provided that such recovery is made within one year after the date of such contribution.
ARTICLE 7 - MANAGEMENT OF FUNDS

7.01

All the funds of the Plan shall be held by a Trustee or Trustees including any member(s) of the Investment Committee appointed from time to time by the Investment Committee, in one or more trusts (such trusts, including the trusts heretofore established under a Prior Salaried Plan or a Former Pension Plan, being herein collectively referred to as the “trust”) under a trust instrument or instruments approved or authorized by the Investment Committee for use in providing the benefits of the Plan and paying any expenses of the Plan not paid directly by the Company; provided, however, that the Investment Committee may, in its discretion, also enter into any type of contract with any insurance company or companies selected by it for providing benefits under the Plan.
7.02

Prior to the satisfaction of all liabilities with respect to persons entitled to benefits, except for the payment of expenses, no part of the corpus or income of the funds shall be used for, or diverted to, purposes other than for the exclusive benefit of Members and other persons who are or may become entitled to benefits hereunder, under a Prior Salaried Plan or under a Former Pension Plan, or under any trust instrument or under any insurance contract made pursuant to this Plan.
7.03

Subject to applicable Federal and State law, no person shall have any interest in or right to any part of the corpus or income of the funds, except as and to the extent expressly provided in the Plan and in any trust instrument or under any insurance contract made pursuant to this Plan.
7.04

Subject to applicable Federal and State law, the Company shall have no liability for the payment of benefits under the Plan nor for the administration of the funds paid over to the Trustee(s) or insurer(s) except as expressly provided under this Plan.
7.05
    
Except to the extent permitted by applicable Federal law, no part of the corpus or income of the trust shall be invested in securities of the Company or of any Associated Company or in real property and related personal property which is leased to the Company or any Associated Company or in the securities of the Trust or Trustees or their subsidiary companies, if any.
ARTICLE 8 -
CERTAIN RIGHTS AND LIMITATIONS


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8.01      Termination of the Plan

(a) The Board of Directors or its delegate may terminate the Plan for any reason at any time. In case of termination of the Plan, the rights of Members to the benefits accrued under the Plan to the date of the termination, to the extent then funded or protected by law, if greater, shall be nonforfeitable. The funds of the Plan shall be used for the exclusive benefit of persons entitled to benefits under the Plan as of the date of termination, except as provided in Section 6.02 and 7.06. However, any funds not required to satisfy all liabilities of the Plan for benefits because of erroneous actuarial computation shall be returned to the Company. If any assets of the Plan attributable to employee contributions under a Former Pension Plan remain after satisfaction of all liabilities of the Plan for benefits upon termination, such remaining assets shall be distributed to or on behalf of eligible Members and beneficiaries in accordance with the provisions of Section 4044 of the ERISA, including any regulations promulgated thereunder, prior to the return of any funds to the Company under the preceding sentence. The Administrative Committee shall determine on the basis of an actuarial valuation the share of the funds of the Plan allocable to each person entitled to benefits under the Plan in accordance with Section 4044 of ERISA or corresponding provision of any applicable law in effect at the time. In the event of a partial termination of the Plan, the provisions of this Section shall be applicable to the Members affected by that partial termination.

If the Plan is terminated prior to the End Date (as defined in Section 4.16(b)) and the continued maintenance of the 401(h) Account under the trust for the Plan on and after the date of such Plan termination is not permissible, then the Company shall cause an amount equal to the assets in the 401(h) Account as of the date of such termination, which amount shall be adjusted periodically for investment earnings and losses, to be utilized solely in the manner set forth in item (1) of Section 4.16(b) and in such circumstance the End Date for purposes of Section 4.16(b) shall be the date that the annual benefit payments and administrative expenses under the Exelis Medical Plan during the Plan Year exceed such assets at the end of such Plan Year (in each case as determined by an actuary engaged by the Company or its parent).
For purposes of this Section 8.01, an “Acceleration Event” shall be deemed to have occurred as of the first day that any one or more of the following conditions have been satisfied:
(i) a report on Schedule 13D shall be filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the “Act”) disclosing that any person (within the meaning of Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof) ), other than the Company or a Subsidiary or any employee benefit plan sponsored by the Company or a Subsidiary (or related trust), is the Beneficial Owner directly or indirectly of 20 percent or more of the outstanding Common Stock $1 par value, of the Company (the “Shares”);

(ii) any person (within the meaning of Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof), other than the Company or a Subsidiary, or any employee benefit plan sponsored by the Company or a Subsidiary, shall purchase shares pursuant to a tender offer or exchange offer to acquire any Shares of the Company (or securities convertible into Shares) for cash, securities or any other consideration, provided that after consummation of the offer, the person (within the meaning of Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof) in question is the Beneficial Owner), directly or indirectly, of 20 percent or more of the outstanding Shares of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire Shares);

(iii) the consummation of any consolidation, business combination or merger involving the Company, other than a consolidation, business combination or merger involving the Company in which holders of Shares immediately prior to the consolidation, business combination or merger (x) hold 50 percent or more of the combined voting power of the Company (or the Company resulting from the consolidation, business combination or merger or the parent of such Company) after the merger and (y) have the same proportionate ownership of common stock of the Company (or the Company resulting from the consolidation, business combination or merger or the parent of such Company), relative to other holders of Shares immediately prior to the consolidation, business combination or merger, immediately after the consolidation, business

76



combination or merger as immediately before; or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company;

(iv) there shall have been a change in a majority of the members of the Board of Directors of the Company within a 12-month period unless the election or nomination for election by the Company’s stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who (x) were directors at the beginning of such 12-month period or (y) whose nomination for election or election as directors was recommended or approved by a majority of the directors who were directors at the beginning of such 12-month period; or

(v) any person (within the meaning of Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof) (other than the Company or any Subsidiary or any employee benefit plan (or related trust) sponsored by the Company or a Subsidiary (or related trust) becomes the Beneficial Owner of 20 percent or more of the Shares.

For purposes of this Section 8.01, the term “Company” shall mean Exelis Inc., an Indiana corporation, the term “Subsidiary” shall mean any corporation, partnership, joint venture, limited liability company, or other entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns at least 50 percent of the total combined voting power in one of the other entities in such chain and the term “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Act.
“Excess funds” for purposes of this Section 8.01 shall mean all assets of the Plan not required to satisfy all liabilities of the Plan for pension benefits accrued under the Plan to the date of termination because of erroneous actuarial computation.
(b) Plan Merger or Consolidation

The Board of Directors or its delegate may, in its sole discretion, merge this Plan with another qualified plan or transfer a portion of the Plan’s assets or liabilities to another qualified plan, subject to any applicable legal requirement. The Plan may not be merged or consolidated with, nor may its assets or liabilities be transferred to, any other plan unless each Member or other person entitled to a benefit under the Plan would, if the resulting plan were then terminated, receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer, if the Plan had then terminated; provided that, subject to the provisions of Article 10 on or after the date of the first occurrence of an Acceleration Event, (i) no transfer of assets or liabilities, except as specifically permitted under Section 8.01(a), between the Plan and any Employee Benefit Plan, as hereinafter defined, (ii) no spin-off of Plan assets or Plan liabilities to any Employee Benefit Plan, (iii) no withdrawal of Plan assets, in the event such withdrawal is permitted under applicable law or (iv) no merger or consolidation of the Plan with any Employee Benefit Plan shall be permitted; provided further, however, that, subject to the terms set forth in 4.16(b)), this Section 8.01(b) shall not prohibit transfers of assets or liabilities, spinoffs, withdrawals, mergers or consolidations of Plan assets, other than the 401(h) Account assets, in order to facilitate the complete or partial termination of the Plan whereby the 401(h) Account continues to be maintained by the Plan or by another pension plan (collectively, the “Pension Transfer Restrictions”).
For purposes of this Section 8.01(b), Employee Benefit Plan has the same meaning as the term “employee benefit plan” has under Section 3(3) of ERISA.
8.02      Limitation Concerning Highly compensated Employees or Highly compensated Former Employees

(a) The provisions of this Section shall apply (i) in the event the Plan is terminated, to any Member who is a highly compensated employee or highly compensated former employee (as those terms are defined in Section 414(q) of the Code) of the Company or an Associated Company and (ii) in any other event, to any Member or former Member who is one of the 25 highly compensated employees or highly compensated former employees of the Company or Associated Company with the greatest compensation in any Plan Year. The amount of the annual payments to any

77



one of the Members or former Members to whom this Section applies shall not be greater than an amount equal to the payments that would be made on behalf of the Member or former Member under a single life annuity that is of Equivalent Actuarial Value to the sum of the Member’s or former Member’s Accrued Benefit and any other benefits payable to the Member and former Member under the Plan.

(b) If, (i) after payment of an Accrued Benefit or other benefits to any one of the Members or former Members to whom this Section applies, the value of Plan assets equals or exceeds 110 per cent of the value of current liabilities (as that term is defined in Section 412(1)(7) of the Code) of the Plan or (ii) the value of the Accrued Benefit and other benefits of any one of the Members or former Members to whom this Section applies is less than one percent of the value of current liabilities of the Plan or (iii) the value of the Accrued Benefit and other benefits of any one of the Members or former Members to whom this Section applies does not exceed the amount described in Section 411(a)(11)(A) of the Code, the provisions of paragraph (a) above will not be applicable to the payment of benefits to the Member or former Member.

(c) Notwithstanding paragraph (a) of this Section, in the event the Plan is terminated, the restriction of this Section shall not be applicable if the benefits payable to any highly compensated employee and any highly compensated former employee is limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code.

(d) If it should subsequently be determined by statute, court decision acquiesced in by the Commissioner of Internal Revenue, or ruling by the Commissioner of Internal Revenue, that the provisions of this Section are no longer necessary to qualify the Plan under the Code, this Section shall be ineffective without the necessity of further amendment to the Plan.
8.03     Conditions of Employment Not Affected by Plan

The establishment of the Plan shall not be construed as conferring any legal rights upon any Employee or other person for a continuation of employment, nor shall it interfere with the rights of the Company (which right is hereby reserved) to discharge any Employee or other person and to treat him without regard to the effect which such treatment might have upon him as a Member or a potential Member of the Plan.
8.04      Offsets

Unless the Board of Directors or the Administrative Committee otherwise provides under written rules uniformly applicable to all Employees similarly situated, the Administrative Committee shall deduct from the amount of any retirement allowance or vested benefit under the Plan, any amount paid or payable to or on account of any Member under the provisions of any present or future law, pension or benefit scheme of any sovereign government, or any political subdivision thereof or any fund or organization or government agency or department on account of which contributions have been made or premiums or taxes paid by the Company, any Participating Unit, or any Associated Company with respect to any service which is Benefit Service for purposes of computation of benefits under the Plan; provided, however, that pensions payable for government service or benefits under Title II of the Social Security Act are not to be used to reduce the benefits otherwise provided under this Plan except as specifically provided herein.
8.05     Denial of Benefits

The Administrative Committee may prescribe rules on a basis uniformly applicable to all Employees similarly situated under which an Employee whose employment is terminated because of dishonesty, conviction of a felony or other conduct prejudicial to the Company may be denied any benefit or benefits for which he would otherwise be eligible under the Plan, except his retirement allowance pursuant to Section 4.01 or his vested benefit pursuant to Section 4.05; provided, however, that such denial is not contrary to applicable law.
8.06      Limitation on Benefits In the Event of a Liquidity Shortfall

Notwithstanding any provisions of the Plan to the contrary, in the event the Plan has a liquidity shortfall within the meaning of Section 401(a)(32) of the Code, the Trustee shall, as directed by the Company, cease payment during

78



the period of such liquidity shortfall of (a) any payment in excess of the monthly amount payable under a single life annuity (plus any social security supplements described in Section 411(a)(9) of the Code) to any Member or beneficiary whose Annuity Starting Date occurs during such period, (b) any payment for the purchase of an irrevocable commitment from an insurer to pay benefits, or (c) any other payment specified in regulations promulgated under Section 401(a)(32) of the Code.”
8.07      Notice of Address and Missing Persons

Each person entitled to benefits under the Plan must file with the Administrative Committee, in writing, that person’s post office address and each change of post office address. Any communication, statement, or notice addressed to such person at the latest reported post office address will be binding upon such person for all purposes of the Plan.
In the event the Administrative Committee is unable to locate any person to whom a payment is due under the Plan, such person shall be considered missing for purposes of the Plan and the Administrative Committee shall perform, or cause to be performed, a reasonable search for such person. The Administrative Committee shall adopt a policy (the “Missing Participant Policy”) that describes the actions that may be reasonably undertaken to locate, and pay vested benefits under the Plan to, participants or other persons that cannot be located by the Administrative Committee. The Missing Participant Policy may be amended from time to time in the absolute discretion of the Administrative Committee.
If, after a reasonable search, the Administrative Committee is unable to locate a person to whom payment is due under the Plan, the amount due such person shall be forfeited at such time as the Administrative Committee shall determine in its sole discretion and pursuant to nondiscriminatory rules established for that purpose (but in all events prior to the time such payment would otherwise escheat under any applicable State law). If, however, such person later files a claim for such payment before the Plan is terminated, the benefit will be reinstated and payment made in accordance with the terms of the Plan.”
8.08      Beneficiary’s Ability to Disclaim Interest in Plan

Notwithstanding any provision of this Plan to the contrary, a Beneficiary may waive his designation by filing a disclaimer complying with the requirements of Section 2518 of the Code with the Administrative Committee in accordance with rules prescribed by the Administrative Committee. The Beneficiary filing such a disclaimer that is accepted by the Administrative Committee shall, for purposes of the Plan, be treated as if he predeceased or failed to survive the Member.
8.09      Construction; Venue

(a) The masculine pronoun shall mean the feminine where, appropriate, and vice versa.

(b) The titles and headings of the Articles and Sections in the Plan are for convenience only. In case of ambiguity or inconsistency, the text rather than the titles or headings shall control.

(c) The Plan shall be construed, regulated and administered in accordance with the laws of the State of Florida (without regard to principles of conflicts of law), subject to the provisions of applicable Federal laws. Venue for any action arising under the Plan shall be in Brevard County, Florida.
8.10      Limitations of Time for Submitting Claims and Filing Suits

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 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 years after the date the person bringing the action knew, or had reason to know, of the circumstances giving rise to the action (or, if later, July 1, 2019). This provision shall not bar the plan or its fiduciaries from recovering

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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.
8.11      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 Member or any other person against the Plan, the Administrative Committee, the Investment Committee, any Plan fiduciary, any Participating Unit, the Company, any Associated Company or their respective affiliates or their or their affiliates’ respective officers, directors, trustees, employees, or agents (collectively, “Plan Parties”), legal fees of the Plan Parties in connection with such action shall be paid by the Member or other person bringing the action, unless the court specifically finds that there was a reasonable basis for the action.
ARTICLE 9 - NONALIENATION OF BENEFITS

(a) Subject to any applicable Federal and State law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge except any election to make a contribution necessary to provide post-retirement medical benefits under any medical or similar plan maintained by the Company and, any attempt so to do shall be void, except as specifically provided in the Plan, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy or liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit.

(b) Subject to applicable Federal and State law, in the event that the Administrative Committee shall find that any Member or other person who is or may become entitled to benefits hereunder has become bankrupt or that any attempt has been made to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any of his benefits under the Plan, except as specifically provided in the Plan, or if any garnishment, attachment, execution, levy or court order for payment of money has been issued against any of his benefits under the Plan, then such benefit shall cease and terminate. In such event the Administrative Committee shall hold or apply the payments to or for the benefit of such Member or other person who is or may become entitled to benefits hereunder, his Spouse, children, parents or other blood relatives, or any of them.

(c) Notwithstanding the foregoing provisions of the Plan, payment shall be made in accordance with the provisions of any judgment, decree, or, domestic relations order which:

(i) creates for, or assigns to, a Spouse, former Spouse, child or other dependent of a Member the right to receive all or a portion of the Member’s benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that Spouse, child or dependent,

(ii) is made pursuant to the domestic relations law of any State (as such term is defined in Section 3(10) of ERISA),

(iii) does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan, and

(iv) otherwise meets the requirements of Section 206(d) of ERISA (as amended) to be a “qualified domestic relations order” as determined by the Administrative Committee.

If the lump sum present value of any series of payments made under the criteria set forth in paragraphs (i) through (iv) above with respect to a vested benefit amounts to $ 5,000 or less, then a single lump sum payment of

80



Equivalent Actuarial Value (determined in the manner described in Section 4.11) shall be made in lieu of the series of payments.
(d) The Administrative Committee shall resolve any questions arising under this Article 9 on a basis uniformly applicable to all persons similarly situated.

(e) A Member’s benefit under this Plan shall be offset by the amount the Member is required to pay to the Plan under the circumstances set forth in Section 401(a)(13)(c) of the Code.

ARTICLE 10 - AMENDMENTS

10.01

Subject to Section 10.02, the Board of Directors or its delegate reserves the right at any time and from time to time and retroactively if deemed necessary or appropriate to conform with governmental regulations or other policies, to modify or amend in whole or in part any or all of the provisions of the Plan or any Former Pension Plan or Prior Salaried Plan; provided that no such modification or amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of Members, Spouses, or contingent annuitants or other persons who are or may become entitled to benefits hereunder prior to the satisfaction of all liabilities with respect to them; and that no modification or amendment shall be made which has the effect of decreasing the Accrued Benefit of any Member or of reducing the nonforfeitable percentage of the Accrued Benefit of a Member attributable to Company contributions below that nonforfeitable percentage thereof computed under the Plan or any Former Pension Plan or Prior Salaried Plan as in effect on the later of the date on which the amendment is adopted or becomes effective. For purposes of this Section 10.01, a Plan amendment that has the effect of (a) eliminating or reducing an early retirement benefit or retirement-type subsidy, or (b) eliminating an optional form, with respect to benefits attributable to service before the amendment shall be treated as reducing a Member’s Accrued Benefit. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a Member who satisfies (either before or after the amendment) the pre-amendment conditions for the subsidy. Notwithstanding the preceding, the Member’s Accrued Benefit, early retirement benefit, retirement-type subsidy, or optional form of benefit may be reduced to the extent permitted under Section 412(c)(8) of the Code (as it read before the first day of the 2008 Plan Year) or Section 412(d)(2) of the Code (as it reads for Plan Years beginning on and after January 1, 2008), or to the extent permitted under the Sections 1.411(d)-3 and 1.411(d)-4 of the U.S. Treasury Department regulations.
10.02

Notwithstanding the above, on or after the date an Acceleration Event (as defined in Section 8.01) first occurs, Section 8.01(b) and this Section 10.02, as they pertain to amendments to the Pension Transfer Restrictions occurring on or after the Acceleration Event occurs, may not be further amended by the Board of Directors without written consent of not less than three-quarters (3/4) of the Members and other persons entitled to benefits under the Plan.


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IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent this 27th day of January, 2017.

HARRIS CORPORATION
By: /s/ James P. Girard            
Title: VP, Human Resources        















[SIGNATURE PAGE - HARRIS CORPORATION SALARIED RETIREMENT PLAN ]


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APPENDIX A
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Appendix A - I




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APPENDIX B
The provisions set forth below, in addition to the Plan text, shall determine the benefit payable to or on behalf of Members covered under this Appendix. Notwithstanding any foregoing Plan provision to the contrary, a Member covered under this Appendix shall not be deemed to incur a Severance Date for purposes of commencement of benefits until he ceases to accrue Eligibility Service pursuant to the provisions of this Appendix B.
1.
Alcatel Employment - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (a) who was employed by the Company on December 31, 1986, (b) who was then a Member of or was then in the process of satisfying the eligibility requirements for membership in this Plan, (c) who, immediately after said date, became employed by a company within the controlled group of Alcatel N.V. (“Alcatel”) as a result of the joint venture with Compagnie Générale d’Electricit (“CGE”), and (d) who then became covered by the retirement plan for salaried employees established pursuant to the joint venture by Alcatel for such persons, any employment with Alcatel rendered on or after January 1, 1987, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Remuneration paid to such person by Alcatel during any such period of Eligibility Service shall be recognized as Compensation in accordance with Section 1.12; provided, however, that for purposes of determining Final Average Compensation in accordance with Section 1.18, total Compensation recognized in any Plan Year after 1986 will not exceed 105% of such person’s total Compensation recognized in the immediately preceding Plan Year. These provisions shall apply until the earlier of the date such person retires or terminates his Alcatel employment; the date such person’s Alcatel employer is no longer within the controlled group of Alcatel N.V.; or the date, as determined by the Board of Directors or the Administrative Committee, the aforementioned Alcatel retirement plan no longer operates in conjunction with this Plan.

2.
Rayonier Employment - Subject to any limitations set forth in writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (a) who was a Member of this Plan or who was in the process of satisfying the eligibility requirements for membership in this Plan on February 28, 1994, and (b) who, as a result of the spinoff of ITT Rayonier Corporation, became a Member of the Retirement Plan for Salaried Employees of Rayonier Inc. (the “Rayonier Plan”) on March 1, 1994, or, if later, the date he first completed the eligibility requirements thereof, any employment with Rayonier Inc. rendered by such person on or after March 1, 1994, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service under this Plan to the extent such employment is recognized for purposes of determining eligibility for benefits under the terms of the Rayonier Plan. Remuneration paid to such person by Rayonier, Inc. during any period of Eligibility Service shall be recognized as Compensation in accordance with Section 1.12 of this Plan; provided, however, that, for purposes of determining Final Average Compensation in accordance with Section 1.18 of this Plan, total Compensation recognized in any Plan Year after 1993 will not exceed 105% of such person’s total Compensation recognized in the immediately preceding Plan Year. These provisions shall apply until the earlier of the date such person retires or terminates his Rayonier, Inc. employment.

In the event a Member who meets the requirement described in clauses (a) and (b) above incurs a Severance Date on or after February 28, 1994, such Member shall be deemed reemployed in accordance with Section 4.12 of this Plan if he is reemployed as a common law employee by the Company, an Associated Company, or the Rayonier Inc.
3.
PowerSystems Employment - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by ITT PowerSystems Corporation on March 29, 1994, and who became employed by International PowerSystems Corporation (“IPS”) on March 30, 1994, any employment with IPS after March 29, 1994, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after March 30, 1994, and prior to March 30, 1999, or, if earlier, up to and including the date such employment with IPS is terminated shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01.

Appendix B - I



Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of March 29, 1994.

4.
Employment Rendered by ITTA-ESI Employees formerly Employed by GM/MABU - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, the following shall apply to any person who, on April 1, 1994, became an Employee of ITT Automotive Electrical Systems, Inc. (“ITTA-ESI”) as a result of the acquisition by ITTA-ESI on such date of certain assets of the Motors and Actuators Business Unit (“MABU”) of General Motors Corporation’s Delco Chassis Division (“GM/MABU Acquisition”).

Membership and Eligibility Service - With respect to any person who, on April 1, 1994, became an Employee of ITTA-ESI as a result of the GM/MABU Acquisition, membership under this Plan shall commence effective as of April 1, 1994, and employment rendered prior to such date with General Motors Corporation (“GM”) shall be recognized as Eligibility Service under this Plan to the same degree such employment was recognized on March 31, 1994, as Credited Service for eligibility purposes under the General Motors Salaried Retirement Program (“GM Plan”) and as the period of such Credited Service is determined by GM in accordance with the terms of the GM Plan.

ITT Plan Past Service Benefit - With respect only to any person (i) who, on April 1, 1994, became an Employee of ITTA-ESI as a result of the GM/MABU Acquisition and a Member of this Plan and (ii) who, on March 31, 1994, did not have a vested entitlement to benefits under the GM Plan because he then had less than five years of Credited Service under the GM Plan, such Member shall be entitled to an ITT Plan Past Service Benefit equal to the amount of the benefit which would be payable at age 65 as a Part A Basic Benefit under the GM Plan, based on the period of such Member’s Credited Service attributable to his GM employment rendered prior to April 1, 1994, (as such Credited Service is determined by GM in accordance with the terms of the GM Plan) and based on the Part A Basic Benefit as determined by GM in accordance with the terms of the GM Plan in effect on his Severance Date under this Plan; provided, however, that such ITT Plan Past Service Benefit shall be payable only if such Member is eligible for a retirement allowance or vested benefit under this Plan when he incurs a Severance Date under this Plan; and provided further that the amount of such ITT Plan Past Service Benefit shall be paid in accordance with the terms and conditions of this Plan, including, but not limited to, vesting provisions; early, normal, and postponed retirement provisions; automatic and optional survivor benefits provisions; provisions regarding payment commencement date; etc.
5.
ITT Small Business Finance Corporation (sometimes also referred to as “CILG”) Divestiture on March 31, 1995, to General Electric Capital Corporation

Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (i) who was employed by the Company on March 31, 1995, (ii) who was then a Member of this Plan or who was then in the process of satisfying the eligibility requirements for membership in this Plan, and (iii) who, as a result of the divestiture on March 31, 1995, of the Commercial Installment Lending Group (“CILG”) of the ITT Small Business Finance Corporation (“ITT-SBF”) to General Electric Capital Corporation (“GECC”), became employed by GECC on April 1, 1995, any employment with GECC and any of its affiliates rendered by such person on or after April 1, 1995, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service in accordance with the provisions of this Plan. Remuneration paid to such person by GECC during any period of Eligibility Service shall be recognized as Compensation in accordance with Section 1.12 of this Plan; provided, however, that, in accordance with rules uniformly established by the Administrative Committee for all persons similarly situated, for purposes of determining Final Average Compensation in accordance with Section 1.18 of this Plan, total Compensation recognized (i) in the 1995 Plan Year shall be as determined by the Administrative Committee and (ii) in any Plan Year after 1995 will not exceed 105% of such person’s total Compensation recognized in the immediately preceding Plan Year. These provisions shall apply until the earlier of the date such person retires or terminates his GECC employment or October 31, 2012. It is noted that, in anticipation of the divestiture of CILG, certain Employees who had been employed by ITT Financial Corporation, a Participating

Appendix B - II



Unit under this Plan, were transferred to and employed by ITT-SBF; such action is not to be considered an interruption in any Employee’s coverage under this Plan and the period of employment rendered by any such Employee at ITT-SBF prior to April 1, 1995, shall be recognized as Eligibility Service and as Benefit Service in accordance with the terms of the Plan.
6.
ITT Commercial Finance Corporation Divestiture on April 30, 1995, to Deutsche Bank AG
Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture, or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (i) who was employed by the Company on April 30, 1995, (ii) who was then a Member of this Plan or who was then in the process of satisfying the eligibility requirements for membership in this Plan, and (iii) who, as a result of the divestiture on April 30, 1995, of ITT Commercial Finance Corporation to Deutsche Bank AG, became employed by Deutsche Bank AG on May 1, 1995, any employment with Deutsche Bank AG and any of its affiliates rendered by such person on or after May 1, 1995, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service in accordance with the provisions of this Plan for so long as such person is eligible to participate in the pension plan available to him as an employee of Deutsche Bank AG. Remuneration paid to such person by Deutsche Bank AG (or any of its affiliates) during any period of Eligibility Service shall be recognized as Compensation in accordance with Section 1.12 of this Plan; provided, however, that, in accordance with rules uniformly established by the Administrative Committee for all persons similarly situated, for purposes of determining Final Average Compensation in accordance with Section 1.18 of this Plan, total Compensation recognized (i) in the 1995 Plan Year shall be as determined by the Administrative Committee and (ii) in any Plan Year after 1995 will not exceed 105% of such person’s total Compensation recognized in the immediately preceding Plan Year. These provisions shall apply until the earlier of the date such person retires or terminates his employment with Deutsche Bank AG or any of its affiliates or October 31, 2012.
7.
Island Finance Corporation Divestiture on April 30, 1995, to Norwest Financial Services, Inc.
Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (i) who was employed by the Company on April 30, 1995, (ii) who was then a Member of this Plan or who was then in the process of satisfying the eligibility requirements for membership in this Plan, (iii) who, as a result of the divestiture on April 30, 1995, of Island Finance Corporation to Norwest Financial Services, Inc. (“NFSI”), became employed by NFSI on May 1, 1995, and (iv) who then became covered by the retirement plan for salaried employees (“NFSI Pension Plan”) established pursuant to the Stock and Asset Purchase Agreement between ITT Financial Corporation and NFSI, any employment with NFSI rendered by such person on or after May 1, 1995, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service to the same extent such employment (including, in the event such person’s NFSI employment ceases after May 1, 1995, any subsequent period of re-employment by NFSI) is recognized under the NFSI Pension Plan for purposes of determining eligibility for benefits. Remuneration paid to such person by NFSI during any period of Eligibility Service shall be recognized as Compensation in accordance with Section 1.12 of this Plan; provided, however, that, in accordance with rules uniformly established by the Administrative Committee for all persons similarly situated, for purposes of determining Final Average Compensation in accordance with Section 1.18 of this Plan, total Compensation recognized (i) in the 1995 Plan Year shall be as determined by the Administrative Committee and (ii) in any Plan Year after 1995 will not exceed 105% of such person’s total Compensation recognized in the immediately preceding Plan Year. These provisions shall apply until the earlier of the date such person retires or terminates his NFSI employment; the date such person’s NFSI employer is no longer within the controlled group of NFSI; the date, as determined by the Board of Directors or the Administrative Committee, the NFSI Pension Plan no longer operates in conjunction with this Plan, or October 31, 2012.
8.
ITT Lyndon Life Insurance - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by ITT Lyndon Life Insurance on October 20, 1995, and who became employed by Mercury Finance Company (“Mercury”) on October 21, 1995, any employment with Mercury on and after October 21, 1995, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after October 21, 1995, and prior to October 21, 2000, or, if earlier, up to and including the date such employment with Mercury

Appendix B - III



is terminated shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of October 20, 1995. Notwithstanding the foregoing, pursuant to the provisions of the purchase and sale agreement applicable to said divestiture, Eligibility Service accruals under this Section 8 ceased as of June 3, 1997.

9.
ITT Lyndon Guaranty Bank - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person who was employed by ITT Lyndon Guaranty Bank and who became employed by LGB Holdings, Inc. (“LGB”) on May 9, 1996, any employment with LGB and any of its affiliates rendered by such person on and after May 9, 1996, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after May 9, 1996, and prior to May 9, 2001, or, if earlier up to and including the date such employment with LGB is terminated shall be recognized as Eligibility Service under the Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of May 8, 1996.

10.
ITTA Seats - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by ITTA - Body Systems Hancock excluding Jackson (ITTA Seats) on August 24, 1997, and who became employed by Lear Corporation (“Lear”) on August 25, 1997, any employment with Lear on and after August 25, 1997, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after August 25, 1997, and prior to August 25, 2002, or, if earlier, up to and including the date such employment with Lear is terminated shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of August 24, 1997.

11.
ITTA Precision Die Casting - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by ITTA-Precision Die Casting on March 13, 1998, and who became employed by Lester Precision Die Casting, Inc. (“Lester”) on March 13, 1998, any employment with Lester after March 13, 1998, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after March 13, 1998, and prior to March 13, 2003, or, if earlier, up to and including the date such employment with Lester is terminated shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of March 13, 1998. Notwithstanding the foregoing, pursuant to the provisions of the purchase and sale agreement applicable to said divestiture, Eligibility Service accruals under this Section 11 shall cease as of December 31, 2000.

12.
ITT Pomona Electronics - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by ITT Pomona Electronics on September 25, 1998, and who became employed by Danaher Corporation or one of its subsidiaries (“Danaher”) on September 25, 1998, any employment with Danaher after September 25, 1998, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after September 25, 1998, and prior to September 24, 2003, or, if earlier, up to and including the date such employment with Danaher is terminated shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of September 25, 1998.


Appendix B - IV



13.
ITTA-Brakes and Chassis - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (i) who was employed by the Company on September 25, 1998, (ii) who was then a Member of this Plan or who was then in the process of satisfying the eligibility requirements for membership in this Plan, and (iii) who, as a result of the divestiture on September 25, 1998, of ITTA-Brakes and Chassis to Continental AG (“Continental”) became employed by Continental on September 26, 1998, any employment with Continental and any of its affiliates rendered by such person on and after September 26, 1998, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service in accordance with the provisions of Section 2.01 of this Plan. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of September 25, 1998.

Unless otherwise provided by the Board of Directors or its delegate, these provisions shall apply until the earlier of the date such person retires or terminates his Continental employment.
14.
ITTA-Electrical Systems - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any person (i) who was employed by the Company on September 28, 1998, (ii) who was then a Member of this Plan or who was then in the process of satisfying the eligibility requirements for membership in this Plan, and (iii) who, as a result of the divestiture on September 28, 1998, of ITTA-Electrical Systems to Valeo (“Valeo”) became employed by Valeo on September 29, 1998, any employment with Valeo and any of its affiliates rendered by such person on and after September 29, 1998, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service in accordance with the provisions of Section 2.01 of this Plan. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of September 28, 1998.

Unless otherwise provided by the Board of Directors or its delegate, these provisions shall apply until the earlier of the date such person retires or terminates his Valeo employment.
15.
ITT GaAsTEK - Subject to any limitations set forth in the purchase and sale agreement applicable to said divestiture or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by ITT GaAsTEK on March 6, 2000, and who became employed by M/A-COM, Inc. or one of its affiliates (“M/A-COM”) on March 6, 2000, any employment with M/A-COM after March 6, 2000, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after March 6, 2000, and prior to March 6, 2005, or, if earlier, up to and including the date such employment with M/A-COM is terminated shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of March 6, 2000.

16.
HiSan, Inc. - With respect to any person (i) who was employed by the Company on December 31, 2002, or such later date, as applicable, but no later than July 29, 2005, (ii) who was then a Member of this Plan or who was then in the process of satisfying the eligibility requirements for membership in the Plan, and (iii) who, as a result of the direct transfer of his employment from the Company to HiSan, Inc. became employed by HiSan, Inc. between January 1, 2003, and July 29, 2005, (a “Transferred HiSan Member”), his or her period of uninterrupted employment with HiSan, Inc. rendered immediately after such direct transfer of his or her employment to HiSan, Inc. as a salaried employee, shall be recognized as Benefit Service under this Plan in accordance with Section 2.02. The provisions of the foregoing sentence shall continue to apply until the earlier of (i) the date such person first retires or terminates his employment with HiSan, Inc., (ii) the date HiSan, Inc. ceases to be an Associated Company, or (iii) the date otherwise determined by the Board of Directors or the Pension Administration Committee. Any period of employment rendered with HiSan, Inc. shall be recognized as Eligibility Service in accordance with Section 2.01 until the date HiSan, Inc. ceases to be an Associated Company. Remuneration paid to an employee of HiSan, Inc. during any period of employment with HiSan,

Appendix B - V



Inc. recognized as Eligibility Service under Section 2.01 shall be recognized as Compensation in accordance with Section 1.11. Notwithstanding any Plan provision to the contrary with respect to a Transferred HiSan Member, his annual retirement allowance or vested benefit payable under the provisions of this Plan on a lifetime basis as of his Annuity Starting Date, which is attributable to the period of Benefit Service rendered as an employee of HiSan, Inc., shall, prior to any adjustment in accordance with Sections 4.07(a) and 4.08(c), be reduced, but not below zero, by the annual retirement allowance or vested benefit attributable to the period of the Transferred HiSan Member’s employment rendered after such direct transfer of his or her employment to HiSan, Inc. which has been recognized as Benefit Service under the provisions of this Appendix B which is payable on a lifetime basis under the provisions of the HiSan, Inc. Salaried Retirement Plan (the “HiSan Plan”) as of the Member’s Annuity Starting Date or, if later, the earliest possible commencement date permitted under the terms of the HiSan Plan.

17.
ITT Switches Business - Subject to any limitations set forth in the purchase and sale agreement dated May 8, 2007, between ITT Corporation and DeltaTech Controls, Inc. or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by the Company in the United States on July 27, 2007, and who became employed by DeltaTech Controls, Inc. or any affiliate thereof (“DeltaTech”) pursuant to the terms of said agreement on July 28, 2007, any employment with DeltaTech after July 27, 2007, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after July 27, 2007, and prior to July 27, 2012, or, if earlier, up to and including the date such employment with DeltaTech is terminated, shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation and Eligibility Service determined as of July 27, 2007.

18.
ITT Automotive, Inc. - Subject to any limitations set forth in the Stock and Asset Purchase Agreement for ITT Automotive, Inc. (“Automatic”) dated December 4, 2005, between ITT Corporation and Cooper-Standard Automotive, Inc. (“CSA”)or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect an employee who (i) was either a Member of the Plan on February 6, 2006, or who was in the process of satisfying the eligibility requirements for membership in the Plan on that date (a “Transferred Member”), and (ii) was employed by Automotive on February 6, 2006, and remained employed by CSA on February 7, 2006, the period of employment with CSA rendered by such person on and after February 7, 2006, and prior to the earlier of such Member’s termination of employment from CSA or February 6, 2011, shall not be recognized as Benefit Service under this Plan, but shall be recognized as Eligibility Service in accordance with the provisions of Section 2.01 of this Plan. Any such Transferred Member who satisfies the Plan’s eligibility requirements for retirement either before or during the period for which such Eligibility Service is being granted, may not commence receipt of such Transferred Member’s benefit under the Plan until the earlier of his termination of employment with CSA or February 6, 2011.

19.
ITT Corporation - Subject to any limitations set forth in the Benefits and Compensation Matters Agreement dated October 25, 2011, among ITT Corporation, Xylem Inc. and Exelis Inc. (the “BCMA”) or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by the Company on October 30, 2011, and who remained employed by ITT Corporation or any of its subsidiaries or affiliates thereof (“ITT”) on October 31, 2011, any employment with ITT after October 30, 2011, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after October 30, 2011, and prior to October 31, 2016, or, if earlier, up to and including the earlier of (i) the date such employment with ITT is terminated, (ii) the Annuity Starting Date under the Plan with respect to the Member’s TPP Pension Formula Benefit, or (iii) the date of a change of control (as such term is defined in the BCMA) of ITT Corporation, shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member shall be treated for other purposes as if he incurred a termination of employment under the Plan as of October 30, 2011, and such Member’s Final Average Compensation hereunder shall be based on his Compensation determined as of October 30, 2012, and the rate of interest to be credited on such

Appendix B - VI



Member’s Basic PEP Lump Sum Value under the provisions of Section 4.01(c)(2) shall be 1.55 (or such other rate as determined by the Board of Directors or its delegate) percent per annum.

For purposes of determining the Social Security Benefit as defined in Article 1, with respect to a Member who was employed by the Company on October 30, 2011, and who remained employed by ITT on October 31, 2011, no wage index adjustment or cost of living adjustment shall be assumed with respect to any period after the later of (i) December 31, 2011, or (ii) the end of the calendar year in which the Member ceases to accrue Benefit Service. For purposes of determining the Member’s Social Security Benefit under Section 4.04(b) or 4.05(b) of the Plan, effective on and after October 31, 2011, the Social Security Benefit for a Post-1999 Member or a Pre-2000 Member covered under this Item 20 of Appendix B who was employed by the Company on October 30, 2011, and remained employed by ITT on October 31, 2011, shall be determined on the assumption that (i) such Member had no earnings after the earlier of (1) his Early Retirement Date or (2) later of (A) the date he ceased to accrue Benefit Service under the Plan or (B) the date he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(b) or 4.05(a) of the Plan, but not earlier than October 31, 2011, and (ii) the Member’s earnings for the period beginning with the calendar year following the date he ceases to accrue Benefit Service, but not earlier than 2012 and ending with the calendar year in which he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(a) above, used to calculate his Social Security Benefit is based on his rate of Compensation in effect as of the date he ceases to accrue Benefit Service.
Notwithstanding the provisions of Section 4.11 of the Plan, a Member who was employed by the Company on October 30, 2011, and who remained employed by ITT on October 31, 2011, may, in accordance with the procedures established by the Administrative Committee and the notice and timing provisions of Section 4.07, elect to commence the PEP Formula Benefit portion of his retirement allowance or vested benefit without also commencing the TPP Formula Benefit portion of his retirement allowance or vested benefit, provided that on the Annuity Starting Date relating to the PEP Formula Benefit portion of his retirement allowance or vested benefit he is not an employee of the Company or an Associated Company.

20.
Xylem Inc. - Subject to any limitations set forth in the Benefits and Compensation Matters Agreement dated October 25, 2011, among ITT Corporation, Xylem Inc. and Exelis Inc. (the “BCMA”) or in a separate writing by the Board of Directors or the Administrative Committee on a basis uniformly applicable to all persons similarly situated, with respect to any Member who was employed by the Company on October 30, 2011, and who became employed by Xylem Inc. or any of its subsidiaries or affiliates thereof (“Xylem”) on October 31, 2011, any employment with Xylem after October 30, 2011, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after October 30, 2011, and prior to October 31, 2016, or, if earlier, up to and including the earlier of (i) the date such employment with Xylem is terminated, (ii) the Annuity Starting Date under the Plan with respect to the Member’s TPP Pension Formula Benefit, or (iii) the date of a change of control (as such term is defined in the BCMA) of Xylem Inc., shall be recognized as Eligibility Service under this Plan in accordance with Section 2.01. Notwithstanding the foregoing, such Member’s Final Average Compensation hereunder shall be based on his Compensation determined as of October 30, 2012.

Notwithstanding the foregoing, such Member shall be treated for other purposes as if he incurred a termination of employment under the Plan as of October 30, 2011, and such Member’s Final Average Compensation hereunder shall be based on his Compensation determined as of October 30, 2012, and the rate of interest to be credited on such Member’s Basic PEP Lump Sum Value under the provisions of Section 4.01(c)(2) of the Plan shall be 1.55 (or such other rate as determined by the Board of Directors or its delegate) percent per annum.
For purposes of determining the Social Security Benefit as defined in Article 1, with respect to a Member covered under this Item 20 of Appendix B who was employed by the Company on October 30, 2011, and became employed by Xylem on October 31, 2011, no wage index adjustment or cost of living adjustment shall be assumed with respect to any period after the later of (i) December 31, 2011, or (ii) the end of the calendar year in which the Member ceases to accrue Benefit Service. For purposes of determining the Member’s Social Security Benefit under

Appendix B - VII



Section 4.04(b) or 4.05(b) of the Plan, effective on and after October 31, 2011, the Social Security Benefit for a Post-1999 Member or a Pre-2000 Member covered under this Item 20 of Appendix B who was employed by the Company on October 30, 2011, and became employed by Xylem on October 31, 2011, shall be determined on the assumption that (i) such Member had no earnings after the earlier of (1) his Early Retirement Date or (2) later of (A) the date he ceased to accrue Benefit Service under the Plan or (B) the date he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(b) or 4.05(a) of the Plan, but not earlier than October 31, 2011, and (ii) the Member’s earnings for the period beginning with the calendar year following the date he ceases to accrue Benefit Service, but not earlier than 2012 and ending with the calendar year in which he first meets the age and service eligibility requirements for Early Retirement as set forth in Section 4.04(a) above, used to calculate his Social Security Benefit is based on his rate of Compensation in effect as of the date he ceases to accrue Benefit Service.
Notwithstanding the provisions of Section 4.11 of the Plan, a Member who was employed by the Company on October 30, 2011, and who became employed by Xylem on October 31, 2011, may, in accordance with the procedures established by the Administrative Committee and the notice and timing provisions of Section 4.07, elect to commence the PEP Formula Benefit portion of his retirement allowance or vested benefit without also commencing the TPP Formula Benefit portion of his retirement allowance or vested benefit, provided that on the Annuity Starting Date relating to the PEP Formula Benefit portion of his retirement allowance or vested benefit he is not an employee of the Company or an Associated Company.
21.
Vectrus, Inc. - As set forth in the Employee Matters Agreement by and between Exelis Inc. and Vectrus, Inc. dated as of September 25, 2014 (the “EMA”), with respect to any Member who was employed by the Company on September 26, 2014, and who became employed by Vectrus, Inc. or any of its subsidiaries or affiliates, including but not limited to Vectrus Systems Corporation (collectively, “Vectrus”), on September 27, 2014, any employment with Vectrus after September 26, 2014, shall not be recognized as Benefit Service under this Plan, but any such employment rendered on and after September 26, 2014, and through December 31, 2016, or, if earlier, up to and including the earlier of (i) the last day of the month preceding the date as of which payments from the Plan begin, (ii) the individual’s termination of employment with Vectrus and its Affiliates (as this term is defined in the EMA), (iii) the individual’s death, (iv) a Change in Control (as this term is defined in the EMA) or (v) December 31, 2016, shall be recognized as Eligibility Service.
The Accrued Benefit of any Member in the Plan who as of the Effective Time (as this term is defined in the EMA) was credited with at least one year of Eligibility Service shall become fully vested and nonforfeitable to the extent his Accrued Benefit is not otherwise fully vested and nonforfeitable.”


Appendix B - VIII



APPENDIX C
Special Provisions Applicable To
Certain Employees Affected by the
Establishment of Three Separate Companies

This Appendix C is applicable only with respect to (i) a Member who is a “Distribution-In Employee” (as defined in Section 1.43 of this Appendix), (ii) a Member who is (a) “Distribution-Out Employee” (as defined in Section 1.44 of this Appendix), (iii) a Member who is a “Pre-Distribution Transferred-Out Employee” (as that term is defined in Section 1.52 of this Appendix), (iv) a Member who is a “Pre-Distribution Transferred-In Employee” (as that term is defined Section 1.53 of this Appendix), and (v) to certain other persons who were not employed on or after December 19, 1995, as Employees of the Company and who rendered a period of employment prior to December 19, 1995, with the ITT System.
Except as otherwise modified or expanded in this Appendix C, the provisions of this Plan (sometimes referred to in this Appendix as Old ITT Plan), as contained in the text to which this Appendix is attached, shall determine the benefits payable to or on behalf of a Member covered under this Appendix. The Plan Sections referenced below are hereby modified or expanded in accordance with the following special provisions applicable to said Member.
Article 1 - Definitions
1.12      “Compensation,” as defined in this Plan, shall be modified as follows for any Member described in this Section 1.12 of this Appendix:
(a)      With respect to any Member who is (i) a Distribution-Out Employee or (ii) a Pre-Distribution Transferred-Out Employee, “Compensation” under Section 1.12 shall not include any remuneration paid to such Member on or after December 19, 1995, by New ITT or by ITT Hartford.
(b)      With respect to (i) any Member who is a Distribution-In Employee or (ii) any other Member who was not employed by the ITT System on December 18, 1995, but is employed as an Employee by the Company on or after December 19, 1995, any remuneration paid to such Member during a period of Eligibility Service prior to December 19, 1995, shall be recognized as “Compensation” under Section 1.12 to the same extent such remuneration was or would have been recognized under the New ITT Retirement Plan (then named the Sheraton Salaried Plan) and/or under the Hartford Retirement Plan as pension bearing earnings in accordance with the terms of such plans as in effect on December 18, 1995.
The following terms shall be added to Article I-Definitions of the Plan and shall have the following meanings:
1.43      “Distribution Date Transferred In Salaried Employee” (referred to in this Appendix as “Distribution-In Employee”) shall mean a person who, on December 18, 1995, was a participant in or then in the process of satisfying the eligibility requirements for participation in the New ITT Retirement Plan (then named the Sheraton Salaried Plan) or in the Hartford Retirement Plan and who, on December 19, 1995, is employed by the Company as an Employee or is then absent from work with the Company by reason of layoff, leave of absence, or disability and would otherwise be an Employee.
1.44      “Distribution Date Transferred Out Salaried Employee” (referred to in this Appendix as “Distribution-Out Employee”) shall mean a person who (a) is employed, on December 18, 1995, by the ITT System or is then absent from work at the ITT System by reason of layoff, leave of absence, or disability, (b) is a Member of this Plan on December 18, 1995, and (c) becomes employed as of December 19, 1995, by New ITT or by ITT Hartford.
1.45      “Former Hartford” shall mean the ITT Hartford Group, Inc., as constituted on December 18, 1995, and those of its subsidiaries, divisions, and affiliated companies, which, prior to December 19, 1995, were designated from time to time as participating divisions and participating corporations (including Hartford Fire Insurance Company) and associated companies under the Hartford Retirement Plan (as those terms are defined in said plan).

Appendix C - I



1.46      “Former Sheraton” shall mean ITT Sheraton Corporation as constituted on December 18, 1995, and those of its subsidiaries, divisions, and affiliated companies, which prior to December 19, 1995, were designated from time to time as participating units and associated companies under the Sheraton Salaried Plan.
1.47      “Hartford Retirement Plan” shall mean the Hartford Fire Insurance Company Retirement Plan.
1.48      “ITT Hartford” shall mean the ITT Hartford Group, Inc., as constituted on and after December 19, 1995, and those of its subsidiaries, divisions, and affiliated companies designated as participating divisions and participating corporations (including Hartford Fire Insurance Company) and associated companies under the Hartford Retirement Plan (as those terms are defined in said plan).
1.49      “ITT System” shall mean ITT Corporation (a Delaware corporation), as constituted on December 18, 1995, and those of its subsidiaries, divisions, and affiliated companies, which prior to December 19, 1995, were designated as Participating Units and Associated Companies under this Plan.
1.50      “New ITT” shall mean ITT Corporation (a Nevada corporation), as constituted on and after December 19, 1995, and those of its subsidiaries, divisions, and affiliated companies designated as participating units (including ITT Sheraton Corporation) and associated companies under the New ITT Retirement Plan (as those terms are defined in said plan) but only for the period such subsidiaries, divisions, and affiliated companies are participating units or associated companies under the New ITT Retirement Plan.
1.51      “New ITT Retirement Plan” shall, on and after December 19, 1995, mean the ITT Corporation Salaried Retirement Plan, which Plan is a continuation, without interruption or duplication, of the Plan known, prior to December 19, 1995, as the ITT Sheraton Corporation Retirement Plan for Salaried Employees (sometimes referred to in this Appendix as Sheraton Salaried Plan).
1.52      “Pre-Distribution Transferred-Out Employee” shall mean a person other than a Distribution-Out Employee who (a) is employed on December 18, 1995, by the ITT System or is then absent from work at the ITT System by reason of layoff, leave of absence, or disability, (b) has an accrued benefit, under this Plan and the Sheraton Salaried Plan, the Hartford Retirement Plan and/or an hourly defined benefit plan maintained by New ITT as of December 18, 1995, and (c) is employed on December 19, 1995, by either New ITT or ITT Hartford.
1.53      “Pre-Distribution Transferred-In Employee” shall mean a person employed by the Company on December 19, 1995, other than a Distribution-In Employee who (a) was employed on December 18, 1995, by the ITT System or is then absent from work at the ITT System by reason of layoff, leave of absence, or disability, and (b) has an accrued benefit as of December 18, 1995, under this Plan and the Sheraton Salaried Plan, and/or the Hartford Retirement Plan.
Section 2.01 Eligibility Service - Section 2.01(a) of the Plan is hereby expanded as follows:
(a)      Eligibility Service on or after December 19, 1995, for Distribution-Out Employees or Pre-Distribution Transferred-Out Employees
(i)      Employment with New ITT - With respect to a Member employed by New ITT on December 19, 1995, who is either a Distribution-Out or a Pre-Distribution Transferred-Out Employee, any period of employment with New ITT rendered by such Member on or after December 19, 1995, shall be recognized as Eligibility Service under this Plan in accordance with the terms of this Plan, including the provisions of Section 2.01(e)-Breaks in Service and 2.01(f)-Bridging Breaks in Service; provided, however, such Employee’s Eligibility Service hereunder shall never be less than the period of employment which was recognized or would have been recognized under the terms of the New ITT Retirement Plan, as such plan, then named the Sheraton Salaried Plan, is in effect on December 18, 1995, for purposes of determining eligibility for membership and benefits (including but not limited to, eligibility for vesting, for pre-retirement survivor benefits, and for postponed, normal or early retirement) and such Member shall not incur a Severance Date under this Plan until he ceases to be employed by New ITT. This period of future employment rendered by such Member with New ITT, however, shall not be recognized as Eligibility Service for purposes of Section 1.19 and remuneration paid to such Member by New ITT during such period of future employment shall not be

Appendix C - II



recognized as Compensation under Section 1.12 of this Plan. Notwithstanding the foregoing, Eligibility Service accruals with respect to a Member employed by (1) ITT World Directories Inc. ceased as of February 18, 1998, (2) ITT Educational Services, Inc. ceased as of June 9, 1998, and (3) ITT Corporation as of June 1, 2001.
(ii)      Employment with ITT Hartford - With respect to a Member employed by ITT Hartford on December 19, 1995, who is either a Distribution-Out Employee or a Pre-Distribution Transferred-Out Employee, any period of employment with ITT Hartford rendered by such Member on or after December 19, 1995, shall be recognized as Eligibility Service under this Plan in accordance with the terms of this Plan, including the provisions of Section 2.01(e)-Breaks in Service and 2.01(f)-Bridging Breaks in Service; provided, however, such Employee’s Eligibility Service hereunder shall never be less than the period of employment which was recognized or would have been recognized under the terms of the Hartford Retirement Plan, as such plan is in effect on December 18, 1995, for purposes of determining eligibility for membership and benefits (including, but not limited to, eligibility for vesting, for pre-retirement survivor benefits, and for postponed, normal or early retirement) and such Member shall not incur a Severance Date under this Plan until he ceases to be employed by ITT Hartford. This period of future employment rendered by such Member with ITT Hartford, however, shall not be recognized as Eligibility Service for purposes of Section 1.19 and remuneration paid to such Member by ITT Hartford during such period of future employment shall not be recognized as Compensation under Section 1.12 of this Plan.
Anything contained herein to the contrary notwithstanding, if any such Member ceases to be employed by New ITT and is subsequently employed by ITT Hartford, the subsequent employment with ITT Hartford shall not be recognized as Eligibility Service under this Plan. Conversely, if any such Member ceases to be employed by ITT Hartford and is subsequently employed by New ITT, the subsequent employment with New ITT shall not be recognized as Eligibility Service under this Plan.
Section 2.01 Eligibility Service - Section 2.01(g) of the Plan is hereby expanded as follows:
(g)      Eligibility Service Prior to December 19, 1995
(i)      Employment Rendered by a Distribution-In Employee or a Pre-Distribution Transferred-In Employee - With respect to a Member employed by the Company on December 19, 1995, who is a Distribution-In Employee or a Pre-Distribution Transferred-In Employee, any period of employment with the ITT System rendered by such Member prior to December 19, 1995, shall be recognized as Eligibility Service under this Plan to the extent such employment is recognized under the terms of the New ITT Retirement Plan (then named the Sheraton Salaried Plan) or under the terms of the Hartford Retirement Plan, which is applicable, as such plans are in effect on December 18, 1995, for purposes of determining eligibility for membership and benefits (including, but not limited to, eligibility for vesting, for pre-retirement survivor benefits, for determining Final Average Compensation, and for postponed, normal, or early retirement). This period of employment rendered by such Member with the ITT System shall be recognized as Eligibility Service for purposes of Section 1.19 and remuneration paid to such Member during such period of Eligibility Service which is or would have been recognized as pension bearing earnings under the terms of the New ITT Retirement Plan, which was then named the Sheraton Salaried Plan, and/or under the Hartford Retirement Plan as in effect on December 18, 1995, shall be recognized as Compensation under Section 1.12 of this Plan.
(ii)      Employment Rendered Within the ITT System by a Person Who is Not a Distribution-In Employee or a Pre-Distribution Transferred-In Employee - With respect to any person who is not a Distribution-In Employee or a Pre-Distribution Transferred-In Employee but who is employed by the Company on or after December 19, 1995, any period of employment prior to December 19, 1995, at an entity which, prior to December 19, 1995, was a Participating Unit or an Associated Company hereunder rendered by such Employee during the period such entity was a Participating Unit or Associated Company shall be recognized as Eligibility Service under this Plan in accordance with the terms of this Plan, including the provisions of Sections 2.01(e)-Breaks In Service and 2.01(f)-Bridging Breaks In Service. Any such period of employment rendered prior to December 19, 1995, shall be recognized as Eligibility Service for purposes of Section 1.19 of this Plan and any remuneration paid to any such Employee prior to December 19, 1995, shall be recognized as Compensation in accordance with the terms of Section 1.12.
Section 2.02 Benefit Service - Section 2.02(g) of the Plan is hereby expanded as follows:

Appendix C - III



(g)      Benefit Service prior to December 19, 1995
(i)      Employment rendered by a Pre-Distribution Transferred-In Employee or Distribution-In Employee who was a participant in the New ITT and/or Hartford Retirement Plans - With respect to a Member who is a Pre-Distribution Transferred-In Employee or on December 18, 1995, was a participant in the New ITT Retirement Plan (then named the Sheraton Salaried Plan) and/or, as the case may be, in the Hartford Retirement Plan and who is a Distribution-In Employee employed on December 19, 1995, by the Company, any period of employment with Former Sheraton and/or with Former Hartford rendered by such Member prior to December 19, 1995, shall be recognized as Benefit Service under this Plan to the extent such employment is recognized or would have been recognized under the terms of the New ITT Retirement Plan, which was then named the Sheraton Salaried Plan, and/or under the Hartford Retirement Plan, as such plans are in effect on December 18, 1995, for purposes of calculating the amount of benefits under such plans.
(ii)      Employment rendered by a Distribution-In Employee who was not a participant in the New ITT and/or Hartford Retirement Plans - With respect to a Member who, on December 18, 1995, was not a participant in, but who was then in the process of satisfying the eligibility requirements for participation in, the New ITT Retirement Plan (then named the Sheraton Salaried Plan) or in the Hartford Retirement Plan (whichever is applicable) and who is a Distribution-In Employee employed on December 19, 1995, by the Company, the period of employment with Former Sheraton and/or with Former Hartford rendered by such Member prior to December 19, 1995, shall be recognized as Benefit Service under this Plan to the extent such employment would have been recognized under the terms of the New ITT Retirement Plan (then named the Sheraton Salaried Plan) or, if applicable, under the Hartford Retirement Plan, as such plans are in effect on December 18, 1995, for purposes of calculating the amount of benefits under such plans had the Member satisfied the eligibility requirement for participation under such plans.
Article 3 Membership - Section 3.01 of the Plan is hereby expanded as follows:
3.01(c)      Any person who on December 19, 1995, is a Distribution-In Employee shall become a Member of this Plan on the later of: (i) December 19, 1995, or (ii) the first day of the calendar month coincident with or next following the date on which he attains the 21st anniversary of his birth and completes one year of Eligibility Service.
3.01(d)      Any person who on December 19, 1995, is a Distribution-Out Employee and who was not a Member of this Plan on December 18, 1995, shall not become a Member of this Plan, except as otherwise provided in Section 3.05 of this Plan.
Section 4.02(b) Normal Retirement Allowance - Benefit - Section 4.02(b) of the Plan is hereby expanded as follows:
I.      Distribution-Out Employees or Pre-Distribution Transferred-Out Employees - With respect to a Member who is a Distribution-Out Employee or a Pre-Distribution Transferred-Out Employee, the annual normal retirement allowance payable to such Member shall be determined pursuant to the provisions of Section 4.01(b) of this Plan; provided, however, that such Member’s Average Final Compensation shall be determined as of December 18, 1995, his Social Security Benefit shall be determined on the basis of the law as in effect on the date such Member incurs a Severance Date and his Benefit Service shall be determined as of the date such Member ceased to be an Employee as defined in Article 1.
II.      Distribution-In Employees or Pre-Distribution Transferred-In Employees - With respect to a Member who is a Distribution-In Employee or a Pre-Distribution Transferred-In Employee, the annual normal retirement allowance payable on a lifetime basis upon retirement at such Member’s Normal Retirement Date shall, prior to adjustment in accordance with Sections 4.07(a), 4.08(a), and 4.08(c), but subject to the minimum provisions hereinafter set forth in this Section 4.02(b), be equal to the sum of (1) and (2), where:
(1)      equals:
(A)      two percent of the Member’s Final Average Compensation multiplied by the portion rendered prior to December 19, 1995, of the first 25 years of his Benefit Service;

Appendix C - IV



(B)      plus one and one-half percent of the Member’s Final Average Compensation multiplied by the portion rendered prior to December 19, 1995, if any, of the next 15 years of his Benefit Service, to a combined maximum of 40 years of Benefit Service;
(C)      reduced by one and one-fourth percent of the Social Security Benefit multiplied by the portion rendered prior to December 19, 1995, of his years of Benefit Service not in excess of 40 years;
(D)      reduced, but not below zero, by the annual normal retirement allowance determined (as of the same date and in the same form of payment as this Plan) under the provisions of the New ITT Retirement Plan and/or the Hartford Retirement Plan as of his Severance Date prior to (i) the imposition of any limitations under Section 415 of the Code and (ii) the application of any offset provisions of such plans pertaining to the non-duplication of benefits paid under another defined benefit plan maintained by the sponsor of such plans or one of its affiliated companies, with respect to that period of a Member’s employment rendered prior to December 19, 1995, which has been recognized as Benefit Service under this Plan pursuant to the provisions of Section 2.02(g)(i) and (ii) of this Appendix; and
(2)      equals
(A)      two percent of the Member’s Final Average Compensation multiplied by the portion rendered on or after December 19, 1995, if any, of the first 25 years of his Benefit Service;
(B)      plus one and one-half percent of the Member’s Final Average Compensation multiplied by the portion rendered on or after December 19, 1995, if any, of the next 15 years of his Benefit Service, to a combined maximum of 40 years of Benefit Service minus the total number of years of Benefit Service rendered prior to December 19, 1995;
(C)      reduced by one and one-fourth percent of the Social Security Benefit multiplied by the portion rendered on or after December 19, 1995, of the number of years of his Benefit Service, not in excess of 40 years minus the total number years of Benefit Service rendered prior to December 19, 1995.
The combined maximum years of Benefit Service used to compute (i) the amounts under clauses (1)(A) and (2)(A) shall not exceed 25 years, (ii) the amounts under clauses (1)(B) and (2)(B) shall not exceed 15 years, and (iii) the amounts under clause (1)(C) and (2)(C) shall not exceed 40 years.
The annual normal retirement allowance of a Section 401(a)(17) Employee shall not be less than the sum of Member’s Accrued Benefit on December 31, 1993, under the terms of the Plan as then in effect plus the Member’s Accrued Benefit based solely on Benefit Service accrued after that date under the provisions of the Plan as then in effect.
The annual normal retirement allowance determined prior to reduction to be made on account of the Social Security Benefit shall be an amount not less than the greatest annual early retirement allowance which would have been payable to a Member had he retired under Section 4.03 or Section 4.04 at any time before his Normal Retirement Date and as such early retirement allowance would have been reduced to commence at such earlier date but without reduction on account of the Social Security Benefit. The reduction to be made on account of the Social Security Benefit shall in any event be based on the Federal Social Security Act in effect at the time of the Member’s actual retirement.
Section 4.09(b) Maximum Benefits - Section 4.08(b) of the Plan is hereby expanded as follows:
With respect to a Member who is a Distribution-Out Employee or a Pre-Distribution Transferred-Out Employee, the maximum retirement allowance in subparagraph (i) of paragraph (a) of Section 4.08 of the Plan shall be the dollar limitation as determined by the Commissioner of Internal Revenue for the calendar year in which such Member’s Annuity Starting Date occurs and any increase in such dollar limitation with respect to any calendar year commencing after the Member’s Annuity Starting Date shall have no impact on the retirement allowance paid under this Plan to or on behalf of such Member.
Section 4.12 Reemployment of former Member or retired Member - Section 4.11 of the Plan is hereby expanded as follows:

Appendix C - V



In the event of a former Member or a retired Member who was a Distribution-Out Employee or a Pre-Distribution Transferred-Out Employee employed by New ITT on December 19, 1995, incurs a Severance Date on or after such date, such former Member or retired Member shall be deemed reemployed in accordance with the provisions of Section 4.12 of this Plan, if he is reemployed by the Company, an Associated Company, or New ITT.
In the event a former Member or retired Member who was a Distribution-Out Employee or a Pre-Distribution Transferred-Out Employee employed by ITT Hartford on December 19, 1995, incurs a Severance Date on or after such date, such former Member or retired Member shall be deemed reemployed pursuant to the provisions of Section 4.12 of this Plan, if he is reemployed by the Company, an Associated Company, or ITT Hartford.


Appendix C - VI



APPENDIX D
PENSION SUPPLEMENTS
1.      Effective as of July 1, 1993, a supplement equal to $50.00 per month shall be paid as of the end of each month commencing July 31, 1993, and added to the retirement allowance of those Members who, effective as of a date prior to July 1, 1977, retired under the normal, early or disability retirement provisions of the Plan, the Prior Salaried Plan or any Former Pension Plan, as herein defined, or if appropriate, to the beneficiary designated in such Member’s effective election under any of the aforementioned Plans of an optional form of payment.
2.      Effective as of October 1, 1995, a supplement equal to the amount indicated in the following paragraph per month shall be paid as of the end of each month commencing October 31, 1995, and added to the retirement allowance of those Members who, effective as of a date on or before January 1, 1993, retired under the postponed, normal, early or disability retirement provisions of the Plan, the Prior Salaried Plan or any Former Pension Plan, as herein defined, or if appropriate, to the beneficiary designated in such Member’s effective election under any of the aforementioned Plans of an optional form of payment.
The monthly pension supplement shall be equal to 50 percent of the percentage increase in the Consumer Price Index issued by the U.S. Department of Labor since December 31, 1987, or, if later, the employee’s year of retirement through December 31, 1994, multiplied by the amount of current monthly pension payable to the Member or surviving beneficiary under the Plan; provided, however, that the minimum pension supplement payable to any Member or surviving beneficiary shall be $10.00 per month.


Appendix D - I



APPENDIX E
SPECIAL PROVISIONS APPLICABLE TO FORMER PENSION PLANS AND PRE-MEMBERSHIP SERVICE
This Appendix E is applicable only with respect to a Member who (i) has service accruals under a Former Pension Plan listed below, or (ii) was employed by Goulds Pumps, Inc. on December 1, 1998, or is then absent from work with Goulds Pumps, Inc. by reason of leave of absence or disability and who became a Member of this Plan on December 1, 1998, or (iii) was reclassified as an Employee prior to January 1, 2005, and immediately prior to that date was employed by the Company but not in the capacity of an Employee as defined in Section 1.16.
Except as otherwise modified or expanded in this Appendix E, the portion of a Member’s accrued benefit attributable to service recognized under a Former Pension Plan prior to the date the Employee became a Member of this Plan shall be determined under the provisions of said Former Pension Plan and the foregoing provisions of this Plan.
I.      Provisions applicable to benefits determined under the provisions of the Goulds Pumps, Inc. Pension Plan III (“Former Goulds Plan III”) with respect to service rendered prior to December 1, 1998.
1.      “Final Average Earnings” for purposes of Section 1.3(s) of the Former Goulds Plan III shall be determined in accordance with the provisions of Section 1.19 of the Plan on the basis of a Member’s Compensation (as defined in Article 1 of the Plan), including remuneration paid to the Member for services rendered to an Employer (as defined in Section 1.3(p) of the Former Goulds Plan III) prior to December 1, 1998.
2.      “Average Base Salary” for purposes of Section 5.1(b) of the Former Goulds Plan III shall be determined including base salary paid to the Member for services rendered to a Company or an Associated Company on and after December 1, 1998.
3.      The portion of any standard early retirement allowance payable to a Member before his Normal Retirement Date under the provisions of Section 4.03(c) of the Plan (“Gould’s Portion”) shall be equal to the Gould’s Portion of the retirement allowance otherwise payable at his Normal Retirement Date reduced for such early commencement pursuant to the provisions of Former Goulds Plan III.
4.      The provisions of Sections 4.3 and 5.3 of the Former Goulds Plan III shall be inapplicable with respect to a Member who becomes totally and permanently disabled on and after December 1, 1998.
5.      The provisions of Sections 4.5 and 5.5 of the Former Goulds Plan III shall be inapplicable with respect to any Member who completes an Hour of Service (as defined in Article 1 of the Plan) on or after December 1, 1998, and dies on or after December 1, 1998, and prior to his Annuity Starting Date. Any pre-retirement survivor benefit payable with respect to the portion of said Member’s benefit accrued under the provisions of the Former Goulds Plan III for service rendered prior to December 1, 1998, shall be calculated in accordance with the provisions of Section 4.07 of the Plan. However, any charge applicable under Section 4.07 of the Plan for post-retirement coverage shall only apply to the period of applicable coverage commencing on or after December 1, 1998.
6.      In addition to the optional forms of payment available under Section 4.07 of the Plan, a Member who has accrued a benefit under the Former Goulds Plan III and completes an Hour of Service (as defined in Section 1.19 of the Plan) on or after December 1, 1998, may elect to convert:
A.      His retirement allowance or vested benefit into the optional form of payment set forth below:

Appendix E - I



Portion of Retirement Allowance or
Vested Benefit Determined
Under Former Goulds Plan III Formula
Portion of Retirement Allowance
or Vested Benefit Determined Under
Exelis Plan Formula
Life annuity with ten year certain
Life annuity if Annuity Starting Date prior to January 1, 2000, otherwise life annuity with ten year certain

B.      His vested benefit into the optional form of payment set forth below:
Portion of Vested Benefit Determined
Under Former Goulds Plan III Formula
Portion of Retirement Vested Benefit Determined Under
Exelis Plan Formula
100% joint and survivor annuity with Spouse as Beneficiary
50% joint and survivor annuity with Spouse as Beneficiary

7.      Notwithstanding any Plan provision to the contrary, a Member’s total retirement allowance or vested benefit under the Plan (including any amount determined under the Former Goulds Plan III) determined after optional modification in accordance with the provisions of Section 4.06 and Appendix E shall not be less than the Member’s retirement allowance or vested benefit that would have been provided under the provisions of the Former Goulds Plan III as of the date immediately preceding the date such Former Goulds Plan III was amended to continue as and under this Plan multiplied by the option factors in effect at that date under the Former Goulds Plan III.
8.      If a Member who (a) is employed on December 1, 1998, by Goulds Pumps, Inc. or is then absent from work with Goulds Pumps, Inc. by reason of leave of absence or disability, (b) becomes a Member of this Plan on December 1, 1998, (c) is entitled to an accrued benefit attributable to service rendered as a non-union employee under one of the Hourly Goulds Plans (as defined below), and (d) retires under the provision of Section 4.04(a) prior to attaining age 55, a temporary supplemental benefit shall be payable beginning on the Member’s Annuity Starting Date and ending with the payment due for the month immediately preceding his earliest commencement date under the provisions of the applicable Hourly Goulds Plan as in effect on his Severance Date, or the date payments under the applicable Hourly Goulds Plan commence, if earlier (his “Supplemental Payment Cessation Date”).
The temporary supplemental benefit shall be equal to the sum of the amount of the Member’s actual accrued benefit attributable to service rendered as a non-union employee under each applicable Hourly Goulds Plan as of his Severance Date reduced for early commencement in accordance with each respective Goulds Hourly Plan’s provisions as in effect on the Member’s Severance Date based on the assumption the Member, as of his Annuity Starting Date, has reached his earliest commencement date under the provisions of such Goulds Hourly Plan, with no reduction for any form of payment elected by the Member; provided, however, such temporary supplemental benefit shall not exceed the Member’s unreduced Social Security Benefit, as defined in Article 1 of this Plan.
In the event of the Member’s death prior to his Supplemental Payment Cessation Date, the Member’s Beneficiary, if any, named under the form of payment elected by the Member with respect to his Special Early retirement allowance payable under Section 4.04 of the Plan shall receive temporary supplemental payments in accordance with such form of payment based on the temporary supplemental amounts the Member was receiving prior to his death; provided, however, if such Member elects to have his Special Early retirement allowance payable in the form of a life annuity, such temporary supplemental benefit payments shall cease with the payment due for the month in which the Member’s death occurs. Any temporary supplemental payments made to a Member’s Beneficiary shall commence with the payment due for the month immediately following the month in which the Member’s death occurs and shall cease with the last payment due under such form of payment or the payment due for the month immediately preceding what would have been the Member’s earliest commencement date under the applicable Goulds Hourly Plan, if earlier.
For purposes of this Appendix E, the term “Hourly Goulds Plan(s)” means:
Pension Plan II Non-Exempt Salaried Employees;

Appendix E - II



Pension Plan IV for Hourly Employees of the Vertical Pump Division City of Industry, California;
Pension Plan V for Hourly Employees of the Vertical Pump Division Lubbock, Texas and Slaton, Texas.
II.      Provisions applicable to benefits accrued under the Former Kaman Corporation Amended and Restated Employees Pension Plan (“Former Kaman Plan”)
1.      “Average Final Salary” for purposes of Section 2.3 of the Former Kaman Plan shall be determined in accordance with provisions of Section 1.19 of the Plan on the basis of a Member’s Compensation (as defined in Section 1.12 of the Plan), including remuneration paid to the Member for services rendered to the Company (as defined in Section 2.12 of the Former Kaman Plan) prior to January 1, 1998.
2.      The portion of any standard early retirement allowance payable before Normal Retirement Date under the provisions of the Former Kaman Plan pursuant to Section 4.04(c) of the Plan to a Member who terminates employment prior to July 1, 1998, shall be equal to this portion of the retirement allowance otherwise payable at his Normal Retirement Date reduced for such early commencement in accordance with the provisions of the Former Kaman Plan.
3.      The portion of any special early retirement allowance payable before Normal Retirement Date under the provisions of the Former Kaman Plan pursuant to Section 4.05(c) of the Plan to a Member who terminates employment prior to July 1, 1998, (the “Kaman Portion”) shall be equal to the Kaman Portion of the retirement allowance payable at his Normal Retirement Date reduced for such early commencement in accordance with the provisions of the Former Kaman Plan.
4.      The provisions of Article VI of the Former Kaman Plan shall be inapplicable with respect to any Member who completes an Hour of Service (as defined in Article 1 of the Plan) after December 31, 1997, and dies on or after December 31, 1997, and prior to his Annuity Starting Date. Any pre-retirement survivor benefit payable with respect to the portion of said Member’s benefit accrued under the provisions of the Former Kaman Plan for service rendered prior to January 1, 1998, shall be calculated in accordance with the provisions of Section 4.07 of the Plan. However, the charges applicable under Section 4.07 of the Plan for post-retirement coverage shall only apply to the period of applicable coverage commencing on or after January 1, 1998, and any pre-retirement charges applied under the provisions of the Former Kaman Plan to the benefit of a Member or Former Member who completed an Hour of Service after December 31, 1997, for coverage prior to January 1, 1998, shall be disregarded.
5.      In addition to the optional forms of payment available under Section 4.07 of the Plan, a Member who has accrued a benefit under the Former Kaman Plan may elect to convert his total Plan retirement allowance or vested benefit into one of the optional forms of payment set forth below.
A.
Portion of Retirement Allowance
Determined Under Kaman
Former Pension Plan Formula
Portion of Retirement Allowance
Determined Under
Exelis Plan Formula
 
(i)Social Security Leveling Option
Life annuity
 
(ii)Life annuity with ten year certain option
Life annuity if Annuity Starting Date prior to January 1, 2000, otherwise life with ten year certain


Appendix E - III



B.
Portion of Vested Benefit
Determined Under
Kaman Former Pension Plan Formula
Portion of Vested Benefit
Determined Under
Exelis Plan Formula
 
(i)50% joint and survivor annuity with nonSpouse beneficiary
50% joint and survivor annuity with Spouse as beneficiary or Life Annuity
 
(ii)100% joint and survivor annuity with nonSpouse beneficiary
50% joint and survivor annuity with Spouse as beneficiary or Life Annuity
 
(iii)100% joint and survivor annuity with Spouse as beneficiary
50% joint and survivor annuity with Spouse as beneficiary
 
(iv)Life annuity with ten year certain
Life annuity if Annuity Starting Date is prior to January 1, 2000, otherwise life annuity with ten year certain

C.      Notwithstanding any Plan provision to the contrary, a Member’s total retirement allowance or vested benefit under the Plan (including any amount determined under the Former Kaman Pension Plan) determined after optional modification in accordance with provisions under Section 4.06 and Appendix E, shall not be less than such Member’s retirement allowance or vested benefit that would have been provided under the Former Kaman Pension Plan as of the date immediately preceding the date such Former Kaman Plan was amended to continue as and under the Plan multiplied by the option factors in effect as of that date under the Former Kaman Plan.
Notwithstanding any Plan provision to the contrary, in determining the amount of a retirement allowance payable under terms of this Appendix E in the form of a Social Security Leveling Option, Equivalent Actuarial Value shall be determined on the basis of the IRS Interest Rate and the IRS Mortality Table in effect on the Member’s Annuity Starting Date. However, in no event shall the Member’s retirement allowance payable in the form of the Social Security Leveling Option on or after January 1, 2005, be less than the retirement allowance that would have been payable to the Member under that optional form of payment at the same Annuity Starting Date based on his Accrued Benefit determined as of December 31, 2004, (or the date of his termination of employment, if earlier) and the actuarial assumptions in effect with respect to such optional form of payment on December 31, 2004. Notwithstanding any Plan provision to the contrary, with respect to a Member who elects a Social Security Leveling Option pursuant to the provisions of Item II.5. of this Appendix E, such Member’s retirement allowance or vested benefit (determined after optional modification) with an Annuity Starting Date on and after January 1, 2008, and prior to July 1, 2008, shall not be less than the Member’s retirement allowance or vested benefit (determined after optional modification) that would have been provided under the terms of the Plan as in effect on December 31, 2007.
III.      Provisions applicable to an employee who is reclassified as an Employee on or after January 1, 2000, prior to January 1, 2005
With respect to any employee of the Company (i) who becomes an Employee on or after January 1, 2000, and prior to January 1, 2005, and who immediately prior to that date is in the employ of a Company but not as an Employee, his uninterrupted employment with the Company rendered otherwise than as an Employee shall be recognized, subject to the limitations set forth in writing by the Board of Directors or the Administrative Committee for the Participating Unit at which such person was first employed, as Benefit Service, provided such person is a Member of the Plan, but only to the extent such period of employment was credited for benefit accrual purposes under another defined benefit plan maintained by the Company, and only on and after such Member’s subsequent completion of 36 consecutive months of Eligibility Service as an Employee.
IV.      Provisions applicable to benefits accrued under the Former C&K Components, Inc. Retirement Plan (“Former C&K Plan”)
1.      “Actuarial Equivalent,” for purposes of calculating any retirement allowance or vested benefit under the provisions of the Former C&K Plan (“C&K Portion”), shall be based on the Applicable Mortality Table of the Former C&K Plan, the Applicable Interest Rate as defined by Section 417(e) of the Code, and the Stability Period as defined in Article 1 of the Plan.

Appendix E - IV



Notwithstanding the foregoing, an Actuarial Equivalent of a Member’s retirement allowance or vested benefit calculated during the period of July 1, 2001, to December 31, 2001, shall be determined using the 417(e) interest rate published in June 2001 or the 417(e) interest rate published in December 2000, whichever produces the larger benefit to the Member. In addition, the Actuarial Equivalent of a Member’s retirement allowance or vested benefit calculated during the period of January 1, 2002, to June 30, 2002, shall be determined using the 417(e) interest rate published in June 2001 or the 417(e) interest rate published in December 2001, whichever produces the larger benefit to the Member. Notwithstanding any Plan provision to the contrary, the Actuarial Equivalent of a Member’s Former C&K Plan retirement allowance or vested benefit with an Annuity Starting Date on and after January 1, 2008, and prior to July 1, 2008, shall be determined on the basis of the IRS Interest Rate and IRS Mortality Table as defined in Article 1 of the Plan or the Applicable Interest Rate and Applicable Mortality Table as defined under the terms of the Plan, including this Appendix E, prior to January 1, 2008, whichever produces the larger benefit to the Member.
2.      “Average Annual Compensation,” for purposes of calculating a Member’s retirement allowance or vested benefit under the provisions of the Former C&K Plan shall be determined in accordance with the provisions of Section 2.6 of the Former C&K Plan, including remuneration paid to the Member for services rendered to the Company after April 1, 2001.
3.      “Year of Service for Vesting.” Pursuant to the provisions of Section 8.3 of the Former C&K Plan, a Member who has completed three (3) Years of Service for Vesting as of June 30, 2001, shall have the nonforfeitable percentage of his or her Accrued Benefit accrued under the Former C&K Plan determined on the basis of the provisions of Section 2.31 of the Former C&K Plan as in effect on June 30, 2001, or the provisions of Section 2.01 of the Plan, whichever is greater.
4.      The C&K Portion of any Member’s early retirement allowance payable before his Normal Retirement Date under the provisions of the Former C&K Plan pursuant to Section 4.03(c) of the Plan shall be equal to the C&K Portion of the retirement allowance otherwise payable at his Normal Retirement Date reduced for such early commencement in accordance with the provisions of the Former C&K Plan.
5.      The C&K Portion of any Member’s special early retirement allowance payable before his Normal Retirement Date under the provisions of the Former C&K Plan pursuant to Section 4.04(c) of the Plan shall be equal to the C&K Portion of the retirement allowance payable at his Normal Retirement Date reduced for such early commencement in accordance with the provisions of the Former C&K Plan.
6.      The C&K Portion of any Member’s vested benefit payable before his Normal Retirement Date under the provisions of the Former C&K Plan pursuant to Section 4.05(c) of the Plan shall be equal to the C&K Portion of the vested benefit otherwise payable at the Member’s Normal Retirement Date reduced for such early commencement in accordance with the provisions of the Former C&K Plan.
7.      In addition to the optional forms of payment available under the Plan, a Member who has accrued a benefit under the Former C&K Plan and retires under the provisions of Section 4.01, 4.02, 4.03, or 4.04 of the Plan may elect to convert his total Plan retirement allowance into one of the optional forms of payment set forth below.
Portion of Retirement Allowance
Determined Under Former C&K Plan
Portion of Retirement Allowance
Determined Under Exelis Plan Formula A Member may also elect, in accordance with the Plan provisions, to convert the portion of a Member’s Retirement Allowance determined under the PEP formula of the Plan into a lump sum subject to any restrictions set forth in the Plan.
(i)100% J&S with nonSpouse beneficiary
100% J&S with nonSpouse beneficiary
(ii)50% J&S with nonSpouse beneficiary
50% J&S with nonSpouse beneficiary

With respect to options (i) and (ii), the portion of a Member’s retirement allowance determined under the Former C&K Plan shall be converted to such optional form of payment in accordance with the definition of Actuarial Equivalent as set forth under the provisions of the Former C&K Plan as amended by this Appendix E, and the portion

Appendix E - V



of a Member’s retirement allowance determined under the Plan shall be converted into such optional form of payment in accordance with the definition of Equivalent Actuarial Value as set forth under the provisions of the Plan.
8.      In addition to the optional forms of payment available under the Plan, a Member who has accrued a benefit under the Former C&K Plan may elect to convert his total Plan vested benefit into one of the optional forms of payment set forth below.
Portion of Vested Benefit
Determined Under Former C&K Plan
Portion of Vested Benefit
Determined Under Exelis Plan Formula *
(i)100% J&S with nonSpouse beneficiary
Life Annuity
(ii)50% J&S with nonSpouse beneficiary
Life Annuity
(iii)100% J&S with Spouse beneficiary
50% J&S with Spouse as beneficiary
The adjustment for an election of an optional form of payment set forth above applicable to the portion of a Member’s vested benefit calculated under the provisions of the Former C&K Plan shall be determined on the basis of the definition of Actuarial Equivalent as set forth under the provisions of the Former C&K Plan, as amended by this Appendix E. The adjustment for an election of an optional form of payment applicable to the portion of a Member’s vested benefit calculated under the provisions of the Plan shall be determined on the basis of the definition of Equivalent Actuarial Value as set forth under the provisions of the Plan.
9.      In addition to the optional forms of payment available under the Plan and this Appendix E, a Member who has accrued a benefit under the Former C&K Plan may elect to convert the C&K Portion of his retirement allowance or vested benefit into a lump sum, and the portion of his retirement allowance or vested benefit determined under the Plan into any optional form of payment available under Section 4.06 of the Plan. The lump sum value of a Member’s benefit accrued under the Former C&K Plan shall be calculated in accordance with the definition of Actuarial Equivalent as set forth under the provisions of the Former C&K Plan as amended by this Appendix E.
10.      Notwithstanding any Plan provision to the contrary, a Member’s total retirement allowance or vested benefit under the Plan (including any amount determined under the Former C&K Plan) shall not be less than such Member’s retirement allowance or vested benefit that would have been provided under the Former C&K Plan as of the date immediately preceding the date such Former C&K Plan was amended to continue as and under the Plan.
V.      The following provisions are applicable, effective as of April 13, 2004, to benefits accrued under the Former Kodak Retirement Income Plan (“Former Kodak Plan”)
1.      Service with the Corporation or any Associated Company (as defined in Section 1.05 of the Plan) (the “Company”) rendered on and after August 13, 2004, by a Plan Member for whom liabilities and assets were transferred to the Plan from the Kodak Plan or who, as a result of the acquisition from the Eastman Kodak Company (“Kodak”) became eligible for the Corporation’s post-retirement medical benefits (“Former Kodak Plan Member”) shall be recognized for purposes of determining such Member’s eligibility for vesting and membership and, with respect to a Former Kodak Plan Member who becomes an employee of the Company on August 13, 2004, eligibility for early retirement and such Member’s average participating compensation and average social security wage base under the Kodak Former Plan; and
2.      Accrued service for purposes of determining the traditional benefit under the Kodak Former Plan and participating compensation for purposes of determining the cash balance benefit under the Kodak Former Plan shall be determined for a Plan Member in accordance with the provisions of the Kodak Former Plan as in effect on August 12, 2004; and
3.      Compensation, as defined in Article 1 of the Plan, earned by a Plan Member for whom liabilities and assets were transferred to the Plan from the Kodak Plan, who becomes an employee of the Company on August 13, 2004, and who immediately prior to that date was employed by Kodak or one of its affiliates (“Transferred Kodak

Appendix E - VI



Employee”) shall be recognized for purposes of determining such Member’s average participating compensation under the Kodak Former Plan; and
4.      The average participating compensation for purposes of determining the benefit under the Kodak Former Plan of a Plan Member who is a Transferred Kodak Employee shall be based on the highest three consecutive years out of the Plan Member’s last ten years of Eligibility Service; provided, however, the average participating compensation of such Plan Member shall never be less than his average participating compensation determined as of August 12, 2004, under the provisions of the Kodak Plan as in effect on that date; and
5.      The 75% joint and survivor annuity option and the 75% deferred joint and survivor annuity option, as described in the Kodak Plan, shall not be an available optional form of payment with respect to a Kodak Former Plan benefit payable to a Plan Member who is a Transferred Kodak Employee on and after August 13, 2004, and prior to October 1, 2007; and
6.      Plan benefits paid to a Plan Member under the Kodak Former Plan shall be reduced for commencement prior to such Member’s Normal Retirement Date in accordance with provisions of the Kodak Former Plan; and
7.      The Kodak Former Plan portion of a Plan Member’s Plan benefit shall be converted to an optional form of payment available under Former Kodak Plan in accordance with the definition of actuarial equivalent as set forth under provisions of the Former Kodak Plan and as amended below; and
8.      With respect to benefits determined under the provisions of the Kodak Former Plan with an Annuity Starting Date on or after September 1, 2004, the IRS Interest Rate utilized in (1) determining optional forms of payment available under the Kodak Former Plan, (2) converting a cash balance account under the Kodak Former Plan to an annuity, or (3) calculating the lump sum value of any Kodak Former Plan benefit, shall be the rate published in the fourth month preceding the month in which such Plan Member’s Annuity Starting Date occurs; provided, however, that with respect to benefits with an Annuity Starting Date occurring prior to January 1, 2006, the actuarial equivalent of such benefit shall not be less than the actuarial equivalent of such benefit using the interest rate as published in the month preceding the month in which the Member’s Annuity Starting Date occurs. Notwithstanding the foregoing, with respect to benefits determined under the Former Kodak Plan the following provisions shall be applicable for purposes of converting a participant’s Former Kodak Plan benefit with an Annuity Starting Date on or after January 1, 2008, other than a cash balance benefit, into a lump sum or (ii) converting a Member’s Kodak cash balance account into a life annuity with an Annuity Starting Date on or after January 1, 2008, or (iii) converting a Kodak Plan benefit with an Annuity Starting Date on and after January 1, 2008, into an optional form of payment, the term Applicable Interest Rate shall mean the IRS Interest Rate as defined in Article 1 of the Plan and the term Applicable Mortality Table shall mean the IRS Mortality Table as defined in Article 1 of the Plan, provided, however, for purposes of converting a Former Kodak Plan benefit with an Annuity Starting Date on or after January 1, 2008, and prior to July 1, 2008, other than a cash balance benefit, into a lump sum, (ii) converting a Member’s Kodak cash balance account into a life annuity with an Annuity Starting Date on and after January 1, 2008, and prior to July 1, 2008, or (iii) converting a Former Kodak Plan benefit with an Annuity Starting Date on and after January 1, 2008, and prior to July 1, 2008, into an optional form of benefit, such lump sum amount, life annuity or optional form of benefit, whichever is applicable, shall not be less than the Member’s benefit (determined after such optional modification) that would have been provided under the terms of the Plan as in effect on December 31, 2007; and
9.      The definition of normal retirement date under the Former Kodak Plan is revised, with respect to a Plan Member for whom liabilities and assets are transferred to the Plan from the Kodak Plan and who commences payment of his Kodak Former Plan benefit on or after September 1, 2004, to be the first day of the month coincident with or next following such Member’s attainment of age 65; and
10.      Any Plan Member who is a Transferred Kodak Employee in receipt of long-term disability payments as of August 12, 2004, shall accrue benefits for service on or after August 13, 2004, under the terms of the Plan formula applicable to a Member who first becomes an Employee on or after January 1, 2000; and
11.      The term Domestic Partner as defined under the Former Kodak Plan shall be modified to include only persons for whom an Affidavit of Domestic Partnership was filed with the Kodak Plan administrator prior to August

Appendix E - VII



13, 2004, and which has not been revoked, and each such Domestic Partner shall be considered as a Spouse for all purposes with respect to the pre- and post-retirement survivorship benefits under the Kodak Former Plan and the Plan; and
12.      For a Plan Member who is a Former Kodak Plan Member and whose Annuity Starting Date is on or after September 1, 2004, the Kodak Former Plan portion of such Member’s Plan benefit shall be payable at the end of each month in accordance with the terms of the Plan; and
13.      If the combined present value of a Plan Member’s benefit under the Former Kodak Plan and the Plan is $5,000 or less, and the present value of such Member’s Plan benefit which is not eligible for an immediate lump sum payment is $3,500 ($5,000 effective on and after January 1, 2005) or less, and such Member elects a lump sum payment of all amounts that can be payable in such form, the Member’s entire benefit shall automatically be payable as a lump sum.
14.      Benefit Service, as defined in Article 1 of the Plan, for purposes of calculating the portion of a Plan benefit not determined pursuant to the provisions of the Former Kodak Plan (the “Exelis portion”), shall not include any service rendered by such Member while employed by Kodak prior to August 13, 2004; and
15.      Eligibility Service, as defined in Article 1 of the Plan, for purposes of determining plan membership and vesting and eligibility for benefits under the terms of the Plan, including, but not limited to, normal, early, or postponed retirement, shall include any period of service rendered by a Former Kodak Plan Member prior to August 13, 2004, to the extent such period of employment was recognized under the terms of the Kodak Plan as in effect on August 12, 2004, for purposes of determining plan membership, vesting, and eligibility for benefits (“Prior Kodak Service”); provided, however, that if, with respect to a Former Kodak Plan Member who is not employed by the Company on August 13, 2004, Prior Kodak Service shall not be recognized for purposes of determining eligibility for an early retirement allowance under the Exelis portion until such Plan Member completes one year of employment with the Company after August 13, 2004. In addition, Eligibility Service, as determined under the preceding sentence, rendered on and after January 1, 1999, by a Plan Member who is a Transferred Kodak Employee shall be recognized for purposes of determining Final Average Compensation as defined in Section 1.18 of the Plan; and
16.      Compensation (as utilized in determining average participating compensation under the Kodak Plan) which is earned by a Plan Member who is a Transferred Kodak Employee during a period of Eligibility Service rendered with Kodak on or after January 1, 1999, and prior to August 13, 2004, shall be recognized as Compensation, subject to uniform rules established by the Committee, for purposes of determining such Plan Member’s Final Average Compensation under Section 1.18 of the Plan; and
17.      In addition to the optional forms of payment available under Section 4.07 of the Plan, a Member who has accrued a benefit under the Former Kodak Plan and whose Annuity Starting Date is on or after January 1, 2005, may elect to convert his total Plan retirement allowance or vested benefit into one of the optional forms of payment set forth below:
Portion of a Retirement Allowance or Vested Benefit
Determined Under
Former Kodak Plan Formula
Portion of Retirement Allowance or Vested Benefit
Determined Under
Exelis Plan Formula
(i)25% regular or deferred joint and survivor benefit
50% Contingent Annuity
(ii)50% regular or deferred joint and survivor benefit
50% Contingent Annuity (if the member is eligible, a 90/50 Spouse’s Annuity)
(iii)100% regular or deferred joint and survivor benefit
100% joint and survivor annuity or (if the Member is eligible, a 80/80 Spouse’s Annuity)
(iv)10 year Certain & Life Annuity
10 year Certain & Life Annuity

Appendix E - VIII



VI.      Provisions applicable to benefits accrued under the Exelis Gilfillan Pension Plan for Hourly Employees (“Former Gilfillan Plan”)
1.      Notwithstanding the provisions of Section 4.08 of the Plan, the Spouse or Beneficiary of a Member who accrued benefits under the Former Gilfillan Plan and who is eligible to provide a Survivor Benefit under Section 6.04 of such plan, unless the Survivor Benefit is waived as provided in Section 6.04(f) of the Former Gilfillan Plan, shall receive a survivor benefit at the time and in the amount determined under Section 6.04(c) of such plan, as such amount may be reduced pursuant to Section 6.04(d) thereof. Any benefit payable under this paragraph shall be based only on the benefit accrued by the Member under the Former Gilfillan Plan.
2.      In addition to the optional forms of payment available under Section 4.07 of the Plan, a Member who accrued benefits under the Former Gilfillan Plan may elect to receive his Pension Benefit thereunder under Option 5, Social Security Leveling Option, if the Member retires before his Social Security Retirement Age. If such Option 5 is elected with respect to the Member’s Pension Benefit from the Former Gilfillan Plan, the Member shall receive the portion of his Retirement Allowance attributable to benefits earned under this Plan in the form of a Life Annuity Option, in both cases subject to any required spousal consent.
3.      Notwithstanding the limitation found in Section 4.02(a)(3) of the Former Gilfillan Plan, a Member’s Eligibility Service after February 28, 2009, shall be counted as Credited Service for the purpose of determining the Member’s eligibility for an early Pension Benefit (as such term is defined in the Former Gilfillan Plan) with respect to the Member’s benefits accrued under the Former Gilfillan Plan.




Appendix E - IX



APPENDIX F
SPECIAL PROVISIONS APPLICABLE TO CERTAIN BENEFITS PAYABLE TO OR ON BEHALF OF CERTAIN MEMBERS WITH AN ANNUITY STARTING DATE ON OR AFTER JANUARY 1, 2012, AND PRIOR TO JANUARY 1, 2014
This Appendix F is applicable only with respect to (i) a Member described in Section II.1(a), (b) or (c) of this Appendix F, (ii) a Member or a Member’s Spouse, Beneficiary or Registered Domestic Partner who receives a small lump sum cash-out payment determined under the provisions of Section 4.11(b)(i) of the Plan that has an Annuity Starting Date occurring on or after January 1, 2012, and prior to January 1, 2014, and (iii) a Member who receives his retirement allowance in the form of a Social Security Leveling Option pursuant to the provisions of Section II.5 of Appendix E that has an Annuity Starting Date occurring on or after January 1, 2012, and prior to January 1, 2014.
Except as otherwise modified or expanded in this Appendix F, the provisions of this Plan as contained in the text to which this Appendix is attached, shall determine the benefits payable to or on behalf of a Member or a Member’s Spouse, Beneficiary or Registered Domestic Partner covered under this Appendix. The Plan Sections referenced below are hereby modified or expanded in accordance with the following special provisions applicable to said Member.
Section I - Definitions
Article 1-Definition
“Stability Period” shall mean, for purposes of this Appendix F, the calendar year in which said Annuity Starting Date occurs with respect to:
(i)      the calculation of the lump sum present value of the portion of a retirement allowance or vested benefit attributable to either a TPP Formula Benefit or a Former Pension Plan benefit (other than a cash balance benefit accrued under the Former Kodak Plan) determined on and after January 1, 2012, and prior to January 1, 2013, under the provisions of Section 4.11(b)(i), Appendix E or Appendix F,
(ii)      the determination of the equivalent actuarial reduction for early commencement applicable to the portion of a vested benefit attributable to a TPP Formula Benefit or a Former Pension Plan benefit (other than a cash balance benefit under the Former Kodak plan) payable to a Member who makes an election under Section III.1 of this Appendix F; or
(iii)      the determination of the amount of a retirement allowance payable under terms of Appendix E in the form of a Social Security Leveling Option with an Annuity Starting Date on and after January 1, 2012, and prior to January 1, 2013,
Section II - Eligibility
1.      The provisions of Section III of this Appendix F shall be applicable to:
(a)      a Member who is not covered by Appendix B, has terminated employment with the Company and all Associated Companies on or prior to June 30, 2012, with the right to a vested benefit under Section 4.06 of the Plan, has a Normal Retirement Date on or after January 1, 2013, and is not entitled to a small lump sum cash out of his vested benefit under the provisions of Section 4.11(b)(i) of the Plan;
(b)      a Member covered under Sections 1 - 18 of Appendix B who has ceased to accrue Eligibility Service credits under such Sections on or prior to October 31, 2012, is entitled to a vested benefit under the provisions of Section 4.06 of the Plan, has a Normal Retirement Date on or after January 1, 2013, and is not entitled to a small lump sum cash out of his vested benefit under the provisions of Section 4.11(b)(i) of the Plan; and
(c)      a Member covered under Section 19 or 20 of Appendix B, regardless of whether or not such Member has ceased employment with ITT Corporation or Xylem Inc., who is entitled to a vested benefit under the provisions of Section 4.06 of the Plan, and has a Normal Retirement Date on or after January 1, 2013.

Appendix F - I



Notwithstanding the foregoing, the provisions of subparagraphs (a), (b) and (c) above shall not be applicable to (i) a Member who is entitled to a vested benefit under the provisions of Section 4.06 which is solely attributable to a PEP Formula Benefit and/or a cash balance benefit accrued under the Former Kodak Plan, or (ii) the Spouse, Beneficiary or Registered Domestic Partner of such Member.
2.      The provisions of Section IV of this Appendix F shall be applicable to: (a) a Member who has terminated employment with the Company and all Associated Companies with the right to a retirement allowance or vested benefit under Section 4.06, and (b) the Spouse, Beneficiary or Registered Domestic Partner of a Member entitled to a vested Spouse benefit or pre-retirement survivor annuity, who in either case is entitled to a small lump sum cash out of such retirement allowance, vested benefit, vested Spouse benefit or pre-retirement survivor annuity, whichever is applicable, under the provisions of Section 4.11(b)(i) of the Plan and has an Annuity Starting Date that occurs on or after January 1, 2012, and prior to January 1, 2014.
3.      The provisions of Section V of this Appendix F shall be applicable to a Member who elects a Social Security Leveling Option pursuant to the provisions of Section II.5 of Appendix E and such retirement allowance has an Annuity Starting Date that occurs on or after January 1, 2012, and prior to January 1, 2014.
4.      The provisions of Section VI of this Appendix F shall be applicable to a Member who elects a Lump Sum Option pursuant to the provisions of Section III.9 or IV.8 of Appendix E and such retirement allowance has an Annuity Starting Date that occurs on or after January 1, 2012, and prior to January 1, 2014.
Section III - Benefits Payable to a Member Described in Section II.1
1.      (a)      A Member described in Section II.1 above who as of his Annuity Starting Date has not attained age 55, may elect, by filing a written election with the Administrative Committee (or its delegate), to commence payment of his deferred vested benefit determined under the provisions of Section 4.06 of the Plan as of December 1, 2012; provided the lump sum value of his vested benefit determined under the provisions of Section 4.06 and this Appendix F as of December 1, 2012, does not exceed $50,000. For purposes of this Appendix F, the lump sum value of a Member’s vested benefit shall be calculated as set forth in clause (c)(ii) below.
Any election made under this Section III.1 shall be made by the Member in accordance with procedures established by the Benefit Administration Committee or its delegate and shall be subject to the notice and timing requirements of Section 4.07 of the Plan.
(b)      The vested benefit payable to a Member who elects to commence payment in accordance with subparagraph (a) above shall be equal to the sum of (i) the Equivalent Actuarial Value of his vested benefit attributable to a TPP Formula Benefit or a Former Pension Plan benefit (other than a cash balance benefit under the Former Kodak Plan) otherwise payable at his Normal Retirement Date, (ii) the PEP Formula Benefit portion of his vested benefit adjusted for such early commencement as set forth in Section 4.06, and (iii) if any, the cash balance portion of his Former Kodak Plan benefit adjusted for such early commencement as set forth in the Former Kodak Plan and Appendix E. For purposes of clause (i) of the preceding sentence, Equivalent Actuarial Value shall be determined as of the Member’s Annuity Starting Date by using the IRS Mortality Table and the IRS Interest Rate in effect as of that date with the IRS Interest Rate determined on the basis of the Stability Period as defined in this Appendix F.
(c)      The vested benefit payable to a Member who elects to commence payment in accordance with subparagraph (a) above, shall be payable to such Member in the automatic forms of payment applicable to such Member as set forth in Section 4.07(a) of the Plan, unless the Member makes an election in accordance with the provisions of Section 4.07(d) of the Plan to receive one of the following optional forms of payment:
i.      Life Annuity Option - a Member who is married on his Annuity Starting Date or has a Registered Domestic Partner on his Annuity Starting Date may elect to provide that the vested benefit payable to him under Section 4.06 shall be in the form of a lifetime benefit payable during his own lifetime with no further benefit payable to anyone after his death.

Appendix F - II



ii.      Single Sum Option - a Member may elect to convert his vested benefit into a single lump sum payment. Such lump sum payment shall be equal to the sum of (1) the Equivalent Actuarial Value of the Member’s vested benefit attributable to a TPP Formula Benefit or a Former Pension Plan benefit (other than a cash balance benefit under the Former Kodak Plan) which is deferred to commence on his Normal Retirement Date, (2) the Member’s PEP Formula Lump Sum Value, if any, determined as of his Annuity Starting Date, and (3) the cash balance lump sum value of the portion of the Member’s Former Kodak Plan benefit accrued under the former Kodak cash balance formula, if any, determined as of his Annuity Starting Date. In determining the amount of such single lump sum payment payable prior to a Member’s Normal Retirement Date, Equivalent Actuarial Value shall mean a benefit, of Equivalent Actuarial Value to the benefit which would otherwise have been provided commencing at the Member’s Normal Retirement Date, and such Equivalent Actuarial Value shall be determined as of the Member’s Annuity Starting Date using (a) the IRS Mortality Table and (b) the IRS Interest Rate in effect on such Annuity Starting Date on the basis of the Stability Period as defined in this Appendix F.
Notwithstanding the foregoing, the lump sum value of a Member’s accrued benefit attributable to service recognized under a Former Pension Plan prior to the date the Employee became a Member of this Plan shall not be less than the amount such Member would have been entitled under the provisions of said Former Pension Plan and/or the foregoing provisions of this Plan as in effect prior to January 1, 2012.
iii.      Contingent Annuitant Option - If a Member is married on his Annuity Starting Date or has a Registered Domestic Partner on his Annuity Starting Date, he may elect to convert the vested benefit otherwise payable to him without optional modification, into a reduced vested benefit payable during the Member’s life with the provision that after his death a benefit equal to 75% of his reduced vested benefit shall be paid during the life of, and to, his surviving contingent annuitant.
(d)      Notwithstanding the foregoing, if a Member described in subparagraph (a) above is unable to commence payment of his vested benefit on an Annuity Starting Date of December 1, 2012, because the Company is unable to locate the Member or for any other reason determined by the Administrative Committee on a basis uniformly applicable to all Member’s similarly situated, such Member may elect to commence payment of such vested benefit as soon as practicably thereafter; provided the lump sum value of his vested benefit as of such later Annuity Starting Date does not exceed $50,000. Such lump sum value shall be calculated in accordance with the Plan provisions set forth above and the Equivalent Actuarial Value shall be determined as of the Member’s Annuity Starting Date by using the IRS Mortality Table and the IRS Interest Rate in effect as of the later Annuity Starting Date with the IRS Interest Rate based on the Stability Period in effect under the provisions of Article 1 on such date; provided, however, such lump sum payment shall not be less than the lump sum payment the Member would have been entitled to receive under the foregoing provisions determined on the basis of the definition of Stability Period in effect on December 31, 2012, under the provisions of this Appendix F.
(e)      Notwithstanding any provisions of this Appendix F to the contrary, if any portion of the vested benefit accrued by a Member described in the foregoing provisions of this Section III.1 has been (i) assigned to an alternate payee pursuant to the terms of a qualified domestic relations order and payments under the Plan to said alternate payee have not commenced or the alternate payee’s share has not been segregated prior to December 1, 2012 or (ii) the Plan has received notice prior to December 1, 2012 that a former Spouse or dependent of the Member is seeking to be awarded a portion of such vested benefit pursuant to the provisions of a domestic relations order, the provisions of this Section 3 shall not be applicable to said Member (unless otherwise provided by the Administrative Committee under rules uniformly applicable to all individuals similarly situated).
2.      (a)      A Member described in Section II.1 above who as of his Annuity Starting Date is age 55 or older, may elect, by filing a written election with the Administrative Committee (or its delegate), to commence payment of his deferred vested benefit determined under the provisions of Section 4.06 of the Plan as of December 1, 2012; provided the lump sum value of his vested benefit determined under the provisions of Section 4.06 of the Plan and this Appendix F as of December 1, 2012 does not exceed $50,000. For purposes of this Appendix F, the lump sum value of a Member’s vested benefit shall be calculated as set forth in Section III.1(c)(ii) above.

Appendix F - III



An election made under this Section III.2 shall be made by the Member in accordance with procedures established by the Administrative Committee or its delegate and shall be subject to the notice and timing requirements of Section 4.07 of the Plan.
(b)      The vested benefit payable to a Member who elects to commence payment in accordance with subparagraph (a) above shall be equal to his vested benefit reduced for early commencement pursuant to the provisions of Section 4.06 of the Plan.
(c)      The vested benefit payable to a Member who makes an election in accordance with subparagraph (a) above, shall be payable to such Member in the automatic forms of payment applicable to such Member as set forth in Section 4.07(a) of the Plan, unless the Member makes an election in accordance with the provisions of Section 4.07(d) of the Plan to receive one of the optional forms of payment available to such Member under the provisions of Section 4.07(b) of the Plan.
(d)      Notwithstanding the foregoing, if a Member described in subparagraph (a) is unable to commence payment of his vested benefit on an Annuity Starting Date of December 1, 2012 because the Company is unable to locate the Member or for any other reason determined by the Administrative Committee on a basis uniformly applicable to all Members similarly situated, such Member may elect to commence payment of such vested benefit as soon as practicable thereafter but not later than July 1, 2013 (or such other date designated by the Administrative Committee); provided the lump sum value of his vested benefit on such later Annuity Starting Date does not exceed $50,000. Such lump sum value shall be calculated in accordance with the Plan provisions set forth above and the Equivalent Actuarial Value shall be determined as of the Member’s later Annuity Starting Date by using the IRS Mortality Table and the IRS Interest Rate in effect on such date with the IRS Interest Rate based on the Stability Period then in effect under the provisions of Article 1; provided, however, such lump sum payment shall not be less than the lump sum payment the Member would have been entitled to receive under the foregoing provisions determined on the basis of the definition of Stability Period in effect on December 31, 2012 under the provisions of this Appendix F.
Section IV - Payment of Benefits - Small Lump Sum Cash Outs
1.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment payable under the provisions of Section 4.11(b)(i) of the Plan to a Member who has an Annuity Starting Date that occurs on or after January 1, 2012 and before January 1, 2013, the Equivalent Actuarial Value of such vested benefit or retirement allowance, whichever is applicable, shall be determined as of the Member’s Annuity Starting Date by using (i) the IRS Mortality Table and (ii) the IRS Interest Rate in effect on such Annuity Starting Date on the basis of the Stability Period as defined in this Appendix F; provided, however, such lump sum payment shall not be less than the lump sum payment the Member would have been entitled to receive under the provisions of Section 4.11(b)(i) of the Plan determined on the basis of the definition of Stability Period in effect on December 31, 2011 under the provisions of Article 1 of the Plan.
2.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment payable under the provisions of Section 4.11(b)(i) of the Plan to the Spouse, Beneficiary or Registered Domestic Partner of a Member who has an Annuity Starting Date that occurs on or after January 1, 2012 and before January 1, 2013, the Equivalent Actuarial Value of such vested Spouse’s benefit or pre-retirement survivor annuity, whichever is applicable, shall be determined as of the Spouse’s, Beneficiary’s or Registered Domestic Partner’s Annuity Starting Date by using the (i) IRS Mortality Table, and (ii) the IRS Interest Rate in effect on such Annuity Starting Date on the basis of the Stability Period as defined in this Appendix F; provided, however, such lump sum payment shall not be less than the lump sum payment such Spouse, Beneficiary or Registered Domestic Partner would have been entitled to receive under the provisions of Section 4.11(b)(i) of the Plan determined on the basis of the definition of Stability Period in effect on December 31, 2011 under the provisions of Article 1 of the Plan.
3.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment payable under the provisions of Section 4.11(b)(i) of the Plan to a Member who has an Annuity Starting Date that occurs on or after January 1, 2013 and before January 1, 2014, the Equivalent Actuarial Value of such vested benefit or retirement allowance, whichever is applicable, shall be determined as of the Member’s Annuity Starting

Appendix F - IV



Date by using (i) the IRS Mortality Table, and (ii) the IRS Interest Rate in effect on such Annuity Starting Date based on the Stability Period then in effect under the provisions of Article 1 of the Plan; provided, however, such lump sum payment shall not be less than the lump sum payment such Member would have been entitled to receive under the provisions of Section 4.11(b)(i) of the Plan determined on the basis of the definition of Stability Period in effect under the provisions of this Appendix F on December 31, 2012.
4.      Notwithstanding the foregoing, in determining the amount of a single lump sum payment payable under the provisions of Section 4.11(b)(i) of the Plan to the Spouse, Beneficiary or Registered Domestic Partner of a Member who has an Annuity Starting Date that occurs on or after January 1, 2013 and before January 1, 2014, the Equivalent Actuarial Value of such vested Spouse’s benefit or pre- retirement survivor annuity, whichever is applicable, shall be determined as of the Spouse’s, Beneficiary’s or Registered Domestic Partner’s Annuity Starting Date by using (i) the IRS Mortality Table, and (ii) the IRS Interest Rate in effect on such Annuity Starting Date based on the Stability Period then in effect under the provisions of Article 1 of the Plan; provided, however, such lump sum payment shall not be less than the lump sum payment such Spouse, Beneficiary or Registered Domestic Partner would have been entitled to receive under the provisions of Section 4.11(b)(i) of the Plan determined on the basis of the definition of Stability Period in effect under the provisions of this Appendix F on December 31, 2012.
Section V-Social Security Leveling Option Pursuant to the Provisions of Section II.5 of Appendix E
1.      Notwithstanding any Plan provision to the contrary, in determining the amount of a retirement allowance payable under the terms of Section II.5 of Appendix E in the form of a Social Security Leveling Option to a Member who has an Annuity Starting Date that occurs on or after January 1, 2012 and before January 1, 2013, the Equivalent Actuarial Value of such retirement allowance shall be determined as of the Member’s Annuity Starting Date by using (i) the IRS Mortality Table, and (ii) the IRS Interest Rate in effect on such Annuity Starting Date on the basis of the Stability Period as defined in this Appendix F; provided, however, such payment in the form of a Social Security Leveling option shall not be less than the payment the Member would have been entitled to receive under the provisions of Section II.5 of Appendix E determined on the basis of the definition of Stability Period in effect on December 31, 2011 under the provisions of Article 1 of the Plan.
2.      Notwithstanding any Plan provision to the contrary, in determining the amount of a retirement allowance payable under the terms of Section II.5 of Appendix E in the form of a Social Security Leveling Option to a Member who has an Annuity Starting Date that occurs on or after January 1, 2013 and before January 1, 2014, the Equivalent Actuarial Value of such retirement allowance shall be determined as of the Member’s Annuity Starting Date by using (1) the IRS Mortality Table, and (2) the IRS Interest Rate in effect on such Annuity Starting Date based on the Stability Period then in effect under the provisions of Article 1 of the Plan; provided, however, such payment in the form of a Social Security Leveling option shall not be less than the payment the Member would have been entitled to receive under the provisions of Section II.5 of Appendix E determined on the basis of the definition of Stability Period as in effect on December 31, 2012 under the provisions of this Appendix F.
Section VI - Lump Sum Option Pursuant to the Provisions of Appendix E
1.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment payable under the provisions of Section III.9 of Appendix E to a Member who has an Annuity Starting Date that occurs on or after January 1, 2012 and before January 1, 2013, the Equivalent Actuarial Value of such vested benefit or retirement allowance, whichever is applicable, shall be determined as of the Member’s Annuity Starting Date by using (i) the IRS Mortality Table and (ii) the IRS Interest Rate in effect on such Annuity Starting Date on the basis of the Stability Period as defined in this Appendix F; provided, however, such lump sum payment shall not be less than the lump sum payment the Member would have been entitled to receive under the provisions of Section III.9 of Appendix E determined on the basis of the definition of Stability Period in effect on December 31, 2011 under the provisions of Article 1 of the Plan.
2.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment payable under the provisions of Section III.9 of Appendix E to a Member who has an Annuity Starting Date that occurs on or after January 1, 2013 and before January 1, 2014, the Equivalent Actuarial Value of such vested

Appendix F - V



benefit or retirement allowance, whichever is applicable, shall be determined as of the Member’s Annuity Starting Date by using (i) the IRS Mortality Table, and (ii) the IRS Interest Rate in effect on such Annuity Starting Date based on the Stability Period then in effect under the provisions of Article 1 of the Plan; provided, however, such lump sum payment shall not be less than the lump sum payment such Member would have been entitled to receive under the provisions of Section III.9 of Appendix E determined on the basis of the definition of Stability Period in effect under the provisions of this Appendix F on December 31, 2012.
3.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment of a Former Kodak Plan benefit, other than a cash balance benefit, payable under the provisions of Section IV.8 of Appendix E that occurs on or after January 1, 2012 and before January 1, 2013, the Equivalent Actuarial Value of such vested benefit or retirement allowance, whichever is applicable, shall be determined as of the Member’s Annuity Starting Date by using (i) the IRS Mortality Table and (ii) the IRS Interest Rate in effect on such Annuity Starting Date on the basis of the Stability Period as defined in this Appendix F; provided, however, such lump sum payment shall not be less than the lump sum payment the Member would have been entitled to receive under the provisions of Section IV.8 of Appendix E determined on the basis of the definition of Stability Period in effect on December 31, 2011 under the provisions of Article 1 of the Plan.
4.      Notwithstanding any Plan provision to the contrary, in determining the amount of a single lump sum payment of a Former Kodak Plan benefit, other than a cash balance benefit, payable under the provisions of Section IV.8 of Appendix E to a Member who has an Annuity Starting Date that occurs on or after January 1, 2013 and before January 1, 2014, the Equivalent Actuarial Value of such benefit shall be determined as of the Member’s Annuity Starting Date by using (i) the IRS Mortality Table, and (ii) the IRS Interest Rate in effect on such Annuity Starting Date based on the Stability Period then in effect under the provisions of Article 1 of the Plan; provided, however, such lump sum payment shall not be less than the lump sum payment such Member would have been entitled to receive under the provisions of Section IV.8 of Appendix E determined on the basis of the definition of Stability Period in effect under the provisions of this Appendix F on December 31, 2012


Appendix F - VI



APPENDIX G
CASH BALANCE BENEFIT FOR CERTAIN MEMBERS AFTER
DECEMBER 31, 2016
This Appendix G is applicable only with respect to a Participating Member who, on January 1, 2017, (a) is an Employee, (b) is not performing services as a Mission Sustainment Employee, a CapRock Employee or a Maritime Employee and (c) is not a Highly Compensated Employee.
The portion of a Participating Member’s Accrued Benefit attributable to service prior to January 1, 2017 shall be determined under the foregoing provisions of this Plan. In addition, except as otherwise provided in this Appendix G, the foregoing provisions of this Plan shall apply to the benefits set forth in this Appendix G.
Section I - Definitions
Solely for purposes of this Appendix G, the following terms shall be defined as set forth below.
1. “Active Appendix G Member” shall mean an Appendix G Member who has not ceased to be eligible for Pay Credits pursuant to Section II.2.
2. “Appendix G Member” shall mean a Participating Member who meets the eligibility requirements of Section II of this Appendix G.
3. “CapRock Employee” shall mean an Employee of Harris CapRock Communications, Inc. or a subsidiary thereof (including without limitation, CapRock Government Solutions, Inc.).
4. “Cash Balance Account” shall mean the hypothetical account established for each Appendix G Member pursuant to Section III of this Appendix G.
5. “Compensation” shall mean “Compensation” as defined under the Harris Corporation Retirement Plan, as amended from time to time, for periods beginning on and after January 1, 2017.
6. “Highly Compensated Employee” shall mean a Participating Member who had remuneration from the Company or an Associated Company during calendar year 2015 in excess of $120,000 as shown on Box 5 of such Participating Member’s Form W-2 for 2015.
7. “Interest Credits” shall mean the amounts, if any, credited to an Appendix G Member’s Cash Balance Account pursuant to Section III.3 of this Appendix G.
8. “Maritime Employee” shall mean an Employee of Maritime Communication Services, Inc. or a subsidiary thereof.
9. “Mission Sustainment Employee” shall mean an Employee assigned to perform services primarily in support of, and designated in Company records as a member of, the division of the Company and its affiliates identified as “Mission Sustainment.”
10. “Participating Member” shall mean a Member who, on January 1, 2017, is an Employee and who, on December 31, 2016, was a Participating Employee.
11. “Pay Credits” shall mean the amounts, if any, credited to an Appendix G Member’s Cash Balance Account pursuant to Section III.2 of this Appendix G.

Appendix G - I



Section II - Eligibility
1.      In General . Except as provided in Section II.2., the provisions of this Appendix G shall be applicable to each Participating Member who, on January 1, 2017, (a) is an Employee, including an Employee on an approved leave of absence (other than a long term disability leave), (b) is not performing services as a Mission Sustainment Employee, a CapRock Employee or a Maritime Employee and (c) is not a Highly Compensated Employee. A Member who is not described in the preceding sentence on January 1, 2017 shall not at any time be eligible for the benefit described in this Appendix G. An Appendix G Member shall not cease to be an Active Appendix G Member merely because the Appendix G Member becomes a highly compensated employee (as that term is defined in Section 414(q) of the Code) of the Company on or after January 1, 2017.
2.      Cessation of Eligibility for Pay Credits . An Appendix G Member shall cease to be eligible for Pay Credits (a) as of the first day of the payroll period next following the date on which the Appendix G Member (i) transfers employment to an Associated Company, (ii) begins performing services as a Mission Sustainment Employee, a CapRock Employee or a Maritime Employee, or (iii) ceases to meet the definition of Employee; or (b) if earlier, as of the Appendix G Member’s Severance Date. An Appendix G Member shall not again become eligible for Pay Credits if, thereafter, he meets the conditions described in the first sentence of Section II.1. of this Appendix G.
Section III - Cash Balance Accounts
(i) 1.      Establishment of Accounts . A separate Cash Balance Account shall be established for each Appendix G Member. Each Cash Balance Account shall have an initial balance of zero until credited with any Pay Credit as provided herein. Each such account shall be for accounting purposes only, and there shall be no segregation of assets among such accounts. A Cash Balance Account shall consist of the cumulative value of the Appendix G Member’s Pay Credits and Interest Credits.

(ii) 2.      Pay Credits . For each calendar month beginning on and after January 1, 2017, an Appendix G Member’s Cash Balance Account shall be credited, as of the last day of each calendar month during which the Appendix G Member is an Active Appendix G Member, with an amount equal to 1% of Compensation received by such Appendix G Member during such portion of such calendar month that the Appendix G Member was an Active Appendix G Member. If either (a) an Active Appendix G Member ceases to be an Active Appendix G Member on a date other than the last day of a calendar month, or (b) an Appendix G Member’s Severance Date occurs other than on the last day of a calendar month and, in either case, if the Appendix G Member is entitled to have an amount credited to his Cash Balance Account for such calendar month pursuant to the preceding sentence, such amount shall be credited to the Appendix G Member’s Cash Balance Account as of the last day of the month in which occurs the Appendix G Member’s ceasing to meet the definition of Active Appendix G Member or the Appendix G Member’s Severance Date. The Pay Credit described in the preceding sentence shall be based on the Appendix G Member’s Compensation for the full pay period that contains, as applicable, (a) the date on which the Appendix G Member ceased to be an Active Appendix G Member, or (b) the Appendix G Member’s Severance Date.

(iii) 3.      Interest Credits . For each calendar month beginning on and after January 1, 2017, the Cash Balance Account of an Appendix G Member shall be credited, as of the last day of each calendar month during which the Appendix G Member is an Appendix G Member, regardless of whether the Appendix G Member is an Active Appendix G Member, and thereafter until the Appendix G Member’s Annuity Starting Date, with interest equal to one-twelfth of the yield on 30-year Treasury Constant Maturities for the month of November of the prior Plan Year. The final interest credit shall be made as of the last day of the month before the Appendix G Member’s Annuity Starting Date and prior to the crediting of any Pay Credit for such calendar month. An Appendix G Member’s Cash Balance Account will not be credited with Interest Credits after the Appendix G Member’s Annuity Starting Date.

(iv) Section IV - Accrued Benefit


Appendix G - II



(v) 1.      In General . An Appendix G Member’s accrued benefit attributable to his Cash Balance Account shall be the balance of the Appendix G Member’s Cash Balance Account.
 
(vi) 2.      Special Rules for Members Who Continue in Employment Beyond Normal Retirement Age . If an Appendix G Member continues employment beyond the end of the Plan Year that includes his Normal Retirement Date, the Administrative Committee shall provide the Appendix G Member with a suspension of benefits notice in the time and form required by Section 203(a)(3)(B) of ERISA. The Appendix G Member’s Cash Balance Account payable at the Appendix G Member’s Postponed Retirement Date shall equal the greater of (i) his Cash Balance Account determined without regard to this Section IV.2. of this Appendix G, or (ii) his Cash Balance Account to which the Member would have been entitled under this Appendix G had he retired on his Normal Retirement Date, increased by an amount which is the Equivalent Actuarial Value of the monthly payments which would have been payable with respect to each month in which he worked fewer than eight days as determined under the provisions of Title 29 of the Code of Federal Regulations Section 2530.203-3 as promulgated by the U.S. Department of Labor.

(vii) Section V - Eligibility for Payment of Cash Balance Account

(viii) 1.      Normal Retirement . The right of an Appendix G Member to his Cash Balance Account shall be nonforfeitable as of his Normal Retirement Age provided he is employed by the Company or an Associated Company at that time. An Appendix G Member, upon termination of employment with the Company and all Associated Companies, may retire from active service and receive his Cash Balance Account beginning on his Normal Retirement Date, subject to the notice and timing requirements of Section 4.07.

(ix) 2.      Postponed Retirement . An Appendix G Member who continues in service with the Company or an Associated Company after his Normal Retirement Date shall retire from service and receive his Cash Balance Account on his Postponed Retirement Date, subject to the notice and timing requirements of Section 4.07.

(x) 3.      Vested Benefit . An Appendix G Member shall be vested in, and have a nonforfeitable right to, his Cash Balance Account upon completion of three years of Eligibility Service. An Appendix G Member may elect to receive the Cash Balance Benefit commencing on the first day of any month following his Severance Date and prior to his Normal Retirement Date as specified in his request therefor, after receipt by the Administrative Committee of written application therefor made by the Appendix G Member and filed with the Administrative Committee, provided that such early payment shall be subject to notice and timing requirements described in Section 4.07.

(xi) 4.      Survivor’s Benefit Applicable before Retirement . The surviving Spouse or Registered Domestic Partner, as applicable, of an Appendix G Member who has completed 3 years of Eligibility Service or is otherwise entitled to a benefit under this Appendix G but, in either case, has not yet met the age and service eligibility requirements for an early retirement allowance as set forth in Section 4.04(a) or 4.05(a), shall automatically receive a benefit payable under the provisions of this Section V.4. of this Appendix G with respect to the Cash Balance Account in the event said Appendix G Member should die after the effective date of coverage hereunder and prior to his Annuity Starting Date. The benefit payable to the Appendix G Member’s surviving Spouse under the provisions of this Section V.4. of this Appendix G shall be equal to an amount payable as a single life annuity over the Spouse’s life that is Equivalent Actuarial Value to the Appendix G Member’s Cash Balance Account. In the event the benefit under this Section V.4. of this Appendix G is payable to an Appendix G Member’s Registered Domestic Partner, the Cash Balance Account payable to such Registered Domestic Partner under the provisions of this Section V.4. of this Appendix G shall be the balance of the Appendix G Member’s Cash Balance Account, payable as a single lump sum, determined as of the Registered Domestic Partner’s Annuity Starting Date. Payment of such benefit to a Registered Domestic Partner shall be made as soon as practicable following the Appendix G Member’s date of death, and in no event later than one year after the Appendix G Member’s date of death.


Appendix G - III



(xii) The Appendix G Member’s Cash Balance Account shall continue to be credited with interest in the manner described in Section III.3 of this Appendix G until the Spouse’s or Registered Domestic Partner’s Annuity Starting Date. An annuity benefit payable under this Section III.3. of this Appendix G shall be of Equivalent Actuarial Value to the Cash Balance Account determined as of the Spouse’s or Registered Domestic Partner’s Annuity Starting Date.

(xiii) In no event shall a single lump sum payment be made under this Section III.3. of this Appendix G following the date payments under this Section III.3. of this Appendix G have commenced as an annuity.
 
(xiv) Section VI - Distributions

1.      Appendix G Member . An Appendix G Member shall receive distribution of his Cash Balance Account in the same form of benefit as the form in which his retirement allowance or vested benefit under Article 4 is paid, provided that if the Appendix G Member retires or terminates under Section 4.02, 4.03, 4.04, 4.05, or 4.06 and (a) if the Appendix G Member has a PEP Formula Benefit and elects the single sum option described in Section 4.07(b)(v) with respect to his PEP Formula Benefit, the Appendix G Member’s Cash Balance Account shall be paid in the single sum option in an amount equal the Appendix G Member’s Cash Balance Account as of his Annuity Starting Date or (b) if the Appendix G Member does not have a PEP Formula Benefit, the Appendix G Member shall be entitled to elect the single sum option described in Section 4.07(b)(v) with respect to his Cash Balance Account, subject to the notice, timing and Spousal Consent requirements described in Section 4.07. The joint and survivor annuity or other optional form of distribution set forth in Section 4.07(b), if applicable, that is provided by the Appendix G Member’s Cash Balance Account and that commences as of the Appendix G Member’s Annuity Starting Date shall be the Equivalent Actuarial Value of the Life Annuity Option described in Section 4.07(b)(i) that could be provided by the Appendix G Member’s Cash Balance Account based on the IRS Interest Rate and IRS Mortality Table in effect as of the Appendix G Member’s Annuity Starting Date.
2.      Beneficiary under Section 4.08 . The Beneficiary of an Appendix G Member entitled to a distribution under Section 4.08 shall receive distribution of the portion of the Appendix G Member’s Accrued Benefit attributable to his Cash Balance Account at the same time, and in the same form of benefit, as the Beneficiary receives pursuant to Section 4.08, provided that if the Appendix G Member has a PEP Formula Benefit and payment of the PEP Formula Benefit is made as a single sum payment equal to the Member’s PEP Formula Lump Sum Value, the Beneficiary shall receive the portion of the Appendix G Member’s Accrued Benefit attributable to his Cash Balance Account in a single sum payment in an amount equal to the Appendix G Member’s Cash Balance Account as of the Beneficiary’s Annuity Starting Date. If the Appendix G Member does not have a PEP Formula Benefit, then (a) if the Member’s Beneficiary is his surviving Spouse (or Registered Domestic Partner), the Spouse (or Registered Domestic Partner) may elect to receive such Appendix G Member’s Cash Balance Account in the form of an annuity for the life of the Spouse (or Registered Domestic Partner) or in the form of a single lump sum payment equal to the Appendix G Member’s Cash Balance Account as of the Beneficiary’s Annuity Starting Date to be paid or commence as of the first day of any month following the Member’s date of death; or (b) if the Member’s Beneficiary is other than his Spouse (or Registered Domestic Partner), the Appendix G Member’s Cash Balance Account shall be payable as a single lump sum equal to the Member’s Cash Balance Account determined as of the Beneficiary’s Annuity Starting Date to be paid as soon as practicable following the Member’s date of death, and in no event later than one year after the Member’s date of death. If the Member’s Beneficiary is his surviving Spouse, payments may not begin later than what would have been the Member’s Normal Retirement Date. If the Spouse does not make an election regarding the timing and form of payments on or prior to the Member’s Normal Retirement Date, payment of said amount shall be made as an annuity for the life of the Spouse commencing on the Member’s Normal Retirement Date. If the Member’s Beneficiary is his Registered Domestic Partner, payment must begin not later than one year following the Member’s date of death and if the Registered Domestic Partner does not make an election regarding the form of payments, payment of said amount shall be made as an annuity for the life of the Registered Domestic Partner. The annuity benefit payable to the Spouse (or Registered Domestic Partner) under this Section VI.2. shall be of Equivalent Actuarial Value to the Cash Balance Account as of the Spouse’s (or Registered Domestic Partner’s) Annuity Starting Date. For purposes of the preceding sentence, Equivalent Actuarial Value shall be determined under the IRS Mortality Table and the IRS Interest Rate. The Member’s

Appendix G - IV



Cash Balance Account shall continue to be credited with interest in the manner described in Section III.3. until the Beneficiary’s Annuity Starting Date.
Section VII - Other Plan Provisions
1.      Definition of Participating Employee . Notwithstanding anything contained herein to the contrary and solely for purposes of this Appendix G, a Participating Employee who is an Appendix G Member shall not cease to be a Participating Employee on December 31, 2016.
2.      Section 4.11(b) . In the event the sum of (a) the lump sum present value of the portion of the Appendix G Member’s Accrued Benefit determined pursuant to Section 4.11(b) plus (b) the portion of his Accrued Benefit attributable to his Cash Balance Account, in each case, that is payable to the Appendix G Member or his surviving Spouse, Registered Domestic Partner or Beneficiary exceeds $5,000 upon initial determination, then with respect to the Appendix G Member or his surviving Spouse or Beneficiary who receives the sum of the Cash Balance Account and PEP Formula Benefit portion of said benefit in a single lump sum payment, the lump sum present value of the remaining TPP Formula Benefit portion of said benefit shall be redetermined in accordance with Section 4.11(b) as of a subsequent date as determined by Administrative Committee or its delegate and the provisions of Section 4.11(b) shall apply to the remaining TPP Formula Benefit portion.
3.      Section 8.01(a) . Notwithstanding anything contained herein to the contrary, (a) an Appendix G Member’s Cash Balance Account upon termination of the Plan shall be determined in the same manner as the Member’s Cash Balance Account would be determined if the Plan was not terminated, and (b) to the extent applicable, the Interest Credit thereafter shall be determined by averaging the rates used during the five-year period ending on the date of the termination of the Plan.


Appendix G - V


Exhibit 10(ii)(ii)
AMENDMENT NUMBER ONE
TO THE
HARRIS CORPORATION SALARIED RETIREMENT PLAN

WHEREAS, Harris Corporation, a Delaware corporation (the “ Corporation ”), heretofore has adopted and maintains the Harris Corporation Salaried Retirement Plan, as amended and restated Effective January 1, 2017 (the “ Plan ”);
WHEREAS, pursuant to Section 10.01 of the Plan, the Board of Directors of the Corporation or its delegate has the authority to amend the Plan;
WHEREAS, the Employee Benefits Committee of the Corporation (the “ Committee ”) has been delegated the authority to adopt non-material amendments to the Plan;
WHEREAS, the Corporation desires to amend the Plan to reflect the termination of a certain contractual agreement between ITT Corporation and Rayonier Inc. (a spin-off of ITT Corporation) by which certain participants employed by Rayonier Inc. were entitled to special service credit and compensation treatment under the Plan; and
WHEREAS, the Committee has determined that the above-described amendment is not material.
NOW, THEREFORE, BE IT RESOLVED, that section 2 of Appendix B of the Plan hereby is amended to delete in its entirety the final sentence of the first paragraph thereof and to add thereto the following new sentence at the end of section 2:
The provisions of this section 2 with respect to Rayonier employment shall apply until the earlier of (i) the date such person retires or terminates his Rayonier, Inc. employment and (ii) (A) in the case of the recognition of Eligibility Service under this section 2, December 31, 2017 and (B) in the case of the recognition of Compensation under this section 2, December 31, 2016 ( i.e. , the date that, except as provided in Appendix G, compensation for all Plan purposes was frozen and all benefit accruals under the Plan (including under all appendices to the Plan except Appendix G) ceased (to the extent that such accrual had not earlier ceased under Plan provisions)).

APPROVED by the HARRIS CORPORATION EMPLOYEE BENEFITS COMMITTEE on this 26 th day of July, 2017.
/s/ James P. Girard             
James P Girard, Chairperson






Exhibit 10(ii)(iii)
AMENDMENT NUMBER TWO
TO THE
HARRIS CORPORATION SALARIED RETIREMENT PLAN

WHEREAS, Harris Corporation, a Delaware corporation (the “ Corporation ”), heretofore has adopted and maintains the Harris Corporation Salaried Retirement Plan, as amended and restated Effective January 1, 2017 (the “ Plan ”);
WHEREAS, pursuant to Section 10.01 of the Plan, the Board of Directors of the Corporation or its delegate has the authority to amend the Plan;
WHEREAS, the Employee Benefits Committee of the Corporation (the “ Committee ”) has been delegated the authority to adopt non-material amendments to the Plan;
WHEREAS, for the purpose of reducing Pension Benefit Guaranty Corporation premium payment obligations and for other valid business reasons, and acting solely in its capacity as Plan sponsor and settlor, the Corporation desires to amend the Plan to authorize the transfer of assets and liabilities from the Plan to one or more insurers providing an annuity contract; and
WHEREAS, the Committee has determined that the above-described amendment is non-material.
NOW, THEREFORE, BE IT RESOLVED, that the Plan hereby is amended, effective as of September 1, 2017, to add thereto a new Appendix H to read as follows:
APPENDIX H
PURCHASE OF ANNUITY CONTRACTS
The Company, in its capacity as Plan sponsor, may identify one or more Members and/or Beneficiaries (“Specified Members”) for whom the Plan (or the Company on behalf of the Plan) shall purchase and distribute one or more Guaranteed Benefit Policies issued by an Insurer with respect to Transferred Plan Obligations. In such event, the committee or other person designated by the Company (the “Company Fiduciary”) shall select the annuity provider (or providers) (and serve as named fiduciary of the Plan in connection therewith) and determine the terms of the annuity policy or contract (or policies or contracts), or, in its discretion, retain an independent fiduciary to assist with or discharge all or any portion of these duties. For purposes of this Appendix H:





1. Insurer . An “Insurer” is an insurance company or other insurance provider that is qualified to do business in a state and that is selected by the Company Fiduciary to issue a Guaranteed Benefit Policy.
2. Guaranteed Benefit Policy . A “Guaranteed Benefit Policy” is a group and/or individual insured annuity policy or contract to the extent (i) it provides for Transferred Plan Obligations of Specified Members that are fully guaranteed and paid by the Insurer from the Insurer’s general account and/or a separate account as permitted under the applicable insurance laws of the state of issue, (ii) it includes all protected benefits, rights, and features required under the Plan and applicable law with respect to Transferred Plan Obligations, (iii) it provides that benefit rights with respect to Transferred Plan Obligations shall be enforceable by the Specified Members solely against the Insurer, (iv) it relieves the Plan of any further liability for Transferred Plan Obligations, and (v) it, or a certificate describing Specified Members’ rights thereunder, is issued by the Insurer to Specified Members.
3. Transferred Plan Obligations . “Transferred Plan Obligations” are all or any portion, as determined by the Company in its capacity as Plan sponsor, of a Specified Member’s accrued benefits under the Plan for which the Plan (or the Company on behalf of the Plan) shall purchase and distribute one or more Guaranteed Benefit Policies issued by an Insurer.
4. Transfer of Liability . The Plan’s entire liability with respect to each Specified Member’s Transferred Plan Obligation shall be transferred to the Insurer that issues the Guaranteed Benefit Policy. Thereafter, (i) the Plan shall have no further obligation to make any payment with respect to any Transferred Plan Obligation, and (ii) the Specified Member shall look only to the Insurer (and in no event to the Plan, trust fund, Administrative Committee, Company, any Associated Company or any predecessor or successor thereto) for any benefit under the Plan subject to a Transferred Plan Obligation.

5. Impact on Benefit Payments. For payments to Specified Members whose Plan benefit payments have commenced at the time the Guaranteed Benefit Policy is issued (if any), the Guaranteed Benefit Policy shall provide for benefit payments in the same form and in an amount no less than as in effect under the Plan immediately prior thereto, and such payments shall be made no later than as in effect under the Plan immediately prior thereto.
FURTHER RESOLVED, that the appropriate officers and representatives of the Corporation are hereby authorized and directed to execute such documents and take such other actions as may be necessary or appropriate to carry out the foregoing resolution, and to comply with all applicable laws and regulations related thereto.
APPROVED by the HARRIS CORPORATION EMPLOYEE BENEFITS COMMITTEE on this 23 rd day of August, 2017.





/s/ James P. Girard             
James P Girard, Chairperson





Exhibit 10(pp)
AMENDMENT
TO THE
EXELIS EXCESS PENSION PLANS

WHEREAS, Exelis Inc., an Indiana corporation (“ Exelis ”), previously adopted and maintained (i) the Exelis Excess Pension Plan IA; (ii) the Exelis Excess Pension Plan IB; (iii) the Exelis Excess Pension Plan IIA; and (iv) the Exelis Excess Pension Plan IIB, in each case as amended and restated as of October 31, 2011 (collectively, the “ Plans ”);
WHEREAS, effective as of December 31, 2015, Exelis was merged with and into Harris Corporation, a Delaware corporation (the “ Corporation ”), with the result that the Corporation is the successor sponsor of the Plans;
WHEREAS, pursuant to Section 3.03 of each of the Plans, the Board of Directors of the Corporation (the “ Board ”) has the authority to amend the Plans;
WHEREAS, the Board has delegated to the Employee Benefits Committee of the Corporation (the “ Employee Benefits Committee ”) the authority to adopt amendments to the Plans; and
WHEREAS, the Employee Benefits Committee desires to amend the Plans to confirm the application under the Plans of mandatory lump sum payments in the case of “limited cashouts” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, BE IT RESOLVED, that each Plan hereby is amended to add thereto the following new Section 2.04(e):
(e) De Minimis Cashouts
Subject to Section 2.04(a)(iii) but notwithstanding any other provision herein to the contrary , if at the time of the Participant’s Termination of Employment, the aggregate of the lump sum present value of the Participant’s benefit under this Plan and the lump sum present value of the Participant’s benefit under all other nonqualified deferred compensation arrangements required to be aggregated with this Plan under §1.409A-1(c)(2), does not exceed the applicable dollar amount under Section 402(g)(1)(B) of the Code at such time, then the Participant’s vested benefit under this Plan and such other arrangements shall be distributed in a single cash sum within ninety (90) days following the date of the Participant’s Termination of Employment.
Such single cash sum with respect to the Participant’s benefit under this Plan shall be calculated on an actuarial equivalent basis using the IRS Mortality Table and the IRS Interest Rate determined under the provisions of the Retirement Plan to calculate the amount of a small lump-sum cashout. The amount of such single sum shall be calculated on an actuarial equivalent basis to the Participant’s immediate single life annuity, if the Participant has met the eligibility requirements to retire under the Retirement Plan with





an early, normal or postponed retirement allowance as of the Participant’s Termination of Employment. Otherwise, the amount of such single sum shall be calculated on an actuarial equivalent basis to the Participant’s deferred single life annuity to the earliest date the Participant could have commenced payment of such benefit or, if it results in a larger single sum, his or her Normal Retirement Date (as defined under the Retirement Plan). This single sum payment represents a complete settlement of all benefits on the Participant’s behalf under the Plan.
APPROVED by the HARRIS CORPORATION EMPLOYEE BENEFITS COMMITTEE on this 28 th day of April, 2017.
/s/ James P. Girard             
Jim Girard, Chairperson





Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
 
 
Fiscal Year Ended
 
June 30, 2017
 
July 1, 2016
 
 
 
 
 
(In millions, except ratios)
Earnings:
 
 
 
Income from continuing operations
$
638

 
$
611

Plus: Income taxes
267

 
273

Fixed charges
179

 
188

Amortization of capitalized interest

 
1

 
$
1,084

 
$
1,073

Fixed Charges:
 
 
 
Interest expense
$
172

 
$
183

Interest portion of rental expense
7

 
5

 
$
179

 
$
188

Ratio of Earnings to Fixed Charges
6.06

 
5.71





Exhibit 21
HARRIS CORPORATION
SUBSIDIARIES AS OF AUGUST 29, 2017
(100% direct or indirect ownership by Harris Corporation, unless otherwise noted)
 
 
 
 
Name of Subsidiary
  
State or Other
Jurisdiction of Incorporation
Harris Atlas Systems LLC *
  
Abu Dhabi, UAE
Harris Asia Pacific Sdn. Bhd.
  
Malaysia
Harris Canada Systems, Inc.
  
Canada
Harris Cayman Ltd.
  
Cayman Island
Harris Communications (Australia) Pty. Ltd.
  
Australia
Harris Communications Bahrain Co. W.L.L.
  
Bahrain
Harris Communications MH Spain, S.L.
  
Spain
Harris Communications FZCO
  
Dubai, UAE
Harris Communications GmbH
  
Germany
Harris Communications Honduras S.A. de C.V.
  
Honduras
Harris Communications Limited
  
Hong Kong
Harris Communications Malaysia Sdn. Bhd.
  
Malaysia
Harris Communications Pakistan (Private) Limited.
  
Pakistan
Harris Comunicaçoes Participaçoes do Brasil Ltda.
  
Brazil
Harris Communications (Spain), S.L.
  
Spain
Harris Communications Systems India Private Limited
  
India
Harris Denmark ApS
  
Denmark
Harris Denmark Holding ApS
  
Denmark
Harris Holdco LLC
  
Delaware
Harris International Inc.
  
Afghanistan
Harris International, Inc.
  
Delaware
Harris International Chile Limitada
  
Chile
Harris International Holdings, LLC
  
Delaware
Harris International Saudi Communications
  
Saudi Arabia
Harris International Venezuela, C.A.
  
Venezuela
Harris Norge AS
  
Norway
Harris NV
  
Belgium
Harris Pension Management Limited
  
United Kingdom
Harris Salam *
  
Qatar
Harris Solid-State (Malaysia) Sdn. Bhd.
  
Malaysia
Harris Solutions NY, Inc.
 
New York
Harris Systems Limited
  
United Kingdom
Applied Kilovolts Group Holdings Limited
  
United Kingdom
Applied Kilovolts Limited
 
United Kingdom
CR MSA, LLC
 
Delaware
Defence Investments Limited
 
United Kingdom
Eagle Technology, LLC
 
Delaware







 
 
 
Name of Subsidiary
  
State or Other
Jurisdiction of Incorporation
EDO (UK) Ltd.
  
United Kingdom
EDO LLC
  
Delaware
EDO MBM Technology Ltd.
  
United Kingdom
EDO Western Corporation
  
Utah
Exelis Arctic Services
  
Delaware
Exelis Australia Holdings Pty Ltd.
  
Australia
Exelis Australia Pty Ltd.
  
Australia
Harris C4i Pty Ltd.
  
Australia
Harris Defence Ltd.
  
United Kingdom
Exelis Holdings Inc.
  
Delaware
Exelis Luxembourg Sarl.
  
Luxembourg
Harris Orthogon GmbH
  
Germany
Exelis Visual Information Solutions BV
  
Netherlands
Exelis Visual Information Solutions GmbH
  
Germany
Exelis VIS KK
  
Japan
Exelis Visual Information Solutions France SARL
  
France
Exelis Visual Information Solutions SRL
  
Italy
Exelis Visual Information Solutions UK Limited
  
United Kingdom
Exelis Visual Information Solutions, Inc. *
  
Colorado
Felec Services, Inc.
  
Delaware
HAL Technologies, LLC
  
Delaware
Hunan Carefx Information Technology, LLC
  
China
Manu Kai, LLC *
  
Hawaii
Maritime Communication Services, Inc.
  
Delaware
Melbourne Leasing, LLC
  
Florida
NexGen Communication, LLC
  
Virginia
Nextgen Equipage Fund, LLC
  
Delaware
Pine Valley Investments, LLC
  
Delaware
PT CapRock Communications Indonesia *
  
Indonesia
SARL Assured Communications
  
Algeria
S.C. Harris Assured Communications SRL
  
Romania
SpaceLink Systems, Inc.
  
Texas
SpaceLink Systems, LLC
  
Delaware
Sunshine General Services, LLC
  
Iraq
 
*
Subsidiary of Harris Corporation less than 100% directly or indirectly owned by Harris Corporation.





Exhibit 23
CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following registration statements of Harris Corporation and in the related Prospectuses of our reports dated August 29, 2017, with respect to the consolidated financial statements and schedule of Harris Corporation, and the effectiveness of internal control over financial reporting of Harris Corporation, included in this Annual Report (Form 10-K) for the fiscal year ended June 30, 2017:
 
 
 
 
 
 
Form S-3 ASR
 
No. 333-213408
 
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

/s/        ERNST & YOUNG LLP
Orlando, Florida
August 29, 2017





Exhibit 24
POWER OF ATTORNEY
KNOW TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints SCOTT T. MIKUEN and ROBERT A. JOHNSON JR., each and individually, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, for him or her in any and all capacities, to sign the Annual Report on Form 10-K of Harris Corporation, a Delaware corporation, with respect to the fiscal year ended June 30, 2017, and to sign any and all amendments to such Annual Report on Form 10-K and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorneys-in-fact or agents or their substitutes, may do or cause to be done by virtue hereof. This Power of Attorney may be signed in counterparts.

Date: August 29, 2017.
 
/s/ WILLIAM M. BROWN
 
/s/ TERRY D. GROWCOCK
William M. Brown
  
Terry D. Growcock
Chairman, President and Chief Executive Officer
  
Director
 
 
 
/s/ RAHUL GHAI
 
/s/ LEWIS HAY III
Rahul Ghai
  
Lewis Hay III
Senior Vice President and Chief Financial Officer
  
Director
 
 
 
/s/ TODD A. TAYLOR
 
/s/ VYOMESH I. JOSHI
Todd A. Taylor
  
Vyomesh I. Joshi
Vice President, Principal Accounting Officer
  
Director
 
 
 
/s/ JAMES F. ALBAUGH
 
/s/ LESLIE F. KENNE
James F. Albaugh
 
Leslie F. Kenne
Director
 
Director
 
 
 
/s/ PETER W. CHIARELLI
 
/s/ JAMES C. STOFFEL
Peter W. Chiarelli
  
James C. Stoffel
Director
  
Director
 
 
 
/s/ THOMAS A. DATTILO
 
/s/ GREGORY T. SWIENTON
Thomas A. Dattilo
  
Gregory T. Swienton
Director
  
Director
 
 
 
/s/ ROGER B. FRADIN
 
/s/ HANSEL E. TOOKES II
Roger B. Fradin
  
Hansel E. Tookes II
Director
  
Director
 
 
 





Exhibit 31.1
CERTIFICATION
I, William M. Brown, Chairman, President and Chief Executive Officer of Harris Corporation, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2017 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: August 29, 2017
 
 
 
/s/ William M. Brown
 
 
 
 
Name:
 
William M. Brown
 
 
 
 
Title:
 
Chairman, President and Chief Executive Officer




Exhibit 31.2
CERTIFICATION
I, Rahul Ghai, Senior Vice President and Chief Financial Officer of Harris Corporation, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2017 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: August 29, 2017
 
 
 
/s/ Rahul Ghai
 
 
 
 
Name:
 
Rahul Ghai
 
 
 
 
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 Annual Report on Form 10-K of Harris Corporation (“Harris”) for the fiscal year ended June 30, 2017 , 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: August 29, 2017
 
 
 
/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 Annual Report on Form 10-K of Harris Corporation (“Harris”) for the fiscal year ended June 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Rahul Ghai, 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: August 29, 2017
 
 
 
/s/ Rahul Ghai
 
 
 
 
Name:
 
Rahul Ghai
 
 
 
 
Title:
 
Senior Vice President and Chief Financial Officer